Transferable development rights are a useful tool in a government’s zoning regulation toolbox that can take different forms and serve different purposes across the country. For example, the granting of such transferable development rights can be used to encourage developers to construct affordable housing units within a municipality without requiring the municipality to pay the developer for such construction or causing the municipality to construct such units itself.

One such law is New York City’s inclusionary housing program, which grants transferable floor area ratio (FAR) bonuses to developers in New York City that include affordable housing units in their development projects. These FAR bonuses allow developers to exceed the maximum density levels allowable under applicable zoning laws by up to 33 percent in some areas and are evidenced by certificates issued by the New York City Department of Housing Preservation and Development (HPD) which may be sold and transferred by developers to other projects in selected areas. A recent New York Supreme Court case serves as a cautionary tale for mortgage lenders, and their attorneys, who make loans to borrowers who may own such FAR bonuses.

‘CB Frontier’