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Volume 10 - Opinions of Counsel SBRPS No. 6

Opinions of Counsel index

Assessment roll (designation of owner) (lessee - 99 year lease) - Estates, Powers and Trusts Law, § 6-1.1; Real Property Tax Law, § 502:

Property subject to a 99 year lease does not qualify for a partial real property tax exemption based upon the lessee’s eligibility for such exemption.

Our opinion has been requested concerning the eligibility of a parcel for a partial real property tax exemption, which, like most such exemptions, is available to the “owner” of property (see, Real Property Tax Law, § 502). The facts are that in 1986, the owner of the property in question conveyed the property in question to a taxpayer “for a term of (99) Ninety-nine years from this date forward.” The question is as to the nature of the taxpayer’s interest in the property, and whether the property may receive the exemption on the basis of the lessee’s eligibility for the exemption.

Normally, when a transaction involves a deed, as is the case here, it is presumed that the grantor has conveyed all of his or her estate (i.e., fee simple absolute) in the premises (Vail v. Long I.R. Co., 106 N.Y. 283, 12 N.E. 607 (1887)). However, Real Property Law, § 245 provides:

A grant or devise passes all the estate or interest of the grantor or testator unless the intent to pass a less[er] estate or interest appears by the express terms of such grant or devise or by necessary implication therefrom (emphasis added).

Here, the terms of the deed expressly restrict the interest conveyed to a term of 99 years. Due to this 99 year restriction, this interest cannot be characterized as a fee simple absolute, which is an estate of general inheritance and potentially infinite duration. Rather, it would appear that this interest is an “estate for years” (Estates, Powers and Trusts Law [EPTL], § 6-1.1(5)). An estate for years, although not specifically defined by statute, has been said to have the characteristics of a life estate, except that it is restricted to a set term (see, Turano, Practice Commentary, EPTL, § 6-1.1 (McKinney’s, 1992)).

However, the case law generally considers an estate for years to be equivalent to a leasehold estate or a “lease for years” (see, Warren’s Weed New York Real Property, Volume 2, 5.01 (1994); Nemmer Furniture Co. v. Select Furniture Co., 25 Misc.2d 895, 208 N.Y.S.2d 51 (Sup.Ct., Erie County, 1960)). Neither an estate for years nor a lease for years is included within the meaning of “real property” for purposes of taxation (RPTL, § 102(12)). {1}  Further, under New York law, {2} a “lease for years” is considered personal property, not real property (Grumman Aircraft Engineering Corp. v. Board of Assessors of Town of Riverhead, 2 N.Y.2d 500, 141 N.E.2d 794, 161 N.Y.S.2d 393, reargument denied, remittitur amended, 2 N.Y.2d 1012, 143 N.E.2d 352, 163 N.Y.S.2d 620, cert. denied, 355 U.S. 814, 78 S.Ct. 14, 2 L.Ed.2d 31 (1957), rehearing denied, 355 U.S. 885, 78 S.Ct. 145, 2 L.Ed.2d 115 (1957); {3}  Ampco Printing-Advertisers’ Offset Corp. v. City of New York, 14 N.Y.2d 11 197 N.E.2d 285, 247 N.Y.S.2d 865 (1964), app.dsmd. 379 U.S. 5, 85 S.Ct. 47, 13 L.Ed.2d 21 1964)).

In accordance with this principle, the law provides that if the grantee of an estate for years dies before the expiration of the term, the estate for years passes to the decedent’s personal representative (e.g., executor or administrator) as personal property (EPTL, § 13-1.1(a)(1)). This is to be contrasted with the general rule that real property is deemed to pass directly to the devisees or heirs, not the personal representative, upon the death of the owner (see, e.g., Waxson Realty Corp. v. Rothschild, 255 N.Y. 332, 174 N.E. 700 (1931)).

Thus, the taxpayer in question is merely a lessee of the property in question, and not the owner thereof. That being so, his status as a veteran has no bearing upon the eligibility of the property for the alternative veterans exemption (RPTL, § 458-a). Rather, the property, being owned by a corporation, would not qualify for the alternative veterans exemption (see, 1 Op.Counsel SBEA No. 76).

It is true that, if the taxpayer had taken a life estate in the property, he would be considered the owner, and the alternative veterans exemption could be granted if the eligibility requirements were otherwise satisfied (9 Op.Counsel SBEA No. 41). We recognize that this may seem somewhat anomalous, because a life estate, from an actuarial perspective, is likely to be of a shorter duration than 99 years. However, the essential character of an estate for years does not depend on the length of the term.

To illustrate, suppose the taxpayer’s estate had been only for a term of one year. In that case, the seeming anomaly would not arise, for an estate for one year is clearly not comparable to a life estate. The legal analysis does not change simply because the estate is for a longer term than one year; the fundamental nature of an estate for years is the same whether the term is one year, ten years, 50 years or 99 years. In other words, the fact that the taxpayer’s estate for years is for a term that may well exceed his life expectancy does not change the fact that his estate is for a fixed term and as such, is an interest in personal property under New York law.

Finally, it should be understood that while the possessory interest held by the taxpayer is not taxable as real property, the fee interest of the owner/lessor remains liable for the real property taxes, and is subject to foreclosure if the taxes are unpaid.

May 8, 1995

{1}  The Restatement of Property, § 8, Comment c, in the definition of “real property” excludes estates for years, periodic estates and tenancies at will.

{2}  Under a long line of New York cases, “the interest of a tenant of realty under a real estate lease is not realty but a chattel real which is personal property. . . . A tax on real property does not touch the leasehold interest” (Fort Hamilton Manor v. Boyland, 4 N.Y.2d 192, 149 N.E.2d 856, 173 N.Y.S.2d 560 (1958)).

{3}  In Grumman, the Court of Appeals held that the occupant of real property owned by the United States held no more than a leasehold interest in the property. The Court noted that a lease for years was personalty under the common law, and that the Legislature had not established a different rule for real property tax purposes.