Effective May 25, 2011 (the effective date of House Bill 184 passed by the Alabama Legislature earlier this year), “private transfer fee obligations” recorded or entered into in Alabama (a) do not run with the land, (b) are not binding on or enforceable at law or in equity against any subsequent owner, purchaser, or mortgagee as an equitable servitude or otherwise and (c) are void and unenforceable. In addition, any person who records or enters into a private transfer fee obligation in his or her favor shall be liable for any damages arising from the fee obligation, including the amount of any transfer fee paid and attorneys’ fees incurred by a party to the transfer. Lastly, any contract for the sale of property subject to a private transfer fee obligation must disclose and describe the obligation and a statement that private transfer fee obligations are subject to the statutory prohibitions A contract that does not conform to these requirements, which may not be waived, is not enforceable by the seller against the buyer, nor is the buyer liable to the seller for damages under the contract, and the buyer under the contract is entitled to the return of all deposits.

Observations: Might this required contractual provision require a seller under some circumstances to examine title to property prior to entering into a contract? The statute expressly exempts real estate brokers from any duty to discover the existence of a private transfer fee obligation. Might a negative implication of this exemption suggest the existence of such a duty on the seller’s counsel?

If a seller fails to disclose a private transfer fee obligation that a buyer subsequently discovers, the buyer has the right to recover damages, including the amount of any value diminution attributable to the obligation and the buyer’s attorneys’ fees and costs.

A “private transfer fee obligation” is “

[a]n obligation arising under a declaration or covenant recorded against the title to real property, or under any other contractual agreement or promise, whether or not recorded, that requires or purports to require the payment of a private transfer fee upon a subsequent transfer of an interest in the real property. It excludes the following fees and payments from this definition:

1. Purchase price proceeds including any subsequent proceeds based upon any subsequent appreciation, development, or sale of the property, if the additional consideration is payable on a one-time basis only and the payment obligation does not bind successors in title to the property.

2. Brokerage commissions.

3. Customary payments by a borrower to a mortgage lender.

4. Customary payment by a lessee to a lessor under a lease.

5. Consideration payable to the holder of an option to purchase, right of first refusal or first offer to purchase to waive or release the right.

6. Taxes, fees, charges, assessments, fines or other amounts payable to or imposed by a governmental authority.

7. Amounts payable to a homeowners’, condominium, cooperative, mobile home, or property owners’ association pursuant to a declaration or covenant or law applicable to the association.

8. Amounts imposed by a declaration or covenant encumbering real property, and payable solely to a nonprofit or charitable organization for the purpose of supporting cultural, educational, charitable, recreational, environmental, conservation, or other similar activities benefitting the real property subject to the declaration or covenant or the community in which such real property is located.

9. Amounts pertaining solely to the purchase or transfer of club memberships.

Observations: The parallel Georgia statutory prohibition of private transfer fees, House Bill 129 (from which I understand the provision regarding subdivision of historical properties is to be deleted promptly upon commencement of next year’s session of the General Assembly), excepts only property owners’ associations and certain fees payable to entities regulated by the Public Service Commission, such as fees payable to railroads in consideration of consent to assignment of railroad right-of-way crossing agreements. The Georgia statute, once passed, may require subsequent amendment to avoid prohibition of fees outside its purpose.

Each payee of a private transfer fee obligation imposed before May 25, 2011, must record, prior to December 31, 2011, a separate document in at least 14-point boldface type entitled “Notice of Private Transfer Fee Obligation”. The document must state (a) the amount or calculation of the fee, (b) if the real property is residential, actual dollar-cost examples of the private transfer fee for a home priced at two hundred fifty thousand dollars ($250,000), five hundred thousand dollars ($500,000), and seven hundred fifty thousand dollars ($750,000); (c) the expiration date or circumstance of the fee, if any; (d) the purpose of the fees; (e) the name and address of the payee; (f) the acknowledged signature of the payee; and (g) the legal description of the property. If a payee fails timely to file a required notice, any real property burdened by the private transfer fee obligation may transfer the property and in so doing shall be conclusively deemed to have acted in good faith and shall not be subject to any obligations under the private transfer fee obligation, which thereupon shall be void. If the payee fails to provide a written statement of the private transfer fee payable within 30 days after request, then the grantor may record an affidavit stating that the payee has failed to comply with the statutory requirements. When recorded, the affidavit is prima facie evidence of the facts stated therein.

The breadth and severity of the Alabama statute evidences the growing antipathy toward private transfer feel covenants. Georgia’s regrettable failure to pass its own prohibiting statute earlier this year may have allowed the proliferation of private transfer fee covenants, and anecdotal evidence suggests such to be the case. Once Georgia’s statute in its current form is passed, the Georgia real estate industry should consider a strong notice requirement like Alabama’s to deal with any transfer fee covenants in effect prior to the effectiveness of the Georgia statute.