Volume 10 - Opinions of Counsel SBRPS No. 103
Assessments, generally (easements in gross) (taxability); Nonprofit organizations exemption (generally) (easement in gross retained by grantor) - Real Property Tax Law, §§ 305, 420-a:
An “easement in gross” is not a separately assessable taxable interest in real property, although mains and pipelines installed pursuant to such easement may be taxable [5 Op.Counsel SBEA No. 62 modified]. When property is conveyed to a nonprofit organization, but the grantor retains an easement in gross, if such easement rights do not interfere with the nonprofit organization’s use of its property and it makes no pecuniary profit therefrom, its exemption rights will not be affected.
Our opinion has been requested as to the taxable status of property owned by a nonprofit organization (Real Property Tax Law, § 420-a). Although there seems to be no question as to the eligibility of the nonprofit organization’s purposes or use of its property, there is an issue as to the organization’s grantor which retained “an exclusive perpetual easement in, on, above or beneath” the property for all purposes including pipelines, power transmission lines and communication lines. The question is if this easement, referred to in the deed as “an easement in gross, freely alienable and assignable by” the grantor, pursuant to which the grantor is receiving revenue, renders any portion of the property to be taxable. If so, the next question is whether the nonprofit organization may still receive its exemption.
Addressing the second question first, we assume that the nonprofit organization does not benefit monetarily from the easement so that there is no issue as to whether it is a guise or pretense for making a pecuniary profit disqualifying it from the nonprofit exemption (RPTL, § 420-a(1)(b)). If the easement rights retained by the grantor do not interfere with the nonprofit organization’s use of its property, the existence of such rights should not adversely affect the organization’s exemption eligibility.
As to easements, we have stated, “Under the method of assessment in New York, where there are easement interests, the value of the dominant estate is increased by virtue of having the benefit of the easement while the value of the servient estate is accordingly diminished” (5 Op.Counsel SBEA No. 62 citing Tax Lien Co. v. Schultze, 213 N.Y. 9, 106 N.E. 751 (1914)). That opinion should be deemed modified and read as referring to the valuation (per RPTL, § 305) of easements appurtenant. “An easement appurtenant requires both a servient and dominant tenement. One owner’s land must be burdened in favor of the estate of another” (Bruce and Ely, The Law of Easements and Licenses in Land (rev. ed.), § 2.01(1)). Therefore, if the grantor owns other real property “appurtenant” to the property in question, the value of that property could be increased to reflect the easement over the nonprofit organization’s property.
Here, however, the grantor apparently owns no other property and the deed itself refers to the easement as an easement in gross. {1}
[I]t is possible to create what is known as an easement in gross, that is, an easement which is not appurtenant to any land, and which the owner may enjoy although he does not own or possess a dominant estate or any land whatever. Although it has been said that strictly speaking there is no such thing as an easement in gross, since there can be no easement which is not supported by a distinct dominant tenement [citing, e.g., Loch Sheldrake Associates, Inc. v. Evans, 306 N.Y. 297, 118 N.E.2d 444 (1954)], nevertheless the concept of an easement in gross is firmly established and recognized in the law of real property. *** An example of an easement in gross is, the right to maintain a telegraph line across another’s property (Rasch, New York Law and Practice of Real Property (2d ed.), Easement and Profit, § 18:9); accord, 49 NY Jur2d, Easements, § 9). {2}
An easement, whether “appurtenant” or “in gross,” though it is an interest in real property, is not a separable assessable interest subject to taxation because it does not satisfy any definition of real property (RPTL, § 102(12); see, People ex rel. A.&B.T. Road v. Selkirk, 180 N.Y. 401, 73 N.E. 248 (1905)), {3} except as provided for State conservation easements acquired in the Adirondack and Catskill Parks and certain other regions (RPTL, § 533). The value of appurtenant easements are taxable in the manner outlined above, but the value of easements in gross are not. Of course, the value of such easement interests may be subject to other forms of taxation (e.g., income).
Finally, section 102(12)(e) of the RPTL defines real property to include equipment on private property that is used for conducting water, electricity, etc. {4} Similarly, property of local telephone service providers which is located on private property is defined as taxable (RPTL, § 102(12)(d)). Arguably, these facilities satisfy those definitions and may be separately assessed and taxed to the utilities. {5}
April 10, 2000
{1} “An easement in gross benefits its holder whether or not the holder owns or possesses other land. There is a servient estate, but no dominant estate” (Bruce and Ely, The Law of Easements and Licenses in Land (rev. ed.), § 2.01(2)).
{2} Also: “An easement in gross is considered commercial in nature when its use results in an economic benefit, as distinguished from a personal satisfaction to the person authorized to exercise it” (5 Warren’s Weed New York Real Property, Easements, § 1.03[2]). The Appellate Division recently cited these sections of NY Jur2d and Warren’s Weed (Henry v. Malen, 263 A.D.2d 698, 692 N.Y.S.2d 841 (3d Dept. 1999)).
{3} Similarly, another court found riparian rights to be incorporeal hereditaments and therefore a real property interest for some purposes. “However, the mere fact that an interest held to be a real property interest for some purposes is involved does not ipso facto mean it is subject to the assessment of real property tax. There must be some specific statutory authorization for a specific tax assessment” (City of New York v. Schwartz, 36 A.D.2d 402, 403, 320 N.Y.S.2d 983, 985 (3d Dept. 1971)). The same analysis seems apt as to easements.
{4} But, cf., Orange and Rockland Utilities v. City of Middletown Assessor, 269A.D.2dn451, 703 N.Y.S.2d 218 (2d Dept. 2000).
{5} Of course, ascertaining the inventory of such property and enforcing any delinquent taxes levied thereon is problematic.