Ohio outlaws practice benefiting developers

COLUMBUS - Ohio has outlawed a novel real-estate practice that allows property developers to collect money for as long as 99 years each time a home in one of their developments is sold.

The practice, written into a development's deed covenants, requires that 1 percent of the sale price be paid to the developer, no matter how many times the home is sold.

"It's the gift that keeps on giving," said Mansfield real-estate lawyer Robert Franco, who had campaigned for three years to outlaw the practice.

California and Texas developers have applied the fees, but they have not been used in Ohio.

The practice, called a transfer-fee covenant, is the invention of New York-based Freehold Capital Partners, which is trying to finance developments throughout the nation using the covenants.

The company argues that the practice allows the initial price of a home to be discounted because developers will receive revenue from future sales.

Dayton businessman Dan Riedel hoped to work with Freehold and a developer in an effort to restart his prefab-home company, Benchmark Homes.

He worries that the ban will keep development capital out of Ohio. "This is a real setback for Ohio," Mr. Riedel said. "I'm working on property deals in Mississippi, Georgia, and South Carolina, and I hope to employ it there. Those states will get economic development, and Ohio won't."

Real-estate agents, lawyers, and title agents lobbied against the covenants because of their potential to muddy real-estate transactions.

Gov. Ted Strickland signed legislation this month outlawing the covenants, making Ohio the 12th state to ban or restrict the practice.

The law does not affect other transfer fees, such as fees paid to homeowners' associations.

Greg Gantt, a Dayton lawyer who opposed the ban, said he questions the legality of allowing some transfer fees but not others.

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Columbus Dispatch: Real-estate transfer fee: 'Gift that keeps on giving'