A new bill pending in the New Jersey State Legislature would prohibit any person or entity, including developers, from charging a private realty transfer fee upon the transfer of an interest in real property located in New Jersey. Bill A-2861, if signed into law, would make it illegal for private fees to “run with the title to real property as an equitable servitude, or otherwise,” and would make any such private fees charged after the effective date of the law “void and unenforceable.” If the private transfer fee obligation was made prior to the effective date of the law (which has yet to be determined), the proposed statute would require that the payee of the fee record a notice in the applicable county detailing the fee information and how it is calculated.

In explaining the need for the new law, the state Legislature pointed to the restraint on alienation that such private fees cause when they are recorded as an encumbrance against the property, regardless of the amount of the fee, the duration of the obligation or the method by which such fees are imposed. Developers who intend to continue charging a fee could be liable for any damages resulting from the imposition of the private transfer fee, including attorneys' fees and other costs incurred by the transferee in recouping the illegal fee.

Under the Bill, a “private transfer fee” is defined broadly as any fee or charge payable upon the transfer (whether sale, gift, conveyance, assignment or otherwise) of an interest in real property, or that is payable for the right to make or accept such transfer. Several existing types of consideration and fees are exempted from the definition, such as: (i) lender fees; (ii) broker fees; (iii) rent and other amounts payable by a lessee to a lessor under a lease; (iv) fees imposed by a governmental authority; and (v) amounts due under a condominium declaration or other community covenants.

Under the pending legislation, sellers must disclose the existence of any private transfer fee obligation to a purchaser in writing prior to closing on any sale of real property, which disclosure must include a description of the fee and a statement that the fee is subject to prohibitions under applicable New Jersey law. Additional requirements would be placed on those who have charged private transfer fees prior to the effective date of the proposed law. Those payees would have to record a “Notice of Private Transfer Fee Obligation” in the land records of the county that the property is located in within six months of the effective date of the law, which notice must include certain information required under Bill A-2861. Those payees who fail to file such notice or who fail to provide a statement of the transfer fee due within 30 days after the request of a proposed grantor of real property, would have no recourse against subsequent bona fide purchasers of the property and, in the event of such failure to file or respond, the property in question would be conveyed free and clear of the private transfer fee obligation.

The Bill passed the state Assembly and Senate unanimously on September 30, 2010. When the final version is created, it will likely be signed into law by Governor Christie shortly thereafter. The full text of the Bill is available at the New Jersey State Legislature’s web site: http://www.njleg.state.nj.us/2010/Bills/ A3000/2861_S1.PDF.

We will provide further information regarding this legislation when it becomes available.