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Transfer Tax Implications on Real Property Leases

By ALM Staff | Law Journal Newsletters |
January 28, 2014

When selling or acquiring a parcel of real property, sophisticated parties will always take into account the cost of the real property transfer tax when evaluating the economics of a particular deal. However, many parties may not realize that a similar transfer tax could apply to a lease of real property as well. A failure to anticipate tax liability can have a significant impact on the viability and economic benefits of a deal. But the real property transfer tax does not apply to all leases, and understanding the tax rules of the applicable jurisdiction can allow parties to plan ahead to structure a lease that avoids unnecessary tax liability.

The real property transfer tax laws vary from state to state (and even between municipalities within a state), and a comprehensive review of all 50 states is not practical here. Instead, this article provides a general overview of basic transfer tax law and its potential implications on real property leases ' then presents a case study analyzing the transfer tax rules in New York State, which will provide an example of the various nuances and strategies that can come into play when negotiating a lease.

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