When people purchase real estate, most buyers are only interested in the land and buildings. However, many never consider the value of empty space. In large cities where space is limited, the air space above the property may be just as valuable as the lot itself. If you are looking to pull money from thin air, there are potential opportunities for huge profits to buy and sell air rights.
What Are Air Rights?
Since air rights may add value to your property, it’s beneficial to know what they are and how they work. The term “air rights” refers to the legal right to use or develop the space over or near a property. These rights apply to both vacant lots and those with existing structures. The definition is a vague guideline that varies by location, but it can incorporate upper stories of tall buildings, power lines, or coveted views.
Most cities severely restricted air rights, especially in residential zoning areas. However, in places where ground space is limited, the ability to build up becomes more important. Companies and real estate developers pay big bucks for the unused and transferrable development rights for air space.
Unfortunately, calculating air space can be complicated and often requires professional input to “true-up” the numbers. But to give you a basic idea, you have to find the floor area ratio (FAR). To get this number, you take the maximum floor area permitted for the zoning lot and subtract the floor space of the existing structure (if there is one). The remainder is your total amount of air space for a given lot. Once you have a quantifiable amount of space, you can put a value on it to buy and sell.
What Laws Regulate Air Rights?
Like all valuable assets, there are laws that establish and regulate air rights. Generally speaking, you can utilize the air space on your property however you see fit. That is, as long as new development complies with height restrictions, zoning laws, and the city’s building codes. For those who are just learning about them, here are a few of the most important regulations you should be aware of when you buy and sell air rights.
In most cases, when you buy real estate, you are also purchasing the air rights, unless otherwise specified. However, your air rights aren’t endless. For example, they don’t extend into navigable space. Your air rights include a maximum of 1,000 ft above the highest obstacle. Beyond that, you enter into FAA federally regulated space.
Municipal Zoning Laws
Additionally, air rights depend on the local zoning laws. Cities strictly regulate land use and development. Therefore, all buildings must comply with municipal codes and regulations which determine the reasonable amount of vertical space suitable for development on a given lot. Zoning laws vary by location and district within a municipality as well.
Furthermore, different zoning laws exist for commercial, industrial, and residential spaces within the same city. Ignorance of the laws could lead to expensive complications. Therefore, it’s best to do your research and seek legal counsel before making any purchases.
Lastly, the boundaries of all structures and new development must remain within the specified property lines. While lots can be strung together to increase the amount of usable air space, it cannot encroach upon the space of properties you do not own.
If any new construction extends into the air space of a neighboring property, you may have to remove it at your own expense.
Can You Buy and Sell Air Rights?
While the legalities are important, the most pressing question is “How much will it cost?” Unfortunately, there are no standardized answers. The pricing for air space depends on where you are looking.
Like real estate pricing, air space is more expensive in densely populated urban areas. And people will pay even more for desirable locations with great views or highly sought-after zip codes. So, it’s going to be much more expensive to buy air space in larger cities like New York, Los Angeles, and San Francisco.
Furthermore, you may face additional challenges and fees if you are looking at historical buildings or cities with high taxes. However, you can expect anywhere from $200-$400 per sq. ft. for available air space.
Once you understand what they are, you may be asking yourself why people buy and sell air rights. The simple answer is that it can be lucrative for both parties. Property owners who need an influx of cash for repairs, maintenance, or other development get the capital they need. And if they had no plans for the air space, it is pure profit.
On the other hand, the buyer gains more options when they buy air rights. Obviously, they get more space which they can use to build larger structures. However, many developers purchase air rights of surrounding lots to protect views from their building or increase the property value.
The Fine Print
Air rights can get complicated, especially when there are several interested parties. Obtaining them often involves negotiations, legal fees, and an official contract.
In most cases, air rights transfer with a sale agreement. However, you can also gain more air rights through a zoning lot merger as well. Either way, you must purchase the space and secure the Transferable Development Rights from the current owner.
Although it is possible to buy and sell air rights, there are strict limitations. Local zoning laws dictate many of them. However, you should also be aware of any light and air easement provisions that prevent future development as well.
Before you make a financial commitment, you can hire a consultant to review the development rights and city zoning codes. Having an expert on hand can help you identify good investment opportunities and avoid paying more than you should. Not only can you avoid costly mistakes, but you can also ensure you are getting the best value for your money.
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Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.