U.S. District Court, S.D. New York, 15-cv-2561 (PKC), Oct. 25, 2016: Façade easement protection of entire exterior must be absolute.
At issue was whether a historic preservation easement on a building in a historic district could qualify for a federal charitable tax deduction even if the easement holder could grant an exception to the prohibition against alteration of the exterior. The court held such an easement would not qualify.
Partita donated a façade historic preservation easement to the Trust for Architectural Easements (“TAE”) and claimed an income tax deduction under §170(h)(4)(B) of the Internal Revenue Code. That section requires that in order to be a preservation easement in the façade of building located in a historic district must “preserve the entire exterior of the building …..” That Code section stipulate that such façade easement does not qualify as a conservation contribution “exclusively for conservation purposes,” unless it “(I) includes a restriction which preserves the entire exterior of the building (including the front, sides, rear, and height of the building), and (II) prohibits any change in the exterior of the building which is inconsistent with the historical character of such exterior …..”
The façade historic preservation easement which Partita donated to TAE provided that there would be no alteration, construction, remodeling or exterior extension without the express written consent of TAE, and that while 2,700 square feet of development rights associated with the property “shall be reserved for the future expansion of the Property in accordance with the terms of this Easement,” any exercise of development rights may not interfere with the preservation and conservation purposes of the easement, and must be approved by TAE. The IRS denied Partita’s claim for a deduction, asserting that these provisions failed to met the requirements of Code §170(h)(4)(B).
Partita offered two arguments: that §170(h)(4)(B) does not forbid alterations which do not exceed the highest point of the roof; and that the Code does not forbid alterations to the exterior if the alteration requires the consent of the easement holder. The court rejected both these arguments. It said that the provisions of the Code unambiguously require a restriction that (a) “preserves the entire exterior of the building…,” without exception as to the boundaries of the envelope of the exterior, and (b) is absolute, and not “a conditional restriction that delegates to the grantee future decisions on development of the exterior.”
Thanks to Jess Phelps for alerting PLD to this decision.