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Articles of transfer: Going, going, gone

Kevin L. Shepherd

Kevin L. Shepherd

Ignored by many, understood by some and properly used by few, articles of transfer have occupied a unique place in Maryland law. The state requires articles of transfer be used when a Maryland corporation sells all or substantially all of its assets. Sounds simple enough, but the practical implications are significant, if unexpected. A quick fact pattern will highlight this point:

Suppose a Maryland corporation’s sole asset is a shopping center in California. Suppose further the corporation sells the center to a buyer, a California limited liability company based in Los Angeles. The purchase and sale agreement is governed by California law. Based on these facts, what must the Maryland corporation do to transfer title to the California shopping center to the buyer?

a. Record a grant deed in the land records office in the California county in which the shopping center is located.

b. File a confirmatory deed with the California Secretary of State.

c. Record a quit claim deed in the land records office in the California county in which the shopping center is located.

d. None of the above.

The correct answer is d! To transfer title to the California shopping center about 2,500 miles from Maryland, the Maryland corporation will need to file articles of transfer with the Maryland State Department of Assessments and Taxation and, as an annoyance to the buyer, the buyer will need to appoint (and incur the cost of) a Maryland resident agent. Maryland law mandates a non-corporate transferee that is a non-resident of Maryland identify its resident agent in the articles of transfer, even though the buyer may have no contact — before or after closing — with Maryland except for buying the real property from a Maryland corporation.

Finally recognizing the odd, and to some bizarre, application of the Maryland articles of transfer statute to these types of transactions, the General Assembly enacted a law that has rung the death knell for this trap for the unwary. Effective Oct. 1, articles of transfer will no longer be part of the Maryland corporate landscape.

Historical roots

Articles of transfer appear to date back to 1950. The available historical information, however, is far from illuminating. Articles of transfer likely arose from recommendations contained in the 1950 Final Report by the Commission on Revision of the General Corporation Laws of Maryland. The report offered no rationale for this new charter document – from all appearances, it simply emerged as a new requirement under Maryland law. It is doubtful whether Maryland embraced articles of transfer because of their widespread use in other states or that they represented a growing corporate trend; indeed, Maryland appears to be the only state in the country having an articles of transfer statute.

The volume of articles of transfer filed with SDAT has not been significant: only 211 articles of transfer were filed in fiscal year 2017. Whether this low number is reflective of potential non-compliance with the applicable statute is unclear. But what is clear is that modest revenue was generated by these filings. Based on the $100 filing fee, these filings generated only $21,100 in revenue in fiscal year 2017.

Current law

Before Oct. 1, a Maryland corporation that transfers “all or substantially all” of its real property assets must transfer them by means of filing articles of transfer with SDAT. It does not matter whether the real property is located in Maryland or outside of Maryland. This statutory requirement does not apply, however, to non-corporate entities formed under Maryland law that may own as its sole asset real property located in other jurisdictions, such as limited liability companies, limited liability partnerships, limited partnerships, or general partnerships. This is a requirement specific to Maryland corporations when they transfer all or substantially all of their assets. For non-Maryland transactions, deeds of conveyance will still be recorded in the local jurisdiction.

Legislative success

House Bill 873, and its corresponding Senate bill (SB 659), were introduced into the 2018 session of the Maryland General Assembly to eliminate articles of transfer from Maryland law. In support of this legislation, the Committee on Corporation Law in the Maryland State Bar Association’s Business Law Section issued a report in February concluding articles of transfer serve “no purpose.” The House and Senate unanimously approved their respective bills, which Gov. Larry Hogan signed into law.

The new law contains a “savings” provision designed to ensure that non-compliance with the previous statutory regime would not, standing alone, affect the validity of the sale or transfer of property and assets. Specifically, in the case of a sale or transfer of all or substantially all of the property and assets of a Maryland corporation that occurred before Oct. 1, for which articles of transfer should have been filed with SDAT, such filing failure will not, in and of itself, affect the validity of the sale or transfer of such property and assets.

In sum, as of Oct. 1, Maryland corporations can now sell or transfer their assets and properties just as any other Maryland entity without worrying about the need to file articles of transfer with SDAT. The new statute thus places Maryland corporations on parity with Maryland non-corporate entities, such as limited liability companies, limited liability limited partnerships, limited partnerships and general partnerships.

Conclusion

Articles of transfer, similar to the Preakness, the Bay Bridge, the Baltimore Orioles and the Baltimore Ravens, are unique to Maryland. But they soon will be relegated to a historical footnote for conveying all or substantially all of the property and assets of a Maryland corporation. Lawyers, both here and across the country, as well as title insurers, should breathe a sigh of relief.

Kevin L. Shepherd is a partner in the Real Estate Practice Group at Venable LLP in Baltimore. He can be reached at KLShepherd@Venable.com.

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