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Volume 10 - Opinions of Counsel SBRPS No. 75

Opinions of Counsel index

Religious corporations exemption (ownership requirement) (fee on limitation) - Estates, Powers and Trusts Law, § 6-1.1; Real Property Tax Law, § 462:

Where a religious organization has a fee on limitation interest in property used as a residence by its officiating clergyman, that property may receive exemption pursuant to section 462 of the Real Property Tax Law.

Our opinion has been requested concerning the nonprofit organizations exemption (Real Property Tax Law, § 420-a) and the so-called “parsonage exemption” (RPTL, § 462). The facts are that a clergyman and his wife have conveyed their residence to the religious corporation which employs the clergyman “until such time as [the clergyman] ceases to be employed as [the clergyman of such congregation]” when title will revert to the clergyman and his wife, their heirs, successors and assigns. The religious corporation is seeking exemption pursuant to the aforecited sections and the congregation is otherwise eligible for the real property tax exemptions enjoyed by religious corporations. {1}

Assuming that the deed was properly delivered and accepted, this would seem to be a conveyance of a fee on limitation (EPTL, § 6-1.1(a)(3)).

A fee on limitation is an estate created by a conveyance in fee, coupled with language restricting the duration of the fee estate, generally until such time as a specified event occurs or does not occur. The fee on limitation automatically terminates upon the occurrence or nonoccurrence of the limitation contained in the grant. No further affirmative act is required by the grantor or any third person. The correlative future estate is a possibility of reverter. Typical language used to create a fee on limitation includes “so long as,” “while,” “during” and “until” (Pedowitz, Real Estate Titles (2d edition), p.9-67; see also, Turano, Practice Commentaries to McKinney’s Consolidated Laws, Book 17B, EPTL, § 6-1.1, p.6; Warren’s Weed, New York Real Property, Conditions and Limitations, § 3.01).

Obviously, at some point in the future, the clergyman’s (and his wife’s) possibility of reverter will ripen (see, Rasch, New York Law and Practice of Real Property, § 7:21; 56 NY Jur2d, Estates, Powers and Restraints on Alienation, § 16). {2}  In the interim, however, the religious corporation owns the property. According to one treatise:

As long as the estate created by a fee on limitation endures, it carries with it all of the privileges and immunities of a fee simple title. It confers on the owner thereof the absolute right to the exclusive possession, use, and enjoyment of the property with complete dominion over it for all purposes as though it were held in fee simple absolute (56 NY Jur2d, Estates, Powers and Restraints on Alienation, § 15).

Until the contingency happens, the religious corporation would appear to have title (Vail v. Long Island R. Co., 106 N.Y. 283, 12 N.E. 607 (1887)) and therefore be eligible for any real property tax exemption to which it might otherwise be entitled (see, Incorporated Village of Philmont v. X-tyal International Corp., 67 A.D.2d 1039, 413 N.Y.S.2d 767 (3d Dept., 1979)).

Certain nonprofit organizations (including religious organizations) may receive an exemption on their property pursuant to section 420-a of the RPTL. In addition to requiring that the owning organization be organized or conducted exclusively for exempt purposes and that the property be used exclusively for exempt purposes (§ 420-a(1)(a)), that section also provides that no officer, member or employee of the organization may receive more than reasonable compensation for services and that the organization may not be a guise or pretense for pecuniary profit making (§ 420-a(1)(b)). Here, we assume that the property is or will be used as the residence of the clergyman and that the clergyman is the officiating clergyman of the religious corporation. Since residential use is not generally a religious use (see, 5 Op.Counsel SBEA No. 122; 10 Op.Counsel SBRPS No. 38; but see, 9 Op.Counsel SBEA No. 85), the property would not seem to qualify for exemption pursuant to section 420-a of the RPTL. Instead, if an exemption is to be allowed, it would appear to be pursuant to section 462 of the law.

Section 462 exempts from taxation (but not special ad valorem levies or special assessments) “property owned by a religious corporation while actually used by the officiating clergymen thereof for residential purposes. . . .” In our opinion, the drafters of section 462 contemplated fee simple ownership in the religious corporation with its incumbent officiating clergyman being provided with a residence during his or her ministry, likely as part of the clergyman’s compensation package. While it could be argued that the introductory phrase of section 462, viz., “In addition to the exemption provided in section [420-a] of this article,” is intended to incorporate the requirements of section 420-a (e.g., limitation on pecuniary profit making) into section 462, given that the Court of Appeals referred to the quoted phrase as being “purely conjunctive” and “vestigial” (Congregation Kollel Horabonim v. Williams, 48 N.Y.2d 301, 306, 307, 398 N.E.2d 515, 422 N.Y.S.2d 909, 910, 911 (1979)), that argument is unlikely to prevail.

Therefore, based on the plain language of section 462, although it appears that the instant conveyance perhaps was made solely for the purpose of obtaining a greater tax exemption (with whatever savings that entails for the religious corporation, the clergyman or both), we are constrained to conclude that the property will qualify for exemption pursuant to such section. Should other religious organizations proceed in a similar manner, the Legislature may wish to consider amending section 462 to require fee ownership in religious organizations.

January 22, 1999

{1}  We assume that, prior to the conveyance in question, the property received or was entitled to receive the partial exemption for property owned by certain members of the clergy (RPTL, § 460).

{2}  Because the possibility of reverter (EPTL, § 6-4.5) herein is not premised on the grantee’s use of the property, it appears that the recording requirements of section 345 of the Real Property Law and those of the Real Property Actions and Proceedings Law (§ 1951 et seq.) are not germane.