Transfer Fee Covenants Banned in Illinois

On July 27 Gov. Quinn signed into law Public Act 96-1345, which creates the Transfer Fee Covenant Act. The law, initiated and promoted by the Illinois Association of REALTORS®, declares private transfer fee covenants, which would require future buyers or sellers to pay a private transfer fee to whoever is designated in the covenant on all future transfers, to be invalid and against public policy. The new law takes effect Jan. 1, 2011. 

From the bill synopsis available from the Illinois General Assembly website, the new law: "Provides that a transfer fee covenant or a lien to secure the payment of a transfer fee that is recorded after the effective date is void, unenforceable, and does not run with the title to the real property."

The concept originated in California whereby a property developer who places a covenant on a development would receive a "transfer fee" from all future homebuyers in the property's future transactions. The law will continue to allow a form of transfer fee covenant currently used in some housing developments to fund the conservation of an environmentally sensitive parcel adjacent to several property owners who pay a fee for its maintenance.