A bill that passed the South Carolina House of Representatives Wednesday would try to ban a real estate practice that one legislator calls a “private tax.”
By an overwhelming 110-2 margin, legislators approved a bill on second reading Wednesday that would invalidate transfer fee covenants. The term is used to describe a practice in which the original developer of a property gets a percentage of the purchase price each time the property is sold in ensuing years. Common practice is a one percent fee for 99 years.
Rep. Alan Clemmons (R-Myrtle Beach) said he first proposed the law after learning about Freehold Capital, a group of developers that patented the covenants.
The House passed a similar bill last year that did not make it out of the Senate.
Clemmons says the covenants are starting to grow in South Carolina.
Whenever the property is resold after the first sale, then one percent of the sales price will go directly to the developer every time after that for 99 years… It is a private tax.
However, Rep. Dan Hamilton (R-Greenville) defended the fees, saying they help developers make up construction costs.
This is a valid instrument in the marketplace that will… spread the cost of development over a long period of time, where those that are in the front end of the development aren’t picking up the entire cost.
Hamilton ended up voting in favor of the bill.
Freehold’s website says the fees allow real estate developers to “more fairly apportion costs and, in consequence, lower the sales price.” It also says real estate agents oppose the fees because they result in lower property prices, cutting into agents’ commissions. Clemmons, the bill’s sponsor, is a real estate attorney.
However, Ted Vick (D-Chesterfield) a developer himself, also criticized the fees.
This is a cronyism benefit. This isn’t free market, in my opinion… My idea of Jeffersonian politics… is not couching property owners to keep getting popped 99 years down the road paying fees to some developer from a hundred years ago.
17 states have banned the covenants. The legislation also says any fees already in existence would not be recognized as valid.
The bill will likely head to the Senate next week.