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Ruling 90-74

Real Estate Conveyance Taxes

This Ruling has been cited in Ruling 93-12

ISSUE:

Whether the assignment by a tenant (or its successors or assigns) of the unexpired portion of a 50-year ground lease and the transfer by the tenant (or its successors or assigns) of improvements constructed on the leased premises, which improvements are to revert, without consideration, to the landlord upon the expiration of the ground lease, will be conveyances subject to the State and municipal real estate conveyance taxes.

FACTS:

  1. Under a ground lease [hereinafter, "the Ground Lease"] with a single fixed term of 50 years (and no renewal options), a landlord [hereinafter, "the Landlord"] leased premises located in Connecticut [hereinafter, "the Leased Premises"] to a limited partnership [hereinafter, "the Tenant"].
  2. No improvements were constructed on the Leased Premises at the commencement of the term of the Ground Lease, but the Tenant was obligated under the Ground Lease to construct a building on the Leased Premises.
  3. The building to be constructed on the Leased Premises was to be owned by the Tenant during the term of the Ground Lease, and to revert, without consideration, to the Landlord upon expiration of such term.
  4. The Tenant subsequently dissolved, and its sole remaining partner [hereinafter, "the Successor"] succeeded to the limited partnership's rights as tenant under the Ground Lease pursuant to an Assignment of Ground Lease by and between the Tenant, the Successor and the Landlord.

DISCUSSION:

Conn. Agencies Regs. §12-494-1 (b)(2) defines "realty" as including, but not being limited to, "long-term leases or other ownership interests which endure for a fixed period of 99 years or more, or which may so endure because of extension or renewal options."

Conn. Agencies Regs. §12-494-2(c)(5) gives as an example of a transaction which is not a conveyance and, accordingly, not subject to the State and municipal real estate conveyance taxes "a lease other than a lease described in §12-494-1(b)(2)."

The Ground Lease neither endures for a fixed period of 99 years or more nor may so endure because of extension or renewal options. A fortiori, the assignment of the unexpired term of the Ground Lease will not be a lease described in §12-494-1(b)(2).

The transfer of improvements that were constructed on the Leased Premises will transfer ownership interests in realty, but those interests neither endure for a fixed period of 99 years or more nor may so endure because of extension or renewal options. Accordingly, the transfer of those interests will not be a conveyance of "realty", as defined in Conn. Agencies Regs. §12-494-1(b).

RULING:

The assignment by the Tenant (or its successors or assigns) of the unexpired portion of the Ground Lease and the transfer by the Tenant (or its successors or assigns) of improvements constructed on the Leased Premises, which improvements are to revert, without consideration, to the Landlord upon the expiration of the Ground Lease, will not be conveyances subject to the State and municipal real estate conveyance taxes.

LEGAL DIVISION

December 4, 1990