By Grant Yoakum, Esq.

This issue of Build On This focuses on land use regulations and transactions. First, we revisit the topic of land use regulations and clarify the most recent decision of the Ohio Supreme Court on takings. In addition, an article by Chris McCloskey explains the tax implications of CAUV in development of or long-term investment in farmland. Finally, we feature a profile of Rana M. Gorzeck (Buckingham Boca Raton^SM), a member of our Real Estate & Construction Law and Finance & Public Law Practice Groups. Her work focuses on the complex transactions necessary to make a real estate project a reality.

Grant Yoakum is an Associate attorney and member of the Real Estate & Construction Law and Business Law Practice Groups.  He can be contacted at gyoakum@bdblaw.com or 216.615.7356.

Reconciling Recent Regulatory Takings And Development Moratoria Decisions
By John P. Slagter, Esq. and Grant M. Yoakum, Esq. 

In the last issue of Build On This, we reviewed two distinct takings cases: one recently issued by the Ohio Supreme Court holding that residential zoning of certain property constituted a taking, and the second from the United States Supreme Court holding that a temporary ban on development did not constitute a taking.  (Shemo v. Mayfield Heights (2002), 95 Ohio St. 3d 59 and Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency (2002), 122 S.Ct. 1465).  After that article was published, the Ohio Supreme Court issued another decision in the Shemo case that specifically addresses the relationship between its prior holding in Shemo and the later decision in Tahoe-Sierra.

In the Shemo decision, the Ohio Supreme Court found that residential zoning of the property did not advance legitimate state interest and, therefore, constituted a regulatory taking.   Because a taking occurred, the Court also found that the property owner was entitled to compensation for the period the property owner was unable to use the property because of the zoning.  The latest incarnation of Shemo arose on a motion for reconsideration filed by the City of Mayfield Heights challenging the finding of a taking and the period of the taking.  (Shemo v. Mayfield Heights (2002), 96 Ohio St. 3d 379).  

While noting that the requested reconsideration could not rely on the Tahoe-Sierra case because it was decided one day after Mayfield Heights’ motion for reconsideration was filed, the Court proceeded to reconcile the two decisions.  As to the affect of the Tahoe-Sierra decision on its earlier holding, the Court stressed that the landowners challenging the moratorium (ban on development) in Tahoe-Sierra did not argue that the moratorium failed to substantially advance a legitimate state interest.  Instead the landowners simply argued that the moratorium, in and of itself, constituted a taking by preventing development.  In contrast, the landowner in Shemo specifically argued, and the Ohio Supreme Court ultimately found, that the residential zoning of the property in question did not substantially advance legitimate state interests because of the characteristics of the property.  It was the failure to advance legitimate state interests that made the zoning unconstitutional and paved the way for a regulatory takings claim.

The latest Shemo decision also clarifies that the regulatory taking actually commences when the landowner challenges the validity of the land use regulation and specifically seeks to use the property for a purpose inconsistent with the regulation at issue.  Accordingly, the Shemo Court reduced the period of the taking after noting that the original challenge to the zoning classification was voluntarily dismissed by the landowner and the landowner was not truly alleging that the “residential” classification of the property was unconstitutional because its proposed use at that time was for multi-family “residential.”  It was not until the challenge was coupled with a proposed nonresidential use that the regulatory taking began.

The Shemo Court also noted that the lack of a legitimate state interest supporting the zoning meant the Court was not required to apply the general takings analysis in Penn Cent. Transp. Co. v. New York (1978), 48 U.S. 104.  The Penn Central analysis is applied when a legitimate state interest supports the land use regulation. The Court would then determine if the regulation nonetheless constitutes a taking based on an analysis of several factors including the economic effect on the landowner, the extent to which the regulation interfered with the landowner’s investment or development expectations, and the character of the government action.

While we initially believed the Shemo and Tahoe-Sierra decisions involved distinct, albeit related, land use principles, the Ohio Supreme Court has expressly recognized this distinction and reconciled the two decisions.  It has also clarified the time when the regulatory taking commences.

John Slagter is a Shareholder and Co-chair of the Real Estate & Construction Law and Litigation Practice Groups.  He can be contacted at jslagter@bdblaw.com or 216.615.7331.  Grant Yoakum is an Associate attorney and member of the Real Estate & Construction Law and Business Law Practice Groups and can be reached at gyoakum@bdblaw.com or 216.615.7356.

Don’t Forget About CAUV
By Christopher L. McCloskey, Esq.

If you are thinking about purchasing that piece of farmland on the outskirts of town for immediate development purposes, don’t forget about CAUV.  Similarly, if you are thinking about purchasing that vacant tract of land inside the city limits for long-term investment purposes, don’t forget about CAUV.

CAUV stands for the “Current Agricultural Use Valuation” program provided for in R.C. § 5713.30 through § 5713.38.  Under the CAUV program, the county auditor disregards the highest and best use of the property and values the land according to its current agricultural use, which generally results in a lower valuation of the land and, thus, a lower real property tax.

In reference to the first scenario noted above, if you are thinking of acquiring a tract of land to develop that is currently being used for an agricultural purpose, be aware that it is likely valued according to its current agricultural use.  As such, if you decide to purchase the land and then convert it to a non-agricultural use, the county auditor will remove the parcel from the CAUV program and, under R.C. § 5713.34, levy a recoupment charge against the tract (to recoup the tax savings previously granted) in an amount equivalent to the amount of tax savings attained under the CAUV program during the three previous years.  Accordingly, when making such a purchase, the financial burden of the CAUV recoupment should be factored into the purchase negotiations.

On the other hand, in reference to the second scenario noted above, if you are thinking of acquiring a vacant tract of land located in an area with traditionally high land values, and you do not intend to develop the property for more than three years, it would likely be beneficial to consider converting the property to an agricultural use and then applying for the CAUV program.  This would allow you to retain possession of the property on a long-term basis while paying a considerably reduced tax rate. 

From either perspective, CAUV is an issue that all real estate investors should keep in mind.

Chris McCloskey is a Staff Attorney and member of the Real Estate & Construction Law and Litigation Practice Groups and can be contacted at cmcloskey@bdblaw.com or 614.227.4298.

Practice Group Profile Featuring Rana M. Gorzeck, Esq.

Rana M. Gorzeck, shareholder, is a member of the Real Estate & Construction Law and Finance & Public Law Practice Groups. When she joined the firm in 2000, she initiated the real estate practice in the Firm’s South Florida office located in Boca Raton. She represents both borrowers and lenders in real estate and asset-based transactions. In addition, the Buckingham South Florida office issues title insurance, just as a title company would do – a customary practice in the State of Florida. Although Rana’s focus is in commercial transactions, she and Marian Nease work on high-end residential transactions, and also conventional residential work.

Why is Rana interested in this type of work – the transactions necessary to help create a manufacturing facility or a shopping center or build a hotel? She explains, “It’s similar to what I imagine producing a movie might be like. When I was growing up, I always wanted to be a movie producer, and now I produce transactions instead. You are coordinating the work of many different players, from surveyors to engineers to the zoning people to the municipality – a cast of many. They all need to interact successfully.”

Another area of focus is financing transactions for the construction of manufacturing facilities. Rana may help a manufacturer or nonprofit entity build a facility using industrial development bond financing instead of a conventional loan, when that would result in more favorable terms for the borrower.

“It is important that Buckingham, Doolittle & Burroughs has a nationally known and respected bond department,” Rana says. “In fact, that is one of the reasons I joined Buckingham. Their support is essential in completing a bond financing deal. These are very complicated transactions, and I could not do them without the support of the people in Akron. You need “depth in the bench to do this kind of work.”

Although she enjoys completing complex bond transactions, Rana does not rule out “garden-variety” buying or selling of shopping centers, hotels, and high-end residential property, which is often treated as a commercial transaction. She explains, “The lender makes a lot of demands you must comply with – for example, when the property is a multi-million dollar mansion on the water – the transaction may call for the same level of inspections and due diligence as one might usually apply to a commercial property.”

At the beginning of her career, Rana spent seven years as a litigator but concluded that trial work did not suit her. “Colleagues were closing transactions and bond financings and I realized that this was a positive, constructive way to practice law.  In a transaction, you are helping your client create a new business opportunity, which may in turn create new jobs. When I go home at night, I feel I have done a good thing. I prefer the transactional side of the law where people typically walk away from the table happy.

“My litigation experience has been very helpful, though,” Rana adds. “It’s a good background for a transactional lawyer to have, because it helps one appreciate what could go wrong. As we work through the process, we try to structure the transaction and related documents to decrease the potential for litigation arising down the road.”

Rana writes a monthly column called “Lender’s Corner,” which discusses live questions she gets from lenders. Right now it is distributed electronically to one national bank. Other parties who would be interested can call 561-241-0414 to be added to the subscription list.

A graduate of Rutgers University and the University of Miami School of Law, Rana is a member of the Board of Trustees of the Centre for the Fine Arts at Mizner Park, a corporate partner for the American Woman’s Society of CPAs, and a Committee Member of the IRB Task Force of the Business Development Board of Palm Beach County.

Rana Gorzeck is a Shareholder and member of the Real Estate & Construction Law Practice Group as well as the Finance & Public Law Section of the Business Law Practice Group.  She can be contacted at rgorzeck@bdblaw.com or 561.995.2997.

Save the Date for these Upcoming Presentations:

On February 27, 2003, Buckingham’s Real Estate & Construction Law Practice Group will be holding their Annual Seminar at the Hilton West – Akron/Fairlawn.  To register on line visit www.bdblaw.com/seminars.asp or contact Maria Denisiak at mdenisiak@bdblaw.com or 330.258.6478.

Out and About – Recent Presentations:

Gerald B. Chattman, John P. Slagter (Buckingham Cleveland^SM) and Craig B. Paynter (Buckingham Columbus^SM) presented “Legal Issues Involving Ohio Local Governments” for the National Business Institute. 

Kenneth A. Fisher (Buckingham Columbus^SM) spoke on “The Basics of Project Delivery Systems” at The American Institute of Architects Columbus Convention.  He also presented “ARE Preparation:  Contract Documents” to The American Institute of Architects - Columbus Chapter and “Mechanics’ Lien Law and Strategies” for the National Business Institute.

Rana M. Gorzeck and Mary Sue Donohue (Buckingham Boca Raton^SM) presented the “Sarbanes-Oxley Act” to the American Woman’s Society of Certified Public Accountants in Fort Lauderdale, Florida. 

Robert A. Hager and John P. Slagter (Buckingham Cleveland^SM) spoke on “Lien Law” and “Bonding Off Liens and Notice to Commence Suit on Liens” for Lorman Education Services. 

Donald B. Leach, Jr. (Buckingham Columbus^SM) presented a program on “Ohio’s Mechanics Lien Law” for the Central Ohio Chapter of the Associated Builders and Contractors.  He also presented Ohio Mechanics’ Lien Law:  The How’s and Why’s of the Paperwork,” for the Builders Exchange of Central Ohio and “Economic Loss Rule in Construction” and “Design Build Contract and Insurance Considerations” for the Professional Education System Institute, LLC. 

Craig B. Paynter (Buckingham Columbus^SM) gave a presentation on “Anatomy of Public/Private Collaboration” at Buckingham’s Finance & Public Law Seminar in Columbus, Ohio. 


If you are interested in obtaining information on upcoming seminars or would be interested in having speakers from Buckingham, Doolittle & Burroughs, LLP make a presentation to your organization, please contact: Cheryl Warren, Director of Client Relations and Marketing at cwarren@bdblaw.com or 800.686.2825 ext. 546.


At BDB we are always improving our processes so that we operate efficiently and effectively. Please let us know how you like our new broadcast format. E-mail: bdb@bdblaw.com Phone: 330.258.6473 Fax: 330.252.5473. 
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