States Move to Limit Enforceability of Transfer Fees
By Lavinia James Vaughn and Kathleen E. Kraft
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.
Florida
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/.
Missouri
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.
Note
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.
