While transferring unused development rights can potentially enable construction at otherwise prohibited densities, such transfers often introduce issues that, if unaddressed, can derail a project long after money has changed hands. This article focuses on one such issue, namely that discretionary NYC Boards of Standards and Appeals (BSA) approval is required before transferring unused development rights to, or from, sites benefiting from variances that were previously granted by the BSA. For example, in Bella Vista v. Bennett, 89 N.Y. 2d 565 (1997), the sending site (seller) benefitted from a BSA variance, but the parties purported to effect the transfer without obtaining the necessary BSA approval. The receiving site (purchaser) was later denied a building permit to use the subject development rights, and then sued the City (wherein ultimately, the purported transfer was invalidated, because the required BSA approval was not obtained).
NYC regulates development intensity, including by limiting the square footage of zoning floor area (ZFA) (i.e., so-called “development rights”) permitted without discretionary zoning approval. A site’s maximum ZFA depends on its applicable lot area, which sometimes can be exceeded using ZFA from another, adjacent zoning lot. The most common way is by a zoning lot merger, whereby adjacent zoning lots (with consent from owners, lenders and other interested parties) are combined into an enlarged zoning lot, with a maximum ZFA equaling that of the sum of each of the individual constituent zoning lots. Unused ZFA can be reallocated to a specific site in the new zoning lot that is targeted for future development.
While otherwise not required to transfer unused development rights by “traditional” zoning lot merger, BSA approval is needed where a newly-enlarged zoning lot would include a site that has previously been granted a BSA variance. The appropriate BSA application is to reopen, and amend, the original variance. BSA’s approval is not automatic, but rather a circumstantial inquiry of whether the variance would be undermined. See, e.g., BSA Cal. No. 885-78-BZ (2009) (citing Bella Vista).
Before transferring unused development rights in NYC, confirm whether any relevant site benefits from a BSA variance. If so, review any underlying BSA documentation to evaluate the likelihood of BSA approval. Responsibility should be allocated (between a seller and a purchaser) for pursuing any necessary BSA approval. A well-drafted agreement can establish crucial protections, including deadlines and consequences.
While this article focuses on one discrete issue, there are many considerations in transferring unused development rights in NYC, the failure of which to evaluate could be problematic.