HOAs/Condominiums Want to Know: What is a Transfer Fee in North Carolina?

A common question that we get from developers, managers, and HOA Boards is “what exactly is a transfer fee?”

Although the term “transfer fee” is often used loosely to mean several different things, state statute defines the term generally to mean “a fee or charge payable upon the transfer of an interest in real property.” In other words, it is a fee charged when property is transferred from one party to another.  North Carolina law now prohibits transfer fee covenants.  Specifically prohibited are covenants that require the payment of a transfer fee to a developer or other person upon a subsequent transfer of the property.

Since 2010, North Carolina law has included a prohibition against transfer fee covenants contained in an HOA or condominium’s documents. The law was then updated in 2014 to clarify that older transfer fee covenants may still be permissible, but that no new transfer fee covenants are permitted.

Parties who record transfer fee covenants, file liens purporting to secure payment of transfer fees, or enter into agreements that impose a private transfer fee obligation may be liable for the amount of the fee and for attorney’s fees, costs, and other expenses associated with the fee charged.

To further clarify, there are two common fees that are not considered to be transfer fees:

  1. Reasonable fees for preparation of statements of unpaid assessments 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. These have been the subject of much discussion among real estate and community association attorneys and the North Carolina legislature and there has been some legislative push for a cap to these fees because of the perceived unreasonableness of fees charged by some management companies.
  2. Reasonable fees paid by only the first homeowner of an individual Lot/Unit to a community association. These are usually called a “working capital” fee or something similar, and, like the fees above, are required to be reasonable. They are designed to help to make sure the community association has a sufficient working budget in the early stages of a community and are not chargeable to subsequent homeowners at the transfer of the property.

I regularly work with management companies, developers, and boards of directors of homeowners associations and condominiums and help them to navigate questions related to all of these fees. If you have questions please contact me and I am happy to evaluate your specific facts to see what fees may be permissible and what fees may be prohibited in your community.

HOA & Condo Associations