Texas Becomes 34th State to Prohibit Private Transfer Fees on Real Property

Blake D. Royal

March 29, 2012

The Texas Legislature has passed legislation that prohibits new private transfer fee obligations in the future and terminates existing transfer fees that fail to comply with certain obligations.

Private transfer fees are restrictions placed on real property that require that a fee, usually an amount equal to 1% of the purchase price, be paid to the original developer of the property each time the property is sold.  For example, if a homeowner sells his or her home for $250,000, and the home is burdened with a private transfer fee obligation, the homeowner would owe the original developer of the property a fee equal to $2,500.  Although private transfer fees have not been prevalent in Texas, they have been used in several other jurisdictions and Texas becomes the 34th state to prohibit the practice.

Developers entitled to the benefit of existing private transfer fee obligations were required to file a notice of the transfer fee obligation by January 31, 2012 in the real property records of the county in which the burdened property is located.  This notice must be filed again every three years.  Failure to file the notice in a timely manner will void the obligation going forward.

The legislation – which is codified as Subchapter G in Chapter 5 of the Texas Property Code – specifically excludes certain one-time fees, such as recording fees, and fees related to organizations such as homeowners’ associations.