This deed restriction attempts to require every subsequent purchaser of the property to pay 1% of the sales prices of which a substantial percentage goes to pay the company, Freehold Development, and another portion of the percentage to the original owner who created the restriction for 99 years. The restriction creates a lien against the property if the transfer fee is not paid.
First, let's talk about the logic that led to the creation of this deed restriction covenant. Its creator reasoned that when an artist applies his or her talents and hard work to create something of beauty and lasting value, there was mechanisms in-place to reward him or her for the future value of those creations. So why should the Owner of a piece of real estate enjoy any less protection for his or her talents, hard work and creativity, just because their canvas is a piece of land, a home or a commercial building?
He grew tired of putting his heart & soul into projects and then selling them off. . . It was like he was losing a little piece of himself with each sale. And it didn't help matters when years later he would drive by those properties & see that all of his hard work was a major contributing factor why his projects seemed to always appreciate in value, more than projects of other developers who hadn't taken such a personal interest in their properties.
Broadly-speaking, the deed restriction covenant defines a separate asset class within the land similar to mineral and oil rights, and then bestows a variety of benefits upon the land thus enabling licensees to reserve a right to be compensated in the future, as their labors, creativity and good judgment bear fruit.
As a residential developer with many total rehab projects under my belt, I can relate to the totally unappreciated feeling you get when you see the value of one of your pet projects explode after you have sold it. I can't count the number of times other people have benefited off of my sweat, tears, blood and frustration, not to mention, my hard work and creativity. The best example is an 1890 row house I restored in Washington, DC. This house had sat vacant for 18 years and to say the least, had an extremely clouded title. It was a neighborhood eye soar and an unsafe structure. Because of its condition and title problems, no one would take this project on, so I did.
Without being long winded, we were over budget, had major problems with the city historical society and permit office, had to payoff the IRS, buy the title back from the FDIC and payoff various leans. This was very time consuming, frustrating and a total learning experience. Yes, we made a nice profit when we sold our "completed project". However it was very disturbing to watch our property be resold shortly after for almost $400,000 more than what we had sold it for. This really goes to show, no one can predict the market. I wished I had reserved the right to be compensated for this future appreciation.
All this being said, I believe that this is where the buck stops, so to speak. I do not believe that this deed restriction should apply or be allowed for the typical residential property. Furthermore, I can foresee major problems in the transference of tile. Freddie Mac and several title companies have issued warning about what they call a "get rich scheme". Would you buy a property with this type of deed restriction or has anybody run into this when buying or selling property?
Listen to RJon Robins, Esq., Principle, FreeholdLicensing.com on WSRADIO.COM's Ask the Guru.
WSRADIO.COM What is a Freehold Covenant and why should I care?
WSRADIO.COM How does the covenant work to make me money?
WSRADIO.COM What about ongoing costs to maintain the covenant?
WSRADIO.COM How do I know I will get paid for 99 years?
Read more about FREEHOLD'S GenEstateTM COVENANT http://www.freeholdlicensing.com/
Source: NAR, freeholdlicensing
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