Atlanta Deferred Exchange
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Atlanta Deferred Exchange

Is Exchange Language Needed in a Contract?

 

Q: Should I have exchange language in my relinquished property sales contract?

A: Yes.  Although there is no requirement that specific language be included in the contract, it is highly advisable. This applies to both the relinquished and replacement property contracts. Many times this language is referred to as a “cooperation clause”.  In an exchange, the taxpayer assigns their rights under the contract to the qualified intermediary (QI). This step is required under 1031 Regulations and is usually accomplished with a separate assignment form that is executed by all parties involved at the closing.

Because your rights under the contract have been assigned to the qualified intermediary when you are doing a 1031 exchange, it may be necessary to obtain the other party's consent to this action step.  If the sales contract is already written, you simply amend the contract by adding this additional language. This addition has no impact on the buyer, so it should not be an impediment to closing.