As a follow-up to an earlier ruling on my Cultural Resources Trust condominium conversion (Title Conveyance, Leaseback, Reversion), I now need to split my existing $365 million Wachovia mortgage across two new condominium units and spread part of it to cover the leaseback and a future 'springing' affiliate lease -- with no new borrowing, just restructuring the existing debt. Do these mortgage split, modification, and spreading steps trigger New York's Mortgage Recording Tax, and does my earlier RETT exemption still hold with this added mortgage detail?

Plain-English summary

This is a follow-up petition from the same taxpayer behind TSB-A-07(1)R, adding mortgage-financing detail to the same Cultural Resources Trust condominium conversion plan for a Manhattan office building at 450 West 33rd Street. The building would be split into a "Channel 13 Unit" (leased to public TV station WNET/Channel 13) and a "Landlord Unit." Before the condo conversion, Wachovia Bank held a $365 million first mortgage on the whole property (recorded, with mortgage taxes already paid). Upon creating the condominium, that single mortgage would be split and cross-collateralized: the Channel 13 Unit would carry a first mortgage of about $47.3 million plus a collateral mortgage of about $317.7 million (securing the Landlord Unit's debt), and the Landlord Unit would carry the mirror-image split — with the combined total across both units still equaling the original $365 million.

As in the earlier ruling, the owner would then convey the Channel 13 Unit to the Trust for Cultural Resources of the City of New York for $10.00, subject to both Channel 13 Unit mortgages, while remaining personally liable for all payments and obligations under those mortgages and all other unit expenses, and remaining the beneficial owner for income tax purposes — the Trust bearing no maintenance obligations. The Trust would net-lease the unit back to the owner for $10.00/year for up to four years (with the Channel 13 Unit mortgages "spread" to also encumber this leaseback as additional security), before title automatically reverted to the owner. This petition adds a further detail: the Channel 13 Unit would also be conveyed subject to a "springing" net lease to a single-purpose affiliate entity, set to commence on the same four-year anniversary, with the affiliate joining the mortgages to grant a lien on its own leasehold interest.

Issue 1 (RETT): The Department reconfirmed its conclusion from the taxpayer's earlier TSB-A-07(1)R ruling: because the owner retains all the practical benefits and burdens of ownership — mortgage liability, expense responsibility, the existing Channel 13 sublease, and beneficial tax ownership — throughout the Trust arrangement, the Title Conveyance, Leaseback, and Reversion are all exempt from RETT as a mere change of identity or form of ownership under Tax Law §1405(b)(6), citing the Department's own precedents (TSB-A-03(1)R and TSB-A-07(1)R). The opinion is explicit that it does NOT address whether the WNET/Channel 13 sublease or the future affiliate net lease are separately taxable under either RETT (Article 31) or MRT (Article 11).

Issue 2 (Mortgage Recording Tax): The Department held the mortgage split/modification is exempt from MRT because it neither extinguishes the original debt nor creates any new indebtedness — the combined mortgage amount on both units still totals the original $365 million. This qualifies either as not creating a new taxable mortgage under Tax Law §253, or as an untaxed "supplemental mortgage" under §255(1)(a), specifically because TSB-M-04(9)R (a Department guidance memo) and case law (Matter of Bay View Towers Apartments v. State Tax Comm.) confirm that severing and modifying a mortgage lien to reflect a condominium declaration is a "legitimate business purpose" exempt from the special MRT rule for spreading agreements in cities of 1 million+ population (§255(1)(a)(ii)). Because the owner (and, later, the Trust as the new title-holder subject to the existing mortgage) remains liable for the same debt with no new obligation created, a supplemental mortgage reflecting the Trust as the new mortgagor can be recorded MRT-free (citing TSB-A-90(2)R). Likewise, spreading the mortgage lien to cover the Net Lease (and, per TSB-M-04(9)R, extending a lien to cover new leases on already-covered property) is a recognized legitimate business purpose that doesn't trigger MRT, as long as no new debt or obligation is secured (citing Brodsky and Second Nominated Properties v. Murphy).

What this means for you

Restructuring an existing mortgage across new condominium units is MRT-free as long as the total secured debt doesn't grow

Splitting a single mortgage into first-lien and cross-collateralized "collateral mortgage" pieces to match a new condominium structure -- even across multiple new units -- doesn't trigger fresh Mortgage Recording Tax, as long as the combined secured amount matches what was already taxed on the original mortgage.

Spreading an existing mortgage lien to cover a new leasehold interest (like a Trust leaseback) is also MRT-free if no new debt is added

When a mortgage lien is extended ("spread") to additionally encumber a newly-created lease -- here, the Cultural Resources Trust leaseback -- that spreading is exempt from MRT under the Department's guidance (TSB-M-04(9)R) as a legitimate business purpose, provided it secures only the same pre-existing debt.

This ruling pairs the RETT mere-change-of-form doctrine with a parallel MRT no-new-debt doctrine

If you're planning a Cultural Resources Trust-style conveyance/leaseback/reversion structure that also involves restructuring an existing mortgage, this ruling shows both taxes can be avoided together: RETT via the mere-change-of-form exemption (retained beneficial ownership) and MRT via the no-new-debt supplemental mortgage / spreading rules -- but each requires its own independent factual showing.

Common questions

Q: If I split an existing mortgage across multiple new condominium units I'm creating, does that trigger Mortgage Recording Tax as if it were new debt?
A: No, as long as the combined amount secured across all the resulting mortgages equals what the original mortgage already secured -- splitting and cross-collateralizing existing debt doesn't create new taxable indebtedness.

Q: Does spreading a mortgage lien to also cover a newly-created lease trigger MRT?
A: Not if the spreading doesn't secure any new debt or obligation beyond what the original mortgage already covered -- the Department has expressly recognized extending a lien to new leases on already-mortgaged property as a legitimate business purpose exempt from tax.

Q: Does this ruling address whether the sublease to the existing tenant, or a future lease to my own affiliate, is separately taxable?
A: No -- the opinion explicitly declines to address the tax treatment (under either RETT or MRT) of the WNET/Channel 13 sublease or the springing affiliate net lease described in the facts.

Citations and references

Statutes, guidance, and case law:

• Section 250(2)(a) of Article 11 of the Tax Law
• Section 253 of Article 11 of the Tax Law
• Section 255(1)(a) of Article 11 of the Tax Law
• Section 1402(a) of Article 31 of the Tax Law
• Section 1401(d) of Article 31 of the Tax Law
• Section 1401(e) of Article 31 of the Tax Law
• Section 1401(f) of Article 31 of the Tax Law
• Section 1405(b) of Article 31 of the Tax Law
• TSB-M-04(9)R (2004 Amendments to the Tax on Mortgages, November 22, 2004)
• TSB-A-03(1)R (Urban Development Corporation/Milstein Brothers 42nd Street LLC, October 9, 2003)
• TSB-A-07(1)R (450 Partners LLC, April 12, 2007)
• TSB-A-90(2)R (Sugar Maple Farm, Inc., February 7, 1990)
• Matter of Bay View Towers Apartments v. State Tax Comm., 48 A.D.2d 86, aff'd 40 N.Y.2d 856
• Brodsky and Second Nominated Properties v. Murphy, 26 A.D.2d 225 (July 1966)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a07_4r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Taxpayer Guidance Division

TSB-A-07(4)R
Real Estate Transfer Tax
Mortgage Recording Tax
September 5, 2007

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M070816A

On August 16, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from 450 Partners LLC, c/o The Chetrit Group, 404 Fifth Avenue, 4th Floor,
New York, NY 10018. Petitioner, 450 Partners LLC, submitted additional information
pertaining to the Petition on August 28, 2007.
The issues raised by Petitioner are:
(1) Whether the “Title Conveyance,” “Leaseback,” and “Reversion” transactions
described below are subject to the real estate transfer tax imposed by Article 31 of the
Tax Law.
(2) Whether the split, modification and spreading agreements for the Mortgage involved
in the transactions described below are subject to the mortgage recording tax imposed by
Article 11 of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is the owner of real property located at 450 West 33rd Street, New York, NY
(the “Property”). Petitioner is contemplating the creation of a condominium at the Property. The
condominium would consist of two condominium units: one unit covering that portion of the
Property currently leased to WNET/Channel 13 (the “Channel 13 Unit”) and one unit covering
the remainder of the Property (the “Landlord Unit”).
Mortgage
Prior to the creation of the condominium, Wachovia Bank, National Association
(“Wachovia”) loaned to Petitioner a loan in the original principal amount of $365 million,
secured by a first mortgage lien on the Property. The $365 million Mortgage was recorded and
all appropriate mortgage taxes were paid. After the creation of the condominium, the $365
million Mortgage will be split and modified as follows: (i) the Channel 13 Unit will be
encumbered by (A) a first mortgage lien in favor of Wachovia, in the original amount of
$47,347,800 (the “Channel 13 Unit 1st Mortgage”) and (B) a collateral mortgage lien in favor of
Wachovia, in the original principal amount of $317,652,200 (the “Channel 13 Unit Collateral
Mortgage”) and (ii) Landlord Unit will be encumbered by (A) a first mortgage lien in favor of

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Wachovia, in the principal amount of $317,652,200 (the “Landlord Unit 1st Mortgage”) and (B) a
collateral mortgage lien in favor of Wachovia in the original Principal amount of $47,347,800
(the “Landlord Unit Collateral Mortgage”). The Channel 13 Unit Collateral Mortgage will be
given as additional security for the notes secured by the Landlord Unit 1st Mortgage. The
Landlord Unit Collateral Mortgage will be given as additional security for the notes secured by
the Channel 13 Unit 1st Mortgage.
Title Conveyance
Pursuant to a condominium unit deed (the “Deed”), Petitioner will convey title to the
Channel 13 Unit to The Trust for Cultural Resources of the City of New York (the “Trust”) for a
(i) consideration of $10.00 and (ii) subject to (A) the Channel 13 Unit 1st Mortgage and (B) the
Channel 13 Unit Collateral Mortgage. The Trust was formed under Articles 20 and 21 of the
Arts and Cultural Affairs Law.
In spite of the Title Conveyance of the Channel 13 Unit to the Trust, Petitioner will
remain liable for payments due under the notes secured by the Channel 13 Unit 1st Mortgage and
the Channel 13 Collateral Mortgage and for all obligations under the Channel 13 Unit 1st
Mortgage and the Channel 13 Collateral Mortgage. In addition, Petitioner will remain liable for
all other expenses associated with the Channel 13 Unit and will remain the beneficial owner of
the Channel 13 Unit for federal, state, and local income tax purposes. The Trust will have no
obligation to improve, replace, service, adjust, repair, or maintain any portion of the Channel 13
Unit.
Leaseback
The Trust will net lease the Channel 13 Unit back to Petitioner for an annual rent of
$10.00. The term of the Net Lease will expire on the earlier of the fourth anniversary of the date
of the Title Conveyance of the Channel 13 Unit to the Trust or the occurrence of any reverter
event described in the Deed. As additional security for the Wachovia Loan, the Channel 13 Unit
1st Mortgage and the Channel 13 Unit Collateral Mortgage will be spread to encumber the Net
Lease.
Petitioner will sublease the Channel 13 Unit to WNET/Channel 13 pursuant to the terms
of an existing lease between Petitioner and WNET/Channel 13, as modified by the parties (the
“Sublease”). Channel 13 shall subordinate the Sublease to the condominium declaration, the
Leaseback, the Channel 13 Unit 1st Mortgage and the Channel 13 Collateral Mortgage.

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Reversion
According to the terms of the Deed and the Leaseback, title to the Channel 13 Unit will
revert to Petitioner upon the earlier of the fourth anniversary of the date of the Title Conveyance
or the occurrence of any reverter event described in the Deed.
In addition to the facts presented above Petitioner provides that the Channel 13 Unit will
also be conveyed to the Trust subject to a “springing” net lease, between Petitioner, as landlord,
and Petitioner’s affiliate (Affiliate), as tenant (the “Affiliate Lease”). Affiliate is a single­
purpose entity formed by Petitioner solely to function under the Affiliate Lease. The term of the
Affiliate Lease shall commence on the fourth anniversary of the date of the conveyance of the
Channel 13 Unit to the Trust. Affiliate shall join in the Channel 13 Unit 1st Mortgage and the
Channel 13 Unit Collateral Mortgage in order to grant a first mortgage lien on its interest in the
Affiliate Lease.
Applicable law and regulations
Section 250(2)(a) of Article 11 of the Tax Law provides, in part:
The term “mortgage” as used in this article includes every mortgage or deed of trust
which imposes a lien on or affects the title to real property, notwithstanding that such property
may form a part of the security for the debt or debts secured thereby. An assignment of rents to
accrue from tenancies, subtenancies, leases or subleases of real property, within any city in the
state having a population of one million or more, given as security for an indebtedness, shall be
deemed a mortgage of real property for purposes of this article.... A contract or agreement by
which the indebtedness secured by any mortgage is increased or added to, shall be deemed a
mortgage of real property for the purpose of this article, and shall be taxable as such upon the
amount of such increase or addition….
Section 253 of 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 255(1)(a) of Article 11 of the Tax Law provides, in part:
(i) 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

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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 primary mortgage, in which case, a tax is
imposed as provided by section two hundred and fifty-three of this article on such new or
further indebtedness or obligation.
(ii) Notwithstanding any provision to the contrary in subparagraph (i) of this
paragraph, the taxes imposed by or pursuant to the authority of this article shall apply to
the recording of a spreading agreement or additional mortgage which imposes the lien
thereof upon real property located in any city in the state having a population of one
million or more and not originally covered by or described in a recorded primary
mortgage, unless the real property that becomes subject to the lien of such spreading
agreement or additional mortgage is owned by the mortgagor of the real property subject
to the lien of such recorded primary mortgage….
Section 1402(a) of Article 31 of the Tax Law imposes the real estate transfer tax on each
conveyance of real property or interest therein and provides, in part:
A tax is hereby imposed on each conveyance of real property or interest therein
when the consideration exceeds five hundred dollars, at the rate of two dollars for each
five hundred dollars or fractional part thereof; . . .
Section 1401(d) of Article 31 of the Tax Law provides, in part:
“Consideration” means the price actually paid or required to be paid for the real
property or interest therein, including payment for an option or contract to purchase real
property, whether or not expressed in the deed and whether paid or required to be paid by
money, property, or any other thing of value. It shall include the cancellation or discharge
of an indebtedness or obligation. It shall also include the amount of any mortgage,
purchase money mortgage, lien or other encumbrance, whether or not the underlying
indebtedness is assumed or taken subject to.
Section 1401(e) of Article 31 of the Tax Law provides:
“Conveyance” means the transfer or transfers of any interest in real property by
any method, including but not limited to sale, exchange, assignment, surrender, mortgage
foreclosure, transfer in lieu of foreclosure, option, trust indenture, taking by eminent
domain, conveyance upon liquidation or by a receiver, or transfer or acquisition of a
controlling interest in any entity with an interest in real property. Transfer of an interest

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in real property shall include the creation of a leasehold or sublease only where (i) the
sum of the term of the lease or sublease and any options for renewal exceeds forty-nine
years, (ii) substantial capital improvements are or may be made by or for the benefit of
the lessee or sublessee, and (iii) the lease or sublease is for substantially all of the
premises constituting the real property. Notwithstanding the foregoing, conveyance of
real property shall not include a conveyance pursuant to devise, bequest or inheritance;
the creation, modification, extension, spreading, severance, consolidation, assignment,
transfer, release or satisfaction of a mortgage; a mortgage subordination agreement, a
mortgage severance agreement, an instrument given to perfect or correct a recorded
mortgage; or a release of lien of tax pursuant to this chapter or the internal revenue code.
Section 1401(f) of Article 31 of the Tax Law provides:
“Interest in the real property” includes title in fee, a leasehold interest, a beneficial
interest, an encumbrance, development rights, air space and air rights, or any other
interest with the right to use or occupancy of real property or the right to receive rents,
profits or other income derived from real property. It shall also include an option or
contract to purchase real property. It shall not include a right of first refusal to purchase
real property.
Section 1405(b) of Article 31 of the Tax Law provides, in part:
The tax shall not apply to the following conveyances:
*

*

*

6. Conveyances to effectuate a mere change of identity or form of ownership or
   organization where there is no change in beneficial ownership, other than conveyances to
   a cooperative housing corporation of the real property comprising the cooperative
   dwelling or dwellings;
   Section 575.10 of the Real Estate Transfer Tax Regulations provides, in part:
   To the extent that a conveyance effectuates a mere change of identity or form of
   ownership or organization and there is no change in beneficial ownership, the real estate
   transfer tax does not apply….
   Technical Services Bureau Memorandum entitled 2004 Amendments to the Tax on
   Mortgages, November 22, 2004, TSB-M-04(9)R , provides, in part:

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A95. Notwithstanding the provisions explained in A7 and A8 above, the
provisions contained in Tax Law, section 255(1)(a)(ii) are not intended to adversely
affect the recording of mortgage spreading agreements or additional mortgages
undertaken for legitimate business purposes, such as the following transactions:
a.

The recording of an instrument extending the lien of the recorded primary
mortgage to cover new leases, new improvements, new construction or additional
interests, such as easements, on the property described in or originally covered by
the recorded primary mortgage.

b.

The recording of an instrument to sever and modify the lien of the recorded
primary mortgage to reflect a declaration of condominium ownership or
subdivision of the real property.

Opinion
Issue 1
Section 1405(b)(6) of the Tax Law provides an exemption from the real estate transfer
tax to the extent that a conveyance effectuates a mere change of identity or form of ownership or
organization where there is no change in beneficial ownership.
In the present case, all of the benefits and burdens of ownership remain with Petitioner at
all times. Petitioner will remain liable for all indebtedness and for all obligations secured by the
Mortgages. Petitioner will also continue to sublease the unit to WNET/Channel 13 pursuant to
the terms of the existing lease, as modified, between Petitioner and WNET/Channel 13. In
addition, Petitioner will remain liable for all other expenses associated with the Channel 13 Unit
and will remain the beneficial owner of the Channel 13 Unit for federal, state, and local income
tax purposes. The Trust will have no obligation to improve, replace, service, adjust, repair, or
maintain any portion of the Channel 13 Unit.
Therefore, the Title Conveyance, Leaseback, and Reversion are all exempt from the real
estate transfer tax as conveyances that constitute a mere change of identity or form of ownership
or organization pursuant to section 1405(b)(6) of the Tax Law since there is no change in
beneficial ownership of the Property. See Urban Development Corporation (d/b/a Empire State
Development Corporation) and Milstein Brothers 42nd Street LLC, Adv Op T&F, October 9,
2003, TSB-A-03(1)R; 450 Partners LLC, Adv Op T&F, April 12, 2007, TSB-A-07(1)R.
Petitioner has provided facts in regard to creation of a sublease with WNET/Channel 13
and possible creation of a net lease between Petitioner and Petitioner’s affiliate. It should be

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noted that this Opinion does not address whether such transactions are subject to the tax imposed
by Article 11 or Article 31 of the Tax Law.
Issue 2
Upon the creation of the condominium, Petitioner’s $365 million Mortgage with
Wachovia encumbering the property will be split and modified to encumber the Channel 13 Unit
and the Landlord Unit. The total amount of the mortgages on the condominium units will be
equal to the amount of the existing Mortgage with Wachovia. To the extent the split and
modification of the existing Mortgage do not extinguish the original debt and do not create a new
indebtedness the mortgage is exempt from mortgage recording tax, either because such action
will not create a new mortgage subject to tax under section 253 of the Tax Law or because the
instrument constitutes a supplemental mortgage under section 255 of the Tax Law provided that
the instrument so recorded is not subject to tax under section 255(1)(a)(ii) of the Tax Law. As
provided in TSB-M-04(9)R, supra, the recording of a mortgage to sever and modify the lien of
the recorded primary mortgage to reflect a declaration of condominium ownership is considered
to be undertaken for a legitimate business purpose and is not subject to tax under section
255(1)(a)(ii) of the Tax Law. See also Matter of Bay View Towers Apartments v State Tax
Comm., 48 AD2d 86, affd 40 NY2d 856.
When a person acquiring real property assumes an existing mortgage or takes ownership
of the real property subject to an existing mortgage, to the extent no new debt or further
obligation is created, no mortgage recording tax is due upon the recording of a supplemental
mortgage for the purposes of modifying the existing mortgage to reflect the new owner as
mortgagor. See Sugar Maple Farm, Inc., Adv Op T&F, February 7, 1990, TSB-A-90(2)R.
Since Petitioner will remain liable for all payments due under the notes secured by the Channel
13 Unit 1st Mortgage and the Channel 13 Collateral Mortgage and for all obligations under the
Channel 13 Unit 1st Mortgage and the Channel 13 Collateral Mortgage it appears that no new
debt or obligation is created. Accordingly, when Petitioner transfers the Channel 13 unit to the
Trust subject to the Channel 13 Unit 1st Mortgage and the Channel 13 Unit Collateral Mortgage,
a supplemental mortgage reflecting the Trust as mortgagor may be recorded without the payment
of mortgage recording taxes.
If there is no new debt or further obligation, a supplemental instrument spreading the lien
of the recorded primary mortgage to encumber a separate leasehold interest in the property may
be recorded without the payment of mortgage recording taxes, pursuant to section 255 of the Tax
Law. See Brodsky and Second Nominated Properties v Murphy et al., 26 AD2d 225, [July
1966]. As provided in TSB-M-04(9)R, supra, the recording of a mortgage extending the lien of
the recorded primary mortgage to cover new leases on property described in or originally
covered by the recorded primary mortgage is considered to be undertaken for a legitimate

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business purpose and is not subject to tax under section 255(1)(a)(ii) of the Tax Law. Therefore,
in the present case, since a supplemental instrument that reflects the spreading of the Channel 13
Unit 1st Mortgage and the Channel 13 Unit Collateral Mortgage to encumber the Net Lease does
not secure any new debt or obligation, such instrument may be recorded without the payment of
mortgage recording taxes.

DATED: September 5, 2007

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.