Watch Your Language with Reservation of Rents/Other Rights in Ohio Deeds

(Supreme Court of Ohio in LRC Realty, Inc. v. B.E.B. Properties, Slip Opinion No. 2020-Ohio-3196 reaffirms time-tested rule that absent an express reservation in a deed, a covenant to pay rent runs with the land)

By: Stephen D. Richman, Esq. - Senior Counsel-Kohrman, Jackson & Krantz

-A Watch Your Language Series Article-

 

As established in other “Watch Your Language” articles for this Blog, as a general rule, courts will typically uphold commercial document provisions unless they are contrary to public policy or statutory law, or the subject of a mutual mistake.

Because of this judicial deference to “plain language” within real estate and other documents, and the fact that courts, as a general rule will not look outside the four corners of a document (to consider extrinsic evidence of intent) if the language is unambiguous (sometimes referred to as the “Four Corners Rule”), you must “watch your language, and say what you mean, precisely, or a judge will decide what you meant.” And, more often than not, what a judge decides in these cases is not what at least one of the parties meant.

The Ohio Supreme Court in LRC Realty, Inc. v. B.E.B. Properties, Slip Opinion No. 2020-Ohio-3196 recently espoused this basic tenet of Ohio law with regard to deeds, when it held that: 1) absent an express reservation in a deed conveying property, a covenant to pay rent runs with the land; and 2) “subject to” language in a deed, without more does not constitute an express reservation.

Background/Facts of LRC Realty, Inc. v. B.E.B. Properties.

As succinctly stated by the Ohio Supreme Court in LRC Realty, “This case concerns the leased land beneath a cell tower and the right to receive rental payments from the tower’s owner following the transfer of the underlying property.”

The specific facts of the case are as follows:

In 1994, B.E.B. Properties (“B.E.B.”) leased a portion of its three-acre commercial property in Chardon, Ohio to Northern Ohio Cellular Telephone Company (now, “New Par”) and also granted New Par an easement on that same property. Both the lease and the easement were subsequently recorded and a cellular tower was later built on the site.

Between 1995 and 2013, there were three (3) successive sales of the property. The third sale, which occurred in 2013 was to appellant, LRC Realty, Inc. (“LRC”).  Not soon after the first sale of the property, two of the partners of appellee B.E.B. (a general partnership) transferred their interest in the partnership to the third partner and his wife, Bruce and Sheila Bird (the “Birds”). The Birds assumed that the rents from the cell tower lease were assigned to them (notwithstanding the sale of the property), and in fact, New Par sent its rents to the Birds, until 2013 when LRC inquired as to its rights to the rents, and initiated litigation seeking a declaratory judgment that it was so entitled to such rent.

The trial court held for the plaintiffs and ordered the Birds to pay the owner of the property prior to LRC, the rents from 2007 to 2013, and to pay LRC the rents the Birds received in 2013, and thereafter. The Birds appealed the trial court’s decision to the 11^th District Court of Appeals of Ohio, and the 11^th District reversed that decision. Thereafter, the appellants appealed to the Ohio Supreme Court.

Analysis of LRC Realty, Inc. v. B.E.B. Properties.

The deed for the first transfer of the property was the key to this case (at all court levels) and provided as follows: “B.E.B. Properties … the said Grantor, does for its self and its successors and assigns, covenant with … Grantees … that it will warrant and defend said premises …against all lawful claims and demands whatsoever, “such premises further to be subject to the specific encumbrances on the premises as set forth above.”

The trial court found for the plaintiffs based on long standing Ohio law, that absent a reservation in a deed conveying property, the right to receive rents runs with the land; and it found no specific words of reservation in the deed in question. The Eleventh District believed that the “specific encumbrances on the premises as set forth above” language was a reference to the previously recorded lease and easement and therefore, such language should be interpreted as a reservation of the right to receive future rental payments under the lease.

The Supreme Court of Ohio in LRC Realty, Inc. v. B.E.B. Properties boiled the case down to two issues: (1) whether the general law in Ohio still provides that absent an express reservation in a deed conveying property, the right to receive rents runs with the land; and (2) whether or not language in a deed indicating that the property being conveyed is “subject to” a recorded lease agreement and easement constitutes such an express reservation.

Citing common law as far back as 1885, and statutory law enacted in 1965 (Ohio Revised Code Section 5302.04), the Ohio Supreme Court answered the first issue in the affirmative, namely that a covenant in a lease to pay rent “runs with the land” (meaning the right to receive rents would ordinarily follow the legal title transferred by deed, and belong to the grantee), absent a specific provision in the deed, reserving in grantor the right to receive such rental payments.

 In answering the second issue in the negative (that the “subject to” language in the deed at issue did not constitute an express reservation of rents), the Ohio Supreme Court simply acknowledged and applied the “Four Corners Rule.”  As explained by the court, “When interpreting a deed, the primary goal of this court is to give effect to the intentions of the parties [and the] best way to do that is to look at the words found within the four corners of the deed itself and to adhere to the plain language used there.”

Applying this rule of law to the deed at issue, the court concluded that “no words of reservation appear on the face of the deed in connection with the words ‘rent’ or ‘rental payments,’ and accordingly, B.E.B. Properties did not reserve the right to receive such rent when it conveyed the property.“  Without such a reservation, the court explained that “B.E.B’s subsequent assignment of that [rental] interest to the Birds was thus ineffective as it is impossible to assign an interest that one does not possess.”

  

What is the moral of this story? Watch your language, and say what you mean precisely, or a judge will tell you what you meant. The general, “Four Corners Rule” re: judicial deference to the written word in commercial documents, still… rules. Consequently, use the “magic” words- “reserve,” “reserving,” or “reservation” (vs. “subject to”) if your intent is to reserve rents or other rights in the grantor.   That way, there is nothing left open to interpretation. Make the plain language, plain as day, and you won’t need your day…in court.

Ohio’s New Notary Law Definitely Worth Noting

By: Stephen D. Richman, Esq., Senior Counsel-Kohrman, Jackson & Krantz

Effective last Friday, September 20, 2019, a new law (Ohio Senate Bill 263, the Notary Public Modernization Act) went into effect which makes significant changes for Ohio Notaries Public and those who wish to become Notaries. While some may not assign preeminent importance to “notary law”, the Ohio State Bar Association adds notable perspective by stating, “the bill ensures consistent standards across the state and provides for the training and support they need to confidently and accurately witness and authenticate all the affidavits and oaths, property titles, grants, deeds, contracts, adoptions, advanced directives and powers of attorney — the documents, which represent the most important transactions in our lives and for our economy.”  

Key provisions of SB 263 include the following changes to Ohio Notary law:

1.      Who is in Charge? The Ohio Secretary of State’s office is now in charge and the place to go for anyone applying for a new Notary commission or seeking to renew their commission. Previously, Ohio’s county courts of common pleas governed the process. 

2.      Non-attorney applicants for new Ohio Notary commissions will be required to obtain a criminal records check, complete a three hour education program and take/pass a test. Those seeking to renew will need a new (not more than six months old) criminal records check and need to complete a one hour “refresher” educational program.

3.      New attorney applicants will be required to complete a three hour training program, but will not be required to obtain a criminal records check or take a test.

4.       New Fees. Ohio Notaries may now charge up to: (i) $5 for an in-person, paper notarization; (ii) $10 for electronic notarizations that are not performed online; and (iii) $25 for a remote, online notarization.

5.      “New” Forms/Rules.

a)      Jurats. (where one swears to or affirms the truthfulness of the contents of a document). For jurats, the new law includes a new statutory jurat form; or, you can still draft your own, provided, however that it clearly states that an oath or affirmation was administered.

b)      Acknowledgements. (verify the identity of the signer and confirm that the signer signed a document). For acknowledgements, you can use the “statutory short forms of acknowledgment” in the existing statute, or, you can create your own, but the new law requires that the acknowledgement: 1) contain the words “acknowledged before me” or their substantial equivalent; and 2) clearly state that an oath or affirmation was not administered.

6.      Online Notaries. Anyone who is a commissioned Ohio Notary may apply to be an online Notary. To become authorized you must: 1) Successfully complete a two hour education program; 2) pass a test; 3) pay an authorized provider a fee of $250; and 4) submit an application to the Secretary of State and pay an application fee of $20.

The Ohio Society of Notaries (http://ohionotaries.org/) has been approved by the Secretary of State as an Authorized Provider of Training & Testing under the new law. To find out more about their training offerings, or to get answers to your questions about notary procedures, signing situations, or best practices; you can call their free helplines at (614) 336-7878, (614) 348-3305, or Email them.

Another Local Point of Sale Ordinance in Ohio Held to be Unconstitutional

By: Stephen D. Richman, Esq. - Senior Counsel- Kohrman, Jackson & Krantz

(Criminal Penalties and Lack of Warrant Procedure Held to be Key Failings of Bedford, Ohio’s Former Point of Sale Ordinance)

The U.S. District Court for the Northern District of Ohio has held in Pund v. City of Bedford, Case No.1:16-cv-1076 (N.D. Ohio Sept. 10, 2018) that a prior version of the point of sale inspection ordinance of the City of Bedford (suburb of Cleveland), as well as its rental inspection provisions, were unconstitutional, in violation of the Fourth Amendment of the U.S. Constitution.

This is the second Ohio federal court to strike down ordinances of this type. Earlier this year, the U.S. District Court for the Southern District of Ohio in Thompson v. City of Oakwood, Case No. 3:16-cv-169 (S.D. Ohio Feb 9, 2018) ruled that the point of sale ordinance of the City of Oakwood (suburb of Dayton) was unconstitutional.

Point of Sale Ordinances

While this type of ordinance can take many forms, the most common makes it unlawful to transfer ownership of any real estate, or lease to a new tenant, without having obtained a pre-sale inspection of the property under the applicable municipal code. The pre-sale inspection procedure usually requires the property owner to complete an application, schedule and appear for an inspection of the property with a code official, pay an inspection fee, and correct or otherwise address identified violations of the municipality’s fire, zoning, building, and/or property maintenance codes in order to obtain a certificate of occupancy authorizing the property’s sale or rental. The violation of pre-sale inspection requirements in this type of ordinance is usually punishable as a misdemeanor.

Municipalities usually defend their point of sale ordinances as valuable tools to increase the value of properties within their borders and ensure such properties and the residents occupying the same will be and remain safe. While these ordinances often contain a “criminal component”, municipalities rarely enforce the criminal penalties, but deem them necessary to cause compliance.

Notwithstanding the laudable intentions behind this type of point of sale ordinance, and the usual reluctance of municipalities to enforce the criminal penalties associated therewith, the United States District Court for the Northern District of Ohio in Pund has followed the lead of the Southern District of Ohio (in Thompson) in  holding point of sale ordinances with criminal penalties, but without warrant procedures (such as those formerly enacted in Oakwood, Ohio and Bedford, Ohio) unconstitutional violations of the Fourth Amendment of the U.S. Constitution.

Bedford’s Former Point of Sale/Rental Inspection Ordinance

Bedford’s former Point of Sale Inspection Ordinance required homeowners to obtain a Certificate of Inspection (“Certificate”) before selling their home. A Certificate, valid for twelve months, was issued after a building official inspected “all structures or premises used for dwelling purposes and all secondary or accessory structures to determine whether such structures or premises conform[ed] to the provisions of th[e] code.” On inspection, the building official could enter the property at any reasonable time and inspect all areas of the home, including basements, bathrooms, electrical equipment, roofing, walks and driveways. Obtaining a Certificate required homeowners to apply for and consent to a warrantless inspection of the home and to pay an inspection fee ranging from $50 to $200. If the home did not pass inspection, either (i) the homeowner was required to perform repairs before the sale, or, (ii) the buyer could deposit money in escrow to ensure payment for repairs to be made after the sale. Homeowners that violated the ordinance or refused an inspection were guilty of a misdemeanor and could be fined and imprisoned.                             

Similarly, Bedford’s rental inspection ordinance required landlords to schedule a warrantless inspection of their rental units every two years, or each time a new tenant was secured. A landlord was to obtain a Certificate in order to lease its property to a tenant. Landlords paid an inspection fee ranging from $20 to $50 per unit, and failure to comply could result in criminal penalties including fines and imprisonment.

It is important to note that approximately two months after the plaintiffs’ action was filed, the City of Bedford passed an ordinance that repealed the then existing pre-sale inspection ordinance and replaced it with a new one. The new ordinance adds an administrative warrant process for inspections and eliminates criminal penalties.

Background of Pund v. City of Bedford

The plaintiffs filed a legal action against the City of Bedford on behalf of Ken Pund  (an area landlord who was forbidden from selling a home he owns to his daughter, in which she resides); John Diezic (a homeowner who was prevented from selling his home in Bedford due to minor cracks in his asphalt driveway); and (1) all other individuals and businesses that have been subjected to Bedford’s point of sale inspections between September 10, 2014 and January 30, 2017 (and paid the requisite inspection fees); and (2) all individuals and businesses that have been subjected to rental inspections between September 10, 2014 and February 14, 2017 (and paid the requisite rental inspection fees).

Basically, the plaintiffs in Pund sought: 1) an injunction against enforcement of the ordinances containing a warrantless inspection requirement; 2) a declaratory judgment that Bedford’s point of sale and rental inspection ordinances were unconstitutional (and that defendant City of Bedford has been/continues to be unjustly enriched as a result therefrom); and 3) restitution of the inspection fees plaintiffs paid pursuant to such ordinances.

Defendant’s Arguments

The City of Bedford put forth two basic arguments: 1) it was entitled to summary judgment on plaintiffs’ claims because its amended ordinance rendered such claims, moot; and 2) it did not commit any constitutional violation because the plaintiffs consented to the inspections.

The Court’s Analysis in Pund V. City of Bedford

As with the court in Thompson, the court in Pund agreed with the defendant’s argument that the amended ordinance rendered the plaintiffs’ injunction claims, moot. Citing precedent (prior cases on point), the court in Pund explained that “[W]hen the issues presented are no longer ‘live’ or the parties lack a legally cognizable interest in the outcome,” a case (or case issue) becomes moot. And, since Bedford’s amended ordinance provided plaintiffs the injunctive relief they sought; the court in Pund declared the injunction portion of the plaintiffs’ claims no longer live, and therefore, moot. However, further citing precedent, the court  clarified that “[W]here a claim for injunctive relief is moot, relief in the form of damages for a past constitutional violation is not affected.”  In other words, the Pund court held that plaintiffs retained a “backward-looking right to challenge the original law”; in terms of their claims for a declaratory judgement and monetary damages relating to the prior ordinance. The City of Bedford tried to argue away plaintiffs’ right to a declaratory judgement (leaving simply, a claim for monetary damages), however, the court in Pund disagreed, explaining that “Declaratory relief is part and parcel of [a] claim for monetary relief, which is live.”

To address the defendant’s argument that there was no constitutional violation, and accordingly no damages to be awarded (because plaintiffs consented to the search, and accordingly did not violate the Fourth Amendment), the court in Pund first summarized the general rule of (and quoted precedent with regard to) such amendment, before evaluating whether or not the general exception to the general rule (namely, that consented-to searches do not require a warrant) applied.

The court in Pund stated, as a general rule, that “The Fourth Amendment protects people in the privacy of their homes and against ‘unreasonable searches and seizures’;” and that searches of the home by the government “conducted outside the judicial process, without prior approval by a judge or a magistrate judge [e.g., via a warrant], are per se unreasonable subject only to a few specifically established and well-delineated exceptions.” As you may recall from high school government class, “Plain view”, “search incident to a lawful arrest”, “exigent circumstances” and “voluntary consent” are some of the more common “warrant exceptions,” where a warrantless search or seizure would still be considered reasonable and not run afoul of the Fourth Amendment.

The defendant and its counsel in Pund were certainly aware of the “consent exception,” and in fact used it to justify their argument for summary judgement in their favor. The plaintiffs, however countered that “voluntary consent to inspection, necessary for the City’s compliance with the Fourth Amendment, was impossible for any homeowner to give under the terms of the ordinance because the only alternative to consent was criminal penalty.”

In holding for the plaintiffs, the court in Pund  first recognized and agreed that voluntary consent to search is in fact a well-established exception to the Fourth Amendment’s warrant requirement, by simply stating that, “A homeowner’s voluntary consent to a search satisfies the government’s Fourth-Amendment obligations.” However, just as general rules of law always have exceptions, exceptions to exceptions are just as common, and ruled the day in Pund v City of Bedford. Quoting precedent (establishing an exception to the consent exception) by the court in Thompson, and others before it, the court in Pund agreed with the plaintiffs and held that “consent given under threat of criminal penalty can never be deemed voluntary.”  Applying the facts to the law, the Pund Court summarized that the Bedford inspection ordinances were unconstitutional because they required a homeowner to obtain a certificate in order to sell a home, which in turn allowed a building inspector to enter and search the property without a warrant, failure to comply was punishable as a misdemeanor of the first degree, and consent to the search could not be considered voluntary because of the criminal penalties which would ensue without such consent.

Would it have made a difference if the City of Bedford never enforced its inspection ordinances against any property owner?

While not discussed in the Pund case, the court in Thompson clearly provided that such facts would make no difference, by stating: “Here, even if Oakwood has never denied a certificate of occupancy or enforced the criminal provisions of its ordinance, the mere possibility of such action is enough to render any consent involuntary as a matter of law.”

Holding of Pund V. City of Bedford

Specifically, the court in Pund ruled as follows: “the City’s Point of Sale Inspection Ordinance and Rental Inspection Ordinance, as they existed on May 4, 2016, are unconstitutional both facially and as applied to Plaintiffs because they violate the Fourth Amendment to the U.S. Constitution. [The Court] further declares that fees resulting from searches under those Ordinances resulted in unjust enrichment and that Plaintiffs are entitled to compensation.”  

The case is still moving forward, however on issues involved in determining class action participation and the amount of compensation due. 

Moral of the Story

Most municipalities infuse their building and zoning codes with criminal penalties for violation of the same. In their defense, enforcing compliance with ordinances is often difficult without the threat of criminal penalties. Usually, such ordinances provide more “bark than bite” and are only enforced as a last resort.

However, as provided in Pund v City of Bedford (and Thompson V. City of Oakwood), it seems that Ohio point of sale ordinances that call for criminal penalties (whether or not actually enforced) will most likely be held unconstitutional, at least where no administrative warrant procedure is provided. In other words, if it was not clear after Thompson, it is definitely advisable now for those municipalities who have not yet done so, to clearly review their point of sale/inspection ordinances and revise them accordingly.

Agricultural Land May = Wetlands (aka Farmed Wetlands)

Reprinted with permission from Jason McKenney& Ben Latoche of HZW Environmental Consultants, LLC

Over the past three (3) years, acquisition of agriculture properties for commercial and residential development has been on the rise.  Most prospective buyers, as well as the property sellers, generally believe that active agricultural fields are clear of regulated surface water features (e.g. wetlands, streams, and/or regulated ponds), however, that is not necessarily the case.  The official position taken by the United States Army Corps of Engineers (USACE), the regulatory agency responsible for determining the presence or absence of such features, is that these resources may still be present on such sites despite on-going and successful agricultural activity.  These features, primarily known as farmed wetlands, jurisdictional ditches, or palustrine open water systems, are protected under both State and Federal law in Ohio and thus will place a regulatory burden on both the property owner and any potential buyer of the land.

 In order to determine whether or not farmed wetlands or any other regulated aquatic resources exist within agricultural land, USACE recommends performing a thorough examination of existing background data before finalizing any waters delineation reports.  This background data can be constituted of aerial images (current/historical), soil surveys, topographic maps, and/or photographs of the land to name a few items.  Firms like HZW Environmental Consultants, LLC, and their peers can then combine this data with information gathered during a field visit and compile a comprehensive report.  A document of this caliber will give both the property owner and any potential buyers some peace of mind about the value of the land they may be exchanging.  This type of detailed report will also greatly increase the chances that USACE will concur with the consultant’s work and minimize any regulatory surprises down the road.

It is also important to note that landowners do have the ability to maintain, and potentially increase, the value of their property.  Doing so entails decreasing their (or any future purchasers’) regulatory burden by performing simple maintenance.  Most agricultural fields in Northern Ohio have some type of sub-surface tile or surface drainage system to shed water away from arable land and into a designated location such as a pond, stream, or off-site outlet.  When these systems fall into disrepair (e.g., sediment clogging in tiles or vegetation choking ditches), there is a chance that the fields they serviced can begin to mimic the natural conditions of wetlands and/or streams.  Thus, property owners looking to avoid federal or state regulatory headaches should address these issues promptly to ensure the free movement of water through and off of the property.  Such actions can include, but are not limited to, clearing ditches of excess vegetation and/or sediment, appropriately sizing/places culverts within ditches, ensuring tile discharge locations are clear of debris, and replacing any collapsed or failing subsurface tiles in a timely manner.

A note of caution, a prospective buyer should be weary of depending on a consultant’s report alone.  As stated above, USACE is the regulatory agency that determines the presence or absence of regulated aquatic resources.  Even the best consultants cannot always predict how USACE will respond to any given property.  Changes in Federal policy on wetland delineation come often, and interpretation of these shifting standards can vary greatly between USACE representatives of the same office.  Thus, it is always recommended that a jurisdictional determination be obtained from the Corps before any property changes hands.  This document is essentially an ‘official delineation report’ that legally affirms the location, size, amount, and type of jurisdictional resources that exist within a property.

HZW is a women-owned business enterprise and full service environmental and safety consulting firm with offices in Mentor and Akron, Ohio and field offices in Euclid and Canton, Ohio. They are recognized as one of the leading providers of quality environmental and safety consulting services in the State of Ohio, nationwide, Canada and Mexico. Jason McKenney (JMcKenney@hzwenv.com) is Group Leader and Ben Latoche (Blatoche@hzwenv.com) is a Project Manager, in HZW’s Wetlands & Ecology division.

Former Point of Sale Ordinance in Oakwood, Ohio Held Unconstitutional

(Criminal Penalties and Lack of Warrant Procedure Held to be Key Failings of Ordinance)

By: Stephen D. Richman, Esq. - Senior Counsel- Kohrman, Jackson & Krantz

It is not easy being a municipality (such as a city or village) in Ohio these days. With the Ohio estate tax having been repealed several years ago and state funds cut to a trickle, it is difficult to make ends meet; especially in “bedroom communities” without a business tax base. Residents, of course still want the same level of health, safety and welfare services they have enjoyed over the years.

Seemingly, as funds continue to dwindle, so does the power to regulate. Even though Article XVIII of the Ohio Constitution gives municipalities the power of “Home Rule” (special authority to create laws and take action regarding local self-government, exercise of police powers and operation of public utilities, that have not been specifically granted to the State of Ohio), this power is slowly but surely being limited. For example, due to relatively recent legislation, municipalities in Ohio cannot regulate guns in public places, where oil and gas wells are situated, and how taxes are levied and collected.

Municipalities are also subject to more and more United States constitutional challenges. Many of these cases deal with claims that local governments are taking private property for public use without "just compensation,” violating individual rights without “due process” and curtailing free speech in 

violation of the First Amendment.

Recently, municipalities in Ohio are facing claims that they have violated the Fourth Amendment via unconstitutional “point of sale” ordinances.

Point of Sale Ordinances

While this type of ordinance can take many forms, the most common makes it unlawful to transfer ownership of any real estate, or lease to a new tenant, without having obtained a pre-sale inspection of the property under the applicable municipal code. The pre-sale inspection procedure usually requires the property owner to complete an application, schedule and appear for an inspection of the property with the code official, pay an inspection fee, and correct or otherwise address identified violations of the municipality’s fire, zoning, building, and property maintenance codes in order to obtain a certificate of occupancy authorizing the property’s sale or rental. The violation of pre-sale inspection requirements in this type of ordinance is usually punishable as a misdemeanor.

Municipalities usually defend their point of sale ordinances as valuable tools to increase the value of properties within their borders, and ensure such properties and the residents occupying the same will be and remain safe. While these ordinances often contain a “criminal component”, municipalities rarely enforce the criminal penalties, but deem them necessary to cause compliance.

Notwithstanding the laudable intentions behind this type of point of sale ordinance, and the usual reluctance of municipalities to enforce the criminal penalties associated therewith, the United States District Court for the Southern District of Ohio in Thompson V. City of Oakwood, Case No. 3:16-cv-169 (S.D. Ohio Feb 9, 2018) has recently held the (former) point of sale ordinance in Oakwood, Ohio (suburb of Dayton) has been an unconstitutional violation of the Fourth Amendment of the U.S. Constitution.

Background/Plaintiffs’ Claims in Thompson V. City of Oakwood

The pertinent facts of the case are as follows:

Plaintiffs Jason Thompson and 2408 Hillview LLC (a company formed by Thompson and a partner to buy and sell homes) own and sell residential homes in Oakwood, Ohio. The LLC engaged an agent of Re/Max to act as the sellers’/plaintiffs’ agent in the sale of their property.  The agency agreement required the property owner to apply for any required housing inspections and to furnish a copy of the certificate of occupancy. The agent paid the $60 application fee and scheduled an inspection, which inspection revealed some issues that needed to be addressed to comply with the City of Oakwood Building Code. The issues were promptly addressed and a final inspection was scheduled. During the final inspection, the building inspector asked for permission to inspect the garage, which was inaccessible during the first inspection. Permission was denied, and Ethan Kroger, the building official therefore, did not inspect the garage.

The plaintiffs then brought an action in May, 2016 under 42 U.S.C. § 1983 (a civil action for the deprivation of constitutional/civil rights) against the City of Oakwood and Mr. Kroger, for allegedly infringing the plaintiffs’ constitutional rights by requiring them to submit to warrantless searches or risk criminal punishment before permitting them to sell their homes.

Specifically, the plaintiffs sought: 1) a declaratory judgment that Oakwood’s pre-sale inspection requirement was unconstitutional on its face; 2) an injunction against enforcement of the ordinance containing that requirement; and 3) restitution of the $60 fee that the plaintiffs paid pursuant to the ordinance. Approximately one week after the filing, the plaintiffs amended their complaint, seeking to constitute their action as a “class action suit” on behalf of a class of similarly situated individuals who sold real estate in Oakwood (during the prior six years) and were “coerced into paying pre-sale inspection fees.”

Oakwood Codified Ordinance § 17-107.5

The ordinance at issue (Oakwood Codified Ordinance § 17-107.5) provided that, “it shall be unlawful for the owner of any real estate premises to transfer legal or equitable ownership of that premises, or change tenants, without having obtained a pre-sale inspection of it under this code.”  The ordinance further provided that upon completion of the inspection and other requirements, an owner could obtain a “certificate of occupancy”, which was necessary because, it was illegal, per the ordinance for a new owner or tenant to occupy any premises, “without having obtained from the code official or the previous owner a valid certificate of occupancy ...” In addition, under § 17-106.4 of the Oakwood Code, an owner who failed to comply with the pre-sale inspection or occupied a premises without having obtained a certificate of occupancy was guilty of a minor misdemeanor.

It is important to note that approximately two months after the plaintiffs’ action was filed, the City of Oakwood passed an emergency ordinance that repealed the then existing pre-sale inspection ordinance and replaced it with a new one. The new ordinance adds an administrative warrant procedure for residential and business inspections and clarifies that asserting rights under the Fourth Amendment will not trigger criminal penalties.

Defendant’s Arguments

Generally, Oakwood credited its point of sale ordinance with encouraging residents to maintain their homes, increasing home values and decreasing the number of fires and structural failures. The City of Oakwood also pointed out that: a) its property maintenance code contains an administrative appeal procedure for property owners to challenge any decision or order of a code official, and no Oakwood property owner (including plaintiffs), has filed an administrative appeal challenging the point of sale  ordinance; b) Oakwood has never denied a property owner an occupancy permit or cited a property owner for failure to comply with the pre-sale inspection requirement, and c) to its knowledge, no other owner has objected to the ordinance. The City of Oakwood did acknowledge, however that it has informed at least two property owners— (the plaintiffs) that failure to have a pre-sale inspection was a misdemeanor.

Specifically, the city argued that: 1) it was entitled to summary judgment on Plaintiffs’ § 1983 claims because its amended ordinance rendered moot, the plaintiffs’ claim; 2) it did not commit any constitutional violation because the plaintiffs consented (through their real estate agent) to the pre-sale inspection; 3) the plaintiffs relied on inadmissible evidence and failed to address the history of the pre-sale inspection ordinance; and 4) Oakwood’s code enforcement officer did not commit any constitutional violation and, even if he did, he would be entitled to qualified immunity.

The Court’s Analysis in Thompson V. City of Oakwood

Before analyzing the crux of the case, the court in Thompson agreed with the defendant’s argument that the amended ordinance rendered the plaintiffs’ injunction claims, moot. As stated by the court, “Since Oakwood’s amended ordinance provided Plaintiffs the injunctive relief they sought; as a result, that portion of Plaintiffs’ claims is indeed moot. Their claims for actual and nominal damages relating to the prior ordinance, however, are not.”

To address the defendant’s claim that no damages should be awarded (because plaintiffs consented to the search, and accordingly did not violate the Fourth Amendment), the court in Thompson first summarized the general rule of (and quoted precedent with regard to) such amendment, before evaluating whether or not the general exception to the general rule (namely, that consented-to searches do not require a warrant) applied.

--the 4^th Amendment (General Rule)-The Fourth Amendment of the U.S. Constitution provides that “[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” U.S. Const. amend. IV. The basic purpose of the Fourth Amendment . . . is to “safeguard the privacy and security of individuals against arbitrary invasions by government officials.“ Camara v. Mun. Court, 387 U.S. 523, 527 (1967). The U.S. Supreme Court has repeatedly held that “searches conducted outside the judicial process, without prior approval by a judge or a magistrate judge [e.g., via a warrant], are per se unreasonable subject only to a few specifically established and well-delineated exceptions.”

The court in Thompson then gave two examples of unconstitutional, point of sale ordinances that authorized warrantless, unconsented-to inspections to enforce city codes. Namely, the San Francisco building code ordinance at issue in the Camara case, and the Portsmouth [Ohio] Rental Dwelling Code at issue in Baker v. City of Portsmouth, No. 1: 2015 WL 5822659 (S.D. Ohio Oct. 1, 2015). As in the Oakwood ordinance, the San Francisco and Portsmouth ordinances required applications to the applicable municipal authority for an occupancy permit (in order to sell, with regard to Camara; and to rent with regard to Portsmouth), a fee was charged, a city official approved or denied the permit based on an inspection, and failure to consent to the warrantless inspection was punishable as a criminal offense.

According to the court in Thompson, the United States Supreme Court’s decision in Camara and its progeny establish that a municipality violates the Fourth Amendment of the U.S. Constitution when it requires a property owner to consent to a warrantless inspection of their property or face a criminal penalty, unless a valid exception to the warrant requirement exists.

The court in Thompson then agreed with the reasoning of these “warrantless inspection cases” by quoting the following statement made by the court in Camara: “administrative searches are significant intrusions upon interests protected by the Fourth Amendment and when authorized and conducted without a warrant procedure, lack the traditional safeguards which the Fourth Amendment guarantees to the individual.”

---Consent Exception-If your distant memory of 11th grade history or Con Law is telling you, “wait a second, I remember there being a number of instances or exceptions where a warrant is not necessary, where a warrantless search or seizure would still be considered “reasonable” and not run afoul of the Fourth Amendment”, you would be correct. “Plain view”, “search incident to a lawful arrest”, “exigent circumstances” and “consent” are some of the more common “warrant exceptions.” 

The defendant and its counsel in Thompson were certainly aware of the consent exception, and used it to justify their argument for summary judgement in their favor (recall the plaintiffs’ real estate agent consented to the inspection of the plaintiffs’ property; the agent just asked it not include a search of the garage).

 As to defendant’s claim that plaintiffs consented to the search, the court in Thomson first recognized and agreed that consent to search is in fact a well-established exception to the Fourth Amendment’s warrant requirement… in general.

Here, however, the court reasoned that the issue was not whether or not consent was an exception, but rather, “whether or not a property owner could voluntarily consent to a pre-sale inspection where the governing ordinance makes it a criminal offense not to do so and refusing an inspection results in the denial of a certificate of occupancy.”

The plaintiffs argued that, “the denial of a certificate of occupancy and criminal penalty that could result from a failure to consent are so coercive that any consent given cannot be deemed voluntary,” and accordingly, the exception should not apply.

The City of Oakwood argued that the ordinance’s criminal penalty was not coercive because Oakwood never enforced it against any property owner and that, “if Oakwood homeowners had objected to the inspection, the inspection would not occur, and any potential defects would simply transfer to the buyer.”

The court in Thomson was not convinced, stating that, “Even if these facts are undisputed, they do not remove the coerciveness of Oakwood’s ordinance.” Quoting precedent (prior court decisions, on point), the court in Thompson provided the test of sorts to constitutionally evaluate the type of point of sale ordinances (that used to be) on the City of Oakwood’s books: “When evaluating the validity of an individual’s consent under the Fourth Amendment…not any type of consent will suffice, but instead, only consent that is unequivocally, specifically, and intelligently given, uncontaminated by any duress and coercion… [and] a person cannot provide such uncontaminated consent when refusal to do so empowers the municipal authority to deny him the right to sell his property (or make it very difficult for him to find a willing buyer and title insurance company) and prosecute him for a criminal misdemeanor.” Applying this so called test to the facts in Thompson, the court basically agreed with the plaintiffs and concluded, “Here, even if Oakwood has never denied a certificate of occupancy or enforced the criminal provisions of its ordinance, the mere possibility of such action is enough to render any consent involuntary as a matter of law.”

--Holding of Thompson V. City of Oakwood-Specifically, the court in Thompson ruled as follows: “1. Plaintiffs are granted summary judgment as to liability on their (a) § 1983 claim under the Fourth Amendment against Oakwood only, (b) § 1983 claim under the unconstitutional conditions doctrine against Oakwood only, and (c) unjust enrichment/restitution claim against Oakwood; 2. Mr. Kroger is granted summary judgment in his favor as he is entitled to qualified immunity on both of Plaintiffs’ § 1983 claims; and 3. The Court certifies the following class under Fed. R. Civ. P. 23(b)(3): All individuals and businesses that have (1) sold houses within the City of Oakwood since May 25, 2010; and (2) paid pre-sale inspection fees to the City of Oakwood in conjunction with the sale of their houses.

Moral of the Story

Most municipalities infuse their building and zoning codes with criminal penalties for violation of the same. In their defense, enforcing compliance with ordinances is often difficult without the threat of criminal penalties. Usually, such ordinances provide more “bark than bite” and are only enforced as a last resort.

As provided in Thompson V. City of Oakwood, however, it seems that point of sale ordinances that call for criminal penalties (whether or not actually enforced) will most likely be held unconstitutional, at least where no administrative warrant procedure is provided. In other words, for those municipalities who have not yet done so, it is time to revise. For those municipalities thinking jurisdictionally, think again.  The 1851 Center for Constitutional Law (the "Center") has also filed a lawsuit in the Northern District of Ohio against the City of Bedford (outside Cleveland, Ohio) with regard to a similar point of sale ordinance. Stay tuned.