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.

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).

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).

Today, the Cincinnati Area Board of Realtors/Dayton Realtors announced that it will be issuing a new form purchase agreement for residential transactions on September 1. The new form has been in the works for more than a year now.

From their release, here are some of the major changes in the new form:

Time is of the Essence:  All dates and time-frames are “of the essence” throughout the contract, with a special provision for the closing date.

 

Earnest Money:  No more separate dates for submitting the earnest money for deposit and notifying the listing agent.  There is one time-frame for doing both (default is 3 days). There is also a provision to address non-real estate brokers holding the earnest money, as the laws pertaining to its handling by real estate brokers does not apply to non-real estate brokers.

 

Inclusions/Exclusions:  The default for appliances, such as refrigerators, ovens, etc. is for all to be included in the sale, unless they are specifically excluded in Section 6b.  Surveillance, monitoring and security system items are also addressed, including cameras and controls.  Doorbells are also specifically listed as being included in the sale.

 

Seller’s Certification:  The Seller’s certification has a new look and a new item pertaining to the Foreign Investments in Real Property Tax Act.

 

There are changes to the HOA and financing sections that clarify seller and buyer responsibilities and timing.

 

A significant change has been made to the Inspection ContingencyThe buyer will no longer be able to “walk away” without providing the seller the opportunity to correct material defects – with few, specifically defined exceptions.  And, the seller is required to respond to the buyer’s request for repairs within the time-frame specified or be deemed to have agreed to make all requested corrections.

This blog will be updated with more details after the form has been released. Contact Jennings Kleeman (513.797.2858) or Chris Finney (513.943.6655) for more details.

Today’s Wall Street Journal includes this probing article on condominium maintenance and governance. Although the article addresses proposed changes to Florida law, the issues are similar in Ohio and Kentucky.

The issue raised by the collapse and the events leading up to it, and issues of condominium finance and governance, are highlighted by the article. These are important issues for condominium owners and buyers to carefully consider.

We are asked to review condominium documents

Frequently, we are asked to review condominium documents for a prospective buyer. The task sounds simple enough, and, of course, our buyer already wants to buy. And not to be a negative Nancy, but does our client really understand what he is getting into?

So, a small diversion on that topic.

We many times after an owner is in a condominium — sometimes years after the closing — receive a call from an owner who is really unhappy with communal ownership that condominiums represent. They don’t like the standard to which the common areas are maintained. They don’t want to follow the rules set by the association. They won’t like the dues assessed. They don’t like the conduct of their neighbors. Buyers should therefore appreciate that condominium ownership — be it high-rise, apartment style, or townhouse style — is fundamentally legally different that single family home ownership.   

Contents of condominium documents

In Ohio, Condominiums are “regulated” under R.C. § 5311, which contains some minimum requirements of condominium declarations. But, mostly, condominium declarations are a voluminous contract by and among the unit owners.  The declaration or covenants typically contain these major categories of contractual agreements:

  • Division of the real property (land and buildings) among:
    • Unit, which is usually the three-dimensional space defined by the interior surfaces of the perimeter walls of the area the owner is buyer.
    • Common areas, which is everything that is not a “unit.” Importantly, for this article, this is the foundation, exterior walls, parking garages and parking lots, roof, windows, exterior doors, patios, hallways, lobbies, etc.  Again, anything that is not a unit itself.
    • Limited common areas, which are portions of the condominium property that are common areas, but are limited in their use to a specific unit owner or fewer than all of the unit owners.
  • Limitations on use of the Common Areas, and in some cases the units themselves. For example, parking three-axle trucks, leaving child toys or erecting a basketball hoop might be prohibited.
  • The creation of the condominium association, which typically owns no property itself but is charged with maintaining the common areas.
  • Assessment of condominium dues in an amount set from time to time by the association whereby, primarily, the association maintains the common areas.
  • The right in the condominium association Board to set reasonable rules.
  • The right of the condominium association Board to place a lien against a unit and foreclose on a unit for unpaid assessments.
  • Attorney fee shifting from association to unit owner. What this shorthand means is that if a unit owner gets into litigation with the association and loses, he must pay the attorneys fees of the association. This is a powerful tool of the association in scrapes with the unit owner.

Notably, one of the things that is not usually in condominium documents is a minimum  required standard of maintenance of common areas. So, if an owner does not like how a parking lot or roof is maintained, the cycle on which garage doors are replaced or that exterior painting is done, the unit owner can either run for the Board himself (and assemble a majority) to make better decisions or he is largely “out of luck” on that issue.

What is a unit owner buying?

So, when a unit owner buys a condominium property, what he gets at the closing is a deed for (a) the unit and (b) a percentage ownership interest in all of the common areas of the development.  This is means if it is a multi-unit development, he owns a percentage interest in every roof, every foundation, every exterior wall, etc. And therefore he has a partial duty to pay to maintain all such areas. Further, that purchase is subject to the contractual agreements set forth in the Declaration.

This is a pretty big gulp with a lot of unknowns when you think about it. In other words, the buyer better read the contract, better like his neighbors, better understand the physical condition of the entire development and better understand the finances of the association (more on that below).

So, how does this intersect with the Miami disaster?

The news articles have hinted at, but have not stated directly, that some owners in the building understood that poor long-term maintenance meant problems for the building, and that over the years some favored higher dues and a better standard of maintenance and others were more frugal and thought the maintenance could wait. This would be typical push and pull between a condominium association and its members.

Well we now know without a doubt which side of that debate was correct — the building needed higher assessments and a much higher standard of maintenance.

Condition of common areas is important

But condominium buyers usually — in my experience — look primarily at the units condition in determining whether to buy, and not the condition of the building or entire condominium complex.  I have even had condominium unit buyers hire inspectors to inspect the unit, and I wonder: Why? The condition of the entirety of the building(s) is just as important.

Condition of association’s finances is important

And offsetting balances set forth in the Association’s reserves are critical for deferred maintenance issues, lest the new owners pay for maintenance costs that should have been set aside by the current and former owners.

What questions should a condo buyer ask?

So, in addition to understanding the condition of the unit being purchased, a buyer should ask two critical questions:

  • If I were buying this entire building as an investment, for example, is it in tip-top shape or are there significant deferred maintenance items? And in the case of the Miami building, are there red flags that would indicate significant structural issues that could cause physical harm or massive special assessments to fix long-lingering problems?
  • Has the association set aside sufficient reserves to address routine and deferred maintenance issues, or have successive Boards left a mess for future owners?

It’s complicated

The long and short of condominium purchaser and condominium ownership is: It’s complicated, and to really know what you are buying or “where things stand” with your condominium, one really needs (a) a full understanding of the condition of the common areas in addition to the condition of the unit, and (b) a full understanding of the association’s finances — especially its reserves for repairs — to really understanding what you are buying and what you own.

Contact Chris Finney (513.943.6655), Eli Krafte-Jacobs (513.797-2853 or Jennings Kleeman (513-797-2858) to discuss condominium purchase issues or owner/association disputes.

Cincinnati homeowners may obtain a Community Reinvestment Area (“CRA”) tax abatement by renovating existing residential structures. This practice is common and reduces tax liability for homeowners who make such renovations. That said, recently, various homeowners with existing CRA Tax Abatements suffered a reduction in their existing CRA Tax Abatement. This issue was as new to us as it may be to you.

To preemptively clear up the foregoing issue for others, this blog post will discuss a background of the CRA Tax Abatement Program for existing residential structures, the importance of submitting the application in a timely manner, and how the Hamilton County Auditor’s Office, which has a duty to make appraisals, and can make such appraisals based on its own preferred method, calculates Tax Abatements.

Background

The CRA Tax Abatement Program is meant to stimulate revitalization, retain residents, and attract new homeowners, in the Cincinnati area. To encourage the foregoing types of behavior, the City of Cincinnati Department of Economic Development provides CRA Tax Abatements to certain homeowners who renovate existing residential structures (e.g., residential homes and residential condos, up to three units). To qualify for a CRA Tax Abatement, the cost of renovations must total at least $2,500.00, or $5,000.00, depending on the number of units in the residential structure. Some renovations, which might increase the marketability of a residential structure, are not contemplated in the cost of renovations (e.g., roofing, windows, gutters, vinyl siding, etc.) Likewise, unrelated improvements and tax on the land itself are not contemplated in the cost of renovations.

To apply for the CRA Tax Abatement Program, applicants will need to submit an application to the City of Cincinnati Department of Economic Development. Applicants who are renovating existing residential structures must pay an application fee of $250.00, which may be paid by check, to the “City of Cincinnati.” Also, applicants will need to submit evidence showing that all permits related to the renovations are closed. Applicants may obtain such evidence here. Finally, applicants will need to submit a document evidencing the costs of the renovations. Such evidence should be in the form of a notarized list indicating (i) the general categories of the work completed; (ii) the date such work was completed; and (iii) the expenses, including costs of labor, associated with each category of work completed.

Timing of the Application

Under the CRA Tax Abatement Program, the Hamilton County Auditor’s Office can set a CRA Tax Abatement Period for, at most, ten years, unless homeowners comply with LEED, LBC, or HERS standards, which are not discussed herein. That said, under the CRA Tax Abatement Program, the applicant cannot apply for the abatement until renovations are complete, and the CRA Tax Abatement is not applied to the residential structure until the application has been submitted.  Despite those rules, the abatement period begins when the renovations are commenced. Furthermore, it might take the City of Cincinnati eight weeks to respond to the application. As such, an applicant should complete their renovations and apply as quickly as possible to avoid missing out on their CRA Tax Abatement period.

Calculation of the Abatement

The Hamilton County Auditor’s Office recently started calculating CRA Tax Abatements under the “Percentage Method.” Under the Percentage Method, the Hamilton County Auditor’s Office determines a homeowner’s CRA Tax Abatement amount by dividing the contributed value of all the improvements, at the time construction began, by the value of the home without improvements. The purpose of the Percentage Method is to provide homeowners with a percentage that remains consistent, despite changes in home values.

Before the Percentage Method, the Hamilton County Auditor’s Office calculated CRA Tax Abatements under the “Beginning Value Method.” Under the Beginning Value Method, the Hamilton County Auditor’s Office determined a homeowner’s CRA Tax Abatement amount by subtracting the value of the home without improvements from the contributed value of all the improvements, at the time construction began. The Beginning Value Method created an issue where homeowners were unable to truly appreciate the value of their CRA Tax Abatement, because, when their property value increased, the value of their abatements did not, leaving them with little tax liability savings.

Due to the foregoing issue, the Hamilton County Auditor’s Office reacted by creating the Percentage Method. Despite its best intentions, the Hamilton County Auditor’s Office did not provide for grandfather clause for the various homeowners, with CRA Tax Abatements, who were content with their CRA Tax Abatement Valuation. This gave rise to the issue first described in this blog post, which the Finney Law Firm resolved for similarly situated homeowners. So, if you are a similarly situated homeowner and need professional guidance on how to remedy such issue, call the Finney Law Firm, today!

Sometimes a client comes to the Finney Law Firm concerned about their neighbor’s rights to an easement over their land leading to the question: who has the duty to maintain and repair the easement? A big concern for these clients is the cost of the maintenance and repair of the easement. These easements tend be associated with driveways and sewer lines. This blog post is designed provide some general background as to what easements are and address the cost concern for individuals in similar situations.

Background on easements

An easement is an interest that may burden another persons’ land. The interest entitles the owner of the easement to use the land in some limited way. The extent of that interest is determined by the process which creates the easement.

There are two kinds of easements, the easement appurtenant, and the easement in gross. The easement appurtenant deal with two pieces of land (e.g., two neighboring parcels) and tend to be conveyed with a sale of the land. The easement in gross deal with one piece of land (e.g., one parcel and another person’ right to use the one parcel) and tend to not be conveyed with a sale of the land.

This blog post deals with easements appurtenant.

Creation

An easement may be created by deed, prescription, or implication from the particular set of facts and circumstances. Likewise, some courts allow for an equitable easement, which is referred to as an easement by estoppel. The owner of the easement’s land is called the dominant estate. The dominant estate benefits from the easement. The burdened land is referend to as the servient estate.

Who maintains and repairs?

Generally, it is the duty of the dominant estate to maintain and repair the easement. Likewise, the dominant estate must make the necessary repairs to prevent the dominant estate from created an annoyance or nuisance to the servient estate.

That said, the servient estate can expressly undertake the duty to maintain and repair the easement. This may be done in many ways (e.g., through a maintenance agreement, a grant in a deed, or operation of law).

What if the servient estate also uses the easement?

The servient estate may also use the land on which the dominant estate enjoys an easement. However, that use must be in a way that is not contrary to the dominant estate’s limited use of the land. When an easement is used jointly by the dominant estate and the servient estate, the cost of maintenance and repair of such easement must be apportioned between the dominant estate and the servient estate, based on relative use.

Conclusion

So, if you have a similar situation to those clients that come to the Finney Law Firm concerned about their neighbor’s rights to an easement over their land and who bears the maintenance and repair costs, then it might be time to call the Finney Law Firm.

 

The second round of stimulus signed by then-President Trump in December extended the Centers for Disease Control limited federal eviction moratorium (started in October) through January 31, and then immediately upon taking office, President Biden extended the stay on evictions through March 31. So, landlords of qualifying non-paying tenants continue to be legally prohibited from recovering possession of their properties.

And a related component of the second stimulus bill was a rental assistance program that allowed tenants — with federal subsidy — to continue to pay their rent, and even recoup back rental accrued, so landlords could be made whole despite the eviction prohibition.

Today’s New York Times writes on the toll the pandemic is taking on the housing industry, including landlords and tenants, which led us to update on “what is the status of the rental assistance component of the stimulus bill?”

What do we know:

  • The rental assistnce is being given from the federal government to the states, who will then each establish their criteria, and application and distribution programs. Some states will be distributing the money to counties and cities for further distribution. What this will mean is a patchwork of criteria for qualification, multiple software portals, and delays in implementation.
  • We have inquired to to roll-out dates and assistance criteria and, at least as to Ohio and Kentucky, not only are none of the application and distribution procedures known, there does not even appear to be discussions with stakeholders taking place as to how best to get the assistance to those in need.
  • Thus, we had hoped that tenants and landlords could get relief by some time in March, but that does not appear feasible. Our best bet right now is April/May, but that is just speculation.

The fact that Ohio paid out $330 million in fraudulent unemployment claims in 2020 will likely slow the process to assure that bogus rental assistance claims do not slide through.

We will attempt to keep our readers informed of developments on the moratorium and rental assistance programs as they emerge.

Every year, the Auditor of each of Ohio’s 88 counties publishes a chart like this showing the tax rates for each taxing district in each County.

In Hamilton County, there are 241 distinct taxing districts, each having a complex calculation to develop the net residential and commercial rates of taxation (taxing districts being greater in number than either municipalities and townships or school districts, because the boundaries of some frequently overlap one another). Here are the five highest commercial and residential taxing districts in Hamilton County:

Highest Commercial rates
MunicipalityTownshipSchool DistrictCommercial millageCommercial percentage
WyomingSpringfieldFinneytown135.544.765%
ColombiaMariemont131.3564.618%
SpringfieldFinneytown128.5894.521%
Lincoln HeightsPrinceton123.754.351%
Mt. HealthySpringfieldMt. Healthy121.6654.277%
Highest Residential rates
MunicipalityTownshipSchool DistrictResidential millageResidential percentage
Lincoln HeightsPrinceton111.4663.919%
WyomingSpringfieldFinneytown110.3443.879%
Mt. HealthySpringfieldMt. Healthy104.6193.678%
SpringfieldFinneytown103.3943.635%
Golf ManorCincinnati101.263.560%

As you can see, several Hamilton County commercial districts well exceed 4.0% in annual tax rates (approaching 5.0%) and the highest residential rates are bumping up against the 4.0% threshold.