Several Ohio Counties Extend Real Estate Tax Due Date

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

Real Estate taxes in Ohio are collected six months in arrears. This means that real estate taxes and assessments for the 2^nd ½ 2019 will be due after the first half of 2020. Most counties in Ohio would ordinarily collect the 2^nd ½  payment between mid-June and mid-July.

However, to provide additional relief to taxpayers (residential and commercial) as a result of COVID-19, many Ohio Counties have extended their second ½ 2019 due dates. The Cuyahoga County 2019 Second Half Real Estate tax deadline, for example has been extended to August 13, 2020. Tax bills are expected to be in hand approximately 20 days prior to the deadline, per state law. Cuyahoga County Taxpayers are encouraged to use regular mail, the county drop boxes at the County Administrative Headquarters and North Olmsted Auto Title, and online resources to make their payments. For more information, click on: https://treasurer.cuyahogacounty.us/.

In an effort to assist Franklin County Residents through the challenges of the COVID-19 Pandemic, the Franklin County Treasurer’s and Auditor’s Office have moved the due date for their 2nd half real estate property tax collection 45 days from June 22, 2020 to August 5, 2020. For more information regarding Franklin County due dates and payment plans, see: https://treasurer.franklincountyohio.gov/About/PropertyTaxDueDate.

The Second Half 2019 Hamilton County Real Estate Tax Bills have been extended  until July 17, 2020. For more information regarding Hamilton County real estate taxes, see: https://www.hamiltoncountyohio.gov/government/departments/treasurer.

Other counties have not modified their due dates, but are offering installment payment plans.

For example, Summit County’s Tax Installment Payment (T.I.P.) Plan will be available to property owners who are unable to make payment for second half 2019 real estate taxes due in July. Enrollment in T.I.P. can help property owners avoid late payment penalties.

The program was previously offered only to owners of residential, owner-occupied property. On April 27, 2020, Summit County Fiscal Officer Scalise lifted the occupancy requirement and expanded eligibility to rental properties, agricultural properties, commercial parcels, and manufactured homes. For more information or to establish a payment plan, email summittreas@summitoh.net; or, application forms can be downloaded from their website at https://FiscalOffice.summitoh.net.

To find out if your county has an extended tax due date, payment plan or other relief, contact your county treasurer or fiscal officer. For a directory of Ohio county treasurers, see: .http://www.ohiocountytreasurers.org/aws/CTAO/pt/sp/layout_directory?get_content_from_session=1.

Don’t Get Knocked Out of the Gate before the Race Starts: Ohio Supreme Court Holds that Filing of Tax Complaint by Property Manager is Unauthorized Practice of Law

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

Answering the “what, when, where and why questions” relating to real estate tax complaints in Ohio is a lot easier than answering “who” can file real estate tax complaints. The Ohio Supreme Court in Greenway Ohio, Inc. v. Cuyahoga Cty. Bd. of Revision, Slip Op. No. 2018-Ohio-4244, however, recently provided a little guidance as to answering the “who question.”

I.                   The What/When/Where/Why of Real Estate Tax Complaints in Ohio

What: Property owners, concerned that their real property tax values are too high may file a complaint to reduce the same. Those tax values, multiplied by local tax rates result in the amount that property owners will pay in real estate taxes. 

When: Complaints may only be filed between January 1 and March 31 (April 1, 2019 for tax year 2018) to contest the prior year’s tax value. For example, if a complaint is filed in 2019, it relates back to the tax value of the property as of January 1, 2018. Pursuant to Ohio statutory law, as well as Ohio Department of Taxation rules, real property in all Ohio counties is required to be reappraised every six years, and updated every three years. Normally, owners can challenge a county auditor's valuation just one time in each three-year cycle (a “triennial”) unless the property was sold in an arm's length transaction, the property lost value due to a casualty, substantial improvement was added to the property or there was an increase or decrease of at least fifteen per cent in a commercial property's occupancy.

Time is definitely “of the essence” with regard to tax complaints. If a complaint is filed even one day late, it will be dismissed.

Where/How: Property values are challenged via a "Complaint Against Valuation" that is filed with the local Board of Revision (“BOR”). The same complaint form is used statewide. It can be downloaded from county auditor websites as well as from the Ohio Department of Taxation's website. It is important to fill out the form carefully, because incorrect information can result in the dismissal of a case.  

Why: Basically, complaints are filed to petition for lower property values, because lower property values means lower property taxes. Common reasons to challenge property values include declining market values, declining rents/increased vacancies for income-producing property, obsolescence and casualty damage. In addition, people who recently purchased a property in an arms-length transaction for less than their county auditor's value, often have a strong basis for filing a tax appeal (due to case law which provides that the sale price in an arm’s length transaction between a willing seller and a willing buyer is usually considered good evidence of value).

What if there is no recent sale involved? Does it still make sense to challenge your property’s increased valuation?

The answer is, of course, it depends. It depends on the amount of additional taxes that will need to be paid, for how long, and the attorney, appraiser and other fees involved with a complaint.   For example, let’s say the county increased the value of your property by $20,000. While that number is significant, if your county’s tax rate as a percent of market value is 2%, your taxes would only increase by $400/yr.  On the other hand, a $100,000 valuation increase on a commercial property with the same tax rate would result in taxes increasing by $2,000/yr. Since valuation in Ohio is updated every three years, you could be faced with a $6,000 increase (in our commercial example) if the year of increased valuation is the first year of a triennial.  If an appraisal costs, say $2,000, and an attorney will take the case on a contingency basis, the challenge would be worth it.  You basically need to do a cost/benefit analysis for every situation in order to determine if it makes sense to challenge your property’s increased valuation.


II.  . Who may File a Real Estate Tax Complaint in Ohio

§ Property owner;

§ An attorney, licensed to practice law in the State of Ohio, representing any party properly before a BOR; and

§ Any other entity named in Ohio Revised Code Section 5715.19 (A).

Background:  At one time, the list of who could file a tax complaint was limited to attorneys and individual property owners, as a result of then current court precedent, most notably, Sharon Village Ltd. v. Licking Cty. Bd. of Revision, 78 Ohio St.3d 479 (1997).  In the aftermath of the Sharon Village decision, the General Assembly enacted legislation (H.B. 694, effective March 1999) that (among other things) expressly authorized certain non-attorneys to file tax valuation complaints on behalf of property owners, namely: (1) spouses; (2) appraisers; (3) real estate brokers; (4) accountants; and (5) officers, salaried employees, partners or members of a corporation or other business firm owner of real property (See Ohio Revised Code Section 5715.19(A)).

Two sub-issues (regarding who may file): Two sub issues have arisen, however, after the supposed clarity that H.B. 694 and O.R.C. 5715.19(A) was initially thought to provide. The first sub-issue centers around what a non-attorney agent may do during the tax complaint process, without being guilty of the unauthorized practice of law. While, at first glance, H.B. 694 appeared to provide some practicality and legal cost savings by allowing a number of non-attorney agents to file real estate tax complaints, the Supreme Court of Ohio in Dayton Supply & Tool Co., Inc. v. Montgomery Cty. Bd. of Revision, 2006-Ohio-5852 clarified that while a corporate officer (or other authorized, non-attorney) may prepare and file a complaint with a local board of revision, without engaging in the unauthorized practice of law, the non-attorney cannot do much else. In other words, corporate officers and other authorized, non-attorneys cannot make legal arguments, examine witnesses or undertake any other tasks that can only be performed by an attorney.

The second sub-issue is whether or not O.R.C. 5715.19(A)  limits non attorney agents who may file complaints on behalf of an owner to those specifically listed in the statute; and if not, what other, non-attorney agents may tax file complaints.

Greenway Ohio, Inc. v. Cuyahoga Cty. Bd. of Revision: The “second sub-issue” discussed above was recently analyzed in Greenway Ohio, Inc. v. Cuyahoga Cty. Bd. of Revision. Specifically, this case involved whether or not a property manager is among the non-lawyers authorized under O.R.C. 5715.19(A) to file a valuation complaint on behalf of a property owner.

In Greenway, the CEO of real estate management company “Property Advisors” prepared and filed (in January, 2016) a tax complaint seeking to lower the value of the property that Property Advisors managed for the owner (Greenway Ohio, Inc.; “Greenway”). The Orange City School Board of Education (“BOE”) filed a motion to dismiss the complaint on the basis that the Cuyahoga County Board of Revision (“BOR”) had no jurisdiction to hear the matter, since Mr. Sweeney, the CEO of Property Advisors was not a person authorized under O.R.C. 5715.19(A) to file a tax complaint on behalf of the owner. The BOR indicated that Mr. Sweeney was not authorized to file (and accordingly, engaged in the unauthorized practice of law), however, the BOR issued a decision on the merits, upholding the then property value of the Cuyahoga County Fiscal Officer. Greenway then appealed to the Ohio Board of Tax Appeals (“BTA”). Without conducting a hearing, the BTA determined that Mr. Sweeney was not a person authorized under O.R.C. Section 5715.19(A) to file a tax complaint, and that therefore, the BOR had no jurisdiction. The BTA then remanded the case back to the BOR with instructions to dismiss the complaint. Greenway then appealed to the Ohio Supreme Court.

The underlying premise of Greenway’s argument is that the list of persons specified in O.R.C. 5715.19(A) is not an exhaustive list and that a management company, as an authorized agent of the property owner should be able to file a complaint on the owner’s behalf. In support of its argument, Greenway cited a 2010 Ohio Supreme Court case that held for the taxpayer, and also dealt with a real estate management company (Toledo Pub. Schools Bd. of Edn. v. Lucas Cty. Bd. of Revision, 124 Ohio St.3d 490, 2010-Ohio-253). The court in Toledo Pub. Schools even acknowledged that the statute’s “list of persons is not intended as a restriction of those who may file a valuation complaint on behalf of an owner.” In fact, the Toledo Pub. Schools court stated that the statute’s intent is the opposite of limiting. The intent of O.R.C. 5715.19(A), according to the Toledo Pub. Schools court is to “widen the pool [of persons authorized to file tax complaints]by specifying that certain non-lawyers may file on behalf of an owner in spite of considerations relating to the unauthorized practice of law.”

Notwithstanding this seemingly supportive language to Greenway’s argument, the court in Greenway easily distinguished the Toledo Pub. Schools case as not relevant because in Toledo Pub. Schools, an attorney for the owner’s management company filed the complaint, vs. the management company’s non-lawyer CEO (as was the case in Greenway), and the statute certainly did not intend to prevent lawyers from filing complaints. The court in Toledo Pub. Schools came to this same conclusion by stating: “But when, as in the present case, a lawyer has prepared and filed the complaint, the list of persons who may file on behalf of the owner in O.R.C. 5715.19(A) is not relevant.”

If there is any thought left as to whether or not the “window is still open” regarding authorized agent, non-lawyers filing tax complaints who are not listed in O.R.C. 5715.19(A), the court in Greenway seemed to close any window it may have opened by concluding that “non-lawyers who are not specified in RC 5715.19(A) are not authorized to file on behalf of a property owner.”

III. What is the Moral of this Story?

Don’t get “knocked out of the gate before the race starts.” Hire a qualified attorney to file your complaint and do what lawyers are trained to do (i.e., make legal arguments, examine witnesses, file appeals and undertake any other tasks that can be performed only by an attorney).

If a non-lawyer is determined to have engaged in the unauthorized practice of law, because he/she was not authorized to file a tax complaint, or he/she validly filed a tax complaint (pursuant to O.R.C. 5715.19(A), but then crossed the “practicing law line” during the hearing, the complaint can be dismissed, and if dismissed, you won’t be able to file another complaint until the next tax year.  

Time to Proudly and Statutorily Display our Flags in Ohio

On this 4th of July holiday, in a world of economic uncertainty and cowardly acts of terrorism, it seems more than prudent to be patriotic and proud of displaying our symbols of G-d and country, particularly our flag and the banners that honor the men and women in our armed services. Believe it or not, however, the right to display is not absolute and has been subject to challenge.

Recently, in Columbus, Ohio, an 86-year-old mother of veterans was asked by her rental company to take her flag down. The company claimed the flag mount could damage the structure of the house.  You may also recall the story, several years ago of a 77-year-old U.S. Army veteran who was asked by a Summit County homeowners association to take down a flagpole he installed to display an American flag at his home. The association claimed the flagpole violated its rules that allowed flagpoles installed on homes, but not installed, in-ground. Eventually, the association backed down, but it seems incredulous that our proud veterans should have to fight for their flag, after fighting so hard for our country.  

Nonetheless, these types of challenges are happening all over the country. For example, in Connecticut, recently, an Air Force veteran is facing fines for flying the American flag in the front of his residential unit, and not in the back of the home where it is permitted.

You would think there should be laws protecting our rights to proudly display our flags. And there are; but they don’t go far enough.

At the federal level, The Freedom to Display the American Flag Act of 2005 "prohibits a condominium, cooperative or real estate management association from adopting or enforcing any policy or agreement that would restrict or prevent a member of the association from displaying the flag in accordance with the ‘United States Flag Code’ [a federal law that establishes advisory rules for display and care of the national flag of the United States] on residential property to which the member has a separate ownership interest."

Clearly, the “Flag Act” prohibits condo and similar associations from restricting flag displays. However, what about manufactured home park operators, and landlords? The federal law does not apply to them. What about state flags? I am sure there are law enforcement and other state employees who would like to pledge their allegiance to their state, as well as their country. The federal law, however, does not address the right to display state flags. Finally, the federal law does not address the right to display service banners and the POW/MIA flag.

Ohio also has what is basically a codification and elaboration of the federal law in Ohio Revised Code Section 5311.191. However, it too is silent regarding applicability to landlords, manufactured home park operators, service banners and the state flag.

Fortunately, while many states are still struggling with this issue, our great State of Ohio seems poised to fill the gaps of the Freedom to Display the American Flag Act of 2005 and ORC Section 5311.191. In fact, Ohio has two, alternate versions of a Flag-Banner Display statute: Ohio House Bill 18 and Ohio Senate Bill 84, which are summarized below:

SB84-FLAG-BANNER DISPLAY (COLEY,W) To prohibit manufactured homes park operators, condominium associations, neighborhood associations, and landlords from restricting the display of Ohio flags and blue star banners, gold star banners, and other service flags, and to prohibit manufactured homes park operators and landlords from restricting the display of the United States flag.

Current Status: 4/12/2016 - House Armed Services, Veterans Affairs and Public Safety, (First Hearing)

HB18-FLAG-BANNER DISPLAY (GONZALES, A; GINTER, T) To prohibit manufactured homes park operators, condominium associations, neighborhood associations, and landlords from restricting the display of blue star banners, gold star banners, and other service flags, and to prohibit manufactured homes park operators and landlords from restricting the display of the United States flag.

Current Status: 11/18/2015 - SUBSTITUTE BILL ACCEPTED & REPORTED OUT, Senate State and Local Government, (Third Hearing)

The only real difference between HB18 and SB84 seems to be the right to display the state flag, which is incorporated in the Ohio Senate vs the Ohio House version.

Truly, on this July 4^th, congratulations are in order to the Ohio House and Ohio Senate for recognizing the need to display our banners, our flags, and our patriotic pride. However, “timing is everything”, and in this author’s opinion it is time to bring one of these bills (preferably the senate version) out of committee, to a vote and to the governor to sign.

IRS Provides 1 Year Extension to Claim Missed Repair Deductions on 2015 Returns

Re-printed with permission by author: Craig Miller, CPA, CGFM, MBA, Duffy+Duffy Cost Segregation Services, Inc.

The recently released Rev. Proc. 2016-29 details new procedures for automatic accounting method changes and effectively provides a one year extension for taxpayers to implement many portions of the Tangible Property Regulations (TPR).

The TPR provide rules to determine whether an amount paid for during the life of tangible property is deductible or must be capitalized. Also, these regulations provide guidance for dispositions of tangible property. Specifically, the TPR provides rules covering five basic areas:

1.      Materials and supplies;

2.      Capitalized costs (including the de minimis safe-harbor election);

3.      Costs to acquire or produce tangible property;

4.      Costs to improve tangible property;

5.      Dispositions of modified accelerated cost-recovery system (MACRS) property  and general asset accounts (GAA).

Taxpayers are generally not permitted to make an automatic method change if they made a change for the same item within the previous five tax years. The "5-year rule" was waived under Rev. Proc. 2015-13 for implementing TPR changes for any tax year beginning before January 1, 2015. This gave taxpayers (who may have early adopted the Temporary Regulations) the ability to unwind or correct previous TPR related accounting method changes. Rev. Proc. 2016-29 further extends this waiver to any tax year beginning before January 1, 2016, effectively providing a one year extension to comply with the TPR.

It is important to note that Late Partial Dispositions (DCN #196) are not affected by the 5-year rule waiver since this automatic accounting method change is not allowed for tax years beginning on or after January 1, 2015.

Craig Miller is president of Duffy + Duffy, Cost Segregation Services, Inc. Duffy + Duffy is one of the leading Cost Segregation firms in the industry – performing studies based on case law and IRS guidance using CPA’s, and construction engineers and estimators. Cost Segregation allows commercial building owners to generate cash flow by accelerating depreciation deductions on their buildings and deferring taxes. For more information, contact Craig Miller, CPA, CGFM, MBA at 440-892-3339, or visit CostSegExperts.com.

CHECK MUNICIPAL LAW, BEFORE YOU PROCLAIM OHIO LAW PROVIDES NO DUTY TO REMOVE ICE AND SNOW

It is not surprising that in Ohio, we have a lot of “ice and snow cases”, because… we get a lot of ice and snow. I know, the nerve of me to bring this up in August, but the recent Ohio Court of Claims case, Scolaro v Ohio University (Case No. 2015-00304-August 11, 2015) reminds us that: 1) odds are good that it will snow again in a few months; and 2) there are exceptions to the “no duty to remove natural accumulation of ice and snow, general rule.” 

The leading case of the “no duty to remove natural accumulation of ice and snow general rule” is Brinkman v. Ross, 68 Ohio St.3d 82 (1993). In Brinkman, the Ohio Supreme Court held: the “homeowner has no common-law duty to remove or make less hazardous natural accumulation of ice and snow on private sidewalks or walkways on homeowner's premises, or to warn those who enter upon premises of inherent dangers presented by natural accumulations of ice and snow, regardless of whether the entrant is a social guest or business invitee.”

In the Brinkman case, the Brinkmans were invited to the Ross home during the winter. The Rosses knew that the sidewalk into the house was covered by a sheet of ice, which in turn was covered by snow, but never warned the Brinkmans. While walking on the sidewalk between the driveway and the Ross home, Carol Brinkman slipped on the snow-covered ice and fell, sustaining serious injuries. Ms. Brinkman sued and lost at the trial court stage, but appealed that decision. The court of appeals in Brinkman agreed with the plaintiff who admitted the snow/ice had accumulated naturally, but claimed the Rosses had a duty to disclose the dangerous situation that they knew about. The Ohio Supreme Court reversed the decision of the appellate court on the basis of law, and common sense, as if to say: “Who does not know that snow and ice are slippery?”  Actually, the Ohio Supreme Court put it more eloquently, by stating: “As a matter of law, the guest is charged with sufficient knowledge of the hazards to be required to protect herself against falls."

While the rule of law in Brinkman seems clear, judicial decisions are no different than the seemingly clear wishes of Aladdin’s genie which came with a few “exceptions, provisos and quid pro quos.” The case in Scolaro reiterates the “statutory law exception” to the “no duty to remove snow and ice general rule” in Ohio. Basically, in cases where a municipality or local government has a law requiring snow and ice removal, there is a statutory duty to remove, failing which will render the offender negligent per se (a basic legal principle basically holding that violation of  a criminal law that assesses penalties = negligence).  

In Scolaro, Hannah Scolaro of Akron sued Ohio University in the Ohio Court of Claims after she fell on the ice (on a campus bus-stop sidewalk) and damaged her front teeth, resulting in root canals, crowns and other dental work totaling approximately $3,000. Scolaro claimed the school was negligent for failing to remove snow and ice on its sidewalks, and asked the court to make the school pay for her dental bill. Apparently, other sidewalks on campus had been salted, but not the bus-stop sidewalk.

The Ohio University claimed Scolaro should have been aware of weather hazards and taken better precautions. Legally, the university relied on the Ross decision. Scolaro argued that the school should have done a better job protecting the safety of its students, especially when there is a law requiring them to do so. The Court of Claims agreed with Scolaro. According to the court, “While Ross remains the law in Ohio, there is an exception. Ross is limited in cases where a municipality or local government has enacted a safety statute requiring snow and ice removal. Athens, where OU is located, is one of these municipalities.”

What is the moral of this story? When it snows again, don’t forget the exceptions, provisos and quid pro quos to the “no duty to remove accumulations of ice and snow general rule” of Ross v Brinkman. Basically, they are: 1) the statutory law exception of Scolaro v Ohio University; 2) a lease or other contract may create a duty/obligation to remove ice and snow; 3) if you undertake to remove snow/ice, you can be held liable if you do so negligently, or in a way that makes the area more hazardous than it had been without your efforts at snow removal; and 4) you may be held liable for unnatural accumulations of ice which result, for example from the negligent design of a parking lot (See Cain v. McKee Door Sales, 2013-Ohio-4217).

Assigning/Assuming the Benefits and Burdens of Rental Property

The purchase and sale of real property that is leased by one or more tenants presents a number of issues worth thinking about and planning for, before you “sign on the dotted line”. Usually, rental property is worth a premium because the owner receives…rents. Often, however, rental property can be a trap for the unwary who focus on the benefits, but not the burdens of income producing property.

Of course, when buying rental property, the best time to focus on these issues is…before you buy. Some sellers will allow potential buyers to review their leases before signing the purchase agreement. From the buyer’s perspective, this is preferable. Why spend the time and money on a contract, if, for example, your lease review uncovers that there is only one year left in the lease term of the anchor tenant, it is a down market, and the tenant has not renewed. Whether before the contract is signed, or during due diligence, the lease should be examined carefully for such items as: early tenant termination rights; inability to pass on to the tenant, real estate tax increases due to the sale of the property; landlord obligations to make tenant improvements upon renewal (or landlord obligations to make initial improvements for a recently signed-up tenant); rents that decrease after amortized improvements have burned off; caps on CAM increases; and poorly draft assignment/sublease provisions allowing the tenant, without landlord’s consent to assign the lease to an un-credit worthy assignee.

Assuming analysis of the lease demonstrates its benefits outweigh its burdens (and assuming the lease does not provide for its termination upon a sale), does anything further need to occur for the buyer to become the new landlord after the sale? Is a formal assignment of the lease from seller to buyer legally required?

As a general rule, the answer is no, and no.

In almost all cases, when the landlord sells his interest in real property, the purchaser takes subject to such lease, by operation of law. The lease is an encumbrance against the title that existed prior to the transfer, and consequently, it exists after the transfer.

So, if the lease automatically transfers with the property, by operation of law, and assignments are not required, why do lawyers prepare them? Is it just a ploy for attorneys to charge higher fees and complicate seemingly simple transactions? The answer, of course, is not at all.  It is usually when we try to simply, what is by nature complex, that unfortunate results ensue.

So why do we prepare assignment/assumption of lease agreements? First reason, as my Jewish grandmother used to say, is “it couldn’t hoit”. While typically, a landlord’s lease rights and obligations transfer to a buyer, without need for an assignment/assumption agreement, such an agreement provides certainty to the process. In limited circumstances, the buyer who wanted a “free and clear” property without leases might be able to argue the leases are not binding against the buyer (and prevail in a court of law) if he/she had no notice of the leases, same were not recorded, and that there were no visible signs of occupancy at the property. On the other hand, the buyer will have zero success trying to prove there was no notice of a lease if he/she signed an agreement assigning the lease to him/her.

 Equally, if not more important, the assignment/assumption agreement presents a good vehicle to finalize issues such as indemnifications (e.g., buyer indemnifies seller for post-closing landlord obligations; seller indemnifies buyer for pre-closing landlord obligations), responsibility for outstanding leasehold improvements and obligations re: past due rents owed by tenants. The buyer can ensure that it is not “buying” any extraordinary landlord’s obligations such as the build out of a tenant’s space, by simply exempting same from the otherwise catch all language making buyer responsible to assume all landlord obligations under the lease.

The issue of security deposits can also be dealt with in the assignment/assumption agreement. Without an agreement as between buyer and seller, pursuant to Ohio law, the tenant may look to the original owner (seller) for return of its security deposit. The case of Tuteur v. P. & F. Enterprises (21 Ohio App 2^nd 122 established this tenet of Ohio law in 1970. The result in Tuteur would be problematic for a seller (faced with having to return security deposits it no longer had) because security deposits are typically credited to the new buyer by the escrow agent at closing.

Many real estate investor/managers make a fine living off the benefits of rental real estate. However, many others (usually those who do not seek legal representation, or wait to consult an attorney until after everything is signed) unfortunately, find that the burdens can far outweigh the benefits. The assignment/assumption agreement is the perfect equalizer.

Sellers wanting to further insulate themselves from lease liability after a sale should be proactive when drafting/negotiating their leases and provide that the seller is automatically released from all liability under any leases, arising after the sale. When faced with this proposed language, tenants should negotiate for a qualification to the effect that such a release is effective, only on an express assumption by the new owner of the landlord's obligations under the lease, which brings us right back to the moral of this story:

When selling or buying rental real estate, insist upon an assignment/assumption agreement to ensure the benefits and burdens of rental real estate are fairly apportioned to buyer and seller, after the sale.

Ohio Snow and Ice; to Remove or not to Remove, that is the Question

(assuming you can get out of your drive)

As we dig out from under our latest snowfalls, it seems appropriate to summarize the relatively recent Franklin County Court of Appeals decision in Cain v. McKee Door Sales, 2013-Ohio-4217, and other cases dealing with premises liability for injuries due to accumulation of ice and snow.

As aptly pointed out by the Court in Cain, “the Supreme Court of Ohio has made liability [in snow and ice cases] very hard to establish.” In Brinkman v. Ross, 68 Ohio St.3d 82 (1993; the leading case on this issue), the Ohio Supreme Court held: the “homeowner has no common-law duty to remove or make less hazardous natural accumulation of ice and snow on private sidewalks or walkways on homeowner's premises, or to warn those who enter upon premises of inherent dangers presented by natural accumulations of ice and snow, regardless of whether the entrant is a social guest or business invitee.”

In the Brinkman case, the Brinkmans were invited to the Ross home during the winter. The Rosses knew that the sidewalk into the house was covered by a sheet of ice, which in turn was covered by snow, but never warned the Brinkmans. While walking on the sidewalk between the driveway and the Ross home, Carol Brinkman slipped on the snow-covered ice and fell, sustaining serious injuries. Ms. Brinkman sued and lost at the trial court stage, but appealed that decision. The court of appeals in Brinkman agreed with the plaintiff who admitted the snow/ice had accumulated naturally, but claimed the Rosses had a duty to disclose the dangerous situation that they knew about. 

The Ohio Supreme Court in Brinkman reversed the decision of the appellate court on the basis of law, and common sense, as if to say: “Who does not know that snow and ice are slippery?”  Actually, the Ohio Supreme Court put it more eloquently, by stating: “As a matter of law, the guest is charged with sufficient knowledge of the hazards to be required to protect herself against falls."

The facts of the case in Cain are a little more involved. Betty Cain fell on snow and ice in the parking lot at the office of her eye doctor. She was seriously injured, and as a result, she sued various entities affiliated with the office building. In her affidavit, Ms. Cain stated that she approached her car from the rear, and as she was reaching for her door, she slipped and fell on the snow and ice that had accumulated in the drainage swale of the parking lot.  While the basic facts in Cain are somewhat similar to the basic facts in Brinkman, counsel for Ms. Cain argued that the construction of the parking lot was improper or improperly designed, resulting in a trough (or swale) in the parking lot which accumulated snow, ice and water in what constituted an unnatural accumulation. Experts testified to this “unnatural phenomenon”. The trial court relied on Brinkman, and granted summary judgment in favor of the defendants. Ms. Cain then appealed.

In reversing the trial court’s summary judgment, the Franklin County Court of Appeals held that there was a genuine issue of material fact as to whether or not Ms. Cain fell on an unnatural accumulation of ice which resulted from the design of the parking lot, and accordingly remanded (sent back) the case to the trial court for further appropriate proceedings. In other words, the court of appeals simply recognized that there is an exception to the rule (for “unnatural accumulations”) and awarded the defendants their day in court to try and prove it.

Would these cases have come out any different in a landlord-tenant situation? Based on Ohio case law, probably not, with two exceptions.  One, if the landlord has promised in its lease to clear snow and ice from the premises, then yes, the landlord can be sued if he fails to live up to his contractual obligations. Two, if a landlord decides to remove ice and snow, without an obligation in the lease to do so, he then has a duty to use ordinary care not to create a hazard or to aggravate an existing hazard. Such a hazard would constitute an unnatural accumulation.

Actually, whether or not in a landlord tenant situation, anyone that undertakes to remove snow/ice can be liable for a slip and fall if they have done so negligently, or in a way that makes the area more hazardous than it had been without the efforts at snow removal.

What is the moral of this story? Never shovel or “de-ice”? There are some who subscribe to that theory. However, before you decide to take such an approach, you should note:1) A lease or other contract may create the duty/obligation to remove ice and snow; 2) your applicable municipality may have snow removal ordinances. If your city or township has such an ordinance that requires you to keep walkways free of snow and ice, then you have a responsibility to maintain the same. In fact, some Ohio cities with snow removal ordinances levy fines for not removing snow in a timely manner; and 3) if you have a good insurance policy, why not listen to your mother and be nice to your neighbors.

Unruly Horse Renders Stable Owner Immune from Liability for its Unruly Dog

Prior to the twentieth century, the old adage- “every dog gets one free bite” was in effect in most jurisdictions. In other words, a dog owner was only held liable for his dog's biting someone if the owner had reason to know the dog would bite.

In Ohio, as of the date of this article, Ohio’s law governing unruly dog behavior is the opposite of the old “one free bite rule.” Pursuant to Ohio Revised Code Section. 955.28, to prove a statutory cause of action for injuries caused by another person’s dog, the plaintiff need only prove: (1) ownership or keepership [or harborship] of the dog; (2) that the dog’s actions were the proximate cause of the injury; and (3) damages. This is what is known as a “strict liability statute.

What if the unruly dog’s behavior does not directly result in harm, but causes a horse to be unruly, which then results in injury to a person? In a strange but true “premises liability”action, that very question was before the Court of Appeals for the Ninth Judicial District (Lorain County) in the case of Graham v. Shamrock Stables, 2014-Ohio-3977.

The facts of this case are simple enough; it is the law that is a bit unusual.  In October, 2011, Lethea Graham went to Shamrock Stables to look at a miniature horse for possible adoption. As she was walking  the horse back to its stall (according to Graham), a large dog  began barking and jumping at the horse’s back legs which “spooked” the horse and knocked Graham to the ground, causing serious injuries to two of  Graham’s fingers. Afterwards, Graham and her husband sued Shamrock Stables for the injuries Graham sustained as a proximate result of the dog Shamrock Stables harbored on its property.

Graham claimed Shamrock Stables was liable based upon the “unruly dog statute”, Ohio Revised Code Section. 955.28. Shamrock Stables asserted that the “unruly dog statute” did not apply, because Graham’s injury was the result of equine (horse) activity, and therefore, the “equine immunity statute” applied.

Ohio’s equine immunity statute, R.C. 2305.321, provides immunity from liability for harm sustained by an equine-activity participant allegedly resulting from the inherent risk of equine activities. As explained by a recent Ohio Supreme Court decision: 1) “the phrase ‘equine activity participant’ is broad enough that it encompasses a person controlling in any manner an equine, whether the equine is mounted or unmounted;” and 2) “almost every activity associated with a horse is an equine activity.”  The reason for such a statute, according to the Ohio Supreme Court is that horses are unpredictable, and there are inherent risks that arise when horses are near people.

The trial court agreed with Shamrock Stables, that the equine immunity statute applied, and Graham appealed. The Ninth District Court of Appeals affirmed the trial court’s decision.

To reach its conclusion, the court of appeals in Graham first acknowledged that the issue at hand was deciding, which statute applied-the unruly dog statute, or the equine immunity statute. The court then found its answer in the plain language of the horse immunity statute. The court explained that “one of the inherent risks of an equine activity specifically listed in the statute was the unpredictability of an equine’s reaction to other animals”, and “since the General Assembly did not exempt dogs from the foregoing provision”, the horse’s reaction to the defendant’s dog would qualify as an inherent risk of equine activity, thus triggering the immunity.

The one dissenting judge in Graham asked a very good question in its dissent. “Why should the owner of both the horse and the dog (Shamrock Stables) escape strict liability arising out of the act of the dog, merely because the dog caused injuries via the horse?” The dissenting judge theorized that at issue was a general immunity statute (“horse immunity statute”) and a special provision specifically imposing strict liability on dog owners (the “unruly dog statute”), and that according to precedent, when two statutes, one general, one special cover the same subject matter, the special provision should be construed as an exception to the general statute which might otherwise apply. In spite of a well-reasoned dissent, however, two (judges) against one (judge), always wins.

So what is the moral of this story?  Simply, (in the words of my 10 year old nephew) “Horses rule, dogs drool.” In other words, even if a dog (or other animal) causes a horse to injure its rider (or other participant in an equine activity) the dog’s owner, and horse’s owner are immune from liability, at least when the owner of the dog and the horse are the same person. The dissenting judge’s theory that there would be no issue if a neighbor’s dog had run onto the property and startled the defendant’s horse, injuring Mrs. Graham seems to make a lot of - horse sense.

Divide and Conquer: How Repair Regs Impact Your Property

Reprinted/posted with permission of Cohen & Company, Ltd. Original copyright “Taxonomics”, Spring, 2014

Just when you think you’ve figured out the rules of the game…

The IRS has adopted new regulations for business deductions on tangible property. It’s a sweeping

category covering everything from the purchase of computers to the repair and maintenance of buildings.

The process for adopting the new regulations was arduous, consisting of 10 years of hearings and public comments before final adoption this past September. As a result, the new regulations are complex. However, taxpayers may need to take a close look and assess the new rules to determine the potential impact.

The Parts are More than the Sum

While known in the industry as “repair regulations,” Cohen & Company Tax Partner Angelina Milo says, “these regulations really apply to the acquisition, production and improvement of tangible property.” Milo adds that although the regulations will impact all industries, they are significant to the real estate industry and to those who own real estate.

Prior to the new regulations, if your company owned a building and made substantial repairs or replaced parts of the facility, the decision to capitalize or deduct the cost was made primarily by comparing the cost of the improvements to that of the entire building. Other factors also came into play, such as the expected life of the property, overall value of the improvement, etc.

While other factors are still part of the equation under the new rules, the biggest change is that a building is no longer considered one unit of property, but is instead subdivided into separate “units of property.” Therefore, when a repair occurs, the cost of the improvement must be compared as it relates to the specific unit to which it belongs. The regulations identify nine building systems, each

as a separate unit of property: HVAC, plumbing, electrical, escalators, elevators, security systems, fire protection and alarms, gas systems and other structural components.

For example, a company owns an office building with a HVAC system that consists of 10 roof-mounted units. The company pays $75,000 for labor and materials to repair those units. The HVAC system, including the roof-mounted units and their components, comprise a unit of property under the new repair regulations. If the $75,000 in work done on the roof-mounted units is considered a significant improvement to the HVAC system, the $75,000 repair is treated as an improvement that should be capitalized. Whereas before these new regulations, the $75,000 compared to the cost of the entire building may have been insignificant enough to merely deduct the expense in the same year.

Safe Harbor Options

The regulations provide for a routine maintenance safe harbor, which looks at the frequency of the repair and maintenance. For a building, if the taxpayer reasonably expects to perform routine maintenance on a unit of property at least twice within 10 years, then the costs may be expensed. Milo says, additionally, taxpayers may now deduct the cost of acquiring an item under another new safe harbor provision; this safe harbor allows a taxpayer, with an applicable financial statement, to expense items costing $5,000 or less per invoice or item. (An applicable financial statement is one that is required to be filed with the SEC, is a certified audited financial statement that is accompanied by the report of an independent CPA, or is required to be provided to a federal or state government or agency other than the SEC or the IRS.)

The expense threshold changes to $500 per invoice or item for taxpayers without an applicable financial statement. So, if the cost to acquire a new HVAC unit was $5,000, then the cost could be expensed. Although unlikely for the purchase of HVAC units, this provision may be very helpful for less expensive items purchased.

Milo says to take advantage of the safe harbor provision for acquisitions, the taxpayer must have a written financial policy at the beginning of the tax year and must make an election with the taxpayer’s timely filed tax return. In addition, taxpayers may choose to have capitalization policies in place in excess of the safe harbor amounts. However, should the return be audited, the taxpayer will have to show that the amount in excess of the safe harbor is appropriate and clearly reflects income.

Out With the Old

In conjunction with the final repair regulations, regulations have also been proposed regarding the disposal of tangible property. Under the proposed rules, a taxpayer may elect to recognize a loss upon a partial disposition of tangible property. For example if the taxpayer replaced five of the 10 mounted HVAC units, a taxpayer will no longer need to dispose of an entire building to recognize a loss. The taxpayer would capitalize the costs of the new units while electing to deduct the remaining costs of the units replaced.

Looking Ahead

While compliance with repair regulations will be mandatory on 2014 returns, which by then could also include final regulations regarding the disposition of property, taxpayers have the option to voluntarily comply with both the repair and disposition regulations on their 2013 tax returns.

“Considering the expansive nature of these regulations, we have been meeting with clients so they understand the technical and practical application,” says Milo. “The ultimate impact will vary depending on each taxpayer’s existing policies and procedures.”

Ranked one of the top five accounting firms in northeast Ohio and top 100 nationally, Cohen and Company is a full service accounting firm with the following specialties: tax planning and compliance; accounting/auditing; business consulting; wealth management; transaction and litigation services; and corporate finance.

Angelina Milo, the author of this article is a partner with the firm, specializing in tax planning and general business consulting for individuals and closely held businesses. She is also experienced in assisting businesses through acquisitions, divestitures and succession planning. You can contact Angelina Milo of Cohen & Company for more information at amilo@cohencpa.com.

Tree (or House) falls on Motorist (or Witch); Act of God or Negligence?

In the Land of Oz, the issue was clear. “The house began to pitch. The kitchen took a slitch. It landed on the Wicked Witch in the middle of a ditch.” No negligence or other fault on the part of Dorothy.  In the case of falling trees in the land of Ohio, the issue is not so clear. The relatively recent case of Kish v. Scrocco, 2013-Ohio-899 (7^th Dist. Ct. of App., Mahoning Cty.), however sheds a little light on the subject.

As the court in Kish recognized, falling tree cases are often “sad and tragic”. We agree and our sympathies go out to the Kish family.

The facts of the case are relatively simple. On April 16, 2007, Lawrence Kish was driving on Shields Road in Mahoning County when a tree on the Scroccos’ property fell onto Kish’s vehicle and killed him. A bad storm blew the tree over, but the tree was later found to have been significantly diseased and partially hollowed-out.  The Kish Estate filed a wrongful death claim, claiming negligence on the part of the Scroccos for failure to cut down the tree when it became diseased. The trial court granted (summary) judgment for the Scroccos. The 7^th District Court of Appeals affirmed the trial court’s decision.

In analyzing the case, the court of appeals first summarized the common law requirements to establish negligence. To sustain a claim of negligence, Kish would need to show: a duty owed by the defendants to the deceased, a breach of that duty, injury or damages, and the existence of proximate cause between the breach and the injury or damages. A full analysis of all of the factors was not necessary, however, as the court found there was no duty owed by the defendants to the deceased.

Using prior case law as precedent, the court reasoned that the Scroccos would have a duty if they had actual or constructive knowledge of the diseased condition of the tree that fell and killed Kish. However, if there is no knowledge of the tree’s condition, either actual or constructive, then the landowner would not be liable.

 The Kish Estate claimed the Scroccos had constructive knowledge (that they should have known) of the diseased condition because an examination of the tree after its fall showed loose and missing bark, no leaves, and the lack of structural integrity to the inside of the tree. Mrs. Scrocco had testified that she was a frequent visitor to her property, but the tree did not exhibit any signs of disease or decay until after it fell. She further

stated that the tree did not have any leaves on it before it fell because it was too

early in the year and that other neighborhood trees did not have any leaves at

that time. Experts at trial bolstered the Scrocco’s claims. While reports did show a lack of structural integrity inside the tree, i.e. it was hollow; the experts could not confirm that such evidence was visible from the outside of the tree before it fell.

The appellate court contrasted the facts of the Kish case with that of Levive v. Brown, an 8^th District Court of Appeals case. In Levine, the tree that fell was riddled with termite holes, with no live branches, bark, or green leaves. Additionally, evidence presented in that case demonstrated that the tree that caused damage (to the Levine’s property) had been dead for at least a year, that it was easily visible, and that the Browns (defendants) had a history of refusing to remove trees and trim branches on their property that Levine felt may be a danger to his property.

The Scroccos also argued that the falling of the tree was an “Act of God”, and accordingly, they should not be liable for same. The court recognized the “Act of God Defense” and cited previous authority holding that if an Act of God is “so unusual and overwhelming as to do damage by its own power, without reference to and independent of any negligence by defendant, there is no liability”.  An Act of God has been defined by Ohio courts as: “any irresistible disaster, the result of natural causes, such as earthquakes, violent storms, lightening and unprecedented floods. It is such a disaster arising from such causes, and which could not have been reasonably anticipated, guarded against or resisted. It must be due directly and exclusively to such a natural cause without human intervention”.

The court in Kish, noted, however that it did not need to apply the “Act of God defense” in its case, because the court had already concluded that there was no negligence because there was no duty (because there was no actual or constructive knowledge of the tree’s diseased condition).

The moral of this story is don’t wait for your municipality, the electric company or a court action to examine and remove dead or diseased trees on your property. If you know or should know of a problem, the cost to remove same, sooner, will always be cheaper than the potentially costly and sometimes deadly consequences, later.

If the evidence showed Dorothy’s house was more susceptible to “twitch” because she used substandard construction materials, there would have been a completely different ending.