Private Real Estate Transfer Fees

This article is intended to be a general discussion only and should not be considered legal advice. If you are dealing with a PTF and require specific advice you should consult an attorney.

What are PTFs?

By Mikey and Steven Hall

Private Transfer Fees or PTFs are fees imposed by private parties (or entities such as property associations) upon the sale or resale of real property. PTFs are either a specified dollar amount or more commonly a specified percentage of the sale price of the property. These fees were likely called for by the developer of a common interest development and recorded in the development's covenants codes and restrictions.

PTFs are most often used to fund homeowner's associations which provide services or maintain common areas in a given development or tract. PTFs are not limited to condominiums, they may be used in developments comprised of detached single family homes.

Why should you care about PTFs?

A PDF can substantially increase the cost for the buyer to purchase a property. For example, in a development in San Clemente, California there is a PDF of one quarter of one percent of the purchase price of the property. The properties in this development can easily sell for more than $1 million. An original purchaser might have paid $700,000 for a home and paid a Private Transfer Fee of $1,750.00. A few years later that owner sells the home for $1,000,000 and the new owner pays a PDF of $2,500.00. Some PTFs will continue forever, and others may have an expiration date. A growing number of developments are using PTFs.

Why were PTFs created?

PTFs are created for a number of reasons. For example, the developer may be attempting to defray special costs such as environmental impacts associated with the development. However, there is no requirement that a PTF be used to reduce the costs associated with development.

PTF legislation in California

Legislation was passed in California adding new sections to the California Civil Code which (1) make a PTF unenforceable unless a separate document describing the PTF is recorded, and (2) requiring disclosure to purchasers of properties subject to a PTF. The idea here is to allow buyers to make an informed decision about their purchase. For example, if you know a PTF exists for a specific property you might want to try to negotiate purchase terms requiring the seller to pay the transfer fee.

These new laws will apply to PTFs imposed after December 31, 2007. For such PTFs the developer will be required to record concurrently with recording the document creating the PTF an information disclosure form with the title, "Payment of Transfer Fee Required" in 14-point bold type. This disclosure must contain the following eight pieces of information: (1) the names of the current owners subject to the fee; (2) the legal descriptions and the assessor's parcel numbers for the affected property; (3) the amount of the fee; (4) the date (if any) the fee expires; (5) the purpose of the fee; (6) the identity and location of the party to whom the fee is paid; (7) the signature of the authorized representative of the entity receiving the fee; (8) sample calculations of the fee at $250,000, $500,000 and $750,000 price levels if the property is residential.

For the PTFs already in existence prior to January 1, 2008, a "Payment of Transfer Fee Required" must be filed by December 31, 2008 in order to entity to remain eligible to collect the transfer fee.

Under the new law the sellers of properties affected by a PTF must make the disclosures contained in the "Payment of Transfer Fee Required" disclosure, on a separate disclosure statement at the same time the Transfer Disclosure Statement (TDS) is provided. A new standard form for this purpose (Notice of Transfer Fee) has been created by the California Association of Realtors (C.A.R. form NTF).

Some sellers may be exempt from the Notice of Transfer Fee disclosure requirement

The same disclosure exemptions which apply to the Transfer Disclosure Statement apply to the PTF disclosure. Probate sales, foreclosure sales, REO sales, bankruptcy sales, sales by certain trusts are exempt. (see Cal. Civil Code section 1102.2). Sales of commercial property, industrial property, vacant land, and 5 unit or larger residential properties are also exempt (see Cal. Civil Code section 1102.2(a)). The statutes must be reviewed for a comprehensive list of the exemptions.

What if the seller isn't aware that the property is subject to a PTF?

Generally ignorance is no defense. The seller has a duty to investigate whether the property is subject to a PTF. So how is the seller supposed to know?

The PTF should be listed in the Preliminary Title Report under the exceptions. It might be described as a "Community Benefit Fee", "Lifestyle Fee" or "Endowment Fee on Transfer." The seller should read the title exceptions carefully to see if any of them involve the payment of a fee upon the sale of the property. If so, a Notice of Transfer Fee is probably in order.

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