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Transfer Fee Covenants in New York?
It should not be surprising that in a weak real estate market, developers would seek new sources of revenue. One recent source has generated controversy across the country ' requiring buyers to agree, for themselves and their assigns, to pay a fee upon each resale of the property. These transfer fee covenants raise a number of practical problems, not the least of which is the underlying legal question: Are they enforceable?
'Capital Recovery Fees'
Freehold Capital Partners claims to have helped developers impose “Capital Recovery Fees” on an estimated $600 billion worth of real estate throughout the United States. See www.freeholdcapitalpartners.com/forms/freehold_brochure.pdf. The basic model is to include a recorded restrictive covenant that obligated the purchaser to pay a transfer fee ' generally in the neighborhood of 1% of the sale price ' to the developer. The covenant imposes the same restriction on subsequent purchasers, so that the developer collects the fee each time the property is sold. Moreover, the declaration of covenants gives the developer a lien on the land to secure payment of any unpaid transfer fees. See generally, R. Wilson Freyermuth, Putting the Brakes on Private Transfer Fee Covenants, Probate & Property, July/August 2010.
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