Real Estate & Construction Law Monitor : Real Estate & Construction Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Development & Building

On January 12, 2012, New Jersey Governor Chris Christie signed into law the Urban Hope Act (“Act”), S3173/A4426, which allows private companies to construct, operate and manage up to twelve public schools in three under-performing public school districts in the State: the Newark School District, the Trenton School District and the Camden School District.  These “failing districts,” as such are defined in the Act as those in which a below average percentage of students scored at least in the partially proficient range on State assessments administered in the 2009-2010 school year, have been unable to convert, year after year, “increased State aid and other resources into improved student achievement, higher graduation rates, or greater student readiness for postsecondary education and gainful employment.”  Recognizing that although New Jersey’s per pupil public school expenditures are among the highest in the nation, many of the State students are nonetheless failing to achieve the core curriculum content standards, the New Jersey Legislature passed, and the Governor approved, the Act to “provide local boards of education, partners, students, and teachers with more and better options for addressing their failing schools.”

The Act offers one such option by allowing the identified school districts, on a limited pilot program basis, to partner with one or more nonprofit entities to create “renaissance schools.”  Under the Act, a “renaissance school project” (“RSP”) means “a newly-constructed school, or group of schools in a common campus setting, that provides an educational program for students enrolled in grades K through 12 or in a grade range less than K through 12, that is agreed to by the school district, and is operated and managed by a nonprofit entity in a renaissance school district.”  A “renaissance school district” (“RSD”) is “a failing district in which [RSPs] shall be established.”  Private or parochial schools are not eligible for RSP status under the Act.

Upon receiving local school district approval, nonprofit entities can apply, within three (3) years of the Act’s passage, to the state Commissioner of Education (“Commissioner”) to create up to four (4) RSPs in each RSD.  The nonprofit entity must demonstrate experience in operating a school in a “high-risk, low-income urban district.”  Similarly, “an entity retained by the nonprofit entity for the purpose of financing or constructing the [RSP] shall also have appropriate experience.”  In its application, the nonprofit entity is required to outline its goals, policies, and a financial plan.  In addition, the nonprofit entity must provide a description of the process employed by the RSD to find and partner with the chosen nonprofit entity to create a RSP; such process should be “open, fair and subject to public input and comment.”

Once the nonprofit entity obtains state approval, it can then enter into a contract with the RSD in which the RSP will be located, setting forth the terms and conditions for the RSP including the operation, management, and funding of the RSP.  The nonprofit entity is also required to file an organizational document with the Commissioner. 

The Act permits for-profit entities to construct a RSP.  RSPs may also be located on land owned by a for-profit entity.  Moreover, the nonprofit entity is authorized to retain for-profit entities to staff, operate, and manage the RSP.  Although RSPs shall be considered public schools under the Act, the nonprofit entity or any entity acting in cooperation with a RSP, including for-profit businesses, would not be subject to public bidding requirements for goods and services, as is otherwise required for public schools under the “Public School Contracts Law,” N.J.S.A. 18A:18A-1 et seq.  Further, any such contracts entered into would not be deemed public contracts or public works, except for the purposes of the “New Jersey Prevailing Wage Act,” N.J.S.A. 34:11-56.25 et seq., which the RSPs are subject to.  All costs of the RSP, including the costs of land acquisition, site remediation, site development, design, construction, and any other costs required to place into service the school facility or facilities constituting the RSP, are to be paid for by the nonprofit entity.  State funds may be used to pay for a lease, debt service, or mortgage for any facility constructed or otherwise acquired. 

Under provisions of the Act, RSPs may also be built on land owned by the New Jersey Schools Development Authority (“SDA”) or the RSD.  Ownership of the land on which the RSP is constructed determines which students are permitted to enroll at the RSP.  The Act also permits the SDA to convey the land by ground lease or fee simple title to either the RSD or the entity constructing the RSP, including to private developers, “for such consideration and on such terms as the [SDA] determines to be in the best interest of the State.”  The conveyance must contain a restriction that the land be used solely for a school or it shall revert to the SDA.  In the event the land is conveyed to a RSD, the RSD may enter into a sublease of the property with the entity.  Such a sublease must contain a similar use restriction and reverter provision, and be reviewed and approved by the Commissioner.

Moreover, if any board of education determines by resolution that any tract of land is no longer desirable or necessary for school purposes, it may authorize the conveyance of such a tract to a RSP, similarly conditioning the conveyance on the property’s continued use for school purposes by the RSP.

Under the provisions of the Act, the RSD will pay to the nonprofit entity operating a RSP an amount per pupil equal to 95% of the district’s per pupil expenditure.  The RSPs are required to meet the same testing and academic performance standards established by law and regulation for public students. The nonprofit entity may also establish additional testing and academic performance standards which, upon the Commissioner’s approval of the same, the RSP must meet as well.  The RSPs are subject to periodic reviews and assessments by the Commissioner, and the Commissioner has the right to review the RSP’s and the nonprofit entity’s records and facilities to ensure compliance with the RSP’s organizational document, and with State laws and regulations.  In addition, five (5) years following the date of the opening of the third RSP, or ten (10) years after the opening of the first RSP, whichever occurs first, an independent education researcher or research organization selected by the Commissioner will conduct a review of the efficacy of the RSPs.  The Act requires that the Commissioner report the results of the review to the Governor, the State Board of Education, and the Legislature, and the RSP program altered and/or expanded based on these results.

The Act received wide support from education organizations and the state’s largest teachers union, the New Jersey Education Association. Under the Act, educators in the RSPs will have the same qualification requirements, salary minimums and collective-bargaining powers as teachers in other public schools

The Urban Hope Act is one of several pieces of the administration’s overall effort to improve education.

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On September 23, 2011, New York Governor Andrew Cuomo signed into law Senate Bill 5203A and Assembly Bill 7358A, codified as the “Private Transfer Fee Obligation Act” in Article 15 of the New York Real Property Law. The new law imposes a ban on all new private transfer fees (“PTFs”), and provides notice, disclosure and remedy procedures for existing private transfer fee obligations. With the passage of this law, New York has joined the majority of states which have enacted legislation that completely bans, limits and/or requires the disclosure of PTFs.

In practice, PTFs have also been dubbed “Wall Street home resale fees,” “private transfer taxes,” “reconveyance fees,” “capital recovery fees,” “residential transfer fees,” and “transfer fee covenants.” These charges, whatever they may be called, usually amount to one percent (1%) or more of the sales price and are automatically inserted into the contract of sale on real property, to be paid by the seller to the original developer of the property or their designee, oftentimes a third party that holds no ownership interest in the property, every time the property is transferred for up to 99 years. They are usually buried within dozens or hundreds of pages of documents, or, in some instances, are found in a separate declaration affecting the property filed by the original developer. Prospective buyers and owners may not be aware of these fees until closing or, worse, when they try to sell the home years later and the fee shows up in a document obtained in connection with a title search of the property. The failure to pay the PTFs at closing typically results in a lien being imposed on the property.

Unlike traditional deed covenants, PTFs run with and burden the land without benefiting it. Although the fees may benefit a homeowners’ association, conservation land bank, non-profit organization, etc., they have been found to not be proportional or related to the purposes for which the fees were to be collected. Furthermore, PTFs are also used by builders and developers to provide themselves with an income stream long after a development is complete. The American Law Institute has described such PTFs as “unconscionable;” the U.S. Department of Housing and Urban Development has publicly opposed the use of PTFs, stating that “PTFs violate HUD’S regulations at 2 C.F.R. 203.41, which prohibit ‘legal restrictions on conveyance,’ defined to include limits on the amount of sales proceeds retainable by the seller.” In addition, the Federal Housing Finance Agency, determining that “such covenants are adverse to the liquidity and stability of the housing finance market and to financial safety and soundness,” has issued a proposed rule, published at 76 F.R. 6702 (Feb. 8, 2011), that would restrict the regulated entities – the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the Federal Home Loan Banks – from investing in most mortgages on properties encumbered by PTFs.

Similarly, the New York State Legislature has determined that PTFs conflict with a preferred state public policy favoring “the marketability of real property and the transferability of interests in real property free of title defects or unreasonable restraints on alienation.” The legislature also declared that “a private transfer fee obligation shall not run with the title to property or otherwise bind subsequent owners of property under any common law or equitable principle.”


Real Property Law Section 472 defines a private transfer fee as “a fee, charge or any portion thereof, required by a private transfer fee obligation and payable, directly or indirectly, upon the transfer of an interest in real property, or payable for the right to make or accept such transfer, regardless of whether the fee or charge is a fixed amount or is determined as a percentage of the value of the property, the purchase price, or other consideration give for the transfer.” Expressly excluded from this definition are: (a) the purchase price of the real property being transferred; (b) any real estate broker commissions; (c) the interest, fees and charges associated with a loan secured by a mortgage against real property; (d) rent payable under a lease; (e) payments to holders of options to purchase and rights of first refusal or purchase; (f) any taxes, fees, assessments, etc. imposed by governmental authorities; (g) fees paid to homeowners’, condominium, cooperative, mobile home or property owners’ associations that use them to directly benefit owners of the encumbered property; (h) fees payable for the benefit of certain non-profit organizations; and (i) fees pertaining to the purchase or transfer of a club membership relating to real property owned by the member. “Transfer” means “the sale, gift, conveyance, assignment, inheritance, or other transfer of an ownership interest in real property located in [New York] state.” 

The Private Transfer Fee Obligation Act prohibits entering into or recording PTFs after its effective date, and declares all such new PTFs void and unenforceable, not running with the land, and not binding on subsequent purchasers. Anyone who records or enters into an agreement imposing a private transfer fee obligation in their favor after the effective date would be liable for any damages resulting from that obligation, including the PTFs, attorneys’ fees and other costs to quiet title. Notwithstanding this strict prohibition and repercussions, section 475 further underscores the significance of disclosing any  PTFs by requiring the seller to furnish to the buyer, prior to closing, a written statement memorializing their existence, describing the PTFs and referencing the new law.

Moreover, PTFs entered into and/or recorded prior to the new law’s effective date of September 23, 2011, are not to be presumed valid and enforceable. The new law requires the receiver of the PTFs to give notice to subsequent buyers by recording, within six months of the law’s effective date, a document disclosing the existence of PTFs along with the additional information required under section 476, including the PTFs’ amounts and purposes. Failure to record would result in the agreement being unenforceable, and the real property could then be conveyed free and clear of the PTFs.

The Private Transfer Fee Obligation Act also sets up a mechanism by which an individual transferor can free the property of private transfer fee obligations currently burdening his real property. If a receiver of the PTFs does not provide a written statement of their payment within thirty (30) days of the written request asking for such a disclosure, then the transferor, after recording an affidavit describing its efforts to reach the receiver, may convey any interest in the real property to any transferee without paying the PTFs. From that point on, the real property would be free and clear of the PTFs.

Supported by the New York State Association of REALTORS, New York Taxpayers for Economic Justice, Inc., Consumers Union, Consumer Federation of America, and the Coalition to Stop Wall Street Home Resale Fees (formed by the National Association of Realtors and the American Land Title Association), among many others, Private Transfer Fee Obligation Act became effective immediately. 

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On Friday, September 23, 2011, New York Governor Andrew Cuomo signed into law Senate Bill 2373A and Assembly Bill 6870A. The bill authorizes the electronic recording (“e-recording”) of instruments affecting real property in the form of digitized images of original, executed paper instruments and of electronically executed instruments.

Modeled on the federal Uniform Electronic Transactions Act and following in the footsteps of NYSCEF which permits the filing and service of legal papers by electronic means with certain county clerks and with courts in certain types of cases, the new law, encapsulated in Real Property Section 291-i (“Validity of electronic recording”), “seeks to achieve similar efficiencies in the realm of real property conveyances by enabling county governments to modernize the manner in which real estate professional[s] and recording officers conduct their business together.”

Prior to the bills’ signing, the State’s Electronic Signatures and Records Act (“ESRA”), Article III of Chapter 57-A of the New York State Technology Law, already allowed instruments signed electronically to be received, accepted, recorded and stored by government entities in an electronic format. ESRA clarified that “signatures” made via electronic means are just as binding as hand-written signatures and that electronic records have the same legal force as those produced in other formats such as paper and microfilm.

ESRA, however, expressly did not apply “to any conveyance or any other instrument recordable under article 9 [‘Recording instruments affecting real property’] of the Real Property Law.” Real Property Section 291-i eliminates that limitation as it permits e-recording of instruments affecting real properties and confirms the validity of digitized paper documents, electronic records, electronic signatures and electronic notarization. The bills also update the pertinent definitions in Real Property Section 290. “Real property” includes “lands, tenements and hereditaments and chattels real, except a lease for a term not exceeding three years.” “Conveyance” includes:

"every written instrument, by which any estate or interest in real property is created, transferred, mortgaged or assigned, or by which he title to any real property may be affected, including an instrument in execution of a power, although the power be one of revocation only, and an instrument postponing or subordinating a mortgage lien; except a will, a lease of a term not exceeding three years, an executory contract for the sale or purchase of lands, and an instrument containing a power to convey real property as the agent or attorney for the owner of such property.”

“Recording” now also means “by an electronic process by which a record or instrument affecting real property, after delivery is incorporated into the public record.” An “[e]lectronic record” is “information evidencing any act, transaction, occurrence, event or other activity, produced or stored by electronic means and capable of being accurately reproduced in forms perceptible by human sensory capabilities,” whereas a “[d]igitized paper document” means “digitized image of a paper document that accurately depicts the information on the paper document in a format that cannot be altered without detection."

Section 291-i makes the e-recording option voluntary; once a county clerk opts to allow it, however, e-recording must be available to all filers. Participating recording officers are required to obey the rules and regulations of the state Office for Technology, the designated electronic facilitator under ESRA. Section 291-i also provides that where a law, rule or regulation requires, as a condition of recording, that an instrument be a signed and notarized paper original, the requirement is satisfied by a digitized paper document or an electronic record that had been electronically signed and notarized. Furthermore, the bill specifies that permissible software applications must have the capability of storing an image of the original paper documents but not permit additions, deletions or other changes to the digitized image unless such can be identified by a media trail.

Furthermore, the bills amend Real Property Section 317, which now provides that a digitized paper document or an electronic record will be considered “delivered” on the date and at the time such document or record is successfully transmitted to a recording officer. The recording officer must then record the instrument in the order it was received and immediately send an electronic or written notification of his or her receipt of the delivery stamp to the recording party. The delivery stamp, however, will be limited to the regular business hours maintained by the recording officer.

The justifications for Senate Bill 2372A cited by its author and proponent, New York State Senator Andrea Stewart-Cousins, mirror those listed in the statement of legislative intent in Chapter 314 of the Laws of 2002 which amended ESRA. They include reduction of the volume of paper documents coming into the recorders’ offices, considerable savings of money usually spent on personnel and postage for returning documents, as well as a more efficient and streamlined storage and retrieval system. The ultimate purpose of e-recording as permitted by Section 291-i is to “improve the recording process from the point of origin (e.g. title companies, banks, attorneys’ offices) to county clerks’ offices” which will “improve work flow, increase productivity, speed up the recording process and improve data accuracy.”

Supported by the New York State Association of County Clerks and the New York State Bar Association’s Real Property Law Section, among others, Real Property Section 291-i and the amended portions of Sections 290 and 317 will go into effect on September 22, 2012. 

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