d244-Transfer of Development Rights

Transfer of Development Rights

In densely developed urban areas, historic buildings can be threatened by economic forces. The demolition of a historic structure allows a property to be redeveloped to its "highest and best use." Owners of these properties may feel limited by historic designation, which can prohibit them from realizing potential higher profits from their property. A "Transfer of Development Rights" provision, if established by a city, can help rectify this financial inequity.
A Transfer of Development Rights (TDR) program allows owners of buildings in zoning districts where more intense development is permitted to sell that development potential to owners of other sites. As shown in the diagram below, air rights are literally purchased by another owner for use on a second site.
Schematic drawing of the air rights transfer program
The city of Philadelphia provides an example of a Transfer of Development Rights program. The TDR program came about when an ordinance was passed to prevent the demolition of a landmark downtown building. At the same time an old "gentlemen's agreement" was broken not to build a downtown building higher that the hat on the sculpture of William Penn on the City Hall. It was recognized that development should be encouraged while the historic character of the downtown district was preserved. The Philadelphia TDR program allowed for this, and had three goals when it was established in 1991;
To provide an economic incentive for rehabilitation to locally designated landmarks;
To protect the 1984 local historic preservation ordinance from court challenge by offering relief to city-certified property owners on land zoned for more profitable use;
And to establish a new and innovative incentive for nonprofit owners of historic properties to maintain and rehabilitate their buildings.¹

More than 200 owners of historic structures were eligible to sell development rights through the TDR option. This incentive was combined with two other development programs--an enhanced tax abatement program that included historic properties, and a large revolving loan fund.
San Francisco considered the use of a TDR program as a way to encourage preservation, described in "A Preservation Strategy for Downtown San Francisco."²
The study proposed the following recommendations for the use of TDRs:

Permit transfer of development rights only from significant buildings;
Permit transfers within the same zoning district at a 1:1 and in special development districts at a 1.5-2:1 ratio;
Allow an automatic right to use TDRs on eligible transferee sites up to the maximum permissible floor area ratio (FAR) or maximum achievable FAR under height and bulk limits;
Require valid occupancy or current use as a condition for transfers;
Permit a bonus transfer for restoration;
Record a permanent reduction in development potential and maintenance agreement in the city's favor upon transfer;
Encourage city support in organizing a trust to create an initial bank to ensure an active market in TDRs; and

Prohibit the demolition or significant alteration of the highest-rated buildings except in restricted, special circumstances. The study highlighted this protection as a critical component of the proposed TDR program.³

¹ Donna Ann Harris, "Philadelphia's Preservation Incentive," Historic Preservation Forum, (Washington, D.C.: National Trust for Historic Preservation, September/October 1992) p. 10.
² Prepared by John M. Sanger Associates, Inc. for the Foundation for San Francisco's Architectural Heritage.
³ Nancy C. Shanahan, "Downtown Preservation Strategies and Techniques," Preservation Law Reporter, Volume 3, No. 3 (May 1984), p. 3 PLR 2033.

**Suggested other pages...**
Problems in Downtowns	Preservation and Downtowns

Economic Benefits of Preservation