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

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