Issue of the Week

Transferrable Development Rights

by Norman Marcus

What are transferrable development rights? Creatures of the New York City Zoning Resolution ("ZR"), that's what.

The ZR maps all city property (except parks) within different zoning district classifications (e.g. R10, C5-3, M1-1, etc.) depending on existing character, transit access and density of population. All properties within the district classification enjoy a maximum amount of buildable floor area determined by the district floor area ratio ("FAR"). FAR is not tailored to individual buildings like men's or women's clothing are designed for their bodies. Rather, one size fits all; some buildings have F AR to spare - some are over bulk and non-complying.

R10 properties for example are entitled to a 10 FAR. If an existing building on its lot contains only 50% of its permitted FAR, the unused balance may be shifted, i.e., "transferred" to a contiguous vacant lot. Here a new structure incorporating the "left-over" air rights from the contiguous older building lot can be built along with its own bulk allowance. Where the two contiguous lots are filed as one zoning lot this is called a zoning lot merger and has been the modus operandi for building by right under the ZR since 1961.

Designated landmarks enjoy a privilege beyond zoning lot mergers; by special permit (public review) they may transfer their unused air rights to an opposite lot across a street or street intersection. Where an area plan has been formulated, landmarks may shift their unused development rights to designated receiving lots whose radius of transferability is nearby but not directly opposite the landmark. Examples of these district wide transfers include the South Street Seaport and the Theatre District.

The planning rationale behind TDRs is that preservation of older, smaller buildings for reasons ranging from aesthetics, historical or cultural association, outstanding leases or ongoing business operations is desirable and permits new development to emerge at random in diverse older neighborhoods. If zoning lot mergers involving TDR were impermissible, there would be more pressure to clear contiguous assemblage sites of their existing development. There would be more area-wide clearance like the old urban renewal days.

Landmark owners' unused development rights were accorded even greater freedom in recognition of the public purpose of landmark preservation. Since 1967 when landmarks TDR became possible under the ZR, there may have been in the neighborhood of 40 such transactions. A well known example is the transfer of 75,000 square feet of unused development rights over Grand Central Terminal across 42nd Street to the Phillip Morris office building which built three extra floors at the top. At the South Street Seaport, early 19th Century Schermerhorn Row was preserved in return for granting valuable tower coverage waivers to three new Water Street office buildings.

The trade always involved the linkage of small preserved structures with over built new structures. Collectively the result met the floor area and density strictures of zoning. From an impact standpoint if the properties involved in the trade are close enough, it is fair to say that they balance each other out.

TDRs were invented in New York City to buttress the City's legal position in Penn Central's challenge to the 1965 Landmarks Preservation Law over the designation of Grand Central Terminal. The United States Supreme Court in sustaining the law in 1978, specifically recognized the zoning TDR device as ameliorating otherwise potentially harsh economic impacts on landmark owners.

As long as there are reasonable distance limits on the linkage of transfer lots ( e.g. landmarks ) to receiving lots, and appropriate ceilings on overbuild increments, TDRs will serve a useful purpose in a City═s arsenal of zoning techniques to implement its plans for the future.

Norman Marcus is a lawyer at Bachner Tally & Polevoy LLP. He is former General Counsel New York City Planning Commission (1963-1985). This article is copyrighted to Mr. Marcus.