SteveK October 24th, 2011
As a result of a recent legislative amendment, the New Jersey Bulk Sales Act (the Act) provisions, as they relate to real estate, are a lot clearer. Prior to the amendment, there was some uncertainty as to whether or not the Act applied to certain types of residential real estate.
In 2007, the notification requirements under the Act were changed, which resulted in the application of such requirements to a wider array of real estate transactions and, thus, a lot of uncertainty as to what was covered and required of real estate attorneys and other professionals. Basically, under the 2007 law, the notification requirements applied to all transactions in which there was a sale, in bulk, of all or any part of a person’s business assets, except in the ordinary course of business.
For purposes of the 2007 law, “business” meant any endeavor from which revenue is realized for the purposes of generating a profit or a loss, and “business assets” included realty if the primary use of the realty is to support a business on its premises. On its face, without any other clarification, the 2007 law had to be presumed to include any real estate transaction where the purpose of the real property was to support a business of any type from which a profit or loss could be obtained and for which the sale is not in the ordinary course of business. This would likely encompass sales by single purpose entities where the sole asset is the subject property and the sole business is the leasing, operation or management of that property. However, it could also be deemed to include any other real estate transactions such as seasonal rentals, vacation homes, and timeshares.
Consequently, other than the sales of single family residences by the owners thereof, it was unclear whether or not sellers of real estate in New Jersey had to comply with the notification requirements under the Bulk Sales Act. The uncertainty was risky, too, because the failure by the purchaser to file the requisite notices with the Division of Taxation meant that the purchaser was deemed, by statute, to have personally assumed all liability for the payment of the seller’s outstanding tax obligations to the State of New Jersey.
A recent amendment now resolves that uncertainty. According to the revised legislation, the Bulk Sales Act does not apply to the sale, transfer or assignment of a simple dwelling house if the seller, transferor or assignor is an individual, estate or trust, but it does still apply if the seller, transferor or assignor is a business entity, including a corporation or a partnership. A “simple dwelling house” means a dwelling unit, attached or detached, and the land appurtenant thereto, including but not limited to (1) a one-family or two-family building or structure, (2) a cooperative unit, (3) a condominium unit, and (4) a unit in a horizontal property regime, but it does not include a structure containing more than two units of dwelling space or containing commercial property including, or in addition to, the units of dwelling space.
In addition, the Act does not apply to the sale, transfer or assignment of a seasonal rental unit or the sale, transfer or assignment of a lease for the seasonal use or rental of real property if the seller, transferor or assignor is an individual, estate or trust, but it does still apply if the seller, transferor or assignor is a business entity, including a corporation or a partnership. A “seasonal rental unit” means a timeshare estate and a dwelling unit that is rented for a term of not more than 125 consecutive days for residential purposes by a person having a permanent residence elsewhere. A “lease for the seasonal use or rental of real property” means a timeshare use and the use or rental for a term of not more than 125 consecutive days for residential purposes by a person having a permanent place of residence elsewhere.
In short, limited liability companies and other similar entities are still subject to the bulk sales notice requirements, as are all owners of multiple (more than two) dwelling properties and properties containing commercial units. However, individuals, trusts and estates are not subject to the bulk sales requirements, if the property in question is a single-family of two-family residence, a coop or condo unit, a timeshare, or a seasonal rental unit.
Although this amendment clarifies the applicability of the Bulk Sales Act to certain real estate transactions, it remains important to review any sale of this nature with your counsel.
DiFrancesco, Bateman, Coley, Yospin, Kunzman, Davis & Lehrer, PC (www.dbnjlaw.com ) is a full service law firm in New Jersey which provides a broad range of legal services, including the representation of clients in real estate transactions. For additional information about the matters in this bulletin or in the firm’s real estate group, please contact Richard Ahsler, Esq.
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