Tonight, Hamilton County Auditor Emerson “Dusty” Rhodes and Finney Law Firm attorney Chris Finney present on “Property Tax Reduction” at the Greater Cincinnati Real Estate Investors Association (REIA) at 6 PM at the Ramada Plaza at 11320 Chester Rd., Cincinnati, OH 45246 on Thursday, January 4 at 6 PM.
A dinner is served beforehand at 5:30 PM.
The meeting is open for free to REIA members and first-time attendees can obtain a free guest pass here. REIA’s program announcement is here. REIA’s web site is here.
We have a critical federal income tax issue of note for consideration by our clients:
>>> You may benefit from pre-paying your 2017 real estate/property tax bill(s) before year’s end.
>>> County Treasurers in Hamilton County, Butler County, Clermont County and Warren County have confirmed that you can determine and pay your entire 2018 real estate tax liability (both halves) before December 31, 2017.
The just-passed federal tax bill caps deductibility of combined state and local income and property taxes at $10,000 per individual or married couple (the cap is the same regardless) for tax year 2018 and going forward, but that cap does not apply in 2017.
Thus, if your state and local income and real estate tax liability is expected to exceed $10,000 in 2018, you may strongly benefit from pre-paying property taxes due in 2018 right now.
We have checked with Hamilton County, Clermont County, Butler County and Warren County. Each County allows the prepayment of your entire 2018 property tax bills (technically the 2017 bills payable in 2018) before year’s end.
That means you may have the ability to pre-pay both halves before December 31, 2017 and obtain that deduction for the 2017 tax year.
The 2017 tax year property values have only been calculated for Hamilton County, and those values may be ascertained by going to this link.
For those remaining counties, your 2017 tax year payment may be based on the amount you paid for the 2016 tax year payment.
For more information on how to pay, please click on the relevant link(s) below.
An issue that manifests itself in any number of scenarios is the seemingly odd question: Can a seller contract to sell something that he does not own.
Somewhat surprisingly, the answer can be “yes.”
Hypothetical sale of stock
Let’s take a theoretical situation in which a seller promises to sell to a buyer 1,000 shares of the Procter & Gamble Corporation for $100 per share on the 2nd of January, 2018 (a date that as of this writing has not yet come), but the seller does not own any Procter and Gamble at the time of making such agreement. Is that contract enforceable against the buyer? As against the seller?
Sure. If the seller does not own 1,000 shares of Procter & Gamble Corporation at the time of the contract, he had better make arrangements to get that stock under his ownership or to find a party who does own those shares who will fulfill the seller’s promises.
OK, but what about real property?
But come on, that’s perfectly fine as to a publicly-traded stock, but what about property that is entirely unique, not replaceable with “equal or like-kind” property, and under the control of a third party?
Well, the same principle applies. If the seller is going to make a binding promise to sell that asset, and he wants to avoid being sued for breach of contract, he had better figure out how to either get title to the property before the promised closing date, or otherwise arrange for the cooperation of the property owner.
The basis for fraud?
The story is as old as the bridge. A gullible tourist goes to New York City and a local shyster sells them the Brooklyn Bridge. The seller does not own the bridge at the time of the contract, so it’s an enforceable contract, right?
Well, in that classic case, and in the case of other instances of fraud, selling property that the seller does not own could well be a badge of fraud. If he knew at the time of contracting that he did not have title, and could not obtain title to the property in question, then the promise to sell that asset clearly would be fraud.
What if the seller claims that he thought he would be able to obtain the asset before the promised closing date, but was just unsuccessful. Depending on his intentions, and the affirmative representations made by seller in conjunction with the sale, the failure of performance could be simple breach of contract, or it could be actionable fraud.
The peril for the seller
The peril for the seller who does not own the asset he promises to sell is that in order to avoid claims both for breach of contract and fraud, he will need to “pay the price” to get that asset into his name before the date of his performance. In the case of Procter and Gamble Stock, if the price on the NYSE rises of $150 per share before the first of the year, he may just need to take a loss at $50 per share to assure fulfillment of his contractual obligations. In the case of unique property owned or controlled by a third party, the seller may be in great peril as he will be under the mercy of that seller to “name his price” and terms to transfer the asset to the seller who has promised it any a date certain to a certain buyer.
Conclusion
This concept comes into play in various scenarios. And the first instinct of parties — and attorneys — is to think you can’t promise to sell that which you don’t own. A seller can. But he should carefully consider the consequences of that decision.
We have previously written on the different types of deeds (Real Estate 101: Different Types of Deeds in Ohio, Kentucky, and Indiana), as well as how costly it can be to breach your covenants under a general warranty deed (Real Estate 101: Breach of General Warranty Covenants Can Be Costly Mistake). Perhaps the most common breach occurs when you transfer property that is encumbered in some way, such as by an easement or lien, and that easement or lien is not excepted from the deed. However, one of the less discussed components of a general warranty deed is the covenant to defend. Whether you are the grantor or grantee with respect to a general warranty deed, you should be aware of when this duty arises, and what it means, in order to protect yourself, your rights, and your checkbook.
Statutory duty to defend in “short form” general warranty deeds
R.C. 5302.06 states:
In a conveyance of real estate, or any interest therein, the words “general warranty covenants” have the full force, meaning, and effect of the following words: “The grantor covenants with the grantee, his heirs, assigns, and successors, that he is lawfully seized in fee simple of the granted premises; that they are free from all encumbrances; that he has good right to sell and convey the same, and that he does warrant and will defend the same to the grantee and his heirs, assigns, and successors, forever, against the lawful claims and demands of all persons.“
(Emphasis added). This means that a grantor who conveys property under a general warranty deed promises to defend the grantee and the grantee’s title against all “lawful claims and demands” of others.
What are “lawful claims and demands”?
Unfortunately, Ohio law does not provide much guidance as to what “lawful claims and demands” encompasses – this is not a defined term under the statute, nor have the courts ventured to define it in this context. A lawsuit is generally defined to be “the lawful demand of one’s right.” Ludlow’s Heirs v. Culbertson Park, 4 OHIO 5 (1829).
Additionally, in various contexts, Ohio courts have provided the following guidance as to each of the terms separately:
State ex rel. Grant v. Brown, 39 Ohio St. 2d 112, 116 (1974) (“To say of an act that it is ‘lawful’ implies that it is authorized, sanctioned, or at any rate not forbidden, by law.”);
La Fon v. City Nat’l Bank & Trust Co., 3 Ohio App. 3d 221, 223 (10th Dist. 1981) (adopting the definition of “claim” as “to assert . . . to state; to urge; to insist . . . a right or title.”);
Crozier, v. First National Bank of Akron, 9th Dist. Summit No. 10140, 1981 Ohio App. LEXIS 13717, *6-7 (defining “claim” as “a ‘broad comprehensive word’ that includes ‘an assertion’ and ‘a cause of suit or cause of action.’”); and
Eighth Floor Promotions v. Cincinnati Ins. Cos., 3d Dist. Mercer No. 10-15-19, 2016-Ohio-7259, ¶ 26 (“‘Demand’ is defined as ‘the assertion of a legal right or procedural right.”).
Thus, read collectively, a “lawful claim or demand” can be defined as “an authorized or unforbidden assertion of a right.”
Do we first have to ascertain is a “claim or demand” is lawful before duty to defend arises?
However, courts have found that the term “lawful” does not require the “claim or demand” to be meritorious before the duty to defend is triggered since this would essentially render the covenant meaningless. SeeSediqe v. I Make the Weather Prods., 6th Dist. Lucas No. L-15-1250, 2016-Ohio-4902, ¶ 29 (holding that the claim or demand as it relates to the underlying duty, e.g., that the property is not free from encumbrances as warranted, need not be proven or successful before the duty arises, as “such a rule would render the duty to defend ineffective and eliminate the grantor’s right to control the defense against the claim.”). Thus, for example, a party claiming to have a lien on conveyed property need not prove the validity of their lien before the grantor’s duty to defend the grantee against such claim arises. The idea is that the grantor will step in before it gets to that point in order to defend the grantee’s title against such claims.
Does a suit have to be filed to trigger a duty to defend?
Indeed, the party asserting the claim likely isn’t even required to file suit to trigger the grantor and grantee’s respective rights and obligations under the general warranty deed. As discussed (Here), the Court in Hollon v. Abner, 1st Dist. Hamilton No. C960182, 1997 Ohio App. LEXIS 3814 (Aug. 29, 1997) did not require that the party asserting the adverse, “lawful claim or demand” bring suit before the grantor’s duties under the general warranty deed arose. In fact, the Court awarded the grantee attorney’s fees as damages in a suit initiated by the grantee because the grantee would not have incurred those fees had the grantor lived up to his obligations under the general warranty deed.
Conclusion
If you are a grantee under a general warranty deed and someone asserts a claim against your property (even if they haven’t yet filed suit), the first step to getting your grantor to defend your title as warranted is by informing the grantor that someone is asserting such a claim. As a grantor, if you receive notice that someone is asserting a claim against property that you conveyed by general warranty deed, proven or not, you will want to step up sooner rather than later. A delay in honoring your covenant to defend likely only exacerbates your grantee’s attorney’s fees (especially if your grantee has to file suit to defend his or her own title), for which you will ultimately be responsible.
Finney Law Firm and attorney Christopher Finney are proud to list FC Cincinnati soccer club among their prominent clients.
The Cincinnati Enquirer today, for the second time, addressed this representation that reflects the depth of our real estate practice for assistance with their new Major League Soccer stadium planned for Cincinnati or northern Kentucky.
What due diligence steps should a tenant undertake with respect to a commercial property before signing a lease?
Due diligence customary in a commercial real property purchase
Step back and consider for a moment that when we buy a piece of real property — for our home or for our business — it is prudent and customary by both the buyer and the lender to conduct due diligence investigations of the property:
title,
survey,
physical inspections of the structure and mechanical systems,
environmental, and
checks of governmental records for notices of liens for violations, zoning, traffic engineering, etc.
The list can seem endless.
Isn’t a commercial lease low-risk for the tenant?
But when simply signing a lease for a term of years, why should the tenant be concerned with these things? After all, his upfront cash may not be significant (relative to a purchase) and if things don’t work out, the tenant can just leave, right?
Well, sometimes that is the case. The cost and time needed for due diligence would outweigh the risk the tenant is undertaking by simply signing the lease and moving in. If so, then by all means, proceed.
But, wait, consider this!
But consider these countervailing factors:
Tenant is spending significant monies on tenant buildout costs.
Tenant is spending significant monies to move, including moving of furniture, fixtures and equipment, the installation of computer and phone systems, and printing of letterhead, envelopes and business cards.
The disruption of your business arising from a move (and if things don’t work out a second move).
The image you are building at the new location. What will be lost if a second move is necessary? Think of a restaurant or bar, retail store, or bank branch. The location is intricately tied to a business’s identity in the mind of the consumer. It may not be easy to just pick up and move.
The reality is that if the tenant does not undertake the kinds of due diligence implemented for a property purchase, he could “lose” the property in many of the same ways as in a purchase — i.e., he could lose the out-of-pocket costs associated with the activities noted above and have the inconvenience and loss to reputation by relocating to a second location.
The types of risk potentially borne by a tenant that due diligence could avoid
Indeed, in certain circumstances the tenant could be obligated to pay rent throughout the lease term, but the property cannot be occupied for its intended purpose. (Consider a situation where the property cannot be occupied but where the landlord does not appear technically in default of his obligations under the lease.)
When signing a significant lease for property, a title examination, possibly a survey, and assuring lender buy-in of the lease can be absolutely critical.
If, for example, the landlord has a mortgage against the property, and the mortgage is in default, that lender legally can extinguish a later–signed lease concurrent with the foreclosure.
To avoid this risk, one asks a landlord to execute a subordination, non–disturbance and attornment agreement agreeing that so long as tenant makes prompt and full payment of rent (to the landlord or– when in default of the mortgage — to the lender), the lender or a successor buyer will honor the lease.
A tenant’s policy of title insurance can be issued, transferring that risk to a title insurer.
If the property does not comply with the regulatory requirements, zoning for example, of the jurisdiction in which the property is located, the tenant could be required to make extensive property modifications or to move.
If the property has environmental problems, the cost of compliance — in an unlimited manner — could be transferred to the tenant.
If the property has structural problems or the HVAC system is old and inoperable, depending on the lease language (shifting repairs and replacement of the HVAC to the tenant), the burden of fixing the problem could fall to the tenant.
Conclusion
Many times tenants will assume these risks in smaller leases. Negotiating with the landlord’s lender and conducting full-scale inspections and other due diligence may just not be practical.
But a tenant in a commercial setting should carefully consider the risk-benefit to foregoing certain due diligence steps to prudently protect their investment in their new premises.
In a commercial lease than can run 15 to 25 pages (single spaced) or more, there can be trips and traps for both landlord and tenant. Thus, both should carefully consider not just the major financial and business terms, but even “throw away” or boilerplate provisions. In the alternative, each party should carefully perform his due diligence before undertaking lease obligations.
We recently represented a tenant in a commercial lease in which the lease — as is common in landlord-written leases — obligated the tenant to “comply with all laws throughout the term of the lease.”
In this instance, our client was a medical user. The zoning jurisdiction of the property differentiated minimum parking requirements for medical office uses versus general office uses. The consequence of that differentiation for our medical office client was that the space simply would not comply with zoning requirements for our client’s use.
In other words, he could not “comply with all laws.”
The problem was complicated and compounded because (a) the landlord applied for the building permit on which he represented to the zoning authority that the premises would be “general office” uses and (b) $75,000 in buildout work had been completed before the non-compliance was discovered. Further, the landlord originally solicited tenant to occupy the premises and at least implicitly represented that it would comply with zoning requirements for the tenant’s use.
The zoning authority simply would not permit the occupancy contemplated by the lease.
In this circumstance, is the tenant in breach and therefore responsible for the tenant build-out costs and rent payments until the premises can be re-rented? Is the landlord in breach of the lease and responsible for the damages the tenant suffered because he could not timely occupy the premises?
It candidly was vague. There was no clear answer, and the problem was significant for the client and the landlord. Ultimately, the parties agreed upon a fair settlement of the issues.
But the situation highlighted the critical importance of each and every provision of the lease, even “throw away” provisions.
If you are purchasing a home in a county with a countywide water system (e.g. Butler County), you should be aware of a little known wrinkle in the law that could leave you on the hook for your seller’s water bill.
R.C. 6103.02(G) gives a county water works three options to collect unpaid water bills: create a lien against the property; collect against the owner or tenant; or even terminate the water service until the outstanding bill is paid.
These methods of collection apply not only to the tenant or owner who incurred the water bill, but subsequent purchasers as well.
This has become an issue in recent years as Butler County Ohio has become aggressive in its collection efforts, often ensnaring unwitting homebuyers.
Protect Yourself
One thing every homebuyer can do is simply ask the question: Are there any outstanding water bills?
State law gives buyers another option, R.C. 6103.02(G) allows a buyer, or her agent, to request that the county have the meter read and to provide a final bill for the property before the closing. Such request must be made at least fourteen days prior to the closing date, and the county has ten days to read the meter and provide the final bill.
Make sure any unpaid balance is paid prior to closing.
Those steps will help you avoid an unpleasant water bill as you settle into your new home.
Learn more about important questions to ask when you buy a home here.
A recent change to Ohio Revised Code Section 5717.04 will remove the option to file an appeal from a Board of Tax Appeals decision directly to the Ohio Supreme Court.
Starting September 29, 2017, Ohioan’s unhappy with a Board of Tax Appeals decision will now have to file their appeal with the local Court of Appeals. Under the previous law, appellants had the choice of filing directly with the Ohio Supreme Court.
However, a party to the appeal can file a petition with the Ohio Supreme Court requesting that the Court take jurisdiction over the appeal. The Supreme Court may do so if the appeal involves a substantial constitutional question or a question of great general or public interest. In order to attempt to bypass the Court of Appeals, one must still first file the appeal with the Court of Appeals and then file a petition with the Supreme Court within thirty days after the appeal is filed with the Court of Appeals.
Passed as part of the state budget, this change will add additional litigation, time, and expense to obtaining finality in tax disputes.
Finney Law Firm practices extensively before the Board of Tax Appeals in property valuation measures. Click here to learn how we can help you navigate through the property valuation process.
Every parcel of real property in Ohio undergoes a major “reappraisal” by the County Auditor’s office every six years and then a minor “update” in the three years in the middle of that six-year cycle. Different counties in Ohio are on a different six year and three year cycle.
Below is a list of the counties going through either a major “Reappraisal” or a minor “update” this year. These values will appear on your January 2018 tax bill.
In Southwest Ohio, Hamilton County is undergoing a full reappraisal this year. Butler and Clermont Counties are update counties.
It is important to note that because these counties will be starting new triennials, property owners may bring a complaint before the Board of Revision regardless of whether a prior challenge has been brought. Every property owner has a right to challenge her property assessment before the Board of Revision in the new triennial.
While property owners in Hamilton and Clermont Counties have already received notices of the tentative values for the new triennial, the official notice of the 2017 value will come with your January 2018 tax bill. Remember you will have until the end of March 2018 to challenge the 2017 valuation.
Finney Law Firm will be giving presentations on the Board of Revision process later this year. If you are interested in attending a presentation, contact us here. Learn more about Finney Law Firm’s property tax practice here.
The schedule of counties starting a new triennial this year follows:
Reappraisal Counties
Auglaize
Clinton
Darke
Defiance
Delaware
Franklin
Gallia
Geauga
Hamilton
Hardin
Harrison
Henry
Jackson
Licking
Mahoning
Mercer
Morrow
Perry
Pickaway
Pike
Preble
Putnam
Richland
Seneca
Shelby
Trumbull
Vanwert
Wood
Update Counties
Ashland
Ashtabula
Athens
Butler
Clermont
Fulton
Greene
Knox
Madison
Montgomery
Noble
Summit
Wayne
