Pending Real Estate Legislation in the Ohio Legislature

Spring is finally in the air and that means, among other things that the Ohio Legislature ( is in session. The bills of the 131st General Assembly pending in the Ohio House and Ohio Senate related to real estate are as follows:

HB 18
To amend sections 5301.072 and 5311.191 and to enact sections 4781.401 and 5321.131 of the Revised Code to prohibit manufactured homes park operators, condominium associations, neighborhood associations, and landlords from restricting the display of blue star banners, gold star banners, and other service flags, and to prohibit manufactured homes park operators and landlords from restricting the display of the United States flag.

HB 77
To amend sections 4740.01-4740.06, 4740.061, 4740.07- 4740.10, 4740.101, 4740.12, 4740.13, 4740.131, 4740.15, 4740.16, and 4740.99 and to enact sections 4740.18- 4740.21 of the Revised Code to require statewide registration of home improvement contractors, to modify the membership of the Ohio Construction Industry Licensing Board, and to make an appropriation.

SB 84
To amend sections 4781.40, 5301.072, and 5311.191 and to enact section 5321.131 of the Revised Code to prohibit manufactured homes park operators, condominium associations, neighborhood associations, and landlords from restricting the display of Ohio flags and blue star banners, gold star banners, and other service flags, and to prohibit manufactured homes park operators and landlords from restricting the display of the United States flag.

SB 85
To amend sections 307.699, 3735.67, 5715.19, 5715.27, and 5717.01 of the Revised Code to limit the right to initiate most types of property tax complaints to the property owner and the county recorder of the county in which the property is located.

SB 96
To amend section 5715.39 of the Revised Code to waive any penalty due with respect to unpaid property taxes resulting when a mortgage lender fails to notify the county auditor of a satisfied mortgage.

SB 104
To amend sections 505.86 and 3929.86 of the Revised Code to provide owners and lienholders of insecure, unsafe, or structurally defective or unfit buildings with a right to a hearing before the board of township trustees proceeds to remove, repair, or secure the buildings.

SB 108
To amend section 5323.04 and to enact sections 525.01- 525.04, 525.99, and 5715.111 of the Revised Code to permit townships to require owners of residential rental property located within the township to register certain information with the board of township trustees.

SB 109
To enact sections 5755.01 to 5755.12 of the Revised Code to authorize townships to levy impact fees on new development to finance capital improvements necessitated by that development.

SB 112
To amend section 3781.109 of the Revised Code to require public buildings to have at least one rest room facility with an adult changing station.

HB 114
To amend section 3737.84 and to enact section 3781.106 of the Revised Code to require the Board of Building Standards to adopt rules for the use of a barricade device on a school door in an emergency situation and to prohibit the State Fire Code from prohibiting the use of the device in such a situation.

Ohio Supreme Court Decides in Favor of Beck Energy; Local Drilling Ordinances Not a Valid Exercise of Home Rule

The Ohio Supreme Court decided a critical case in February affecting the state’s oil and gas drilling industry when it issued its decision in State ex rel. Morrison v. Beck Energy Corp (Slip Opinion No. 2015-Ohio-485) on February 17, 2015.
Beck Energy Corporation (“Beck Energy”) obtained a state permit to drill an oil and gas well on private property in the city of Munroe Falls (the “City”), located in Summit County.  The City attempted to block Beck Energy from drilling the well despite its state permit based on its own ordinances. The permit  was issued to Beck Energy by the Ohio Department of Natural Resources (“ODNR”) under O.R.C. 1509.02.  It contained 67 separate conditions, including many that addressed issues related to site preparation, pit construction and waste disposal, along with many others that govern “Urbanized Areas,” such as noise mitigation, erosion control, tree trimming and parking. Beck Energy, as an applicant for a drilling permit, was also required to provide notices to each owner within 500 feet of the well’s surface location, as well as to the municipality where the well was to be drilled.
The City issued a stop-work order and sought an injunction against Beck Energy alleging that the company was violating the City’s ordinances. The appeal to the Ohio Supreme Court involved 5 of these ordinances; including a general zoning ordinance and 4 ordinances that specifically relate to oil and gas drilling. Violations of these drilling ordinances constitute misdemeanors and could result in jail time and fines, with each day of the violation being a separate offense.
Beck Energy opposed the City’s injunction request which was granted by the trial court but overturned by the court of appeals.  The City appeals to the Ohio Supreme Court who addressed the question as to whether the City’s ordinances represented a valid exercise of its home-rule power.
The home rule amendment to Ohio’s constitution gives municipalities the “broadest possible powers of self-government in connection with all matters which are strictly local and do not impinge upon matters which are of a state-wide nature or interest.” (State ex rel. Hackley v. Edmonds, 150 Ohio St. 203, 212, 80 N.E.2d 769 (1948))  However, a municipality is not allowed to exercise its police powers in a manner that conflicts with general laws. In those instances, it must yield to the state’s law.
In reaching its decision that the City’s ordinances must yield to O.R.C. 1509.02, the Ohio Supreme Court followed a 3 step analysis: (1) is the ordinance an exercise of the police power rather than of local self-government, (2) the statute is a general law, and (3) the ordinance is in conflict with the statute.
In this case, the City did not dispute that its ordinance involved the exercise of police power rather than local self-government. The court then found that O.R.C. 1509.02 is a general law as it (1) is part of a statewide comprehensive legislative enactment, (2) applies to all parts of the state alike and operates uniformly throughout the state, (3) sets forth policy, sanitary or similar regulations, and (4) prescribes a rule of conduct upon citizens generally. The court noted that just because a state statute will have more impact in one geographic section of the state over others does not prevent it from being a ‘general law’.
Finally, the court found that the City’s ordinances conflict with the state’s statute. An ordinance conflicts with a state statute when it permits or licenses that which the statute forbids and prohibits, and vice versa. In this case, the City’s ordinances prohibited a permit that was lawfully issued by the state under O.R.C. 1509.02 and attempts to provide for double licensing which is not permitted under the state statute.
Finding a balance between home-rule authority and state regulatory authority is difficult, even without the added controversy of fracking. Under the circumstances, it comes as no surprise that the Ohio Supreme Court’s decision in favor of Beck Energy was issued by a divided (4-3) court. It will be interesting to see what transpires in the future on this subject.

Aladdin and the Vacancy Exclusion

On one level, the granting of Aladdin’s wishes by the Genie is a lot like insurance coverage today.
Aladdin: You're gonna grant me any three wishes I want, right?
Genie: Uh, almost. There are a few, uh, provisos, a, a couple of quid pro quos.”

When you make a wish for insurance with your agent, the provisos and quid pro quos are the policy limits, deductibles and exclusions.

One very typical exclusion in all commercial insurance policies (and Homeowners policies) is the vacancy exclusion. The simple reason this exclusion exists is that vacant buildings are more prone to arson, theft, vandalism and property damage.

The problem is that while the vacancy exclusion is typical, the commercial insurance definition of “vacant” is atypical. When most of us think of “vacant”, we think of “empty” or devoid of everything and everyone.

In many commercial policies, a building is considered vacant if 31% or more of its total square feet are un-occupied and the operations conducted are not those customary to the use of the building. In such policies, if a building is “vacant” more than sixty days, no coverage will be provided for vandalism, sprinkler leakage, water damage, theft, or attempted theft.
In such policies, it is the definitions within this specialized definition of “vacant” that have proven to be most problematic (at least in the eyes of the insured).

The recent case of Nationwide Mut. Ins. Co v Pinnacle Baking Co., Inc., 2014-Ohio-1257 presents a good example of the issues with vacancy exclusions and their interpretations by Ohio courts.

In Pinnacle, Nationwide insured Pinnacle Baking Co., Inc. through a Business Owners Policy of Insurance. Pinnacle operated a commercial bakery in a building it leased in Columbus, Ohio. Pinnacle ceased business operations in the building in 2008. In 2010, the building was broken into and a freezer, refrigerator, computer, fryer, glazing machine and other equipment was stolen.

In 2011, Pinnacle submitted a proof of loss to Nationwide, claiming $103,000 in stolen goods. Nationwide refused to pay the claim, and Pinnacle sued.  Nationwide asserted that the policy did not cover the 2010 loss, as the property was vacant under the terms of the policy. Pinnacle asserted that the vacancy exclusion in the policy was inapplicable, as Pinnacle kept all of the equipment necessary for a commercial bakery in the building, and "would have been baking again immediately with a quick trip to Kroger for eggs, flour and oil." Nationwide noted that, while Pinnacle had some appliances and equipment in its building, it did not possess the raw materials which were necessary to produce baked goods.

The trial court stated that "[w]hile defendant did not have every item of personal property in the building to conduct customary operations, the policy contains no such requirement” and “Defendant had enough personal property in the building to conduct customary business operations at any time." Accordingly, the trial court determined that the building was not vacant, and Nationwide should pay the claim.

Nationwide asserted on appeal that the trial court erred in finding that the building was not vacant. Nationwide claimed that the building did not contain enough business personal property to engage in customary operations, that the vacancy exclusion to coverage applied, and that Pinnacle was therefore not entitled to coverage under the policy.

The 10th District Court of Appeals recognized that since the facts were not in dispute, the sole issue between the parties was whether or not the Premises were vacant as defined in the insurance policy.

As a guide to define such policy, the court of appeals first summarized the law regarding how insurance contracts are to be construed. “Insurance contracts are construed using the same rules as other written contracts … where the policy’s language is clear and unambiguous, the court may not ‘resort to construction of that languagethe words and phrases used in the policy must be given their natural and commonly accepted meaning… [while] ambiguous provisions—particularly provisions purporting to exclude or limit coverage— must be construed strictly against the insurer and liberally in favor of the insured, the mere absence of a definition in an insurance contract does not make the meaning of the term ambiguous.

Next, the court of appeals examined the specific language of the policy. The vacancy exclusion in the policy provided that, where the "building where loss or damage occurs has been vacant for more than 60 consecutive days before that loss or damage occurs, Nationwide will not pay for loss or damage resulting from vandalism, sprinkler leakage, building glass breakage, water damage, or theft.” The policy further provided that the building would be considered vacant “when it does not contain enough business personal property to conduct customary operations." The policy defined business personal property located in the building as consisting of: “(1) Personal property you own that is used in your business, including but not limited to furniture, fixtures, machinery, equipment, and stock.” “The policy defined "stock" to mean "merchandise held in storage or for sale, raw materials and in-process or finished goods” and "operations" to mean "your business activities occurring at the described premises." The phrase "enough business personal property" was not specifically defined in the policy.

Taking into account the rules of construction and the exact wording of the policy, the court of appeals reasoned that it did not need to determine the meaning of “enough” personal property, because the building did not have a key element of the definition of personal property at the premises: “stock”, to conduct customary operations. The evidence demonstrated that Pinnacle did not have raw materials on site (e.g. eggs, flour, and butter) for it to produce any baked goods.

As such, the court held that “based on the evidence in the record, we are constrained to find that the building was vacant within the terms of the policy.”

What is the moral of this story? Read your insurance policies, and ask your agent to clearly explain all of the provisos and quid pro quos, or your wish for insurance may not come true. Had Pinnacle not vacated its refrigerator, it might have had coverage for its loss.

In addition to understanding how vacancy is defined, the exceptions to the vacancy exclusion must also be clearly understood. In many policies, if a building is under construction or renovation, the building won’t be considered “vacant.” However, in Suder-Benmore Co. Ltd. v. Motorists Mut. Ins. Co., 2013-Ohio-3959 (6th Dist. Ct. of Appeals, Lucas County) the court concluded that planning to renovate did not suffice to meet the definition of renovation. The plaintiff  in Suder-Benmore had begun the process of renovating its space from a party center to a sports bar by hiring an architect, cleaning, hiring a manager for the property, obtaining necessary government approvals, and removing a stage and coat racks. No actual work, however had begun. The court also concluded that the work planned would be considered “remodeling” and not “renovating.”

A Guarantor's Waiver of Defenses Doesn't Protect a Bank From Its Own Misconduct

A recent decision was issued by a California appellate court that, while not controlling in the State of Ohio, is worth mentioning as it could prove useful to guarantors in other jurisdictions in similar straits. In California Bank & Trust v Thomas Del Ponti, the trial and appellate courts refused to deem the waiver of statutory defenses that are typical in loan and guaranty agreements as waiving ALL defenses, particularly equitable defenses, if the result of enforcing the guarantee would be the unjust enrichment of the bank.
The above case involved a construction loan by California Bank & Trust’s predecessor-in-interest, Vineyard Bank. The loan was for the construction of townhome project in two phases, and was guaranteed by two principals of the developer.  About the time the first phase was nearly complete, the bank stopped funding the construction draws, which prevented the construction on the first phase from being completed, and obviously resulted in a developer default under the loan.
The bank eventually reached a deal with the developer and required the general contractor to complete phase one so it could sell completed townhome units at auction. However, the bank wanted the subcontractors to take a haircut on their invoices and release their mechanics liens. The general contractor instead paid the subcontractors out of its own funds so the units could proceed to auction lien-free. Despite all of this, the bank proceeded to foreclose on the developer and sold the units through a trustee sale. It then sued both the developer and guarantors through California Bank & Trust, as its assignee, to seek payment on the deficiency balance. The general contractor joined the fun and sued both the bank and the developer due to breach of contract and seeing restitution the losses it suffered.
The court consolidated the bank and contractor cases and found against the bank on both holding that the bank breached the assigned construction contract AND breached the loan agreement with the developer, absolving the guarantors of liability.
The bank appealed claiming that the guarantors’ waived of all of their defenses in the guaranty agreements. The appellate court disagreed. The guaranty agreements did not expressly waive the bank’s own misconduct and the court was not about to read that into the agreement.  The court held that to enforce such a sweeping interpretation would violate public policy as it would result in the guarantors’ being forced to pay the deficiency balance on the note to the bank when it was the bank who willfully breached the loan agreement causing the default.
This action would likely play out the same way in most courts in Ohio or elsewhere in the Midwest. The courts expect all parties in a transaction to act in good faith, and absent an express language the states otherwise, typically won’t stand for a party to be unjustly enriched by its own misconduct.

The Shrinking Due Diligence Window in Commercial Real Estate Purchases

February 11, 2015

By: Arnon Wiener, Esq.- CEO, Real Diligence and LeaseProbe, divisions of Madison Commercial Real Estate Services

The revival of the real estate market is presenting new opportunities for commercial real estate owners and investors across the U.S. Improved lending conditions and the increase of capital availability are driving market growth on its forward momentum. After hunkering down to wait out the storm of the recession, the commercial real estate market is resurging with an influx of deals.

This is good news for real estate owners and investors. However there is a consequence to the increasing demand for properties: fierce competition. While competition is beneficial to the marketplace, investors should be aware of a secondary effect which may have a negative repercussion on the decision making process; namely the shrinking due diligence window.

Due diligence is the research conducted ahead of purchasing a property. In real estate, the due diligence process should include a thorough review of the financial history and cash flow projection for the property. The buyer should analyze all the financial information which is pertinent to the property, including historical financial statements, projected budget income, reimbursable income and methodology, operating expenses, taxes, insurance and more.

Conducting a comprehensive due diligence review takes time. The prospective buyer needs to carry out a thorough and accurate assessment in order to determine the financial and physical state of the property.
The due diligence period usually begins when the prospective purchaser has made an offer that the seller has accepted. The buyer then places a down payment in an escrow account to be applied towards the purchase. Once the due diligence deadline has passed, the deal goes hard.

Both parties in the transaction want it to move along at a reasonable pace. It used to be that typical due diligence periods ranged from 40 to 45 to 60 days. This was considered a practical amount of time to make an informed decision.

However, because of the increasing competition, due diligence time periods are shrinking significantly. Buyers are now being offered a due diligence window as small as 28 or even 21 days. Tighter due diligence windows of three or four weeks can pose a risk to investors.

With the pressure of a tight deadline, investors may be tempted to rush through the due diligence process in order to snap up a property. There is no denying the importance of speedy and assertive decision making when purchasing real estate. At the same time, it is as essential to have the knowledge to make a decision that is not just quick- but correct as well.

Buyers are now positioned between a rock and hard place, in which they are pressured to meet the impeding due diligence deadline, while still conducting thorough research of the potential property. The increased strain on the buyer may put him or her at risk to make hasty decisions, and then repent later.
Despite the shrinking window of stipulated due diligence periods, real estate owners and investors should still remain conscious of the need to make informed and measured decisions.
Madison Commercial Real Estate ServicesSM is a group of independent but related companies that offer specialty services for the commercial real estate market. Each company excels in a specific, highly specialized area of expertise. Their collective mission is to anticipate and fill the needs of the commercial real estate market with a comprehensive network of services delivered by exceptionally knowledgeable, skilled, and experienced professionals.

Among the many services offered by Madison Commercial Real Estate Services and its affiliates are: Title Insurance and Closing Services (via Madison Title Agency, a full-service title agency); 1031 exchanges (via Madison Exchange, LLC, one of the industry's premier §1031 specialists and Qualified Intermediaries); cost segregation studies and analysis (via Madison SPECS); Lease abstracting and administration (via LEASEPROBE Abstracting Services); and comprehensive, accurate and timely financial due diligence for commercial real estate acquisitions (via REAL DILIGENCE Financial Valuation and Analysis).

For more information, contact:

The State of Homes Sales in Northeast Ohio

I was curious about how home sales are progressing in Ohio. The economy in NE Ohio where I am based has struggled for a while, although it’s been looking up, and some realtors have told me that single family homes are moving much quicker now.

Below are monthly statistics for home sales in NE Ohio, based by county, for December 2014.


Total Homes Sold
Avg Market Time
Avg Sales Price


Three bedrooms accounted for the largest portion of sales in all of the counties listed above. However, in Geauga, Lorain and Medina counties, 4+ bedrooms ran a close second.

Thank you to Jeanine Visage for providing me with the information in this post.

If any reader has access to statistics for sales in other regions of Ohio and would be willing to share the information, please let me know.



Ohio Snow and Ice; to Remove or not to Remove, that is the Question

(assuming you can get out of your drive)

As we dig out from under our latest snowfalls, it seems appropriate to summarize the relatively recent Franklin County Court of Appeals decision in Cain v. McKee Door Sales, 2013-Ohio-4217, and other cases dealing with premises liability for injuries due to accumulation of ice and snow.

As aptly pointed out by the Court in Cain, “the Supreme Court of Ohio has made liability [in snow and ice cases] very hard to establish.” In Brinkman v. Ross, 68 Ohio St.3d 82 (1993; the leading case on this issue), the Ohio Supreme Court held: the “homeowner has no common-law duty to remove or make less hazardous natural accumulation of ice and snow on private sidewalks or walkways on homeowner's premises, or to warn those who enter upon premises of inherent dangers presented by natural accumulations of ice and snow, regardless of whether the entrant is a social guest or business invitee.”

In the Brinkman case, the Brinkmans were invited to the Ross home during the winter. The Rosses knew that the sidewalk into the house was covered by a sheet of ice, which in turn was covered by snow, but never warned the Brinkmans. While walking on the sidewalk between the driveway and the Ross home, Carol Brinkman slipped on the snow-covered ice and fell, sustaining serious injuries. Ms. Brinkman sued and lost at the trial court stage, but appealed that decision. The court of appeals in Brinkman agreed with the plaintiff who admitted the snow/ice had accumulated naturally, but claimed the Rosses had a duty to disclose the dangerous situation that they knew about. 

The Ohio Supreme Court in Brinkman reversed the decision of the appellate court on the basis of law, and common sense, as if to say: “Who does not know that snow and ice are slippery?”  Actually, the Ohio Supreme Court put it more eloquently, by stating: “As a matter of law, the guest is charged with sufficient knowledge of the hazards to be required to protect herself against falls."

The facts of the case in Cain are a little more involved. Betty Cain fell on snow and ice in the parking lot at the office of her eye doctor. She was seriously injured, and as a result, she sued various entities affiliated with the office building. In her affidavit, Ms. Cain stated that she approached her car from the rear, and as she was reaching for her door, she slipped and fell on the snow and ice that had accumulated in the drainage swale of the parking lot.  While the basic facts in Cain are somewhat similar to the basic facts in Brinkman, counsel for Ms. Cain argued that the construction of the parking lot was improper or improperly designed, resulting in a trough (or swale) in the parking lot which accumulated snow, ice and water in what constituted an unnatural accumulation. Experts testified to this “unnatural phenomenon”. The trial court relied on Brinkman, and granted summary judgment in favor of the defendants. Ms. Cain then appealed.

In reversing the trial court’s summary judgment, the Franklin County Court of Appeals held that there was a genuine issue of material fact as to whether or not Ms. Cain fell on an unnatural accumulation of ice which resulted from the design of the parking lot, and accordingly remanded (sent back) the case to the trial court for further appropriate proceedings. In other words, the court of appeals simply recognized that there is an exception to the rule (for “unnatural accumulations”) and awarded the defendants their day in court to try and prove it.

Would these cases have come out any different in a landlord-tenant situation? Based on Ohio case law, probably not, with two exceptions.  One, if the landlord has promised in its lease to clear snow and ice from the premises, then yes, the landlord can be sued if he fails to live up to his contractual obligations. Two, if a landlord decides to remove ice and snow, without an obligation in the lease to do so, he then has a duty to use ordinary care not to create a hazard or to aggravate an existing hazard. Such a hazard would constitute an unnatural accumulation.

Actually, whether or not in a landlord tenant situation, anyone that undertakes to remove snow/ice can be liable for a slip and fall if they have done so negligently, or in a way that makes the area more hazardous than it had been without the efforts at snow removal.

What is the moral of this story? Never shovel or “de-ice”? There are some who subscribe to that theory. However, before you decide to take such an approach, you should note:1) A lease or other contract may create the duty/obligation to remove ice and snow; 2) your applicable municipality may have snow removal ordinances. If your city or township has such an ordinance that requires you to keep walkways free of snow and ice, then you have a responsibility to maintain the same. In fact, some Ohio cities with snow removal ordinances levy fines for not removing snow in a timely manner; and 3) if you have a good insurance policy, why not listen to your mother and be nice to your neighbors.