Zoning Lot Mergers

The Zoning Resolution of the City of New York provides a mechanism for the transfer of unused development rights from one owner's property to another adjacent owner's property. That mechanism is a zoning lot merger.

The Zoning Resolution uses 'zoning lot,' not tax lot, as the basis for all zoning calculations. A zoning lot is a tract of land comprised of one or more tax lots within a single block.

Although it can have a wider meaning, the term 'development rights' typically refers to Floor Area. Floor Area is explicitly defined in zoning as the gross area of the building minus specified exclusions The maximum amount of Floor Area permitted on a zoning lot is based on the 'Floor Area Ratio' ('FAR') applicable to the lot (i.e., lot area multiplied by FAR equals the maximum Floor Area for the lot). FAR is determined both by the zoning district in which the property is located and the use to which the property is put. For example, a vacant 10,000 square-foot lot in a zoning district with a maximum commercial FAR of 8.0 can contain a commercial building with 80,000 square feet of Floor Area. If the adjacent lot were the same size, but had an existing building of only 50,000 square feet of Floor Area, its 30,000 square feet of unused Floor Area also could be utilized on the adjacent lot through a zoning lot merger.

Contiguity

Contiguity of the tax lots comprising a single zoning lot is essential. To be considered contiguous, adjacent lots to be merged must share at least ten feet (10') along a common boundary. More than two lots can be merged into a zoning lot, provided each lot shares 10' along a common boundary lot with another lot in the chain.

Subsection (d) of the definition of 'zoning lot' in Section 12-10 of the Zoning Resolution allows the owners of the contiguous properties to declare that their respective zoning lots are to be merged into a single, larger zoning lot in a 'declaration of restrictions,' thereby establishing the merged zoning lot.

In order to protect any other parties who may have an interest that could be adversely affected by the merger, the Zoning Resolution also requires that a 'Certificate of Parties in Interest' be issued by a title company.

Zoning Lot Development Rights

Air Rights Transfer of Development Rights ('TDR')

In connection with a subdivision (d) merger, a 'party in interest' includes the fee owner or owners of the properties affected, the holder of any interest in all or part of the merged lot which is superior to the Declaration and could result in such holder either obtaining possession of any portion of such tract of land or being adversely affected by the Declaration, or the holder of certain unrecorded interests in all or part of such tract of land.

Each such party in interest must execute either the Declaration or a Waiver of its right to execute the Declaration. The Certificate must show that all such parties in interest have executed and recorded either the Declaration or a Waiver. The failure to correctly list the parties in interest and obtain their execution can lead to the disapproval of the merger even after construction has commenced. Therefore, the accuracy of the title company's Certificate of Parties-in-Interest is critical.

While some of these details seem complicated, zoning lot mergers are relatively straightforward. If the seller and the buyer of the development rights agree, and all the other parties in interest cooperate, the merger can be effectuated by the execution of these requisite documents. Basic forms of these documents were promulgated by the NYC Department of Buildings (DOB) in a Memorandum dated May 18, 1978. They remain the standard today.

Two Other Documents

In addition to the documents required by the Zoning Resolution and DOB, two other documents are highly recommended. First, since the Declaration does not set forth the rights and obligations of the parties with respect to the use of the development rights on the zoning lot, a more detailed agreement should be entered into between the owners setting forth these rights. It is standard practice for the owners of the lots to be merged to enter into and record a zoning lot development agreement ('ZLDA'), which establishes the parties' rights and obligations.

Second, the parties usually agree to an Easement for Light and Air, which prevents the developer from denying the seller's property access to light and air and the seller from utilizing any retained development right in a manner that adversely affects the developer's new building.

Another reason to execute an Easement for Light and Air is title insurance. Notwithstanding the fact that the title company executed the Certification of Parties in Interest and recorded all of the necessary documents, it will still not issue title insurance for the transaction because development rights are not an interest in real property. They are, rather, a statutory right. Although those rights may be extremely valuable, they cannot be insured b a title company However, a title company can insure , which is a recognized interest in real property that can be assigned a dollar value and insured for that amount by a title company. The Easement is typically incorporated in the ZLDA.

Most title companies also will issue a development rights endorsement as part of a title policy for property they are otherwise insuring. This endorsement insures that: 1) all of the Parties-in-Interest executed the Declaration or Waiver of their rights thereto, 2) the recorded ZLDA is a valid agreement, and 3) an Easement for Light and Air referred to in the ZLDA was properly recorded.

Conclusion

Development rights deals have become far more common in New York City as creative developers continue to look for new ways to add value to the limited supply of land. Accordingly, attorneys should understand both the legal concept and mechanics required to effectuate such a deal. It is an invaluable skill to acquire, as the land that the City sits on certain won't expand ,but the need to build upon it will.

Caroline G. Harris is Of Counsel to Troutman Sanders LLP, New York. Marc Israel is with American Land Services, New York.

The Zoning Resolution of the City of New York provides a mechanism for the transfer of unused development rights from one owner's property to another adjacent owner's property. That mechanism is a zoning lot merger.

The Zoning Resolution uses 'zoning lot,' not tax lot, as the basis for all zoning calculations. A zoning lot is a tract of land comprised of one or more tax lots within a single block.

Although it can have a wider meaning, the term 'development rights' typically refers to Floor Area. Floor Area is explicitly defined in zoning as the gross area of the building minus specified exclusions The maximum amount of Floor Area permitted on a zoning lot is based on the 'Floor Area Ratio' ('FAR') applicable to the lot (i.e., lot area multiplied by FAR equals the maximum Floor Area for the lot). FAR is determined both by the zoning district in which the property is located and the use to which the property is put. For example, a vacant 10,000 square-foot lot in a zoning district with a maximum commercial FAR of 8.0 can contain a commercial building with 80,000 square feet of Floor Area. If the adjacent lot were the same size, but had an existing building of only 50,000 square feet of Floor Area, its 30,000 square feet of unused Floor Area also could be utilized on the adjacent lot through a zoning lot merger.

Contiguity

Contiguity of the tax lots comprising a single zoning lot is essential. To be considered contiguous, adjacent lots to be merged must share at least ten feet (10') along a common boundary. More than two lots can be merged into a zoning lot, provided each lot shares 10' along a common boundary lot with another lot in the chain.

Subsection (d) of the definition of 'zoning lot' in Section 12-10 of the Zoning Resolution allows the owners of the contiguous properties to declare that their respective zoning lots are to be merged into a single, larger zoning lot in a 'declaration of restrictions,' thereby establishing the merged zoning lot.

In order to protect any other parties who may have an interest that could be adversely affected by the merger, the Zoning Resolution also requires that a 'Certificate of Parties in Interest' be issued by a title company.

Zoning Lot Development Rights

Air Rights Transfer of Development Rights ('TDR')

In connection with a subdivision (d) merger, a 'party in interest' includes the fee owner or owners of the properties affected, the holder of any interest in all or part of the merged lot which is superior to the Declaration and could result in such holder either obtaining possession of any portion of such tract of land or being adversely affected by the Declaration, or the holder of certain unrecorded interests in all or part of such tract of land.

Each such party in interest must execute either the Declaration or a Waiver of its right to execute the Declaration. The Certificate must show that all such parties in interest have executed and recorded either the Declaration or a Waiver. The failure to correctly list the parties in interest and obtain their execution can lead to the disapproval of the merger even after construction has commenced. Therefore, the accuracy of the title company's Certificate of Parties-in-Interest is critical.

While some of these details seem complicated, zoning lot mergers are relatively straightforward. If the seller and the buyer of the development rights agree, and all the other parties in interest cooperate, the merger can be effectuated by the execution of these requisite documents. Basic forms of these documents were promulgated by the NYC Department of Buildings (DOB) in a Memorandum dated May 18, 1978. They remain the standard today.

Two Other Documents

In addition to the documents required by the Zoning Resolution and DOB, two other documents are highly recommended. First, since the Declaration does not set forth the rights and obligations of the parties with respect to the use of the development rights on the zoning lot, a more detailed agreement should be entered into between the owners setting forth these rights. It is standard practice for the owners of the lots to be merged to enter into and record a zoning lot development agreement ('ZLDA'), which establishes the parties' rights and obligations.

Second, the parties usually agree to an Easement for Light and Air, which prevents the developer from denying the seller's property access to light and air and the seller from utilizing any retained development right in a manner that adversely affects the developer's new building.

Another reason to execute an Easement for Light and Air is title insurance. Notwithstanding the fact that the title company executed the Certification of Parties in Interest and recorded all of the necessary documents, it will still not issue title insurance for the transaction because development rights are not an interest in real property. They are, rather, a statutory right. Although those rights may be extremely valuable, they cannot be insured b a title company However, a title company can insure , which is a recognized interest in real property that can be assigned a dollar value and insured for that amount by a title company. The Easement is typically incorporated in the ZLDA.

Most title companies also will issue a development rights endorsement as part of a title policy for property they are otherwise insuring. This endorsement insures that: 1) all of the Parties-in-Interest executed the Declaration or Waiver of their rights thereto, 2) the recorded ZLDA is a valid agreement, and 3) an Easement for Light and Air referred to in the ZLDA was properly recorded.

Conclusion

Development rights deals have become far more common in New York City as creative developers continue to look for new ways to add value to the limited supply of land. Accordingly, attorneys should understand both the legal concept and mechanics required to effectuate such a deal. It is an invaluable skill to acquire, as the land that the City sits on certain won't expand ,but the need to build upon it will.

Caroline G. Harris is Of Counsel to Troutman Sanders LLP, New York. Marc Israel is with American Land Services, New York.