Do I Need to Use a Cooperation Clause in my Purchase and Sale Agreement?

Investors have been told for years that certain language must be included in their purchase and sale agreement and any other settlement/closing instructions such as escrow instructions regarding their intent to complete a 1031 exchange transaction, but does the investor really need to do so?

The answer from a 1031 exchange compliance perspective is no. As long as the investor follows all of the required steps to complete a 1031 exchange the lack of any specific language such as a "cooperation clause" regarding his intent to complete a tax-deferred exchange will not affect or disqualify the exchange.

I typically recommend including cooperation clause language so that the like-kind exchange is disclosed to the other parties involved in the transaction and the other parties agree to cooperate with the Investor's 1031 exchange.

You can see sample cooperation clause language here: http://www.exeterco.com/sample_cooperation_clause.aspx.