A Greenhouse Building is not a Building but a Movable Business Fixture according to Ohio Board of Tax Appeals

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

That old adage, if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck” holds true for…waterfowl and a host of persons, places and things, but not for greenhouses in the recent Ohio Board of Tax Appeals decision, Viola Associates, LLC v. Lorain County Board of Revision, Case Nos. 2016-1273, 1274 and 1275.                                                                                                                                                          
The facts of the case are simple enough; the law, not so much.

Facts of the Case

Green Circle Growers Inc. and Viola Associates, LLC (collectively, “Green Circle”) own approximately 186 acres of land improved with greenhouses, packing and storage facilities, a residence and barn. Lorain County valued (in 2016) the property for tax purposes at approximately $40 Million. Green Circle filed complaints with the Lorain County Board of Revision (“BOR”) seeking a reduction in value to approximately $22 Million. Shortly thereafter, the appellee, Firelands Local Schools Board of Education (“BOE”) filed a counter complaint in support of maintaining the auditor’s $40 Million value. The primary issue addressed by the BOR (and afterwards, by the Board of Tax Appeals) was whether the greenhouses situated on the property should be treated as real property, and accordingly included in the assessment of the subject property’s total true value; or as personal property that should be excluded from the subject’s value for purposes of real estate taxation.

At the BOR hearing, Green Circle claimed that the greenhouses, while attached to the land, are removable, and therefore constitute personal property that should not be included in the auditor’s valuation. Green Circle presented testimony from several witnesses who testified that “the method by which a greenhouse is affixed to the ground and constructed is similar to an erector set, in that it can be deconstructed and reconstructed with limited damage” and that “there is an active secondary market for the resale of greenhouses, which are deconstructed and then sold to again be used for horticulture.” Green Circle also offered testimony from an appraiser who opined that the greenhouses were personal property and should not be included in the value of the subject real property because they could be removed from the property with relative ease, and would yield little value to anyone other than someone in the horticulture business. The BOE cross-examined Green Circle’s witnesses, but did not offer any independent evidence of value.

In spite of all of the testimony, the BOR ruled that Green Circle presented insufficient evidence to support a reduction in value, and that therefore, the initial assessed valuation of $40 Million was to be maintained. Green Circle then appealed the BOR decision to the Ohio Board of Tax Appeals.

Applicable Law

Distinguishing between personalty and realty is a vexing issue in many real estate and tax related arenas. In landlord-tenant law, for example, the issue usually centers on who is entitled to remove and/or retain the item in question (e.g., a supplemental HVAC system bolted to the roof) at the end of the lease. In a foreclosure, the issue is whether or not the item is realty, and can be foreclosed upon, or personalty, and not part of the property being foreclosed. The distinction in tax law can determine what are qualifying REIT assets, the amount of a taxpayer’s Investment Tax Credit, what gets capitalized and whether or not property qualifies as a 1031 Exchange.

At early common law, the general rule was that everything attached to realty became part of the realty, and therefore was deemed irremovable. Friedman on Leases, Sec. 24.1 at 1414 (2005). In modern times, as is the case with many “general rules,” the exception (removability) seems more general rule than exception. While most would agree that a 20 story office building is realty and a lawn mower is personalty, between the extremes is much more difficult to assess. In other words, how does one classify grain bins, silos, electronic billboards, cold storage cooler rooms, oil tanks and amusement park rides?

Unfortunately, there is no one size fits all definition. In Ohio, the answer for landlord-tenant issues can be found in common law decisions. See, e.g., Perez Bar & Grill v. Schneider, 2012-Ohio-5820; Household Finance Corp. v. The Bank of Ohio, 62 Ohio App. 3d 691, 694 (1989) and Friedman on Leases, Sec. 24.1 at 1414 (2005). The definition of real property for various income tax issues can be found in the U.S. Tax Code and corresponding regulations for the applicable tax issue.

In determining whether a landowner’s real estate should increase in value for real estate tax purposes (or not be affected because the item in question is personal property), county auditors must look to the statutory definitions of real property and personal property in the Ohio Revised Code. 

R.C. 5701.02 defines “real property” (as used in Title LVII of the Revised Code [Taxation]) as follows:

(A) 'Real property,' 'realty,' and 'land' include land itself . . . with all things contained therein, and, unless otherwise specified in this section or 5701.03 of the Revised Code, all buildings, structures, improvements, and fixtures of whatever kind on the land…”

The definitions of “buildings”, “fixtures”, “improvements” and “structures” appear in R.C. 5701.02 (B) - (E), respectively.

R.C. 5701.03 defines “personal property” (as used in Title LVII of the Revised Code [Taxation]) as follows:

“(A) ‘Personal property’ includes every tangible thing that is the subject of ownership . . . including a business fixture, and that does not constitute real property as defined in Section 5701.02 of the Revised Code.

(B) ‘Business fixture’ means an item of tangible personal property that has become permanently attached or affixed to the land or to a building, structure, or improvement, and that primarily benefits the business conducted by the occupant on the premises and not the realty. 'Business fixture' includes, but is not limited to, machinery, equipment, signs, storage bins and tanks, whether above or below ground.  ‘Business fixture’ also means those portions of buildings, structures, and improvements that are specially designed, constructed, and used for the business conducted in the building, structure, or improvement, including, but not limited to, foundations and supports for machinery and equipment…”
It is important to note that in 1992, the Ohio General Assembly amended the definition of “personal property” to include “business fixtures.”

Analysis of the BTA’s Decision in Viola

To reach its conclusion that the Green Circle greenhouses were personal property (and that the BOR decision should be overruled), the Board of Tax Appeals (“BTA”) in Viola first felt it necessary to determine if the subject greenhouses could be classified as buildings, structures or improvements. If so, the analysis would end there, and the greenhouses would be taxed as real property. The BTA reasoned that the definition of these items in R.C. 5701.02 (B) - (E) all shared “an element of permanence in their original fabrication or construction” (vs. a “fixture” or “business fixture” that starts out as an item of tangible personal property, that then becomes attached or affixed to the land or to a building, structure, or improvement). The BTA then determined the greenhouses were not buildings, structures or improvements, based upon the testimony presented by Green Circle’s witnesses that described the greenhouses as temporary, built to be removed and often sold on a secondary market following removal. According to the BTA, the greenhouses were a far cry from permanently constructed buildings built to shelter persons or property, or structures defined by the Ohio Revised Code to include bridges, dams and silos. The BTA was not swayed by the appellee’s argument that the greenhouses were permanent because they were attached to concrete. Although the concrete is incorporated into the real estate, according to the BTA, “that does not transform the item to which it is attached [to real estate], such as an… amusement park ride and its shelter, which retains its character as tangible personal property, albeit permanently affixed to the land.”  Moreover, personal property can include foundations and supports pursuant to R.C. 5701.03.

Once determined not to be structures, buildings or improvements, the next threshold question for the BTA to answer was whether or not the Green Circle greenhouses were “fixtures,” and accordingly, real property; or “business fixtures”, and accordingly, personal property.

According to the BTA, the “statutory test” for items not buildings, structures or improvements boils down to whether the item “primarily benefits” the business or the realty. This makes sense as the statutory definitions of “fixture” and “business fixture” are identical, except for the primary benefit language at the end of each definition. In other words, the greenhouses would be classified as “fixtures” and real property if they primarily benefit the realty; or “business fixtures” and personal property if they primarily benefit the business.

The BTA came to the conclusion that the greenhouses in question primarily benefited the business (vs. the realty), based on the evidence presented to the BOR and the BTA. As stated by the BTA in Viola, “Green Circle presented testimony from multiple individuals to demonstrate that the greenhouses in question were designed especially for growing plants…. primarily benefit Green Circle Growers’ horticulture business and would provide little value, if any, to another occupant of the land who was not engaged in the same or very similar business.” Also important to the BTA was the fact that “the greenhouses are outfitted with computer systems, shade cloths, irrigation systems, retractable roofs, and a number of other components that are specific to the sophisticated operation taking place at the property… that would [not] benefit the land or any other occupant of the property that was not engaged in a commercial horticulture business.”

What about precedent (prior decisions on point)? In fact, the BOE strongly argued that the Supreme Court of Ohio, in Green Circle Growers, Inc. v. Lorain Cty. Bd. Of Revision, 35 Ohio St. 3d 38 (1988) decided that these very same greenhouses were real property and should be taxed as such (for the applicable tax years in question). The BTA in Viola easily distinguished this case, however, because it was decided prior to the 1992 amendment to R.C. 5701.02 and 5701.03 that revised the definitions of real and personal property for taxation purposes, most notably adding the newly defined “business fixture,” which the Ohio General Assembly specifically excluded from the definition of real property. According to the BTA in Viola, “these definition changes demand reconsideration of the issue and lead to a different result.” Namely, that the greenhouses should be deemed personal property and not part of the real estate.

Adding “insult to injury”, the BTA in Viola also described two cases decided after the 1988 Green Circle case (and after the afore-mentioned 1992 amendments), in which the Supreme Court of Ohio held that the items of property in question were business fixtures and not real property fixtures. See Metamora Elevator Co. v. Fulton Cty. Bd. of Revision, 143 Ohio St.3d 359, 2015-Ohio-2807 (Grain Bins were held to be business fixtures and not real property); and Funtime, Inc. v. Wilkins, 105 Ohio St.3d 74, 2004-Ohio-6890 (amusement park rides and their accoutrements were held to be business fixtures and not real property).

Having found that the greenhouses in Viola are business fixtures and, therefore, should not be taxed as real property, the BTA’s final task was to examine the appraisals of the BOE and Green Circle and determine the appropriate value of the real property. Using the appellant’s cost approach for the residential property, and sales comparison approach for the commercial property, the BTA arrived at a total value of $10,200,000.

With an approximate $30 Million difference between the BOE’s opinion of value and the BTA’s determination of value, the appellee, reportedly has petitioned the Ohio Supreme Court to consider the matter. Only then will we know if what looked like a greenhouse building to the Ohio Supreme Court in 1988 is still a greenhouse building in 2018, or a business fixture as determined by the BTA in Viola.


By: Stephen D. Richman, Esq. – Senior Counsel – Kohrman, Jackson & Krantz
Earlier this summer (June 6, 2018), the Ohio House of Representatives passed HB 407 which would abolish dower rights in Ohio. Since its passage in the House, the bill has been introduced in the Ohio Senate, but according to the Ohio Legislature website, it has yet to be assigned to committee.
How many other states still have dower?
Besides Ohio, there are just two (2) states that still recognize traditional dower rights: Arkansas and Kentucky. A number of states that have abolished dower, however, retain effective spousal protections. For example, while New Jersey formally abolished dower in 1980, each spouse in that state retains a statutory right of possession in their principal residence after the death of the other spouse.
What is dower?
Generally speaking, dower rights are rights in part of a spouse’s estate, provided by law to the surviving spouse for his/her support. Historically, dower rights were limited to a wife’s rights in part of her husband’s estate, but most states over the years extended these rights to apply to a husband upon the death of his wife (sometimes known as “curtesy”); and later, to be gender neutral, redefined dower to apply to spouses, without husband and wife designations.
In Ohio, dower is an estate for life to a surviving spouse in one-third of the real property that the decedent spouse owned at any time during the marriage. In effect, this provision allows the surviving spouse to receive one-third of rents or profits from such real estate for the rest of the surviving spouse’s life.  Currently, the only way to extinguish dower rights in Ohio are: 1) death; 2) divorce and 3) voluntary, written release of dower (at each property transfer transaction).
Why was dower created?
Dower rights date back to the middle ages. Some historians claim dower was created to provide property to widows and widowers who were not part of the royal bloodline.
Others claim that the origin of dower centers around helping women, who years ago were not permitted to own property; and afterwards, as a means to help support the many women who were not part of the workplace due to discrimination, social norms…
 Why the call for dower to be abolished?
Regardless of its origins, most commentators (including title companies, real estate attorneys, real estate trade organizations, legislators and others) agree that dower is a sexist, archaic, superseded and troublesome doctrine that should be abolished.
Succinctly stated by Ohio Representatives Jonathan Dever (R-Madeira) and Bill Seitz (R-Cincinnati), the sponsors of HB 407, dower should be abolished because it is “antiquated and the largest cause of bad title, creating the inability to sell real estate because marital status or release of dower were omitted from a deed or mortgage.”
What often happens, for example, is that “Spouse A” refuses (or is unavailable) to release their dower interest (by a simple “sign off clause” in a deed or mortgage) when “Spouse B” attempts to sell or mortgage property owned by Spouse B. As a result, the title insurance company will not insure title (or will insure, but only with an exception for dower rights), and the grantee or lender will usually walk away from the deal, not wanting to risk “sharing the profits” with Spouse A, after the death of Spouse B.
Moreover, those calling for abolishment of dower are quick to point out that simply, dower is no longer necessary in the current real estate and legal system in Ohio (and other jurisdictions). For example, Ohio and other states now provide spousal protection by virtue of laws such as:
        1) Ohio’s elective share statute (O.R.C. §2106.01) which basically allows the spouse to elect, in lieu of what a will provides, an automobile and support allowance, plus one half of the net estate (unless two or more of the decedent’s children or their lineal descendants survive in which case the surviving spouse would receive one-third of the net estate); 
2) Ohio’s domestic relations law (O.R.C. §3105.171) which basically provides that any property acquired during the marriage is a “marital asset” subject to equitable division during a divorce or dissolution, regardless of which spouse holds title; and
3)  Ohio’s statute of descent and distribution (O.R.C. §2105.06) which basically provides a road map for who gets what in an estate, when there is no will, with the spouse at the top of the chart.
Critics to abolishment of dower (in Ohio) point out that without it, one can totally “disinherit” a spouse in Ohio. This claim is based upon the fact that Ohio’s elective share and descent and distribution statutes can be effectively circumvented with elaborate trust-based estate plans. However, proponents of abolishment counter that maintaining the existence of dower, as a practical matter will not effectively solve this issue. States that have wanted to avoid spousal disinheritance have simply made an exception to their elective share statutes to apply to more than just the “probate estate.” Moreover, non-real estate assets such as stocks, 401K accounts and insurance products exceed more traditional real estate holdings these days, and those that hold real estate usually do so via a limited liability company vs. individual ownership. In other words, very little property is held individually that dower would attach to, and few surviving spouses could live off of a dower interest in such property.
What would happen to dower rights that accrued prior to the date of any abolishment statute?
The repeal of dower would not adversely affect a surviving spouse’s right to dower that was elected or that vested before the effective date of the act.
What are the next steps?
Having passed in the Ohio House, it is now up to the Ohio Senate and the Governor of Ohio. While not yet before a senate committee for testimony, the bill is expected to be passed by the Senate and signed into law before the end of this year. Even though the Ohio House and Ohio Senate are not always on the same page, if the overwhelming support the bill faced in the House is any indication (the bill was passed 66-1, with 25 co-sponsors), this prediction by abolishment proponents is likely to become true.
Bottom Line?
As stated by Charles “Chip” Brigham, Secretary/Treasurer of the Ohio Land Title Association in his testimony to the Ohio House:
“Dower is an archaic reminder of our agrarian past. It has little present substantive value…. It remains a bane to real estate professionals and imposes unnecessary time, cost, and expense on homeowners … It’s time to give dower a well-deserved demise.”
On the other hand, perhaps it is also time to consider filling what some consider a void in Ohio’s spousal protection laws, by modifying the elective share statute to include revocable trusts (as in South Carolina), or by granting each spouse a statutory right of possession in their principal residence (after one spouse dies) without regard as to whether or not such residence is part of the probate estate of the decedent (as in New Jersey).

Caveat Emptor (“Let the Buyer Beware”) Is Still Alive and Well in Ohio

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

The doctrine of caveat emptor (“let the buyer beware”) is still alive and well in Ohio, generally precluding recovery in an action by a purchaser against a seller pertaining to a property’s defective condition if:

1) the condition complained of is open to observation or discoverable upon reasonable inspection;

2) the purchaser had the unimpeded opportunity to examine the premises; and

3) there is no fraud on the part of the vendor. Layman v. Binns (1988), 35 Ohio St.3d 176.

While Ohio’s Seller Disclosure Act (R.C. 5302.30; the “Disclosure Act”) still requires sellers of most types of residential property to disclose known defects, the Disclosure Act does not directly modify the doctrine of caveat emptor by creating a new statutory fraud claim or by eliminating existing common law claims. In fact, Section 5302.30 (L) of the Disclosure Act makes it clear that R.C. 5302.30 is not intended to affect any (common law) remedies available prior to its enactment. Nevertheless, if the seller fails to disclose a material fact on the disclosure form with the intention of misleading the buyer and the buyer relies on the form, the seller [has committed fraud and] is liable for any resulting injury. Pedone v. Demarchi, 8th Dist. [Cuyahoga] No. 88667, 2007-Ohio-6809. However, “[w]hen a plaintiff claiming fraud in the sale of property has had the opportunity to inspect the property, he is charged with knowledge of the conditions that a reasonable inspection would have disclosed.”

The Ninth District Court of Appeals in Petroskey v. Martin, 2018-Ohio-445 (Lorain County) and the Eighth District Court of Appeals in Hendry v. Lupica, 2018-Ohio-291(Cuyahoga County) recently reaffirmed the viability of caveat emptor in Ohio. Since the disgruntled buyer in Petrosky v. Martin (Mr./Mrs. Petroskey) and the disgruntled buyer in Hendry v. Lupica (Mr. Angus Hendry) both claimed fraud on the part of the seller, the following summary should prove helpful before evaluating these cases:

In the context of real estate transactions, there are basically two types of fraud: fraudulent misrepresentation and fraudulent concealment (with “fraudulent nondisclosure” sometimes being referred to as either a third type of fraud, or, a type of fraudulent concealment).  The elements of fraudulent misrepresentation are: (a) a false representation concerning a fact material to the transaction; (b) knowledge of the falsity of the statement or utter disregard for its truth; (c) intent to induce reliance on the misrepresentation; (d) reliance under circumstances manifesting a right to rely and (e) injury resulting from the reliance.  Sanfillipo v. Rarden, 24 Ohio App. 3d 164.

The basic elements of fraudulent concealment are: (a) actual concealment; (b) of a material fact; (c) knowledge of the facts concealed; (d) intent to mislead another into relying upon such conduct; (e) actual reliance; and (f) injury resulting to such person because of such reliance.  

Even without an affirmative misrepresentation or “actual” concealment, an action for fraud, commonly referred to as “fraudulent nondisclosure” is also maintainable in Ohio for failure to fully disclose material facts where there exists a duty to speak.  In such regard, the Supreme Court of Ohio has held that a “vendor has a duty to disclose material facts which are latent, not readily observable or discoverable through a purchaser’s reasonable inspection.”  Binns, 35 Ohio St.3d at 178

The facts of Hendry v. Lupica are as follows:

In 2015, Mr. Hendry purchased a home in Olmsted Falls, Ohio from the Lupicas (sometimes referred to herein as the “Sellers”). Prior to closing, the Sellers produced a residential property disclosure form that disclosed dampness and previous water damage in the basement. Mr. Hendry also had the home inspected by a professional inspector. The inspector found several issues with the basement, including foundation wall cracks, holes and signs of water infiltration. The inspector’s report also noted that the condition of the foundation was poor and advised Mr. Hendry to seek additional information about these issues prior to purchasing the property. Mr. Hendry did not follow that advice, and instead, negotiated a price reduction with the Sellers. Not to long after the purchase, Mr. Hendry experience water infiltration in the basement when it rained. He hired a waterproofing company to fix these issues, and then filed suit against the Sellers in September 2015, alleging fraud and mutual mistake, and requesting compensatory and punitive damages, or rescission of the contract.

Mr. Hendry contended that the caveat emptor doctrine did not apply because the Sellers fraudulently misrepresented and/or failed to disclose the extent of water intrusion problems in their basement. The Sellers only disclosed some dampness and some water damage that occurred prior to their ownership of the home.  Mr. Hendry further argued fraudulent concealment because the Sellers did not divulge that they had recently painted a wall in the basement. The trial court held for the Sellers and Mr. Hendry appealed.

The Eighth District Court of Appeals upheld the trial court’s ruling for the Sellers, easily coming to the conclusion that there was no fraud or misrepresentation.   The appellate court reasoned that the evidence clearly established that Mr. Hendry had actual knowledge of water infiltration in the basement through his professional home inspection. The inspection reported large cracks and holes in the foundation, and other problems and advised further investigation. Rather than investigate further, Mr. Hendry “bought the defects” by negotiating for a price reduction. There was no misrepresentation because the statements made by the Sellers were all true (there was dampness and prior water issues).  Further, there was no fraudulent non-disclosure because there was no duty for Sellers to disclose everything they knew about its property; only latent, not readily observable or discoverable defects.  According to the court, an open and obvious small defect was notice to the buyer that a larger problem may exist. Finally, the painting of one wall was not deemed concealment by the court because it did not conceal the extent of the problem; the cracks, holes and stains were still evident, and the inspection report backed this up.

Petroskey v. Martin is also a recent, “water infiltration in the basement case”, that includes a “scary” inspection report and a buyer that sought to “buy the defect” vs. learn more about the problem. The facts of this case are as follows:

In August, 2013, David Petroskey (sometimes referred to herein as “Buyer”), and Dee Martin (sometimes referred to herein as “Seller”), entered into a purchase agreement for a home in Lorain, Ohio.

In September, 2013, Buyer had the home inspected. The inspection report noted various water issues and concerns about the premises including: 1) evidence of water leakage and moisture in the crawl spaces; 2) the property’s grading was a “[f]lat [i]mproper soil slope towards [the] foundation;” 3) evidence of past water leakage around the skylights and evidence of past or present water staining on the ceilings in all bedrooms, the family room, and the master bathroom; 4) a “mold like substance” in the attic; and 5) loose and damaged trim wood and damaged wood fascia “from past or present leaks.” As was the case in Hendry v. Lupica, the inspector in Petroskey v. Martin also recommended further investigations and inquiries, including securing “[a] qualified roofing contractor to evaluate and estimate repairs.”

The seller in Petroskey v. Martin also completed an Ohio Residential Property Disclosure Form. However, where the Martin Disclosure Form asked, “Do you know of any previous or current leaks or other material problems with the roof or rain gutters? …. (but no longer than the past 5 years),” Mrs. Martin checked the “No” box. In her deposition, Mrs. Martin testified that, at the time she completed the Disclosure Form, she “thought it was about seven years” since they had the roof replaced.

In October, 2013, Mr. Petroskey and Mrs. Martin amended their purchase agreement. The amendment removed the general home inspection contingency and reduced the sale price. After the amendment, Mr. Petroskey (per his testimony) went through the Home “[m]aybe half a dozen” times before finalizing the purchase.”

Shortly after his purchase, Buyer suffered ice damming on the roof, leaking skylights and a leaking roof. In addition, Mr. Petroskey testified that “the front yard did not drain properly and water entered the crawlspace and collected on the floor.” Mr. Petroskey then sued the Seller alleging misrepresentations in the form of Seller’s Disclosure Form declarations that there were no roof leaks at the property. Whereas the Seller in Hendry v. Lupica failed to disclose the extent of the defects (a distinction without a difference according to the Hendry court), the Seller in Petroskey v. Martin denied there were any problems at all.

Accordingly, the trial court and the appellate court in Petroskey v. Martin aptly agreed with the Buyer’s characterization of the “no” answer on the Disclosure Form as a misrepresentation. The courts noted, however, that only a claim for fraudulent misrepresentation was actionable, and the evidence failed to show that the misrepresentation was made with knowledge of its falsity, or with reckless disregard as to whether these statements were true or false (recall that Mrs. Martin testified that she thought the roof repairs were completed over seven years ago vs. within five years as called for on the Disclosure Form).

Like the seller in Hendry v. Lupica, the seller in Petroskey v. Martin argued that there was no fraudulent-non-disclosure because the seller had no duty to disclose material facts which are not latent, and readily observable or discoverable through a purchaser’s reasonable inspection. Clearly, there was no question of past water leakage and water staining in the Lupica home, as well as in the Martin home. Both homes showed signs of the same, and the inspection reports for both properties clearly identified water leakage and staining.

The buyer in both cases argued that the respective defects in their homes were latent. The buyer in Petroskey v. Martin, however did not argue latency regarding the extent of the defect (as the buyer in Hendry v. Lupica unsuccessfully had), but rather, latency regarding the cause of the defect. Mr. Petroskey testified that he had to pay approximately $50,000 for a new roof and argued that the inspection report did not specifically mention ice damming and roof issues as the cause of the water intrusion and leakage.

Citing precedent from the Ohio Supreme Court as well as from other cases heard by the Ninth District, the court in Petroskey v. Martin was not persuaded that these “lack of causation facts” made any difference. As summarized by the Ninth District Court of Appeals in Petroskey: “The Ohio Supreme Court has found that, when determining whether a defect was ‘open to observation,’ the issue is not the ‘cause of the defect’ or the ‘remedial effectiveness of [a repair],’similarly, this Court has stated that the cause of the defect, the underlying problem, does not have to be open and obvious. If the defects are open and obvious …, the buyer is on notice to make further inquiry as to the underlying condition.”

Applying the law to the facts, the court of appeals in Petroskey concluded that, “Although the home inspector did not identify the cause of the ‘leaks’ as ‘ice damming,’ he did notify the Petroskeys of evidence of ‘past water leakage,’ ‘past or present water staining,’ and damage ‘from past or present leaks’ in various locations throughout the Home. Thus, the defect was not latent and the Petroskeys were on notice to make further inquiry as to the underlying problem.”

What is the moral of this story?  1) Never waive your rights to inspections; 2) don’t rely on the Disclosure Form, which more often than not turns out to be a “non-disclosure form;” 3) if any defect is uncovered in an inspection report, assume it is a big deal and investigate it further with an expert (per the court in Hendry, an open and obvious small defect was deemed notice to the buyer that a larger problem may exist); and 4) if you decide to “buy the defect”, make sure you know the price to repair it.

In other words, in the words of singer/songwriter/philosopher Kenny Rogers: “You got to know when to hold them, know when to fold them, know when to walk away and know when to run.”

Agricultural Land May = Wetlands (aka Farmed Wetlands)

Reprinted with permission from Jason McKenney& Ben Latoche of HZW Environmental Consultants, LLC

Over the past three (3) years, acquisition of agriculture properties for commercial and residential development has been on the rise.  Most prospective buyers, as well as the property sellers, generally believe that active agricultural fields are clear of regulated surface water features (e.g. wetlands, streams, and/or regulated ponds), however, that is not necessarily the case.  The official position taken by the United States Army Corps of Engineers (USACE), the regulatory agency responsible for determining the presence or absence of such features, is that these resources may still be present on such sites despite on-going and successful agricultural activity.  These features, primarily known as farmed wetlands, jurisdictional ditches, or palustrine open water systems, are protected under both State and Federal law in Ohio and thus will place a regulatory burden on both the property owner and any potential buyer of the land.

 In order to determine whether or not farmed wetlands or any other regulated aquatic resources exist within agricultural land, USACE recommends performing a thorough examination of existing background data before finalizing any waters delineation reports.  This background data can be constituted of aerial images (current/historical), soil surveys, topographic maps, and/or photographs of the land to name a few items.  Firms like HZW Environmental Consultants, LLC, and their peers can then combine this data with information gathered during a field visit and compile a comprehensive report.  A document of this caliber will give both the property owner and any potential buyers some peace of mind about the value of the land they may be exchanging.  This type of detailed report will also greatly increase the chances that USACE will concur with the consultant’s work and minimize any regulatory surprises down the road.

It is also important to note that landowners do have the ability to maintain, and potentially increase, the value of their property.  Doing so entails decreasing their (or any future purchasers’) regulatory burden by performing simple maintenance.  Most agricultural fields in Northern Ohio have some type of sub-surface tile or surface drainage system to shed water away from arable land and into a designated location such as a pond, stream, or off-site outlet.  When these systems fall into disrepair (e.g., sediment clogging in tiles or vegetation choking ditches), there is a chance that the fields they serviced can begin to mimic the natural conditions of wetlands and/or streams.  Thus, property owners looking to avoid federal or state regulatory headaches should address these issues promptly to ensure the free movement of water through and off of the property.  Such actions can include, but are not limited to, clearing ditches of excess vegetation and/or sediment, appropriately sizing/places culverts within ditches, ensuring tile discharge locations are clear of debris, and replacing any collapsed or failing subsurface tiles in a timely manner.

A note of caution, a prospective buyer should be weary of depending on a consultant’s report alone.  As stated above, USACE is the regulatory agency that determines the presence or absence of regulated aquatic resources.  Even the best consultants cannot always predict how USACE will respond to any given property.  Changes in Federal policy on wetland delineation come often, and interpretation of these shifting standards can vary greatly between USACE representatives of the same office.  Thus, it is always recommended that a jurisdictional determination be obtained from the Corps before any property changes hands.  This document is essentially an ‘official delineation report’ that legally affirms the location, size, amount, and type of jurisdictional resources that exist within a property.
HZW is a women-owned business enterprise and full service environmental and safety consulting firm with offices in Mentor and Akron, Ohio and field offices in Euclid and Canton, Ohio. They are recognized as one of the leading providers of quality environmental and safety consulting services in the State of Ohio, nationwide, Canada and Mexico. Jason McKenney (JMcKenney@hzwenv.com) is Group Leader and Ben Latoche (Blatoche@hzwenv.com) is a Project Manager, in HZW’s Wetlands & Ecology division.

Ohio Supreme Court Confirms Reversion Language No Longer Necessary to Create Fee Simple Determinable Estate

(Plain language within the four corners of the deed is key-pursuant to Koprivec v. Rails-to-Trails of Wayne County, Slip Opinion No. 2018-Ohio-465)

By: Stephen D. Richman, Esq. - Senior Counsel-Kohrman, Jackson & Krantz
-A Watch Your Language Series Article-

As established in other “Watch Your Language” articles for this Blog, as a general rule, courts will typically uphold commercial document provisions unless they are contrary to public policy or statutory law, or the subject of a mutual mistake. Courts traditionally presume that commercial parties are on more of an equal playing field and are more sophisticated concerning commercial transactions, since both parties will usually have attorneys to review their documents. More and more, parties to residential real estate contracts are being held to the same standard governing commercial transactions. Because courts often defer to the specific language of commercial (and other) real estate documents, unintended results are often the norm for parties who do not seek professional advice, and for professionals who do not closely review their documents. Even the failure to follow a seemingly trivial grammar rule (the use of i.e. vs. e.g.) can result in unintended consequences. In a 1995 Connecticut case, despite the tenant’s verbalized intent to the contrary, the court held that the use of “i.e.” [meaning, that is] vs. “e.g.” [meaning, for example] preceding a short list of repair items in a lease served to limit landlord’s structural responsibility to only those items listed in the lease vs. merely providing examples of the same.

 Because of this judicial deference to “plain language” within real estate and other documents, and the fact that courts, as a general rule will not look outside the four corners of a document (to consider extrinsic evidence of intent) if the language is unambiguous, you must “watch your language, and say what you mean, precisely, or a judge will decide what you meant.”

The Ohio Supreme Court in Koprivec v. Rails-to-Trails of Wayne County recently espoused this basic tenet of Ohio law with regard to deeds, specifically, deeds creating “fee simple determinable”, or conditional estates in land.

A Deeds/Estates in Land/Fee Simple Determinable Primer

Like a certificate of title for an automobile, the deed is the document that actually transfers the title of real property from one to another. Unlike a certificate of title for an automobile, however, the deed contains a specific legal description of the property; and may also contain warranties of title; reservations (e.g., right to reserve an easement over the property); and restrictive covenants (e.g., “this property may only be used for residential purposes”).

Also unique to deeds vs. certificates of title (and bills of sale to transfer other personal property) is the nature of the underlying property and the varied rights transferable thereto. While both cars and land can be leased for a specific period of time, a transfer of a “life estate” in land, for example, can transfer real property for a person’s lifetime.  (Note: a “fee simple” estate in land, on the other hand gives the grantee the right to own and possess real property forever).

Ownership of real estate can be further, uniquely limited, if a “defeasible” or “conditional” estate is transferred by deed. A defeasible fee or estate in real property is a fee simple interest that can be taken away from the grantee/holder upon the occurrence or non-occurrence of a specified event. For example, when grantor transfers to grantee a parcel of land “for so long as that land is used for summer camp purposes.”

The two main types of defeasible fees are “fee simple determinable” and “fee simple subject to a condition subsequent.” The difference between the two is that a fee simple determinable interest terminates automatically upon the occurrence or non-occurrence of the event (our example above), while the fee simple subject to a condition subsequent estate is not terminated automatically, but can be terminated at the will of a future interest holder upon the occurrence or non-occurrence of the specified event (the magic words for this type of defeasible fee would be “grantor transfers x to grantee, but if …., then grantor retains a right of re-entry”).

After a grantor transfers a fee simple determinable estate, said grantor is deemed to retain a “possibility of reverter,” as the property would revert to the grantor, automatically upon the occurrence or non-occurrence of the condition stated in the deed.

Are there recognized, “magic words” to create a fee simple determinable estate? Dating back to English common law, many courts recognized the establishment of a fee simple determinable estate by use of the words “so long as”, “as long as”, “until”, “during” and “on condition that.”

In Ohio, however, the Supreme Court in In re Petition of Copps Chapel Methodist Episcopal Church, 120 Ohio St. 309, 166 N.E. 218 (1929) held that a deed could not create a fee simple determinable estate without “reverter language” (specific words stating the property would revert back to the grantor, if the applicable condition in the deed is satisfied).

In fact, the trial court, and the court of appeals in Koprive relied on the Copps Chapel case to deny the plaintiffs’ claim of ownership.  The main issue for the court in Koprivec would be: 1) whether or not Copps Chapel was still good law in Ohio; and 2) if not, what new “magic words” in Ohio would be required to create a fee simple determinable.

Background/Facts of Koprivec v. Rails to Trails of Wayne Cty.

As well summarized by the court in Koprivec, “[t]his case involves a dispute about ownership of an abandoned rail corridor. It pits a nonprofit organization, Rails-to-Trails of Wayne County (“Rails to-Trails”), which seeks to develop the corridor into a bike trail, against three landowners, who claim ownership of the sections of the corridor adjacent to their properties. We have before us issues of deed construction and adverse possession.” [AUTHOR NOTE: This article only addresses the deed construction issues].

The specific facts of the case are as follows:

In 2009, Rails-to-Trails purchased an old railroad corridor with the intention of converting the land into a public, multi-purpose trail. In 2011, however, three owners of adjacent properties (the “landowners”) filed suit to establish their ownership of the sections of the corridor next to their respective properties. The landowners claimed title (ownership) based upon: 1) an 1882 deed, that they claim served to revert the corridor land to them when the corridor stopped being used as a railroad; and 2) all three claimed adverse possession of those sections of the corridor.

The granting clause (“[t]he words that transfer an interest in a deed,”) of the 1882 deed granted the property to the railroad company “and to its assigns forever.” The habendum clause (“the part of a… deed … that defines the extent of the interest being granted and any conditions affecting the grant”) provided that the grant was “forever for the purpose of constructing and using thereon a Rail Road.”

The plaintiffs in Koprivec construed the deed as creating a fee simple determinable.  They argued that when the land stopped being used as a railroad (which was the only purpose of the transfer), the part of the property adjacent to the properties they already owned reverted back to them as the successors-in-interest of the original grantors. Rails-to-Trails sought to establish that it was the valid property owner, based upon a valid, 2009 deed.

The trial court entered summary judgment in favor of Rails-to-Trails on all the landowners’ claims. It easily determined that under Copps Chapel, the 1882 deed did not create a determinable fee because it did not contain the “magic words”; that is, it did not explicitly state that the property would revert to the grantors when it ceased being used for railroad purposes. The Ohio Ninth District Court of Appeals affirmed the trial court’s judgment on the deed issue, holding that the 1882 deed created a fee simple absolute estate because the deed did not contain the magic reversionary language.

Analysis of Koprivec v. Rails to Trails of Wayne Cty.

It would have been easy for the Ohio Supreme Court to have affirmed the Ninth District’s decision on the basis of the Copps Chapel case. No magic reversion language, no fee simple determinable. That is why the Supreme Court of Ohio deemed the appellate court’s holding, “understandable.”

Instead, recognizing lower court decisions “have taken bites out of the Copps Chapel holding” and that the Ohio Supreme Court’s later decision in Hinman v. Barnes acknowledged/applied ‘the modern and prevalent rule for determining estates conveyed by a deed,” the Supreme Court in Koprivec admitted that “there is no longer reason to rely on Copps Chapel, and to do so would be inappropriate.”

The Ohio Supreme Court still affirmed the Ninth Appellate District’s decision (on the issue of deed construction), but not on the basis of Copps Chapel. According to the Ohio Supreme Court in Koprivec, case law of the past seven decades dictates the need to utilize the “‘modern and prevalent rule for determining the estate conveyed by a deed,’ which rule is, ‘that if the intention of the parties is apparent from an examination of the deed ‘from its four corners,’ it will be given effect regardless of technical rules of construction.’” Citing Hinman v. Barnes, 146 Ohio St. 497, 66 N.E.2d 911 (1946). In other words, according to the court in Koprivec,” it is the plain language of the deed that matters.”

The court in Koprivec reconciled the Copps Chanel and Koprivec cases by reasoning that the words of reversion in the Copps Chapel deed were simply the plain language words of the deed that established a fee simple determinable estate.

The court in Koprivec, however, recognized that the prime example of creating a fee simple determinable estate is when a grantor conveys a property to another “for so long as it is used for X;” the magic words being conditional language, not reversion language.  The court reasoned that when a grantor uses those [conditional] words, “she means exactly that—that she intends for the property to be held by the grantee for so long as it is used for X; [and] when the property stops being used for X, it reverts to the grantor.”  Recognizing this tenet was far from new law, the Koprivec court (citing prior law review articles) admitted that “the phrase so long or as long as ha[d] been recognized as sufficient to create a determinable interest ‘since before the days of [the 16th-century legal commentator Edmund] Plowden.’ “

Applying the “modern law” to the facts of the case, the court in Koprivec found no use of the words “so long as”, or similar conditional phrases. Nor was there any reversion language. Instead, classic fee simple absolute language was utilized; namely, “to grantee and to its assigns forever.”   True, the deed also contained the language: “forever for the purpose of constructing and using thereon a Railroad.” However, focusing more on the purpose than the forever language of this clause, this kind of language, according to the court, “simply describes the reason for the conveyance,” and “does not condition the railroad company’s right to hold the estate on its use as a railroad.” Citing classic, “black letter treatise law”, the court in Koprivec concluded that, “Unless a conditional estate is created by the express language of a deed or will, the grantor or testator will be conclusively presumed to have intended a fee simple [estate].”

What is the moral of this story? Watch your language, and say what you mean precisely, or a judge will tell you what you meant. While reversionary language is no longer necessary to establish a fee simple determinable estate in Ohio, “it couldn’t hoit.” Why not use all the magic words-the requisite conditional language (so long as, as long as…) and the reversion language? That way, there is nothing left open to interpretation. Make the plain language, plain as day, and you won’t need your day…in court.