Private Transfer Fee Covenants: An Overview Of The Three Applicable Servitude Regimes

MIAMI, March 5 /PRNewswire/ -- The following is commentary by RJon Robbins, Esq. regarding Private Transfer Fee Covenants:

The imposition of transfer fees created through private transfer fee covenants ("PTFC") that run with the land, enforceable against future owners, is becoming increasingly common. PTFCs have been imposed for periods ranging from thirty years through perpetuity, on both a "for profit" basis (Freehold Capital Partners – www.FreeholdCapitalPartners.com ) and a "non-profit" basis (St. Joe – http://www.stjcf.com), and for stated purposes ranging from conservation to payment of infrastructure costs.

A covenant that runs with the land is a servitude, and few areas of the law are more complex and misunderstood than servitudes.

Throughout U.S. history servitudes have been used extensively to accommodate changing social and market demands. Indeed, tracing the history of servitudes provides a vivid picture of dynamic economic and behavioral patterns in American society... The continuous widespread use of servitudes indicates their usefulness in efficiently allocating user rights between separately held estates. (55 S. Cal. L. Rev. 1179, 1184).

Essentially, there are three regimes of servitude law that come into play when examining a PTFC: the Common Law, the Restatement (Third) of Property: Servitudes, and Statutory Law.

The phrase "common law" generally means the body of case law that has developed over time. ( See Urbany v. Carroll, 157 N.W. 852; See also Hancock, 155 P.3d 796 (2007)).  It is often referred to as "judge made law", and fills the void left by the absence of a statute.  Under the Common Law, both the benefit and the burden generally must touch and concern the land (e.g. there must be a reasonable nexus between the benefit, the burden, and the effect of the servitude upon enjoyment of the land.) When a PTFC is imposed for conservation purposes (e.g. to fund environmental or charitable purposes), the nexus is established if the community (and, by extension) the burdened property, benefits.  By example, a PTFC in the U.S. that funds an environmental initiative in Australia would almost certainly fail the touch and concern test in most common law jurisdictions.  However, a PTFC that funds charitable works in the community in which the burdened land is located would likely meet the test under the theory that a strong charitable presence leads to stronger property values.

Likewise, when a developer creates tangible and intangible improvements in the course of the development of a subdivision (e.g. installation of wastewater lines, etc.), and imposes a PTFC for a reasonable period in connection therewith, a sufficient nexus exists between the benefit (the wastewater lines that service the community) and the burden (payment of the fee to reimburse developer for the wastewater lines).