Bulletin: UT2010002

Dear Associates:

This Bulletin describes current Company policy regarding covenants purporting to require the payment of a fee upon the transfer of real property (hereafter "Transfer Fee Covenants"). The common characteristic of such covenants is generally a requirement to pay a fee each time the property is transferred (on the current sale and all future sales), for an extended period of time, typically 99 years. The fee varies, but it is generally one percent (1%) of the selling price or the gross sales price. The provisions purport to create a lien on the property in the event the transfer fee is not paid. These covenants may be created in separate documents and may be referred to as "Transfer Fee Covenants," Freehold Licensing Transfer Fee Covenants," GenEstate Legacy Covenants" or "Private Transfer Taxes." In some cases, the transfer fee provision is included within other documentation, such as a general declaration of covenants and restrictions, or in a deed.

U.C.A. 57-1-46 entitled Transfer fee and reinvestment fee covenants became effective on March 16, 2010. This statute establishes a definition for a Transfer Fee Covenant and makes a distinction between a transfer fee and a reinvestment fee and prohibits Transfer Fee Covenants. Pursuant to the statute a Transfer Fee Covenant (see definition below) recorded on or after March 16, 2010 is void and unenforceable.

A Transfer Fee Covenant recorded before March 16, 2010 is not enforceable after May 31, 2010, unless a special notice consistent with the statute is recorded in the office of the recorder of each county in which any of the burdened property is located.

A Transfer Fee Covenant is defined in the statute "as an obligation expressed in a covenant, restriction, agreement, or other instrument or document: that affects real property and that is imposed on a future buyer or seller of real property, other than a person who is a party to the covenant, restriction, agreement, or other instrument or document."

A Reinvestment fee covenant means a covenant, restriction, or agreement that affects real property; and obligates a future buyer or seller of the real property to pay to a common interest association, upon and as a result of a transfer of the real property, a fee that is dedicated to benefitting the burdened property.

Essentially a Transfer Fee is paid to a third party and is not used for the continued maintenance and care of the property and a Reinvestment Fee is paid to the association managing the property for the continued care and maintenance of the property.

A reinvestment fee covenant recorded on or after March 16, 2010 may not obligate the payment of a fee that exceeds .5% of the value of the burdened property, unless the burdened property is part of a large master planned development.

A reinvestment fee covenant recorded on or after March 16, 2010 is void and unenforceable unless a notice of reinvestment fee covenant, separate from the reinvestment fee covenant, is recorded in the office of the recorder of each county in which any of the burdened property is located.

The statute lists the information that is to be set forth in any such special notice.

Guideline: If your search and examination reflects any recorded Transfer Fee Covenant, contact your local Stewart underwriting personnel for guidance.

Company Policy Where The Transfer Fee Covenants Were Recorded Before March 16, 2010. The Company will require the termination/release of the Transfer Fee Covenant in order to insure the transaction. Typically the Transfer Fee Covenant will contain provisions relating to the termination of the Covenant and in many cases the right to terminate is left with the declarant. The termination must be in strict accordance with the terms of the Transfer Fee Covenant. If the Transfer Fee Covenant is not specific as to who can terminate the Covenant, you must obtain signatures from the declarant, any named trustee and the beneficiaries named in the Transfer Fee Covenant. All terminations must be reviewed and approved by Underwriting Counsel.

Upon discovery of a Transfer Fee Covenant in the chain of title, all commitments, preliminary reports and policies must require the termination of the covenant.

If you have questions relating to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.

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