Real Estate Advisor Law Blog : Ohio Real Estate Lawyer & Attorney : Ulmer & Berne Law Firm : Columbus, Cleveland OH

As the construction industry starts to rebound from a down market, rentals of project equipment are on the rise. Whether you are an owner, principal contractor, or specialty trade subcontractor, you may very well be renting equipment for use on an upcoming project. Here are five important points to bear in mind:

1.    Do not accept the equipment without thoroughly inspecting it first. Failure to do a full, visual and utility inspection on a rental product could mean that you may be held responsible for existing damages or defects in the equipment. If damage is not documented prior to acceptance of equipment, it will be your word against the lessor’s—and the lessor is likely to have favorable contract language on its side. The best way to avoid this fight is to conduct a thorough inspection while recording (perhaps by taking digital photos) every aesthetic or operational issue with the equipment. Conduct the inspection in the presence of the lessor, provide the lessor with documentation or notes of all existing damage, and retain a copy of the documentation. Also be sure to reject the equipment if it does not appear to be fully functional.

2.    Be sure to obtain insurance coverage for the rental, or confirm in writing that coverage is otherwise in place. Under the lease agreement, the renter is typically charged with the duty to obtain insurance coverage for the equipment, both in the name of the renter and the lessor. Failure to have required coverage in place pursuant to the terms of a lease agreement will mean that you are responsible for casualty or loss to the equipment.

3.    Make sure your operating team is well-trained on the equipment’s maintenance. Required maintenance will often be spelled out succinctly in the rental agreement. If so, be sure to train your team to abide by it. If not, ask the lessor for its suggested maintenance in writing. If you fail to conduct required maintenance, the equipment may be damaged and you will be stuck with a hefty repair bill, or worse, you may be forced to purchase it —whether you want it or not.

4.    Meet the scheduled equipment return deadlines. Per most rental agreements, you will be charged an entire extra day (or week or month, depending on the duration of the rental) if you fail to return the equipment by the allotted time set forth in the contract. For large pieces of machinery, this could mean a significant price.

5.    If the equipment runs on gas or diesel, return it with a full tank. Much like national car rental companies, an equipment lessor can charge you significantly enhanced amounts for fuel if you neglect to “gas up” before
you return a piece of construction equipment. These amounts can add up and hurt your bottom line if your project teams are consistently leaving the gas bill to the mercy of your lessors.

With these points in mind, rent wisely and build safely, timely, and well.

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Ohio’s Twelfth District Court of Appeals issued an interesting opinion earlier this year that wove together issues of statutory interpretation, expert testimony, property rights and nuisance. The end result? If you have bullets flying off your property, you might be strictly liable for nuisance.

Before the court in Batelle Memorial Inst. v. Big Darby Creek was a landowner – Batelle Memorial Institute – that claimed gunfire from an adjacent shooting range was flying onto its property endangering employees and visitors. Batelle sought, and was granted, a preliminary injunction in the trial court. 

One interesting issue on appeal was whether a Batelle employee could not only testify as to his first-hand knowledge of the gunfire, but also offer his opinion as to where the gunfire originated from based on bullets found on Batelle’s property. Normally such opinion is reserved for expert testimony – but Batelle was in luck. Batelle is a research facility that, in part, researches national security and “ordnances.”  The employee’s testimony was admitted by the trial court, and upheld on this appeal, as being “helpful in determining the point of origin of that particular bullet.”

On the fundamental issue -- whether the trial court properly granted an injunction against the shooting range’s alleged nuisance (bullets flying onto the neighbor’s property) – the Court again ruled in Batelle’s favor. The nuisance finding required that the shooting range failed to exercise “due care” in preventing gunfire from leaving its property. The trial court referred to an Ohio Administrative Code section governing shooting ranges, that states shooting ranges should substantially comply with NRA safety guidelines. Those NRA safety guidelines, in turn, state that all projectiles must be confined to the shooting range property. Thus, the shooting range was “negligent” for the bullets leaving its property, regardless of how or why they left, and regardless of any precautions taken by the shooting range. The court’s incorporation of the NRA manual essentially converted nuisance to a strict liability offense, more along the lines of trespass. 

A very apropos case if you happen to own a shooting range: Make sure bullets don’t leave your property, because you can be negligent regardless of how extensive your precautions. Outside the shooting range world, it’s simply an interesting example of how common law and statutes can interplay to create an unexpected result.

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Truckloads of sand will begin cascading across hurricane-battered beaches along the Destin and Walton County shorelines, thanks to a recent 8-0 decision by the Supreme Court. Coastal homeowners originally sued Florida arguing that the Beach Erosion Control Program (BECP) would cause the value of their homes to decline, turning their “oceanfront” property into “ocean view” property. Much to the dismay of residents, the Court ruled that the state may extend the eroded shorelines without compensating the homeowners for loss of private property.

The homeowners in Stop the Beach Renourishment v. Florida Department of Environmental Protection (#08-1151) claimed that widening the beach without compensating the residents amounted to an unlawful taking of private property for public use. Although residents believed their land was unlawfully taken, a state law permits Florida to add sand to eroding beaches. Under this law, the state is permitted to increase the size of the beach and claim ownership of the new addition. All eight justices (Justice Stevens recused himself, likely because he owns oceanfront property in Ft. Lauderdale which is also under consideration for a BECP project) agreed that such action did not constitute a compensable taking.  Justice Scalia, writing for the Court, noted that the case turned on two Florida property law principles:  “First, the State as owner of the submerged land adjacent to littoral property has the right to fill that land, so long as it does not interfere with the rights of the public and of littoral landowners. Second, if an avulsion exposes land seaward of littoral property that had previously been submerged, that land belongs to the State even if it interrupts the littoral owner’s contact with the water.” The Court concluded that since “the Florida Supreme Court’s decision did not contravene the established property rights of the petitioner’s members, Florida [did not violate] the Fifth and Fourteenth Amendments.”   

Doug Kendall, spokesman for the Constitutional Accountability Center, agreed with the decision, stating that “the Court’s ruling supports Florida’s efforts to restore eroded beaches and preserves the ability of state and local governments to respond to changing environmental conditions. It is crucially important that the government have the authority to step in to protect our beaches and coastal communities.”

While some may see this as an extension of recent Supreme Court decisions -- ala Kelo -- expanding the right of government to take private property for public use, Stop the Beach is actually a unique case that will likely have little impact on future takings jurisprudence.  It arose from distinctive circumstances addressing littoral property under a Florida statute permitting erosion control actions by the state.  And when Scalia sides with the state in a takings case, you can be sure the scope of victory is limited.

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I often think of an African proverb shared by Kip Reader, Managing Partner of Ulmer & Berne:

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Everyone is talking about Alternative Fee Arrangements (AFAs).  Some clients are demanding it; some firms market themselves as special because they will consider it; some attorneys are frankly scared of it because they think all it means is that they will be required to discount their fees.

In reality, an AFA is nothing more than a bill based on something other than the amount of time spent on a matter multiplied by the hourly rates of the attorneys doing the work.  Contingency fees are a prime example.  Fixed fees are another. There are obviously countless other "alternative" ways to structure a legal bill. Each may or may not be less than the traditional hourly rate fee. The reason for an AFA may be to reduce fees, but there may also be other reasons:

(1)        An AFA may provide certainty as in a fixed fee.  The ability to budget legal costs with certainty may be more important to a client than getting the lowest price.

(2)        An AFA may better align the interests of client and attorney.  AFAs with success fees or premiums for desired results may actually increase legal fees.  But the attorney is rewarded for obtaining the desired result in the most efficient manner.

(3)        An AFA may allow for the client to provide a larger volume of work. The larger volume should drive efficiencies which create a more profitable engagement for the law firm while providing an overall smaller legal budget for the client.

(4)        Where the assignments are repetitive or reusable, the law firm charging a fixed rate may lose on the first few engagements but then make it up in each subsequent assugnments.  Or, in a slight variation, a law firm can quote certain matters at a loss and others at a premium without having to account for hours where the client can afford more in some cases and less on others (e.g., more on a lease for a large space and less on a smaller lease even though the same amount of time and effort is required.)

(5)        The administrative costs involved with billing fixed fees, and with reviewing the bill from the client's perspective, are less than that with hourly billing. And this is actually a key benefit. A lawyer and client will never need to argue about an invoice - it is settled in advance and the issue about who spent how much time on what is eliminated. The only issue is did the attorney do a good job.

I think in some ways the AFA movement  may be akin to the shopping center landlords converting from charging tenants their pro rata share of CAM to now charging fixed CAM. When it first started, tenants were wary thinking it was a hidden profit center for the landlord and landlords were wary of taking the risk of loss. Eventually, landlords came to realize that it decreased conflict between landlord and tenant because they were no longer arguing what was CAM and how was it measured, and didn't need to worry about audits.  Similarly, tenants have come to see the benefit of budgeting exactly what their occupancy costs are without getting that extra reconciliation charge each year and not having to spend the time and aggravation negotiating CAM exclusions.

So the message is AFAs can be a great tool, and the effect on overall pricing is only one factor to consider.  They work well in many situations, not in all.  To be truly effective both the lawyer and the client need to feel fairly treated.  Like strategic business partners !

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Long before 'billable hour" accounting became the norm in law firms, lawyers would price projects based upon what was fair to both the client and the lawyer.  That is not to say that billings based on time is unfair, only that it can be unpredictable.  Billable hour accounting dictates accountability which is and will remain a reality for all law firms now and into the foreseeable future. However, trying times demand flexibility from both the client and the lawyer. Clients, both entrepreneurial and institutional, desire certainty from their vendors to permit accurate project budgeting. Lawyers and law firms understand that to be and remain relavent to their clients and potential clients they must remain or become a client's "business partner, " add value and be perceived by their clients as a "well worth the expense."

Litigation matters have been priced by lawyers using contingency and success fees for many years. Rarely, do we see transactional matters priced using such tools. However, alternative fee arrangements such as tiered fixed fees, capped fees and blended rate fees all based upon size and complexity of transactions are being offered by law firms more frequently.  Law firms desire to build and maintain client loyalty. An alternative fee arrangement can be one tool in the law firm tool box to generate client loyalty and deliver legal services in a cost efficient manner; but, alternative fee arrangements are not appropriate for every client and every situation.

Successful alternative fee arrangements: (i) dictate that the client and the lawyer share intimate information about the proposed assignment, goals of each and their cost structures; (ii) should represent the client's valuation of the matter compared to the reasonable fee to the lawyer structured to take advantage of the law firm's resources and efficiencies; and (iii) should not be static arrangements.  In other words, be structured to change as the assignments and relationship changes.  

Look for the business partner who is the "value proposition" which will enable the achievement of the goals of the business plan and with a "long term" perspective on relationships.
 

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