Private developers ape BRA controversial resale fees
the controversial resale fees assessed by the Boston Redevelopment Authority may be coming to a private development near you.
In the Winter 2010 issue of CommonWealth, we reported how the BRA collects resale fees equal to 1 percent to 4 percent of the gross sales price every time a condominium unit or house is sold at some 25 properties across the city, including Flagship Wharf in Charlestown. We called it “the BRA’s never-ending money machine.”
Now the concept is apparently starting to spread to private developers. A New York company called Freehold Capital Partners boasts on its website that it is helping developers of commercial buildings, condo developments, and subdivisions collect what it calls reconveyance fees — fees assessed on each subsequent sale of the property and paid to the original developer. Freehold’s business initiative was first reported by the Washington Post.
The reconveyance fees can also be aggregated and sold to investors as a long-term income stream, producing more upfront revenue for the developer, Freehold says. “The process is so powerful that it is the subject of patent filings covering reconveyance fees on a ‘for profit’ basis,” according to Freehold’s website.
Officials at Freehold did not return phone calls, but its website says that it has partnered with the owners of an estimated $488 billion in real estate projects located in 45 states nationwide. No actual projects are listed on the website, but the company indicates it has agents scattered across the country, including in Cambridge.
Reconveyance fees may be starting to surface in Massachusetts. Bruce Miller, a real estate attorney working in the Boston office of Pierce Atwood LLC, says he recently advised a client not to purchase a property in Millis where the owner was seeking to impose a 1 percent reconveyance fee on any future sales for the next 99 years.
Miller says half of the fee would have been split between the original developer and Freehold, with a tiny portion going to a nonprofit organization in the Millis area. Miller says the fee is a nightmare for title insurers and unfair to property buyers.
“Why should some third party be a beneficiary to the appreciation on the property?” he asks.
Boston Mayor Thomas Menino defends the BRA’s collection of resale fees because they go to support a quasi-public agency providing economic development, planning, and job training services for the city. “The BRA has the public interest at heart,” he says.
But Menino says he doesn’t think private developers should be allowed to assess similar fees to boost their income. “I don’t think that’s a proper thing for them to do,” he says.
Robert Franco, a real estate attorney in Mansfield, Ohio, says he believes the fees are illegal under common law unless a state’s legislature specifically authorizes them or the fees go to benefit the property on which they were assessed.
The American Land Title Association opposes reconveyance fees, which it calls private transfer fees. The association says the fees are of dubious legality and strip consumers of equity in their property.
A white paper issued by the association says the private transfer fees began popping up in California and Texas over the last decade. Initially, they were put in place as a way of creating an income stream for a nonprofit cause, an environmental initiative, or a homeowners association, but over time they have morphed into a new revenue stream for developers.
The association is urging every state to pass laws banning the fees. Florida, Missouri, Kansas, and Oregon have already banned them, according to the association, while Texas has banned them in certain instances and California has required additional upfront disclosure. Utah and Ohio are currently considering bans on the fees.The Boston Redevelopment Authority initiated its repayment fee in the early 1980s as a way to kickstart development in the Charlestown Navy Yard. At Flagship Wharf, for example, the authority sold the property to the original developer at relatively low cost and now recoups 2 percent every time a condominium in the building is resold. The BRA’s fees, which have been copied by several state authorities, remain in place in perpetuity.
BRA officials say the Legislature gave the authority the power to impose such fees, but several attorneys interviewed by CommonWealth say they believe the fees represent an illegal transfer tax.