How to Avoid Transfer Taxes in Long Term Leases in Pennsylvania

March 1, 2022 | By Shari Hunn

Under Pennsylvania law, a real estate lease is subject to a transfer tax if the lease is for a term of thirty or more years. It is reasoned that long-term leases are analogous to transferring title to real estate and therefore, a transfer tax should apply. In calculating the thirty-year period, renewal terms are taken into consideration and added to the initial term of the lease unless the language in the lease is clear that for any renewals that cause the term to reach thirty years or beyond, the lessee shall have the option to extend the term for such years and the parties have the absolute ability to unconditionally negotiate the base rent during such extension¹.

If the lease provides a predetermined rental rate during a renewal period such as $30.00 per rentable square foot or if the lease provides that during the renewal term, the base rent will continue to increase by 2.5% per year, for example, over the amount of base rent during the previous lease year, the renewal term(s) will be added to the initial lease term and if the total of all lease years equal or surpass thirty years, the transfer tax will be triggered.

However, if the base rent is to be determined by the fair market value at the time that the renewal option is exercised by the lessee, under Pennsylvania law, since the parties are able to “unconditionally” renegotiate the base rent for the renewal term, those lease years in this particular renewal term shall not be included in the thirty-year count. This exception applies even if the wording of the lease lays out the definition of fair market rent.

If the parties prefer a fixed base rental amount, the lease can be drafted as a twenty-nine-year lease at a fixed sum with the thirtieth year being a renewal term, to be exercised at lessee’s option and to be determined by fair market rent. If the parties do not wish that renewal base rent be determined by fair market rent and the term reaches or exceeds thirty years, it is recommended that the lease specifically provide which party is responsible to pay the transfer tax. 

It should be noted that in New Jersey and Connecticut, a lease transfer tax is not triggered for leases of less than ninety-nine years. In New York, the transfer tax is triggered for leases longer than forty-nine years².

In Pennsylvania, if a lease will continue for thirty or more years, in order to avoid a transfer tax, it is critical that the lease wording clearly express the parties’ intent to unconditionally renegotiate the rental rate for any renewal term years beyond the twenty-ninth year and eleven months. If the rental rate for the years beyond year twenty-nine (plus eleven months) are clearly based on the fair market rental rate at the time that the renewal is exercised, then such renewal year will not be added onto the term for the purpose of triggering a transfer tax.


¹ 61 Pa. Code Section 91. 193(b)(24)(i) and (v)

² Obermayer also has offices in New Jersey, Connecticut and New York.


The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.

About the Authors

Shari Hunn

Of Counsel

Shari is a real estate attorney, focusing her practice on drafting, reviewing and negotiating leases and related documents. Shari thrives on the challenges of puzzles, which she finds relaxing.  Similarly, she regards...

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