By LPJ Legal, PLLC
When real estate transactions involve complex structures, like ground leases or sale-leasebacks, labeling a transfer as a “retained interest” or failing to record it properly does not make it exempt from D.C. transfer and recordation taxes. In fact, doing so can subject developers and investors to steep retroactive assessments, penalties, and years of legal scrutiny.
Understanding what truly counts as a transfer of a real property interest—and how to document it correctly—is key to avoiding costly surprises.
Questions this Article Answers:
- Will the sophisticated labeling of a real estate transaction prevent the taxation associated with transfer and recordation taxes?
- What constitutes a real estate transfer? or, How can I identify a real estate transfer?
- How is a real estate transfer properly structured?
- When should I engage a lawyer to assist with a real estate transfer? What benefits are there to working with a real estate lawyer?
1. Why Structure—and Substance—Both Matter
Real estate developers often rely on sophisticated deal structures to manage financing, tax obligations, and long-term control of a project. These structures may include sale-leasebacks, joint development agreements, tenant-in-common restructurings, ground leases coupled with purchase options, or entity-level transfers where interests in a holding company change hands instead of the property itself.
While these arrangements can serve legitimate business purposes (such as preserving financing flexibility or deferring taxes), under D.C. law, substance outweighs form.
If a transaction effectively conveys an interest in real property, the taxing authority will likely treat it as a taxable transfer, regardless of how it’s labeled on paper.
For instance:
- If a party labels an arrangement as a “retained interest,” “reversionary right,” or “nominee relationship” to avoid triggering transfer and recordation taxes, or
- If a party structures a sale-leaseback or long-term ground lease so that it behaves like a transfer in all but name,
These creative workarounds rarely withstand legal scrutiny when challenged.
The label on the document does not determine the tax outcome—the legal and economic substance does.
2. Commonwealth Land Title Ins. Co. v. District of Columbia
In Commonwealth Land Title Ins. Co. v. District of Columbia, No. 24-TX-0219 (D.C. Ct. App. Sept. 25, 2025):
In a 2013 “Bargain and Sale”, developer Lano/Armada Harbourside LLC sold five condominium units to 2900 K St LLC for $39 million. However, Lano/Armada retained a “leasehold interest” through a ground lease, which was recorded separately.
The parties only disclosed the sale of the condos and not the ground lease. Transfer and recordation taxes were paid on the property sale, but in only reporting the sale (dubbing the ground lease as a separate conveyance) no taxes were ever paid on the ground lease. The ground lease was argued as merely a “retained interest”.
Fast forward to 2019, 2900 K St LLC defaulted on its loan, which triggered foreclosure proceedings by the lender. When the lender attempted to record the foreclosure with the D.C. Recorder of Deeds, the Recorder refused to accept it because the transfer and recordation taxes from 2013 related to the undisclosed ground lease had never been paid.
To clear the title and complete the foreclosure, Commonwealth Land Title Insurance Company (the title insurer handling the transaction) paid over $1 million in taxes, penalties, and interest under protest before filing suit against the District. Commonwealth argued that the statute of limitations had expired, and that D.C. could no longer collect taxes on the 2013 transaction.
The D.C. Court of Appeals disagreed, however, holding that no statute of limitations had begun to run because the developer never disclosed the duration of the ground lease and the transaction had never been properly reported. Therefore, the transaction remained open to reassessment. The result was a significant retroactive tax bill.
This case demonstrates that a lease or “retained” interest that functions as a transfer must be treated and recorded as one. The label on the document does not determine the taxable outcome—the legal and economic substance does.
3. Broader Examples: When “Creative” Structuring Backfires
- Ground leases with development rights – In many jurisdictions, a long-term lease (often 30 years or more) that gives the lessee effective control over the property may be treated as a transfer, even if title never changes hands.
- Joint ventures and entity-level transfers – When ownership of an entity that holds real property changes substantially, taxing authorities may treat that as a taxable conveyance of the property itself.
- “Nominee” or straw-party transfers – Assigning interests to affiliated entities or holding companies without recording a deed can be viewed as an attempt to conceal a taxable event.
In all these cases, the lesson is the same: transparency and documentation matter more than terminology.
4. How to Properly Identify and Structure an Actual Transfer
To avoid inadvertent tax exposure, developers should focus on substance-based structuring and clear disclosure from the outset.
1. Determine whether the transaction is an actual transfer. Ask:
- Does the arrangement give another party possession, control, or beneficial ownership of the property?
- Does it create a right to receive income, appreciation, or proceeds from the property’s disposition?
- Does the “lessor” or “grantor” retain meaningful rights, or merely nominal title?
If the answers suggest that the other party gains the primary benefits and burdens of ownership, taxing authorities are likely to treat it as a transfer of a real property interest, regardless of how it is labeled.
2. Record and report all conveyances accurately. Every instrument that transfers, assigns, or grants a property right—whether a deed, long-term lease, easement, or membership-interest transfer—should be properly recorded and accompanied by the required transfer and recordation tax filings.
3. Avoid “bundled” documentation. Even if a transaction involves multiple related instruments (for example, a deed and a ground lease executed together), each must be disclosed and reported separately. Combining them under one document or return increases the likelihood of audit or reassessment later.
4. Engage counsel early. Tax exposure often arises not from intent but from oversight. Involving experienced real-estate counsel during deal structuring ensures that every component of the transaction is characterized, disclosed, and documented in compliance with local tax law.
5. LPJ Legal, PLLC
Recharacterizing a conveyance as a “retained interest” or failing to record it properly can keep a transaction open to reassessment for years. For developers, investors, and lenders, proper structuring is the first line of defense against unexpected tax exposure.
At LPJ Legal, we help clients design transactions that stand up to both business objectives and legal scrutiny. Our real estate attorneys advise on:
- Structuring and documenting ground leases, sale-leasebacks, and joint ventures;
- Evaluating whether an arrangement constitutes a true transfer under local law;
- Preparing and reviewing transfer and recordation tax filings; and
- Coordinating with title companies and lenders to ensure compliance across all jurisdictions.
Our attorneys know that finality begins with full disclosure. Whether your project involves a multi-phase development, layered ownership, or complex financing, LPJ Legal ensures each conveyance is properly structured, reported, and recorded to prevent future disputes.
New to LPJ Legal? We’re a dedicated group of experienced and highly credible legal professionals, proudly representing clients locally and internationally with offices in D.C., Maryland, Virginia, and Georgia. Our law firm is more than a legal resource, we serve as trusted partners to our clients.
To schedule a consultation with our real estate team, visit the LPJ Legal website or call us directly at 202-643-6211.
