Opinion ID: 2310780
Heading Depth: 2
Heading Rank: 1

Heading: The taxability of the leasehold deed of trust under the Recordation Tax Act.

Text: The trial judge reached her conclusion that the 1995 deed of trust was not subject to the recordation tax for two reasons. First, she concluded that the ninety-nine-year lease at issue here was not a deed under the Act. Second, she held that the 1995 leasehold deed of trust did not transfer a security interest because the ninety-nine-year lease securing the loan merely constituted the right to use the real property, not ... real property itself. (Emphasis in original.) The judge therefore also ruled that the 1995 deed of trust was not a security interest instrument as defined in § 45-921(14). The judge's first conclusion is mandated by the plain language of D.C.Code § 45-921(3)(B). That section states that [t]he word `deed' shall not include ... a lease with a term of 99 years or less. Id. Therefore, L Street Associates' ninety-nine-year lease cannot be a deed for recordation tax purposes. But the judge's view that the lease securing the 1995 deed of trust was not a deed does not resolve the question whether the recordation of the leasehold deed of trust (rather than of the lease itself) was subject to the recordation tax. Under the Act as amended in 1994, the recordation of a security interest instrument is subject to the recordation tax. Id. § 45-923(a). If the leasehold deed of trust was a security interest instrument, then its recordation was taxable. This was so regardless of whether or not recordation of the underlying lease would be a taxable event. [18] The Act defines a security interest instrument as any instrument which conveys, vests, grants, transfers, bargains, sells, or assigns a security interest in real property. Id. § 45-921(14). A security interest is defined as any interest in real property for the purpose of securing payment of a debt. Id. § 45-921(13). Finally, real property means every estate or right, legal or equitable, present or future, vested or contingent in lands, tenements, or hereditaments located in whole or in part within the District. Id. § 45-921(4). There can be no doubt that the 1995 leasehold deed of trust constituted an assignment of a security interest in the taxpayer's ninety-nine-year lease of the L Street property. See id. § 45-921(14). That interest was assigned for the purpose of securing payment of a debt, namely of the permanent loan with which L Street Associates in 1995 refinanced its 1970 construction loan. Id. § 45-921(13). Thus, if an interest in a ninety-nine-year lease is an interest in real property, id. § 45-921(13), (14), [19] then the leasehold deed of trust was a security interest instrument under the Act. The trial judge determined that the lease was not real property, and she ruled in the taxpayer's favor on that basis. We conclude, however, that the ninety-nine-year lease in which the taxpayer's deed of trust transferred a security interest constituted real property as that term is defined in the Act. The statute does not state in so many words that a lease, including one of ninety-nine years or less, falls within its definition of real property. The statutory definition, however, broadly includes every estate or right ... in lands, tenements, or hereditaments located in whole or in part within the District. D.C.Code § 45-921(4). The only reasonable construction of that language, Acme Reporting Co., supra, 530 A.2d at 712, is that a lease, and especially one for a term of ninety-nine years, is included in that definition because it is an estate or right ... in land[ ]. D.C.Code § 45-921(4). As a matter of common sense, it is surely indisputable that one who has a ninety-nine-year lease on a parcel of land has a significant interest in real property. Furthermore, if the drafters of the Act's definition of real property had not intended to include a lease, it would have been unnecessary for them to craft a specific exclusion for a lease with a term of 99 years or less from the definition of the term deed  a term which refers to an instrument that transfers specified interests in real property. Id. § 45-921(3) (emphasis added); see also Acme Reporting Co., supra, 530 A.2d at 713. [20] That such leases were specifically excluded from the definition of a deed supports our conclusion that a lease is real property for purposes of the Act. The taxpayer contends that a lease cannot be real property because, unlike the lands, tenements, or hereditaments mentioned in the statute, D.C.Code § 45-921(4), a lease is not capable of being held in fee simple. But as we have noted, real property is broadly defined as every estate or right ... in lands. Id. The instrument at issue falls well within that definition. [21] The trial judge distinguished between the right to use  the L Street property and the L Street property itself, (emphasis in original), but this distinction is not dispositive in determining whether a lease is real property under the Act. The statutory definition, which we have quoted above, establishes that it is precisely the right to use the property that makes the lease real property. Our conclusion that a lease constitutes real property under the Act finds further support in judicial authority construing similar definitions. For example, a Michigan statute defines [t]he words `land', `lands', `real estate' and `real property' [to] mean lands, tenements and real estate, and all rights thereto and interest therein. Mich.Stat.Ann. § 12.212(9) (Michie 2000) (MCL § 8.3i). The same definition, in a prior version of the statute, was held to include a lease. Minnis v. Newbro-Gallogly Co., 174 Mich. 635, 140 N.W. 980, 982 (1913). As noted in a leading commentary, statutes that define real property as lands, tenements, and hereditaments and all estates, rights, and interests therein in effect[ ] define leasehold interests as real property. POWELL ON REAL PROPERTY, supra note 21, § 16.02[2]. Our determination that the taxpayer's ninety-nine-year lease constitutes real property leads inexorably to the conclusion that the taxpayer's recording of the 1995 deed of trust was subject to the recordation tax. [22] The instrument transferred an interest in real property, D.C.Code § 45-921(13), (14), namely, the taxpayer's ninety-nine year possessory interest in the L Street property. See POWELL, supra note 21, § 16.02[2] (defining lease as creating an estate, that is, a possessory interest in land, in the tenant and citing RESTATEMENT OF PROPERTY § 9 (1936)). That interest was acquired [by the lender] for the purpose of securing payment of a debt. D.C.Code § 45-921(13). Finally, the definition of a security interest instrument specifically includes deed[s] of trust and refinancing statement[s]. Id. § 45-921(14)(B), (C). We therefore conclude that the 1995 leasehold deed of trust was a security interest instrument as defined in the Act, and that its recordation was consequently taxable.