(Supreme Court of Ohio in LRC
Realty, Inc. v. B.E.B. Properties, Slip Opinion No. 2020-Ohio-3196 reaffirms time-tested
rule that absent an express reservation in a deed, a covenant to pay rent runs
with the land)
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.
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 (sometimes referred to as the “Four
Corners Rule”), you must “watch your language, and say what
you mean, precisely, or a judge will decide what you meant.” And, more
often than not, what a judge decides in these cases is not what at least one of
the parties meant.
The Ohio Supreme Court in LRC
Realty, Inc. v. B.E.B. Properties, Slip Opinion No. 2020-Ohio-3196 recently espoused this basic tenet
of Ohio law with regard to deeds, when it held that: 1) absent an express
reservation in a deed conveying property, a covenant to pay rent runs with the
land; and 2) “subject to”
language in a deed, without more does not constitute an express reservation.
Background/Facts of LRC Realty, Inc. v. B.E.B. Properties.
As succinctly stated by the Ohio Supreme Court in LRC
Realty, “This case
concerns the leased land beneath a cell tower and the right to receive rental
payments from the tower’s owner following the transfer of the underlying
property.”
The specific facts of the case are as follows:
In 1994, B.E.B. Properties (“B.E.B.”) leased
a portion of its three-acre commercial property in Chardon, Ohio to Northern
Ohio Cellular Telephone Company (now, “New Par”) and also granted New Par an
easement on that same property. Both the lease and the easement were
subsequently recorded and a cellular tower was later built on the site.
Between 1995 and 2013, there were
three (3) successive sales of the property. The third sale, which occurred in
2013 was to appellant, LRC Realty, Inc. (“LRC”). Not soon after the first sale of the property,
two of the partners of appellee B.E.B. (a general partnership) transferred
their interest in the partnership to the third partner and his wife, Bruce and
Sheila Bird (the “Birds”). The Birds assumed that the rents from the cell tower
lease were assigned to them (notwithstanding the sale of the property), and in
fact, New Par sent its rents to the Birds, until 2013 when LRC inquired as to
its rights to the rents, and initiated litigation seeking a declaratory
judgment that it was so entitled to such rent.
The trial court held for the
plaintiffs and ordered the Birds to pay the owner of the property prior to LRC,
the rents from 2007 to 2013, and to pay LRC the rents the Birds received in
2013, and thereafter. The Birds appealed the trial court’s decision to the 11th
District Court of Appeals of Ohio, and the 11th District reversed
that decision. Thereafter, the appellants appealed to the Ohio Supreme Court.
Analysis of LRC Realty, Inc. v. B.E.B.
Properties.
The
deed for the first transfer of the property was the key to this case (at all court
levels) and provided as follows: “B.E.B.
Properties … the said Grantor, does for its self and its successors and
assigns, covenant with … Grantees … that it will warrant and defend said
premises …against all lawful claims and demands whatsoever, “such
premises further to be subject to the specific encumbrances on the premises as
set forth above.”
The trial court found for the
plaintiffs based on long standing Ohio law, that absent a reservation in a
deed conveying property, the right to receive rents runs with the land; and it found
no specific words of reservation in the deed in question. The Eleventh District
believed that the “specific encumbrances
on the premises as set forth above” language was a reference to the
previously recorded lease and easement and therefore, such language should be
interpreted as a reservation of the right to receive future rental payments
under the lease.
The
Supreme Court of Ohio in LRC
Realty, Inc. v. B.E.B. Properties boiled the case down to
two issues: (1) whether the general law in Ohio still provides that absent an
express reservation in a deed conveying property, the right to receive rents
runs with the land; and (2) whether or not language in a deed indicating that
the property being conveyed is “subject to” a recorded lease agreement and
easement constitutes such an express reservation.
Citing
common law as far back as 1885, and statutory law enacted in 1965 (Ohio Revised Code Section 5302.04), the
Ohio Supreme Court answered the first issue in the affirmative, namely that a
covenant in a lease to pay rent “runs with the land” (meaning the right to
receive rents would ordinarily follow the legal title transferred by deed, and
belong to the grantee), absent a specific provision in the deed, reserving in
grantor the right to receive such rental payments.
In answering the second issue in the negative
(that the “subject to” language in the deed at issue did not constitute
an express reservation of rents), the Ohio Supreme Court simply acknowledged
and applied the “Four Corners Rule.” As
explained by the court, “When
interpreting a deed, the primary goal of this court is to give effect to the
intentions of the parties [and the] best way to do that is to look at the words
found within the four corners of the deed itself and to adhere to the plain
language used there.”
Applying
this rule of law to the deed at issue, the court concluded that “no words of reservation appear on the face of
the deed in connection with the words ‘rent’ or ‘rental payments,’ and accordingly,
B.E.B. Properties did not reserve the right to receive such rent when it
conveyed the property.“ Without such
a reservation, the court explained that
“B.E.B’s subsequent assignment of that [rental] interest to the Birds was thus
ineffective as it is impossible to assign an interest that one does not possess.”
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. The general, “Four Corners Rule” re:
judicial deference to the written word in commercial documents, still… rules. Consequently,
use the “magic” words- “reserve,” “reserving,” or
“reservation” (vs. “subject to”) if your intent is to reserve rents or other
rights in the grantor. 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.