States Move to Limit Enforceability of Transfer Fees
Florida and Missouri recently took steps to prohibit the enforceability of transfer fees against subsequent grantees of realty. Counsel, particularly those representing buyers of residential property, should be aware that these types of restrictions may be present in grant deeds, covenants, or other documents and verify whether there is law in their jurisdictions addressing their enforceability.
The Florida legislature recently moved to prevent a transfer scheme originating in Texas from taking root in Florida. The scheme causing Florida consternation provided for a property owner to reserve in a recorded instrument the right to receipt of a percentage of the purchase price or value of real property on transfer of that property in all future transfers and sales of the property. The percentage is generally a small one, one to two percent (1–2 percent) of the transfer price or value, but buyers are generally unaware of the fee until they have entered into a contract for the property and review title documents or prepare for closing on the purchase. The scheme unjustly enriches the former owner, adversely impacts the marketability of the real property, impedes the purchase and sale process, and places an unreasonable restraint on the transfer of real property subject to these reservations. It further erodes property values in the existing difficult real estate market.
The prohibition against transfer fee covenants enacted by the Florida legislature is set out in newly created section 689.28, Florida Statutes. The statute is the result of work on Senate Bill 464 by Senator Dave Aronberg (D-Greenacres) and on House Bill 391 by Representative Charles McBurney (R-Jacksonville). The bill was signed by Governor Crist on May 28, 2008, as Laws of Florida 2008-35 and is effective on July 1, 2008. The text of the Florida bill may be accessed at www.flsenate.gov/.
In Senate Bill No. 907, the Missouri Legislature added section 442.558 to Missouri’s statutory provisions on Titles and Conveyances of Real Estate. The new section 442.558 creates a prohibition on transfer fees by declaring that transfer fees, declarations, and covenants requiring the payment of a fee to a specified person upon a transfer of an interest in real property are not enforceable against subsequent owners, purchasers, or mortgagees of the real property, and that liens purporting to secure the payment of a transfer fee under a transfer fee covenant are void and unenforceable.
Section 442.558.2 provides that a “transfer fee covenant” recorded in Missouri on or after September 1, 2008, “shall not run with the title to real property and is not binding on or enforceable at law or in equity against any subsequent owner, purchaser, or mortgagee of any interest in real property as an equitable servitude or otherwise.” S.B. 907, 94th Gen. Assem., 2d Reg. Sess. (Mo. 2008). Further, it states that “[a]ny lien purporting to secure the payment of a transfer fee under a transfer fee covenant recorded in [Missouri] on or after September 1, 2008, is void and unenforceable.” Id. The new section defines “transfer fee covenants” as declarations or covenants that require or purport to require the “payment of a transfer fee to the declarant or other person specified in the declaration or covenant or to their successors or assigns upon a subsequent transfer of an interest in the real property.” Id. It defines “transfer fees” as fees or charges “payable upon the transfer of an interest in real property, or payable for the right to make or accept such transfer, regardless of whether the fee or charge is a fixed amount or is determined as a percentage of the value of the property, the purchase price, or other consideration given for the transfer.” Id.
Transfer fees do not include (a) a grantee’s consideration payable to the grantor for the transfer, (b) a commission payable to a licensed real estate broker pursuant to an agreement between the broker and the grantor or grantee, (c) any amounts payable to a lender by a borrower under a loan secured by a mortgage against real property, (d) rent or other amounts payable by a lessee to a lessor under a lease, (e) “any consideration payable to the holder of an option to purchase an interest in real property or the holder of a right of first refusal or first offer to purchase an interest in real property for waiving, releasing, or not exercising the option or right upon the transfer of the property to another person,” and (f) taxes, fees, charges, assessment, fines or other amounts payable or imposed by a governmental authority. Id.
Senate Bill No. 907 was delivered to the Missouri Governor on May 29, 2008. The statutory changes and additions in the bill will take effect on August 28, 2008.
This article is from “States Move to Limit Enforceability of Transfer Fees” by Lavinia James Vaughn and Kathleen E. Kraft, published in ABA-RPTE E- Report, June 2008 Issue. Copyright © 2008 by the American Bar Association. Reprinted with permission.
Lavinia James Vaughn is a shareholder in the Real Estate and Finance Practice Group of Carlton Fields, P.A., in Tampa, Florida. Kathleen E. Kraft is an associate in the Business Bankruptcy, Restructuring and Creditors’ Rights Practice Area of Thompson Coburn LLP in Washington, D.C.
© Copyright 2008, American Bar Association.