Marcus

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50 Brooklyn L. Rev. 867, *
3 of 100 DOCUMENTS
Copyright (c) 1984 Brooklyn Law School

Brooklyn Law Review
SUMMER, 1984
50 Brooklyn L. Rev. 867
LENGTH: 15944 words
ARTICLE: AIR RIGHTS IN NEW YORK CITY: TDR, ZONING LOT MERGER AND THE WELL-CONSIDERED
PLAN.
NAME: Norman Marcus *
BIO:
* Counsel, New York City Planning Commission; Adjunct Professor of Land Use Law at New York
University School of Law, Benjamin N. Cardozo Law School and Pratt Institute; B.A. Columbia College, 1953;
LL. B. Yale Law School, 1957. The views expressed herein are the author's and not necessarily those of the
City Planning Commission or Department of City Planning. Mr. Marcus presented an early version of this
Article as the principal speaker at the Brooklyn Law Review Colloquium, Air Rights: TDR, Zoning Lot Merger
and the Well-Considered Plan, which took place on March 28, 1984.
A version of this article will appear as a chapter in a forthcoming publication of Lexington Books on the
subject of transferable development rights.
LEXISNEXIS SUMMARY:
... The above examples are from among many similar developments and represent the most common form of air rights
transfer, the zoning lot merger. ... Beyond specifying the minimum essential content of a declaration, the new zoning lot
definition does not deal with the nature of the relationship between those having interests in one constituent parcel and
those having interests in another. ... Another example of a development right transfer under the 1968 Resolution
involved an ambitious across-the-street annex to the Federal Reserve Bank on Maiden Lane in lower Manhattan. ...
This old seaport district, located directly to the south of the Brooklyn Bridge in lower Manhattan, consisted of several
blocks of small two hundred year old buildings surrounding the Fulton Fish Market. ... Because the purpose of a zoning
lot merger is the exploitation of unused development potential, the parties-in-interest concept is designed to settle the
claims of those parties who have a right to the use of the unexploited floor area. ... In areas experiencing strong
development pressure like Manhattan's upper west side or east midtown, the basic zoning lot merger device has come
under increasing scrutiny and criticism. ...
TEXT:
[*867] The transfer of air rights has become an integral part of real estate development in New York City. One need
only stand in the mall of Park Avenue and Fifty-second Street in Manhattan to realize the extent to which city planners
and private developers have used air rights to change the shape of the city. From there, one can see tall office buildings
and hotels that extend the standard zoning requirements of the area because their owners have purchased the air rights,
also known as development rights, of neighboring buildings. For example, the Racquet and Tennis Club is a landmark
quality structure at 370 Park Avenue, behind which stands a tower built as a result of negotiations over the Club's air
rights. n1 Down Fifty-first Street, toward Madison Avenue, one can see the tower of the Helmsley Palace rising above
the old Villard Houses that now serve as the hotel's formal [*868] entrance. The hotel's deveoper received the
landmark's air rights in return for an agreement to maintain the historic houses, a threatened architectural treasure of
New York City. n2
New York City has been the center for exploring the different ways in which planners and developers can use
innovative transfer techniques to stimulate growth while preserving the city's architectural heritage and maintaining a
cohesive urban plan. The above examples are from among many similar developments and represent the most common
form of air rights transfer, the zoning lot merger. n3 The nature and extent of development rights granted to a particular
zoning lot under New York's Zoning Resolution has been an important means of implementing the city's planning goals
for many years. n4 These goals have run the gamut from indifferent stimulation of development at the expense of
architecturally valuable buildings in the 1950s and 1960s to outright preservation mandates for these structures in the
1970s. During the 1980s, the city has had to choose between allowing discretionary development "wild cards," variance
and bonus plans that promote moderate growth and preservation, and striving for uniformity and growth within the
confines of a predictable "well considered plan." n5
New York's Zoning Resolution provides a districting scheme that allocates varying degrees of development rights
to all real property in the city (with the exception of streets and parks). n6 [*869] These development rights are
stationary, that is, hey attach to each zoning lot and are not transferable to other parcels of land except as set forth in this
Article. In New York, the parameters of the zoning lot, n7 the basic unit for land use control, are in a general way
directly related to building economics: the larger the zoning lot, the larger the permitted structure; the larger the
permitted structure, the larger the financial return. Controls on the extent of development rights, and thus on the
developer's financial return, are proportionate to the size of the zoning lot and appropriate to its location.The controls
are based upon such factors as street width, transit access, neighborhood character, school seats, and other objects of
concern to those attempting to implement a well-considered plan. Transfer Development Rights (TDRs), on the other
hand, permit these traditionally stationary development rights to move from parcel to parcel.
The purpose of this Article is to trace the history of New York City's initiatives in the control of development
rights, from simple as-of-right n8 zoning lot mergers to complex and sophisticated transfers across many city blocks.
Although the city has been criticized for not using the concept of TDRs more extensively as an instrument for achieving
planning goals, n9 an examination of the legal and practical limitations on TDRs, as well as the potential TDR "side-
effects" in the real New York City world, shows why the city has not made greater use of the various TDR techniques.
In conclusion, the article will attempt to evaluate the use of TDRs in New York City, its successes and its failures.
[*870] I. MERGER OF ZONING RIGHTS: "AS-OF-RIGHT" TDR WITHIN THE BLOCK

A zoning lot n10 is a contimuous tract of land, on one block, that is to be developed as a unit under the control of a
single developer. A zoning lot merger n11 is the simplest example of transferable development rights and involves a
group of contiguous underdeveloped and undeveloped sites on one zoning lot that are in common control for
development purposes. Fee ownership of such contiguous lots, for example, gives the owner close to absolute control
over his total parcel and permits him to arrange the bulk within the lot as he chooses. The current definition of zoning
lot allows multiple ownership situations to qualify, provided the owners record a declaration of single zoning lot
ownership. n12 If some of the lots have already used a portion of their floor area ratio (FAR) n13 allotments and others
are vacant, [*871] the city permits additional construction on any part of the composite if the proposed building
together with the existing buildings do not exceed "as-of-right" floor area and bulk placement permitted among the
combined contiguous lots under common control. New York City's rules concerning zoning lot mergers have
developed in three stages: (1) the pre-1961 regulations that set height and setback limitations; n14 (2) the 1961 Zoning
Resolution that broadened the concept of the zoning lot to include FAR controls; n15 and (3) the 1977 amendment to
the zoning lot definition. n16
A. Pre-1961 Zoning Regulations

Prior to 1961, the regulations that governed the size and shape of commercial office structures in Manhattan's
central business district provided height and setback controls derived from adjacent street width. These regulations
produced the characteristic "wedding cake" buildings of the period. There was no FAR control prior to 1961, so the
practical constraint on the height of pre-1961 skyscrapers was the builder's ability to control sufficient lot area around
the construction site. If a tower occupied "not more than 25 percent of the area of the lot," section 9(d) n17 of the
Zoning Resolution permitted the structure to exceed the height and setback limitations. For the purpose of meeting this
twenty-five percent lot area requirement, the Department of Buildings apparently construed a "lot" to include [*872]
contiguous parcels that were: (i) held in common ownership; or (ii) held in separate ownership, provided that one of the
parcels benefited from the use of the adjoining parcel's air rights by way of an air rights sale, lease, or other conveyance.
n18
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In 1959, this ruling was codified by an amendment to section 9(c) n19 that both the City Planning Commission and
the Board of Estimate approved. The amendment provided that with respect to buildings erected or being erected on or
before October 14, 1959, a "lot" could embrace contiguous parcels, provided that there is an "acquisition of the air
rights . . . [pertaining to one such parcel] by deed, lease or other written instrument" n20 for the benefit of the other
parcel.
The viability of this definition of a "lot" was tested when, in 1956, C.L.R. Realty Co., the owner of a parcel
apparently restricted by an air rights lease sued the Commissioner of Housing and Buildings and the owner of a
contiguous benefited parcel with a twenty-five percent tower. n21 The plaintiff sought to remove any restriction from
his apparently restricted parcel and thereby establish its independence. n22 He sought a declaration that the twenty-five
percent tower had no effect on any development rights that accrued to the plaintiff's parcel. The defendant argued that
once the parcels were severed, the tower would more than double its coverage in relation to the reduced size of its
owner's parcel and become markedly non-complying as to bulk. The New York Supreme Court held for the defendants
and dismissed the complaint. n23 The decision was affirmed on appeal. n24
Under today's FAR regulations, the reduced floor space in the "restricted" parcel would balance or set off the extra
floor area of the "benefited" parcel so that in tandem -- but only in tandem -- the combined development would comply
with the Zoning Resolution. It is important to realize, however, that before the city made FAR controls applicable to
midtown in [*873] 1961, development rights transfers were not expressed in terms of floor area ratio, but rather in
terms of a network of restricted and benefited contiguous parcels. This pre-1961 zoning provision, then, allowed
developers to combine contiguous parcels so as to spawn a twenty-five percent coverage tower, unlimited as to height.
It was under this provision that a number of celebrated Manhattan skyscrapers such as the Empire State Building and
666 Fifth Avenue were built.
B. The 1961 Amendment

The FAR concept n25 codified in the 1961 Zoning Resolution n26 was designed to control the amount of physical
volume (although it is not a direct cubage control) on a particular zoning lot and the amount of usable floor area in each
building on the lot. n27 Based on its neighborhood location, each zoning lot in the city receives a FAR number, from
FAR .5 in certain outlying single-family residential areas n28 to FAR 15 in high density central office districts. n29
The total floor area of the zoning lot constitutes the "as-of-right" allocation of development rights to a builder who, if he
"owns" the entire zoning lot and satisfies the other Zoning Resolution requirements, can develop the lot as he pleases.
The 1961 Zoning Resolution also amended the definition of "zoning lot" to allow a long-term lease, as well as a fee
interest, to qualify as ownership of the parcels within the lot. The amendment provided: "For the purposes of this
definition, ownership of a zoning lot shall be deemed to include a lease of not less than 50 years duration, with an
option to renew such lease so as to provide a total lease of not less than 75 years duration." n30 [*874] In adopting
this definition, the city looked at the useful life of the new structure as measured by standard mortgage terms and
concluded that a seventy-five year lease interest was more than sufficient for securing the control necessary for a proper
merger of zoning lot interests.
It soon became common for development assemblages to rely upon such leases under this definition in order to
permit the maximum bulk structure to be erected. In practice, the result of the amendment was that the actual
construction of numerous developments in Manhattan took place only on that portion of the zoning lot owned by the
developer in fee. The air rights used to create the larger structure, however, derived not only from that portion, but also
from a portion of land "owned" through a qualifying long-term lease. This was a so-called development rights lease.
Problems arose for developers when the development rights lease was terminated. Termination could occur, for
example, if the lessee failed to pay the required rent or if the holder of a mortgage on the leased parcel that was superior
to the development rights lease foreclosed on the lessor.
When such a lease was terminated, the rights and positions of the owner of the formerly leased parcel, the owner of
the parcel impoved by the new building, and those of the city were unclear. Could the fee owner of the formerly leased
parcel now make use of the development rights ordinarily attributable to his parcel? Was the owner of the improved
parcel entitled to maintain and occupy all of his built space, notwithstanding that a portion of his original zoning lot had
been lost, his remaining lot was now overbuilt, and his building now non-complying? Was the city forecosed from
countenancing overbuilding, or could it effectively maintain its position that as long as the formerly leased lot's
development rights were reflected in the existing building, those rights could not be recovered for use on the formerly
leased adjacent lot? If the city were able to maintain that position, could it deny a building permit for the formerly
leased adjacent lot or withdraw the certificate of occupancy for the overbuilt portion of the building? Uncertainty about
these questions posed substantial planning problems for [*875] real estate lawyers and investors as well as the risk of
overbuilding for the city. The issues might only have been resolved through costly litigation. n31 In 1977, therefore,
the Board of Estimate amended the Zoning Resolution and changed the definition of the zoning lot to provide a
generally acceptable solution that all parties could understand in advance. n32
C. The 1977 Amendment

The new definition of zoning lot abandons the emphasis on a particular form of ownership interest. Instead, it
accepts any one of a variety of applicants on behalf of a zoning lot development as long as all defined parties-in-interest
in the property have signed a recordable declaration of single-lot status. The city block continues to be the geographical
limit of the TDR zoning lot with respect to "as-of-right" mergers. This solution removes the formal role of a lease in the
zoning lot concept by eliminating the requirement that a developer hold the zoning lot in single "ownership." Now all
parties having a defined interest in adjacent, differently held parcels can create a zoning lot by filing and recording the
declaration of single lot status. In the case of a complex assemblage, the parties may use a network of declarations. n33
[*876] Under the 1977 amendment, a proper declaration must state that the several parcels constitute a single
zoning lot and that the zoning lot is to remain integral, notwithstanding any party's breach of a provision of the
declaration or any agreement ancillary thereto, until such time as the zoning lot is subdivided in accordance with
existing zoning lot subdivision rules contained elsewhere in the Zoning Resolution. n34 These rules preclude the owner
of any subdivision from creating or increasing the degree of non-compliance with any applicable provisions of the
zoning regulations. The recorded declaration puts all persons on notice that the several parcels in question comprise one
zoning lot. This permits a third party to determine from the public record whether a building was built by virtue of
development rights applicable to land other than that on which the building is physically located. n35
Beyond specifying the minimum essential content of a declaration, the new zoning lot definition does not deal with
the nature of the relationship between those having interests in one constituent parcel and those having interests in
another. Presumably, there will be arrangements between the parties that may involve periodic payments and, with such
an arrangement, the possibility of default. The amendment makes clear, however, that unless lawful subdivision is
possible, a party's remedy for default cannot include the severing or subdivision of the combined zoning lot. The
amendment thus protects the city's interest in avoiding overbuilding and provides the parties with a basis of certainty
from which they can protect their own interests. As a result, developers rely heavily on "as-of-right" zoning lot [*877]
mergers in addition to zoning amendments, special permits, n36 and variances n37 when planning a structure that, on
its footprint, n38 exceeds FAR limitations.
Nonetheless, the city's power to grant zoning changes retains power as a bargaining tool. An instructive example of
the interplay between zoning lot merger and the city's exercise of police power to "print" additional development rights
through a combination of zoning amendments and special permit occurred in the late 1970s at a location west of Park
Avenue between Fifty-second and Fifty-third Streets in Manhattan. The Racquet and Tennis Club, housed in a low
private structure of landmark quality fronting on the west side of Park Avenue, was dissatisfied with the proposal for a
zoning lot merger made by the developer of the large vacant parcel immediately to the west of the Club. As a result, the
Club refused to allow a shift of its potential for zoning development to the new office structure.
The developer, rebuffed by the Racquet Club, took his case to the city and successded in persuading the Manhattan
Borough President to accord a Park Avenue address to the new building despite its failure to front on the Avenue. The
developer also persuaded the City Planning Commission to "print", by amendment to the zoning resolution, the
necessary additional development rights as a zoning bonus for providing a hitherto unprecedented pedestrian amenity --
sixty-foot high public galleria through the building connecting East Fifty-second and East [*878] Fifty-third Streets.
n39 Shortly after the city announced its approval of the galleria building, the Racquet and Tennis Club revealed its plans
to construct a slim luxury hotel over its existing low structure. The proposed hotel would have obstructed all windows
of the proposed galleria officer tower that were to face in the direction of Park Avenue, but would have been in full
compliance with pertinent codes, after receiving City Planning Commission approval.
Mindful of its obligation of even-handedness, the Commission undertook serious review of the Racquet and Tennis
Club Hotel. Before the Commission approved either plan, however, the Racquet and Tennis Club and developer of the
office tower came to terms and effected a zoning lot merger that made the necessary additional floor area and lot
coverage available to the office tower at an acceptable price. As a result of the merger, the sixty-foot high galleria was
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no longer essential for the purpose of obtaining bonus floor area and thus was scuttled in favor of a more modest thirty-
foot high through-block arcade.
II. TDR ACROSS A STREET: BREAKING THE OUTER-LIMIT BLOCK BARRIER

While the city was struggling to refine the concept of zoning lot merger as evidenced by the transition from the pre-
1961 regulations to the 1977 amendments discussed above, it was also faced with the problem of development pressures
that threatened the destruction of some of New York's most beautiful and historically important structures. In order to
relieve this pressure, the city established a new unit of development control. Under this new unit, n40 the unused
development potential of historically [*879] valuable zoning lots could be transferred to a new location -- to non-
contiguous lots -- in order to retain the desirable underdevelopment of the landmark site. The city's newly created
Landmarks Preservation Commission n41 designated such "desirable underdevelopments" as landmarks." n42 These
landmarks became the first beneficiaries of beyond-the-block TDR when, in 1968, New York departed from the
traditional canon by adopting amendments to the Zoning Resolution n43 that permit the City Planning Commission to
authorize the transfer of development rights from a landmark to a specially defined "adjacent" lot. According to the
definition of adjacency that the Resolution adopted, the air rights may be transferred to a contiguous site or to one
across a street or street intersection. n44 The maximum FAR overage permitted on the transferred site was twenty
percent. n45 To arrive at the amount of transferable floor area, the floor area of the existing landmark building is
subtracted from the floor area that would be allowable if the lot were vacant. Any floor area transferred is irrevocably
subtracted from the development potential of the landmark site.
To effect such a transfer, an application must be made to the City Planning Commission. This application must
include a site plan of the landmark and the transferee plot as well as a plan for preservation and maintenance of the
landmark. The [*880] [*881] procedure requires that the Landmarks Preservation Commission report to the Planning
Commission on the proposed transfer and give its reaction to the site plan for the landmark lot and the program for
continuing maintenance of the landmark. Recommendations by the Planning Commission to the builder concerning
design modifications of the proposed building may also be required in order to insure compatibility with the landmark.
n46
Although the cost of maintaining the landmark may be included in the price of the transferred development rights,
the 1968 Resolution does not spell out a particular program for continuing maintenance. Rather, the maintenance
requirement is left unstructured to allow it to be tailored to the specific needs of the particular landmark. A landmark
may be a thoroughly remunerative proposition, by virtue of either tourist fees or profitable commercial or residential
use. These factors are highly relevant to the city when it estimates the necessary inclusion of additional maintenance
costs in the total price of the transferred development rights. Additionally, the price of the transfer should not be made
to include the full maintenance of the landmark if such a requirement would inhibit the transaction and thus the
incremental preservation of the landmark.
To understand how this maintenance requirement operates in a practical setting, it is useful to examine the city's
treatment of the maintenance requirement in the case of Amster Yard, a privately-owned series of nineteenth-century
residences and minor commercial structures with an interior garden, located on a through lot east of Third Avenue
between Forty-ninth and Fiftieth Streets. The owner of this landmark proposed to sell a portion of his unused
development rights to an adjacent contiguous parcel on Third Avenue where an office building was planned. The
owners worked out an arrangement that provided for a trust fund gradually increased to $ 100,000. The income of the
fund was to be applied to maintenance of Amster Yard. Of the five trustees of the fund, two were nominees of the
landmark owner, one was a representative of the local Turtle Bay community, one was the chairman of the Landmarks
Preservation Commission, ex-officio, and one was associated with a leading architectural firm. Although not a party to
the contract, the City of New York [*882] took an active role in shaping its substance to insure preservation of the
landmark. Understandably, the purchase price for the air rights was reduced by the amount of money put into the fund
for preservation purposes. The trust fund was a welcome "first" under the development rights transfer provision. n47
Unfortunately, this innovative plan never materialized in a structure, because it fell victim to the city's satiated
market for office space in the early 1970s. Recently, the plan to transfer Amster Yard's development rights was revived
but in a different form. This time the proposed structure is a controversial office space behemoth that has absorbed
development rights from a contiguous zoning lot merger as well as TDRs from Amster Yard. Because the site is
situated on the eastern edge of the midtown central business district (CBD), the aesthetic impact of the large tower on
the adjacent community of residential brownstones (of which Amster Yard is a part) created substantial neighborhood
opposition. As a result, the city only approved a reduced structure. The approved structure, however, continued to
incorporate the TDRs from Amster Yard. n48
Instead of creating a trust fund to insure maintenance of the landmark, the owner of Amster Yard this time signed a
restrictive declaration that granted a preservation easement in favor of the New York Landmarks Conservancy, a not-
for-profit corporation. The Amster Yard owner received $ 35,000 from the developer to cover immediate repair and
maintenance and covenanted to provide regular maintenance and to submit to periodic inspections. The easement gave
the Conservancy the power to compel specific performance of this obligation or undertake the work itself at the owner's
expense. n49
A trust fund similar to that designed for Amster Yard was also created for the partial maintenance of a small Greek
revival landmark residence on Manhattan's east side. This residence was preserved and enhanced through design
controls imposed on the adjacent site and the transfer of its development rights to that site. n50
Another example of a development right transfer under the [*883] [*884] 1968 Resolution involved an ambitious
across-the-street annex to the Federal Reserve Bank on Maiden Lane in lower Manhattan. Like the Amster Yard
project, the original plan for this project fell through but the preservation goal was nonetheless accomplished by other
means. The total bulk of the proposed annex was to be augmented by a transfer of the unexploited development rights
belonging to the original Federal Reserve Bank and the First Methodist Church, both landmark structures on adjacent
lots. n51 Following the jettisoning of Federal Reserve expansion plans, the air rights agreement with the Methodist
Church was assigned to an office developer. Before it approved the substitute development, the City obtained a
preservation easement from the church.
III. TDR WITHIN A WIDER RECEIVING AREA: THE NEED FOR A PLANNING RATIONALE
Since the initial decision in 1968 to permit TDRs to adjacent lots, the city has amended the Zoning Resolution
again to permit TDRs over a wider geographical area and has attempted to use the expanded form of TDRs in several
increasingly attenuated contexts: 1) when a chain of common ownership exists; 2) when a specific area needs
protection; and 3) when the city wants to create a large floating zone for TDRs. The use of TDRs in each of these
contexts raises several problems. The major question, however, that lurks behind any exploration of sophisticated TDR
techniques is: What limits can or should be placed on the TDR given that it must operate in the larger context of rational
planning and development?
A. Chain of Common Ownership

In 1969, the City amended n52 the 1968 air rights transfer provision, partly in response to development pressures
on Grand Central Terminal, which is located in Manhattan's central business district. Penn Central, the financially
troubled railroad, owned Grand Central and was eager to convert the terminal's [*885] development rights into revenue
producing office space. In 1968, a developer had proposed two plans for construction over the terminal of an office
tower that would exhaust the terminal's FAR potential. The Landmarks Preservation Commission, however, had
designated Grand Central a landmark in 1967 and blocked the plans because they would have required extensive
exterior physical alterations to the Terminal. n53 Penn Central thus found itself in a bind: it could not develop the air
rights on the site, and it was not able to sell a significant portion of the rights because the transferee lots that were
eligible under the 1968 provision -- those immediately contiguous to the Terminal and those across the street from it --
were either already sufficiently improved or unavailable for development.
Frustrated in its attempts to realize Grand Central's development potential, the railroad helped persuade the city to
increase the distance across which a developer could transfer air rights in a maximum density commercial area. n54
The City Planning Commission redefined "adjacent site" in the 1969 amendment to include "linked" tracts of land that
span more than one street. n55 The new definition permits an air rights transfer to any lot in a chain of common
ownership as long as the first link in the chain is across the street from or contiguous to the landmark site. Under the
1969 amendment, therefore, if Penn Central or the transferee party owned the intervening lots, the air rights could pass
through the sufficiently developed structure to the [*886] desired building site.
The city further relaxed the 1968 provision to permit transfer of all of the unused development potential to a single
site in a high density commercial district without regard to the twenty percent overage limit. n56 If the city had
enforced the twenty percent overage limit, many transferee sites would have been necessary to exhaust the excess
underdeveloped FAR potential of the Grand Central Terminal lot. According to real estate experts, such a widespread
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development of the area was unlikely. The city also that the abandonment of the overage restriction was justified by the
prevalence of non-complying buildings n57 in the area. The Planning Commission reasoned that one more extra-large
building would be relatively innocuous in that context. Furthermore, the requirement that the transfer span a chain of
common ownership offered the city the opportunity to condition approval of development rights transfers upon
improvements in underground concourse circulation in an area common to the railroad properties. This arrangement
was designed to create a benefit to the area that would mitigate the impact of new oversized buildings on one or two
transferee sites.
In addition to its legislative lobbying, Penn Central commenced legal action in October 1969 to overturn the
Landmark Preservation Commission's decisions rejecting the plans for office tower construction over Grand Central
Terminal. n58 The railroad did not seek judicial review of the decisions themselves; rather, it challenged the
constitutionality of the Landmarks Preservation Law that enabled the Commissin to act. It claimed that the
Commission's actions constituted an illegal taking without just compensation, a violation of the fifth and fourteenth
amendments. n59
The New York State Appellate Division n60 and Court of Appeals n61 [*887] upheld the constitutionality of the
Landmarks Law and found the TDR options available to Penn Central as a result of the 1969 amendment to be valuable,
with a tendency to mitigate the restrictive effect of the landmark designation in a high bulk and density zone. n62 In
1978, the United States Supreme Court n63 held that the Commission's actions under the Landmarks Preservation Law
were a proper exercise of the city's police power and that Penn Central was not entitled to just compensation, even
though it could suffer substantial losses as a result of the landmark designation, if it could obtain a "reasonable return"
on the landmark property. n64 The Court agreed with the New York courts that the transferable air rights Penn Central
owned were valuable and therefore "undoubtedly mitigate whatever financial burdens the [landmark] law has imposed
on appellants." n65
Ironically, the railroad eventually chose as its first partner in a TDR transaction the Philip Morris Corporation,
which owned a receiving site that would have qualified under the initial 1968 legislation in that it was across the street
from the Grand Central Terminal. The Philip Morris Corporation planned to build a world headquarters on a relatively
small 20,000 square foot lot across Forty-second Street from the terminal and needed valuable tower coverage n66
waivers as well as an additional 3 1/2 floors (twenty percent overage) to make its site economically feasible. The city,
rather than print additional development [*888] [*889] [*890] rights with new zoning legislation that also relaxed
restrictions on tower coverage, directed Philip Morris to pursue the terminal's development rights under the existing
1969 TDR legislation. n67 Philip Morris then offered to buy and transfer approximately 75,000 square feet of
development rights (adding 3 1/2 floors to its structure) from the railroad's Grand Central Terminal zoning lot. Because
the Grand Central Terminal lawsuit at the time of this offer was only two months awary from its oral argument in the
United States Supreme Court, the railroad cautiously deferred a response until the Court's decision came down four
months later. Finally, the parties negotiated a TDR transaction in which the price of the rights was set at about twice the
going land value in the area. n68
The Penn Central decision was vitally important for the continuation of TDR in New York City. In validating the
Landmarks Preservation Law and its supportive TDR options in the Zoning Resolution, the Supreme Court allowed the
city to consider and develop new occasions for using TDR to further its other planning goals.
B. A Specific Area-Wide Plan

Another effort to use TDR in New York that embodies a different approach than the one used in Grand Central
involves an area-wide plan for the South Street Seaport. This old seaport district, located directly to the south of the
Brooklyn Bridge in lower Manhattan, consisted of several blocks of small two hundred year old buildings surrounding
the Fulton Fish Market. At the time the project was proposed, this area stood out as an historic but extraordinarily
uneconomic use of land in a part of the city that was ripe for development because land values were at a premium. In
order to preserve the historic quality of the area while allowing new development, the city created the special South
Street Seaport District n69 containing both a preservation area and a redevelopment area. The preservation costs were
partially financed by a release of mortgage indebtedness and approval of possible transfers of the area's unused
development [*891] rights to specified pre-designated, nearby locations for commercial development. The transfer
mechanism was somewhat more complicated than earlier TDR projects, in part because multiple transferors were
involved. The plan permitted the owners of the historic properties to convey their development rights either to a
middleman or directly to receiving lot. This phase occurred at the outset of the project. The commercial banks that held
mortgages on the old properties released the mortgages and thus enabled the owners to convey their development rights
and to secure reinvestment in the renovation of their properties. The middleman for the South Street District is the
consortium of commercial banks, which stores the development rights in a socalled TDR "bank" and shifts them, as
demand warrants, onto pre-designated receiving parcels on development sites within the district. n70 Moreover,
because the development rights may alternatively be converted into increased tower coverage and not used as shifted
additional floor area, lower buildings are maintained and new development fostered with a net decrease in zoned density
in the neighborhood. In sum, the pre-designation of specific receiving lots makes the Seaport District's development
rights marketable and yet curbs potential speculation in these rights.
To give a specific example of the of these transfers: The Continental Insurance Company, looking for a lower
Manhattan site for its consolidated New York operations, chose one of the South Street receiving lots for its
headquarters. It purchased 300,000 square feet of development rights from the development rights "bank" held by the
middleman in order to achieve valuable tower coverage waivers. These development rights sold at a figure below land
value in the area but generated $ 1,500,000. n71 The proceeds are used to balance the books on the historic seaport
mortgage debt forgiven in 1973.
Two other designated development sites in the district have gone into construction and have included development
rights [*892] from the South Street Seaport "TDR bank." The owners of 175 Water Street purchased 142,868 square
feet from the "bank" in order to increase its tower coverage from forty percent to eighty percent of its zoning lot and
143,132 square feet for use as additional FAR. The development adheres to the city's pedestrian circulation plan for the
area. n72 The owners of 189 Water Street purchased 275,000 square feet from the Seaport "bank" for use as additional
FAR. This structure, because it is across Front Street from the landmark Schermerhorn Row and has an aesthetic
impact on that property, required the Landmarks Preservation Commission's approval in addition to Community
Planning Board and City Planning Commission review. At the present time, 536,000 square feet of available
development rights remain in the "bank." n73
The Seaport TDR plan has acted as a catalyst for development and as a lifesaver for the threatened landmarks.
Freed from their crippling mortgage obligations, the historic South Street Seaport properties have attracted substantial
reinvestment financing for extensive rehabilitation. The Seaport has become a major center for tourism.
An unanswered question posed by this or similar schemes involving middlemen TDR banks is the allocation of the
property tax base for the duration of the TDR bank's retention of title to the properties. The city cannot very well assess
the vacant receiving lot to reflect latent but unbuilt rights. The underdeveloped historic properties no longer have title
to these rights. What is the locus of these rights for property tax purposes?If it rests with the middleman in this case,
will the banks quietly accept an assessment based on development rights that sit unused in an office file drawer? Will
such an assessment so reduce their profits as to threaten the viability of the project?
C. TDR Within a Large Floating Zone

A third use of TDRs, area-wide transfers to a large receiving area that is not contiguous to the original zoning lot,
has received mixed reviews from New York State courts in the past several years. n74 The United States Supreme
Court indicated its [*893] support of these rights and their enabling legislation in the Penn Central case, n75
following favorable decisions by the New York Appellate Division n76 and the New York Court of Appeals. n77
Previously, however, the New York Court of Appeals had invalidated an attempt by the city to mandate transfer of
development rights from a critical resource area n78 in Fred R. French Investing Co. v. City of New York. n79 The
lack of clarity that results [*894] from a comparison of these two cases makes it difficult to predict when and if a
particular scheme will pass judicial muster if challenged.
In French the city sought to preserve the private parks adjacent to the Tudor City residential complex by limiting,
through a special zoning enactment, n80 all use of the parks to passive recreation. As compensation to the owner of
these parcels, who wanted to develop them, the city permitted him to transfer the parks' development rights to properties
in "receiving lots" in the city's central business district. n81 The city thus created a floating zone that, in effect,
permitted higher FAR on eligible receiving lots. The French court found it unfair to allocate the costs and burdens of
preserving open park space to its uncompensated private owner. n82 The severance and "preservation" of development
rights did not, in the court's view, have a sufficiently predictable real estate value to constitute either "compensation" or
a residual economic use of the property. n83
With invalidation of the Tudor City private parks zoning [*895] legislation, pressure to develop the parks has
Page 9
increased again. Unlike the railroad activity at Grand Central Terminal, which the court of appeals found to be a
reasonably beneficial use of land even without consideration of its development rights, n84 the private parks -- always
held in separate ownership from the Tudor City apartment complex -- were not considered to be, in and of themselves,
sufficiently remunerative to justify a zoning prohibition on their redevelopment. n85
Comparisons with the Penn Central case are tantalizing. For example, Judge Breitel writing for the New York
Court of Appeals in Penn Central, found that value could be imputed to the Grand Central Terminal from the
surrounding, fully developed properties held in common ownership. n86 This imputed value was based on (1) the
terminal's proximity to a transit hub and (2) the unusual access of light and air furnished by the low terminal
development in this midtownn area. The latter type of imputed value is equally applicable to the Tudor City park
situation where all existing apartment windows face the parks instead of the pre-United Nations slaughterhouses that
had occupied Tudor City's east flank in 1929 when the complex was built.Because the railroad properties surrounding
the terminal were held in common ownership with the terminal, the court of appeals was able to draw its conclusion
without too much difficulty. Apparently, the fact that the Tudor City parks and the Tudor City apartment buildings
were separately owned prevented the court from drawing a similar conclusion in the French case. The distinction,
however, may be exalting form over substance and should not constitute a barrier to imputation of value from
surrounding benefited apartment houses. Furthermore, the parks and the residential units are managed in common, and
the Tudor City tenants alone enjoy access to these [*896] parks.
The city was nonetheless chastened by its defeat in the case and grateful that the court stopped short of awarding
inverse condemnation damages to the plaintiff. n87 Although another mandatory development rights transfer n88 in
the face of renewed interest in developing the parks would clearly be tempting fate, an optional development rights
transfer, that would preserve the parks and at the same time be acceptable to the owner, is a possible solution.
One major question however remains unanswered by either case. Even if an optional transfer were adopted, where
would the Tudor City Parks development rights go? The earlier zoning "solution" that the New York courts invalidated
would have transported the rights out of the east side residential community. In fact, there was a substantial offer for
the development rights by a purchaser over a mile away, although it was only for fifty percent of the price the seller
wanted, and he therefore rejected the offer. The city's attempt to sweep the unwanted bulk out of the Tudor City
residential area was a popular solution, but the New York Supreme Court noted that its implications vis-a-vis immediate
neighbors of a far away receiving lot were disturbingly like those in a spot zoning case. n89 That is, the change would
seem to benefit one property owner (the purchaser of the rights) at the expense of his neighbors who were too far away
from the preserved parks to benefit therefrom.
The legal success or failure of a TDR program may be determined by the answer to the key question of how wide
the radius [*897] of transferability of a landmark's development rights should be. For example, the number and
ownership of eligible receiving lots for the development rights of Grand Central Terminal was a significant factor in the
Supreme Court's view that the program proposed by New York City afforded Penn Central a "valuable" n90 property
right. An overly-wide radius of transferability, however, risks the loss of a rational planning link between the
underutilization of the landmark lot and the overbuilding tolerated on the receiving lot. n91 A combination of
pragmatism and planning theory will continue to define how far a TDR may travel from its point of origin.
D. The Problem of Multiple Sellers and Development Rights Devaluation

It is clear from the discussion of the Grand Central and Tudor City parks cases that the city's purpose in using its
police power often is to preserve socially valued uses of land. In Penn Central, the Supreme Court sanctioned the use
of such power to preserve landmarks as long as the landmark owner is able to obtain a "reasonable return" on the
property. n92 The city, therefore, has accorded TDR privileges to "landmark" properties as a means of lightening the
special preservation burdens that the city imposed on their owners. n93 The burdened landmark owner is able to obtain
a fair price for the unused property's zoning development potential because adjacent non-landmark properties do not
enjoy the same TDR privileges. The same buyer-seller relationship would not exist in the situation that follows,
however, where there would be multiple sellers of TDR benefits in a confined area.
[*898] 1) Historic Districts

Potential problems arise with the use of TDR when the city creates an historic district -- a self-contained
geographical area that, taken as a whole, is of historical significance but whose buildings, each standing alone, may not
meet the Preservation Commission's standards for historic landmark status. n94 If each property owner within an
historic district were treated as an owner of landmark property, he would be free to negotiate a sale of his unused
development rights. Because the restricted receiving area would also be a part of the same historic district, the
imbalance created by multiple sellers attempting to negotiate sales to a very small number of buyers might render the
TDR privilege a devalued and empty option. n95 More significantly, as a matter of scale, historic districts present
unsuitable candidates for the receipt of extra development rights.
The city thus far has limited the availability of the TDR privilege to owners of landmark buildings and not extended
the privilege to any properties within an historic district. Most residential historic districts in New York City are
surrounded by neighborhoods of comparable bulk and density. To allow TDRs to move between properties within such
areas would simply be to transfer the pig from one parlor to another. n96 The TDR pig has to be banished altogether
from fragile areas such as these. An alternative would be to stretch the geographical nexus requirement for receiving
areas. Yet, to do this would negate the predictablility that the city values in maintaining a well-considered plan.
Another alternative might be to require multiple sellers to pool their development rights to promote the landmark
district objective. This option might, however, violate another public policy: that of the antitrust laws promoting
competition among sellers in the relevant market. In the one case in which contiguous [*899] landmark properties
generated development rights -- the South Street Seaport Historic District n97 -- the zoning regulation preserved a
single owner's option to transfer development rights directly to a receiving lot without passing through the TDR bank.
Occasionally, however, an historic district will exist as an anomaly within an otherwise densely developed area. In
such a situation, the city may consider the transfer of development rights from the district to a neighboring area of non-
historic character because the transfer would not necessarily violate planning policy. The city would benefit from such
a plan because it would be able to protect its developmental tax base, and the plan would act as additional legal
insurance against a court later scuttling the historic district designation. The South Street Seaport is an example of such
a plan.
In retrospect it seems clear that New York conceived of TDR techniques primarily as an equitable device to
cushion otherwise harsh reverse "spot" regulation whether of landmarking or zoning character. The city's decision not
to allow TDRs in historic districts, one could argue, unfairly discriminates against landowners in the area in contrast to
isolated landmark designees. The New York Court of Appeals seemed to reject this view, however, in Lutheran
Church of America v. City of New York n98 when, in dictum, it appeared to distinguish the rationale behind creating
restrictive historic districts from the potentially arbitrary nature of reverse "spot" individual landmark designation. The
court found that no legal rescue device was needed in the case of historic districts, which the court saw as little different
from uniform zoning district classifications.
2) The Theatre District

Recently, New York City undertook a comprehensive review of its midtown Manhattan zoning regulations and,
after a three year deliberative process, produced a planning strategy to encourage growth in west midtown and stabilize
the increasingly congested core of midtown, east of Sixth Avenue. As a part of this strategy, the city raised FAR levels
west of Sixth Avenue [*900] and lowered them to the east. The character of west midtown, however, is studded with
forty-four legitimate theatres that give the area a unique flavor leading to its designation as the Theatre District. The
new regulations, therefore, incorporated preservation controls that restrict as-of-right demolition n99 of these theatres
along with generalized growth incentives for developers. n100
Current debate over this plan has centered on the issue of how best to preserve these theatres. Theatre owners
understandably want to share in the rosy future of growth that the planners predict but also wish to retain their theatres.
Many actors and other theatre professionals, dismayed by the demolition of the Morosco and the Helen Hayes Theatres
to make way for the new Times Square Marriott Marquis Hotel, have called for creation of an historic district or at least
the designation of most if not all legitimate theatres as landmarks under the City's Landmark Preservation Law. n101
The City Planning Commission, equally eager to secure preservation guarantees for these theatres, has not only
attempted to protect them from demolition but also encouraged their rehabilitation through a FAR bonus incentive.
n102 The Commission has not, however, been sympathetic to a large historic district designation that would freeze
against change a broad area marked by considerable deterioration and pornographic activity, while trapping the
legitimate theatres within it.
The city, therefore, proposed a zoning plan that would incorporate a growth strategy to encourage development
through FAR incentives and a preservation strategy to shift development pressures on underdeveloped designated
Page 11
theatre properties away from schemes necessitating their demolition. Given the twin imperatives of growth and
preservation in the Theatre District, some variant of a TDR scheme seemed a promising option.
[*901] [*902] Upon reviewing the individual circumstances of each theatre, however, it became clear that
potential for zoning lot merger and landmark TDR varies with each theatre. There may be, therefore, a need to identify
"landlocked" theatres and to provide a mechanism for permitting them to share in the area's future growth. One possible
mechanism would allow the theatres to shift their development rights to specified receiving sites in nearby locations
(such as Eighth Avenue and west Forty-second Street) that are demonstrably related to the Theatre District. This
mechanism was used successfully at the South Street Seaport. n103 The city, in choosing potential receiving sites in the
west midtown area, will have to consider whether developers, in order to obtain the maximum allowable FAR, will be
likely to use both landmark TDR techniques and existing zoning incentives that reward subway improvement and
theatre rehabilitation with FAR bonuses. In addition, the city will have to evaluate the extent to which the designated
receiving lots in the area can absorb the development rights that the theatres would generate. It is also conceivable that
tax relief for developers and theatre owners may address the theatre preservation problem without recourse to any TDR
devices. n104
It has been suggested that the city choose to create development rights "bank" for the Theatre District similar to the
one in use at the South Street Seaport. There are two major problems with such a TDR "bank" if the city administers it.
First, if the city pays the owners just compensation for the development rights, stores them in the "bank," and sells them
to developers, it may violate the antitrust laws. Municipalities are not exempt from antitrust liability, n105 and if the
city were to create a mandatory system through which all buyers and sellers had to operate a court could find that the
city had acted in restraint of trade. n106 Developers should be free to compete for the [*903] air rights and sellers free
to sell to whomever they choose, subject to the rational parameters of designations and eligible receiving sites.
The other problem with a city-operated TDR "bank" is a practical one. Municipal resources are typically not
available to purchase and store development rights, and because of this, none of the large cities has created TDR
"banks" of this character.
As a result of these problems, New York City has preferred to leave TDR trading to the private market, subject
always to regulatory standards and safeguards, such as those provided by a preservation plan which includes continuing
renovation requirements specified for each theatre, together with an allocation of transfer benefits.
The optional formation of a private development rights bank among the owners of landlocked theatres to promote
preservation would pose similar antitrust problems because such a commonality of interest would shore up the market
price of development rights to the benefit of theatre preservation. If their agreement served to maintain an artificially
high price, they could violate section 1 of the Sherman Act. n107
A further factor complicating the resolution of the legitimate theatre problem is that of extending the TDR
mechanism to a non-landmark beneficiary. Apart from the denigration of the landmark designation system implicit in
expanding what had been an exclusive privilege, landmark advocates have also questioned the proposed wider radius of
transferability, a brand [*904] new privilege not presently enjoyed even by landmark designated properties. One
solution for the theatre district might be to grant higher FAR transfer limits to designated landmark theatres, thus
enabling them to obtain a greater benefit from a TDR sale. The city could defend the wider radius of transferability as
part of a plan for a unique area, analogous to the South Street Seaport Historic District, on the ground that such a
technique would be inappropriate for the random scattering of city landmarks, given the undesirable side effects of
unwanted TDR bulk.
IV. THE FUTURE OF TDRS IN NEW YORK CITY: THE PLAN WITHIN THE WELL-CONSIDERED PLAN
It should be clear from the TDR examples in New York City that a community with established character, protected
by conscientiously administered land use regulation, offers relatively limited opportunities for exploitation of TDR
techniques.Generally, those who advocate an expansive use of these techniques come from communities that have
ignored traditional regulation, passively tolerated ad hoc variances, or bent their regulations to fit the shape of short
term boosterism. Often, the proffered TDR cure can be worse than the disease.
In New York, courts will evaluate TDR techniques by the legal standards of substantive due process that are
applicable to zoning, as the French case makes clear. n108 Visions of far-flung transfers of development rights are
politically (and legally) more unreal than towing unwanted garbage out to sea. Even when such far-flung TDR transfers
(e.g., from the Staten Island greenbelt across New York Harbor to Lower Manhattan) are not politically unreal, their
legal nexus of rationality will be lacking.
If a municipality has politically and rationally justified the crucial radius of transferability, it will be able to create a
legitimate TDR technique if it contains the factors present in the Grand Central Terminal case: (1) reasonable, albeit
sharply limited, beneficial use of the property without development; (2) existence of sufficient TDR-eligible receiving
lots, preferably in the same ownership as the granting lot from whence the development rights spring; and (3) a TDR
technique that minimizes [*905] non-reviewable exercise of municipal discretion and maximizes private options. n109
Based upon New York City's experience, municipalities will not frequently use a TDR system that stretches beyond
the block from which the air rights originate. The more distant transfers will however, remain a police power option for
big cities. "As-of-right" zoning lot mergers that redistribute development rights within the block -- without municipal
intervention -- are apt to see far more use.
A municipality may choose to restrict the "as-of-right" redistribution of development rights to the city block to
maintain a sound conservative planning policy or to reserve the wider radius TDR privilege to owners of heavily
regulated landmark properties in order to mitigate the impact of such regulation. A landmark owner deserves some
special privileges to offset his many special burdens, and in Penn Central the Supreme Court sanctioned such
privileges.
New York City's developers make arguments to liberalize existing TDR procedures by converting TDR's more
exotic discretionary aspects into "as-of-right" entitlement. The new zoning lot definition described above n110 moves
in this direction by freeing intrablock zoning lot merger from rigid and formal requirements pertaining to long-term
lease of development rights. Problems remain with the new "as-of-right" transfer technique, however, and developers
may not find this device as easy to use as they expected.
First under the new zoning lot definition, issuance of a building permit for a zoning lot merger requires that the
developers provide the Department of Buildings with a certificate from a title insurance company that shows that each
party-in-interest with respect to the proposed zoning-lot has executed the required declarations. n111 This sounds
simple, but difficulties have arisen concerning who qualifies as a party-in-interest, and practical problems arise when
the number of consents required is large.
Zoning lots in single ownership on the effective date of the August 18, 1977 amendment were granted grandfather
status [*906] under the prior zoning lot definition. Zoning lot assemblages that contained a portion controlled through
a development rights lease as well as a portion held in fee, however, had to be recorded prior to August 1, 1978 in order
to secure grandfather status under the old definition. Such requirements for recordation of the lease would thus give the
world notice of the origin of development rights in the building structure. In addition, the city intended these two
grandfathering provisions to provide recognition of existing assemblages and avoid the necessity of their renegotiation
under the more demanding requirements of the new zoning lot definition.
One major purpose of the new filing requirement is to assure congruence of control between the zoning lot's
development rights and all parties-in-interest on the lot. Thus, when the only interests in a zoning lot concern all or
substantially all of the tract of land comprising the lot, a developer should obtain the necessary consents and file a
declaration under subsection (c) of the zoning lot definition. n112 The developer files under subsection (d) n113 when
some of the interests relate to the entire tract of land and some relate only to a portion of it.
The city never intended subsections (c) and (d) to be a menu for selection by a builder averse to dealing with a
particular party-in-interest. Because the legislation envisioned a title company's accurate identification of parties with
interests in all or only in portions of the "tract of land" comprising the lot, the city thought that the title report would
clearly signal when a subsection (c) declaration was indicated and when a subsection (d) declaration was necessary.
"Parties-in-interest" are defined generically in the ordinance n114 and have been assumed to include fee owners,
the holders [*907] of enforceable recorded interest, such as mortgagees, and the holders of certain unrecorded
interests. However, a recent decision of the New York Court of Appeals, MacMillan, Inc. v. CF Lex Associates, n115
rejected the argument that a tenant who occupied ninety-five percent of an office building's rentable area qualified as a
"party-in-interest."
MacMillan, Inc., the ninety-five percent space tenant, had attempted to block the use of unexploited development
rights attributable to its leased parcel and argued that the overbuilding and attendant congestion that would occur in its
immediate vicinity would damage its interest. The court of appeals emphasized that the "tract of land" component of
the zoning lot definition barred holders of only interests in buildings or improvements from party-in-interest status.
Page 13
n116 The court of appeals based its interpretation on the statutory language and reasoned that "tract of land" referred to
the land itself and did not apply to interests that were "no[t] cognizable . . . in the land itself," that is, buildings. n117
The New York City Zoning Resolution can also be read to suggest a more clearly defined test for determining
parties-in-interest. Because the purpose of a zoning lot merger is the exploitation of unused development potential, the
parties-in-interest concept is designed to settle the claims of those parties who have a right to the use of the unexploited
floor area. Such rights pertain to parties interested in the tract of land itself, and not to term space tenants. n118
The frequency of zoning lot mergers with existing buildings will be inversely proportional to the number of parties-
in-interest that the title insurance company discloses. As more parties-in-interest are identified, more consents are
necessary to create a single zoning lot declaration. The number of necessary consents of the parties-in-interest,
therefore, will establish the practical [*908] inner limits of development rights transfer within the zoning lot.
Another problem with the use of zoning lot mergers arises in the central business district, where developers seek
mechanisms that will allow "as-of-right" exhaustion of existing development envelopes n119 that are underutilized.
Architectural critics have looked askance at such piggybacking or "sandwiching-in" of new development in the central
business district's "gold coast," because of congestion and the loss of existing amenities that zoning underutilization has
traditionally created. In response, the midtown zoning plan, by drawing new mid-block districts with lower FAR
entitlement, has created new barriers to the unimpeded shifting by zoning lot merger of development rights within a
block. n120 The Planning Commission recently approved a similar zoning solution on the upper west side of
Manhattan. n121
In areas experiencing strong development pressure like Manhattan's upper west side or east midtown, the basic
zoning lot merger device has come under increasing scrutiny and criticism. n122 The major problem arises when
developers using a zoning lot merger plan leave existing buildings and squeeze the allowable bulk of the new building
on the vacant lot, which may comprise only a small portion of the zoning lot. When such lot merger occurs and the
existing buildings remain, the "footprint" n123 of the new building shrinks while its allowable FAR stays the same.
The frequent result of the merger is a sudden eruption of the blockscape. Critics have proposed different solutions for
this problem.
One suggestion calls for "downzoning" the block to an FAR maximum exactly reflecting the existing character of
the built environment. Were the allowable FAR to fit like a skin-tight glove over existing development, these critics
argue, there would be no incentive to seek zoning lot mergers, because there would [*909] be no unexploited
development rights over the remaining building that a lot merger could capture.
On a zoning map, however, with its general and uniform patterns of bulk classification -- higher FAR along wide
avenues, lower FAR along narrower side street mid-blocks -- it is not possible to tailor FARs precisely to the "figure" of
existing development. Generally, one seeks a uniform or even-handed area-wide classification under which complying
buildings will create the predominant character of existing development. An absolutely snug "fit" in the Zoning
Resolution would propel property owners to the Board of Standards and Appeals for even minor enlargements. A
zoning map that is so tightly drawn as to send the property owner back to the zoning tailor every time he contemplates
eating a chocolate, risks widespread constitutional challenges and encourages development by negotiation rather than by
right. Nothing in this paragraph should suggest, on the other hand, that a developer can base a hardship variance from
uniform height and setback control, derived from the character of a blockfront, upon a self-created zoning lot merger
with an existing building.
Another criticism of the present zoning lot merger rule seizes upon an anomaly of the present regulation. This
anomaly has permitted mergers of contiguous existing developments with code violations and resulted in the
exploitation of the old buildings' unutilized FAR in the new development without regard to the continuing nature of
such violations. Because the size of the new development depends on the amount of unused floor area derived from
these older developed parcels, it seems only fair to subject them to additional code enforcement requirements such as
use and parking controls.
Such a proposal was a part of the midtown zoning amendment at its outset: the city linked the certificates of
occupancy of new development with code compliance of the buildings remaining on the zoning lot. n124 In response to
strong objection by real estate interests, the Planning Commission withdrew the provision for further study. n125 The
developers based their objection on the separate financing of the new development and their [*910] resulting lack of
control over the existing buildings on the zoning lot. Lenders emphasized the unacceptability of having portions of their
newly financed structure at the mercy of zoning or other code violations on buildings that other interests controlled and
that were therefore beyond curative reach of the financing institutions.
Because compliance with state environmental laws often mandates compliance with local zoning restrictions,
particularly with respect to air pollution, the city will have to resolve this problem. To the extent that the assembler for
a new development cannot achieve practical control over offensive existing building constituents, he may have to forego
that particular merger.
A third attack on zoning lot mergers has been more direct than the others: Why not simply forbid them in the case
of building options involving "footprints" restricted to less than the full sweep of the zoning lot? The city has been
reluctant on constitutional grounds to interfere through zoning with the basic freedom to alienate property. At best, the
city might remove incentives to merger that produce development not in accord with a well-considered plan. Any
attempt, however, to base bulk controls on "footprints" as opposed to zoning lot areas, is likely to founder on basic
definitional ambiguity.
The City Planning Commission explored and rejected just such an attempt in connection with its recent three year
review of midtown zoning. It proved impossible to define "footprint" given the sophisticated skills of architects to
cantilever over or enlarge existing buildings. Any measurement of allowable FAR or height and setback envelope
controls must derive from a clear premise, lest development parameters become cloudy and unpredictable. In midtown,
instead of attacking zoning lot mergers directly through the concept of "footprint" controls, the City Planning
Commission downzoned midblocks (reducing merger incentives) and created district boundary barriers to the
unpredictable siphoning of unused FAR back and forth across these district lines by separating avenue districts from
midblock districts. Both of these actions sharply curtailed zoning lot merger abuse.
CONCLUSION
The tension between developers and municipal regulators [*911] will inevitably focus on the discretionary
landmarks TDR device and developers will seek to generalize it based upon the planning-infrastructure arguments
marshalled in support of the landmark owner's privilege. Why not allow "as-of-right" redistribution of development
rights among the eight blocks tangentially adjacent to the block from which the rights originate, instead of only within
one? A rationale can be made for this approach based on commonality and adequacy of infrastructure.
Ultimately, the harsh realities of municipal budget-making may resolve this tension. Any approach that maximizes
municipal discretion and tailors results to the individual case is costly in the fiscal and administrative sense. The
alternative is the "as-of-right" zoning lot merger. It minimizes administrative costs and produces the same development
rights increment to the city's tax base.
The municipality must value its psychic attributes more than its fiscal ones to pursue many discretionary TDR
avenues. Despite its fiscal problems, this is a course that New York City has followed from time to time -- with the
notable exception of the South Street Seaport plan. Perhaps it is this sophisticated model, with its predesignated
development sites, its privately-fueled TDR bank, and its secured landmarks that will point a way for the future. A
well-understood plan at the outset avoids the unpredictable dealing of discretionary TDR wild cards down the road.
Legal Topics:
For related research and practice materials, see the following legal topics:
Contracts LawTypes of ContractsLease AgreementsGeneral OverviewMergers & Acquisitions LawGeneral
OverviewTransportation LawAir TransportationAirspaceAirways
FOOTNOTES:
n1 For a detailed discussion of these negotiations, see text accompanying notes 38-39 infra.
n2 The zoning lot merger that creates the new Helmsley Palace Hotel is described in Marcus, Villard
Preserv'd: Or, Zoning for Landmarks in the Central Business District, 44 BROOKLYN L. REV. 1 (1977).
n3 See notes 10-15 and accompanying text infra.

Page 15
n4 New York has been the leader in using zoning policy to control building size, population density, and
land use in general. The city passed the first zoning resolution in the United States in 1916 and has continued to
develop new ways for controlling land use to shape the city. See NEW YORK CITY DEPARTMENT OF CITY
PLANNING ZONING HANDBOOK: A GUIDE TO THE NEW YORK CITY ZONING RESOLUTION 7-8
(1981) [hereinafter cited as ZONING HANDBOOK]. See also Elliott & Marcus, From Euclid to Ramapo: New
Directions in Land Development Controls, 1 HOFSTRA L. REV. 56 (1973).
n5 N.Y. GEN. CITY LAW § 20(25) (McKinney 1968) requires that all zoning must be "in accord with a well
considered plan." Id. Courts have interpreted this clause to mean that the city's purpose in proposing a zoning
action must be to benefit the community while meeting its planning objectives. ZONING HANDBOOK, supra
note 4, at 12.
n6 There are three basic zoning districts in New York City: residential, commercial, and manufacturing.
The Zoning Resolution subdivides these districts into 21 zoning districts and controls development within each
district through a variety of use, bulk, and parking regulations. For a complete list of these regulations and
zoning maps for the entire city, see NEW YORK, N.Y., ZONING RESOLUTION (1982). For a detailed
summary of the Resolution, with definitions of the terms used and practical examples of the ways in which the
Resolution applies to the zoning districts, see generally ZONING HANDBOOK, supra note 4.
n7 See note 10 infra.
n8 "As of right" development is development that does not require any action on the part of the City
Planning Commission. The developer need only file architectural plans with the Department of Buildings,
which will issue a building permit if the plans meet the provisions of the Zoning Resolution and the Building
Code.Upon issuance of the permit, the developer can begin construction. See ZONING HANDBOOK, supra
note 4, at 11.
n9 See, e.g., Costonis, The Chicago Plan: Incentive Zoning and the Preservation of Urban Landmarks, 85
HARV. L. REV. 574, 585-89 (1972).
n10 The zoning lot is the basic unit for planning control of building height, floor area, residential density
and use. The Zoning Resolution defines a zoning lot as follows:
A "zoning lot" is either:
(a) A lot of record existing on the effective date of this resolution or any applicable subsequent amendment
thereto, or
(b) A tract of land, either unsubdivided or consisting of two or more contiguous lots of record, located
within a single block, which, on the effective date of this resolution or any subsequent amendment thereto, was
in single ownership, or
(c) A tract of land, either unsubdivided or consisting of two or more lots of record contiguous for a
minimum of ten linear feet, located within a single block, which at the time of filing for a building permit (or, if
no building permit is required, at the time of the filing for a certificate of occupancy) is under single fee
ownership and with respect to which each party having any interest therein is a party in interest (as defined
herein), or
(d) A tract of land, either unsubdivided or consisting of two or more lots of record contiguous for a
minimum of ten linear feet, located within a single block, which at the time of filing for a building permit (or, it
no building permit is required, at the time of filing for a certificate of occupancy) is declared to be a tract of land
to be treated as one zoning lot for the purpose of this resolution.
NEW YORK, N.Y., ZONING RESOLUTION § 12-10 (1982).
n11 It is important to distinguish the two major forms of air rights transfer: the zoning lot merger and the
transfer of development rights (TDR). The zoning lot merger is an as-of-right merger of air rights within one
zoning lot. TDR is the term used to describe a variety of techniques that involve the transfer of air rights from
one zoning lot to another that is either contiguous or non-contiguous to the original lot.
n12 NEW YORK, N.Y. ZONING RESOLUTION § 12-10 (zoning lot definition, subsection (d)), quoted in
notes 10 supra and 33 infra.
n13 Floor area ratio (FAR) is the concept that is used to control the amount of building on a zoning lot. The
FAR "number," e.g., FAR 15, represents the multiple of lot area that produces the maximum allowable floor
area in the development. For example, if a lot were 250 feet by 300 feet, the lot area would be 75,000 square
feet. If the lot were zoned FAR 15, the maximum allowable floor area on the lot would be 15 X 75,000, or
1,125,000 square feet. A developer could then build a building or buildings on the lot in a shape or combination
that did not exceed the total FAR capacity (with certain height and setback limitations). See NEW YORK, N.Y.,
ZONING RESOLUTION § 12-10 (1977); ZONING HANDBOOK, supra note 4, at 9, 91.
n14 NEW YORK, N.Y., ZONING RESOLUTION §§ 8-18 (1916). See notes 15-23 and accompanying text
infra.
n15 In 1961, a comprehensive amendment to the New York City Zoning Resolution was enacted for the
first time since 1916 when the nation's first zoning ordinance was adopted by New York City. In the intervening
forty-five years over 1,000 patchwork amendments had attempted to keep abreast of change. See NEW YORK,
N.Y., ZONING RESOLUTION (1961). See notes 25-32 and accompanying text infra.
n16 NEW YORK, N.Y., ZONING RESOLUTION § 12-10, amend. (1977). See notes 32-39 and
accompanying text infra.
n17 NEW YORK, N.Y., ZONING RESOLUTION § 9(d) (1916).
n18 Dept. of Buildings interpretation of NEW YORK, N.Y., ZONING RESOLUTION § 9(d) (1916).
n19 NEW YORK, N.Y., ZONING RESOLUTION § 9(d) (1959).
n20 Id.
n21 C.L.R. Realty Co. v. S.F.S. Realty Corp., No. 41234-1956 (Sup. Ct. N.Y. County Sept. 14, 1956).
n22 Id.
n23 Id.
n24 C.L.R. Realty Co. v. S.F.S. Realty Corp., 2 A.D.2d 972, 158 N.Y.S.2d 753 (1956).
n25 See note 12 supra.
n26 The Zoning Resolution defines floor area as: "the sum of the gross areas of the several floors of a
Page 17
building or buildings measured from the exterior faces of exterior walls or from the center lines of walls
separating two building," NEW YORK, N.Y., ZONING RESOLUTION § 12-10 (1977), and floor area ratio
(FAR) as: "the total floor area on a zoning lot divided by the lot area of that zoning lot," id.
n27 See Marcus, Air Rights Transfers in New York City, 36 LAW & CONTEMP. PROBS. 372, 373 (1971).
For example, with FAR controls, a developer cannot sandwich extra floors into a building that has a limited
height. Id.
n28 ZONING HANDBOOK, supra note 4, at 9.
n29 See NEW YORK, N.Y., ZONING RESOLUTION § 81-211 (1982) (maximum floor area ratio for non-
residential or mixed buildings).
n30 NEW YORK, N.Y., ZONING RESOLUTION § 12-10 (1961).
n31 Also not anticipated under this ownership definition were situations in which a lessee of a parcel
defaulted after a new structure on a contiguous portion of the new zoning lot had stripped the parcel of its air
rights potential. In a case raising this issue, the appellate division stated that the transfer principle operated
automatically even when the parties to the lease had not intended to transfer the air rights. See Newport Assocs.
v. Solow, 36 A.D.2d 519, 317 N.Y.S.2d 715 (1971).
n32 NEW YORK, N.Y., ZONING RESOLUTION § 12-10, amend, (1977).
n33 Id., quoted in relevant part in note 10 supra. The procedure for creating a zoning lot is as follows:
Such declaration shall be made in one written Declaration of Restrictions covering all of such tract of land
or in separate written Declarations of Restrictions covering parts of such tract of land and which in the aggregate
cover the entire tract of land comprising the zoning lot. Any Declaration of Restrictions or Declarations of
Restrictions which individually or collectively cover a tract of land are referred to herein as "Declarations." Each
Declaration shall be executed by each party in interest (as defined herein) in the portion of such tract land
covered by such Declaration (excepting any such party as shall have waived its right to execute such Declaration
in a written instrument executed by such party in recordable form and recorded at or prior to the recording of the
Declaration).Each Declaration and waiver of right to execute a Declaration shall be recorded in the Conveyances
Section of the Office of the City Register or, if applicable, the County Clerk's Officer of the county in which
such tract of land is located, against each lot of record constituting a portion of the land covered by such
Declaration.
Id. § 12-10 (zoning lot definition, subsection (d)).
n34 Id.
n35 The ordinance reads:

Prior to issuing a building permit or a certificate of occupancy, as the case may be, the Department of
Buildings shall be furnished with a certificate issued to the applicant therefor by a title insurance company
licensed to do business in the State of New York showing that each party in interest (excepting those parties
waiving their respective rights to join therein, as set forth above) has executed the Declaration and that the same,
as well as each such waiver, have been duly recorded.
Id. § 12-10(d)(i).
n36 The City Planning Commission may initiate a zoning amendment if it is convinced that current zoning
requirements in an area prevent the useful development of the area. When the resulting development is superior
to the as-of-right alternative, the Commission may also consider a special permit for housing quality, id. § 74-
95, superior site planning in midtown, id. § 81-66, or a major site adjacent to subway improvement. A typical
amendment might increase the FAR; a typical special permit might modify height and setback regulations. Any
amendment or special permit has to be approved by the Board of Estimate after a public hearing. NEW YORK,
N.Y., CITY CHARTER ch. 3, § 67, ch. 8, §§ 197, 200 (1976 & Supp. 1983-1984); N.Y. GEN. CITY LAW § 37
(Mc.Kinney Supp. 1983-1984). For a description of zoning amendments and a detailed explanation of the
administrative procedures involved in passing one, see ZONING HANDBOOK, supra note 4, at 11-12, 81-82.
n37 Zoning variances may be granted by the Board of Standards and Appeals to relieve a developer of
specific hardships associated with a particular parcel of land, such as its unusual shape or topography. NEW
YORK, N.Y., ZONING RESOLUTION § 72-21 (1981). See also ZONING HANDBOOK, supra note 4, at 12,
82-83.
n38 The "footprint" of a building is the area that the building actually covers on the zoning lot.
n39 It should be noted that these actions came at a low point in the city's fiscal fortunes when no new office
construction had occurred in a number of years.
n40 The unit of development control chosen by most ordinances is the zoning lot. Many planners feel that
the essential interrelationship of zoning density controls to street width, transit access, school seats, and other
objects of planning concren could not survive if the city allowed indiscriminate transferability of unused
development rights between more widely spaced parcels. At its extreme, if development rights were transferable
from Staten Island to the Bronx, for example, TDR would destroy any zoning plan within which it operates.
Had the city chosen a different unit of control as its basis -- perhaps a block basis, or even a square mile
basis -- there would have been no bias against transferability of potential for development across a wider area.
A block-by-block control can achieve density objectives as successfully as a lot-by-lot approach.
n41 New York City adopted its Landmark Preservation Law in 1965. See NEW YORK, N.Y., CHARTER
AND ADMIN. CODE ch. 8-A §§ 205-1.0 to 207-21.0 (1976 & Supp. 1983-1984). The city then created the
Landmarks Preservation Commission to identify properties or areas that have "a special character or special
historical or aesthetic interest or value as part of the development, heritage, or cultural characteristics of the city,
state, or nation." Id. § 205-1.0(n). If the Commission, after a public hearing, decides to designate such a
building or property a landmark, the Board of Estimate may approve, modify, or disapprove the designation.
For a description of the procedures of the Landmarks Preservation Commission and a review of early case law
concerning the Commission's authority, see Rankin, Operation and Interpretation of the New York City
Landmarks Preservation Law, 36 LAW & CONTEMP. PROBS. 366 (1971).
n42 For the city's definition of a "landmark," see note 38 supra. In addition, some part of the building or
property to be designated must be thirty years or older. NEW YORK, N.Y., CHARTER AND ADMIN. CODE
ch. 8-A, § 207-1.0(n) (1976).
n43 NEW YORK, N.Y., ZONING RESOLUTION §§ 74-79, -791, -792, -793 (1968).
n44 Id.
n45 The "overage limit" refers to the maximum amount of floor area the receiving lot is allowed after the
transfer of development rights. If the overage limit is 20%, as provided by § 74-792(2)(d) of the Zoning
Resolution, then the receiving lot's floor area cannot be more than 20% greater than the amount that the
receiving lot was permitted before the transfer.
Page 19
n46 See Marcus, supra note 27, at 374.
n47 1970 NEW YORK CITY PLANNING COMM'N REP. CP-21236.
n48 1980 NEW YORK CITY PLANNING COMM'N REP. C 790329 ZSM.
n49 Id.
n50 See 1972 NEW YORK CITY PLANNING COMM'N REP. CP-22150, 22151.
n51 1973 NEW YORK CITY PLANNING COMM'N REP. CP-22469.
n52 NEW YORK, N.Y., ZONING RESOLUTION §§ 74-79, -791, -792, -793 (1968). See also 1969 NEW
YORK CITY PLANNING COMM'N REP. CP-20938 (discussing mid-town development needs in light of
Grand Central controversy).
n53 One plan called for a 55 story building that was cantilevered over the terminal's roof; the other required
the destruction of the terminal's famous southern facade. The Landmarks Preservation Commission rejected the
first plan, stating that "to balance a 55-story office tower above a flamboyant Beaux-Arts facade seems nothing
more than an aesthetic joke." Landmark Preservation Commission Record at 22J1, quoted in Penn Cent. Transp.
Co. v. City of New York, 438 U.S. 104, 117-18 (1978). In rejecting the second plan, the Commission commented,
"[t]o protect a [l]andmark, one does not tear ti down. To perpetuate its architectural features, one does not strip
them off." Id. at 117.
n54 For a history of the Grand Central air rights problem and an analysis of court cases that followed, see
Marcus, The Grand Slam Grand Central Terminal Decision: A Euclid for Landmarks, Favorable Notice for
TDR and A Resolution of the Regulatory/Taking Impasse, 7 ECOLOGY L.Q. 731 (1978).
n55 NEW YORK, N.Y., ZONING RESOLUTION § 74-79 (amended 1969) defines an adjacent site to
include: "a lot . . . which is across a street and opposite to another lot or lots which except for the intervention of
streets or street intersections form a series extending to the lot occupied by the landmark building. All such lots
shall be in the same ownership (fee ownership or ownership as defined under zoning lot in Section 12-10)." Id.
(emphasis in original).
n56 NEW YORK, N.Y., ZONING RESOLUTION § 72-792(3)(b) (1975).See note 45 and accompanying
text supra.
n57 A non-complying building in this context is one that has exceeded its maximum allowable floor area or
height and setback controls. These structures were prevalent in the Grand Central area because they built before
1961, that is, before the FAR concept was enacted into law. Generally, "[a] legal non-complying building is any
building legal at its inception which no longer complies with any one or more of the present district bulk
regulations." ZONING HANDBOOK, supra note 4, at 93 (emphasis omited).
n58 See Marcus, supra note 54, at 736.
n59 Comment, The Supreme Court, 1977 Term, 92 HARV. L. REV. 57, 223 (1978).
n60 Penn Cent. Transp. Co. v. City of New York, 50 A.D.2d 265, 377 N.Y.S.2d 20 (1st Dep't 1975).
n61 Penn Cent. Transp. Co. v. City of New York, 42 N.Y.2d 324, 366 N.E.2d 1271, 397 N.Y.S.2d 914
(1977). For a thorough analysis of the Court of Appeals decision, see Costonis, The Disparity Issue: A Context
for the Grand Central Terminal Decision, 91 HARV. L. REV. 402 (1977).
n62 Penn Cent. Transp. Co. v. City of New York, 50 A.D.2d at 273, 377 N.Y.S.2d at 28-29, aff'd 42 N.Y.2d
at 336, 366 N.E.2d at 1278, 397 N.Y.S.2d at 922. The New York Court of Appeals stated that these development
rights "could be transferred to several sites owned by Penn Central and suitable for office building construction.
These substiture rights are valuable, and provide significant, perhaps 'fair', compensation for the loss of rights
above the terminal itself." 42 N.Y.2d at 336, 366 N.E.2d at 1278, 397 N.Y.S.2d at 922.
n63 Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 138, reh'g denied, 439 U.S. 883 (1978).
n64 Id. at 136.
n65 Id. at 138.
n66 Tower coverage refers to the percentage of the building's zoning lot that is covered by its tower. A
tower coverage waiver permits larger floors.
n67 NEW YORK, N.Y., ZONING RESOLUTION § 74-79 (1975).
n68 1978 NEW YORK CITY PLANNING COMM'N REP. C 780404 ZSM.
n69 NEW YORK, N.Y., ZONING RESOLUTION §§ 88-00 to -07 (1982) (original version at §§ 89-00 to
-07 (1972)).
n70 Id. § 88-04. Under this plan, the development rights for all the lots are conveyed to the middleman who
holds title to the rights and "banks" them until owners of predesignated receiving lots, located on the edge of the
historic South Street District, offer to buy some of the rights. Upon purchase, title of the development rights
shifts from the middleman to the owner of the receiving lot. See also ZONING HANDBOOK, supra note 4, at
79-80.
n71 1978 NEW YORK CITY PLANNING COMM'N REP. N 780405 ZRM.
n72 1981 NEW YORK CITY PLANNING COMM'N REP. N 810597-99 ZRM.
n73 1981 NEW YORK CITY PLANNING COMM'N REP. N 810471 ZCM.
n74 Compare Penn Cent. Transp. Co. v. City of New York, 42 N.Y.2d 324, 366 N.E.2d 1271, 397 N.Y.S.2d
914 (1977) (TDR to adjacent lot provided landmark owner with "reasonable return"), aff'd, 438 U.S. 104 (1978)
with Fred. F. French Invg. Co. v. City of New York, 39 N.Y.2d 587, 350 N.E.2d 381, 385 N.Y.S.2d 5 (severance
of development rights from private parks rendered parks' value uncertain and contingent), cert. denied, 429 U.S.
990 (1976).
n75 438 U.S. 104 (1978).

Page 21
n76 50 A.D.2d 265, 377 N.Y.S.2d 20 (1st Dep't 1975).
n77 42 N.Y.2d 324, 366 N.E.2d 1271, 397 N.Y.S.2d 914 (1977).
n78 A typical critical resource area would be a privately-owned park in a central business district. Because
of the extremely high land values in such areas, owners would feel compelled to develop these open spaces
unless their development potential could be severed and realized elsewhere. For a discussion of this concept and
a history of the Tudor City Parks controversy, see Marcus, Mandatory Development Rights Transfer and the
Taking Clause: The Case of Manhattan's Tudor City Parks, 24 BUFFALO L. REV. 77 (1975).
n79 39 N.Y.2d 587, 350 N.E.2d 381, 385 N.Y.S.2d 5, cert. denied, 429 U.S. 990 (1976).
In French, the New York Court of Appeals held that an amendment to the New York City Zoning
Resolution that limited the use of parks connected with the Tudor City residential complex to passive recreation
and severed the parks' development rights for use elsewhere amounted to an unconstitutional exercise of the
city's police power. The case arose after the plaintiff real estate company had sold the Tudor City complex,
including the parks, for $ 36,000,000, to a real estate contingent headed by Harry Helmsley. As payment, the
plaintif received cash and eight purchase money mortgages, two of which covered the parks. After purchasing
the complex, the new owner announced alternative plans to construct an office tower using the parks'
development rights. One plan would have shifted the rights to a adjoining lot, the other was to build towers on
the parks themselves. Id. at 592, 350 N.E.2d at 383, 385 N.Y.S.2d at 7.
In response to strong public reaction against these proposals, the city amended the zoning resolution to
create a "Special Parks District." The private Tudor City Parks were designated passive recreation areas to be
maintained by the owner and any improvements on the parks were limited to "structures incidental to passive
recreational use." Id. at 592, 350 N.E.2d at 384, 385 N.Y.S.2d at 7-8. In exchange for restricting the parks' use,
the city severed the development rights of the parks from the land itself and allowed the owner to transfer them
anywhere within a specifically designated midtown area, with the city waiving any existing zoning regulations
in this area. As soon as the City Planning Commission enacted the amendment, the Helmsley contingent
defaulted on the mortgages that were secured in part by the parks. Id. at 591, 350 N.E.2d at 383, 385 N.Y.S.2d
at 7. The plaintiff-mortgagee, who had a security interest in the parks, subsequently brought suit against the
defaulting mortgagor and the city, claiming that the city's actions constituted an illegal taking of its security
interest. In addition, the plaintiff sought inverse condemnation damages from the city for its "taking." Id. at
593, 350 N.E.2d at 384, 385 N.Y.S.2d at 8.
The New York Supreme Court, Special Term, ruling on counter motions for summary judgment, held that
the city's actions were unconstitutional because they "totally destroyed the economic value" of the property and
were not a reasonable exercise of the city's police power. The court likened the impact of zoning waivers on
distant receiving lots to spot zoning. 77 Misc. 2d 199, 202, 352 N.Y.S.2d 762, 766 (Sup. Ct. N.Y. County 1973).
Inverse condemnation ws not granted, however, because the city had taken neither title nor control of the
property. Id. at 205, 352 N.Y.S.2d at 768. Both sides appealed to the appellate division, which unanimously
affirmed without opinion. 47 A.D.2d 715, 366 N.Y.S.2d 346 (1975).The parties appealed to the New York Court
of Appeals, which also found the zoning amendment "unreasonable" and thus unconstitutional under the due
process clause because it "deprive[d] the owner of all of his property rights, except the bare title and a dubious
future reversion of full use." 39 N.Y.2d at 597, 350 N.E.2d at 387, 385 N.Y.S.2d at 11. Although the court
acknowledged that the development rights had value, it found that they were unusable until attached to some
other property. The value of these rights therefore was found to be too uncertain and contingent to declare that
the property value was not destroyed. Id. at 597-98, 350 N.E.2d at 388, 385 N.Y.S.2d at 11-12. Because the
court held that the city's actions were not a compensable taking, however, but only an invalid use of police
power, no compensation was required. The amendment was invalidated and the parties were left where they
were prior to the adoption of the amendment. Id. at 595, 350 N.E.2d at 386, 385 N.Y.S.2d at 9-10. The effect of
the decision, then, was that the new owner had to continue his mortgage payments and would now be able to
proceed with an as-of-right development of the parks.
n80 1972 NEW YORK CITY PLANNING COMM'N REP. CP-22128A.
n81 39 N.Y.2d at 592, 350 N.E.2d at 384, 385 N.Y.S.2d at 8.
n82 Id. at 599, 350 N.E.2d at 389, 385 N.Y.S.2d at 12.
n83 Id. at 597-98, 350 N.E.2d at 387-88, 385 N.Y.S.2d at 11-12.
n84 Penn Cent. Transp. Co., 42 N.Y.2d at 332-33, 366 N.E.2d at 1276 397 N.Y.S.2d at 919-20.
n85 The court stated that "[t]he amendment renders the park properly unsuitable for any reasonable income
production or other private use for which it is adopted and thus destroys its economic value." 39 N.Y.2d at 597,
350 N.E.2d at 387, 385 N.Y.S.2d at 11.
n86 The court noted that "plaintiffs' heavy real estate holdings in the Grand Central area, including hotels
and office buildings, would lose considerable value and deprive plaintiffs of much income, were the terminal not
in operation." Therefore, the court reasoned, "[s]ome of this income must . . . be imputed to the terminal . . .
[because] [t]he terminal acts . . . as a magnet for Penn Central's other, more profitable, enterprises." 42 N.Y.2d at
333-34, 366 N.E.2d at 1276-77, 397 N.Y.S.2d at 920.
n87 In determining that there was no taking and no right to compensation, the court noted that the
government had not occupied the parks or taken title and, therefore, did not physically invade the property or
assume control. 39 N.Y.2d at 595, 350 N.E.2d at 386, 385 N.Y.S.2d at 9-10.
n88 See notes 80-81 and accompanying text supra.
n89 Fred F. French Invg. Co. v. City of New York, 77 Misc. 2d at 203-04, 352 N.Y.S.2d at 767. Spot zoning
occurs when zoning changes benefit one owner to the detriment of surrounding property owners. ZONING
HANDBOOK, supra note 4, at 12. Justice Waltemade in French analogized the city's attempt to sever and
transfer the parks' development rights to spot zoning because the tenants and owners at the future transfer site
would not be given the opportunity to voice objections to any construction. The amendment provided that these
severed rights could be transferred anywhere within a designated area despite existing zoning regulations.
Justice Waltemade therefore concluded that any public hearing would be "an exercise in futility" and that even if
those owners and tenants were adversely affected the construction would take place. 7 Misc. 2d at 204, 352
N.Y.S.2d at 767.
n90 438 U.S. 104, 137 (1978).
n91 One of the factors that led Justice Waltemade to invalidate the amendment in French was the impact of
overbuilding on a receiving lot a considerable distance from the preserved private park. Justice Waltemade
implicitly questioned whether a neighboring property owner affected by the allowable overbuilding on the
remote TDR receiving lot enjoyed any benefit from the preservation of the parks. 77 Misc. 2d at 203, 352
N.Y.S.2d at 767. See also note 89 supra.
n93 See generally ZONING HANDBOOK, supra note 4, at 79; Marcus, The Grand Slam Grand Central
Terminal Decision: A Euclid for Landmarks, Favorable Notice for TDR and A Resolution of the
Page 23
Regulatory/Taking Impasse, 7 ECOLOGY L.Q. 731, 737 (1978); Marcus, supra note 2, at 10-11.
n94 See NEW YORK, N.Y., CHARTER AND ADMIN. CODE, ch. 8-A § 207-1.0(h) (1976) (definition of
"Historic district").
n95 If owners of the TDRs were competing, and only permitted to sell these rights within a restricted area,
the economics of supply and demand suggests that this excess supply would drive the price of the development
rights down.
n96 If both the historic district and the surrounding neighborhood share essentially the same characteristics,
little would be gained by transferring the unused historic district development rights to the surrounding
neighborhood where they similarly would be incompatible with the area.
n98 35 N.Y.2d 121, 316 N.E.2d 305, 359 N.Y.S.2d 7 (1974).
n99 As-of-right demolition does not require approval by the City Planning Commission. The theatre
demolition special permit would require discretionary approvals by the City Planning Commission and Board of
Estimate.
n100 See NEW YORK, N.Y., ZONING RESOLUTION §§ 81-00 to 81-90 (1982).
n101 NEW YORK, N.Y., CHARTER AND ADMIN. CODE §§ 205-1.0 to 207-21.0 (1976 & Supp. 1983-
1984).
n102 "[T]he City Planning Commission offered a 20% floor area bonus to any office building which
included a theatre in its plans." Marcus, supra note 2, at 10 n.28.
n104 To advise the City Planning Commission in designing a plan for the Theatre District, the Mayor has
created a Theatre Advisory Council composed of theatre professionals and interested citizens that have explored
the spectrum of zoning and landmark powers available to the city.
n105 In two recent decisions, the Supreme Court determined that a local government could be held liable
for antitrust violations under the Sherman Act. See Community Communications Co. v. City of Boulder, 455
U.S. 40 (1982); City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389 (1978).
n106 A TDR bank with the city as the middleman may be a prime target for an antitrust suit. Section 1 of
the Sherman Act prohibits any "contract, combination . . . or conspiracy, in restraint of trade or commerce." 15
U.S.C. § 1 (1982). When the city acts as a middleman and accumulates development rights in a TDR bank, a
court could find it to be conspiracy or combination in restraint of trade. By concentrating all TDRs in one seller,
competition is reduced, whereas if individual TDR owners are allowed to sell on their own, buyers will be able
to negotiate with the various owners and obtain the best bargain possible.
A similar argument is that an antitrust violation would exist even if the city were not the middleman. The
mere fact that the TDR sellers have pooled their development rights could be argued to restrain trade. In either
of the above situations, however, the defendants in any lawsuit could urge the court to adopt a rule of reason
analysis and attempt to convince the court that there is a legitimate purpose underlying any agreement and that
their actions therefore do not constitute an antitrust violation. See generally Springer, Guarding Against
Antitrust Risks, in ANTITRUST & LOCAL GOVERNMENT: PERSPECTIVES ON THE BOULDER
DECISION 104-106 (J. Siena ed. 1982).
n107 15 U.S.C. § 1 (1982), quoted in relevant part in note 10 supra.
n110 See note 33 and accompanying text supra.
n111 NEW YORK, N.Y., ZONING RESOLUTION § 12-10 (1982), quoted in note 35 supra.
n112 Id. § 12-10 (zoning lot definition, subsection (c)) (1982).
n113 Id. § 12-10 (zoning lot definition, subsection (d)) (1982).
n114 The ordinance reads:

A "party in interest" in the portion of the tract of land covered by a Declaration shall include only (W) the
fee owner or owners thereof, (X) the holder of any enforceable recorded interest in all or part thereof which
would be superior to the Declaration and which could result in such holder obtaining possession of any portion
of such tract of land, (Y) the holder of any enforceable recorded interest in all or part thereof which would be
adversely affected by the Declaration, and (Z) the holder of any unrecorded interest in all or part thereof which
would be superior to and adversely affected by the Declaration and which would be disclosed by a physical
inspection of the portion of the tract of land covered by the Declaration.
NEW YORK, N.Y., ZONING RESOLUTION § 12-10 (party in interest definition, subsection (d)(IV) (1977).
n115 MacMillan, Inc. v. CF Lex Assocs., 56 N.Y.2d 386, 437 N.E.2d 1134, 452 N.Y.S.2d 377 (1982).
n116 Id. at 389, 437 N.E.2d at 1135, 452 N.Y.S2d at 378.
n117 Id.
n118 For a different view see Kowaloff, Space Tenants as 'Parties in Interest' in a Zoning Lot Merger:
Another Slant on MacMillan, 12 N.Y.S. BAR ASS'N REAL PROP. L. SEC. NEWSLETTER 3, 5 (Jan. 1984).
n119 The zoning "envelope" is the maximum floor area obtainable for a particular lot under the Zoning
Resolution.
n120 See NEW YORK, N.Y., ZONING RESOLUTION §§ 81-10, -11, -12, -13, -14 (1982).
n121 See Dunlap, Planners Approve Zoning Change To Preserve the Upper West Side, N.Y. Times, Apr.
10, 1984, at B1, col. 1.
Page 25
n122 See, e.g., GOLDBERGER, ON THE RISE: ARCHITECTURE AND DESIGN IN A POSTMODERN
AGE 203-05 (1983). Mr. Goldberger, the New York Times architectural critic, commented that the new "sliver"
buildings "are like awkward pieces of other structures forced at random into the streetscape; they break rather
than enhance the order of the neighborhoods of which they are a part." Id. at 203.
n123 See note 38 supra.
n124 NEW YORK, N.Y. CITY PLANNING COMM'S CALENDAR N 820253 ZRM (Jan. 20, 1982).
n125 NEW YORK CITY PLANNING COMM'N, MIDTOWN ZONING 39 (1982).

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Page 1

50 Brooklyn L. Rev. 867, *

Copyright (c) 1984 Brooklyn Law School

50 Brooklyn L. Rev. 867

LENGTH: 15944 words

NAME: Norman Marcus *

[*870] I. MERGER OF ZONING RIGHTS: "AS-OF-RIGHT" TDR WITHIN THE BLOCK

A. Pre-1961 Zoning Regulations

B. The 1961 Amendment

C. The 1977 Amendment

II. TDR ACROSS A STREET: BREAKING THE OUTER-LIMIT BLOCK BARRIER

A. Chain of Common Ownership

B. A Specific Area-Wide Plan

C. TDR Within a Large Floating Zone

D. The Problem of Multiple Sellers and Development Rights Devaluation

[*898] 1) Historic Districts

2) The Theatre District

n3 See notes 10-15 and accompanying text infra.

n7 See note 10 infra.

n17 NEW YORK, N.Y., ZONING RESOLUTION § 9(d) (1916).

n19 NEW YORK, N.Y., ZONING RESOLUTION § 9(d) (1959).

n25 See note 12 supra.

n28 ZONING HANDBOOK, supra note 4, at 9.

n30 NEW YORK, N.Y., ZONING RESOLUTION § 12-10 (1961).

n32 NEW YORK, N.Y., ZONING RESOLUTION § 12-10, amend, (1977).

n35 The ordinance reads:

n46 See Marcus, supra note 27, at 374.

n47 1970 NEW YORK CITY PLANNING COMM'N REP. CP-21236.

n51 1973 NEW YORK CITY PLANNING COMM'N REP. CP-22469.

n58 See Marcus, supra note 54, at 736.

n64 Id. at 136.

n65 Id. at 138.

n67 NEW YORK, N.Y., ZONING RESOLUTION § 74-79 (1975).

n75 438 U.S. 104 (1978).

n76 50 A.D.2d 265, 377 N.Y.S.2d 20 (1st Dep't 1975).

n81 39 N.Y.2d at 592, 350 N.E.2d at 384, 385 N.Y.S.2d at 8.

n82 Id. at 599, 350 N.E.2d at 389, 385 N.Y.S.2d at 12.

n83 Id. at 597-98, 350 N.E.2d at 387-88, 385 N.Y.S.2d at 11-12.

n88 See notes 80-81 and accompanying text supra.

n90 438 U.S. 104, 137 (1978).

n92 See notes 52-68 and accompanying text supra.

n97 See notes 69-72 and accompanying text supra.

n98 35 N.Y.2d 121, 316 N.E.2d 305, 359 N.Y.S.2d 7 (1974).

n103 See notes 69-72 and accompanying text supra.

n107 15 U.S.C. § 1 (1982), quoted in relevant part in note 10 supra.

n108 See notes 74-91 and accompanying text supra.

n109 See notes 52-68 and accompanying text supra.

n110 See note 33 and accompanying text supra.

n112 Id. § 12-10 (zoning lot definition, subsection (c)) (1982).

n113 Id. § 12-10 (zoning lot definition, subsection (d)) (1982).

n114 The ordinance reads:

n116 Id. at 389, 437 N.E.2d at 1135, 452 N.Y.S2d at 378.

n123 See note 38 supra.

n125 NEW YORK CITY PLANNING COMM'N, MIDTOWN ZONING 39 (1982).

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