This case presented the question of whether the exemption from the Realty Transfer Fee (RTF) allowed by N.J.S.A. 46:15-10(a), where consideration is less than $100, is applicable to property conveyances from a corporation to one or more of its wholly owned subsidiaries.
“This case is important to New Jersey as it brought specificity to an aspect of commercial real estate that had not been consistently applied previous to this important decision,” said Jeffrey R. Rich, Esq., Chair of the Commercial Real Estate & Redevelopment Law Practice Group at Genova Burns. “Often corporations will shift their real estate holdings to subsidiaries as part of responsible property management. This decision clearly outlines that corporations and their wholly owned subsidiaries are not subject to the regulatory Realty Transfer Fee, which, in other circumstances, could result in a hefty payment based on property valuation.”
In mid-2006, plaintiff Mack-Cali Realty LP (Mack-Cali) conveyed a property located in both Woodcliff Lake and Montvale, NJ to 530 Chestnut Realty, LLC. By separate deed, Mack-Cali conveyed another property in Woodcliff Lake to 470 Chestnut Realty, LLC. In each case, the deed called for a transfer of $10 and other good and valuable consideration, and that Mack-Cali was the sole member of each of the grantee LLCs. Apart from the stated dollar sums, no other considerations were made. The deeds were promptly presented to the Bergen County Clerk for recording, but were returned to counsel for failure to pay the RTF calculated on consideration derived from the assessed valuation of the properties.
Evaluation by the Division of Taxation followed, and the Division ultimately advised that payment of the RTF had been properly required under the applicable regulations it adopted in 2006. Those regulations called for “[a] deed transferring real property from one legal entity to another legal entity that has common ownership is subject to the realty transfer fee.” According to the regulation, when the value of stock or contribution to capital “is indeterminable, the realty transfer fee is calculated on the assessed value of the property... .”
Thus, the property owner and its grantee/subsidiaries argued that the regulation violated the statutory definition of “consideration.” It also pointed out, and the Division of Taxation conceded, that full application of the regulation could “be avoided by placing a nominal mortgage on the property before transfer, making for inconsistent and illogical practice.”
Subsequently, the Court determined that the definition of consideration did not include “any element not paid by the grantee to the grantor.” It recognized that “statutory consideration, with the exception of the mortgage balance, comprises only elements that are directly given by the grantee and received by the grantor as part of the exchange.” As a result, the Court ruled that the consideration for each transfer was the $10 actually stated in the deed and that the transactions were exempt from the Realty Transfer Fee. In the court’s summary, it found that “a blanket exclusion of any transaction between commonly owned entities from qualifying for the nominal consideration exemption is contrary to the legislative intent expressed in the statute and may not be enforced with respect to the subject transactions.”