Must accounting firms guarantee title in 1031 like-kind exchanges? Cheney v. Hinton Burdick Hall & Spilker, PLLC Explained

The Utah Court of Appeals recently addressed an important question regarding the scope of duties for professionals facilitating 1031 like-kind exchanges. In Cheney v. Hinton Burdick Hall & Spilker, PLLC, the court examined whether an accounting firm could be held liable when sellers failed to convey title to exchange properties.

Background and Facts

The Cheneys entered into three agreements with Hinton Burdick to facilitate 1031 like-kind exchanges. Under these arrangements, Hinton Burdick agreed to hold proceeds from property sales in escrow until the Cheneys designated exchange properties to purchase. In two transactions involving Homeland Mortgage properties, the Cheneys transferred funds through Hinton Burdick, but Homeland never conveyed title to the exchange properties. Instead, the Cheneys received only investor correspondence and interest checks.

Key Legal Issues

The primary issues were whether Hinton Burdick breached its contractual duties by failing to ensure title conveyance and whether it violated the implied covenant of good faith and fair dealing by accepting payment without guaranteeing the Cheneys would receive title to exchange properties.

Court’s Analysis and Holding

The court analyzed the contract’s plain language, focusing on provisions requiring contemporaneous conveyance of property by the seller. The court determined that this language created a condition precedent to Hinton Burdick’s duty to convey title—the seller must first convey title before Hinton Burdick had any obligation to deliver title to the Cheneys. The contract contained no language requiring Hinton Burdick to guarantee the seller’s performance. Additionally, the agreement included indemnification provisions protecting Hinton Burdick from claims arising from exchange property acquisition issues.

Practice Implications

This decision clarifies that professionals facilitating 1031 exchanges are not automatically guarantors of title conveyance unless the contract explicitly creates such duties. Practitioners drafting exchange agreements should carefully define the facilitator’s role and include appropriate disclaimers and indemnification provisions. The court’s analysis emphasizes the importance of contract interpretation based on plain language and the significance of condition precedent clauses in limiting liability.