This post was written by Lesley Vars and Leah Speckhard
Prices for transferable development rights, commonly referred to as “air rights”, in New York City are reaching sky high numbers as developers scramble to build higher and higher.
According to the Wall Street Journal’s April 23, 2014 article, titled “Sky is the Limit for Air Rights in Manhattan,” the air rights market has recovered, and then some, since the real estate crash of 2008.
With air rights prices on the rise it is especially important to make sure the air rights intended to be used for a residential development are actually transferable and usable for their intended purpose. Existing use variances can stand in the way of a transfer of air rights without approval by New York City’s Board of Standard’s and Appeals (BSA) even when the air rights would be available “as-of-right” (meaning the use for which no city approval is needed) had the variance not been granted. In the air rights world, you don’t always get what you pay for.
New York City’s Zoning Resolution sets forth the maximum number of square feet of floor area that can be built on a given lot – the maximum varies depending on lot location. In the event a building is not built to its maximum height, air rights may be available to transfer to an adjacent owner by way of a zoning lot merger (process by which the lot with the air rights is merged with the lot to which the air rights are being transferred).
However, if a lot with air rights has been the subject of a variance changing the use, the air rights may or may not in actuality be transferable without BSA approval. In Bella Vista Apartment Co. v. Roger H. Bennett (1997, Court of Appeals of N.Y.) a residential developer sought to build an apartment building on a residentially zoned lot. The developer purchased air rights from a neighboring lot, which was re-zoned commercial pursuant to a variance and assumed that the air rights could be used as of right. The developer did not seek any approvals from the BSA and was denied a building permit. The court determined that air rights from a property that benefits from a commercial use variance can’t be transferred to an adjoining residential property even for an as-of-right use without BSA approval.
The court’s finding in Bella Vista doesn’t necessarily mean the BSA won’t approve an air rights transfer where a re-zoning has taken place. Rather, the BSA has identified certain factors to consider. In BSA Cal. No. 885-78-BZ (2009), where a residential developer wanted to utilize air rights from a lot which was the subject of a variance, the BSA determined that the air rights could in fact be transferred. In making this decision, the BSA recognized that health of the real estate market and time frame that elapsed between granting the variance and the proposed transfer of the air rights should be considered. In the ruling noted in this paragraph, at the time the variance was granted there was little to no demand for air rights whereas by the time the developer sought to use the air rights, substantial value could be attributed.
In addition to determining whether the lot which is generating the air rights is subject to a variance, it is important to consider other key factors before buying or selling air rights, as set forth in the New York City Bar Center for Continuing Legal Education presentation – How Did that Building Get So Tall (2007).