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Real Estate Legal Pro Tip: How to avoid Ohio mechanics liens on construction and renovation projects

Author By Christopher P. FinneyPosted on Leave a comment

Buying real estate improved by an existing building is in itself a legally intricate undertaking. However, new construction and renovation introduce a whole new level of complexity, difficulty, legal complication and financial risk.

This blog entry explores just one of those categories of added risk in the construction and renovation arena: mechanics liens. This article also is not the definitive, all-encompassing explanation of the Ohio mechanics lien statute (it has a multitude intricacies).  Rather, we provide herein three (or four) simple steps to assure that the extraordinary “muscle” added by mechanics lien claims is not applied against you as a property owner.

General risks of real estate investing

In short, real estate investing is not for amateurs or the faint of heart.  Many of the entries on this blog explore how to avoid pitfalls associated with real property acquisitions involving existing improvements, such as issues relating to matters of title, tax, physical defects in the property and improvements (and seller fraud relating to the same), zoning, land use and other regulatory hurdles,  and seller fraud in financial misrepresentations, just to name a few.

Additional risks inherent in new construction and building renovation

However, taking raw land or a developed lot (the difference being built roadways, utilities, addressing zoning and full subdivision) and building a new structure, or renovating an existing structure, are fraught with a host of added risks: Proper planning and design, zoning and land use restrictions, utility access, building code permitting and inspections, selecting an honest and qualified contractor who has a corral of qualified subcontractors, materialmen and laborers.  The list of added complexities associated with adding improvements to real estate is almost endless.  Properly executing a construction project from beginning to end is difficult.  That difficulty today is enhanced by the lack of availability of skilled labor and subcontractors, increasing pricing and drawing into the field entirely unqualified, untrained and unsupervised laborers.

The special risks associated with mechanics lien

One of the biggest legal challenges is protecting property owners and lenders against mechanics liens from contractors, subcontractors, materialmen and laborers on the project.

What is a mechanics lien?

Mechanics liens (not at all for what we think of as “mechanics” in normal parlance) are purely creatures of statute, meaning they don’t exist as a matter of contract nor are they common law rights.  Rather, R.C. §1311.011 (one- and two-family residential dwellings) (addressed partially in this blog entry)  and R.C §1311.02 (commercial properties) provide statutory lien rights to unpaid contractors, subcontractors, laborers and materialmen.  All of these rights are strictly limited in time, amount and circumstances allowed by statute.

These statutes provide a tremendously powerful tool for these parties to assure payment from the property owner, secured firmly by the equity in the property, so long as their claim is narrowly allowed under the statute, and those rights will not extend beyond the statute. (The effective date of priority of liens as against mortgages and other lien holders is yet another a matter not addressed in this entry.)

These lien rights can transcend the contractual obligations of the property owner, meaning an owner can in fact owe money to someone with whom he has no contract at all (the owner may never have known their name or that they did work on his job, or supplied materials to his job).  An owner can, under some circumstances, owe money to a subcontractor, materialman or laborer even though he already has paid everything he owes to the general contractor (this principle applies to commercial projects only).   These can be jarring revelations to an unsuspecting property owner who has not taken the simple steps in this blog entry to protect himself from mechanics liens.  In other words, unaddressed, this is dangerous territory for a property owner making improvements to his property.

Three simple steps an owner can employ to protect himself from mechanics liens

Again, the Ohio mechanic’s lien statutes are tremendously involved, and this blog entry is not attempting to explore the many intricacies in that statute.  That’s for another day.  Rather, this article offers a few simple steps that a property owner undertaking a construction project can employ to avoid the potential of financially and legally catastrophic consequences from liens sinking a project or ruining the finances of a property owner.

  1. Pay no more to the contractor than the true value of work actually completed as of the draw, and perhaps less.  In some ways, this step is self-explanatory. As a construction project progresses, the owner should take great care to pay the contractor only for the value to the owner and the project of the work finished at the time of payment. In a reverse analysis, the owner should always have enough money left in his construction budget to finish the job if the contractor walks away after the most recent payment.  Now, estimating these two amounts (the value of work completed and remaining cost to complete) is tricky, and the owner should realize that the contractor — knowing the construction costs and business better than him — is in a superior position to estimate this, but relying on the contractor’s “word” is equally risky.  So, this step requires the owner to have a good understanding of the real cost of each stage of the work.  It also requires assuring the work completed at each stage is code compliant, contract compliant, and of good quality and workmanship.  Beyond this step, many owners will require “retainage” of an addition 10-20% from the “actual value of the improvements to date” to assure there is always enough left in the construction budget to complete the project.  This retainage is then paid at the end of the project (usually upon issuance of a certificate of occupancy, “substantial completion” as certified by the architect or some other objective metric).
  2. Affidavits of full payment. As each installment (or “draw”) of the construction budget is paid to the general contractor, the general contractor should provide an affidavit — a sworn statement, the falsity of which is a felony and the basis for a civil fraud claim– of what he is owed, and critically, the names of each subcontractor, materialman, and laborer, and the amounts owed at that stage to each.  In good practice, that “master affidavit” is then also accompanied by further affidavits from each subcontractor, materialman and laborer as to the amounts they are owed at that point in the project.
  3. Joint checks.  Then, the owner should cut joint checks to (a) the contractor and (b) each subcontractor, materialman and laborer, to assure that the amounts they themselves swear are due and owing are in fact paid in full.  These joint checks should track the sworn statements in the various affidavits.

If a property owner on a project follows these three simple steps, the risk of a mechanics lien is limited to (a) those subcontractors, materialmen and laborers not listed on the affidavits (falsely) and (b) only those claims for additional work arising from the most recent payment.

Beyond these three simple steps, a one-to-two family residential property owner is also protected from liens of subcontractors, materialmen, and laborers to the extent that he has paid the general contractor in full, or is limited only to the amounts owed under the master contract to the general contractor.  That statutory principle is more fully explored here.

  • Lien waivers.  A drastic fourth protection that can be employed by a property owner is to allow no contractor, subcontractor, materialman or laborer to step foot on the job or to supply materials to the job unless they have signed in advance a lien waiver, saying (a) in the case of the contractor, they will look only to the contract (and the courts in a typical collection action) to assure payment and (b) in the case of subcontractors, materialman and laborers, saying they will look only to the general contractor for payment, not to the owner and not to a lien against the property.  These lien waivers, heavy-handed and unusual as they may be, are legally effective.

So, there is much much more, legally and business-wise to being successful in the execution of a of residential or commercial construction project, and so much more of a winding path in the Ohio mechanics lien statutes, but these three (or four) simple steps can change the dynamics of a construction project strongly in favor of the property owner.

For assistance with mechanics lien issues or other legal challenges relating to new construction, feel free to contact me at 513.943.6655.

Real Estate Legal Pro Tip: Before signing contract, carefully consider tax proration language when contract price exceeds Auditor’s valuation

Author By Christopher P. FinneyPosted on Leave a comment

Make no bones about it: Ohio property taxes are complicated.

And with today’s dramatic upwardly dynamic real estate market, it is more important than ever that buyers and sellers carefully consider the impact of a sales price that exceeds the Auditor’s valuation when writing a purchase contract’s tax proration provision.

Ohio’s complicated property taxation structure

First, taxes in Ohio are billed semi-annually, in roughly January and July of each year.  Those two bills are, respectively, for the first half and second half of the prior calendar year.  So, the January 2022 bill will be for the first half of 2021, and the July bill will be for the second half of 2021.  Thus, when a buyer buys property, the seller owes between seven and thirteen months of taxes in arrears. 

How tax prorations are typically addressed in “form” contracts

Typically, the purchase contract will provide for several things so that the seller credits these accrued but not-yet-due taxes to the buyer:

  • First, there will be a proration of taxes from the seller to the buyer from January 1 of the year of the closing, or July 1 of the year prior to the closing, through the date of closing.
    • (In what I consider to be a weird local custom, in the Dayton marketplace only, a “short proration” is many times utilized for residential and commercial transactions. The “short proration” ignores the first six months of arrearage, and prorates only on the part-half-year immediately prior to the closing. I do not know the logic behind this.)
  • Second, the amount of that proration in a form residential and commercial purchase contact is typically to be “based upon the most recent available tax duplicate.”  Many times the contract (and/or documents signed at the closing) specifies that the tax proration is to be considered “final.”
  • [NOTE: The new Cincinnati Area/Dayton Area Board of Realtors standard form of residential real estate contract issued in the fall of 2021 is emphatic on this topic: Tax prorations are based upon “the most recent available tax rates, assessments and valuations” and “all tax prorations shall be final at Closing.”]

What does “based upon most recent available tax duplicate” mean?

On this, issue of prorating taxes “based upon the most recent available tax duplicate,” consider a few things:

  • In Ohio, the starting point for the Auditor’s value is the actual value, i.e., what a willing buyer would pay a willing seller for the property.  It’s the same number used by buyers, sellers, appraisers and lenders for the property value, i.e., the actual sales price.  There is no other magical number. (Then, we speak in terms of 35% of that value as that is translated in the tax bill, but that number has no practical impact except to confuse people and does not change the analysis set forth in this blog entry.)
  • Secondly, the “most recent available tax duplicate” means the taxes to-be-paid, which is valuation times tax rate on the Auditor’s records as of the date of closing.
  • But both the tax valuation and the tax rate can change — with retroactive effect — all the way through the date the tax bill is issued in January of the following year, meaning well after the closing, or even by August or September of that following year when a tax valuation complaint before the Board of Revision is decided.  Indeed, if a valuation complaint is appealed all the way to the Ohio Supreme Court, taxes could be assessed with retroactive effect two, three or more years after a closing date.
  • (We primarily address valuation issues in this blog entry, but if a levy is on the ballot in May or November of any year, that rate increase also dates back to January 1 of that year, so a large tax levy can result in an inequitable tax proration as well.)

A sale price above Auditor’s value may result in a retroactive tax increase    

In today’s dynamic real estate market in which sales prices of certain properties are galloping upward at an astonishing pace, especially for apartment buildings, single family residences, and industrial and warehouse properties, that standard form language could leave an unsuspecting buyer holding the bag.  Here’s why:

  • First, County Auditors update their valuations once every three years, and the cutoff for those updates is around September 30 of that year. So, for a sale in a “triennial year” (six different triennial cycles for Ohio’s 88 counties) prior to September 30 of that year, the Auditor should, on his own, increase the valuation to the sales price retroactive to January 1 of that first year of the triennial (even if the sale is late in that year), but that increase only becomes reflected on the tax records when the valuation comes out with the January bill of the year subsequent to the applicable tax year.
  • But Auditor’s do not adjust values on their own after that date and in the “off” two years between the triennial valuation cycles.  So, Hamilton, Montgomery, Butler and Clermont Counties most recently updated valuations effective January 1, 2020, and those values came out with the January 2021 tax bills.  The Auditor’s of each of those Counties won’t “catch” a sale made after September 30, 2020 until the 2024 tax bills (values effective January 1, 2023).
  • Ohio law says that — with narrow and rare exceptions — the sale price is the correct property valuation. Thus, property owners have a difficult time arguing that the contract sale price is not the actual value of the property.
  • The contract sale price is reported to the Auditor with an “Real Property Conveyance Fee Statement of Value and Receipt” (“Conveyance Fee Statement”) signed by the purchaser at each closing.  It is a felony to falsify one of these forms.

It’s easy to ascertain if the sale price is above the Auditor’s valuation.  Each County publishes their valuations — current as of the date of contract signing — on its web site.

School districts can and do seek retroactive valuation increases

The biggest beneficiary of property taxes in Ohio is the local school board, which typically receives about two-thirds of the total tax bills into their coffers.

As a result, school districts hire attorneys skilled in property valuation matters to scour the Auditor’s records to find recent sales in their district that exceed Auditor’s valuation.  Then, they file Board of Revision complaints to seek an increase in valuation.  Some points on those complaints:

  • Those complaints are filed, as with property owner complaints seeking a reduction, between January 1 and March 31 of each year.
  • Those complaints by law seek a retroactive increase in taxes to January 1 of the prior year.  So, for example, complaints filed in the first quarter of 2022 will apply retroactively to January 1 of 2021, and the increased taxes are a lien on the property as of that prior year (e.g., January 1, 2021).
  • Almost universally, school districts limit their complaints to sales of a certain minimum variance from Auditor’s valuation (say, $50,000 or $100,000) and usually they ignore single family residential properties.
  • The buyer — the new property owner — should receive notice of the complaint, and could appear to oppose the increase.  But the an arm’s length sales price is, by law, the correct valuation and the Conveyance Fee Statement is usually prima facie evidence of both that contract price and the arm’s length nature of the transaction.

These school board complaints, if successful, have two effects: (i) in the tax year of the Complaint, it puts real cash in the pocket of the school district (very roughly about 3.0% of the valuation increase), and (ii) thereafter it ever-so-slightly reduces the burden on other property owners to have each property valued at its correct rate.

A post-closing surprise!

This means that buyers can get a surprise of a tax bill far in excess of the prorated taxes (otherwise by law owed by the seller) well after the closing date.  And typically contract language and perhaps papers signed at the closing make this difference unrecoverable by the buyer as against the seller.

How to address this issue in the contract

From a buyer’s perspective, if he wants to recover a proration that will fully compensate him for taxes due (by seller) accruing prior to closing, he must deviate from the typical contract language that a tax proration is to be “based upon the most recent available tax duplicate” to add “but updated to reflect the sale price in this contract” or something to that effect.  A further possibility with an entirely solvent seller whose operation would continue well after the closing would be to call for a re-proration after the actual taxes are known. But it’s far better to adjust at closing so a post-closing claim (or law suit) is not necessary.

If the issue is not addressed in the contract but brought up before or after closing, it may be difficult to argue to the seller that the contract does not reflect the seller’s actual tax liability as of the closing date.

From a seller’s perspective, it is better use the typical default language of “based upon the most recent available tax duplicate.”

Obviously, if the contract price is lower than the Auditor’s valuation, the default language” of “based upon the most recent available tax duplicate” would disadvantage the seller and benefit the buyer.  This frequently was so in the last (and every) real estate recession, and may be true with isolated sales occurring today, or for certain categories of real estate such as restaurants and hospitality, parking garages, and retail. When this happens, a seller may want to ask to prorate based on the actual sale price rather than the “most recent available tax duplicate” information.  In the alternative, the seller could preserve the right to pursue a reduction in valuation post-closing and receive any refund arising from an over-payment or excess proration.

Conclusion

For help with your commercial or residential real estate contracting matter, including the intricacies of Ohio and Kentucky tax prorations, contact Isaac T. Heintz (513.943.6654), Eli N. Krafte-Jacobs (513.797.2853), or Jennings D. Kleeman (513.943.6650) of our real estate group.

Real Estate Legal Pro Tip: Obtain and record “residual” legal descriptions after a partial conveyance or taking

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The real estate legal “pro tip” of the day is carefully assuring your property legal descriptions are updated after each partial conveyance  so that the description of the “residue” is property on record with the county offices dealing with real estate matters.

When commercial and residential property owners acquire property, the deed into the buyer or grantee must have a legal description attached that is acceptable in form to the County Engineer, Auditor and Recorder in Ohio.  If it is an existing property description (i.e., no change from when the seller took title to the property), there will be a legal description, and an already-created Auditor’s parcel associated with that land.  It is thus not an issue that would impair the new closing.  For new cut-ups and subdivisions, the developer/seller usually undertakes that process with the County Engineer, Auditor and Recorder before it is time for closing.  At least it should.

As we approach a closing, commercial or residential, however, where we occasionally run into problems with getting a deed recorded because of a “new” legal descriptions is a situation in which an owner has conveyed away a part of the property that was originally deeded to him during the seller’s ownership of the property.  Because of an eminent domain taking, a property line dispute with a neighbor, a conveyance of a sliver to an adjoining property owner, or a combination with an adjoining parcel, the legal description by which the owner took title is no longer current or accurate, and thus needs to be updated with the County Engineer, Auditor and Recorder.

This “updating” starts with two things: (1) A plat of new survey of the property showing the new boundaries, along with a “closure chart” that shows that the ending point of the legal description meets up with the starting point, and (2) a new legal description of the parcel to be conveyed.  Then, it must be processed through the County offices to update the records of each.  Finally, the deed should be ready for recording.  But until these things are completed a deed is not recordable.  Thus, it is hard to close a transaction unless and until the legal descriptions are thusly updated inasmuch as monetary liens and and other interests can slip in during this “gap.”

It is best to take these preliminary steps at the time of the act “cutting up” your parcel (i.e., concurrent with the eminent domain taking, the property line dispute with a neighbor, the conveyance of a sliver to an adjoining property owner, or the combination with an adjoining parcel), rather than waiting for a closing on a sale that might be years later, so that the time needed for a new survey and legal description, and processing with the Engineering, Auditor and Recorder do not delay your closing.  Also, it is a smart practice to see if the buyer of the parcel (at the time of the original cutup) will pay the cost and handle the paperwork associated with getting the new plat and legal processed by the County.

Contact Isaac Heintz (513.946.6654), Eli N. Krafte-Jacobs (513.797.2853) or Jennings D. Kleeman (513.797.2858) for help with your real estate legal needs.

Making a difference: Cincinnati alarms tax ruled unconstitutional

Author By Christopher P. FinneyPosted on Leave a comment

Today, the First District Court of Appeals for Ohio unanimously (on all counts) ruled in favor of Plaintiffs Andrew White and Vena Jones-Cox that the City of Cincinnati’s charges to property owners with alarm systems are an unconstitutional tax.  That decision is linked here.  They remanded the matter back to Common Pleas Judge Leslie Ghiz for determination of class certification, refund of illegally-collected fees, and other matters.  Judge Ghiz originally had ruled that fee was a constitutional assessment imposed by the City.

Attorneys for the Plaintiffs are Maurice Thompson of the 1851 Center for Constitutional Law and Christopher P. Finney of the Finney Law Firm.

You may contact Christopher P. Finney (513.943.6655) for more information.

 

Chris Finney and Curt Hartman teach “Using Public Records to Overcome Government Bureaucracy” to Cincinnati Lawyer’s Club

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On Thursday, November 18, 2021, attorneys Chris Finney and Curt Hartman will teach “Using Public Records to Overcome Government Bureaucracy” to Cincinnati Lawyer’s Club.  Registration is at 11:30, lunch is at noon, and the 2-hour program starts at 1:15 PM. No reservations are required.  CLE and lunch costs $25 for members and $30 for non-members.  For more information, call Robert W. Cettel, President  513-325-2279 (cell).

Curt Hartman, in particular, is a leading attorney in Ohio on Sunshine Law, which encompasses Ohio’s Open Meetings statute and Ohio’s Public Records statute.  Ohio has some of the strongest Sunshine Laws in the nation, and Finney Law Firm has pursued dozens of cases, including ones all the way to the Ohio Supreme Court, expanding the boundaries of public access to official business. The most famous of such cases was the “Gang of Five” case addressing corruption on Cincinnati City Council that significantly developed and expanded both the Open Meetings and Public Records statutes, but there have been dozens more.

Finney and Hartman will address the statutory and case law rights of the public to official business and regale the audience with important public interest victories (and losses) under those statutes.

For assistance with Ohio public records and open meeting statute matters, contact Chris Finney (513.943.6655) or Curt Hartman (513.379-2923).

Is co-ownership of real estate a good idea? At least, get it in writing.

Author By Christopher P. FinneyPosted on Leave a comment

Today’s Wall Street Journal has an article about creative home buying by friends. Is this a good idea?

Well, economically, it could make sense.  A single person may not need a 4-bedroom home, but could easily share the cost of loan principal and interest, taxes, insurance, utilities and maintenance costs with another friend with the same housing needs. But what happens when one friend loses their job? Has a drug or alcohol problem? Has a bad boyfriend (or girlfriend)?  Likes to party too much? Gets a job out of town?  Gets married? Has a different standard for maintenance and improvements to the home? No longer can afford “their share” of the expenses?

Let us assure you that without documenting the agreement carefully laying out expectations and contingencies of the parties going forward, co-ownership (known as co-tenancy in Ohio law, as counterintuitive as that may sound) could turn out to be expensive and legally problematic.

The bottom line is that co-owners, whether buying as an investment or to live in the property, should have a clear understanding in advance and in writing as to (a) the standard of maintenance and who decides, (b) the division of monthly expenses, and (c) an exit strategy on death, disability, or one co-owner just wanting “out.”

Finney Law Firm has drafted many LLC operating agreements, corporate buy-sell agreements, and co-tenancy agreements. Contact  Eli Krafte-Jacobs (513.797.2853) or Jennings Kleeman (513.943.6650) for help with such an agreement.

New CABR/DABR form residential purchase contract launched October 1

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On October 1, the Cincinnati Area Board of Realtors and Dayton Area Board of Realtors issued a major update to the form residential purchase contract in use by most Realtors in the two marketplaces. This blog entry explores the major changes to the Contract.

Most Realtors in both the Cincinnati and Dayton marketplaces use form contracts prepared by their Board of Realtors.  Because of the cross-over of the two marketplaces (West Chester, Springboro, etc.), several years ago, the two Boards started issuing a joint contract form.  Both Boards have undertaken extensive training of their members for this most-recent significant set of changes.

The changes include:

  • The most significant change is a complete re-write of the inspection contingency. In the sizzling residential market of 2020 and 2021, desperate buyers trying to secure a contract on a home — after losing out in multiple multiple-offer situations — would buy a home quickly, maybe rashly, sight-unseen with an inspection contingency. During the previously open-ended contingency period, they would for the first time “decide” if they wanted to buy the home. If they terminated (which came with increasing frequency), the seller lost a crucial 10-20 days at the beginning of the marketing period and ended up with a home back on the market with the stigma of a failed sale. This was frustrating for Realtor and seller.  The changes include:
    • Requiring that the inspector be licensed in Ohio (or specialists in more narrow fields).
    • Allowing access for inspection.
    • “Minor, routine maintenance and cosmetic items” cannot be the basis for termination.
    • Importantly, if the seller fails to timely respond to buyer’s request for repairs, he is deemed to have agreed to make those repairs.
    • In the event of certain undisclosed significant defects, the buyer has the right to skip the repair offer/counteroffer process, and simply terminate the contract. These bases are:
      • Structural
      • The presence of asbestos
      • The presence of lead-based paint
      • The presence of hazardous materials
  • A converse problem has also emerged due to the unusually active marketplace, which is that a seller would (in my word) scheme to cause a buyer to default under the contract, such as not allowing access for inspections. The requirement for seller cooperation is made explicit.
  • All timelines in the contract form are “time is of the essence,” except the closing date, which allows for an extension of up to seven days if both parties are “proceeding in good faith performance.”
  • The buyer is in default if earnest money has not been paid within three days.
  • Clarification is made as to the authority of the seller to sign in a fiduciary and corporate capacity.
  • Clarifies that the title agent or closing attorney is representing neither buyer nor seller.
  • The contract better explains Ohio’s confusing timing of real estate tax payments and prorations, and continues the option to elect the Dayton short proration or Cincinnati’s full proration at closing.
  • Clarifies that seller is responsible for Home Owner’s Association transfer fees, along with the cost of obtaining HOA documentation.

For help with a residential contract issue, contact Eli Krafte-Jacobs (513.797.2853) or Jennings Kleeman (513.943.6650).

Chris Finney

Chris Finney presents “Seven Deadly Sins of Commercial Real Estate” to Ohio Association of Realtors

Author By Christopher P. FinneyPosted on Leave a comment

Attorney and founder of Finney Law Firm, Chris Finney, on September 28, presented “Seven Deadly Sins of Commercial Real Estate” to  the Ohio Association of Realtors annual convention in Columbus, Ohio.  The course addressed the costly mistakes (some common, some not-so-common) made by real estate sellers, purchasers and lenders, including due diligence mistakes, regulatory swamps and paying unnecessary taxes.

We are proud that the proficiency, experience and reach of Finney Law Firm in real estate and real estate-based litigation is being recognized throughout the State.

National Association of Realtors to feature African American Realtors arrested for simply showing homes

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Two years ago, Finney Law Firm was proud to represent African American Realtor Jerry Isham and his African American home buyer, Tony Edwards, who were accosted by seven Cincinnati Police officers, guns drawn, then handcuffed for nearly five minutes, and forcibly searched, simply for the “crime” of showing a home listed for sale (and really it was no more complicated than that).  The City of Cincinnati settled the civil claim 16 hours and 30 minutes after the suit was filed by Finney Law Firm attorneys.

Then, in August of this year, the Isham story appeared to repeat itself in Grand Rapids, Michigan with the arrest of African American Realtor Eric Brown of Keller Williams and his buyer, Roy Thorne, who were arrested simply for viewing a home listed for sale. Read about that here.

On November 13, the National Association of Realtors will feature Isham and Brown in a symposium entitled “Race & Real Estate” at its annual Realtors  Conference & Expo in San Diego, California to shine a spotlight on the extra challenges faced by African Americans in the real estate industry.

Our firm was proud to represent Jerry Isham, a top real estate professional in Cincinnati and the owner of Movement Realty, who did not deserve this shabby treatment by Cincinnati Police, in this matter.  We are pleased that his case has been given this important platform for further exploration of racism in the real estate industry.

Isham is the former President of both the Ohio and Cincinnati Realtists Associations and is currently the Region VIII Vice President of the National Association of Real Estate Brokers.

Our Public Interest Law team at Finney Law Firm, including Chris Finney and Curt Hartman, pursued the public records (mostly dash cam and body cam videos) of the incident, and filed this case in federal court on behalf of Isham and Edwards.

If you are attending the National Association of Realtors’ Convention & Expo, we encourage you to attend this important session.

  • For more background on the Isham story and the work of the Finney Law Firm’s Public Interest Law team, read here and watch here. The story captivated Cincinnati television viewers and was the topic of radio talk shows for weeks.  Watch here, here, here, and here and read here and here.  It even made news internationally.  Read here. Veteran Cincinnati reporter Jennifer Edwards Baker of WXIX, Channel 19, initially broke the story. The Youtube video linked to this story analyzing in detail the Isham/Edwards arrest has had more than 5.6 million views, so the story has since captivated the nation.

 

 

How do private covenants restrict property use versus zoning restrictions

Author By Christopher P. FinneyPosted on Leave a comment

Frequently we are asked by clients whether they are permitted to do “x” on their property: Move lot lines, build above a certain height, use a certain type of siding or trim or modify building setback lines. What rules govern these concerns?

The answer is: Both governmental restrictions and private contracts or covenants.

Let us explain.

Governmental restrictions

Zoning code, building code, fire code, subdivision regulations, engineer rules, and on and on and on, there a host of governmental regulations that dictate the use of, development of and construction on private property. And for each of these restrictions, there is a procedure for altering or “varying” the strict compliance with the restriction. These might include a board of zoning appeals, a board of building appeals,  or even an administrative appeal in Ohio Common Pleas Court or Kentucky Circuit Court.

So, once you jump through the hoops to get governmental approval, you are good to go, right?  Ummm, wrong.

Private covenants

For most modern subdivisions, commercial and residential, and for older ones going back decades, there are a series of private covenants against the land that many times mirror and then exceed the requirements in the governmental regulations. These covenants are recorded in the land records — in Ohio the County Recorder’s Office and in Kentucky in the County Clerk’s office. These covenants — whether the property owner is actually aware of them or not — are binding on each property owner in the subdivision as if the owner himself signed them. They are, in essence, a contract to which each subdivision property owner has expressly agreed.  These covenants may be in a textual document (many exceeding 50-100 pages) and they may be on a plat of subdivision as a graphically-drawn easement or restriction or text on the face of a plat.  Each have equal weight under the law. (Consider: did you understand as a property buyer that you were entering into 100-page contract and were bound to each provision thereof?)

Take for example building setbacks.  Zoning might require a minimum front yard of 25′, but the private covenants may require 50′. As to front entry garages, zoning may allow them, but private covenants may prohibit them.

Under private covenants, the “varying” or waiver could require unanimous approval of all lot owners, could require approval of the homeowners association board or an architectural committee thereof. Some covenants can be waived simply by a signature of the developer. The bottom line is that they are a matter of contract.  What the restrictions are and how they are waivered or varied is a question typically answered in the document itself.

Effect of governmental variance on private covenants (and vice versa)

So, as a property owner, once you go through the entire governmental variance process to allow a front entry garage or a smaller front yard setback, does that then solve the covenant problem?  Absolutely not. These two sets of restrictions each stand alone and must be modified or waived independently.

Similarly, if a property owner were to pursue a variance from requirements from a homeowners’ association, would that “fix” the violation of the governmental restriction? Still, no.

Thus, it will many times require two sets of approvals to get around a restriction that is in both the zoning code and the subdivision covenants.

Conclusion

For assistance with a zoning or covenant issue, please contact Jennings Kleeman (513.797.2858), Eli Krafte-Jacobs (513.797.2853) or Isaac Heintz (513.943.6654).

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