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Transfer Tax Implications on Real Property Leases

By ALM Staff | Law Journal Newsletters |

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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Transfer Tax Implications on Real Property Leases Image

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 avoid unnecessary tax liability.