Ohio House Bill 292, which prohibits the future creation of transfer fee covenants, was signed into law on June 14, 2010 and will become effective on September 13, 2010. Transfer fee covenants in effect prior to September 13, 2010 are not affected by the new law.

Transfer fee covenants create revenue streams for real estate developers. A transfer fee covenant is created by a seller (the “Covenantor”), usually a real estate developer or builder. It requires subsequent buyers of the Covenantor’s grantee to pay a transfer fee back to the original Covenantor each time the property is sold. Transfer covenant fees generally range from 1% to 3% of the purchase price of the property and are payable to the Covenantor. 

Covenants often provide for a lien in favor of the Covenantor if the transfer fees are not paid. If recorded, the lien makes financing for future purchasers difficult because the lien created by the transfer fee covenant takes priority over the interest of a subsequent lender.

Transfer fee covenants may create problems for subsequent owners. The covenants require subsequent owners to pay the transfer fee to the original Covenantor, but as time passes, it may be difficult to determine to whom and where the fee should be paid. Transfer fee covenants also pose potential title problems because the covenant may only be contained in the original deed and could be missed during a title exam if the exam covers a shorter period of time than the typical 99-year existence of a transfer fee covenant.     

Creditors should obtain thorough title exams prior to issuing a loan or proceeding with a foreclosure action to avoid any potential problems created by existing permitted transfer fee covenants.

In what has become an ongoing series here on the UB REAL Blog, we wanted to issue another update on the now year old Cuyahoga County Land Reutilization Corporation, better known as the land bank.  Over the past six months, the Cuyahoga County Land Bank has obtained more properties and received millions in funding from the federal government.

A South Euclid lot donated to the Cuyahoga County Land Bank is soon to become one of the program’s community gardens. As of January 13, 2010, the property is the first of its kind to complete both the acquisition and disposition processes. The 50×108 lot, located at 3915 Warrendale Road, was given a market value of $22,800.

 

 

Continue Reading Cuyahoga County Land Bank Update

The current economic downturn and the contraction of the retail sector have resulted in an increasing number of vacant “big box” retail stores in shopping centers across the country. A “big box” is a freestanding building occupied by a single retail tenant that contains between 20,000 to 200,000 square feet of space and is surrounded by a large parking area. Big box structures are designed to house large inventories in an efficient and cost-effective manner. They are constructed to the meet the specific needs of the big box tenant. Examples of big box retailers include Wal-Mart, Target, Costco, and Home Depot.

As the number of vacant big boxes increases, owners, developers, and communities are faced with the challenge of what to do with them. Big boxes have been redeveloped into libraries, community centers, charter schools, churches, museums, and civic centers. While this redevelopment is promising, churches, schools, and other public uses generally are exempt from real estate taxes and they do not generate sales taxes. Ideally, the new use of the big box space will generate sales and property taxes as the big box retailer did, but oftentimes, this is not the case. The failure of a re-use tenant to generate sales and property taxes further contributes to the already daunting fiscal challenges faced by many local communities. Lower rent tenants, such as discount retailers and grocers, are also options for reuse of vacant big box space but owners may be concerned that lower rent tenants may devalue the property.

Redeveloping vacant big boxes present special challenges to communities, owners, and prospective tenants. Leases or deed covenants may contain restrictions that may impact the ability to re-lease the property. Zoning and land use issues may impede or constrain the future use of the space. Co-tenancy clauses in leases of other tenants in a center may result in tenants abandoning a center if a big box tenant vacates its space thereby triggering a landlord default under the lease.

While creative ideas for the reuse of vacant big box spaces exist, it will take the support of local governments and communities as well as available financing to make the redevelopment of these big boxes work.
 

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.

Congratulations to Kayla Ashley daughter of Jennette Ashley, one of our real estate paralegals, for the recognition of her work on behalf of the Ronald McDonald House near Cincinnati Children’s Hospital. The local Fox TV affiliate Channel 19 recognized Kayla’s volunteer work during their Pass the Cash spot.  Click on the link to watch.

This should be a reminder to all of us in the real estate industry that even in tough times we all need to look for opportunities to give back to the communities which support our efforts.  A little bit of kindness and consideration will go a long way ! 

The typical co-tenancy clause provides that if occupancy at a shopping center falls below a certain level and/or certain other key tenants close, the tenant gets rent relief and at some point the right to terminate its lease. In the current retail environment, all sophisticated tenants demand some sort of co-tenancy protection.  Landlords have generally accepted the fact that they must agree to some sort of co-tenancy if they are to get the tenants they desire.

However, mortgage lenders need to carefully consider the co-tenancy provisions also because they affect the value of their collateral, and of course if they are foreclosing it is likely that there is a co-tenancy failure. Obviously, a lender prefers no co-tenancy clauses in the leases. However, the challenge is that without them, there is no project in the first instance. But, the lender should carefully review all co-tenancy clauses so at least it knows the risk involved before taking any action.

 

Ulmer & Berne LLP Real Estate Practice Ranked 1st in Ohio; 7th in the Midwest by Midwest Real Estate News Magazine

Ulmer & Berne LLP announced today that Midwest Real Estate News magazine named the Firm seventh on its list of 2010 Best of the Best Midwest Real Estate Law Firms. Ulmer & Berne was also ranked first in the state of Ohio.  Midwest Real Estate News is one of the region’s leaders in commercial real estate coverage. According to the publication, each year hundreds of surveys are submitted by law firms from across the Midwest (a 14-state region) to the magazine for consideration. Rankings are determined by the number of real estate transactions in the previous year and the dollar amount related with those transactions above $5 million. In the 14-state region alone, Ulmer & Berne completed over 550 transactions with over 70 of those transactions valued at above $5 million in 2009. Areas of transaction included commercial, industrial, shopping centers, land, office buildings and multifamily housing. 

Ulmer & Berne, established in 1908, is one of Ohio’s largest law firms. A full service firm with approximately 175 attorneys in Cleveland, Columbus, Cincinnati and Chicago, Ulmer & Berne represents publicly traded and privately held companies, financial institutions, pharmaceutical companies, family businesses, international joint ventures and affiliations, investor groups, start-ups and emerging businesses, public bodies, and nonprofit organizations. 

Since early 2009, Housing prices have stabilized and valuations and affordability of homes have improved. This stabilization is primarily attributed to government housing policies, such as the home buyer tax credit, the federal government’s purchase of mortgage-based securities, and temporary mortgage modifications through the Home Affordable Mortgage Program. However, many economists believe that the housing market will experience another down turn in 2010 and into 2011 because of excess supply, increasing mortgage delinquencies, and the expiration of the temporary government housing policies which provided the housing market with a much needed boost.

The average listing price for homes in Cincinnati is down for the first week in June but not significantly. The median sales price in Cincinnati is up 2.3% over last year and the number of home sales increased 5.1%.

In my neighborhood, many homes are currently listed. While this is to be expected during the busy summer months, there is an excess supply of available homes, which is contributing to the depressed valuations. There is movement, however. The market appears to have picked up. Homes are selling. Some of them are selling quickly and at close to asking price (although asking price is still much lower than the peaks we experienced in the first half of 2006). Other homes, however, are languishing on the market for months in spite of aggressive reductions in price.

It is still a buyer’s market. Sellers are expected to have their homes updated, in top condition, and staged if they want to sell. Sellers often provide incentives to buyers such as home warranties and the payment of closing costs to further entice buyers. It is likely to remain a buyer’s market for quite some time.

Overall, the economic recovery appears to be moderating. The US economy faces several challenges in 2010 and 2011: weakness in labor and high unemployment, fiscal challenges at the state and local levels, vacant homes and unused industrial capacity, limited credit, uncertainty from the European crisis, slower growth, and further declines in housing prices. We have a way to go before things will improve.  If you are a buyer the market remains favorable; if you are a seller be flexible and open minded as your first offer might be your best offer !

Thank you to our friend Drew Stacey of First Place Bank for reminding us of the extension of the The First-Time Homebuyer Credit for the benefit of Military families for an additional year through May 1, 2011.  According to the IRS:

"In general, you can claim this credit if:

  • You bought your main home in the United States after 2008 and before May 1, 2010 (before July 1, 2010, if you entered into a written binding contract before May 1, 2010), and

  • You (and your spouse if married) did not own any other main home during the 3-year period ending on the date of purchase.

 

No credit is allowed for a home bought after April 30, 2010 (after June 30, 2010, if you entered into a written binding contract before May 1, 2010). However, if you (or your spouse) are on qualified official extended duty outside the United States for at least 90 days after 2008 and before May 1, 2010, you have an extra year to buy a home and claim the credit. In other words, you must buy the home before May 1, 2011 (before July 1, 2011, if you entered into a written binding contract before May 1, 2011)."


 

Continue Reading FIRST-TIME HOMEBUYER TEMPORARY FEDERAL TAX CREDIT EXTENDED AND EXPANDED FOR MILITARY FAMILIES

In the much-publicized "Kenwood Towne Place" litigation in Cincinnati, which involves over $40MM in lien claims, presiding Judge Beth Myers issued a Decision and Entry that disposed of subcontractor claims against the Port Authority of Greater Cincinnati (the Public Authority involved with the project).  The Court dismissed the subcontractors’ claims for takings and negligence. 

One aspect of Judge Myers’ decision makes it glaringly important for contractors of all shapes and sizes to perform independent assessments of front-end protection on a public project: the Court determined that the requirement of a performance and payment bond (or lack thereof in this case) was a matter of discretion for the Port Authority and, consequently, not mandatory under Ohio law.

To reach its Decision, the Court focused on Sections 4582.31 (specific to port authorities) and 153.54 (applies to public projects) of the Ohio Revised Code.  The Court determined that Section 4582.31 gives the Port Authority discretion whether to require competitive bidding and whether to require security–"As a matter of law, it had no duty to require a performance or payment bond."  The subcontractor claimants relied on Section 153.54, which requires performance bonds in competitive bidding, and the competitive bidding provision of 4582.31.  But the Court found that the Kenwood Towne Place litigation is governed by the discretionary provisions granted to port authorities because the project was funded exclusively from bond proceeds and special funds (bond discretionary) instead of general revenue funds or funds raised through taxation (bond mandatory). 

Among other things, the Court summarily dismissed the subcontractors’ common law claims for negligence because, under Ohio law, when a statute imposes a duty upon a public entity which is intended for the public good, the failure to adequately perform the duty does not permit a private right of redress for injuries caused by that failure. The Court’s ruling may come as a surprise to many contractors in the public sector.  Notwithstanding, Judge Myers’ decision should be a lesson to all that significant diligence for adequate assurance of payment should not be delegated or accepted at face value.  The current economic climate places that duty at an all-time high for those contracting for work in the public arena.