Rant on Private Transfer Fees

Yesterday’s post provided a definition of private transfer fees and the rationale of developers who use them.  Here are a few reasons why they are a terrible idea:

The fees are supposedly to fund the development’s infrastructure elements – the original infrastructure.  Minnesota’s freeze/thaw cycle is very tough on exposed elements.  Most infrastructure cannot last even 20 years without needing a major rehab or replacement.  That replacement cost will be borne by either the current homeowners and/or the local government.  So what is this 99 years nonsense?

If the development pro forma shows that the proposed house prices cannot directly fund the required infrastructure costs, then the development should not be built.   Some developers say that these fees are only a temporary measure to help them survive in this difficult real estate environment.  I say the fee is like a new “temporary” tax – once implemented, it never goes away despite the original promises.

Finally, these fees make it very difficult for later sellers to compete with similar houses that don’t have the covenant.  Those sellers must now lower their price to compensate for the private transfer fee.  The result is less net for the seller (aka equity stripping) while the buyer gets no benefit from the payment.   It would be different if the fee went into the community’s capital reserve account.  But it doesn’t.

Luckily, the Minnesota legislature agreed that these fees are outrageous.  Legislation was passed in May 2010 stating that any new private transfer fees are void as a matter of law.    Transfer fees already on record must now observe stringent notice requirements; failing to satisfy these requirements means the fee becomes unenforceable.

Share

Comments

  1. Developers use private transfer fees to help spread infrastructure costs over those who benefit. Its a lot fairer than putting 100% of the costs into the initial buyers. Buyers save on closing costs and interest expenses.

    • Rebecca Law says:

      Hi Jim! Thanks for the comment. If a developer did implement a private transfer fee to recoup the infrastructure costs, how many years of coverage do you think is fair? These fees have been happening most often in California and Texas and typically last 99 years. IMO, even the best infrastructure lasts only 20-30 years without needing replacement or a major rehab so the fee should not extend beyond the infrastructure’s useful life. What do you think?

DISCLAIMER: No attorney-client relationship is created between the website owner and the website visitors, no matter what. The owner makes no claims or guarantees about the accuracy or completeness of the website contents and expressly disclaims liability for errors or omissions. No warranty of any kind, express, implied or statutory, is given for any contents, hyperlinks or other internet resources. Those accessing this website assume full responsibility for its use and agree that the website owner is not liable for any claim, loss or damage arising from that use.