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Category Archives: Commercial Real Estate

Real Estate 101: It takes one to buy and two to sell? Not always!

Author By Christopher P. FinneyPosted on

An axiom frequently taught to real estate agents and investors is “It takes one to buy and two to sell.”  And that is in part true, but in part not true.  As with many axioms, “it’s just not that simple.”

First, what does the axiom mean?  In contract negotiations, one might have married couples, or even business partners, involved as buyers or sellers,  The question this saying attempts to answer is “who has authority to sell” the real estate; “who has authority to buy” the real estate?

The seller’s side of the equation

As a general proposition, if a property is owned by two parties (spouses or tenants in common), it takes the signature of both of them to effectuate a sale.  If we are going to legally enforce a contract for the sale of 1234 Main Street, you can only do that if both or all of the owners have signed the purchase contract.  Thus, the shorthand saying “it takes two to sell.”

That begs a different question, however, which is if one person makes a promise that he is unable to keep (e.g., a husband promises to sell a house, but the wife refuses to consent to sell her half and won’t sign the deed), what is liability for the party who made the promise?  In short, even though the buyer cannot succeed in vesting full title in himself in an action for Specific Performance, the buyer could still sue the seller for beaching his promise to deliver good title to the property.  In other words, the single seller who cannot perform could still be on the hook for money damages for his failure to perform on the contract.

This concept is enhanced by two specific provisions of the Cincinnati Area Board of Realtors standard form of residential purchase contract:

  • Section 6 has this: “Seller also represents that those signing this Contract constitute all of the owners of the title to the real property and other items as listed in Section 5, together with their respective spouses.”
  • Section 19 has this: “Seller…shall convey marketable title to the Real Estate by deed of general warranty or fiduciary deed, if applicable, in fee simple absolute, with release of dower.”

Section 6 is frankly confusing in its wording.  Does the contract require the signature of the spouses to be enforceable?  It seems to lend itself to both interpretations.

Section 19 on the other hand says clear that the person signing the contract as seller commits to deliver a good deed “with release of dower.”  To me that means that the seller is promising that if his wife or her husband’s signature is required, they will obtain it.  It is not the buyer’s problem to obtain a second signature to secure that promise or performance.

Further, while we point out that the incomplete seller (only one-half of a married couple, for example) could be on the hook for money damages in the event of his failure to perform on his promises, it is equally true that the non-signing seller cannot be forced to execute a deed just because their spouse promised that performance.

As a practical matter, what does that mean?  Well, several things:

  • Only money damages are available for the signing seller’s breach.
  • The remedy of “specific performance,” i.e., forcing a non-signing and recalcitrant seller to convey legal title to the property cannot be obtained in that circumstance.
  • However, a buyer could still “foul the title” to the property by filing an affidavit of matters relating to title or a lis pendens lawsuit claiming in interest in the real estate due to the seller’s breach.  Thus, even though the buyer cannot judicially force the seller’s performance, he also can prevent the seller from conveying clear title to anyone else.  In that circumstance, we end up with an old-fashioned standoff.

The buyer’s side of the equation

We then have the buyer’s side of the equation.  Can a buyer, married or not, buy property on his own?  Certainly.  A single buyer — without his spouse’s  or business partner’s consent can, in his own name, buy real property.  Thus, the saying “it takes one to buy.”

This means that if a married buyer signs a contract to purchase real estate and later has his wings clipped by a recalcitrant wife who refuses to sign, he still can legally be held to that contract either in an action for specific performance or for monetary damages. And it does not excuse his performance that his wife will not sign.

Then, this begs yet another question: Can the buyer finance that purchase?  Well, for a married person to borrow money to buy real property requires the spouse’s signature on the mortgage for purposes of releasing her dower interest.  So, contrary to the axiom, it may take “two to buy.”  Now, if the buyer can pay cash or obtain a loan that is not secured by a mortgage, then he can buy on his own. But, otherwise, “it also takes two to buy.”

Finally, a buyer may be able to avoid his obligations under a contract if his spouse refuses to participate in the mortgage application process, but that is a more complicated legal analysis.  It will depend on the contract language and the facts.

 

The Listing Agreement: Only licensees can claim real estate commissions

Author By Christopher P. FinneyPosted on

Occasionally we have a client either pursuing or defending against the payment of a fee for professional services rendered in conjunction with the sale of a piece of real property in Ohio, essentially a real estate commission.

One prerequisite that is not always met by the claimant, however, is licensure as a real estate broker.  It may be an accountant, attorney, or other individual who has assisted — or claims to have assisted — in the sale of real property.  But that person is not licensed as a real estate broker in Ohio.   Still, they want to be paid just as a Realtor would have been.  And they may even have an express agreement — even a written agreement — for payment of those sums.

But it is a defense — perhaps an absolute defense — under Ohio law against the payment of those sums if the party claiming payment does not allege and prove in a court action that they are a licensed real estate broker.  O.R.C §4735.21 provides, in pertinent part:

No right of action shall accrue to any person, partnership, association, or corporation for the collection of compensation for the performance of the acts mentioned in section 4735.01 of the Revised Code, without alleging and proving that such person, partnership, association, or corporation was licensed as a real estate broker or foreign real estate dealer.

The Listing Agreement: Do I have the right to terminate early?

Author By Christopher P. FinneyPosted on

Little HouseA seller enters into a listing agreement for the sale of his house with a Realtor and then, for whatever reason, changes his mind.  Does he have the right to unilaterally terminate the listing agreement?

Sometimes sellers think of it this way: Unlike many contracts where there is an exchange of money for services or money for a product, under a listing agreement, neither party has spent anything nor delivered any product or service, so why not?

In the service industry, as Abraham Lincoln famously said, the professional’s “time and advice is his stock and trade.”  (Old Abe said that about attorneys, but the same is true for Realtors and other service professionals).  Thus, a Realtor takes significant time pricing a listing, positioning it for the market, and then exposing it to its network of brokers, buyers and investors.  Many times, Realtors have expended real money on photographers, videographers, marketing materials, electronic and print ads, title work, and other out-of-pocket expenses.

So, one could argue, the Realtor has spent significant effort and in some cases money on that listing even though much of it may not be immediately visible to the seller, and although no results may have been reaped from those efforts.

So, the contract is “for consideration,” and the Realtor could experience a real economic loss from the early termination of a listing agreement.

Now, the seller may further reason that no commission is due unless a further condition is met — that the seller accepts an offer to sell his home.  While this is close to being true, Ohio law further provides that a party must perform under his contract in good faith and cannot through his bad faith cause or trigger non-performance.  So, refusing to show a home or failing to consider an offer presented in good faith could be the basis for a claimed breach of contract by a Realtor.

Still, as a practical matter, if a seller does not want to sell any longer, he does not want to sell, and further Realtor efforts to market the home may be wasted.

Thus, we frequently see that Realtors — as a practical response as well as out of the goodness of their hearts — may cooperate with a seller in taking a home off the market, with little or no cost to the seller for “changing his mind.”  But is should not be thought by the seller as a matter of right once the listing agreement is signed.

The Listing Agreement: Exclusive right to sell versus exclusive agency

Author By Christopher P. FinneyPosted on

This is the first in a series on the Realtor listing agreements, both commercial and residential.

The relationship between a Realtor and his principal is typically defined by a written agreement.  In Kentucky, the courts require that the agreement be in writing to satisfy the statute of frauds.  Not so in Ohio.  And that writing then determines the rights and responsibilities of the parties to that agreement.

There are, of course, agreements that define the relationship between a buyer and his Realtor.  These “Buyer Broker Agreements” are addressed in another blog entry.

And as to agreements between a seller and his Realtor, what is referred to as a “Listing Agreement,” there are two basic types: (i) Exclusive Right to Sell and (ii) Exclusive Agency.  These sound similar, so what is in fact the difference?

Very simply the distinction is whether a commission is due and owing when the seller finds his own buyer, independent of the efforts of the Realtor.  Under an “Exclusive right to sell” agreement, a commission still is due in such instance.  In an “Exclusive agency agreement” a commission wouldn’t be due.

The exact language and obligations between the parties is not, of course, just in the title to the document, but in the body of the text, so a simple distinction between “Exclusive Right to Sell” and “Exclusive agency” agreements may not lie in the caption of the document.  As with all contracts, one must read the entire document to know what it says.

Now, because almost all listing agreements are signed on a Realtor-drated form, as you might imagine, they are almost all Exclusive Right to Sell Agreements.  The Realtor wants to get paid if he is going to spend time and money on generating buyers for your home, even if the luck of the draw would ultimately yield that buyer from the seller’s own efforts.

For this reason, most Realtors would refuse to enter into a listing agreement on broad “Exclusive agency” terms, but they might be willing to except out from the agreement certain buyers who have expressed an interest or that the seller wants to approach before committing to his Realtor.

Understanding the basic framework of listing agreements is important before signing.

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San Diego Realtor Dan Melson has a nice blog entry of his own exploring types of listing agreements in more detail than this article, here. 

 

Ohio law changes on right to appeal after failure to appear at Board of Revision hearing

Author By Christopher P. FinneyPosted on

The scenario is as follows: A party files a formal appeal of his property’s tax valuation before one of Ohio’s 88 Boards of Revision and then fails to appear to prosecute his case.  It would seem automatic that the case is dismissed, and the complainant would have no right of appeal.

But Ohio is unique in that new evidence can be presented before the Board of tax Appeals following a win or loss at the Board of Revision.  It’s not exactly a trial de novo, but it’s close.

Thus, the question recently before the Ohio Supreme Court was whether a complainant in that circumstance has the right to appear before the Board of Tax Appeals to challenge the Board of Revision dismissal, and still seek a reduction in valuation.

Prior precedent of the Ohio Supreme Court said definitively “no.”  LCL Income Properties v. Rhodes, 1995.  However, as Court News Ohio reports here, the Ohio Supreme Court’s decision on July 2 in Ginter v. Auglaise County Board of Revision changes all that, and now the complainant will have a second bite at the apple at the Board of Tax Appeals.

Seventh Circuit rules that construction lender has no claim under title insurance policy for construction liens it induced

Author By Christopher P. FinneyPosted on

The Wisconsin Appellate Law report has this entry about a recent Seventh Circuit decision that shows the precarious position lenders are in in recovering their losses arising from their loans.  As that article recites, in BB Syndication Services, INc. v. First American Title Insurance the Federal Seventh Circuit Court of Appeals ruled that a construction lender does not have a claim against the title insurer for liens that arose as a result of their cutting off funds to the project.

The Seventh Circuit relied upon a provision in the title insurance policy excluding coverage for liens “created, suffered, assumed or agreed to” by the insured lender.

The Court found that because the liens arose as a result of the  lender cutting off funds to the project (thus causing the borrower to default in his obligations to subcontractors and material men, and then liens to be filed against the project), coverage did not lie.

 

Cincinnati Area Board of Realtors form Contract provides buyer “outs.”

Author By Christopher P. FinneyPosted on

As is explored here, the standard Cincinnati Area Board of Realtors contract launched late last year contains very substantial changes from prior forms published by the Board.  This is important, because this new form of Contract is in use by most Realtors in the greater Cincinnati area, so buyers and sellers are more likely to encounter it than not.

Issues not explored in the prior blog entry, however, are the significant “outs” in the new form Contract for buyers.  Historically, form residential contracts in use in greater Cincinnati would provide a standard inspection contingency and financing contingency, but otherwise, the buyer’s hands were tied in contract performance.

But under the new Board contract, the buyer has additional “outs” — the right to terminate the Contract — due to the failure of an appraisal contingency (paragraph 4) and for the non-approval of a variety of documents provided by the buyer relating to homeowners association covenants against the property (paragraph 8).

These provisions — especially the HOA covenant review — give the buyer broad rights to terminate the contract, leaving the seller to need to place the house back on the market, and find another buyer.

Read more: New Cincinnati Area Board of Realtors contract contains substantial changes >>

Read our series on new construction, commercial and residential

Author By Christopher P. FinneyPosted on

We have a fantastic (if we do say so ourselves) 8-part series on legal issues on new construction for residential and commercial projects. The series, as a general proposition, provides helpful information for both contractors (builders) and buyers.

New construction: The problem of “what” is to be built >>

New construction: The “When” >>

New construction: Change orders, allowances and selections can significantly impact price >>

New construction: On whose land are you building? >>

New construction: Cost-plus versus fixed-price >>

New construction: What form of contract? >>

New construction: Ohio residential buyers absolutely protected from liens in limited circumstances >>

New construction: Properly documenting change orders >>

If we can help you “Make a Difference” with documentation of a new construction project, contact Isaac T. Heintz at (513) 943-6654.  For a dispute relating to a new construction project, contact Brad M. Gibson at (513) 943-6661.

So, literally, our client wakes up one morning and has no curb cut to his business

Author By Christopher P. FinneyPosted on

In perhaps the most audacious litigation gambit I have been involved with for a client, we resuscitated a failed Ohio Supreme Court case with a U.S. District Court action that rendered a favorable settlement for our client over…the elimination of his curb cut.

Curbs serve several purposes on a roadway: They are part of the storm water management system, moving water along a road’s edge into a storm sewer, and they operate as an important traffic control mechanism, whereby access onto roadways to and from individual properties is “regulated” by “curb cuts.”  A curb cut is the lowering or elimination of an otherwise continuous curb along a roadway, that is too high for traffic to traverse, to allow ingress and egress into private property.

Ohio has a long and rich tradition of allowing, as a constitutional right, access to one’s property through a curb cut onto a public road. See, e.g., OTR v. Columbus (1996), 76 Ohio St.3d 203, 667 N.E.2d 8.

With that as background, in 1998 our client, Preschool Development Co., developed its property along S.R. 73 in Springboro, Ohio into a preschool.  It purchased a single family residence that enjoyed an existing curb cut onto S.R. 73, demolished the building, and proposed to build a new preschool there with direct access onto S.R. 73.  The City of Springboro at first conditioned zoning approval of the new development on a promise from the developer that when a new drug store was developed next door, we would close our curb cut onto S.R. 73, and access our property only through the drug store parking lot.  We objected, citing to the constitutional principle noted above.  Eventually, the owner reached a contractual agreement with the City that when the drug store parcel ultimately was developed, the owner would install, at its expense, a median in S.R. 73, thus preventing left turns into and out of the property, a reasonable compromise that allowed the development to go forward while at the same time improving traffic safety along S.R. 73.

As a side note, Ohio law provides, and we certainly believe, that municipalities can require anything they want to assure traffic safety along their roads.  But, if they are going to unconstitutionally burden a property to accomplish that, they simply must pay just compensation to the owner to achieve that end.  That is the law.

Fast forward 48 months and the new drug store parcel is being developed.  The City makes a renewed demand upon the property owner to close his curb cut and access his preschool parcel through the drug store parking lot.  We located and dusted off the agreement calling for a median in S.R. 73, instead, and the City persisted.  We resisted.

Finally, one fine July Monday morning, my client calls and informs me that, overnight, the City closed his curb cut by building a 6-inch curb in front of his property.  His only access to his property is across the drug store parcel.  Even worse, he has no legally-enforceable easement across the drug store parcel parking lot, meaning the City of Springboro has effectively land-locked his parcel and rendered it unmarketable.

Under constitutional principles, one is unable to sue a City directly for damages arising from a “taking,” but rather you sue the municipality –in what is called a mandamus action — to make them sue you for eminent domain – and establish judicially in that second proceeding the value of the property taken.  Under Ohio law, Plaintiffs have a choice for “mandamus actions,” to proceed initially and directly at the Common Pleas Court, the Court of Appeals, or at the Ohio Supreme Court.  Since the law and facts were clearly on our client’s side, we elected to take the case directly and initially to the Ohio Supreme Court.

So we proceeded in an original action at the Ohio Supreme Court for a mandamus requiring that the City “take” our client’s property and pay him just compensation for it.  As noted above, this action was supported by a long line of Ohio cases providing that a Curb Cut was a constitutionally-protected interest in Ohio that cannot be taken without just compensation.  We were certain the Supreme Court would grant the requested relief, and our client would be compensated for his loss.  This confidence was compounded by the fact that the “taking” was not just of a curb cut, but of all legal access to my client’s property – rendering it value-less.

Much to our surprise, the Ohio Supreme Court, in this 4-3 decision, denied our client’s requested relief. They essentially ignored 150 years of precedent on the topic – and the further defective easement rendering our client’s property worthless – in what we felt was a bad decision.  The problem was, that by electing to first go to the Supreme Court for our relief, there was no court to which we could appeal the decision.  In short, our client was stiffed.

But we were not content to rest on that outcome.  The Fifth Amendment to the US Constitution provides that “private property” shall not be “taken for public use, without just compensation.”  Thus, again, the City, the State, have the right to take our client’s property (his curb cut access to S.R 73), but they must pay for it.  There is federal precedent that when the State’s courts refuse to provide a mechanism to provide that just compensation – in Ohio a mandamus action – one can avail themselves of a remedy directly in federal court.

As a huge bonus to our client, an award of attorneys fees is generally not available to a Plaintiff either for a mandamus action forcing the bringing of a condemnation action, or for the defense of the action to establish damages — thus making much of this litigation impractical if not impossible.  But when the State has effectively denied the Plaintiff any remedy for the taking, an action lies under 42 U.S.C. Sections 1983 and 1988, which includes the right in the victorious Plaintiff to recover attorneys fees.  In a perverse way, the Ohio Supreme Court had done us huge a favor by making ripe our federal constitutional claims by denying the takings claim in State court.

Thus, we filed an action in the U.S. District Court for the Southern District of Ohio, and drew knowledgeable Judge Arthur Spiegel.  Judge Spiegel was fantastic, from the first meeting of the litigants forward.  For, as a young attorney, he too was a real estate lawyer, and intuitively understood the principle that one has a property right in and to a curb cut, and was prepared to enforce that right.

The litigation was complex and arduous, with laborious motion work, discovery, expert witnesses, and hearings lasting more than a year.  The matter was complicated by issues of res judicata and issue preclusion, as well as the difficult-to-interpret, difficult-to-apply Rooker-Feldman doctrine.   Hundreds of hours were spent on briefing, and tens of thousands of dollars were invested on expert witness testimony.

In the end, we filed a motion for partial summary judgment on the question of liability.  The City filed a cross motion for summary judgment seeking essentially to extend and enforce the decision of the Ohio Supreme Court.  Judge Spiegel thankfully issued a decision – which we thought correct – granting partial summary judgment to the Plaintiff on the issue of liability.  Thus, we were headed to trial solely on the question of the value of the taking exacted by the City of Springboro.  It was a long-fought-for and sweet victory.

Facing that consequence — a trial solely on damages, where the City would have to pay Plaintiff’s attorneys fees, the City quickly settled – paying our client a fair amount for the “taking” and the full sum of all our client’s attorneys fees expended in the matter.

After five years of battle, the client was completely made whole.

Our deep knowledge of Ohio real estate law, combined with our extensive public interest law experience and incredible persistence and resilience, surely made a difference not only for this client, but to vindicate an important constitutional principle for all Ohioans.

Real Estate 101: Ohio property defects claims

Author By Christopher P. FinneyPosted on

Our firm is frequently called by buyers about claims relating to defects in real property, commercial and residential, after the closing.  They are disappointed that some aspect of the property or another is defective, and demand repairs paid by the seller.  Cracks in a concrete slab, mold, water leaks in plumbing, roofs and basements, and present or past termite infestation and damage are just a few of the common complaints.

The law on this topic is well-developed in Ohio.  Under Layman v. Binns and Traverse v. Long, the Ohio Supreme Court has clearly adopted the doctrine of caveat emptor, or “buyer beware.”  The Court has pronounced that buyers have no cause of action against a seller unless either (a) the defect was not discoverable upon a reasonable inspection and the seller knew about the defect or (b) the seller took steps to actively conceal or lie about the defect.

So, the Layman standard sets up a difficult factual challenge: a plaintiff must show that the damages were not reasonably discoverable by him on inspection, but on the other hand, as of the time of the litigation, the problems are so great that (a) the seller certainly knew about them and (b) they deserve significant recompense by the Court.  This is a vexing problem for every property defects plaintiff, commercial or residential.

The Layman case was decided in 1988, and then only a few years later the Ohio legislature affirmatively mandated for single family homes the use of the Ohio Residential Property Disclosure Form.  The current version of that form is here.

Because either affirmatively covering up a defect or making an affirmative misrepresentation can be the basis for liability under Layman, a misrepresentation on the Residential Property Disclosure Form can form the basis for liability under Ohio law.  Indeed, in our experience on property defects cases for residential properties, a mis-statement on a Residential Property Disclosure Form is the most common basis for these liability claims.

When pursuing a property defects claim, the plaintiff has several legal causes of action (i.e., bases under the law for suit).  These include breach of contact, misrepresentation and fraud.  Of these, only the fraud claim can be the grounds for recovery of attorneys fees and punitive damages, and our experience is that — even under that cause of action — state court judges in Ohio are extremely reluctant to arrive at liability including punitive damages and attorneys fees.  As such, a Plaintiff should enter into the litigation understanding that a “win” involving reimbursement of his fees invested in the case are unlikely.

In the commercial setting, where actual damages arising from the defect may be in the hundreds of thousands and millions of dollars, litigation may yield an economically positive outcome.  However, in the residential setting, buyers must carefully consider the cost-benefit of pursuing this litigation.  Conversely, a seller defending against such a claim may want to consider what he must invest in that defense, versus an early settlement.

Given that our firm’s objective for each matter assigned to us is to “make a difference” for the client, we carefully work with clients in property defects litigation to develop a strategy that is most likely to result in a net positive outcome for the client.

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