Real Estate Case Law Update
February 23, 2016 • 7 min read
Security Deposit
The Ninth District Court of Appeals out of Summit County reminds in Warner v. Evans of the duties of the landlord to return a security deposit. The Court cites Ohio Rev. Code § 5321.05, which spells out the obligations of a tenant, the breach of which obligations can result in damages in favor of the landlord, but not in the case of ordinary wear and tear.
Ohio Rev. Code § 5326.16 requires the landlord to return a security deposit unless the funds are applied to the payment of rent or reduced by damages suffered by the landlord because of tenant’s failure to maintain the premises. Failure to comply with this section results in not only the obligation to return the security deposit but provides for damages in the amount equal to the amount wrongfully withheld plus reasonable attorney fees. Warner v. Evans, 2015-Ohio-2222. (9th Dist. Ct. of App., Summit Cty.). Decided May 27, 2015.
Standing – Foreclosure Actions
Three recent decisions by Ohio Courts of Appeal in the Fifth, Eighth and Eleventh Districts (Richland, Cuyahoga and Ashtabula Counties) held that for a party to have standing to bring a foreclosure action, it must either be the holder of the note or have taken an assignment of the mortgage. In either case, the jurisdiction of the court is invoked.
In the Eleventh District decision, the Court held that with promissory notes, the holder of the promissory note having possession of it, even if that holder is not the owner, has standing to enforce the note. Wells Fargo Bank v. Watson, 2015-Ohio-2599. (11th Dist. Ct. of App., Ashtabula Cty.). Decided June 30, 2015.
The Plaintiff having proved that it had been assigned the mortgage and that the assignment had been recorded, in the absence of producing the note, the party seeking to enforce it must at the very least have proof of nonpayment. Secy. of Veterans Affairs v. Shaffer, 2015-Ohio-2237. (5th Dist. Ct. of App., Richland Cty.). Decided June 8, 2015.
In the case of the Eighth District Court of Appeals, however, while standing was not an issue, the Court found that the note having been lost, there was an inability to establish liability thereunder which the Court held, is a prerequisite to enforcement of the mortgage, because the mortgage is but an incident to the debt it secures. Fannie Mae v. Hicks, 2015-Ohio-1955. (8th Dist. Ct. of App., Cuyahoga Cty.). Decided May 21, 2015.
Proof of Standing – Foreclosure Actions
The Supreme Court in Wells Fargo Bank, NA v. Horn held that though a plaintiff in a foreclosure action must have standing at the time suit is commenced, proof of standing may be submitted subsequent to the filing of the complaint, which in this case, the plaintiff attached the note and mortgage after suit was filed. Wells Fargo Bank, N.A. v. Horn, 142 Ohio St.l3d 416, 2015-Ohio-1484 (Ohio Supreme Court) Decided April 22, 2015.
Commercial Lease – Handwritten Terms
In Love v. Beck Energy Corp., the Seventh District Court of Appeals, Noble County, held that although the printed portion of an oil and gas lease permitted the defendant to assign the lease in whole or in part without the consent of landowner, a handwritten paragraph was inserted, stating that that Beck Energy could not assign the lease without the consent of the landowner. The Court held that the handwritten clause took precedence over the preprinted paragraph and further held that the consent can be withheld by the landowner for any reason and declined to imply a reasonable standard on the consent. Love v. Beck Energy Corp., 2015-Ohio-1283. (7th Dist. Ct. of App., Noble Cty.). Decided March 31, 2015.
Lease Options
In the case of Kenney v. Chesapeake, the Court of Appeals for Columbiana County held that an action to extend a lease is a present grant which if the option is exercised operates to extend the term of the original lease. An option to renew a lease, however, grants the right to execute a new lease upon exercise of the option, the present grant being only for the original term after which the parties must execute a new lease. Kenney v. Chesapeake, 2015-Ohio-1278 (7th Dist. Ct. of App., Columbiana Cty.), decided March 30, 2015.
Oil, Gas and Minerals
The Supreme Court of Ohio, in the case of State ex rel. Morrison v. Beck Energy Corp., held that where zoning ordinances promulgated by the City of Munroe Falls, Ohio conflicted with state statutes with respect to the permitting, location and spacing of oil and gas wells production operations, Section 1509.02 of the Revised Code, wherein the Department of Natural Resources of the State of Ohio is granted sole and exclusive authority to regulate the permitting, location and spacing of oil and gas wells and production operations. The right to regulate all aspects of the location, drilling and operation of oil and gas wells rests exclusively with the State of Ohio. State ex rel. Morrison v. Beck Energy Corp., 143 Ohio St.3d 271 (February 17, 2015).
Oil and Gas Leases – Fulfillment of Secondary Terms
Plaintiff landowner sued to have the deep drilling rights declared forfeited where the deep and shallow rights leases had been held by a single entity which had assigned the shallow rights. Oil and gas were being produced in paying quantities from the shallow rights wells but not from the deep rights, which had not been developed. The Court of Appeals for Washington County held that the assignment of the shallow rights (which were producing wells) did not sever the original leasehold and that the deep rights were preserved and held as the result of shallow production in paying quantities. Marshall v. Beekay Co., 2015-Ohio-238. (4th Dist. Ct. of App., Washington Cty.). Decided January 14, 2015.
Dormant Minerals Act
In the case of Dodd v. Croskey, 143 Ohio St.3d 293 (2015), the Supreme Court of Ohio determined that in a case where the plaintiff-grantee acquired title subject to the grantor’s reservation of oil and gas rights and then filed a notice of abandonment of mineral interests (Dormant Mineral Act – R.C. 5301.56), the filing of an Affidavit Preserving Minerals was timely and properly filed, because the holder of mineral rights can preserve those rights through filing in the 20 years preceding notice of abandonment or an affidavit to preclude abandonment if filed within 60 days after notice of abandonment.
Rev. Code 5301.56(B)(1) provides for six savings events if they occurred within the preceding 20 years as follows: (1) the mineral interest was the subject of a title transaction that was filed or recorded in the Recorder’s Office; (2) there was actual production or withdrawal by the holder; (3) the holder used the mineral interest for underground gas storage; (4) a drilling or mining permit was issued to the holder; (5) a claim to preserve the mineral interest was filed; or (6) a separately-listed tax parcel number was created.
Mann v. Northgate Investors, LLC
On February 12, 2014, the Ohio Supreme Court in the case of Mann v. Northgate Investors, LLC, held that a landlord owes a duty to a tenant’s guest under Ohio Revised Code 5321.04(A)(3) where the defendant negligently failed to maintain “adequate lighting for safe ingress and egress” during nighttime hours. The facts are that the hallway and stairway were unlit, and existing lighting fixtures were not operable; the plaintiff descending the stairs and thinking there may be one other step, stumbled forward through a glass panel adjacent to the glass exit door, suffering her injuries.
The Code section provides that the landlord owes the statutory duty to “…keep all common areas of the premises in a safe and sanitary condition….” The court held that breach of that duty constitutes negligence per se.
This case arose pursuant to a certified conflict between the Tenth District Court of Appeals, from which this appeal was taken, and the Ninth District Court of Appeals case of Shumaker v. Park Lane Manor of Akron, Inc. (Summit No. 25212, 2011-Ohio-1052) regarding the applicability of this Code section to a tenant’s guest.
Commercial Leases – Notarization
The Ninth District Court of Appeals for Summit County in Akron Pregnancy Servs. v. Mayer Invest. Co., where the tenant sought to avoid a lease which had not been notarized, held that when the tenant is seeking specific performance of a lease, the Court must determine, at least in an equity case, whether a contract existed which could be the subject of specific performance, citing Lithograph Bldg. Co. v. Watt, 96 Ohio St. 74, 84 (1917). Akron Pregnancy Servs. v. Mayer Invest. Co., 2014-Ohio-4779. (9th Dist. Ct. of App., Summit Cty.). Decided October 29, 2014.
Assignment/Statute of Frauds
In LHPT Columbus, LLC v. Capitol City Cardiology, Inc., the Tenth District Court of Appeals in Franklin County held that where an assignment of lease is intended and the prospective tenant enters into possession and pays rent to landlord, a judgment in favor of landlord against the original tenant and the assignee was reversed for failure to comply with the statute of frauds, Ohio Rev. Code § 1335.04. Even though the rent checks were signed by the party to be charged and the prospective assignee enters into possession, failure to execute the written assignment contrary to the divisions of Rev. Code § 1335.04, these actions by the party in possession did not remove the requirements of the statue of frauds, and the judgment in favor of landlord was reversed and the case remanded. In short, a landlord cannot rely upon receipt of rent and the taking of possession of the premises by a successor tenant as “part performance,” taking an undocumented tenant relationship out of the statute of frauds requirement. LHPT Columbus, LLC v. Capitol City Cardiology, Inc., 2014-Ohio-5247. (10th Dist. Ct. of App., Franklin Cty.). Decided November 25, 2014.
Commercial Lease
While leases of three years or less duration are exempt from the requirements of notarization pursuant to Ohio Rev. Code § 5301.08, where the lease has an option to renew for an additional three years, the Franklin County Court of Appeals held that option created must be added to the base lease term for the application of Rev. Code § 5301.08 exempting leases from that requirement when the lease is for a term of three years or less. Chen v. Hwang, 2014-Ohio-5863. (10th Dist. Ct. of App., Franklin Cty.). Decided December 9, 2014.
Statement of Value
The Ohio Supreme Court, in Shinkle v. Ashtabula Cty. Bd. of Revision, 2013-Ohio-397 (February 13, 2013), determined that the decisions by the Board of Revision and the Board of Tax Appeals were correct in ruling that a failure to include the value of the real estate by the taxpayer on the face of the complaint constituted a jurisdictional defect. The absence of the valuation amount is “fatal” to the matter. Ohio Revised Code 5715.19(D).
“As Is” Sale – Oral Representation
In an “as is” sale by a receiver, where the receiver orally represented to the purchaser plaintiff that the foreclosed car wash had been properly winterized, the plaintiff was permitted to offer parole evidence regarding the representation where after closing it was discovered that the car wash was not properly winterized. The Third District Court of Appeals held that where a party seeks to prove fraud in the execution or inducement of a written agreement, parole evidence regarding winterization is permitted – an exception to the parole evidence rule, which requires certain contracts regarding land be in writing. Ohio Revised Code 1335.04 and .05. Cronkelton v. Guaranteed Constr. Servs., 2013-Ohio-328 (3rd Dist. Ct., February 4, 2013).
