We're the Battery Park City Authority. We sublease-back a developer's leasehold so we can be named co-mortgagor on their construction financing -- without pledging our own fee interest -- and this mortgage will be split, modified, and refinanced many times over the years as buildings are completed and converted to permanent financing. Is all of that exempt from mortgage recording tax?

Plain-English summary

The Battery Park City Authority, a public benefit corporation formed under the Battery Park City Authority Act (Public Authorities Law Title 12 of Article 9), owns the fee interest in nearly all of Manhattan's Battery Park City and has ground-leased about 30 development parcels to private developers, resulting in roughly 8.5 million square feet of office space, about 6,500 residential units, two hotels, Stuyvesant High School, and other facilities. Ten parcels remain to be completed, including Site 18A — the first high-rise "green" residential building in Battery Park City, reflecting a design requirement the Authority intends to apply to all future ground leases.

To finance developer construction costs (including the added cost of green-building features), the Authority planned a structure where the developer subleases its leased property back to the Authority, and the Authority sub-subleases it back to the developer — letting the Authority be named CO-MORTGAGOR on the developer's construction/permanent financing mortgage, pledging only its LEASEHOLD interest under the sublease (never its underlying fee interest). The Authority might even be a co-borrower and pledge additional assets for credit enhancement. Over time, these mortgages would be assigned, supplemented, modified, converted from construction to permanent financing, refinanced between lenders, or transferred to new mortgagors as leasehold interests change hands.

Article 11 of the Tax Law (§ 253) taxes mortgage recording, and § 252 generally bars exemptions arising from other statutes. But the Battery Park City Authority Act's own §§ 1974(3) and 1981 — enacted in 1981, well after the 1909 mortgage recording tax provisions — give the Authority the power to "acquire, lease, hold, mortgage and dispose of real property" and separately declare that the Authority "shall be required to pay no taxes upon any of the properties acquired by it or under its jurisdiction or control or supervision or upon its activities." Because a later, more specific statute governs an earlier general one on the same subject (Williamsburgh Power Plant Corp. v. City of New York), and because the power to execute mortgages implies the power to record them, the Department concluded the Authority can record these co-mortgagor mortgages tax-free — consistent with its own prior opinion for the same Authority (TSB-A-95(1)R). The Department also noted mortgage recording tax is a tax on the PRIVILEGE of recording (not the mortgage as property), and since the Authority will be the party presenting these mortgages for recording, it would bear the tax liability if any were due — reinforcing why the Authority's own tax immunity matters here.

On the second question — later changes to the mortgage — Tax Law § 255's supplemental mortgage rules mean that assignments, modifications, spreaders, consolidations, substitutions, severances, restatements, and extensions remain exempt from additional recording tax AS LONG AS the secured principal amount is not increased (whether because no new taxable mortgage is created under § 253, or because the instrument qualifies as a "supplemental mortgage" under § 255). If the secured debt IS increased, and the Authority is not a party to the instrument recording that increase, mortgage recording tax becomes due on the increase.

What this means for you

Public benefit corporations and authorities financing developer leasehold improvements

The sublease-back/sub-sublease-back structure — letting the authority become co-mortgagor without pledging its fee interest — is a well-established, Department-approved technique for extending MRT exemption to developer financing, provided your enabling statute contains both mortgage powers and a clear tax exemption enacted after 1909.

Developers and lenders on authority-adjacent ground-lease projects

Confirm the authority is a genuine co-mortgagor (not just landlord) and check that later financing modifications keep the authority as a party to each recorded instrument, since dropping out of a later instrument (e.g., on a debt increase) can trigger MRT on that increase.

Common questions

Q: Does the exemption require the Authority to actually borrow money itself?
A: No — the Authority can be a co-mortgagor (and even potentially a co-borrower for credit enhancement) purely to extend its tax immunity to the financing structure; the developer remains the primary economic party.

Q: Does the exemption survive conversion from construction financing to permanent financing?
A: Yes — as long as the Authority remains a party and the secured debt doesn't increase, the supplemental-mortgage exemption under Tax Law § 255 carries the exemption through that conversion.

Q: Can other authorities or developers rely on this specific opinion?
A: No. It binds the Department only as to this petitioner and these facts, though the reasoning has since been applied to structurally identical financings (e.g., Fort Hamilton Housing, TSB-A-04(1)R; Port Authority's WTC redevelopment, TSB-A-06(2)R).

Citations and references

Statutes and regulations:

• Tax Law § 253 (mortgage recording tax on real property mortgages)
• Tax Law § 250 (increases in secured indebtedness taxable as to the increase)
• Tax Law § 252 (no exemption by reason of any other statute, absent later specific enactment)
• Tax Law § 255 (supplemental mortgage exemption where secured debt not increased)
• Battery Park City Authority Act §§ 1974(3), 1981 (power to mortgage; broad tax exemption for properties and activities, enacted 1981)

Case law and prior opinions cited:

• Matter of Hamilton, 148 N.Y. 310 (state/municipal property for public purposes not subject to taxation)
• Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 A.D.2d 330; Matter of City of New York v. Tully, 88 A.D.2d 701 (common-law state-agency immunity doctrine)
• Williamsburgh Power Plant Corp. v. City of New York, 255 App. Div. 214, aff'd 280 N.Y. 551 (later specific enactment governs earlier general enactment)
• Franklin Society for Home Building and Savings v. Bennett, 282 N.Y. 79; Matter of Silberblatt, Inc. v. Tax Comm., 5 N.Y.2d 635 (MRT taxes the recording privilege, not the instrument)
• Matter of Park and 46th St. Corp. v. State Tax Commission, 295 N.Y. 173; Matter of Bay View Towers Apts., Inc. v. State Tax Commission, 48 A.D.2d 86, aff'd 40 N.Y.2d 856; City of New York v. State Tax Commission, 130 A.D.2d 890; Matter of Rednow Realty Corp. v. Tully, 72 A.D.2d 621 (supplemental mortgage / no-increase principles)
• New York State Urban Development Corp., TSB-A-93(4)R (March 10, 1993) (state agency immunity for mortgages recorded as mortgagee)
• One Park Place Associates, TSB-A-82(1)M (May 24, 1982) (industrial development agency legal-title mortgages exempt)
• Battery Park City Authority, TSB-A-95(1)R (March 13, 1995) (prior opinion establishing the same exemption for this Authority)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a02_2r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(2)R
Mortgage Recording Tax
June 5, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M020515A

On May 15, 2002, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Battery Park City Authority d/b/a Hugh L. Carey Battery Park City Authority, One
World Financial Center, New York, NY 10281.
The issues raised by Petitioner, Battery Park City Authority are:
1.

Whether the taxes imposed by Article 11 of the Tax Law (hereinafter
the “mortgage recording tax”) will be due upon the recording by
Petitioner of any mortgage on the leasehold interest in any property
that is leased to a developer (“Developer”) as part of Petitioner’s
Battery Park City Project (the “Project”) to which Petitioner would
be a named mortgagor, provided that (a) the proceeds of the
mortgage(s) are used for Developer’s development costs, and (b)
Petitioner executes the Mortgage with Developer, as co-mortgagor.

2.

Whether mortgage recording tax is due upon the recording by
Petitioner or any other person of an instrument to the extent that the
principal amount of secured indebtedness is increased if the mortgage
referred to in issue “1” is assigned, supplemented, modified and/or
assigned (including, without limitation, any spread, consolidation,
substitution, severance, restatement and/or extension of such
mortgages).

Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner was formed pursuant to Title 12 of Article 9 of the Public Authorities Law of the
State of New York, as amended (known as the Battery Park City Authority Act), for the public
purpose of improving, replanning, reconstructing and redeveloping the Battery Park City project
area, and creating in such area a mixed commercial and residential community.
Petitioner is a body corporate and politic, constituting a public benefit corporation of the
State of New York (the “State”). Petitioner is fee owner of all of the area in Manhattan known as
Battery Park City, except for land under certain streets which have been mapped and deeded to the
City of New York (the “City”).
Petitioner has entered into long term ground leases with a number of separate development
entities pursuant to which such entities and Petitioner, as the direct developer for certain projects,

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have constructed approximately 8.5 million square feet of office space, approximately 6500
residential units, two hotels, Stuyvesant High School, a residential building containing a public
elementary school and intermediate public school, and a museum.
Petitioner has developed or provided for the development of approximately 30 development
parcels as part of the Project. Petitioner develops all parcels in the Project through ground leases
under which each development parcel, the building to be constructed thereon and materials and
equipment which are incorporated into the building (the “Leased Property”) are leased by Petitioner,
as landlord, to Developer, as tenant.
There are 10 development parcels remaining to be completed including Site 18A, the first
high rise residential “green” building in Battery Park City. Petitioner has required in the ground
lease for 18A, and intends that all future ground leases in the Project (each lease, a “Lease”) will
require, that building construction be based upon a design that provides for a healthier, ecologically
responsible environment. The cost of construction of green features in new buildings is a significant
cost factor in the economics of developing such projects.
Costs for the buildings to be constructed as required by the Leases will be funded using
equity provided by the Developer and from the proceeds of one or more financings for each
development (collectively for each development, the “Mortgage Loan”) secured, inter alia, by one
or more mortgages on Developer’s leasehold interest in the Leased Property with respect to which
Petitioner would be a named mortgagor (collectively, for each Developer, the “Mortgage”).
Petitioner’s fee interest in the Leased Property will not in any event be encumbered by the
Mortgage.
In furtherance of the public purposes described herein, Petitioner intends to undertake the
following transactions:
(1)

Developer will sublet the Leased Property to Petitioner pursuant to
a sublease (the “Sublease”) having a term coinciding with the term of
the Mortgage Loan;

(2)

Petitioner will sublet the Leased Property back to Developer pursuant
to a sub-sublease (the “Sub-Sublease”) having a term coinciding with
the term of the Sublease; and

(3)

Petitioner will execute the Mortgage, along with Developer, as co­
mortgagor, for the purpose of subjecting to the lien of the Mortgage
Petitioner’s leasehold estate under the Sublease and its interest as
sublessor under the Sub-Sublease (but not its fee interest in the
Leased Property).

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In such event, it is possible that Petitioner, in order to provide credit enhancement for the
Mortgage Loan, might be a co-borrower with respect to the Mortgage Loan (i.e., Petitioner might
execute the notes secured by the Mortgage) and might pledge additional assets of Petitioner as
security for the Mortgage Loan.
Petitioner anticipates that for each site which is the subject of a Lease the Mortgage will,
from time to time, be assigned, supplemented, modified or amended and that the instruments
effecting any such assignment, supplementation, modification or amendment will be recorded. For
instance, in accordance with customary mortgage financing practices, it is anticipated that the
Mortgage will be supplemented, modified and converted from a mortgage or mortgages securing
construction financing to a mortgage or mortgages securing permanent financing upon the
completion of construction of the development required to be built under a Lease or upon the
expiration of the term of the initial Mortgage Loan.
Further, from time to time, the Mortgage may be assigned from one lender to another
(possibly immediately after it is recorded); and it is also possible that the identity of the mortgagor
will change, by reason of the assignment of the interest of the tenant under the Lease to an affiliate
or to an unrelated person.
Discussion
With respect to issue “1”, Article 11 of the Tax Law imposes taxes on the recording of
mortgages of real property measured by the principal debt or obligation secured by such mortgages.
Section 252 of Article 11 of the Tax Law, applicable to exemptions from the mortgage recording
tax, provides, with certain exceptions not relevant herein, that “[n]o mortgage of real property
situated within this state shall be exempt, and no person or corporation owning any debt or
obligation secured by mortgage of real property situated within this state shall be exempt, from the
taxes imposed by this article by reason of anything contained in any other statute.”
Even though section 252 of the Tax Law does not provide a specific exemption for the
activities of Petitioner, it is well established that State agencies enjoy an immunity from taxation
independent of the statutory exemptions listed in Section 252 of the Tax Law for property utilized
in the public interest.
In a March 29, 1913 opinion, the Attorney General opined that no mortgage recording tax
was due when New York State acted as mortgagee and quoted the following passage from Matter
of Hamilton, 148 NY 310, 313-314:
The property held by the state, or by any of its municipal divisions, for public
purposes, is not, and never has been, subject to taxation . . .The end and object of all
taxation is to raise revenue for the purpose of defraying the expenses of government,
and since no revenue could be raised by imposing taxes on property owned by the

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state itself, or by any of its political divisions, such property is in no just or practical
sense the subject of taxation.
This principle has been applied to exempt from the mortgage recording tax mortgages on
property when legal title is held by a New York State industrial development agency even though
beneficial ownership of such property is held by private interest. (See 1982 Opns St Comp No.
82-188, p. 240; One Park Place Associates, Adv Op St Tx Comm, May 24, 1982, TSB-A-82(1)M).
Also, in Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 AD2d 330, 334, in
acknowledging that a $45 million mortgage secured by the Waldorf-Astoria hotel was exempt from
the mortgage recording tax because the mortgagee (the New York State Employees’ Retirement
System) was a New York State agency, the court stated that “as a State agency, the Retirement
System enjoys an immunity from taxation independent of the statutory exemptions listed in Section
252 of the Tax Law . . . .” The court reasoned that imposition of a tax upon a mortgage held by a
New York State agency was tantamount to tax upon the agency itself. The court, thus, concluded
that the tax, on the recording of the mortgage securing the loan, in this case amounted to an unlawful
assessment of the agency’s property in violation of its general immunity from taxation. (See also,
Matter of City of New York v. Tully, 88 AD2d 701).
In a October 19, 1970 opinion, Department of Taxation and Finance Counsel Best stated with
reference to the Town of Wallkill Industrial Development Agency’s creating statute that:
In this situation, the later statute specifically exempts from tax the activities
of the Agency, one of which is the power to execute mortgages. The power to
execute mortgages implies that the Agency may also perform the activity of
recording the mortgage. Therefore, in my opinion, the later statute takes precedence
over section 252 of the Tax Law.
Counsel, therefore, opined that the mortgages of the Wallkill Industrial Development
Agency, organized pursuant to Article 18-A of the General Municipal Law, and remaining subject
to such Article, were exempt from the mortgage recording tax imposed pursuant to Article 11 of the
Tax Law. (emphasis added)
In New York State Urban Development Corp., Adv Op Comm T&F, March 10, 1993,
TSB-A-93(4)R the Commissioner advised that the petitioner as an agency of the State of New York
was immune from taxation and could record mortgages as part of its New York Exchanges
Headquarters Land Use Improvement Project where it was a mortgagee without the payment of the
mortgage recording tax.
Section 1981 of the Battery Park City Authority Act (hereinafter the “BPCA Act”) provides
as follows:

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Exemption from taxes

1. It is hereby determined that the creation of the authority and the carrying
   out of its corporate purposes is in all respects for the benefit of the people of the state
   of New York, the county of New York, and the city, and is a public purpose, and the
   authority shall be regarded as performing a governmental function in the exercise of
   the powers conferred upon it by this title and shall be required to pay no taxes upon
   any of the properties acquired by it or under its jurisdiction or control or supervision
   or upon its activities.
2. All bonds, notes and other obligations issued pursuant to this title, together
   with the income therefrom, as well as the income and property of the authority, shall
   be exempt from taxation, except for transfer and estate taxes. (emphasis added)
   Section 1974(3) of the BPCA Act provides that “[t]he authority shall have power . . . [t]o
   acquire, lease, hold, mortgage and dispose of real property and personal property or any interest
   therein for its corporate purposes.” (emphasis added)
   An apparent inconsistency exists between the Tax Law and the BPCA Act. Accordingly,
   where a conflict exists between two enactments relating to the same subject matter, the latter specific
   enactment governs the earlier general enactment. Williamsburgh Power Plant Corp. v City of
   New York, 255 App Div 214, affd 280 NY 551.
   Since Section 252 of the Tax Law was enacted in 1909, and last amended in substance in
   1966, it must yield to the exemption provisions contained in the law creating Petitioner which was
   enacted in 1981. Therefore, if the provisions of the BPCA Act exempt from the recording tax the
   mortgages created pursuant to the Project, such exemption provisions will prevail.
   The BPCA Act gives Petitioner the power to execute mortgages. Having such power implies
   that Petitioner may also perform the activity of recording mortgages. It is noted that the taxes
   imposed by Article 11 of the Tax Law are not imposed on the mortgages themselves, as property,
   but on the taking of an action, that is, on the exercise of the privilege of recording a mortgage.
   Franklin Society for Home Building and Savings v Bennett, 282 NY 79; Matter of Silberblatt, Inc.
   v Tax Comm, 5 NY2d 635; One Park Place Associates, Adv Op St Tx Comm, May 24, 1982,
   TSB-A-82(1)M; New York State Urban Development Corp., supra.
   An informal opinion of the Attorney General, dated March 7, 1956, states that:

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It should be noted that section 257 of Article 11 of the New York State Tax
Law is silent as to which party to the mortgage shall pay the tax. Under its terms the
taxes shall be payable on the recording of each loan subject to tax so that the party
who records is the one upon whom tax is imposed . . .1956 Atty Gen [Inf Opns],
at 28.
In the instant case, since Petitioner will be the named co-mortgagor in one or more
mortgages on Developer leasehold interests and will be the party who records such mortgages, in
view of the Attorney General’s opinion, Petitioner would be the party required to pay the taxes
imposed by Article 11, if such taxes are due.
Moreover, Section 1981 of the BPCA Act specifically provides that Petitioner shall pay no
taxes upon any of the properties acquired by it or under its jurisdiction or control or supervision or
upon its activities. Pursuant to Section 1974(3) of the BPCA Act Petitioner as one of its activities
has the power to execute mortgages. Accordingly, since the power to execute mortgages would
imply that Petitioner has the power to record mortgages, pursuant to Sections 1974(3) and 1981 of
the BPCA Act, it is concluded that Petitioner can record Mortgages in connection with the Leases
under the Project as described in this Advisory Opinion without payment of the mortgage recording
taxes imposed under Article 11 of the Tax Law. See Battery Park City Authority, Adv Op Comm
T&F, March 13, 1995, TSB-A-95(1)R.
Concerning issue “2”, Section 255 of the Tax Law which contains the supplemental
mortgage provisions, provides, in part, that:
If subsequent to the recording of a mortgage on which all taxes, if any,
accrued under this article have been paid, a supplemental instrument or mortgage is
recorded for the purpose of correcting or perfecting any recorded mortgage, or
pursuant to some provision or covenant therein, or an additional mortgage is
recorded imposing the lien thereof upon property not originally covered by or not
described in such recorded primary mortgage for the purpose of securing the
principal indebtedness which is or under any contingency may be secured by such
recorded primary mortgage, such additional instrument or mortgage shall not be
subject to taxation under this article . . . unless it creates or secures a new or further
indebtedness or obligation other than the principal indebtedness or obligation secured
by or which under any contingency may be secured by the recorded primary
mortgage . . . .

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Section 250 of the Tax Law provides that a contract or agreement by which the indebtedness
secured by any mortgage is increased or added to, shall be taxable upon the amount of such increase
or addition.
Once a mortgage has been given and recorded, the recorded primary mortgage may be
changed by a supplemental mortgage and, under the provisions noted above, no additional recording
tax will be due as long as the amount secured remains the same. City of New York v State Tax
Commission, 130 AD2d 890, 891. Of course, if the indebtedness secured by the lien is reduced or
the lien terminated for any reason, tax would be due on any increase on the new obligation. (See
Matter of Rednow Realty Corp. v Tully, 72 AD2d 621, 622)
Both Sections 253 and 255 of the Tax Law require that only a mortgage on the principal debt
or obligation, or a new or further indebtedness other than the principal obligation, should be subject
to the recording tax. (Matter of Park and 46th St. Corp. v State Tax Commission, 295 NY 173,
178-179; Matter of Bay View Towers Apts., Inc. v State Tax Commission, 48 AD2d 86, 89, affd
40 NY2d 856.) (emphasis added)
Accordingly, for purposes of issue “2”, to the extent the principal amount of secured
indebtedness is not increased, the recording of any assignments, modifications, amendments,
spreaders, consolidations, substitutions, severance, restatements, and extensions of the Mortgage is
exempt from the mortgage recording tax, under current law, either because such action will not
create a new mortgage subject to tax under Section 253 of the Tax Law, or because such action
constitutes a “supplemental mortgage” under Section 255 of the Tax Law. Where the principal
amount of secured indebtedness of the Mortgage is increased, and Petitioner is not a party to the
recorded instrument evidencing such increase, the mortgage recording tax is due with respect to the
amount of the increase.

DATED: June 5, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.