TDRs and Me

Transferable development rights (TDRs) are zoning rights granted for unbuilt floor space calculated as being within the imaginary cube created by the zoning code in cities using the Floor Area Ratio (“FAR”) system of permissible bulk. TDRs, as they are known (sometimes incorrectly called “air rights”) may be transferred between neighboring tax lots, from a shorter building’s lot to an adjoining lot (including behind the lot on the same city block) where a taller one may be constructed incorporating the transferred TDRs.

In New York City, which adapted an FAR-based Zoning Resolution in 1961, such transfer of bulk was first done by a lease-leaseback (the developer leasing the low rise building, then leasing back to its new landlord the building less the air space); but with the lease not needing to be recorded, the buyer of the low rise might not know from the public record that the ability to build higher had been transferred away. This led to calls for a system of “zoning lot merger” where an agreement detailing the TDR transfer would be recorded in the public records against both affected lots. Meanwhile, the transfer process itself was seen as valuable to developers seeking to build larger buildings, while the low rise neighbors provided preserved bowls of light and air to vary the landscape.

In 1971, while a summer clerk at Paul Weiss Rifkind and Garrison, counsel to the bankrupt Penn Central Railroad which was selling its four midtown hotels, I was asked to draft the law firm’s opinion letter to go with the bidding package for the potential buyers of hotels, who would benefit from a transfer zone for the TDRs of Grand Central Terminal (GCT) from its site on 42nd Street right up to 48th Street. Buying a hotel and then building a taller structure with GCT TDRs would be permitted under a new law that allowed one landowner owning a series of city blocks—the railroad owned the land along Park Avenue on both sides up to 48th Street—to transfer TDRs, not just next door, but skipping across blocks right up the avenue. This special benefit had been granted to give the railroad some monetary relief when a proposed skyscraper using those zoning rights directly above NYC-landmarked GCT became the object of great public objection. The law was upheld by the United States Supreme Court resulting in a boon to landmark preservation, generating funds for that preservation.

The research for this opinion letter became the basis for my prize-winning law school senior thesis, “Development Rights Transfer in New York City,” published in the Yale Law Journal for December 1972. Since this was among the very first scholarly articles to review the technique, which was being vigorously developed by Norman Marcus, General Counsel to the New York City Planning Commission, my own initial article, I was invited by the American Society of Planning Officials to debate Mr. Marcus (who became a good friend) at the ASPO convention. I published several more articles on TDRs over the next two decades, reviewing how the “zone concept” first used in the GCT situation became a device to save New York theaters and other low-rise “endangered species.” Meanwhile, I became deeply involved in the Association of the Bar of the City of New York’s work in developing the legal framework for recorded zoning lot mergers, and later taught a Practicing Law Institute course on the documentation required for a successful merger.

Most recently, the zoning district TDR technique has been used to permit owners under the High Line, once owned and operated by Penn Central and then Conrail, while the viaduct remained, to be given an upzoning and the ability to transfer their TDRs to developers on the broad avenues on either side willing to pay for those rights to incorporate into new residential towers. The same technique is presently being proposed in an upzoning of Park Avenue to allow the great landmarked churches such as St. Patrick’s and St. Bartholomew’s to transfer their TDRs to developers for use in new office skyscrapers abutting the Avenue. Attorneys for both transferor and transferee sites have become very sophisticated in shepherding new developments in New York City which utilize such rights.

David A. Richards is Senior Counsel for Steptoe & Johnson, LLP where he focuses on commercial office development, shopping centers, office, retail, industrial leasing, and railroad real estate.

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