What Are Air Rights?
Air rights are a property owner’s right to either build or sell the unused portion of the full property area they are allowed to build on a lot.
New York City is by far the densest city in the country. One reason is that there is only so much vacant land in any part of the city. Since there is less land to build upon, builders have been developing upwards for decades now; the “air” has become a precious real estate asset. The more people there are on a patch of land, the higher the population density.
But the people living in the city’s tall buildings have to use the same roads and infrastructure, so to make sure that the city doesn’t become too overcrowded, the concept of “Air Rights” was introduced. And it has been around since 1961.
Calculating How Much You Can Build On A Lot
Before we get into the details about the air rights, there are a few things you need to know. The first is that there are rules and regulations about how much you can build on an empty lot or a patch of land set aside for building construction. It’s called ‘maximum buildable area’ and is calculated as the following:
Maximum Buildable Area = Floor Area Ratio (FAR) x Lot Area
Lot area is quite simple, and if you don’t know what size lot you have, you can simply multiply the length and width of the lot to find out your lot area. A 2040-foot wide and 250-foot-long lot will have a lot area of 10,000 sq. Ft. A lot can also be called a “zoning lot” because it comes under the zoning regulations of the city.
Lot Area = Lot Width x Lot Length
Lot Area = 40’ x 250’
Lot Area = 10,000 sq. Ft.
The Floor Area Ratio is a bit different. It’s calculated based on several factors, including:
- Zoning district (decided by the city)
- Building use
- Building type
For residential districts, the FAR can easily be between 0.5 and 10.0. You can visit the NYC planning website to find out the FAR for your residence district.
For a lot with an area of 10,000 sq. Ft. and a FAR of 5.0, the buildable area would be calculated as:
Maximum buildable area = 5 (FAR) x 10,000 (Lot Area) = 50,000 Sq. Ft.
That’s how much “building” a builder is allowed to build on the zoning lot.
From Maximum Buildable Area To Air Rights
Let’s assume that on a lot with a maximum buildable area of 50,000 sq. Ft., the builder only builds a 30,000 sq. Ft. structure. It means they have built less than what they are allowed to build on that lot, so the remaining 20,000 Sq. Ft. can be considered their air rights.
Air Rights are also called development rights since they refer to the rights of developing property on a lot to its full, allowable extent. It’s also important to note that “air rights” is not part of the legal language and the official term for selling air rights is the “transfer of development rights” or TDR.
What Can You Do With Your Air Rights?
If you have air rights on a building, you can use it to extend that building, build more stories or fill up the remaining area of your lot until you have reached your maximum buildable area. You can also sell the rights to one of the adjacent properties or properties that are connected to yours. Properties that are beside each other can be merged together into one zoning lot (for transferring air rights). This benefits the buyer, the seller, and the city.
The most common form of air rights transfer is by merging adjacent lots. These lots are usually of the same zoning “types,” Like residential or commercial. But the air rights might be transferred from buildings that are not exactly neighboring in some special purpose districts. Air rights for buildings that are declared historical landmarks by the Landmark Preservation Commission are transferred differently.
What Do Property Buyers Need To Know About Air Rights?
There are no “physical” methods of marking your air rights. If you buy a lot on which you might still have air rights (if the previous owner didn’t sell them to the owner of an adjacent lot) of, say, 10,000 sq. Ft., the only way to know about it would be to check the official documents.
When air rights are transferred (bought and sold), the transfer is registered with the city. So if you are buying or selling a property, it is a good idea to check whether its air rights have been sold before you start expanding it.
How Different Entities Benefit From The Transfer Of Air Rights
There are three parties involved when air rights are transferred from one lot to another:
- The seller who has air rights to sell to a neighboring lot(s)
- The buyer who wants to buy air rights to build more than the maximum buildable area allowed for their own lot
- The city/local government that ensures air right transfers are made as per law, and the transfer is officially recorded
Each stakeholder benefits from the air rights transfer in their own way:
- The buyer gets more buildable area, in addition to their own maximum buildable area. Let’s say two adjacent lots (lot A and lot B) have a maximum buildable area of 50,000 Sq. Ft. Builder of lot A used all of their buildable area while lot B builder only used 30,000 Sq. Ft. If lot A builder/owner buys air rights for the remaining 20,000 from the owner of lot B, they can expand upwards and create a 70,000 sq. Ft. building, which is 20,000 more than what they were originally allowed to build.
- The city benefits because it can control the overall population density. The city decides what “FAR” is for any lot, and by changing it, the city can control the maximum buildable area of each lot and control how many property units can be created on a given piece of land. This also discourages builders from buying and demolishing buildings to create new ones. They can expand their existing buildings by buying air rights from their neighboring buildings.
- The seller benefits because even if they can’t use all the buildable area they have (according to calculations), they can still profit from it by selling their air rights. For example, if a builder can have eight floors of offices that they can rent out (based on their maximum buildable area) and they only build six, they will collect less rent. They can make up for the difference (in a different way) by selling the air rights to another builder and taking the money.
Air rights are a unique marketplace. Buyers can only buy from the buildings beside them (in most cases). Similarly, sellers can only sell to the neighboring buildings.
Then, there are the complex zoning rules that buyers and sellers have to obey before transferring air rights. So whether you are entering this market as a buyer or a seller, it is a good idea to hire the services of professionals who understand the air rights market and its rules and are experienced in air rights transfers.