The Ohio Real Estate Blog: Survey and Title Issues

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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.

Bragdon v. Carter- Life Estate or Unreasonable Restraint on Alienation

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

(A Watch Your Language Series Article)

As is commonly known, ignorance of the law is no excuse to one who is charged with a crime.

In real estate, however, while ignorance of the law will rarely result in a prison term, it will almost always result in unintended consequences that could have easily been avoided by hiring (at the outset) qualified, legal professionals whose job is to know the law and know it well.

The defendants in the recent case of Bragdon v. Carter, 2017-Ohio-8257 (4th Appellate District) found this out the hard way.

The facts of the case are as follows:

Burl Bragdon, an individual from Scioto County died testate in 1998, and owned a tract of real estate at the time of his death. Bragdon’s will provided in pertinent part: “ITEM IV: I give, bequeath and devise my real estate equally to my children and friend, BELINDA DILES, BRENDA BRAGDON, BURL BRAGDON II, and BETH A NIXON, per stirpes, provided that said real estate not be sold until twenty-one (21) years after the death of my granddaughter, MORGAN MCKENZIE DILES, born April 14, 1996. It is the purpose of this bequest that my children and their heirs shall always have a place to live.”

The executrix, Belinda Diles Carter admitted the will to probate, and thereafter, a certificate of transfer was issued, conveying a one-fourth interest in the real estate to Burl Bragdon’s three children and his friend, as directed under the will. The certificate of transfer noted the following: “Said real estate may not be sold until twenty-one (21) years after the death of Morgan McKenzie Diles.”

While, apparently, Burl Bragdon wanted the property to be a continual homestead for his children and grandchild, the family had other plans. After a series of transfers by the children named in the will, 100% of the interests in the property were held by Corey and Heather Bragdon (who were not named in the will, and whose relation is not explained in the decision) who wanted to then transfer the property outside of the family, without being subject to the restriction against transfer. Accordingly, Corey and Heather Bragdon (plaintiffs/appellants) filed a complaint with the trial court for a declaration that the plaintiffs hold valid title, without the restriction (which plaintiffs claimed was invalid).

Basically, the trial court in Bragdon v. Carter was faced with deciding whether or not the property could be lawfully sold, in light of the restriction in the will and certificate of transfer. On January 23, 2017, the trial court entered judgment in favor of the defendants. In its judgment entry, the trial court found that the restriction on alienation was valid and that the transfer of the property was a clear violation of Burl Bragdon’s wishes, was contrary to Ohio law, and would unfairly and unjustly divest Morgan McKenzie Diles of her future interest in the property. Heather and Corey Bragdon then filed a notice of appeal.

The appellants in Bragdon v. Carter claimed that the trial court erred (made a mistake) as a matter of law in finding the transfer restriction valid. They claimed that Ohio has adopted, from our English common-law heritage, what is known as the “rule against unreasonable restraints on alienation.” This general rule provides that since one of the main incidents of ownership of real property is the right to convey it, the law will not allow the rights of ownership to be limited by imposing restraints by those who seek to convey or dispose of their property, and at the same time maintain control over its alienation or use. This rule stems from the abolishment of the feudal “fee tail” which restricted the transfer of real property to a specific line of male heirs. Our “modern law” frowns upon such restraints since they stifle the free use and development of real property, and consequently, are not in the best interest of society and commerce.

The appellee’s argument (and apparently, the basis of the trial court’s decision) was that only a valid “life estate” was transferred, not a transfer of fee simple absolute title, subject to a restriction against lifetime transfers.

To get a better grasp of the issue faced by the court of appeals in in Bragdon v. Carter, a brief “Real Estate Law 101” lesson on estates (interests) in land is warranted. As a general rule, real property ownership is more like the possession of a bundle of rights (vs. merely the possession of dirt and improvements on the dirt). The basic rights included in such “bundle” are the right to use, the right to sell, the right to mortgage, the right to lease, the right to give away, and right to enter (or the right to refuse to exercise any of these rights). The fullest possible title to real estate (the biggest bundle of rights) is called "fee simple absolute". Examples of lesser estates are leases (right to use, but no right to sell), easements and life estates. Life estates are estates in land where parties measure ownership by the life of the life estate holder. The life estate terminates on the death of the life estate holder, and then the property passes to a future, named owner (known generally as the “remainderman” or the “remainder holder”). While the owner of a life estate can sell its interest, the buyer would be limited to enjoy/use the property until the death of the life estate holder or “life tenant”, at which time all of the rights of ownership would belong to/pass to the reminder holder.

The court of appeals in in Bragdon v. Carter agreed with the appellee’s general conclusion that if a valid life estate (with a remainder interest to the granddaughter) was created, the trial court’s approval of the transfers and declaration of ownership to plaintiff-appellants would unfairly and unjustly divest Morgan McKenzie Diles of her future interest in the property. In reversing the trial court’s finding for defendant-appellees’ however, the court of appeals determined that there was no clear indication that a life estate was intended. Citing precedent to support its holding, the court stated that “[a] devise or bequest of a life estate must be clearly expressed to be effective. “ Analyzing the documents provided, the court found no mention of the term “life estate”, no designation of the granddaughter as the remainder holder, and no other indication of intent to have created a life estate. Moreover, the court cited statutory authority directing the court to not establish a lesser estate without a clear expression of the creation of the same. Pursuant to Ohio Revised Code Section 2107.51, “every devise of an interest in real property in a will shall convey all the estate of the devisor in the property, unless it clearly appears by the will that the devisor intended to convey a less estate.”

In sum, the court of appeals in Bragdon v. Carter concluded that “the real property at issue was transferred in fee simple absolute, and the portion of the devise attempting to restrict the alienability of the property is void and of no effect as being repugnant to the devise and the public policy of this State. Thus, the trial court erred in determining that the restriction was valid.” Based on the foregoing, the court reversed the judgment of the trial court and remanded the cause to that court to enter judgment in favor of plaintiff-appellants Corey and Heather Bragdon.

What is the moral of this story?

Simply, to win at the “game of real estate law”, you have to know the rules. It is against the rules to restrict fee simple absolute transfers of real estate to certain people for certain periods of time. It is absolutely fine, however, to transfer lesser estates such as leases or life estates. Carrying our analogy further to a game of football, a forward pass and a forward lateral both move the ball forward. However, a forward lateral moves the ball forward in such a way that it is against the rules. Lawyers are trained to know the rules, and should always be used in the game of real estate. Penalties in terms of legal fees and unintended consequences are much harder to swallow than the loss of a down, yardage or the outcome of a football game.

Another moral of this story is the following, common thread in many Ohio real estate decisions (and articles re: same in this Blog): “Watch your language, and say what you mean, precisely, or a judge will decide what you meant.” I presume that the use of the following four words in Mr. Bragdon’s will and certificate of transfer would have changed the outcome of this decision and the “law of unintended consequences”: “life estate” and “remainder interest.”

General, Unrestricted Access Easement does not Guaranty Unlimited, Unrestricted Use

(Watch your Language [with easements] & Say What You Mean, Precisely or a Judge Will Tell You What You Meant #12)

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

Watch Your Language. As established in other “Watch Your Language” articles for this Blog, as a general rule, courts will uphold language in commercial agreements, unless it is contrary to statutory law or public policy. They traditionally presume that commercial parties are on more of an equal playing field and are more sophisticated concerning commercial real estate transactions, since both parties to a commercial transaction will usually have attorneys to review their documents. Because of this judicial deference to “commercial language”, you must say what you mean, precisely, or a judge will decide what you meant. This principle is just as true with regard to easements, as it is with contracts, leases and other commercial documents.

Easements in General. An “easement” is basically a right to use the property of another for a specific purpose. Most common are drive/access easements and utility easements. While there are limited exceptions, most easements are created by separate written instruments (or are contained within deeds) and are recorded. Some easements are personal in nature and only apply while the burdened landowner owns the property, and others are “perpetual” and burden the land forever. Since forever is a long time, it makes sense to retain legal counsel and not try this at home with a $5.00 Easement from “Forms are Us.”

Easements will either spell out the specific rights to use the property granted to the easement “holder” (e.g. right to use the property to place above-ground or below ground electric lines), or be “blanket” in nature and not be limited as to use. Many easements will also contain 1) restrictions for the benefit of the easement holder which burden the land described as the “easement premises” (e.g., no buildings may be constructed upon the easement area); and 2) obligations imposed upon the easement holder for the benefit of the burdened landowner (e.g., requirements such as maintenance of the easement premises, and relocation of such premises or the facilities within the easement premises).

Easement rights (and easement obligations) are often drafted in general terms, with the parties assuming their intent is clear. The relatively recent case of J.T. Mgt. v Spencer, 2017-Ohio-892 (11th Dist. Ct. of App., Trumbull Cty.) reinforces the need to be specific and leave as little as possible to “interpretive chance.”

J.T. Mgt. v Spencer. The facts of the “J.T. Mgt.” case are simple enough (the law, not so much). J.T. Mgt., the appellant owns a residential parcel and a commercial parcel that are adjacent to each other in Warren, Ohio. The commercial parcel is a 1.4-acre lot fronting S.R. 46 that the appellant planned to build a commercial structure on. The residential parcel is known as “Lot 9” in the 9-unit residential subdivision known as Hidden Hills. J.T. Mgt. bought Lot 9 and its ancillary 1/9^th interest in the private drive known as Hidden Hills Drive (which traverses the subdivision, connecting it to S.R. 46), after they bought the commercial parcel, presumably, not because of its secluded residential tranquility.

When J.T. bought the commercial parcel, it also “inherited” an easement of record, granting access to/from such parcel to Hidden Hills Drive. The easement in place was established when the area was virtually all residential in character. Even though J.T.’s commercial lot had frontage on S.R.46, it wanted to ensure that its easement rights to/from Hidden Hills Drive, and its 1/9^th right as owner of such drive meant it could use the drive for any and all uses, including commercial traffic. This way, J.T. would, in effect be connecting its commercial property directly to the 9-unit residential subdivision. Consequently, On July 11, 2013, appellant filed a complaint for declaratory judgment, which, if successful would have resulted in an enforceable judicial edict of its plans for commercial connectivity. Appellees, the owners of the remaining eight lots in the subdivision and the Hidden Hills Homeowners Association filed an answer (denying the material allegations of the complaint) and a counterclaim/cross claim (demanding judgment declaring that appellant does not have an ownership interest in the private driveway, but only a right of way easement to access S.R. 46 for residential use).

The trial court ruled in favor of the appellant on the issue of ownership, declaring the appellant a one-ninth owner of Hidden Hills Drive by virtue of its ownership of Lot 9. However, on the issue of the use of the easement, the court found in favor of appellees and held that using the private driveway for commercial ingress and egress was impermissible because it would increase the burden on or materially enlarge its right in the easement. Appellant appealed this decision to the 11^th District Court of Appeals (and appellees appealed the trial court’s judgment declaring the appellant a 1/9^th owner of the drive).

During the appeal, the appellant set forth three “assignments of error” (claimed mistakes with the trial court’s ruling). Appellant first argued that it should be permitted to expand its express easement in the private driveway to use it for commercial purposes because the area has changed from primarily residential to primarily commercial. It cited an older Ohio Supreme Court case (Erie Railroad Co. v. S. H. Kleinman Realty Co., 92 Ohio St. 96 (1915)) that provides that changes in the use of an easement are permitted to the extent that they result from “the normal growth and development of the dominant land”. The 11^th District Court in J.T. Mgt., however, citing precedent of its own (Solt v. Walker, 5th Dist. Fairfield No. 95-CA-64, 1996 WL 363438 (May 13, 1996) and cases cited therein) summarized the law regarding changes in the use of an easement that is at odds with the appellant’s argument. Namely, that “While an easement or right-of-way gives a landowner the right to enter and use the land of another, [and some change in use is permitted due to normal growth and development] the owner of a dominant estate may not increase the burden nor materially enlarge his right over the servient estate.” The appellate court in J.T. outlined the following four factors (that it cited from the Fifth District in Sol) to help determine whether a dominant estate has unreasonably expanded the use of an access easement: “1) the amount of increased traffic on the easement; 2) the time of day when vehicles used the easement; 3) the extent that traffic noise increased; and (4) whether vehicles using the easement travelled at excessive speeds.”

Applying the facts to the law, the court of appeals in J.T. easily dismissed appellant’s argument that a commercial use of the easement would be a reasonable and normal increase of use. That is because both parties stipulated (agreed) to a traffic study that showed a fast food restaurant would have an average weekday traffic volume of 2,452 vehicles, resulting in a daily traffic volume increase on the easement of 6,352 per cent over the actual daily traffic count of 38 vehicles under the current residential use. The trial court and court of appeals in J.T. Mgt. also pointed out that: 1) none of the cases cited by appellant held that use of an easement can be expanded from solely residential uses to include commercial uses; 2) commercial use would result in a financial burden to appellees because the driveway is maintained by the homeowner’s association and is insured by the individual property owners via policies that insure them solely for residential use of the driveway; and 3) the increased traffic would inconvenience the property owners and impinge on their beneficial enjoyment of the right to use the driveway. Based on these findings, the courts in J.T. Mgt. concluded that the proposed commercial use of the easement would create an unreasonable burden on the easement.

Appellant’s second main argument was that the language of its express easement is stated in broad and unrestricted terms, and accordingly, it should be interpreted as allowing use of the easement for commercial purposes.

Upon first glance of the easement language, appellant’s argument seems like a good one.

The subject easement provides: “[T]he grantors, in consideration of the sum of One Dollar, paid by the Grantees * * *, do hereby grant ** * unto the grantees, their heirs and assigns forever, a right of way on and over a certain piece of land owned by the Grantors as follows (legal description omitted) * * * [f]or the grantees, their heirs and assigns, * * * to freely pass * * * on foot, or with vehicles of every description, to and from [S.R. 46] to said land of the grantees.”

Clearly, there are no restrictions as to use in the subject easement. Consequently, no restrictions means unlimited use/rights, right? Not in the legal world of contract interpretation. Silence, or overbroad language usually means the parties’ intent is not clear within the four corners of their documents, and accordingly, surrounding circumstances and extrinsic evidence need to be considered. In the words of the Ohio Supreme Court, “The language of [an] easement and the surrounding circumstances provide the best indication of the extent and limitations of [an] easement. Apel v. Katz, 83 Ohio St.3d 11, 17 (1998).

The trial and appellate courts in J.T. Mgt. had no problem finding that the surrounding circumstances of the easement at issue favored the appellees and residential use, mainly because the parties to the lawsuit stipulated that the only use ever made of the private driveway from its construction to the present was residential, to provide the property owners access to their homes in the Hidden Hills Subdivision. Additionally, the J.T. Mgt. courts recognized that Hidden Hills Drive remains zoned for residential use only. Accordingly, according to the court of appeals in J.T. Mgt., when the easement was put in writing in 1975, “the parties could not have intended its use for commercial purposes because such use was never made of the driveway and would have been prohibited by law. We therefore hold the trial court did not err in finding that the parties did not intend the driveway to be used for commercial purposes and thus the express easement does not authorize such use.”

Appellant’s “strike three” argument was that as a 1/9^th owner of the drive (vs its right as an easement holder) it had the right to use the drive for any ingress/egress; residential or commercial. However, the court of appeals in J.T. held that “while appellant has an ownership interest in the private driveway, it is part of the Hidden Hills Subdivision and is therefore subject to the deed restrictions in the Declaration of Restrictive Covenants. The restrictions forbid ‘trade’ from being carried on upon any lot in the subdivision.”

What is the moral of this story? Listen to what judges are saying with regard to interpreting your easements, leases, purchase agreements and other contracts: “When the language of a written contract is clear, a court may look no further than the writing itself to find the intent of the parties [So, be clear]. In addition, we will look to the plain and ordinary meaning of the language used in the contract unless another meaning is clearly apparent from the contents of the agreement…” [So, if your meaning cannot be found in a dictionary, define it in the document so it is clearly apparent]. “The well-known and established principle of contract interpretation is that [c]ontracts are to be interpreted so as to carry out the intent of the parties, as that intent is evidenced or not evidenced by the contract language [So, evidence your intent in the document].

While I think the court in J.T. Mgt. got this one right, and the appellant did not have a chance to evidence its intent in the easement, because it “inherited it”, this case, and the accompanying time and attorneys’ fees would not have been necessary had the parties limited the easement access rights for residential purposes only.

Following the Yellow Brick Road to Real Estate Ownership

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

Becoming the “owner” of real estate is not quite as difficult as acquiring a wicked witch’s broom, but it is somewhat of a labored journey.

The seemingly simple answer to the question of when one becomes the owner of real estate is: when title is transferred by way of a deed. Arriving at a more precise answer to this question is a bit more complicated due to the legal concepts of “equitable title” vs. “legal title”, when a deed is considered “delivered”, and whether or not a deed has been recorded.

Why do these concepts matter? Basically, because pursuant to “Real Estate Law 101”: (i) real property ownership is more like the possession of a bundle of rights (vs. merely the possession of dirt and improvements on the dirt); (ii) a legal title owner has more of these rights to real property than an equitable title owner has; and (iii) a legal title holder whose deed has been recorded, will have greater protection from the possibility of other parties claiming that they have rights that are superior to those of the legal title holder.

What is equitable title?

According to Black’s Law Dictionary (7^th Ed.), “equitable title” is “… a beneficial interest in property that gives the holder the right to acquire, formal legal tile.” When a buyer enters into a contract to purchase real property, the buyer acquires equitable title. It is the first step on the proverbial journey to Oz. Such equitable title, however consists of a small bundle of rights. In a simple contract for sale, the buyer would merely possess the right to acquire legal title, (and other limited rights granted by contract such as the right to inspect the property); but in a land contract, the buyer would also have the right to use and enjoy the property until enough payments are made to require the seller to transfer legal title to the buyer by delivery of a deed.

What is legal title?

When an individual possesses legal title, he or she gets the full bundle of legal rights that come with the property (except to any extent any such rights have been previously granted to others). Among these rights are possession, use and enjoyment, conveyance (i.e., the right to lease, sell, mortgage, transfer equitable title…), access, hypothecation and partition. Legal title also consists of a bundle of “physical” rights to real property such as water rights, mineral rights, timber rights, farming rights, air rights and development rights to erect improvements.

How does one acquire legal title?

Legal title is transferred from one person to another by “delivery” of a deed.

However, actual, physical delivery of the deed from a grantor to grantee is not required. Rather, delivery may be accomplished by words without acts; (such as if the deed is lying upon a table, and the grantor says to the grantee, “take that as my deed”); or it may be by acts without words. “The fact of delivery may be found from the acts of the parties preceding, attending, and subsequent to the signing, sealing, and acknowledgment of the instrument.”

See Goddard v. Goddard, 2011-Ohio-680 (4th Dist. Ct. of App., Scioto Cty.)

Does a deed need to be recorded to legally transfer title?

No. A deed need not be recorded (in the office of the county recorder in the county in which the property is located) to be valid as between grantor and grantee. However, the filing and recording of same is prima facie evidence of delivery, in the absence of any showing of fraud.

Why record a deed, then?

Without a recording of the deed, the grantee has little protection from its grantor, or anyone else from recording liens or other encumbrances against the title which would have priority over the unrecorded deed. Moreover, if the grantor transfers the same property by deed to another grantee (and the second grantee has no notice of the first transfer), prior to the first grantee taking possession; the second grantee owns the property and the first grantee owns a lawsuit.

Turney, LLC v. Cuyahoga Cty. Bd. of Revision

As the recent case of Turney, LLC v. Cuyahoga Cty. Bd. of Revision (2015-Ohio4086) illustrates, the terminology and principles surrounding property transfers and real estate ownership can be perplexing, even to attorneys and boards of revision.

The facts of this case are simple enough. Turney, LLC (“Turney”) filed a tax complaint with the Cuyahoga County Board of Revision (“BOR’) on March 28, 2014, seeking a $500,000 reduction in market value for the 2013 tax year on property located on Dunham Road in Maple Heights, Ohio. The complaint for reduction was based upon the purchase price for the property which was sold in a recent, arms-length transaction.

The Maple Heights Board of Education (“BOE”) argued that Turney failed to show that it was the owner of the subject property at the time the complaint was filed, and that the deed was not recorded until after Turney filed its complaint. The complaint was filed on March 28, 2014, and the deed was not recorded until April 21, 2014.

The BOR dismissed the complaint, without considering the merits for reduction in value. It found that Turney was not the owner at the time it filed its complaint according to the recording date of the deed, and that Turney failed to otherwise show that it was the owner. Turney then appealed to the Cuyahoga County Court of Common Pleas which affirmed the dismissal of Turney’s complaint.

According to the Cuyahoga Court of Common Pleas, “in order to have standing to file a complaint challenging the value of real property, the party challenging the valuation must in fact be the owner recorded on the deed [and since] the deed transferring the property to appellant was not recorded until August 21, 2014, nearly five months after the complaint was filed… appellant was without standing at the time the complaint was filed to challenge the property’s tax valuation.”

Turney appealed this determination to the Eighth District Court of Appeals, claiming, as its sole assignment of error that the Cuyahoga County Court of Common Pleas erred when it upheld the decision of the BOR in dismissing Appellant’s tax complaint on the basis that the appellant was not the owner of the Property when the complaint was filed. Turney argued that it sufficiently demonstrated that it was the owner at the time it filed its complaint.

The BOE argued that a party filing a tax valuation complaint as the owner should hold not merely legal title, but record title, and alternatively, if legal (vs record) title is the standard, recording was the only evidence of delivery of the Turney deed, which did not occur until April 2014.

While the Turney deed was not recorded until April, 2014, the evidence showed that the deed was signed and notarized on March 21, 2014, delivered to Turney’s agent between March 21^st and March 25^th, and on March 25, 2014 funds were exchanged and the property closed (even though the settlement statements were never dated).

In reversing the trial court’s decision, the Eighth District Court of Appeals in Turney first summarized court precentent interpreting the word “owner” (in the statute governing tax complaints [Ohio Revised Code Section 5715.19]) as a holder of legal vs equitable title. The court then summarized the same Real Estate 101 principles that we have summarized, aforesaid, regarding how to achieve the status of “legal title holder”. Basically, the court stated that (1) “a deed must be delivered to be operative as a transfer of ownership of land,” (2) “[a]ctual manual delivery of a deed is not always required to effectuate the grantor’s intention to deliver;” and (3) while “recording is prima facie evidence of delivery and acceptance [of a deed], … it is not the only credible evidence of these formalities.”

Applying the facts to the law, the Eighth District Court of Appeals concluded that the delivery of the Turney deed to its agent and the closing of the transaction prior to the filing date demonstrated that Tully was legal owner at the time it filed its valuation complaint; that Turney did not have to be record owner at time of filing; and therefore, “the BOR and common pleas court erred in dismissing Turney’s complaint as jurisdictionally defective.” The case was then reversed and remanded to the lower court for further proceedings consistent with the court’s opinion.

The moral of this story is simple. Neither a witch’s broom, nor recording is required to establish proof of real estate ownership. But, do it anyway (the deed, not the broom). Record the deed (or confirm your agent has recorded the deed upon, or ASAP after closing. Since all that is legally required to establish a prima facie case of delivery of a valid deed, and hence, ownership of real property is a few dollars a page recording fee to the local county recorder…. record the deed. You also get the positive side effect of being able to claim superior rights in your real property, against all others (subject, of course to any prior encumbrances transferred with title). While the appellant ultimately prevailed in Turney, it could have saved a whole heck of a lot of time and legal fees along its yellow brick road to real estate ownership by helping to ensure that its deed was promptly recorded.

CLE Update: Upcoming CLE Seminars in Ohio

It is that time of the year again. November and December are good months for real estate related continuing education offerings worth looking into. Below are some of the real estate related CLEs scheduled for Nov.- Dec, 2016.

Cleveland Metropolitan Bar Association

The Real Estate Law Section of the Cleveland Metropolitan Bar Association is presenting its 38^th Annual Real Estate Institute on Thursday-Friday November 10-11, 2016. This heralded (12.75 CLE hours) two- day seminar runs from approximately 8:15 AM until 4:45 PM, both days and is being held at CMBA's offices, 1375 East Ninth Street, Cleveland, Ohio. Topics to be covered include Commercial Lending 101; 1031 Exchanges; Bioremediation and Construction Claims and Coverage Issues. For more information you can contact the CMBA at (216) 696-2404, or at their web site, http://www.clemetrobar.org/.

To see a brochure of the 38^TH Annual Real Estate Law Institute 2016, click below. https://www.clemetrobar.org/CMBA_Prod/CMBADOCS/CLE/real_estate_brochure_16.pdf

OSBA

The Ohio State Bar Association is presenting its 24th Annual Bradley J. Schaeffer Real Property Institute on December 15, 2016.The Institute runs from 8:00 AM until 4:00 PM.