Maintain does not mean Relocate

(Watch your Language [with easements] & Say What You Mean, Precisely or a Judge Will Tell You What You Meant #11)
Watch Your Language. 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. They traditionally presume that commercial parties are on more of an equal playing field and are more sophisticated concerning commercial real estate transactions, since both will usually have attorneys to review their documents. Because of this judicial deference to “commercial language”, you must say what you mean, precisely, or a judge will decide what you meant. This principle is just as true with regard to easements, as it is with contracts, leases and other commercial documents.

Easements in General. An “easement” is basically a right to use the property of another for a specific purpose. Most common are drive/access easements and utility easements. While there are limited exceptions, the vast majority of easements are created by separate written instruments (or are contained within deeds) and are recorded. Some easements are personal in nature and only apply while the burdened landowner owns the property, and others are “perpetual” and burden the land forever.

Easements will either spell out the specific rights to use the property granted to the easement “holder” (e.g. right to use the property to place above-ground or below ground electric lines), or be “blanket” in nature and not be limited as to use. Many easements will also contain 1) restrictions for the benefit of the easement holder which burden the land described as the “easement premises” (e.g., no buildings may be constructed upon the easement area); and  2) obligations imposed upon the easement holder for the benefit of the burdened landowner (e.g., requirements such as maintenance of the easement premises, and relocation of such premises or the facilities within the easement premises).

 Because of the possibility of easements existing forever, and the potential for unintended consequences due to a court misinterpreting easement language, “don’t try this (easement review/analysis/negotiation) at home”, without legal counsel.

Easement rights, for example often do not go far enough. If you need to install a storm water drainage pipe on your neighbor’s property (assuming the neighbor consents) you need to insist upon much more than the right to install the piping. The easement should also include the right to construct, remove, reinstall, reconstruct, operate, enlarge, supplement, repair, inspect, maintain and relocate such storm water drainage pipes as well as the right to permit storm water to flow through such piping. Similarly, easement obligations are often drafted in general terms, with the parties assuming intent is clear. The relatively recent case of Aqua Ohio Inc. v. Allied Indus. Dev. Corp., 2014-Ohio-1473 (7th Dist. Ct. of App., Mahoning Cty.) helps to reinforce the need to be specific and leave as little as possible to “interpretive chance.”

Aqua Ohio Inc. v. Allied Indus. Dev. Corp.  In the “Aqua Ohio” case, Aqua had an easement right to lay and maintain an 18” waterline across land owned by Lake Erie & Eastern Railway Company (which land was later sold to Allied). The easement agreement specifically required the easement holder to lay the pipeline so as not to interfere with railroad tracks on the property and to maintain such pipeline.

A number of years later, the waterline began leaking and flooded portions of Allied’s property. The leaking was eventually remedied but Allied (presumably still concerned) took the position that the waterline interfered with its plans for the property and that the easement holder needed to and was required to relocate the waterline. While the procedural facts are a bit muddled, the court of appeals upheld the lower court’s judgment in favor of Aqua, based on what the courts claimed was the plain and ordinary meaning of the language used in the contract. The 7th District Court of Appeals held that Aqua was only prohibited from interfering with the tracks when it laid pipeline, because that is specifically what the contract called for. Allied alleged that per the contract, any time Allied determined that the waterline was interfering with the development of the property, the waterline would have to be removed and relocated. As clearly stated by the court, “Reading of the contract in the manner Allied suggests ignores the plain language of the contract and is illogical.

Also important to the court was that the plain language of the easement agreement was consistent, throughout. In the remedies section of the agreement, damages were only allowable if they resulted from the “improper maintenance, operation and/or use of the waterline.” There was no specific mention of “interference damages.”

Couldn’t Allied have taken the position that removal of the pipeline was part of Aqua’s duty to maintain? It is certainly possible that the original owner of the burdened property intended that to be the case. The court, however would have no part in writing presumed intent into the contract.  That is the opposite of what Ohio law (and most other jurisdictions) require of a court when interpreting commercial contracts. As aptly summarized by the court in Aqua, “When the language of a written contract is clear, a court may look no further than the writing itself to find the intent of the parties. In addition, we will look to the plain and ordinary meaning of the language used in the contract unless another meaning is clearly apparent from the contents of the agreementThe word ‘maintain’ is not defined by the agreement, therefore, we must use the ordinary meaning of the word. Maintain means, ‘To preserve or keep in a given existing condition, as of efficiency or good repair.’ Webster’s II New Riverside University Dictionary 717 (1984). This does not mean relocate or move. As such, we will not read such language into the contract.”

What is the moral of this story? As with all of our “Watch Your Language posts, it is the same moral, just a different story. Namely, regarding easements, leases, deeds and other commercial contracts, courts are not psychic mind readers; they are “literal translators”, so say what you mean, precisely, or a judge will decide what you meant.

Time to Proudly and Statutorily Display our Flags in Ohio

On this 4th of July holiday, in a world of economic uncertainty and cowardly acts of terrorism, it seems more than prudent to be patriotic and proud of displaying our symbols of G-d and country, particularly our flag and the banners that honor the men and women in our armed services. Believe it or not, however, the right to display is not absolute and has been subject to challenge.

Recently, in Columbus, Ohio, an 86-year-old mother of veterans was asked by her rental company to take her flag down. The company claimed the flag mount could damage the structure of the house.  You may also recall the story, several years ago of a 77-year-old U.S. Army veteran who was asked by a Summit County homeowners association to take down a flagpole he installed to display an American flag at his home. The association claimed the flagpole violated its rules that allowed flagpoles installed on homes, but not installed, in-ground. Eventually, the association backed down, but it seems incredulous that our proud veterans should have to fight for their flag, after fighting so hard for our country.  

Nonetheless, these types of challenges are happening all over the country. For example, in Connecticut, recently, an Air Force veteran is facing fines for flying the American flag in the front of his residential unit, and not in the back of the home where it is permitted.

You would think there should be laws protecting our rights to proudly display our flags. And there are; but they don’t go far enough.

At the federal level, The Freedom to Display the American Flag Act of 2005 "prohibits a condominium, cooperative or real estate management association from adopting or enforcing any policy or agreement that would restrict or prevent a member of the association from displaying the flag in accordance with the ‘United States Flag Code’ [a federal law that establishes advisory rules for display and care of the national flag of the United States] on residential property to which the member has a separate ownership interest."

Clearly, the “Flag Act” prohibits condo and similar associations from restricting flag displays. However, what about manufactured home park operators, and landlords? The federal law does not apply to them. What about state flags? I am sure there are law enforcement and other state employees who would like to pledge their allegiance to their state, as well as their country. The federal law, however, does not address the right to display state flags. Finally, the federal law does not address the right to display service banners and the POW/MIA flag.

Ohio also has what is basically a codification and elaboration of the federal law in Ohio Revised Code Section 5311.191. However, it too is silent regarding applicability to landlords, manufactured home park operators, service banners and the state flag.

Fortunately, while many states are still struggling with this issue, our great State of Ohio seems poised to fill the gaps of the Freedom to Display the American Flag Act of 2005 and ORC Section 5311.191. In fact, Ohio has two, alternate versions of a Flag-Banner Display statute: Ohio House Bill 18 and Ohio Senate Bill 84, which are summarized below:

SB84-FLAG-BANNER DISPLAY (COLEY,W) 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.

Current Status: 4/12/2016 - House Armed Services, Veterans Affairs and Public Safety, (First Hearing)

HB18-FLAG-BANNER DISPLAY (GONZALES, A; GINTER, T) 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.

Current Status: 11/18/2015 - SUBSTITUTE BILL ACCEPTED & REPORTED OUT, Senate State and Local Government, (Third Hearing)

The only real difference between HB18 and SB84 seems to be the right to display the state flag, which is incorporated in the Ohio Senate vs the Ohio House version.

Truly, on this July 4th, congratulations are in order to the Ohio House and Ohio Senate for recognizing the need to display our banners, our flags, and our patriotic pride. However, “timing is everything”, and in this author’s opinion it is time to bring one of these bills (preferably the senate version) out of committee, to a vote and to the governor to sign.

Constitutionality of Ohio Point of Sale Inspections Under Challenge

The 1851 Center for Constitutional Law (the "Center") has filed two lawsuits in Ohio federal courts seeking to enjoin the enforcement by cities of 'point of sale' programs.

A city's 'point of sale' or 'presale' program requires homeowners to pay for and pass government inspections before they can sell their homes. While these programs, adopted by city ordinance, can differ from city to city, they essentially provide that the homeowner pays a fee for the 'privilege' of being inspected. This inspection can be limited to solely the outside of one's home or may require a homeowner to admit an inspector inside to inspect the home's interior as well. The inspector may then require certain repairs to be made, or funds escrowed for the estimated cost of such repairs, before the sale can proceed.

Cities argue in favor of such ordinances as a way to improve the condition of housing within its borders. Opponents argue that these inspections are warrantless searches and therefore unconstitutional. Further, there is evidence that these inspections cause many home sales to fall through due to the dollar amount of repairs demanded by inspectors, which costs render the deal uneconomical.

The Center filed a legal action against the City of Bedford (outside Cleveland, Ohio) on behalf of Ken Pund  (an area landlord who was forbidden from selling a home he owns to his daughter and in which she resides) and John Diezic (a homeowner who was prevented from selling his home in Bedford due to minor cracks in his asphalt driveway).

The Center also filed a legal action against the City of Oakwood (outside Dayton, Ohio) on behalf of Jason Thompson, a homeowner who was forced to pay for and undergo an inspection when he wanted to alter the title to his property (i.e., no real property transfer involved).

In each of these instances, the homeowners were threatened with criminal prosecution and even imprisonment if they proceeded with the sale of their homes without first complying with and passing the point of sale inspections. The Center contends that these ordinances, in additional to restricting Ohioans' property rights, are warrantless searches that violate the 4th Amendment and Section 14, Article 1 of Ohio's Constitution.

While it remains to be seen if the Center is successful in its legal actions, it appears to have a pretty good track record.  If the courts decide in favor of the homeowners in these actions, then a lot of cities will have to stop their point of sale/pre-sale inspections until they can be reworked (if possible) to comply with the court decisions.

IRS Provides 1 Year Extension to Claim Missed Repair Deductions on 2015 Returns

Re-printed with permission by author: Craig Miller, CPA, CGFM, MBA, Duffy+Duffy Cost Segregation Services, Inc.

The recently released Rev. Proc. 2016-29 details new procedures for automatic accounting method changes and effectively provides a one year extension for taxpayers to implement many portions of the Tangible Property Regulations (TPR).

The TPR provide rules to determine whether an amount paid for during the life of tangible property is deductible or must be capitalized. Also, these regulations provide guidance for dispositions of tangible property. Specifically, the TPR provides rules covering five basic areas:

1.      Materials and supplies;

2.      Capitalized costs (including the de minimis safe-harbor election);

3.      Costs to acquire or produce tangible property;

4.      Costs to improve tangible property;

5.      Dispositions of modified accelerated cost-recovery system (MACRS) property  and general asset accounts (GAA).

Taxpayers are generally not permitted to make an automatic method change if they made a change for the same item within the previous five tax years. The "5-year rule" was waived under Rev. Proc. 2015-13 for implementing TPR changes for any tax year beginning before January 1, 2015. This gave taxpayers (who may have early adopted the Temporary Regulations) the ability to unwind or correct previous TPR related accounting method changes. Rev. Proc. 2016-29 further extends this waiver to any tax year beginning before January 1, 2016, effectively providing a one year extension to comply with the TPR.

It is important to note that Late Partial Dispositions (DCN #196) are not affected by the 5-year rule waiver since this automatic accounting method change is not allowed for tax years beginning on or after January 1, 2015.

Craig Miller is president of Duffy + Duffy, Cost Segregation Services, Inc. Duffy + Duffy is one of the leading Cost Segregation firms in the industry – performing studies based on case law and IRS guidance using CPA’s, and construction engineers and estimators. Cost Segregation allows commercial building owners to generate cash flow by accelerating depreciation deductions on their buildings and deferring taxes. For more information, contact Craig Miller, CPA, CGFM, MBA at 440-892-3339, or visit

Ohio's Ports: Facts and Statistics

A couple of weeks ago, I published information regarding Ohio EPA's dredged material program. Today I want to provide some fun facts about each of Ohio's 8 harbors on Lake Erie.  All information was obtained from statistics provided by the Ohio EPA.

Toledo Harbor

8,800,000 tons of commodities (coal, petroleum, aggregates, metal products, limestone, grain, chemicals, iron ore, steel products, cement, ores, minerals, flour and sugar) are moved through the harbor. This activity generated $7,070,000,000 in business revenue with jobs that generated $[1,370,000,000] per year in personal income. Toledo accounts for 55% of the dredged material each year, averaging 850,000 cubic yards. This equals 114,750 dump trucks filled and lined up for 652 miles.

Sandusky Harbor

3,000,000 tons of commodities (coal and salt) are moved through the harbor. This activity generated $604,000,000 in business revenue with jobs that generated $30,100,000 per year in personal income. Sandusky accounts for 9% of the dredged material each year, averaging 140,000 cubic yards. This equals 18,900 dump trucks filled and lined up for 107 miles.

Huron Harbor

367,000 tons of commodities (limestone and grain) are moved through the harbor. This activity generated $63,200,000 in business revenue with jobs that generated $18,500,000 per year in personal income. Huron accounts for 6% of the dredged material each year, averaging 95,000 cubic yards. This equals 12,825 dump trucks filled and lined up for 73 miles.

Lorain Harbor

988,000 tons of commodities (aggregates, ores, limestone, minerals and chemicals) are moved through the harbor. This activity generated $215,000,000 in business revenue with jobs that generated $60,100,000 per year in personal income. Lorain accounts for 4% of the dredged material each year, averaging 66,667 cubic yards. This equals 9,000 dump trucks filled and lined up for 51 miles.

Cleveland Harbor

11,500,000 tons of commodities (sand, gravel, salt, limestone, iron ore, cement, concrete, general cargo and liquid bulk) are moved through the harbor. This activity generated $10,500,000,000 in business revenue with jobs that generated $2,170,000,000 per year in personal income. Cleveland accounts for 15% of the dredged material each year, averaging 225,000 cubic yards. This equals 30,375 dump trucks filled and lined up for 173 miles.

Fairport Harbor

1,500,000 tons of commodities (aggregates, ores, limestone and minerals) are moved through the harbor. This activity generated $161,000,000 in business revenue with jobs that generated $40,100,000 per year in personal income. Fairport accounts for 5% of the dredged material each year, averaging 75,000 cubic yards. This equals 10,125 dump trucks filled and lined up for 58 miles.

Ashtabula Harbor

5,000,000 tons of commodities (coal, iron ore, limestone, chemicals, ores and minerals) are moved through the harbor. This activity generated $2,960,000,000 in business revenue with jobs that generated $611,000,000 per year in personal income. Ashtabula accounts for 3% of the dredged material each year, averaging 50,000 cubic yards. This equals 6,750 dump trucks filled and lined up for 38 miles.

Conneaut Harbor

4,800,000 tons of commodities (coal, iron ore, limestone, lime, ores and minerals) are moved through the harbor. This activity generated $3,160,000,000 in business revenue with jobs that generated $850,000,000 per year in personal income. Conneaut accounts for 3% of the dredged material each year, averaging 40,000 cubic yards. This equals 5,400 dump trucks filled and lined up for 31 miles.

Supreme Court of Ohio Applies “Bedford Rule”- Helps Property Owner Prevail in Real Estate Tax Complaint

When it comes to filing real estate tax complaints, many of us know that the sale price in an arm's length transaction between a willing seller and a willing buyer is usually considered by the applicable board of revision in rendering its decision. This is generally good news when a buyer buys for less than the current valuation, and not so good news when a buyer buys for more than the then current valuation.

What if there is no recent sale involved? Does it still make sense to challenge your property’s increased valuation (and consequently, the taxes paid)? Can a property owner’s appraisal really stand a chance against the applicable county auditor’s opinion of value?

As to whether or not it makes sense to challenge your property’s increased valuation, it of course, depends. It basically depends on how much extra taxes will need to be paid, for how long, and the attorney, appraiser and other fees involved with a complaint.  If you take the increase in market value and multiply the same by the “tax as a percent of market” percentage (which you can get from your county auditor or local tax district), you can come close to determining the extra amount in taxes you will be faced with as a result of your property’s increased valuation (please note that there are additional factors that may not be included in this estimate such as special assessments and homestead exemption figures).

For example, let’s say the county increased the value of your property by $20,000. While that number is significant, if your tax as a percent of market” is 2%, your taxes would only increase by $400/yr.  On the other hand, a $100,000 valuation increase on a commercial property with the same tax rate would result in taxes increasing by $2,000/yr. Since valuation in Ohio is updated every three years (each three year period being a “triennial”), you could be faced with a $6,000 increase (in our commercial example) if the year of increased valuation is the first year of a triennial.  If an appraisal costs, say $2,000, and an attorney will take the case on a contingency basis, the challenge would be worth it.  You basically need to do a cost/benefit analysis for every situation in order to determine if it makes sense to challenge your property’s increased valuation. It is important to note, however, that for residential properties; most county auditors have an informal procedure where homeowners can challenge an increase in valuation without appraisers and attorneys.

The Supreme Court of Ohio in Dublin City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2016-Ohio- 3025 (“Dublin”) answered our second query (regarding whether or not a property owner’s appraisal stands a chance against a county auditor’s opinion of value), in the affirmative.  In Dublin, the County Auditor valued a two-story office building in Franklin County (with a bank on its ground floor) at $2,205,000, and the owner sought a value of $1,000,000 based on an appraisal it presented to the Franklin County Board of Revision (“BOR”). The BOR agreed with the owner, and appellant, the Dublin City Schools Board of Education (“BOE”), appealed to the Board of Tax Appeals (“BTA”), which affirmed the BOR’s valuation. Thereafter, the BOE appealed to the Supreme Court of Ohio.

The BOE in Dublin argued that flaws in the owner’s appraisal made it not probative and accordingly, the BTA should have automatically reverted to the auditor’s original valuation of the property. Among the issues the BOE had with the appraisal were that: 1) the comparables were “not even remotely comparable,” (even though the comps were office buildings within the same geographic area as the subject property, none of the sale comparables included a bank as part of the property); and 2) the appraisal used LoopNet, a listing service, and county records for verifying the arm’s-length character of the sales, rather than through direct contact with parties to the sale. The BOE did not however present any new evidence of value at the board of revision hearing, or at the BTA.

The Supreme Court of Ohio shot down the BOE’s arguments based upon a straightforward application of what the court has called “the Bedford Rule,” based on the following case: Bedford Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 2007-Ohio-5237.  “Pursuant to that rule, ‘when the board of revision has reduced the value of the property based on the owner’s evidence, that value has been held to eclipse the auditor’s original valuation,’ and the board of education as the appellant before the board of tax appeals may not rely on the latter as a default valuation.” Instead, pursuant to this Rule, the board of revision’s adopting a new value based on the owner’s appraisal (or other evidence) has the effect of shifting the burden of proof to the board of education, on appeal to the board of tax appeals.

The court then recognized that the BTA correctly applied the Bedford Rule in Dublin. Even though the BOE at the BTA found fault with the evidence that the owner presented before the board of revision, under the Bedford Rule, as long as the evidence of value that the owner presented to the board of revision was “competent and at least minimally plausible”, the board of education may not invoke the auditor’s original valuation as a default value; rather, the burden shifts to the board of education to prove a new value, and the BOE in Dublin did not offer any proof.

Does the Bedford Rule apply in every situation?  No. According to the court, the Bedford Rule applies when four (4) factors are present: "First, the Bedford Rule applies in a case in which the property owner either filed the original complaint… or filed a counter-complaint… Second, the Bedford Rule applies when the board of revision has ordered a reduced valuation based on competent evidence offered by the property owner... Third, the Bedford Rule applies when the board of education is the appellant before the BTA…The fourth and final element of the Bedford Rule is that the board of revision’s determination of value is based on appraisal evidence rather than a sale price offered as the property value.”

While the appellant in Dublin did argue that the second factor of the Bedford Rule was not present (no competent evidence), the Supreme Court of Ohio basically told the BOE that it was too late. According to the court, “These observations constitute matters that are among those consigned to the expertise of the appraiser and to the board of revision and the BTA as fact-finders. This appeal seeks to cast us in the role of “ ‘super BTA,’ ” but … we decline that role now.”

Ohio EPA's Draft Beneficial Use Rules

In my article a couple of weeks ago, I covered some of the information in the Ohio EPA's Dredged Material Program. Due to state law in Ohio prohibiting open lake disposal of dredged material in Lake Erie after July 2020, the limited space left in confined disposal sites, we need to quickly develop cost effective ways to find a beneficial use for the dredged materials. For this reason the Ohio EPA is attempting to develop Beneficial Use rules that provide a framework that will facilitate the reuse of dredged materials.

Below are the links to the Interested Party draft of the Beneficial Use Rules and related information. Changes have been made to the draft based on comments that the Ohio EPA has received and it anticipates filing an official draft with the Joint Committee on Agency Rule Review later this summer (targeting June 2016).
Beneficial Use Rules

§  Business Impact Analysis Beneficial Use Rules, Ohio Administrative Code 3745-599

§  3745-599-01 Draft Beneficial Use - Applicability 

§  3745-599-02 Draft Beneficial Use - Definitions 

§  3745-599-03 Draft Beneficial Use - Incorporation by Reference 

§  3745-599-05 Draft Beneficial Use - General Exclusions 

§  3745-599-10 Draft Beneficial Use Byproduct Incorporated into Certain Construction Materials or Used as a Fuel or as an Ingredient in a Combustion Unit

§  3745-599-20 Draft Beneficial Use - Prohibitions 

§  3745-599-25 Draft Beneficial Use - Signatures 

§  3745-599-30 Draft Beneficial Use - Relationships Among Authorizing Documents, Rules and the Authority of the Director and Board of Health

§  3745-599-35 Draft Beneficial Use - Legitimacy Criteria 

§  3745-599-60 Draft Approved Sampling and Characterization Procedures for the Use of a Beneficial Use Byproduct 

§  3745-599-200 Draft General Beneficial Use Permit

§  3745-599-210 Draft Notice of Intent to Obtain Coverage Under a General Beneficial Use Permit

§  3745-599-220 Draft Coverage Under a General Beneficial Use Permit 

§  3745-599-310 Draft Application for an Individual Beneficial Use Permit 

§  3745-599-320 Draft Issuance of an Individual Beneficial Use Permit 

§  3745-599-330 Draft Notice and Information for Distribution - Individual Beneficial Use Permits 

§  3745-599-334 Draft Generator Obligations for Record-keeping and Reporting - Individual Beneficial Use Permits 

§  3745-599-335 Draft Distributor Obligations for Record-keeping and Reporting - Individual Beneficial Use Permits 

§  3745-599-340 Draft Characterization and Analysis Plan for Individual Beneficial Use Permits

§  3745-599-345 Draft Compliance Sampling and Analysis for Individual Beneficial Use Permits

§  3745-599-350 Draft Changes to an Individual Beneficial Use Permit

§  3745-599-360 Draft Renewal of an Individual Beneficial Use Permit 

§  3745-599-370 Draft Denial and Revocation of a Beneficial Use Permit

Interested Party Review - 2015 Draft Beneficial Use Rules

Draft General Permits - March 2014

Interested Party Webinar Power Point - June 10, 2015 

Interested Party Webinar Audio - June 10, 2015