1) Section 1031 Exchange Cooperation Clause
Enclosed are sample exchange cooperation clauses. Such cooperation clauses should be used to prevent any dispute or misunderstanding regarding the form of the transaction. The enclosed sample clauses are designed for a deferred exchange involving Adelphi Retirement Management, LLC.
Contracts typically provide that the buyer of the old property (or the seller of the new property) shall “cooperate” with the taxpayer’s Section 1031 exchange. The problem with this language is that no one knows what it means. For example, does “cooperation” require that the other party permit the substitution of an exchange accommodator as the seller or buyer of property? Probably not. If the other party refuses to consent to the substitution of the exchange accommodator as the seller or buyer, a taxable sale may result.
To prevent these problems, the enclosed sample clauses should be included in contracts where an exchange is anticipated with Adelphi Retirement Management, LLC. These clauses contain basic terms. More detailed provisions may be necessary, depending on the facts of each case. If you have any questions, please do not hesitate to contact us.
SAMPLE BUYER COOPERATION CLAUSE
(First Leg – Deferred Exchange)
Seller has the right to assign its rights under this Contract before close of escrow to Seller’s exchange intermediary, Adelphi Retirement Management, LLC, for the purpose of allowing Seller to effect a tax-deferred exchange of properties under Section 1031 of the Internal Revenue Code. Buyer agrees to cooperate in such exchange at no cost, expense or liability to Buyer.
SAMPLE SELLER COOPERATION CLAUSE
(Second Leg – Deferred Exchange)
Buyer has the right to assign its rights under this Contract before close of escrow to Buyer’s exchange intermediary, Adelphi Retirement Management, LLC, for the purpose of allowing Buyer to effect a tax-deferred exchange of properties under Section 1031 of the Internal Revenue Code. Seller agrees to cooperate in such exchange at no cost, expense or liability to Seller.
In addition, agent should also prepare the below for seller and the QI to effect the 1031 exchange only after the contract is fully executed.
2) SAMPLE / ASSIGNMENT OF PURCHASE AND SALE AGREEMENT
(Relinquished Property)
THIS ASSIGNMENT (this “Assignment”) is entered into between [name of exchangor] (“Exchangor”) and Adelphi Retirement Management, LLC (Adelphi Retirement), on [date of assignment].
Exchangor, as Seller, entered into that certain Real Estate Purchase and Sale Agreement dated [date of Real Estate Purchase and Sale Agreement], with [name of buyer] (“Buyer”). The agreement, together with any and all amendments thereof (collectively the “Agreement”), is incorporated herein by this reference. Exchangor and Adelphi Retirement have executed an Exchange Agreement in which Exchangor has agreed to transfer the subject property of the Agreement (the “Relinquished Property”) to Adelphi Retirement. Exchangor agrees to assign Exchangor’s rights under the Agreement to Adelphi Retirement to effect the exchange.
NOW, THEREFORE, the parties agree:
Exchangor hereby assigns its rights, but not its obligations, in the Agreement to Adelphi Retirement and this assignment shall be effective immediately prior to the transfer of the Relinquished Property to Buyer. All representations and warranties in the Agreement shall survive this Assignment to Adelphi Retirement. Adelphi Retirement hereby accepts this assignment. As allowed by Treas. Reg. §1.1031(k)-1(g)(4)(v), Exchangor shall deed the Relinquished Property directly to Buyer.
IN WITNESS WHEREOF, the parties have executed this Assignment as their free and voluntary act and deed, on the date indicated above. Signatures may be in counterparts.
Seller / Exchangor:
____________________________
Sign and date
Qualified Intermediary:
Adelphi Retirement Management, LLC.
____________________________
Name and title
Bottom line, it is good business practice for all agents to use in compliance with the IRS regulation.
Wai-Yew Lam, President
TREC Certified Instructor
ww.AdelphiRetirement.com
wlam@adelphiretirement.com