As part of a bankruptcy reorganization, we (NBC and GE) will end up as the 'owners for tax purposes' of the office condominium units we already occupy at Rockefeller Center (the GE Building and adjacent Studio/West Buildings), even though a specially formed financing trust will hold nominal legal title and lease the units back to us under 'Trust Leases' with purchase options. We'll pay all taxes, insurance, and maintenance, keep all appreciation, bear all depreciation risk, and be treated as owners for all tax purposes (though not for our own balance sheets). The financing trust's notes and mortgages that back this deal won't be recorded unless our guarantor's (GE's) credit rating drops. Does this transaction trigger the Real Estate Transfer Tax, the Real Property Transfer Gains Tax, or the Mortgage Recording Tax at any step -- the initial bankruptcy-plan transfer to the trust, the trust's lease-with-purchase-option back to us, or the unrecorded financing documents?

Plain-English summary

National Broadcasting Company ("NBC") and its indirect parent General Electric Company ("GE") occupied condominium units at 30 Rockefeller Plaza in Manhattan -- the General Electric Building and adjacent Studio and West Buildings -- under leases from Rockefeller Center Properties ("RCP") and its affiliate RCP Associates (together, the "RCP Partnerships"), which themselves held their interests through a New York City Industrial Development Agency (IDA) lease. When the RCP Partnerships entered Chapter 11 bankruptcy reorganization, their plan called for transferring these "Condominium Interests" (the leasehold and reversionary interests, plus fee title to three additional floors) to NBC, GE, or their designee, in exchange for a specified payment to a creditor of the RCP Partnerships.

The financing structure. Rather than take the interests directly, NBC and GE arranged for a specially formed Delaware business trust (the "Trust") to acquire the Condominium Interests at the bankruptcy plan's closing, funded by debt ("Notes," issued to a commercial-paper funding vehicle) and subordinate financing ("Certificates," issued to a separate certificateholder). Simultaneously, the Trust leased the condominium units back to NBC and GE (GE taking three floors, NBC the rest) under triple-net "Trust Leases" for an initial term of up to ten years, with lease payments calculated to cover the Notes' interest/fees plus a LIBOR-based return on the Certificates. NBC's payment obligations were fully guaranteed by GE. Before the closing, NBC/GE assigned their contractual right to acquire the Condominium Interests (under an earlier "April Agreement") to the Trust for no consideration.

Who really owned what. Although the Trust held nominal legal title -- kept off NBC's and GE's balance sheets for financial-accounting purposes -- the Trust Leases required that NBC/GE be treated as the owners for all tax purposes, entitled to depreciation and other ownership deductions, while deducting their Trust Lease payments as interest expense rather than rent. NBC/GE bore every real burden of ownership: all property taxes, insurance, maintenance, and Operation Agreement obligations, plus indemnification of all parties for related liabilities. They also captured every real benefit: purchase options exercisable at any time for a "Termination Value" (unpaid Trust Financing principal plus accrued costs), full entitlement to any appreciation (by exercising the option or selling and keeping proceeds above what's owed), and full exposure to any depreciation (through a "Residual Value Guarantee" backstopping the Notes and Certificates if they didn't exercise their purchase options). Condemnation or casualty proceeds flowed to NBC/GE, who were obligated to restore or replace affected units.

Why nothing was taxed. The Department worked through four questions. First, because the RCP Partnerships' transfer of the Condominium Interests to the Trust (and the accompanying shift of beneficial ownership to NBC/GE) happened under the bankruptcy reorganization plan, it was exempt from the transfer tax under the specific bankruptcy exemption (Section 1405(b)(8)); the corresponding gains-tax question turned on whether there was an actual gain, since the bankruptcy exemption doesn't extend to the gains tax the same way. Second, granting the Trust Leases with purchase options -- normally itself a taxable "conveyance," since options to purchase real property are generally treated as transfers -- was exempt because NBC/GE, not the Trust, were the real beneficial owners throughout: the mere-change-of-form exemption applied because there was no actual change in beneficial ownership when the Trust (as a financing conduit) briefly held title before leasing it straight back. The same reasoning exempted any future transfer of the Condominium Interests to NBC/GE upon exercising their purchase options. Third, NBC/GE's assignment of their April Agreement rights to the Trust was exempt for the same mere-change-of-identity reason. Fourth, the Mortgage Recording Tax applies only when a mortgage or equivalent security instrument affecting real property is actually recorded or indexed in the real estate records -- since the financing documents here (memoranda of Trust Leases, assignments, and mortgages) were explicitly structured to stay unrecorded unless GE's credit rating fell below a specified threshold, and were furthermore documented as transferring only "nominal ownership" rather than serving as security instruments, no recording tax applied at closing.

What this means for you

Corporations structuring synthetic-lease or off-balance-sheet real estate financing

If a financing trust or similar entity takes nominal title purely to facilitate debt/equity financing, and the actual occupant retains every real burden and benefit of ownership (taxes, insurance, maintenance, appreciation upside, depreciation downside, and tax-purposes ownership treatment) while the trust's role is limited to holding title and channeling lease payments to lenders, the Department treats the lease-with-option-back as a tax-exempt mere change of form -- not a fresh taxable conveyance, despite the deal's economic substance being a financing rather than a sale.

Companies transferring real property interests through a bankruptcy reorganization plan

A transfer of real property effectuated specifically pursuant to a confirmed bankruptcy reorganization plan can be exempt from the transfer tax under the dedicated bankruptcy exemption -- a separate basis from the mere-change-of-form exemption, worth checking independently when a deal involves a Chapter 11 plan.

Structured-finance and real estate counsel on mortgage recording tax timing

Recording tax liability turns on whether a security instrument is actually recorded or indexed in the real estate records -- not on whether debt exists or a lien theoretically could attach. Structuring financing documents to stay unrecorded (with recording triggered only by a specified contingency, like a guarantor credit-rating downgrade) can defer or avoid the tax until that contingency actually occurs.

Common questions

Q: Does using a financing trust to hold title while I lease back and pay for the property myself trigger transfer tax on the leaseback?
A: Not if you retain all the real economic incidents of ownership -- taxes, insurance, maintenance, appreciation, and depreciation risk -- and the trust's role is limited to financing. The Department treats that as a mere change of form with no real change in beneficial ownership.

Q: What about the purchase option built into my lease -- doesn't granting an option to purchase real property usually count as a taxable transfer?
A: Generally yes, options to purchase are treated as conveyances. But here the option was granted by a financing trust back to the party that was already the real beneficial owner, so no change in beneficial ownership actually occurred, and the mere-change exemption applied.

Q: If my financing documents (mortgages, notes) aren't recorded at closing, do I still owe Mortgage Recording Tax?
A: Not until they're actually recorded or indexed in the real estate records. If your structure only requires recording upon a specific triggering event (like a credit downgrade), the tax isn't triggered until that event happens and the documents are actually recorded.

Q: Can another company structuring a similar synthetic lease rely on this exact analysis?
A: No. This is an advisory opinion binding the Department only as to NBC and GE and the specific facts described -- particularly the extensive documentation that NBC/GE bore every real burden and benefit of ownership. Different allocations of risk or benefit could change the outcome.

Citations and references

Statutes and regulations:

• Sections 253, 253-a of the Tax Law (Mortgage Recording Tax, state and NYC)
• Section 250.2 of the Tax Law (definition of "mortgage")
• Section 1401(e) of the Tax Law (definition of "conveyance")
• Section 1401(f) of the Tax Law (definition of "interest in real property")
• Section 1402 of the Tax Law (RETT on conveyances over $500 consideration)
• Section 1405(b)(6) of the Tax Law (mere-change-of-form exemption)
• Section 1405(b)(8) of the Tax Law (bankruptcy conveyance exemption)
• Section 1440.4 of the Tax Law (gains tax definition of "interest")
• Section 1440.7 of the Tax Law (gains tax definition of "transfer of real property")
• Section 1441 of the Tax Law (gains tax on transfers of $1 million+; repealed by Chapter 309 of the Laws of 1996 for transfers on/after June 15, 1996)
• Section 1443.5 of the Tax Law (gains tax mere-change-of-form exemption)
• 20 NYCRR 590.1 (gains tax $1 million threshold regulation)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a96_5r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (5) R
Real Estate
Transfer Tax
Real Property
Transfer Gains Tax
Mortgage Recording Taxes
June 25, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M960613A

On June 13, 1996, the Department of Taxation and Finance received a Petition for Advisory
Opinion from National Broadcasting Company, Inc. ("NBC"), 30 Rockefeller Plaza, New York, New
York 10112 and General Electric Company ("GE"), 3135 Easton Turnpike, Fairfield, Connecticut
06431.
The issues raised by Petitioners, NBC and GE, with respect to the transactions described
below, are as follows:
1) Whether Petitioners' assignment to a trust (the "Trust") of their rights under the
April Agreement to acquire the Condominium Interests will be subject to the New
York State Real Estate Transfer Tax (the "transfer tax"), or the New York State Real
Property Transfer Gains Tax ( the "gains tax") and whether the recording of the
instruments effecting the transfer of the Condominium Interests from the RCP
Partnerships to the Trust will be subject to the New York State and New York City
Mortgage Recording Taxes (the "mortgage recording taxes").
2) Whether the RCP Partnerships' transfers of the Condominium Interests to the
Trust will be subject to the transfer tax or the gains tax, and whether the transfers of
beneficial ownership of the Condominium Interests to the Petitioners will be subject
to the transfer tax or the gains tax.
3) Whether the granting by the Trust of leases to Petitioners with options to purchase
the Condominium Interests or the subsequent transfer of the Condominium Interests
to Petitioners upon the exercise of the options to acquire the Condominium Interests
will be subject to the transfer tax or the gains tax.
4) Whether (i) the amount required to finance the acquisition of the Condominium
Interests, in the form of Notes and Certificates, either collectively or individually; (ii)
the assignment of perfected (through a UCC filing only) and first-priority security
interests in all of the non-real property interests of the Trust in the Condominium
Interests to secure payment of the Notes; (iii) the assignments of Trust Leases granted
to the Certificateholders and the Noteholders; and, (iv) the execution of the
Memoranda of Trust Leases and the granting of mortgages executed at the time the
Notes are issued are subject to the mortgage recording taxes.

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Real Estate
Transfer Tax
Real Property
Transfer Gains Tax
Mortgage Recording Taxes
June 25, 1996
Petitioner submits the following facts as the basis for this Advisory Opinion. (Petitioners also
included various documents purporting to effect the proposed transactions. It is not the function of
the Advisory Opinion process to examine the documents to determine their effect. Rather, the
advisory opinion is based upon the facts as presented by Petitioners. To the extent the actual facts
may differ from those presented, the advisory opinion will not have a binding effect.) At the present
time, NBC, which is wholly owned indirectly by GE, occupies certain premises located at 30
Rockefeller Plaza in the City of New York known as the General Electric Building and the adjacent
Studio and West Buildings. These premises are in the form of condominium units, legal title to
which is held by the New York City Industrial Development Agency ("IDA"). These condominium
units are leased by IDA to Rockefeller Center Properties ("RCP"). The reversionary interest is held
by RCP's affiliate, RCP Associates. Both are New York partnerships (the "RCP Partnerships"). At
the present time, RCP subleases these units, and leases three additional units (comprised of floors
22, 23 and 53), to Petitioners (collectively, the "RCP Leases"). The reversionary and leasehold
interests (i.e., the leasehold interests of RCP under the lease from IDA and the leasehold interests
of RCP under the leases to NBC, including the lease of the three additional units (the "Leasehold
Interests")) and fee title to the three additional units (collectively, the "Condominium Interests") are
the subject of the proposed transfers which give rise to the tax issues to which this petition for
advisory opinion is addressed.
The RCP Partnerships are currently undergoing reorganization pursuant to Chapter 11 of the
United States Bankruptcy Code in the Southern District of New York. Pursuant to the Second
Amended Plan of Reorganization for the RCP Partnerships (the "Plan of Reorganization"), the
Condominium Interests will be transferred by the RCP Partnerships to GE, NBC or a nominee or
designee of NBC. The Plan of Reorganization also provides for reorganization of the ownership of
the Center where the Condominium Interests are located by transfers to other parties which are not
relevant to this petition. The transfer of the Condominium Interests to a Delaware business trust
established for the purposes of this transaction (the "Trust") will be made in consideration of a
payment of a specified sum of money, to be made on behalf of Petitioners to Rockefeller Center
Properties, Inc. ("RCPI"), a creditor of the RCP Partnerships. The rights of the parties with respect
to that transfer are contained in an agreement dated April 23, 1996, to which the parties denominated
the "Investor Group", and GE and NBC are parties (the "April Agreement"). The closing under the
Plan of Reorganization was expected to occur within 23 days after May 29, 1996 (the "Closing").
Prior to the Closing, Petitioners will assign to the Trust, for no consideration, the right to
acquire the Condominium Interests. The instrument which effects that assignment will not be
recorded. At the Closing, the Trust will pay to RCPI the specified sum, and instruments effecting the
transfer of the Condominium Interests will be delivered to the Trust under the Plan of Reorganization

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Real Estate
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Real Property
Transfer Gains Tax
Mortgage Recording Taxes
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and recorded. The instruments effecting the transfer of the Condominium Interests will state that they
are solely for the purpose of transferring nominal ownership to the Condominium Interests and are
not intended as mortgages or security interests.
In connection with the Closing under the Plan of Reorganization, a restated condominium
declaration, a reciprocal easement agreement and a unit owners agreement will be made applicable
to the premises covered by the Condominium Interests (the "Operation Agreements"). Petitioners
also will be responsible for managing and maintaining insurance on the Condominium Interests and
for all obligations concerning the property and operation imposed by the Operation Agreements.
Additionally, Petitioners must indemnify all parties from any liabilities associated with the purchase,
ownership, possession, occupancy, leasing or use of the Condominium Interests. Also, the consent
of Petitioners is necessary for the Trust to encumber the Condominium Interests.
Upon transfer of the Condominium Interests to the Trust, the Trust will lease the
condominium units to Petitioners (the "Trust Leases") for an initial period of up to ten years. GE will
lease floors 22, 23, and 53 and NBC will lease the balance of the space. As a result of these
transactions, the Trust will be the nominal owner of the Condominium Interests and will be entitled
to the amounts payable by Petitioners under the Leases which will be equal to a LIBOR based yield
on the specified sum plus other costs associated with the financing.
The Trust will obtain financing for the Condominium Interests from a third party (the
"Certificateholder"), and a commercial paper funding vehicle or similar source (the "Noteholder").
Initially, a certain percentage of the specified sum required to finance the acquisition of the
Condominium Interests will be in the form of a loan from a third party or GE (or an affiliate thereof)
and, as soon as practicable thereafter, will be refinanced in the form of debt (the "Notes") issued to
the Noteholder in the principal amount of the loan. The remaining financing will be in the form of
Certificates issued to the Certificateholder.
In order to ensure that the Trust will not be considered a "single purpose entity" for certain
accounting purposes, the Certificateholder will also invest an amount in the Trust, which will be
reinvested by the Trust in investment grade securities. The Certificateholder will be entitled to the
return earned on the amount and a return of the principal.
Payments made to the Trust by Petitioners under the Trust Leases will equal all costs
associated with the Notes (including interest, fees and related expenses) plus a LIBOR based return
to the Certificateholder on the Certificates.

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Real Estate
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Real Property
Transfer Gains Tax
Mortgage Recording Taxes
June 25, 1996
The Trust Leases will provide that in the event Petitioners elect not to purchase the Condominium
Interests at the end of the term of the Trust Leases, the Condominium Interests will be sold, and any
amounts owing under the Notes and the Certificates will be repaid from the proceeds and Petitioners'
payment of the Residual Value Guarantee (as defined below).
The following is a summary of the principal terms of the Trust Leases:
The Trust Leases will be triple net leases in which the lease payments will be equal
to the sum of the interest on the outstanding Notes plus all fees and expenses related
thereto, plus a LIBOR based yield on the Certificates (the Notes plus the Certificates
are referred to herein collectively as the "Trust Financing").
NBC's obligations under the Trust Leases will be guaranteed by GE (the
"Guarantor"). Thus, in the event of a default by NBC, all payments required to be
made under the Trust Leases will be paid by the Guarantor.
In conjunction with the Trust Leases, Petitioners will acquire options to purchase the
Condominium Interests at any time for an amount equal to the Termination Value.
The Termination Value for an interest is an amount equal to the relevant portion of
the remaining unpaid principal of the Trust Financing outstanding plus any accrued
return thereon and related fees and expenses to the date of payment.
At the end of the lease term, Petitioners will have options to (i) acquire some or all
of the Condominium Interests from the Trust by paying an amount equal to the
Termination Value; (ii) cause the sale of the Condominium Interests not acquired
pursuant to (i) subject to a Residual Value Guarantee (defined below); or (iii) extend
the term of the relevant Trust Lease for an additional period on terms which are
anticipated to be substantially similar to those which pertain to the initial Trust Lease
term. If Petitioners choose the sale option in clause (ii) above and any portion of the
Condominium Interests cannot be sold, then Petitioners will pay the Residual Value
Guarantee and the Certificateholder will have the option to take the unsold portion
in satisfaction of the unpaid Certificate amounts or cause Petitioners to continue to
market such unsold portion and to pay fair market rent for such unsold portion until
sold. In the event of a sale of the Condominium Interests, Petitioners will make a
payment to the Trust equal to a percentage of the Termination Value (the "Residual
Value Guarantee") and give to the Trust the sales proceeds up to a percentage of the
Termination Value with Petitioners retaining the remainder, if any.

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Real Estate
Transfer Tax
Real Property
Transfer Gains Tax
Mortgage Recording Taxes
June 25, 1996
In addition to the amounts described above in respect of a yield on the Trust Financing
amount, Petitioners will be required to pay all real and personal property taxes, as well as any
assessments, levies or fees associated with the ownership, use or financing of the Condominium
Interests. The Trust Leases give Petitioners the right to, at their own expense, contest the amount of
the taxes assessed on the Condominium Interests. Petitioners also will be responsible for managing
and maintaining insurance on the Condominium Interests and for all obligations concerning the
property and operation imposed by the Operation Agreements. Additionally, Petitioners must
indemnify all parties from any liabilities associated with the purchase, ownership, possession,
occupancy, leasing or use of the Condominium Interests. Also, the consent of Petitioners is necessary
for the Trust to encumber the Condominium Interests.
The Trust Leases will require that the parties treat Petitioners as the owners of the
Condominium Interests for all tax purposes. However, for financial accounting purposes it is
expected that the Condominium Interests will not be reflected on Petitioners' balance sheets.
The Notes will be secured by an assignment of perfected (through a UCC filing only) and
first-priority security interests in, and liens on, all of the non-real property interests of the Trust
(other than customary excepted rights and payments) in the Condominium Interests. In any event,
there will be no mortgages filed in connection with the UCC filing. It is anticipated that the
memoranda of Trust Leases, assignment of Trust Leases and mortgages will be executed at the time
the Notes are issued, but in any event they will not be recorded or indexed in the real estate records
at that time; however, if the credit rating of the Guarantor is downgraded to less than AA-/Aa3, then
the memoranda of Trust Leases, assignment of Trust Leases and mortgages will be recorded.
The Notes will have first payment priority under the Residual Value Guarantee and the other
payments under the Trust Leases. The Residual Value Guarantee will be a guarantee by Petitioners,
on a first loss basis, of a percentage of the Termination Value in the event that Petitioners elect not
to purchase the Condominium Interests upon termination of the Trust Leases. The Notes will also
have first payment priority in the proceeds of a sale of the Condominium Interests for an estimated
percentage of the Notes not covered by the Residual Value Guarantee.
The Certificateholder will have second payment priority (after the Notes) in sale proceeds
from the Condominium Interests and in all payments under the Trust Leases, other than the Residual
Value Guarantee, as to which the Certificateholder shall have no interest.

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Real Estate
Transfer Tax
Real Property
Transfer Gains Tax
Mortgage Recording Taxes
June 25, 1996
Any proceeds of sale of the Condominium Interests remaining after payment of the Notes and
the Certificates will be paid to Petitioners where such proceeds will be commingled with Petitioners'
general funds and available to all creditors of Petitioners.
In the event of condemnation of a Condominium Interest, or casualty that renders a
Condominium Interest unsuitable for use, Petitioners are required to purchase the affected
Condominium Interest by paying the Termination Value attributable to such interest or by
substituting property of equal or greater value and useful life. Upon such payment, the affected
Condominium Interest will be transferred to Petitioners from the Trust. Any award, compensation
or insurance payment to which Petitioners become entitled will be for the benefit of Petitioners. In
the event of a casualty that does not render the Condominium Interests unsuitable for use, Petitioners
will be required to rebuild, replace or repair any damage to restore the Condominium Interests to the
value and operating condition immediately prior to the casualty or condemnation. In this case, the
Trust Lease with respect to the affected interest will continue and the amounts payable under that
Trust Lease will not be reduced. In any case, excess insurance proceeds or condemnation awards
(after payment of Termination Value) will be paid to Petitioners unless a default under a Lease has
occurred and is continuing.
In conjunction with the Trust Leases, Petitioners will acquire options to acquire the
Condominium Interests from the Trust. The option price will equal the Termination Value.
Petitioners will have the right to exercise the options at any time during the term of the Trust Leases
and upon termination of the Trust Leases.
The terms of the Trust Leases require that Petitioners assume the responsibilities of an owner
by burdening Petitioners with the duty to pay the tax, maintenance, repair, insurance expense and
other costs associated with ownership of the Condominium Interests as well as all obligations
concerning the property and its operation imposed by the Operation Agreements. Furthermore,
Petitioners are entitled to the full benefit from any appreciation in the value of the Condominium
Interests. This is true because if the Condominium Interests have appreciated in value, Petitioners
are entitled to either (i)exercise their purchase option pursuant to which they will pay the
Termination Value and receive the appreciated property or (ii) pay the Residual Value Guarantee and
sell the Condominium Interests to a third party.
Conversely, if the value of the Condominium Interests depreciates, Petitioners nevertheless
will be required to service the Trust Financing for the full term of the Trust Leases through the
payment of the specified amounts under the Trust Leases. Petitioners will also be obligated to repay
the principal amount through exercise of a purchase option or through the Residual Value

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Real Estate
Transfer Tax
Real Property
Transfer Gains Tax
Mortgage Recording Taxes
June 25, 1996
Guarantee payment by Petitioners (or the Guarantor on Petitioners' behalf under the Guarantee
Obligation) and proceeds from the sale of the Condominium Interests. In the unlikely event that the
value of the Condominium Interests falls to less than a certain percentage of the Purchase Price and
Petitioners fail to exercise their purchase option when the Trust Leases terminate, however, the Trust
Financing may not be fully repaid.
By using the structure described herein to finance the Condominium Interests, the
Condominium Interests and the financing used to acquire the Condominium Interests will not appear
on Petitioners' balance sheets. Thus, for financial reporting purposes, each Petitioner will be treated
as a lessee of its respective Condominium Interests. However, for all tax purposes, Petitioners will
be treated as the owners of the Condominium Interests and will take all depreciation and deductions
associated with the ownership of the Condominium Interests. Also, Petitioners will deduct as interest
all costs associated with the financing arrangement and will take no deduction for "rent."
Applicable Law and Regulations
Subdivisions 1, 1-a and 2 of Section 253 of the Tax Law impose taxes on the recording of
a mortgage of real property in the State measured by the principal debt or obligation, which is, or
under any contingency, may be secured at the date of execution thereof or at any time thereafter. The
tax imposed pursuant to the authority of Section 253-a of the Tax Law in New York City is not
different for purposes of the opinion.
Section 250.2 of the Tax Law defines the term "mortgage" as follows:
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. Executory contracts for the sale of real property under which
the vendee has or is entitled to possession shall be deemed to be mortgages for
purposes of this article and shall be taxable at the amount unpaid on such contracts.
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 purposes of
this article, and shall be taxable as such upon the amount of such increase or addition
....

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Real Estate
Transfer Tax
Real Property
Transfer Gains Tax
Mortgage Recording Taxes
June 25, 1996
Section 1402 of the Tax Law imposes the transfer tax on each conveyance of real property
or interest therein when the consideration for the conveyance exceeds $500.00.
Section 1401(e) of the Tax Law defines the term "Conveyance", in part, as follows:
"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 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 ....
Section 1401(f) of the Tax Law sets forth that the phrase "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)(6) and Section 1405(b)(8) of the Tax Law respectively provide that the
transfer tax shall not apply to the extent that a conveyance results in a mere change of identity or
form of ownership or organization where there is no change in beneficial ownership of the real
property (the "mere change exemption") and a conveyance given pursuant to the federal bankruptcy
act.
Section 1441 of the Tax Law imposes the gains tax on the gain derived from the transfer of
real property within this state at the rate of ten percent of the gain. Section 590.1 of Part 590 of 20
NYCRR (the "gains tax regulations") provides in part that the gains tax is imposed on the transfer
of real property where the consideration for the transfer is $1 million or more.
Section 1440.4 of the Tax Law provides, in pertinent part, as follows:

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Mortgage Recording Taxes
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"Interest" when used in connection with real property includes, but is not limited to,
title in fee, a leasehold interest, a beneficial interest, an encumbrance, a transfer of
development 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. Interest shall also include an option or contract to purchase real property.
Section 1440.7 of the Tax Law provides, in pertinent part, as follows:
"Transfer of real property" 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 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.
Section 1443.5 of the Tax Law provides an exemption from the gains tax to the extent that
a transfer of real property consists of a mere change of identity or form of ownership or organization,
where there is no change in beneficial interest (the "mere change exemption").
Analysis and Conclusion
Regarding issue #2, the transfers of the Condominium Interests by the RCP Partnerships to
the Trust and the transfers of the beneficial ownership of the Condominium Interests to Petitioners
would be viewed as a single transfer for transfer tax purposes. Since the transfers are made pursuant
to the Plan of Bankruptcy Reorganization they are not subject to the transfer tax based on the
exemption provided in Section 1405(b)(8). Also, for purposes of the gains tax, the RCP Partnerships'
transfers of the Condominium Interests to the Trust and the transfers of beneficial ownership of the
Condominium Interests to Petitioners would be viewed as a single transfer subject to the gains tax
in the event of a gain resulting from the transfers.
Regarding issue #3 and the transfer tax and the gains tax elements of issue #l, as set forth in
the above cited Tax Law and regulations, the granting of an option to purchase real property with
right to use or occupancy of real property is a conveyance and transfer of real property generally

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Real Estate
Transfer Tax
Real Property
Transfer Gains Tax
Mortgage Recording Taxes
June 25, 1996
subject to the transfer tax and the gains tax. In addition, the subsequent conveyance or transfer of real
property in connection with the exercise of the option to purchase real property is a conveyance and
transfer of real property generally subject to the transfer tax and the gains tax.
In this case, the RCP Partnerships will transfer ownership of the Condominium Interests to
the Trust. Simultaneously with this transfer, the Trust will enter into agreements, which are termed
"leases", with Petitioners. Under those agreements, Petitioners will have options to acquire the
Condominium Interests. For financial reporting purposes Petitioners will be treated as lessees, and
not the owners of the Condominium Interests. However, for all tax purposes Petitioners will be
treated as the owners of, and will take all depreciation and deductions associated with the ownership
of, the Condominium Interests. Also, Petitioners will deduct as interest expense, the payments of
current return and associated fees and expenses on the Trust Financing, and will take no deductions
as "rent" for any payments made. In addition, under the Trust Leases Petitioners assume all burdens
of ownership of the Condominium Interests, including the duty to pay the tax, maintenance, repair,
insurance expense and other costs associated with ownership of the Condominium Interests as well
as all obligations concerning the property and its operation normally associated with ownership
which are imposed by the Operation Agreements. All of Petitioners' obligations under the Trust
Leases are fully guaranteed by the Guarantor. Furthermore, in the event of condemnation or casualty
that renders the Condominium Interests unsuitable for use, any award, compensation or insurance
payment to which Petitioners become entitled will be assigned to the Trust for the benefit of
Petitioners. Also, Petitioners are entitled to the benefit from any appreciation in the value of the
Condominium Interests, and will bear the economic burden of all expected depreciation in value of
the Condominium Interests.
Accordingly, it is recognized that for tax purposes at all times from the conveyance of
ownership from the RCP Partnerships to the Trust that Petitioners are the beneficial owners of the
Condominium Interests. Thus, the granting of the lease by the Trust to Petitioners coupled with the
granting of the options to purchase and the subsequent transfer of the Condominium Interests by the
Trust to Petitioners upon exercise of the options will not be subject to the transfer tax and the gains
tax based on the mere change of identity exemptions provided in Sections 1405(b)(6) and 1443.5 of
the Tax Law, respectively.
Furthermore, the assignment by Petitioners to the Trust of the Petitioners' rights under the
April Agreement to acquire the Condominium Interests is also exempt from the transfer tax and
gains tax as a conveyance and transfer which results in a total mere change of identity.

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Real Estate
Transfer Tax
Real Property
Transfer Gains Tax
Mortgage Recording Taxes
June 25, 1996
With respect to issue #4 and the mortgage recording tax element of issue #1, pursuant to
Sections 253 and 253-a of the Tax Law, respectively, mortgage recording taxes are imposed on the
recording of any mortgage of real property situated within New York State and New York City. The
memoranda of Trust Leases, assignment of Trust Leases and mortgages, the Notes and Certificates,
the assignment of the April Agreement and the assignment of perfected and first priority security
interests will not be recorded at the time the transaction is consummated. However, the memoranda
of Trust Leases, assignment of Trust Leases and mortgages are to be recorded if there is a
deterioration in the credit rating of the Guarantor. Accordingly, since the memoranda of Trust
Leases, assignment of Trust Leases and mortgages, the Notes and Certificates, the assignment of the
April Agreement and the assignment of perfected and first priority security interests will not be
recorded or indexed in the real estate records (there will only be the UCC filing against the non-real
property interests), there will be no Mortgage Recording Taxes imposed at the time the financing
and/or refinancing is obtained, or when Petitioners enter into the Trust Leases. However, if the
memoranda of Trust Leases, assignment of Trust Leases or mortgages, the notes and certificates, the
assignment of the April Agreement and the assignment of perfected and first priority security
interests are recorded or indexed in the real estate records at a subsequent time, the recording or
indexing in the real estate records of those instruments will be subject to the Mortgage Recording
Taxes measured by the principal debt or obligation which may be secured at the date of execution
or at any time thereafter.
Pursuant to section 250.2 of the Tax Law, the term "mortgage" is defined to be a mortgage
or deed of trust which imposes a lien on or affects the title to real property, notwithstanding that the
property may form a part of the security for the debt or debts secured thereby. The instruments
effecting the transfer of the Condominium Interests by the RCP Partnerships to the Trust will state
that they are solely for the purposes of transferring nominal ownership to the Condominium Interests
and are not intended as mortgages or security interests. Therefore, since these instruments effecting
the transfer of the nominal ownership to the Condominium Interests are not intended to secure the
payment of money or the performance of an obligation, these instruments are not mortgages and their
recording is not subject to the Mortgage Recording Taxes.

DATED: June 25, 1996

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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