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1031 Exchange Contract Seller Cooperation Clause

Last Updated: February 13, 2024

Although many Exchangers include language in their Purchase and Sale Agreement establishing their intent to perform an exchange, it is not required by the Internal Revenue Code.

Contracts Must be Assignable

It is important, however, that the Purchase and Sale Agreements for both properties are assignable. In order to structure a typical exchange transaction, 1031 Exchange Place must be assigned as the Seller of the relinquished property and also as the Buyer of the replacement property. An Exchanger should review the contract to confirm they are not prohibited from assigning their position as either a “Seller” or “Buyer” to a Qualified Intermediary. When a typical exchange is initiated by 1031 Exchange Place is shown as the Seller on the Settlement Statement instead of the Exchanger being reflected as the Seller.

“Last Minute” Exchanges Are Possible

At 1031 Exchange Place, many real estate investors contact our office just minutes before closing on their transaction and successfully convert a sale into an exchange. In most situations, a successful exchange can be accomplished as long as 1031 Exchange Place is contacted prior to closing.

Many Exchangers and real estate agents add exchange language to the contract for a couple of reasons:

  1. It establishes their intent to perform a §1031 tax deferred exchange;
  2. To notify the other party in advance of the need to assign the contract to an Intermediary.

The language below is satisfactory to establish the Exchanger’s intent to perform a tax-deferred exchange and releases the other parties from costs or liabilities as a result of the exchange:

Sale of Relinquished Property

“Buyer is aware that Seller intends to perform an IRC Section 1031 tax-deferred exchange. Seller requests Buyer’s cooperation in such an exchange and agrees to hold Buyer harmless from any and all claims, costs, liabilities, or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract by the Seller.”

Purchase of Replacement Property

“Seller is aware that Buyer intends to perform an IRC Section 1031 tax-deferred exchange. Buyer requests Seller’s cooperation in such an exchange and agrees to hold Seller harmless from any and all claims, costs, liabilities, or delays in time resulting from such an exchange. Seller agrees to an assignment of this contract by the Buyer.”

Authored By:

1031 Exchange Advisor

Nicholas has been a dynamic figure in the 1031 exchange industry since 2007. With over two decades of experience in marketing and web development, Nicholas has demonstrated his entrepreneurial spirit by owning an INC 500 company and maintaining a multi-year presence in the INC 5000 list. He is renowned for his dedication and passion for his work. Outside of his professional endeavors, Nicholas is a devoted father to two teenage boys. Together, they share a love for mountain biking and exploring the outdoors on their ATVs every weekend. Nicholas’s commitment to excellence is evident in both his career and personal life.