Massachusetts Real Estate Purchase and Sale Issues for Buyers
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MASSACHUSETTS REAL ESTATE PURCHASE AND SALE ISSUES FOR BUYERS JOHN SULLIVAN is the Chair of DLA Piper’s U.S. real estate group. THANOS MATTHAI is an Associate in DLA Piper’s real estate group. Both John and Thanos are resident in DLA Piper’s Boston office. The authors wish to thank Bob O’Connor, a real estate partner in DLA Piper’s Boston office, for his contributions to this article. The authors also would like to thank Taylor Tremble for his research for this article as a summer associate in DLA Piper’s Boston office. The following article is a high-level review of some of and other closing documents, and in Dukes and Nan- the material issues that should be considered by a law- tucket Counties, the buyer pays land bank fees as yer representing the buyer of commercial real estate described below. The seller typically pays the transfer in Massachusetts.1 The authors recommend that a tax and the cost of recording releases or discharges to licensed and experienced Massachusetts real estate clear title matters. lawyer be consulted with respect to any transaction that involves real estate located in Massachusetts. 2.1 Transfer Taxes Under G.L. c. 64D, § 1, a documentary stamp tax is 1. TITLE INSURANCE imposed on a “deed, instrument or writing, whereby Because Massachusetts is not a “filed-rate” state, title any lands, tenements or other realty sold shall be insurance premiums are negotiable, particularly for granted, assigned, transferred or otherwise conveyed larger transactions. The title insurance premium does to, or vested in, the purchaser or purchasers, or any not include title search and examination fees. By cus- other person or persons, by his or her or their direc- tom, title insurance premiums and title search and tion, . .” The state transfer tax is calculated at the rate examination fees are paid by the buyer, except in the of $2.28 per $500 of consideration (or $4.56 per $1,000 city of Worcester and surrounding communities where of consideration), except that Barnstable County (Cape the seller typically pays these costs. The form of Own- Cod) has a separate county stamp tax, such that the er’s and Lender’s title insurance policies generally used combined state transfer tax and county stamp tax is in Massachusetts are the ALTA Owner’s Policy (6-17- $6.48 per $1,000. Additionally, conveyances in Dukes 06) and ALTA Loan Policy (6-17-06) respectively. ALTA County (Martha’s Vineyard) and Nantucket County endorsements are generally available in Massachusetts. (Nantucket Island) are subject to a land bank fee of two percent of the purchase price of the property.2 2. CLOSING MATTERS The title insurance company usually serves as the Although Massachusetts law is unclear on whether the escrow agent for purchase and sale transactions in transfer of direct or indirect interests in entities that Massachusetts. Customarily, each of the buyer and the own real estate in Massachusetts is subject to the pay- seller pays fifty percent of the escrow agent’s escrow ment of transfer taxes, the Massachusetts Department fees. The buyer customarily pays to record the deed of Revenue has found the transfer tax to be applicable SEPTEMBER 2017 THE PRACTICAL REAL ESTATE LAWYER | 47 to certain indirect transfers3. Although the authors are secure the seller’s obligation to pay its tax liabilities. To aware of no case in which the Massachusetts Depart- address this, the deed must either be accompanied by ment of Revenue has sought to enforce payment of a written waiver from the Massachusetts Department transfer taxes with respect to the transfer of interests of Revenue or contain one of the following statements in limited liability companies, limited partnerships or by the grantor: (i) that the sale of the property con- corporations, existing case law and Massachusetts veyed by the deed does not constitute a sale of all or Department of Revenue guidance does not preclude substantially all of the assets of the grantor or (ii) that the possibility of such enforcement. the grantor has not elected to be classified as a corpo- ration for federal income tax purposes. Massachusetts does not have a separate leasehold tax, but the Massachusetts Department of Revenue has (i) 2.3 Municipal Lien Certificates found that the “leases or assignments thereof which are In Massachusetts a municipal lien certificate issued by for very extended terms or are renewable indefinitely the local municipality stating the amount of taxes and are taxable”, (ii) has stated that a lease for ten years, other assessments assessed against a property should renewable for an additional ten years, is not taxable, be recorded along with a deed or a mortgage. The and (iii) has stated that a lease for 99 years is taxable.4 recording of a municipal lien certificate limits the lia- Massachusetts does not have a mortgage tax. bility of the new property owner for unpaid property taxes and assessments to what is set forth on the certif- 2.2 Conveyance icate. A buyer should make sure that the purchase and The conveyance of real estate in Massachusetts is cus- sale agreement requires the seller to deliver a munici- tomarily by quitclaim deed, which incorporates certain pal lien certificate for recording at the closing. If asked, statutory covenants and is the equivalent of a limited title insurance companies will often order the munici- warranty deed in many other jurisdictions. In certain pal lien certificate from the applicable municipality. areas of western Massachusetts, conveyance may be by Some municipalities can take weeks to issue municipal warranty deed and buyers of property located in west- lien certificate, so the buyer should plan accordingly. ern Massachusetts should confirm whether or not this is the custom for the applicable county. The deed must 2.4 Acquisition of Condominium Interests: state the actual amount of consideration being given 6(d) Certificate and must also meet certain recording standards of the Under G.L. c. 183A, § 6, condominium expenses and Registry of Deeds or Registry District of the Land Court. assessments (and late charges, fines, penalties and The sale “otherwise than in the ordinary course of busi- interest assessed by the condominium association and ness” of all or substantially all of the assets in Massa- all costs of collection, including attorneys’ fees, costs chusetts of a “business corporation defined in section and charges) are a lien against condominium units 30 of chapter 63” is subject to the requirement under from the date such assessment becomes due and pay- G.L. c. 62C, § 51 that the Seller give advance notice to able. When acquiring condominium units in Massachu- the Commonwealth of Massachusetts (the “Common- setts, the buyer should require the seller to deliver at wealth”) of the transaction, make tax filings and pay closing a certificate under G.L. c. 183A, § 6(d) from the its taxes prior to the sale. A “business corporation” is condominium association (commonly known as a 6(d) defined as “any corporation, or any ‘other entity’ as certificate) verifying that there are no unpaid condo- defined in section 1.40 of chapter 156D . that is clas- minium fees and assessments against the applicable sified for the taxable year as a corporation for federal unit(s). The 6(d) certificate is recorded at closing along income tax purposes.” Under section 1.40 of chapter with the deed to prevent a condominium association 156D, “any other entity” would include limited partner- from filing a lien for unpaid condominium fees against ships, general partnerships, limited liability partner- the applicable unit(s). ships, limited liability companies, joint ventures, joint stock companies, business trusts and profit and not- 2.5 Final Water/Sewer Readings for-profit unincorporated associations. The Common- A final water and sewer reading is customarily com- wealth has a lien on the assets of the seller (including pleted at or immediately prior to the closing of the the real estate owned by the seller prior to the sale) to sale of real property in order for the municipality to 48 | THE PRACTICAL REAL ESTATE LAWYER SEPTEMBER 2017 issue a final water and sewer bill to the seller, thereby must either be signed by the manager of the limited ensuring that the buyer does not succeed to water and liability company or a person authorized to execute, sewer charges that are applicable to the seller’s period acknowledge, deliver and record any recordable docu- of ownership of the property. Final water and sewer ment affecting an interest in real property who is listed readings must be scheduled with the local water/ on the good standing certificate. The application form sewer department. The amount of advance notice to be filed with the Secretary of State to qualify a lim- required to schedule a reading may be anywhere from ited liability company to do business in Massachu- one day to up to weeks depending on the municipal- setts allows the applicant to list any individuals who ity. For properties located in Boston, a title insurance are authorized to execute, acknowledge, deliver and company will normally require a certificate of water record any recordable document affecting an inter- and sewer charges from the Boston Water and Sewer est in real property. Any individuals who are listed as Commission showing a complete and final meter read- such on the application will be listed on a certificate of ing and that all previous charges have been paid. good standing issued by the Secretary of State for the applicable entity. It is customary to list the names of 2.6 Disclosure of Beneficial Interests any officers or authorized signatories of the company G.L.