Ohio bans "transfer fee covenants"

Ohio Gov. Ted Strickland last Monday signed a bill that will bar property developers from collecting transfer fees whenever a home in one of their developments changes hands. ( HB 292 )

A paper by the American Land Title Association earlier this year reported that "'private transfer fee covenants', as they are known, were a relatively new occurrence, originating in California and Texas over the last decade. One of the first reported PTF covenants was created to meet the demands of the Sierra Club and Audubon Society for environmental protections during the development of Fiddyment Farm in Roseville, California, which imposed a 20-year PTF covenant with the proceeds going to preservation of open spaces. A Texas company, Freehold Licensing, Inc. (“Freehold”), in another instance, has advertised a licensed PTF covenant system, and claims that they are awaiting a business method patent. The company purports to be attempting to securitize and monetize PTF covenants as well."

"As new practices, PTFs have only recently shown up in land title records," ALTA's paper says, "so many state legislatures have not fully debated the unintended consequences of these covenants. However, in the six states that have considered PTF covenants, all have curtailed their usage in some manner." Ohio is now at least the seventh.

"California and Texas, where PTF covenants have been more often used, passed PTF covenant laws in 2007: California Civil Code § 1098.5 struck a balance between the California Association of Realtors, who sought a total ban and the California Building Industry Association and environmental groups who sought to keep PTF covenants legal; Texas Property Code § 5.017(b) prohibits covenants that require the buyer of real property to pay a PTF covenant. It has been debated whether the Texas law only bans a buyer from paying the PTF covenant and or whether all residential PTF covenants are illegal. Some take the position that the seller, rather than the buyer, can be made to pay a PTF covenant under the Texas law. It is expected that further clarification of the law will occur during the 2011 Texas legislative session.

"The four other states to act on PTF covenants have all banned their creation after the effective dates of the laws, leaving the enforceability of covenants created prior to enactment up to the courts. See Fla. Stat. Ann § 689.28 (Florida); Mo. Rev. Stat. § 442.558 (Missouri); Kan H.B. 2092 (Kansas); and 2009 Oregon Laws Ch. 298 (Oregon).”


The Ohio State Bar Association's Real Property Law Section has more information about Ohio’s response ( Here ).