Size Matters (at Ohio County Recorders’ Offices Beginning July 1, 2009)

Don’t forget to change your forms’ format.

HB 525 creates a revised Section 317.114 of the Ohio Revised Code, with the following requirements for recorded real estate documents, effective July 1, 2009:

1) Computer font size of at least ten point;

2) Maximum paper size: 8 ½ x 14; Minimum paper size: 8 ½ x 11;

3) Margins of 1 inch on each side of the page and on bottom;

4) 3 inch margin on the top of the first page, reserved for recorder, auditor and engineer;1 ½ margin on the top of each of the remaining pages;

5) Black or blue ink only.

If a document does not conform to these guidelines, an additional recording fee of $20 will be due.

HB 525 does NOT apply to: (i) any document from any court or taxing authority; (ii) Plats;(iii) DD214’s; (iv) any state or federal document; and (v) any document executed before July 1, 2009.

New ASTM Standard To The Rescue: Don't Be Liable For Prior Contamination At Your Property

Written By: Barry A. Cik, BCEE, CP, PE, QEP, CHMM



Since 1980 (CERCLA), owners of real estate have been liable for the cleanup of contamination caused by prior owners and users of the property (Joint and Several Liability). The far-reaching effects of this law have now been curtailed with the enactment of the Brownfields Amendments in January 2002, and more specifically, the EPA “All Appropriate Inquiries” (AAI) which went into effect in November 2006.

The new owner will no longer be held to be a potentially liable party if the new owner performed an AAI prior to taking title. The liability protections are applicable regardless of whether the new owner did not know about prior contamination (Innocent Purchaser), or did in fact know about prior contamination (Bona Fide Protective Purchaser). The liability protection is also effective if the contamination never originated on-site, but rather migrated from off-site (Contiguous Property Owner).

So What’s the Problem?

Performing “All Appropriate Inquiries (AAI)” is not enough to block potential liability for cleanup of contamination which exists at the property when taking title. The law also requires that the new property owner comply with any “Continuing Obligations” that may apply. The problem is that neither the law nor the EPA has in the past defined what constitutes “Continuing Obligations.”

ASTM Rescues Landowners.

ASTM will shortly be releasing a new “Standard Guide for Identifying and Complying With Continuing Obligations on Real Property Impacted by Chemicals of Concern.” This Standard will help landowners further protect themselves against environmental liability by addressing “Continuing Obligations” with a defensible industry standard.

The new ASTM Standard was developed with the participation and blessing of the U.S. EPA. The ASTM Committee also included representation from the environmental consultant community, commercial and industrial property owners, and related sectors.

What Are Continuing Obligations?

In order for a new property owner to be free of potential liability for contamination caused by others, the new property owner does have to prevent or limit human, environmental, or natural resource exposure to such prior hazardous substances releases. This includes, for example, disposing or emptying leaking containers, and/or otherwise limiting exposures to chemicals of concern currently present at the property.

The value to landowners of complying with the applicable Continuing Obligations that may apply is that the landowner would no longer be responsible for the big dollar expenditures associated with contamination cleanup. Such big dollar expenditures, which the new property owner would not be responsible for, could include removing source material, buried drums, preventing migration of uncontained groundwater containing chemicals of concern, preventing the leaching of chemicals of concern from soil into the groundwater, etc.

How To Determine “Continuing Obligations”.

To define the Continuing Obligations that may be applicable to your site, it would be prudent to hire the services of a Professional Engineer (P.E.), Professional Geologist (P.G.), or other state certified environmental professional (e.g. State of Ohio VAP Certified Professional).

For new real estate translations going forward, it would be best to identify the Continuing Obligations together with the Phase I/AAI environmental assessment. This way, the new property owner will know with relative certainty what obligations – and associated costs – come with the property (in order to avoid the big dollar potential liabilities that might otherwise apply).

For real estate already bought and owned, the Continuing Obligations can be assessed at any time (as opposed to the Phase I/AAI which must have been done prior to taking title). Remember that the liability protections only apply to properties purchased after January 11, 2002, and only if a Phase I/All Appropriate Inquiries was done prior to taking title.

There is no specific requirement to perform a Phase II investigation. If the new use of the property is industrial in nature (including the use of hazardous chemicals), then a Phase II is usually necessary in order to be able to distinguish and document the contamination caused by prior owners and users of the property. If the new use of the property is benign, and if there are no blatant contamination issues evident at the property, then a Phase II would usually not be necessary. However, where residual chemicals of concern may pose an unacceptable risk to human health and the environment for the intended use of the property (and this would include the zoning and intended demographics), then a Phase II or other further environmental investigations may be prudent.

Finally, “Continuing Obligations” requirements would also include complying with any institutional controls or land use restrictions (zoning, covenants, easements, consent decrees, etc.), providing full cooperation, assistance, and access to government paid-for response actions, complying with CERCLA information requests, and providing any applicable legally required notices with respect to the discovery or release of any hazardous substances.

While all the above may appear daunting, it doesn’t have to be. Hire an environmental consultant who understands “All Appropriate Inquiries” and “Continuing Obligations” and you will likely not be liable for the big dollars of cleaning up the contamination caused by prior owners or users of your property.

Barry A. Cik is Chief Engineer at G.E.M. Testing and Engineering Labs, holds multiple offices in professional engineering and environmental organizations, has been a featured speaker and prolific author in numerous publications, and currently is a member of the ASTM Committee drafting the new Standard Guide with the participation of the U.S. EPA.

G.E.M. Testing & Engineering Labs of Cleveland, Ohio has a quarter century of experience investigating and assessing hazardous materials/contamination, resolving environmental problems, and protecting human health, safety, and the environment. For more about G.E.M., log on to their website at:


Justin Lahart and Brian Blackstone (in their June 18, 2009 Wall Street Journal article: “Consumer Prices Keep Inflation in Check”) reported that consumer prices in May, 2009 posted their largest annual decline in fifty- nine years (according to the U.S. Department of Labor’s Bureau of Labor Statistics [BLS]). While the “CPI-U” rose .01 percent from May to April of this year, the CPI-U for May, 2009 was down 1.3 percent from May 2008; the largest decline since 1950.

According to the BLS, the CPI-U for the Cleveland/Akron area was 2.3 percent below its year-ago level of 2008. (By comparison, the Cleveland area CPI-U rose 4.4 percent from May 2007 to May 2008).

What is the Consumer Price Index (“CPI”)? The CPI is the most widely-used measure to determine consumer price inflation. CPI measures the average change over time in prices paid by consumers for goods and services that live in urban areas. The Bureau of Labor Statistics of the U.S. Department of Labor collects this price information and then calculates the CPI statistics. CPI is actually measured for two groups: 1) All urban consumers (CPI-U); and 2) Urban wage and clerical workers (CPI-W). CPI-W measures consumer price inflation for urban residents who live in households that receive more than half of their income from clerical or wage occupations, and have one wage earner employed for at least 37 weeks during the previous 12 month period. Urban wage and clerical workers represent a subset of the CPI-U population.
CPI-U is the most commonly-used index because it has the largest population coverage (approximately 87 percent). However, the CPI-W is frequently used to make cost-of-living adjustments for labor contracts. In addition to the U.S. CPI, the BLS publishes CPI statistics for twenty-six of the nation’s metropolitan areas.

What does CPI have to do with commercial leases? Landlords may insist upon CPI adjustments in commercial leases so that rents and common area charges (“CAM”) keep up with expenses, which typically increase because of inflation. Also, landlords and tenants often use CPI adjustments to determine what the rent during an option term should be. In the late 70’s and early 80’s, most landlords felt comfortable with CPI adjustment clauses since a change in the index ranged from six to twelve percent in those years. That comfort level remained, even as “corrective” adjustments to the index by BLS, and more currently, recessionary factors, brought CPI index changes to the two to four percent range. Now that the CPI is in negative numbers, however, typical CPI clauses are no longer helpful for most landlords, and could serve to decrease rents (if a poorly drafted provision calls for CPI adjustments vs. CPI increases).

The problem is magnified when energy, labor, and tax costs for landlords increase at a greater rate than CPI. With negative index changes, this “magnification” is guaranteed. According to UBS economist, James Sullivan (quoted in Mr. Lahart’s article), the problem is expected to continue for some time, because “inflation is not likely soon, and it will be under downward pressure for years to come” due to the current recession and unemployment rate.

So, what’s a landlord to do?

1) First and foremost, landlords should make sure that their CPI provisions call for “increases” only. Use of the word “adjustments” may result in the unintended result of receiving lower rents;

2) A CPI increase provision may still be beneficial. However, landlord and tenants should negotiate a “floor” and “ceiling” to the increases. Consider the following clause: “Notwithstanding the above, in no event shall Rent be increased by more than six percent (6%), or less than three percent (3%) over the Rent for the previous Lease Year";

3) Budget CAM charges based on the previous year, and reconcile same at the end of each lease year. For tenants that require more certainty, limit “controllable” CAM charge increases to a fixed “guesstimate”, or base same on an alternate cost analysis such as a historical average of specific CAM charges, subject to revision mid-lease;

4) For option rent, it is advised that landlords negotiate a set figure. From the landlord’s perspective, the higher the better, as an option, by nature, only obligates the landlord. The tenant has the option to accept it or reject it.

While decreasing costs is good news for consumers, landlords are advised to closely monitor expenses, and review their leases with brokers and attorneys to help ensure that “outgo” does not exceed income.

TIF 101 for School Boards

The article below was written by Scott Wick, summer associate with KJK:

Tax Incremental Financing (TIF) is an increasingly popular economic development tool used by local governments. However, TIFs have tremendous impact on school districts, so it is essential that school boards know their rights and options when facing a proposed TIF.

I. What is TIF?

Tax Incremental Financing (TIF) is a tool for economic development used to stimulate private investment and development in targeted areas. Through a TIF, communities capture the increase in tax revenue generated by the private development. The community then uses the excess tax revenue to pay back the private investors who paid for the public improvements required to make the new private development a success. For additional information about TIFs in general, see “Tax Increment Financing (TIF), An Overview” under the Public Finance topic heading (click here).

II. What impact do TIFs have on public school systems?

The exemptions resulting from TIFs limit the amount of funds available to school districts. Fortunately, school boards have the right in certain circumstances to participate in the evaluation and adoption of a TIF program. Under Ohio law, a local government must notify the affected school board and, in some cases, obtain the board’s approval prior to enacting legislation authorizing a TIF. Therefore, it is essential that school boards are aware, not only of the requirements and procedures for adopting a TIF, but also of the rights and options school boards have when evaluating whether to consent to a proposed TIF.

III. What obligations do local governments have to school systems?

A local government must provide notice of the proposed TIF to the affected school board, unless the board has previously waived the right to receive notice. Notice must include a copy of the TIF instrument and must be delivered no later than 14 days prior to the proposed adoption date. Local governments are required to consider any comments provided by a school board and to meet, upon request, with the board to discuss the proposed TIF.

IV. What can a local government do without school board consent?

A local government can, without a school board’s consent, authorize a TIF that exempts from real property taxes the value of the improvements not in excess of 75% for a term not to exceed 10 years.

V. When can a local government act only with school board consent?

A school district must approve any exemptions above 75%, to a maximum of 100%, and any extension beyond 10 years, up to a maximum of 30 years. In such case, the local government must provide notice no later than 45 days before the proposed date for TIF authorization. A school board will lose the right of consent if the board does not reply by 14 days prior to the proposed adoption date.

VI. What are the options when a proposed TIF requires school board consent?

A school board has three options in response to a proposed TIF that requires consent. The board can (1) approve the proposed TIF; (2) reject the proposed TIF, in whole or in part; or (3) negotiate an agreement, which will provide for compensation to the school district equal to a certain percentage of the amount of taxes exempted. These payments in lieu of taxes are commonly referred to as PILOTs. The school board opens negotiations by proposing a percentage. If the board either initially rejects the TIF or the parties fail to reach an agreement, the local government cannot authorize the TIF for more than 75% up to 10 years.

VII. What else should a school board be thinking about?

Beyond the obvious fact that school boards must be aware of the notice requirements and procedures for TIF approval, school boards should also keep in mind these additional factors:

  • The theoretical argument in support of TIFs is that school districts will ultimately receive additional funding that would not be available without the development; but this argument only holds true when the development would occur only with TIF approval, and increasingly TIFs are being used in development that would occur even without the TIF.
  • PILOTs allow schools to immediately recover at least some of the lost funds; but schools are required to declare PILOTs as compensation, which will count toward the total funding that the school receives from the state.
  • School funding generally shifts from the local level to reliance on the state, and school districts under TIFs often report inadequate returns from the state.
  • TIFs should spur new development, but the reality is that TIFs are often used to make improvements that merely impact the quality of life of current residents.
  • TIFs apply to both commercial and residential development, and with residential development the school system may face a dramatic increase in the number of students.
  • School districts and local governments are often not defined by the same geographic boundaries, which mean that schools often lose money to TIFs even though school district residents have no voice in the local government proposing the TIF.
  • School boards can negotiate the scope or targets of proposed TIFs.
  • Some school districts have negotiated agreements where the TIF program includes financing from the local government for the construction of school facilities.

The procedures and choices for dealing with a proposed TIF are complex, but with assistance from the right legal professionals, school boards can make informed decisions that protect the best interest of the school district, the students and the entire community.

Are Inequitable Forfeiture Provisions in Ohio Commercial Leases Unlawful?

Written By: Ilirjan Pipa, Summer Associate
Edited By: Stephen D. Richman, Esq.
“Equity abhors a forfeiture.” A rather powerful statement to say the least. What exactly does this phrase mean, and does it control the enforceability of forfeiture provisions in Ohio commercial leases?

“Equity” is the name given to a set of legal principles that operate on the grounds of fundamental fairness. “Abhors” is tantamount to “despise”, and “forfeiture” means the loss of a right or a thing because of a failure to do something as required. Hence, in the real estate world, “Equity abhors a forfeiture” would mean that one should not be divested from an interest in a property unless it is fair to do so. According to a recent Franklin County Court of Appeals case (Takis, L.L.C. v. C.D. Morelock Properties, Inc. (2008), 180 Ohio App. 3d 243), a landlord seeking to enforce the forfeiture of a tenant’s commercial lease rights has a few “equitable” challenges to overcome.

Ohio law provides that a forfeiture or termination clause in a lease is to be strictly construed, and forfeiture is not to be decreed in the absence of an express stipulation in the parties’ lease agreement.

Even if a forfeiture provision is clearly incorporated into a lease, equitable considerations may weigh against concluding that a lessee’s conduct should result in forfeiture of its leasehold interest. For example, in Takis, the Tenth District upheld the commercial lessee’s argument that defaults of certain lease provisions are not so significant as to warrant termination and resulting forfeiture of leased premises, even if the lease contains a forfeiture provision permitting the lessor to terminate the lease upon default. The breaches in Takis consisted of failing to remove a small dumpster from a concrete pad, failing to remove outdoor holiday lights, and failing to remove a backdoor sign. The court balanced all the competing interests and noted that the breaches were relatively insignificant when compared to the amounts of money invested by the plaintiffs in preparing the premises for their restaurant. Thus, the Tenth District agreed with the lessee’s reasoning that if a breach is not material and the lessor can be adequately compensated for such breaches, a forfeiture should not be decreed. (Sometimes, however, even when the breach is material, but it does not result in economic harm to the lessor (and, in fact, creates a “windfall”), the forfeiture provision may not be enforced. See David v. Edgewood Dev. Co. (2000), Summit App. No. 19252, 2000 WL 46107.)

Clearly, Ohio courts have the power, and sometimes exercise it to relieve a tenant from the harsh consequences of forfeiture of a leasehold interest. However, “equity abhors a forfeiture” does not replace the maxim that “equity follows the law” and represents more the exception, than the general rule in these cases. For example, according to the Supreme Court of Ohio, when parties enter into a commercial lease from equal bargaining positions and their lease expressly authorizes forfeiture upon the occurrence of any default, courts are bound, as a general rule to enforce such provision. See Joseph J. Freed & Assoc., Inc. v. Casinelli (1986), 23 Ohio St. 3d 94. In Joseph, the Supreme Court of Ohio upheld the enforcement of a lease forfeiture when a commercial tenant in a shopping mall did not adhere to the mall owner’s policy that required a mall tenant to be open for business during minimum specified business hours. The appellant here submitted the usual equitable maxims in urging a reversal of the trial court decision. The Supreme Court, however, declined to support this “equitable” argument and explained:

“It is readily apparent that the terms of the agreement extend the right of forfeiture to ’any default by tenant.’ As pointed out by the court of appeals below, “* * * the term ‘default’ is not possessed of any ambiguity or of any special definition in the context in which it appears in the lease. Therefore, it is reasonable to conclude that because the appellant’s obligation to remain open for business in accordance with the policy set forth in the lease is plain and unambiguous, the appellee was afforded a contractual right of forfeiture in the event that appellant breached its obligation under the lease by deviating from the uniform business hours established by the lessor. Joseph, 23 Ohio St. 3d at 96.
Similarly, in Equity Inns Partnership, L.P. v. Dae Kee Yun (1999), Cuyahoga App. No. 74160, 1999 WL 980633, after noticing the parties to the agreement were comparably sophisticated and that the tenant had not begun construction by the date specified in the lease, the Eighth District upheld the landlord’s cancellation of the lease. Finally, not more than one month after the Takis case, the Montgomery County Court of Appeals (in Fifth Third Bank Western Ohio. v. Carroll Building Co. (2009), 180 Ohio App. 3d 490, 494) reiterated the Supreme Court of Ohio’s general rule by concluding: “cases of contractual interpretation should not be decided on the basis of what is just or equitable; when both parties had equal bargaining power and there is no evidence of fraud or bad faith, a court will not save one party from an improvident contract.” In Fifth Third, an “effectual forfeiture” occurred as a result of the tenant’s failure to strictly adhere to the renewal provision in its lease. There was no ambiguity in the lease, and the tenant’s repairs and other payments to the landlord in reliance on what tenant thought was a renewal did not sway the Court.

At first glance, the only way to reconcile these cases is to conclude that Ohio courts are mixed when it comes to enforcing a forfeiture of lease rights. At “second glance”, however, at least general conclusions can be made. It seems that a tenant who does what is required in a lease agreement and does it in a reasonable way is not likely to lose all of its rights for the violation of a minor technicality if the lease has no clear, express forfeiture provision. Even with such a provision, the “exception to the general rule” may, in certain circumstances, on equitable grounds, prevent termination of a tenant’s lease rights. In these “equity cases”, imposing financial penalties on the defaulting party is acceptable, but a forfeiture of the leasehold’s interest would probably be too high of a price to pay. Forfeitures are more likely to be appropriate, and without “equitable exception” when the parties entering a lease agreement are comparably sophisticated, the default is material, and when the lease expressly authorizes forfeiture upon the occurrence of such default.

So what does all of this mean, from a practical perspective, for landlords and tenants?

For landlords, the advice is not only to draft leases carefully, but practically. If you desire that certain defaults should trigger forfeiture, and a right to reclaim the premises, you should expressly provide so in the lease. If the occurrence or non-occurrence of certain events are to be conditions of forfeiture of tenant’s rights (and landlord’s obligation to continue to lease the premises to the tenant), express, conditional language should be utilized. If you desire that any default of tenant is to trigger forfeiture rights, there is authority enforcing such clauses, if both parties have equal bargaining strength and the provision in the lease expressly provides for the same. As a practical matter, however, landlords may lose deals in today’s market by insisting on their egregious, “standard” lease forms (or lease provisions). Failing to continuously operate, assigning/subleasing without consent, failing to pay rent or additional rent when due (or after a 5-10 day grace period), sale of substantially all assets of a tenant and similar events are all reasonable “forfeiture triggers” (from a landlord’s perspective). On the other hand, insisting on the right to evict a tenant due to any default or “immaterial” defaults such as insisting the tenant remove holiday lights within a specific period of time, may allow you to “win the battle, but lose the war” [of signing up tenants and reducing vacancies]. It may also cause a fair, equity minded judge to rule against you, if challenged in court.

For tenants, the advice is to remember that “boilerplate” is rarely judged as unfair language that will not hurt you. An honest mistake or seemingly “no harm no foul” act or failure to act on your part could give the landlord all the ammunition it needs to terminate your lease, and the express language in the lease granting landlord that right is often all the protection it needs. Scrutinize default provisions carefully. Ask for grace periods (5-10 days for monetary defaults; 30-60 days for performance defaults [or even no grace period expiration, if tenant is making good faith efforts to cure, and landlord has a right to cure tenant’s performance defaults, if the defaults are still uncured after 60 days]. Also, negotiate to limit the number and type of defaults that can trigger “automatic forfeiture” discussed above. If faced with a “Boilerplate” lease, it will be well worth your while to arm yourself with “armor piercing” brokers and lawyers, and not rely on exceptions to general rules of law.

Pending Home Sales Up for 3rd Month in a Row

The National Association of Realtors ("NAR") maintains a "pending home sales index," which is a forward looking index that tracks contracts signed for home sales. According to a release issued by NAR, this index has risen for the 3rd month in a row. This is likely due to the record low mortgage interest rate and the first time homebuyer tax credit.

The $8,000 first-time buyer tax credit is beginning to impact the market, as first-time buyers must finalize their purchase by November 30th to get the credit. This bodes well for increased activity in the next few months.

However, the risk in putting too much stock in this index is that it is a smaller sample size than the sample taken by NAR for its "existing home sales index." Also, the longer delays in closing on financing these days can lead to more of the sales falling through before they can close. Despite these cautions, the fact that contracts executed on home sales are increasing each month is a positive step.

The total number of existing home sales is expected to improve as well, but with dramatic local market variation in the timing of recovery. States Lawrence Yun, chief economist for NAR, "The market has already bottomed in some areas, but this is an unusual housing cycle with some areas improving rapidly while others languish or decline."

CLE Update: Boundary Law, Legal Descriptions & Land Surveying

PESI Real Property is sponsoring a continuing education seminar on the topics of land survey systems, legal descriptions and boundary law.

The seminar is scheduled to be held in Columbus, OH on August 6th at the Columbus Marriott North (6500 Doubletree Ave, 43229; 614-882-1885) and in Independence, OH on August 7th at the Holiday Inn Independence (6001 Rockside Rd, 44131; 216-524-8050).

Registration begins at 8:00 am with the seminar taking place from 8:30 am to 4:45 pm.

For more information, visit