Ohio Supreme Court Upholds Broad Discretion of BTA in the Valuation of Real Property

On October 27, 2016, the Ohio Supreme Court (the court) issued its decision in Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion no. 2016-Ohio-7466, which stemmed from an appeal of a Board of Tax Appeal (BTA), no. 2011-3590. The court’s decision involved  real property valuation case and concerns the proper valuation of a 240-unit apartment complex in Northeast Franklin County for tax year 2005.
The property at the center of this case was originally valued at $13,600,000 and the property owner sought a reduction in the valuation t $9,720,000. The Board of Revision (BoR) ultimately adopted (in a 2-1 vote) a valuation of $9,338,000 proposed by an MAI certified appraise. The BTA affirmed the BoR decision.
The board of education (BoE) appealed arguing that the absence of market data and other flaws in the appraisal made it unreasonable and unlawful for the BoR and BTA to accept the appraisal.
There are 3 approaches used in appraising property—income, cost and sales comparisons.  For an income producing property, the income stream is critical for determining its value. When a property is new, the cost basis of the property may make more sense. Because the variables affecting each property, such as unit size, floor plans, amenities, access to transportation, etc. differ so much from one property to the next, sale comps may have limited utility.
The appraiser in this case relied primarily (but not exclusively) on the income stream produced by the property. It was a newly constructed property so the appraiser averaged the 2004 and 2005 numbers since the property was leased up by 2005. He reasoned that an arm’s length purchase price would typically be based upon the income stream and therefore a more accurate valuation should rely on the income approach.  The appraiser also looked at 10 sales comparisons, taking into consideration the range of cap rates an price per unit to serve as a check on his estimated value and to determine the best cap rate to use in his income valuation.
The BoE objected and the case advanced to the court where the BoE advanced the following proposition of law: “An appraisal that fails to include relevant market data and the specific adjustments made thereto is inherently unreliable and cannot be used to determine the true value of real property for tax purposes.” It argued that the BTA erred is relying on the appraisal because the report did not include sufficient data under its market and income approaches and further did not include a cost approach, all of which was unlawful. It should be noted that additional data was provided by the appraiser in testimony.
When tax appeals come before the court, it is often held that when the court reviews the BTA’s disposition of the factual issues in a property valuation case, the court “does not sit either as a super BTA or as a trier of fact de novo.” The BTA is given wide discretion in determining the weight to give evidence and the credibility of witnesses before it. The BoE in its appeal must demonstrate that the BTA’s and BoR’s weighing of evidence and the force it applied to such evidence was unreasonable or unlawful, and the standard the BoE must meet is that the BTA and BoR abused their discretion. This is a difficult standard to meet. It means that the BoE must prove that the BTA exhibited an unreasonable, arbitrary or unconscionable attitude.
The court found that while the BoE pointed to matters that definitely relate to the probative force of the appraisal, it failed to establish unlawfulness or an arbitrary or unconscionable attitude on the part of the BTA in adopting the appraisal.
During testimony, the appraiser provided his reasons for using the approach that he did and for why he did not use the cost approach. It was in within the discretion of the trier of fact, i.e., the BoR and the BTA, to credit the appraiser’s testimony and report.
When evaluating the merits of whether to appeal the decision of the BTA in a property valuation, we need to keep in mind that the court will not disturb the BTA’s decision merely because a different expert might have found merit in using another approach.

When Baseball is a Bone Breaking vs. a Heart Breaking Experience, who is Responsible?

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

While a good deal of the heartbreak from our beloved Cleveland Indians just missing another World Series victory is behind us, some fans have had more than their hearts break as a result of an Indians baseball game.

In the recent case of Rawlins v. Cleveland Indians Baseball Co., Inc., 2015 Ohio 4587 (Cuyahoga County) the Eighth District Court of Appeals was faced with the question of whether the owner of property (the Cleveland Indians) was liable for injuries sustained by Keith Rawlins during an Indians baseball game.

Besides being “die hard Indians fans,” this article is in our real estate blog because it deals with the general issue of “premises liability”. Generally, in Ohio, all property owners/occupants are responsible for maintaining safe conditions for the people visiting their property and can be held liable for certain injuries on their property. The degree of responsibility (“duty of care”) depends on multiple factors, most notably who has entered on to the land, be it a social guest/invitee, a licensee, or a trespasser.  The duty of care might be as easy as posting a sign, and as costly as re-paving a parking lot to change its grade.
Of course, there are always exceptions to the general rule, and this holds true with regard to premises liability.
One such exception worthy of discussion is the one at issue in the Rawlins case, known as “the Baseball Rule.” The Baseball Rule is actually the name for the more recognizable defense to premises liability negligence claims (i.e., primary assumption of the risk) in sporting event situations. Under this doctrine, a plaintiff who voluntarily engages in a recreational activity or sporting event assumes the inherent risks of that activity and cannot recover for injuries sustained in engaging in such activity unless the defendant acted recklessly or intentionally in causing the injuries. Injury claims resulting from a foul ball at a baseball game, tripping on a root during a nature night hike, or from a roller skating collision are examples of negligence claims which could be effectively barred by the defense of assumption of the risk.
Are there exceptions to the exception? Are there specific circumstances caused by the property owner that call into question whether or not the injured party truly assumed the risk?
These were the basic issues presented to the Eighth District Court of Appeals in Rawlins.
The facts of the case are as follows: In July of 2012, Keith Rawlins bought tickets for himself and his daughter to the Indians game against Baltimore. It was a night game, with a fireworks show scheduled for after the game. The tickets Rawlins purchased were for seats located on the third-base side of the field in Section 171 and, therefore, were subject to closure for the post-game fireworks show. In his complaint, Rawlins alleged that at the top of the ninth inning, an usher ordered them to immediately vacate their seats. In a later deposition, however, Rawlins testified that an usher came to the end of the row where he and his daughter were seated and “just stood there with her arms folded” “or hands on her hips” and stared at him, seemingly delivering a message to move. Nevertheless, when Rawlins and his daughter left their seats at the top of the ninth inning, Mr. Rawlins was struck by a foul ball. Rawlins maintained that the accident occurred because they were ordered out of their seats due to the post-game fireworks show.
In November, 2013, Rawlins filed a negligence action against the Cleveland Indians as a result of injuries Rawlins sustained after he was hit by the foul ball. In November, 2014, the Cleveland Indians filed a motion for summary judgment (basically, this is a request for an early dismissal of an action based on law), contending that the action was barred by the defense of primary assumption of the risk. In January, 2015, the trial court granted the Cleveland Indians’ motion for summary judgment. Rawlins then appealed to the Cuyahoga County Court of Appeals.
Rawlins argued that the doctrine of primary assumption of the risk does not apply when there are attendant circumstances caused by the property owner that are not inherent to the game of baseball. Rawlins claimed that the order to move out of their seats constituted the attendant circumstances.
In arriving at its decision to overrule the trial court’s decision of summary judgment in favor of the Cleveland Indians, the court in Rawlins first analyzed cases that applied the general rule and supported the position of the Indians, namely, that “baseball is an inherently dangerous activity and that the spectator is in the best position to protect him or herself from injury at a baseball game.” According to the Rawlins court, “The consensus of … opinions is to the effect that it is common knowledge that in baseball games hard balls are thrown and batted with great swiftness, that they are liable to be thrown or batted outside the lines of the diamond, and that spectators in positions which may be reached by such balls assume the risk thereof. This theory is fortified by the fact that such spectators can watch the ball and can thus usually avoid being struck when a ball is directed toward them.”
The court in Rawlins, however, also analyzed a prior Supreme Court of Ohio decision (that it believed dispositive of the Rawlins case) that seemingly establishes an exception to the “primary assumption of the risk rule”. That case is Cincinnati Baseball Club Co. v. Eno, 112 Ohio St. 175, 147 N.E. 86 (1925). In Eno, the spectator was injured by a baseball during the intermission of a double-header that was hit by a player practicing near the unscreened portion of a stadium grandstand. The Ohio Supreme Court concluded that the facts in Eno presented a materially different situation from the general rule, and that there was a question of fact whether the stadium owner was responsible for allowing players to practice in close proximity to the grandstand during an intermission when the scheduled games were not being played.
Citing other Ohio Supreme Court decisions that followed Eno, the court in Rawlins also recognized that “In many situations, as in Eno, there will be attendant circumstances that raise questions of fact whether an injured party assumed the risk in a particular situation.”
The Cleveland Indians disagreed with Rawlins’s attendant circumstances theory. The ball club contended that fireworks shows are a common phenomenon of modern baseball, and introduced precedent in the form of a Second Appellate District case that held that even though a patron was distracted by a mascot when the patron was hit by a foul ball, mascots are part of, and inherent to baseball and accordingly, the patron still had a duty to be vigilant.
In overruling the trial court, the court in Rawlins agreed that there is an exception to the primary assumption of the risk doctrine (as applied in the Eno case), however, it held that whether or not the Indians did in fact order Mr. Rawlins from his seat, and whether or not the order to relocate because of the fireworks was an attendant circumstance not inherent to baseball were questions of fact that would need to be heard by the trial court.

In other words, based upon the holding in Rawlins, “under the assumption of the risk doctrine, the sponsor of a sporting event has a duty “‘not to increase the risk of harm over and above the inherent risk of the sport,’” and whether or not the risk of harm is so increased is a genuine issue of fact.

So what is the moral of this story? Simply remember that hot coffee is hot, a fish entrée is bound to include bones, and baseballs are bound to be flying overhead during a baseball game, which in the 21st century includes mascots, fireworks and hopefully more World Series games for the Cleveland Indians.

Watch your Language with Oil and Gas Leases in Ohio

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

As established in other “Watch Your Language” articles for this Blog, as a general rule, courts will uphold language in commercial agreements, unless it is contrary to statutory law or public policy. Because of this judicial deference to “commercial language”, you must say what you mean, precisely, or a judge will decide what you meant. Compounding the problem is the fact that courts typically refuse to consider extrinsic evidence of a party’s intent (offered by such party) if they determine the contract language is clear and unambiguous. What is said within the “four corners of an agreement” is simply deemed the best evidence of intent.  

The Ohio Supreme Court in Lutz v. Chesapeake Appalachia, L.L.C., Slip Opinion No. 2016-Ohio-754 recently espoused this basic tenet of Ohio law in regards to oil and gas leases.

Lutz v. Chesapeake came to the Ohio Supreme Court in a different manner than most cases. Frequently, a trial court decision in Ohio gets appealed to an Ohio court of appeals, and that decision may then be appealed to the Ohio Supreme Court. In Lutz, the case originated in the United States District Court for the Northern District of Ohio (Eastern Division), and then this federal court certified a question of law to the Supreme Court of Ohio pursuant to Ohio S.Ct.Prac.R. 9.01. A certified question is a formal request by one court to another for an opinion on a question of law.

The question of law the U.S.District Court wanted answered, was in an oil and gas lease, when figuring royalty payments due the landowner,Does Ohio follow the ‘at the well’ rule (which permits the deduction of post-production costs [before royalty payments are calculated]) or does it follow some version of the ‘marketable product’ rule (which limits the deduction of post-production costs under certain circumstances)?”

The Ohio Supreme Court in Lutz respectfully declined to answer the question of law before it, basically because the court had no unique, broad oil and gas law for the U.S. District Court to apply to all oil and gas leases; rather, its holding would depend much more on facts and general contract (interpretation) law.

The facts of the case are as follows: The respondents, Regis and Marion Lutz, Leonard and Joseph Yochman, and C.Y.Y., L.L.C., the landowner-landlords claimed that petitioner, Chesapeake Appalachia, L.L.C., the tenant-oil and gas company, underpaid gas royalties under the terms of their leases. No one disputed that the oil and gas company needed to pay for all the production costs (i.e., the costs of producing the gas from below the ground and bringing it to the wellhead) incurred. The dispute centers on “postproduction costs”(such as the cost to gather, process and compress the gas, the cost to transport the gas and other costs incurred after the gas is produced at the wellhead and before it is sold). Specifically, the issue is whether or not postproduction costs should be deducted from the sale price of gas before royalty payments to the landowner are calculated. The language of the leases specifies that royalties are to be paid based on “market value at the well” and on the “field market price.”

The oil and gas company argued that the plain language of the leases controls and that since the leases specify that the  royalty is based on the value of the gas at the well, any postproduction costs would need to be deducted from the sale price to arrive at the well price before the royalty percentage can be calculated. The landowners claimed that there is no real market at the well, so the oil and gas company “has an implied duty to market the product once it leaves the wellhead, and therefore the lessee must bear the cost of bringing the product to the market and not deduct the costs before calculating the royalty.”

The Ohio Supreme Court declined to answer the U.S. District Court’s question, basically because it was the wrong question. The Supreme Court of Ohio concluded that there is no specific rule of law particular to oil and gas prices at the well head vs. afterwards. Instead, the law to be applied in this case would be the traditional rules of contract construction, because according to the court, an oil and gas lease is basically, a contract. Specifically, the court stated that the law to be applied should be the “well-known and established principle of contract interpretation that [c]ontracts are to be interpreted so as to carry out the intent of the parties, as that intent is evidenced by the contract language.”  

It will have to be the U.S. District Court, however to apply the law in this case, because the case was dismissed by the Ohio Supreme Court. The court explained that if the contract (lease) language is ambiguous, they cannot look to intent because there was no extrinsic evidence brought before their court. Alternatively, the Supreme Court of Ohio reasoned that if the lease language is not ambiguous, then the federal court should have no trouble interpreting the leases without its assistance.

What is the moral of this story? The only thing clear about Lutz v. Chesapeake (other than there being no specific rule of law in Ohio re: deduction of post production costs when calculating oil and gas royalties) is the need to be clear when drafting oil and gas leases. If the parties had specified exactly what costs are to be deducted when determining gas prices and calculating royalties, there would have been no need for litigation, and no worry regarding what  a judge will decide they meant.

CLE Update: Upcoming CLE Seminars in Ohio


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

Cleveland Metropolitan Bar Association

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

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

The Ohio State Bar Association is presenting its 24th Annual Bradley J. Schaeffer Real Property Institute on December 15, 2016.The Institute runs from 8:00 AM until 4:00 PM.
 https://images.ohiobar.org/pdficon_20.png  Click here for the course brochure 4/14-15 in Columbus;13.50 CLE hours

       Oil and Gas Update –11/18 in Columbus, Cleveland, Akron and Wooster- 6.00 CLE hours

      Title Law in Ohio— 11/3 in Cleveland; 11/7 in Youngstown; 12/8 in Worthington- 6.00 CLE hours

      Environmental Liabilities in Real Estate Transactions — 12/1 in Cincinnati; 12/7 in Mansfield- 6.00 CLE hours

      Handling Real Estate Transactions from Start to Finish--- 12/1 in Cleveland- 6.00 CLE hours

P  Prefer to obtain some of your CLE hours online? Try…

Finally, below are links to the continuing education pages for some of the bar associations in Ohio:

New Way for Ohio Homeowners to Spell Relief: “D.O.L.L.A.R.”

(as in Ohio Sub. H.B. 303’s  D.O.L.L.A.R. Deed Program)

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

On September 28, 2016, Ohio Sub.H.B. 303 became effective. Governor John R. Kasich signed the bill into law in June of this year, after unanimous passage in the Ohio House and Ohio Senate.  The most frequently asked questions and answers to the same are as follows:

What does Ohio Sub. H.B. 303 do?

The bill enacts new sections 5315.01, 5315.02, 5315.03, 5315.04, and 5315.05 of the Ohio Revised Code, creating the D.O.L.L.A.R. Deed Program.


Who introduced the bill and why?

Republican Reps. Jonathan Dever of Cincinnati and Robert McColley of Napoleon jointly introduced the bill last August. According to Rep. Dever, “This legislation is a small step in helping to keep the American dream of homeownership alive for thousands of Ohioans…As our communities struggle to preserve continuity, this legislation will be a tool to keep our neighborhoods together, kids in school, and bolster our economy.”


What is the basic premise of the D.O.L.L.A.R. Deed Program?

The program basically provides homeowners and lenders the option of allowing homeowners to remain in their homes as tenants instead of foreclosing on their property. During the tenancy (up to two years) the former homeowner will have the right to repurchase/refinance its property.


What do the letters in the D.O.L.L.A.R. acronym stand for?

The program’s acronym means Deed Over, Lender Leaseback, Agreed Refinance.

Who is eligible to apply?
Any mortgagor who is a resident of his/her home, whose debt to income ratios are below the then current ratios set for the program.

How does the program work?
Once an applicant applies, the lender is not required to participate, but must respond to the homeowner within thirty (30) days. If the lender approves the application, the homeowner and lender enter into a deed in lieu of foreclosure whereby the homeowner deeds title back to the lender, and in return, the lender terminates the foreclosure proceeding and enters into a lease for the property with the homeowner, which lease includes a right of the homeowner to repurchase the property with the lender refinancing the original loan. The homeowner must sign an estoppel affidavit acknowledging, among other things that the original mortgage is not extinguished during the lease term and that the homeowner relinquishes its statutory right to redeem the property outside of the program.

What are the terms of the lease?
Responsibilities of the tenant that are established by Ohio’s Landlord Tenant Act apply. However, statutory repair/maintenance obligations of the landlord do not apply to a lender-landlord under this program. The duration of the lease is the shorter of the period of time necessary for the homeowner to be approved for the new financing (or other FHA mortgage assistance) and two years. Rent cannot be less than monthly taxes, insurance and association or condominium dues.

Where can the full text of the “D.O.L.L.A.R. Deed statute “be found?
See Ohio General Assembly website for the full text of the Statutes: http://search-prod.lis.state.oh.us/solarapi/v1/general_assembly_131/bills/hb303/EN/05?format=pdf

Watch your Language with Board of Elections (Referendum) Petitions

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

As established in other “Watch Your Language” articles for this Blog, as a general rule, courts will uphold language in commercial agreements, unless it is contrary to statutory law or public policy. Because of this judicial deference to “commercial language”, you must say what you mean, precisely, or a judge will decide what you meant. Compounding the problem is the fact that courts typically refuse to consider extrinsic evidence of a party’s intent (offered by such party) if they determine the contract language is clear and unambiguous. What is said within the “four corners of an agreement” is simply deemed the best evidence of intent. 

Saying what you mean, precisely, is as important in drafting statutes and ordinances as it is in commercial agreements. As a general rule, courts will also uphold clear and unambiguous statutory language. Statutes clear in their terms need no interpretation; they simply need application. If the …language of a statute reveals … a meaning which is clear, unequivocal and definite… the statute must be applied accordingly." Provident Bank v. Wood (1973), 36 Ohio St. 2d 101, 105-106. Even the failure to follow a seemingly trivial grammar rule (the omission of a comma) can result in unintended consequences. In W. Jefferson v. Cammelleri, 2015-Ohio-2463 (a 12th Appellate District case), the court held that a municipal parking ban ordinance that intended to ban parking of motor vehicles and campers from street parking during certain hours did not apply to an individual who parked his truck overnight because a strict reading of the statutory language serves to prohibit a “motor vehicle camper” from being parked on the street for an extended period of time, and a truck is not a motor vehicle camper.

Based upon the recent case of State ex rel. Jacquemin v. Union Cty. Bd. of Elections, Slip Opinion No. 2016-Ohio-5880, saying what you mean, precisely is also important with regard to Board of Election petitions, in this case, a “referendum petition”.
Referendum petitions are petitions to put on the ballot a repeal of an existing law or section of law, and are governed by Ohio Revised Code Chapter 3519. Basically, to lawfully place a referendum on the ballot, petitioners must draft changes to (or repeal of) an existing law, prepare a summary of the same, and garner at least 1,000 signatures.

In Jacquemin, the law the petitioners wanted repealed was a Jerome Township resolution, adopting (and modifying) the Township Zoning Commission’s approval of an application for a Mixed Use Planned Development (PUD #15-120) for property owned by the Jacquemins and others. The PUD would include senior housing and care and multi-unit housing where such uses were not permitted prior to the resolution. The referendum petition summary described the location of the PUD as “Between the West side of Hyland Croy Road and the East side of US 33.”

The Jacquemins filed a protest of the petition with the Union County Board of Elections. On April 12, 2016, the board held a hearing and voted to deny the protests and to place the referendum issue on the November 8, 2016 ballot. The Jacquemins then appealed the board’s decision to the Ohio Supreme Court to prevent the board from placing the referendum on the ballot. The Jacquemins contended that the referendum summary was invalid because it contained six omissions and three errors. The Ohio Supreme Court focused on just one of the errors in the petition summary. The summary states that the nearest intersection to the properties is “Hyland-Croy Road and SR 161 – Post Road.” But the closest intersection is actually Hyland-Croy Road and Park Mill Drive; the difference being a quarter of a mile. At first glance, as stated by the court, “Without more, the error seems minor enough.”

Is there more? The Supreme Court of Ohio thought so. To reach that conclusion, the court first looked at precedent (prior court decisions on point) regarding petition summary mistakes. According to precedent, “If the mistake makes the summary “misleading, inaccurate or contains material omissions which would confuse the average person, the petition is invalid and may not form the basis for submission to a vote.”

The court then applied the law to the facts and held that the mistake in the petition summary was indeed misleading. How is listing one cross street vs. another ¼ mile away on a 60 acre parcel misleading? According to the court, “the context of the mistake informs its import.” The context in Jacquemin is that the misidentified intersection is near the location of land now zoned for big-box retail use, as a result of a contentious zoning change already approved for a development to the southwest of this property.

According to the court, “By misidentifying the nearest intersection as one that is near property that is already being developed for big-box retail use, the petition summary may have poisoned would-be signers against the new development, which is more than a quarter mile away from the intersection identified in the summary. At the very least, it suggests to a would-be signer that the developments would nearly overlap each other. The petition summary is therefore misleading and cannot form the basis to submit this issue to a vote.”

What is the moral of this story? While it is comforting that the Ohio Supreme Court, in this case looked to context, and not simply that a mislabeling mistake was made, the moral of this story is that our high school English teachers were right, we must “watch our language” because mistakes in the “real world” will be much more costly than a lower letter grade.

If the Form Does Not Fit, You Must Alter It- (#5)

As discussed in other articles for this Blog, under the heading, “If the Form Does Not Fit You Must Alter It,” the real estate attorney’s optimal role can be analogized to that of a department store tailor. Sometimes, parties cannot afford custom made “suits” (contracts) from an expensive boutique “store” (law firm). Or, custom dictates that the off the rack “suit at a department store” (standard form) be used. The problem is that the off the rack suit rarely fits all “body types” (transactions). Consequently, if the off the rack suit (form) does not fit, you must alter it.  Inapplicable clauses of a contract can be crossed out and initialed by the parties on the form. Small insertions can be written in and initialed, and large insertions can be added by way of addendum. 

In the world of residential real estate, however, where custom dictates that the real estate broker form be used, attorneys are sometimes as welcome to tailor make real estate transactions as a band of desperadoes is to a small western town without a sheriff.

We have had clients come to us reporting verbiage from residential brokers to the effect:

                          “It’s the ‘standard contract’ we use it in all of our sales;”

“You don’t need a lawyer; the contract was drafted by lawyers;”

3                    “We cannot make any changes to the forms;” and

4                   “Our Docu-sign program does not allow you to make any changes; just fill in the blanks and                   sign.”

All of the above statements are essentially true, except the second statement.  While the broker form contracts are indeed drafted by lawyers, those lawyers represent the brokerage companies. That is why you will see several clauses that begin with language to the effect: “broker shall not be responsible for” or “broker has not made any warranties.” Much of the form is actually fairly balanced between buyer and seller        (except for some standard forms that still have somewhat of a seller slant, originating with language that pre-dates the advent of buyer brokers and dual agency). Nevertheless, there are many legitimate reasons a buyer or seller may need an attorney to help weigh the balance in their favor (e.g., a buyer’s need for a contingency on the sale of its existing home, or a seller need for a quick, cash only deal). Additionally, there are some troublesome clauses we have seen (discussed below) that only a lawyer can/should modify. Finally, there are potential survey, title and other matters that are often glossed over in the standard contract.

Regarding the other statements above, it is true that virtually all brokers use the standard contracts, and that brokers cannot make any changes to them, other than fill in the blanks.

The reason that standard forms are used and are not to be changed by brokers is that Ohio
law prohibits individuals not licensed as an attorney from holding themselves out as an attorney or committing any act prohibited by the Ohio Supreme Court as the unauthorized practice of law. The Ohio Supreme Court has defined what constitutes rendering legal services as: (1) giving legal advice; (2) preparing legal documents, including contracts and (3) appearing in court proceedings on behalf of another person.

As a general matter, however, it is acceptable for real estate professionals to “fill in the blanks” on lawyer prepared documents. The Ohio Supreme Court has held that “the supplying of simple, factual material such as the date, the price, the name of the purchaser, the location of the property, the date of giving possession and the duration of the offer requires ordinary intelligence rather than the skill peculiar to one trained and experienced in the law”, and consequently, is not the unauthorized practice of law. A good, plain language summary of the law in this regard can be found on the Ohio Board of Realtor’s website entitled: A Good Broker Toolkit: Unauthorized Practice of Law, at: http://ohiorealtors.org/legal/brokers-legal-toolkit/unauthorized-practice-of-law/.

Just because a broker cannot make any substantive changes to their standard form, does not mean an attorney or one of the direct parties cannot insist upon modifications. While the vast majority of realtors we have dealt with understand this, the few that advise changes cannot or should not be made at all to the forms are in fact engaged in the unauthorized practice of law. Stating that legal advice is not needed, or that particular changes should not or cannot be made is in effect, legal advice.

Among the provisions we think should be altered, especially when “outfitting” a buyer are the following:

          AS IS”-Most sellers of residential real estate want to sell, on an AS IS basis, and most buyers, if they want to buy a home, will have to buy on that basis. However, the buyer should not have to agree to buy, “AS IS” until after their inspections, and final walk thru have occurred and they have waived their rights to terminate the contract. The standard forms, however contain premature language in this regard. For example, consider this language from a major brokerage company’s form: “The Property, which Buyer has examined and accepts in its present AS IS physical condition shall include the following…” An easy fix here is to use the following, alternative language: The property, which seller is selling in its present AS IS physical condition shall include the following…”

             “…then, this Agreement shall be null and void- This language usually follows a certain condition that must occur, or not occur in the contract. The problem is that null and void literally means “all bets are off”, “case closed” and “game over.” We see this language most often, in the financing contingency and inspection sections of the standard contract. The contract language in the financing contingency provision usually provides, to the effect, “if a commitment is not received within __ days, then this Agreement shall be null and void.” The problem with this wording is that delays usually occur, and often, not the fault of the buyer. A short, built in extension period could easily solve this problem. Also, there are times when a Buyer prefers to finance, but may actually be able to pay in cash and not want the contract to expire if it cannot get its commitment. Making the contract voidable, at the option of the buyer vs. automatically void can solve this problem.

The second place the null and void language usually occurs is in the inspection section. The standard contract inspection provision usually gives a Buyer three choices if its inspections indicate problems. The buyer can: 1) terminate the contract; 2) accept the problems and close; or 3) accept the property subject to an agreement with the seller on the amount and timing necessary to fix the problem(s). If a buyer chooses option three, however, the contract only gives the parties a short period of time to agree, and if there is no agreement, the contract is automatically deemed null and void. Again, making the contract voidable, at the option of the buyer vs. automatically void will allow the buyer to stay in the deal if it wants, if it cannot agree with seller. While seemingly important at first, trying to avoid a $500 drywall repair could cost the buyer its dream house.

       Material Defects -Most of the standard forms only allow the buyer to terminate the contract if its inspections reveal “material defects not previously disclosed. “Maybe a U.S. Supreme Court justice or two knows a material defect when he/she sees it, but for the rest of us, this language is almost meaningless. It would be so much easier, prior to contract signing for buyer and seller to choose a number both parties can live with as the definition of material. In other words, language such as “Material Defect” shall mean a defect that costs $_____ or more to repair” could easily transform a potential contract dispute into an easy contract resolution.

      “…then Buyer and Seller shall mutually agree, or sign a mutual release, and thereafter the escrow agent shall refund the Earnest Money.” Language like this is usually found in connection with termination provisions of the standard contract. The problem with this language is that if the buyer is attempting to exercise a termination right, seller and buyer will be hard pressed to mutually agree upon anything. Without such a release, buyer and seller will find themselves in “legal limbo” and the buyer will not likely see its earnest money until after a successful court battle.

The best example of this issue can be found in a major brokerage company’s walk-thru addendum form. This form allows a buyer to walk thru the property it is buying a couple of days before closing, and if the walk-thru evidences a “material adverse change in the Property”, buyer is to notify seller and then buyer and seller are to mutually agree upon an amount to be withheld from seller’s proceeds (and held in escrow until repairs are made), or an amount to be credited to Buyer. The problem occurs when buyer and seller cannot agree. If there is disagreement as to whether there is a material change, you can bet there will be no inclination on seller’s part to agree on an amount to remedy the change in the property. Quantifying “material adverse change” and adding a cause allowing termination of the contract if the parties cannot agree on the amount to be withheld/credited could easily prevent potential litigation. Sellers should be equally concerned here because “contract purgatory” would seriously hamper their efforts to sell their property to a new buyer.

     Title & Survey- One standard brokerage form we reviewed merely stated that the “Buyer is encouraged to obtain an Owner’s Title Insurance Policy”. It did not provide language giving buyer the option to receive a “Title Commitment”, which is basically the title company’s offer to provide a buyer with title insurance, together with a report of any liens, encumbrances, easements…currently against the title. In virtually all commercial contracts, and many residential contracts, the buyer has a right to terminate the contract if the Title Commitment shows encumbrances that are troublesome to the buyer. Few standard residential contracts even mention the word “survey”. However, we know of numerous disgruntled buyers who found out, after they bought their properties that their neighbors driveway, or retaining wall or flower beds encroached on their property
An “ALTA Survey” would have disclosed the encroachments. Moreover, an ALTA Survey would have been all that was needed in these situations for the title company to delete its exception for survey matters, and cover the legal and survey expenses. The broker in one of these situations told the buyer they did not need an ALTA Survey, or an attorney.

What is the moral of this story? Brokers cannot “tailor-make” their contract forms-it is against the law in Ohio; and while the buyer and seller can represent themselves, the old adage usually rings true-“those that represent themselves have a fool for a client.” That leaves one option- have a lawyer review your real estate contract. You are the customer, you can specify that you don’t want a new, tailor made suit, that the pants don’t need hems and that you just want basic alterations such that the odds of there being a wardrobe malfunction are greatly reduced.

If a broker, seller, buyer or other party is telling you that you don’t need a lawyer, and you can’t make any alterations---  it is time to look for another “suit”. As this author’s father used to say, “Sometimes the best deals are the ones you don’t make.”