Were common-area maintenance, insurance, and promotional payments between shopping-center parcel owners taxable as real-property rent?

Plain-English summary

Florida ruled that the shopping-center owners' maintenance, insurance, and promotional payments were not taxable rent.

The developer and major retailers each owned separate parcels and improvements. Their reciprocal agreement created long-term easements for construction, common-area use, access, utilities, roads, building connections, repairs, signs, and related integrated shopping-center purposes.

Retailers paid the developer common-area maintenance amounts, their share of common-area insurance, and an initial promotional contribution. The Department treated those payments as consideration connected to easements that benefited and burdened the parcels, not a lease or personal license.

Because section 212.031 taxed leases and licenses rather than easement interests, the payments were outside sales and use tax. The Department separately warned that easements were subject to documentary stamp tax.

What this means for you

• Separate fee ownership and easements running with the land distinguished the arrangement from landlord-tenant rent.
• The labels on the agreements were not controlling; the conveyed property interests were.
• Nontaxability under the real-property rental tax did not eliminate documentary stamp tax on the easements.

Common questions

Q: Were common-area maintenance payments taxable rent?
A: No.

Q: Were the insurance and promotional payments taxable?
A: No, under the same easement arrangement.

Q: Were the easements tax-free for every Florida tax?
A: No. The ruling warned that documentary stamp tax applied to easements.

Citations and references

• Fla. Stat. § 212.031 — tax on leasing or licensing real property
• Fla. Admin. Code r. 12A-1.070 — real property rentals and licenses
• Fla. Admin. Code r. 12B-4.013(14) — documentary stamp tax on easements
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96A-034

Original ruling text

Title:

Real Property Payments by Owners; Pursuant to an
Easement

Jun 17, 1996

Re: Technical Assistance Advisement 96(A)-034
Payments made by owners of real property pursuant to an
easement
Section 212.031, F.S.
Rule 12A-1.070, F.A.C.
Rule 12B-4.013(14), F.A.C.

Dear :

This is a response, styled a Technical Assistance Advisement, to
your letter XXXX, in which you ask whether sales or use tax may
be validly imposed on payments made to XXXX, a developer of a
shopping mall, by XXXX retailers XXXX within such mall, when
such payments are identified in the documents described below,
as "Mall and Exterior Common Area Maintenance Expense Payment,"
"cost of insurance" with respect to the common area, and "a
contribution to the Shopping Center promotional budget," in the
instance when each of the Retailers, as you state, "... are the
owners of their own land parcels and all improvements thereon."
You describe, and provide to the Department copies of, two
relevant documents, which presumably are those executed by
Developer and Retailers, which are entitled, Construction,
Operation and Reciprocal Easement Agreement (herein REA), and
another document captioned, Supplemental Agreement.

You assert that the REA grants mutual enjoyment "... of
easements between and among the [Retailers] and [Developer], and
the Supplemental Agreement provides for sharing the cost of the
common area maintenance and shopping center promotional
charges."

You opine that "... the payments by [Retailers] to [Developer]

are exempt from sales tax because the stores are the owners of
their land parcels and no lessor-lessee relationship exists."
You assert that a Technical Assistance Advisement, TAA 94A-068,
issued by the Department on December 21, 1994, "... contains
facts that are very similar to [Developer's] circumstances."

Department response

The Department first notes that the REA is identified by the
word "draft" which appears near the top of the first page, and
that both the REA, and the Supplemental Agreement are
unexecuted, and undated documents, but as previously stated, the
Department assumes these documents are those, in fact, executed
by the Developer and the Retailers.

In the portion of the REA XXXX, Developer and Retailers are
described as the fee owners of individual parcels of land, and
XXXX, the purpose of the agreement is expressed as a "... desire
to make an integrated use of the parcels of land owned by them
and to develop and improve [all of the parcels]... as a first
class regional shopping center...." XXX, the REA provides that
Developer will construct or cause to be constructed on
Developer's own land, two buildings as part of the shopping mall
described as "... a one-level building for... retail and other
occupancies consistent with first class regional shopping
centers [identified as the Mall Store Building'] and... an enclosed mall [identified as theMall']." In subsequent
paragraphs, within the Recital of Facts, the REA provides that
each Retailer will construct on their respective parcels a
building which will become, together with the two Developer's
buildings, an integrated shopping mall.

With respect to the above described parcels and improvements to
be located thereon, both the Developer and the Retailers express
an intention XXXX, "... to grant to each other certain rights,
privileges and easements and to impose certain restrictions and
covenants upon their respective Parcels for the benefit of the
respective Parcels of the other parties..." as is more
specifically provided in subsequent provisions of the REA.

The common area of the shopping center is described XXXX, to
mean, "... all of those portions of the [Shopping Center] that
are intended to be and will be available from time to time for
the general non-exclusive use of the [Developer and
Retailers]..." and of the other tenants and invitees. It is
further provided, in this paragraph, that the common area will
include utility facilities, sidewalks, walkways, planted areas,
bus stops, management and maintenance rooms and offices "...
excepting and excluding, however, from [the common area] any of
the foregoing within the [building of any Retailer]."

The grants of easements by both the Developer and the Retailers
to each other are provided for in XXXX the REA. All of the
easements granted in the REA are not personal as to the grantee,
but attach to the respective parcels owned by the Developer and
the Retailers. All the easements which both burden and benefit
the individual parcels are to terminate within XX years unless
such termination is agreed to occur at an earlier date.
Termination provisions appear in Article III of the REA.

The easements provided for XXXX are varied, the enumeration of
which, in brief, is as follows: for the use of parts of each
parcel during construction; for use of the common area; for a
connection with and access to and egress from Developer's mall
building; for the installation, maintenance and repair of
lights, signs, and protective devices; to perform self-help;
abutment and connection to Retailer's buildings of the
Developer's buildings; for the repair or reconstruction of
either the Developer's or Retailer's buildings; for access
roads; for the installation and maintenance of common utilities;
for use by public authorities; and, for certain building
encroachments.

Other provisions within the REA require the Developer to
maintain the common area, and with respect to such area, XXXX...
to establish, maintain and present at all times the appearance
of a safe, clean, well-managed, attractive, coordinated and
unified operation of all..." the common area. XXXX, both the
Developer and the Retailers covenant that neither will obstruct
the common area, nor permit certain uses of the common area.
Developer, XXXX, is also obligated to maintain insurance, in a

certain amount, on the common area with respect to claims which
may arise from incidents and accidents in such area.

The Department also reviewed the other document in this matter
which is the Supplemental Agreement. This agreement obligates
the payment of certain costs by Retailer to Developer about
which you ask the Department if such payments are subject to
sales or use tax. These payments are described as follows:

XXXX, costs which are agreed to be paid by the Retailers in
connection with what the contract provisions style as the Mall
and Exterior Common Area Maintenance Expense Payment. XXXX, the
Retailer is obligated to pay to the Developer "... in equal
monthly installments, in advance, an annual contribution of XXXX
multiplied by the number of square feet of Floor Area within the
[Retailer's own store], as such Floor Area may be increased or
decreased pursuant to the provisions of the REA." A following
provision XXXX provides that the cost of this "annual
contribution" shall be increased in subsequent years.

XXXX, Retailer also is obligated to pay "... to Developer its
Allocable Share of the cost of the insurance on the Common Area,
excluding the Mall, which the Developer is required to
carry...."

XXXX, Retailer is obligated to pay to Developer "... as its
contribution to the Shopping Center promotional budget an annual
contribution of XXXX multiplied by the number of square feet..."
in Retailer's parcel. In XXXX, the Retailer is not required to
make such a contribution after the first anniversary date of the
opening of the Retailer's business.

The Department, after reviewing the Agreement, and the
Supplemental Agreement, and considering the nature of the
payments made by Retailers, that being the payments made with
respect to the common area maintenance costs, insurance, and the
"contribution" to the shopping center's "promotional budget,"
concludes that such payments are not within the reach of the
sales tax statutes as expressed in Part I of Chapter 212,
Florida Statutes.

None of these payments are taxable because they are given not in
exchange for a lease of, or a license to use, real property as
required in s. 212.031, F,.S., but are consideration paid for
the grant or reservation of the easements described in Article
IV of the Agreement. These easements have been described in a
previous portion of this communication.

The Department first asserts that the two agreements in this
matter create easements. This creation is not established by
the label placed on the documents, but rather is bottomed on the
character of the land interests conveyed by these agreements,
and by the intent of the parties as expressed in the agreements.

The term "easement" has been described as "... the right in the
owner of one parcel of land, by reason of such ownership, to
unfettered use of the property of another for a special purpose,
not inconsistent with the general property right of the owner."
See, footnote 1 in Jack Eckerd Corporation v. 17070 Collins
Avenue Shopping Center, Ltd, 563 So.2d 103, 105 (Fla. 3DCA
1990). An easement implies an interest in land, and is within
the Statute of Frauds. Dotson v. Wolfe, 391 So.2d 757, 759
(Fla. 5DCA 1980). An easement is "a servitude carved out of the
servient estate." Regency Highland Associates v. Sherwood, 388
So.2d 271, 272 (Fla. 4DCA 1980), citing 2 G. Thompson, Real
Property s. 315 (1962).

Here, there are property owners, identified as Developer and
Retailers, who own in fee, their respective lands, who grant
certain use of their property, to the other, for a special
purpose.

However, this concept of "easement" cannot be squared with the
interests and the uses of land made taxable within s. 212.031,
F.S., and as this statute is interpreted by provisions found in
Rule 12A-1.070, F.A.C., which restrict the taxable privilege to
the grant of a license to use, or the conveyance of a lease of,
real property.

As to the former, a license is a personal, generally revocable
privilege, to do something on the land of another which without
that permission would constitute trespass. It is not an

interest in land, nor is it within the Statute of Frauds. It is
more permanent than a license. See, Russell v. Martin, 88 So.2d
315, 317 (Fla. 1956)

A lease conveys exclusive possessory interest in the real
property of another. Bodden v. Carbonell, 354 So.2d 927, 928
(Fla. 2DCA 1978). A lease creates a landlord and tenant
relationship: An easement does not.

Consequently, it is the Department's position that any payment
required of Retailers to be made to Developer pursuant to both
the Agreement, and the Supplemental Agreement, are not payments
subject to sales or use tax because such payments do not arise
by provisions in a lease of, or a license to use, real property.
The Department notes with particularity that the agreements
reviewed in this matter do not apprehend any physical presence
of Retailers in the common areas.

Thus, s. 212.031, F.S., is not applicable to these payments.
The Department affirms its position, based on similar facts, as
expressed in TAA 94A-068.

However, you are alerted that as provided in Rule 12B-4.013(14),
F.A.C., easements are subject to documentary stamp tax.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request are
public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department

before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Robert G. Parsons
Tax law Specialist
Tax Policy and Dispute Resolution

Ctrl. No. 23536