Private Transfer Fee Covenants: An Overview of the Three Applicable Servitude Regimes

MIAMI, March 5 /PRNewswire/ -- The following is commentary by RJon Robbins, Esq. regarding Private Transfer Fee Covenants:

The imposition of transfer fees created through private transfer fee covenants ("PTFC") that run with the land, enforceable against future owners, is becoming increasingly common. PTFCs have been imposed for periods ranging from thirty years through perpetuity, on both a "for profit" basis (Freehold Capital Partners – www.FreeholdCapitalPartners.com ) and a "non-profit" basis (St. Joe – http://www.stjcf.com), and for stated purposes ranging from conservation to payment of infrastructure costs.

A covenant that runs with the land is a servitude, and few areas of the law are more complex and misunderstood than servitudes.

Throughout U.S. history servitudes have been used extensively to accommodate changing social and market demands. Indeed, tracing the history of servitudes provides a vivid picture of dynamic economic and behavioral patterns in American society... The continuous widespread use of servitudes indicates their usefulness in efficiently allocating user rights between separately held estates. (55 S. Cal. L. Rev. 1179, 1184).

Essentially, there are three regimes of servitude law that come into play when examining a PTFC: the Common Law, the Restatement (Third) of Property: Servitudes, and Statutory Law.

The phrase "common law" generally means the body of case law that has developed over time. (See Urbany v. Carroll, 157 N.W. 852; See also Hancock, 155 P.3d 796 (2007)).  It is often referred to as "judge made law", and fills the void left by the absence of a statute.  Under the Common Law, both the benefit and the burden generally must touch and concern the land (e.g. there must be a reasonable nexus between the benefit, the burden, and the effect of the servitude upon enjoyment of the land.) When a PTFC is imposed for conservation purposes (e.g. to fund environmental or charitable purposes), the nexus is established if the community (and, by extension) the burdened property, benefits.  By example, a PTFC in the U.S. that funds an environmental initiative in Australia would almost certainly fail the touch and concern test in most common law jurisdictions.  However, a PTFC that funds charitable works in the community in which the burdened land is located would likely meet the test under the theory that a strong charitable presence leads to stronger property values.

Likewise, when a developer creates tangible and intangible improvements in the course of the development of a subdivision (e.g. installation of wastewater lines, etc.), and imposes a PTFC for a reasonable period in connection therewith, a sufficient nexus exists between the benefit (the wastewater lines that service the community) and the burden (payment of the fee to reimburse developer for the wastewater lines).

The Restatement (Third) of Property: Servitudes abandons the "Touch and Concern" doctrine in exchange for greater reliance on, and deference to, contract principles. As such, a servitude meeting general contract requirements (notice, compliance with statute of frauds, etc.) will generally be held presumptively valid unless void on grounds that a covenant is illegal, unconstitutional, or against public policy. Public policy grounds would require a clear showing of consumer harm, a threshold that seems unlikely in a typical PTFC context. A California Senate Staff Report on the economic effect of PTFCs concluded that "to the extent the existence of a transfer fee impacts the value of property, as long as the fee is fully disclosed the market will adjust to the fee." If PTFCs make property more affordable, a successful public policy argument seems unlikely, particularly since the burden of proof is on the party seeking invalidation. (Restatement (Third) of Property: Servitudes section 3 et. seq.)

Where a statute exists, the legislature is deemed to have spoken about a particular issue and the common law does not apply.

Regardless of whether the jurisdiction follows the common law, the restatement 3rd or a statute, absent a specific statutory prohibition, a well-crafted private transfer fee covenant, will likely be enforceable, particularly when undertaken in connection with a real estate development project.

About RJon Robins, Esq.: Attorney RJon Robins was formerly employed by the Florida Bar, is a member of the Florida Bar's Real Property, Probate & Trust Law Section, and was an adjunct professor at Nova Southeastern Law School in Ft. Lauderdale, Florida.

Disclaimer

No reliance shall be made based upon the general information contained herein.  Nothing herein shall be deemed legal advice, nor shall it create an attorney-client relationship of any kind.  Readers should consult with legal professionals of their own choosing regarding their rights and obligations under the law.

SOURCE RJon Robins, Esq.

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