I often receive questions from managers and board members about fees that homeowners associations and condos can and can’t charge to homeowners and to prospective purchasers in their communities. One of the most common questions goes something like this:
“Our covenants say that we can charge a capital contribution fee / transfer fee / some other similar fee at each closing. Can we charge this fee?”
The answer will depend on several factors, including the age of the fee covenant, which party is entitled to receive the fee, and whether the original developer is still selling property in a community.
South Carolina enacted a statute in 2012 that prohibited transfer fee covenants. The statute defined a transfer fee covenant as a provision “that purports to run with the land or bind current owners or successors in title . . . and which obligates a transferee or transferor . . . to pay a fee or charge to a third person upon transfer of an interest in all or part of the property . . . .”
It is also important to distinguish the transfer fees the statute defines from statements of unpaid assessments prepared by a management company such as those prepared for a real estate closing. We often hear these referred to as “transfer fees,” but these are not considered to be transfer fees under the statute. These fees are usually charged by a community management company for supplying an official statement of the account for the property upon which the buyer and seller may rely at a real estate closing.
Specifically exempted by the statute were covenants “requiring payment of a fee or charge to an association to be used exclusively for purposes authorized in the document if no portion of the fee is required to be passed through to a third party.” This is a very broad exception.
Unlike North Carolina, which only carves out an exception for capital contributions to initial purchasers, South Carolina could potentially allow a condominium or homeowners association to charge a capital contribution fee to all subsequent owners so long as the covenants allow the fee be paid to the condo or homeowners association, the amounts collected were being used exclusively for purposes authorized in the Declaration, and no part of the fee was being shared with someone else.
South Carolina’s statute prohibits transfer fee covenants recorded after February 1, 2012. Although the South Carolina statute is potentially broader for condos and HOAs than the North Carolina version, it also is potentially much more limited for developers and other similar parties. For all existing transfer fee covenants that were recorded prior to the statute to be valid and enforceable, several other steps must have been taken within 180 days of the effective date of the statute. Among those steps was the requirement that a “Notice of Transfer Fee Covenant” be filed in each county where the community is located.
Communities today may still have capital contribution fees or other similar fees payable at the transfer of a property in a homeowners association or condominium, but these fees would have to fit squarely in the exception described above. For developers and other parties, unless the required steps were taken then no transfer fees are permitted now. Capital contribution fees may still be charged to initial purchasers, but the language used should be carefully drafted to comply with the South Carolina statute.
Law Firm Carolinasrepresents communities in South Carolina and North Carolina and regularly deal with these and similar issues. If your board of directors has questions about charges like these the attorneys at Law Firm Carolinaswould be happy to assist.