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Court rules against developer's use of air rights.

Unused development or "air rights" cannot be transferred as-of-right from a zoning lot which previously received a use variance, according to a recent case decided by New York's highest court.

In Bella Vista Apartment Co. v. Bennet, the Court of Appeals has held that a developer of a proposed apartment building could not utilize the unused development rights from the owner of an adjacent lot which had received a use variance, without first returning to the Board of Standards and Appeals for its approval.

The facts make for an intriguing but cautionary tale. The owner of Tax Lot 186 in Queens had received a use variance which allowed the construction of a multiplex movie theater on residentially (R-4) zoned land. Some years later the owner of the adjacent Lot 185 sought to develop a 14-story apartment building on the lot. Since the FAR of Lot 185 was inadequate to build 14 stories, the developer allegedly paid over one million dollars to acquire the unused development rights from the adjacent movie theater parcel.

The owners of the two lots then filed the appropriate zoning lot merger declaration pursuant to Zoning Resolution [section] 12-10(d). Under the Zoning Resolution, contiguous tax lots in separate ownership may "declare" themselves to be one zoning lot. In this way unused bulk development rights may be transferred among lots.

The developer of the apartment building took the position that once the zoning lot declaration was filed, the issuance of the building permit was as-of-right, and required no discretionary approvals. The Department of Buildings disagreed, demanding the developer of Lot 185 to return to the Board of Standards and Appeals (BSA), based on the variance granted to Lot 186.

After interminably lengthy and ultimately unsatisfactory negotiations with the Buildings Department, the developer brought an Article 78 action to overturn the City's administrative determination. The trial court agreed with the developer. The City was confusing bulk and use regulations. The fact that Lot 186 received a use variance should have no effect on its ability to transfer unused bulk rights to the adjacent lot. The intermediate Appellate Division court affirmed the decision.

More than 10 years after the would-be apartment developer sought the initial building permit, New York's highest court has ruled against it, holding that the recipient of a use variance cannot transfer the unused development rights to an adjacent residential parcel without separate BSA approval. The Court apparently based its decision on the view that if the BSA had known that Lot 186 would transfer the development rights for over one million dollars, it might not have granted the variance. According to the Court, "If a landowner retains the bonus option to sell surplus development rights as they existed before the use variance is acquired, the variance might not have been 'the minimum necessary to afford relief' and the lack of any 'reasonable possibility of a reasonable return' (both necessary findings for a variance) is retrospectively placed in considerable doubt."

While perhaps superficially appealing, does the Court's decision hold up to logical scrutiny? The possibility of transferring the air rights obviously existed at the time of the grant of the variance. The fact that a ready, willing and able buyer stepped up at a later point cannot void that original grant of variance. What relevance should that use variance have to an as-of-right bulk merger? Why should a change in use terminate existing bulk rights? To quote the lower court, it seems like an "irrational juxtaposition of two unrelated factors in constructing a building-use and bulk."

(Jeffrey A. Chester is an attorney with offices in Manhattan. He has over 12 years experience in real property law, with an emphasis on zoning, land use and development issues. He can be reached at (212) 725-1700).
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Title Annotation:Focus On: Commercial Sales & Leasing
Author:Chester, Jeffrey A.
Publication:Real Estate Weekly
Date:Mar 12, 1997
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