Welcome To Build On This

By Grant M. Yoakum, Esq.

 In this issue of Build on This, we explore recent legal  developments on a wide range of topics.  In John Slagter’s article regarding eminent domain in economic revitalization projects, he highlights a pending U.S. Supreme Court case and its significant impact on the future use of eminent domain.  Rana Gorzeck provides a closer look at the 2005 Florida real estate market.  Bill Caplan and David Hrina review a U.S. Supreme Court decision that is expected to have significant impact on the ability of property owners to recover costs associated with environmental contamination. Finally, David Lindner provides a brief summary of accelerated depreciation opportunities under the American Jobs Creation Act and pending Ohio legislation on the scope of township zoning.  We also take this opportunity to introduce attorney Henry I. Reder, who joined the law firm in November, 2004.

Grant Yoakum is a Shareholder 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.

The Power Of Eminent Domain In Economic

Revitalization Projects

By John P. Slagter, Esq.

A pending U.S. Supreme Court case, Kelo v. City of New London, could have significant consequences for individual owners of real estate. Increasingly, cities are using the power of eminent domain to take property that is located within a redevelopment area and transfer it to a private developer. Although the taking of private property is authorized under the United States Constitution, governmental entities may only do so if it is for a “public use.” As cities become active participants in economic revitalization efforts, the nature of the debate between private rights and public needs is evolving, along with the definition of “public use.”

The central issue before the U.S. Supreme Court is whether a city's condemnation of non-blighted, private property for the purpose of developing private residential and office space is a valid "public use." The increased tax revenues to be paid by the new development are seen as benefiting the public as a whole. This redefinition of "public use" strikes a sensitive nerve, particularly given that today, the developers and the cities are often on the same side of a land-ownership dispute. In a typical land use takings case from earlier times, the developer would oppose the city's actions or ordinances on the grounds that they constitute an uncompensated taking of the developer's property rights.  In the Kelo v. City of New London case, however, the developers are supporting the use of the government's power of eminent domain to take property from private individuals – the owners of property needed for an economic revitalization project. The common perception is that the land is really just being swapped from one private entity to another, with the government serving only as a middleman.

A city’s ability to take land by using the power of eminent domain arises from the Fifth Amendment to the United States Constitution, which states in part, "Nor shall property be taken for public use, without just compensation." The Fifth Amendment protects the right to own private property, but it also recognizes that the greater good may require the government to take private property for public use.  The definition of "public use," however, has evolved over the years. Initially, takings disputes largely centered on wide-open areas needed for railroads and other public facilities. 

More recently, the battleground became the urban neighborhood, where cities faced declining tax revenues as areas became "blighted" and values decreased. In 1954, this use of eminent domain was upheld by the U.S. Supreme Court in Berman v. Parker, where the Court held that the use of eminent domain as a planning tool to eliminate "blight" was a valid public use. Cities are now further expanding their use of eminent domain to take private property that is not blighted and transfer it to private developers with the expectation that the new development will generate increased tax revenue for the city. This expanded use of eminent domain gave rise to the case currently before the Supreme Court, Kelo v. City of New London.

In this case, the Supreme Court will address the use of eminent domain to take property from a private individual (the homeowner) and give it to another private individual (the developer). Cities argue that the redevelopment of property, even though it is not blighted, leads to an increased tax base, which benefits the public in general. Opponents argue that the practice is not about “public use,” but rather about giving favorable deals to developers.

While cities generally are in favor of an expansive power of eminent domain, there is growing opposition from private citizens concerned that without sufficient restrictions on the power, anyone's property can be taken whenever a developer proposes a new use that may generate greater tax revenue. On the other hand, economic revitalization of urban areas may be severely restricted without the use of eminent domain.  Whatever the outcome by the Supreme Court, it is expected that the limits of the use of eminent domain should be established this year by this Supreme Court’s decision in Kelo v. City of New London.

If you have any questions or concerns about this or another land ownership issue, you may contact Attorney John P. Slagter at 216-615-7331. 

John Slagter is a Shareholder in the Real Estate & Construction Law Practice Group.  His practice focuses in the area of land use and zoning.  In March of 2005, Mr. Slagter was interviewed by WCHV-AM, a commercial station owned by Clear Channel Communication and affiliated with ABC Radio Networks, concerning his opinion on this U.S. Supreme Court case.  He can be contacted at jslagter@bdblaw.com or 216.615.7331.

2005 Snapshot of Florida Real Estate

By Rana M. Gorzeck, Esq.

The 2005 real estate market in Florida continues to be rosy.  New residents continue to arrive in Florida at the average rate of 1,000 per day, and there does not appear to be any let up in the flow.  Some of the new residents become part of the burgeoning workforce; others are retiring baby boomers.  Another set, which may also fall into either of the above categories, are foreigners from many countries including, most notably, Canada and South America.  These new residents require, and, as mentioned, are often part of, the expanding workforce needed to provide the services and infrastructure of the expanding South Florida community: new homes, schools, roads, parks, supermarkets, restaurants, retail centers, hospitals, office buildings, warehouses, industrial centers, and so on.

All of these factors create a fast moving real estate market with values escalating more rapidly than the national norm.  The average sales price of a home in Fort Lauderdale in November, 2004 was $377,565.  This average sales price represents a 28% increase over 2003.  The median sale price of a home in Fort Lauderdale in November, 2004 was $294,000.  This represents a 23% increase over 2003.  Nationally, the average November, 2004 home sales price was $255,100 and the median home sales price was $175,000.  One can see that the Florida prices are dramatically higher than their national counterparts.  Bolstering the market is the average 30 year fixed mortgage, which has remained below 6%, thus enabling residents to obtain higher priced homes at lower interest rates.

Another exciting trend is the revitalization of downtown areas, business centers and industrial developments.  As downtown areas become more populated, the available real estate decreases.  Gentrification of blighted city areas is on the increase.  Urban areas, such as Atlantic Avenue in Delray Beach, Florida are in the process of being beautified and urban market rates are rising.  Office vacancy rates are going from the double digits to the single digits…for example, in Palm Beach County the 2004 office vacancy rate of 12.2% fell to 9.9%.  Similarly, industrial space development is booming.  In Palm Beach County, 478,500 square feet of industrial space is now under construction.  This will increase the already existing 44.6 million  square feet of industrial space.

Nationally, 2005 is predicted to be a strong year for home sales, commercial centers and industrial developments.  Florida is not only expected to follow suit, but is expected to continue to be one of the fastest growing states in the nation.  You may contact the Florida office of BDB for more information on how we can assist you in acquiring or selling real property in Florida.

Rana Gorzeck is a Shareholder in the Real Estate & Construction Law Practice Group.  She can be contacted at rgorzeck@bdblaw.com or 561.995.2997. 

U.S. Supreme Court Limits Recovery By

Party Conducting Voluntary Remediation

By  William L. Caplan, Esq., and David J. Hrina, Esq.

On December 13, 2004, the U.S. Supreme Court issued its decision in the case of Cooper Industries, Inc. v. Aviall Services, Inc., 125 S.Ct. 577 (2004).  This decision is expected to have a significant impact on the ability of property owners to recover costs expended to remediate environmental contamination and on the viability of the different Brownfields programs.  The purpose of this article is to alert the reader to the Court’s decision in Cooper, and its anticipated consequences.

In 1981, Aviall Services, Inc. (“Aviall”) purchased four parcels of property in Texas (collectively, the “Property”) from Cooper Industries, Inc. (“Cooper”).  Many years later, Aviall discovered that both the soil and groundwater on the Property were contaminated with hazardous substances, and that Aviall and Cooper had each contributed to the contamination.  Aviall proceeded to disclose the existence of the contamination to the Texas National Resource Conservation Commission and the U.S. Environmental Protection Agency, but neither agency initiated legal action to require remediation of the Property.

In 1984, under the supervision of the Texas authorities, Aviall voluntarily initiated remediation to address the contamination.  In August 1997, after Aviall had spent in excess of $5 Million to remediate the contamination, Aviall filed a contribution action against Cooper under Section 113(f) of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) to recover a portion of these costs.  CERCLA imposes joint and several liability on current owners and operators of contaminated property, and on former owners and operators of the property if the former owner/operator owned or operated the property at the time the contamination occurred.  CERCLA also permits a party who is held liable under CERCLA to file a contribution action against a third party who may also be responsible for the contamination.

The U.S. District Court for the Northern District of Texas decided the case in favor of Cooper, and held that Aviall could not pursue a private contribution action against Cooper because Aviall had voluntarily initiated the remediation.  Aviall appealed the decision, and the U.S. Court of Appeals for the Fifth Circuit reversed the lower court.  Cooper then appealed the decision to the U.S. Supreme Court.  The Supreme Court reversed the Fifth Circuit and held that because Aviall had voluntarily initiated the remediation, it could not recover its environmental costs from Cooper in a Section 113(f) contribution action under CERCLA.  The Supreme Court found that Congress intended that a party may only assert a contribution action under CERCLA in two situations: (1) “during or following” specified civil actions, or (2) after an administrative or judicially approved settlement that resolves liability to the United States or a state.

It is anticipated that the Court’s decision in Cooper will have a chilling effect on a party’s decision of whether to voluntarily remediate contaminated property.  The Court’s decision will also impact the manner in which parties structure their transactions involving contaminated or potentially contaminated property.  For example, in the past, parties engaging in the transfer of ownership to real property typically allocated environmental risks through the use of indemnification provisions within the agreement.  While the use of these indemnification provisions were somewhat effective in contractually allocating the environmental risk, such provisions typically capped a seller’s liability and were limited in duration.  Consequently, the typical provision potentially exposed the new owner/operator to environmental liability based upon actions of a prior owner/operator.  However, prior to the Court’s decision in Cooper, in the event that an environmental problem surfaced, the new owner/operator could always voluntarily remediate the real property, and absent release language in the purchase agreement, seek contribution against a prior owner/operator, notwithstanding the fact that the contribution claim may have exceeded the contractually determined liability of the prior owner/operator or that the indemnification covenant may have expired.

Following the Court’s decision in Cooper, a party such as a developer who voluntarily remediates contaminated property will no longer be able to initiate a contribution action against a potentially responsible party under CERCLA.  Therefore, current and prospective owners/operators of contaminated property must find alternate means to address and allocate the risks associated with developing or operating contaminated property, such as through the use of comprehensive indemnification covenants that are not limited based upon time or amount.  Because the Court’s decision in Cooper presents unique challenges to all current and prospective owners/operators of contaminated property, it is important that these parties consult with their legal representative prior to engaging in any remediation effort or transaction involving the ownership and/or operation of contaminated property.  Buckingham, Doolittle and Burroughs, LLP has a host of environmental and real estate attorneys that can assist with these and other environmentally sensitive issues.

Bill Caplan is a Shareholder in the Real Estate & Construction and Business Practice Groups.  He is the Chair of the Environmental Law Department.  He can be contacted at bcaplan@bdblaw.com  or 330.258.6458.  David Hrina is an Associate in the Business Practice Group and is a member of the Environmental Law Department.  He can be contacted at dhrina@bdblaw.com or 330.643.0212.

American Jobs Creation Act

By David J. Lindner, Esq.

Congress recently enacted the American Jobs Creation Act, which permits depreciation of qualified leasehold improvements to be taken over 15 years instead of 39.  Qualified leasehold improvements include any improvements to the interior of commercial property that is more than three years old, regardless of whether the tenant or landlord pays for them.  Anyone interested in taking advantage of this provision must act quickly because it is only in effect until January 1, 2006, after which the depreciation period will revert to 39 years. 

Township Authority May Be Reduced

By David J. Lindner, Esq.

Amended Substitute House Bill 148 expanded the power of Ohio townships to include the right to make residential zoning decisions in the interest of the "general welfare."  However, it appears that townships may be on the verge of losing their new power.  Municipalities have long had the power to act in the interest of the general welfare, but the expansion of the general welfare power to townships was opposed by groups such as home builders who were concerned that the townships would use it to impose unreasonably restrictive zoning ordinances.  At the urging of the home builders, Senate Bill 18, which would revoke much of the new power given to townships, has been passed by the General Assembly and is awaiting Governor's Taft's signature to become law.

David Lindner is an Associate attorney  and member of the Real Estate & Construction Practice Group.  He can be contacted at dlindner@bdblaw.com or 216.453.4290.

SPOTLIGHT ON OUR ATTORNEYS 

KUDOS___________________________________________

Nicholas T. George, President & CEO, (Buckingham Akron^SM) has been chosen to receive the Alumni Honor Award from the University of Akron Alumni Association, which will be held on June 4, 2005.  This award recognizes individuals for their community involvement, professional achievement, and service to the University.   Congratulations Nick!

Robert A. Hager (Buckingham Cleveland^SM) was published in Properties Magazine, Inc., November 2004.  The title of his article was “Legal Perspectives – Contingent Payment Clauses: If and When – What’s that Difference?”          

Congratulations to Donald B. Leach, Jr. (Buckingham Columbus^SM), for his recent election to the Ohio State Bar Association Council of Delegates for District 7.  His two year term will commence July 1, 2005.

Kudos to L.A. Perkins (Buckingham Boca Raton^SM), Philip R. Wiese and David W. Woodburn (Buckingham Akron^SM) who were recently elected to Shareholder of the law firm.  L.A. is a member of the firm’s Litigation, Employment Law & Workers’ Compensation, and the Real Estate & Construction Law Practice Groups.  Phil is a member of the Litigation Practice Group with an emphasis on Intellectual Property and Creditors’ Rights & Bankruptcy.  David is a member of the law firm’s Trusts & Estates and Real Estate & Construction Practice Groups. 

SPEAKING OUT___________________________________

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Save the Date:

On May 5, 2005, Edward V. Buehrle and David W. Woodburn (Buckingham Akron^SM), will be speaking to the Akron Area Board of Realtors Commercial and Industrial Forum.  Ed’s topics include what an attorney is looking for from the broker and what the broker should expect from an attorney, and how to make letters of intent work for you.  David will be discussing the key elements that an attorney looks for when reviewing contracts and leases.

Out and About – Recent Presentations:

On October 22, 2004, Richard J. Lolli (Buckingham Canton^SM) and David J. Lindner (Buckingham Cleveland^SM) spoke on Real Estate Contracts in Ohio at a seminar sponsored by the National Business Institute. 

On February 2, 2005, Donald B. Leach, Jr. (Buckingham Columbus^SM) presented at the Columbus Bar Association.  He discussed Real Property Institute: Construction Critical Path Scheduling – A Primer.  In addition, Mr. Leach spoke at the Builders Exchange on February 4, 2005.  His topic was Risk Management.  Finally, on March 3, 2005, Mr. Leach presented to XL Insurance on the topics of Privileged Communications, Economic Loss Doctrine and Construction Critical Path Scheduling – A Primer.

On February 23, 2005, the Real Estate & Construction Law group hosted its annual seminar.  The following presentations were made:

·         Nicholas T. George (Buckingham Akron^SM) presented How to Work Efficiently With Your Lawyer.

·         James L. Fisher (Buckingham Akron^SM) presented Jim Fisher Does a Good Deed.

·         David J. Lindner (Buckingham Cleveland^SM) discussed the New Developments in Ohio Condominium Laws. 

·         Henry I. Reder (Buckingham Cleveland^SM) spoke on Construction Observation Inspection and Testing.

·         John P. Slagter (Buckingham Cleveland^SM) provided opening and closing remarks as well as introductions of speakers.

For a complimentary copy of the materials provided at this event, or to be placed on our mailing list for the 2006 seminar, contact Jennifer Hoffman at jhoffman@bdblaw.com or 330.643.0311.

On March 3, 2005, Robert A. Hager (Buckingham Cleveland^SM) spoke to XL Insurance at their facility in Exton, PA.  His topics included Privileged Communications, Economic Loss Doctrine and Construction Critical Path Scheduling – A Primer.

David W. Woodburn (Buckingham Akron^SM) recently spoke to attendees at an Area Agency on Aging seminar.  His topics were Intentional Interference with an Inheritance, and Avoiding Real Estate Pitfalls in Trust and Estate Matters.

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: Lorna J. Henderson, Client Relations Administrator at lhenderson@bdblaw.com or 800.686.2825 ext. 86473.