THE LAW PROFESSORS’ REVIEW OF RECENT DEVELOPMENTS


ABA Section on Real Property, Probate, and Trust Law

San Diego, California

May 5, 2006


 

 

Roger Bernhardt

Professor of Law, Golden Gate University

Daniel B. Bogart

Professor of Law, Chapman School of Law

Gregory M. Stein

Woolf, McClane, Bright, Allen & Carpenter Professor of Law, University of Tennessee

Peter Wendel

Professor of Law, Pepperdine School of Law

Frederic White

Dean and Professor of Law, Golden Gate University School of Law


The Speakers

Roger Bernhardt is Professor of Law at Golden Gate University in San Francisco. He is the author of two California Continuing Education of the Bar books: California Mortgage and Deed of Trust Practice, and Bernhardt’s California Real Estate Cases. He is also the Editor (and commentator) of CEB’s California Real Property Law Reporter.  His other publications for attorneys include Bernhardt’s California Real Estate Codes and Deskbook of Federal Real Estate Laws.  In addition to these books for attorneys, Professor Bernhardt has also authored or coauthored for law students: Real Property in a Nutshell, The Black Letter Law of Real Property, for West, and Casebook on Real Property and Casebook on California Real Estate Finance for Carolina Press. He is Advisor to the Executive Committee of the Real Property Section of the California State Bar, Chair of the Legal Education Committee of the Real Property Probate and Trust Section of the American Bar Association, and a member of the American College of Real Estate Lawyers, the American College of Mortgage Attorneys, and the American Law Institute.

Daniel B. Bogart received his B.A. (1982), J.D. (1986) and M.A. in Economics (1986) from Duke Univers ity, and served as Note Editor to the Duke Law Journal. Professor Bogart practiced law in Atlanta, Georgia, specializing in real estate transactions, commercial development, and bankruptcy law. In 1990, he was named to the faculty of the Drake University Law School where he taught courses in Property, Modern Real Estate Transactions, Commercial Lease Law, Debtor/Creditor Law, Economic Analysis of the Law, and Agency/Partnership.  Professor Bogart joined the Chapman Law School faculty in 1998.  He has been named outstanding teacher at both the Drake and Chapman Law Schools. Professor Bogart's articles have appeared in the UCLA Law Review, the Arizona State Law Journal, and the Pittsburgh Law Review, among others, and he is the co author of Estates in Land and Future Interests, Problems and Answers (2004). In 1995, Professor Bogart received the Editor's Prize of the American Bankruptcy Law Journal for his article evaluating the fiduciary duties of directors of Chapter 11 corporations. Professor Bogart is Editor of the "Keeping Current - Property" column of Probate and Property, the bi-monthly magazine of the Real Property, Probate and Trust Law section of the American Bar Association. Professor Bogart is Secretary to the Real Estate Transactions Section of the Association of American Law Schools, and is a past Director of the American Board of Certification, a non-profit organization authorized by the ABA to certify bankruptcy practitioners as specialists.  Professor Bogart has served as a panelist at numerous events, including the 2004 Annual Meeting of the National Conference of Bankruptcy Judges, Workshops for Bankruptcy Judges sponsored by the Federal Judicial Center, and the 21st Annual Real Property Retreat, sponsored by the Real Property Law Section of the State Bar of California.


Gregory M. Stein is the Woolf, McClane, Bright, Allen & Carpenter Distinguished Professor of Law at the University of Tennessee College of Law, where he has been a member of the faculty since 1990.  He teaches the basic Property course, along with advanced courses in real estate finance, real estate development, and land use.  Professor Stein’s recent publications include the book A Practical Guide to Commercial Real Estate Transactions (ABA 2001; co‑author); the chapter The House That Ruth Built in Courting the Yankees: Legal Essays on the Bronx Bombers (Carolina Academic Press 2003); the chapter The Effect of Palazzolo v. Rhode Island on the Role of Reasonable Investment‑Backed Expectations in Taking Sides on Takings Issues: Public and Private Perspectives (ABA 2002), and the article Takings in the 21st Century: Reasonable Investment‑Backed Expectations after Palazzolo and Tahoe‑Sierra, 69 Tenn. L. Rev. 891 (2002).  He served as the Visiting Fulbright Professor of Law at Shanghai Jiaotong University Law School in Shanghai, China during the spring of 2003 and returned to Shanghai in 2005 to conduct research and to teach as a Fulbright Senior Specialist.

 

 

Peter Wendel teaches the first year Property course, Wills & Trusts, and Law & Economics at Pepperdine School of Law.  He was born and raised in St. Louis, Missouri.  He received a B.A., cum laude, in Political Science from the University of Chicago; an M.A. in Urban Affairs from St. Louis University; and a J.D., cum laude, from the University of Chicago.  He practiced law for four years before starting teaching in 1987 as a Bigelow Instructor of Law at the University of Chicago.  From 1988 to 1991 he taught at St. Louis University School of Law.  He joined the Pepperdine faculty in the fall of 1991.  He has also had the privilege of being a visiting professor at UCLA, Loyola Law School, and the University of Augsburg, Germany.  He is the author of A Possessory Estate & Future Interest Primer, but if no one has read it, does is count as a publication?

 

 

Frederic White is Dean at Golden Gate University School of Law, San Francisco, California.  Prior to coming to Golden Gate he served as Professor of Law at Cleveland-Marshall College of Law, Cleveland Marshall College of Law, where he taught Property, Estates and Trusts, Land Use Control and Real Estate Transactions.  He received his B.A. degree from Columbia College and his J.D. degree from the Columbia University School of Law.  He is licensed to practice law in Ohio, and is a member of the American, Ohio State and Norman S. Minor bar associations. In addition to teaching, Dean White served as the principal instructor for the Northeast Ohio Apartment Association.  He served as a mediator, instructor and consultant for the Housing Division of the Cleveland Municipal Court. Dean White is a former member of the Ohio State Bar Association Real Estate Practice Certification Board Committee.  He is also the author of Ohio Landlord Tenant Law, published annually by Thomson West.  His most recent law review is entitled, “Outing the Madman:  Fair Housing for the Mentally Handicapped and their Right to Privacy versus the Landlord’s Duty to Warn and Protect,” Vol. XXVIII Fordham Urban Law Journal 783 (2001) (Reprinted in  Vol. 10, N. 4, ABA Journal of Affordable Housing & Community Development Law 372 (Summer 2001).

 


The Cases

 

1. The Metropolitan Government of Nashville and Davison County v. Buchanan, 2006 WL 249512 (Tenn. Ct. App.).

A property owner ran a scrap metal business on his property and had done so since the 1950’s.  In 2000 or 2001, the County passed section 16.24.330(B), a property standards law which made it unlawful for a property owner to utilize his premises for open storage of old cars, appliances, building materials, debris, and so forth.  In 2003, the property owner was served with a civil warrant alleging he was in violation of section 16.24.330(B).  In his defense, he argued that argued that the open storage law constituted a zoning ordinance and claimed protection under a previous non-conforming use statute.

 

Municipalities have the authority to enact laws concerning health, safety and welfare pursuant to their police powers.  On the other hand, individuals often have legislative protection from newly enacted zoning regulations for previous non-conforming use.  The rights of either party could not be resolved without determining whether section 16.24.330(B) in fact regulated health and safety standards or was a slyly disguised zoning regulation.

 

The Court turned to a new test established by the Tennessee Supreme Court in 2004.  The Court’s “substantially affects” test turns on whether a regulation or ordinance “substantially affects” the property owners’ use of law.  Applying the “substantially affects” test, the court held that the open storage law substantially affected the property owner’s use of the property as a scrap operation.  Consequently, the court found section 16.24.330(B) was a zoning regulation for two reasons.  First, the property owner’s ability to continue to sell scrap metal from the property would be substantially impaired if he were required to remove the scrap metal from the property.  Second, the warrant served upon the property owner, as well as the County’s brief, stated that it is the use of the property that violates the code, not the condition of the property.  Additionally, the County did not produce any evidence showing that the property owner’s property posed a risk to public health, safety, or welfare.

 

While the defendant was then able to show that his use of the property constituted a previous non-conforming use protected by a Tennessee statute, both the trial and appellate court acknowledged that the County may have had a viable common law or attractive nuisance action.  Because the County had not brought such an action, the court left this issue unanswered.

 


2. Coldwell Banker Whiteside Associates v. Ryan Equity Partners, Ltd., 2006 WL 40650 (Tex. App.) (not yet released for publication).

 

Ryan Equity was looking for a quick investment.  It wanted to purchase a run-down apartment complex, rehabilitate it, raise the rents, and leverage the properties to purchase more real estate.  It secured a broker to find the right building and settled upon a thirty-one unit apartment building.

 

In 1964, when the apartment building was built, zoning permitted the construction and operation of multifamily housing projects of this size.  In 1978, six years after the sellers bought the building, the area was rezoned to single-family housing, but the zoning permitted existing multifamily uses to continue operating.  In 1988, the area was rezoned again, making multifamily housing nonconforming.  At first this change went unrecognized, but in 1994 the city passed an ordinance requiring buildings with more than six units to obtain a Special Use Permit.  Without a Special Use Permit, its nonconforming use would be abated on the application of any citizen.  Abatement required the property to become a single-family residence or cease to operate.  The sellers’ application for a permit was denied in 1995, but no one applied to abate the nonconforming use.

 

When Ryan Equity’s broker proposed the property as a suitable purchase, he improperly advised Ryan Equity about the effect of the zoning regulation.  Ryan Equity made no independent investigation of the zoning, nor did it ask the sellers about the zoning or tell them the intended use.  The contract for sale stated that the sellers were not aware of any material defects to the property.  When Ryan Equity learned about the zoning, they applied for a Special Use Permit.  The permit was denied and the property abated.  Ryan Equity eventually sold the property for a loss.

 

Ryan Equity sued both the broker and sellers asserting, among other claims, breach of contract based on the nondisclosure of the status of the zoning and denial of the Special Use Permit as a material defect.   The trial court found the broker, but not the sellers, liable for breach of contract.  Both Ryan Equity and the broker appealed.  The issue of first impression in Texas raised before the court of appeals was whether nonconformance to zoning ordinances constitute “material defects” requiring disclosure.

 

The court first noted that material defect is not defined in the contract nor by statute.  The inquiry then turned to the plain meaning of the word and the court held that a defect to the property is a tangible irregularity in the physical appearance or structure of the property.  The zoning status of the property, on the other hand, did not relate to the physical condition of the property, but to property’s legal status.  Because Ryan Equity cited no authority for the proposition that a seller of commercial real estate has a duty to identify the applicable zoning laws or explain their effect to a sophisticated, experienced real estate investor who made no inquiry to the seller or received any express representation regarding the zoning status from the seller, the court held the sellers did not breach the contract for sale.  The court used this same reasoning with respect to the material defect provision in the brokerage agreement.


3. Cathedral City Redevelopment Agency v. Stickles, 134 Cal. App. 4th 1406 (Ct. App. 2005)

In “quick take” or “early possession” eminent domain case, the government is entitled to seek an order for prejudgment possession of the property pending the jury trial on compensation.  In exchange, the government must make a deposit of the probable amount of the compensation award so the property owner may withdraw it and reinvest in comparable property.  The date-of-valuation in a quick take case is at the time of the deposit to ensure the property owner receives fair market value at the time of the taking, that is, at the time the government tenders payment and takes possession.  The constitutionality of this valuation date was challenged in Stickles, as well as two cases currently under review in the California Supreme Court, Mt. San Jacinto Community College Dist. v. Superior Court, 126 Cal. App. 4th 619 (Ct. App. 2005) and San Diego Metropolitan Transit Development Bd. v. RV Communities, 127 Cal. App. 4th 1201 (Ct. App. 2005) based on Saratoga Fire Protection Dist. v. Hackett, 97 Cal. App. 4th 895 (2002) a straight condemnation case (where the property owner maintains possession) in which the court disregarded statutory valuation requirements to ensure just compensation.

 

In Stickles, the government’s original deposit was based on thirteen month old appraisal, but constituted 90 percent of the amount determined by a later appraisal.  Additionally, the government timely deposited an additional sum when ordered by the trial court.  Agreeing with the trial court’s decision, the court held the original deposit date was both the proper, and constitutional, valuation because the property owner received a deposit close to the value of the property of which he was deprived.

 

The court applied the same reasoning in Mt. San Jacinto.  However, in San Diego Metropolitan, the government’s initial deposit was substantially less than the sum it later admitted as the fair market value.  The court in that case held that the delayed increase in deposit with no change in the date of valuation would not satisfy the constitutional requirement of just compensation because it would be insufficient to allow the property owner to buy comparable property at the time of the taking.  In quick take cases in which the original deposit is less than the probable amount of compensation and the government does not increase the amount in a timely manner, the date-of-deposit rule will not apply and the property will be valued at either the date the proceedings commenced or at the date the trial commences.


4. Spiegelberg v. Wisconsin, 2005 WL 2994306 (Wis. App.).

 

This takings case raises the following issue: Where the subject property in a partial taking consists of multiple contiguous tax parcels, is the property to be valued based on: (1) the fair market value of the property as a whole or (2) the sum of the fair market values of each individual tax parcel?

 

The property owner’s property consisted of 150.36 gross acres of agricultural land held as five separate, but contiguous, tax parcels.  The Wisconsin Department of Transportation’s taking encompassed 11.08 acres from three of the five parcels.  In its just compensation analysis, the DOT considered the property as one parcel for valuation purposes and appraised the loss as $18,900.  The property owner, on the other hand, determined the value before and after the taking for each of the five parcels separately and arrived at a loss of $84,200.  The trial court adopted the property owner’s approach and the DOT appealed.

 

Wisconsin’s condemnation statute instructs that the compensation “shall be the great of either the fair market value of the property taken as of the date of evaluation or the sum determined by deducting from the fair market value of the whole property immediately before the date of evaluation, the fair market value of the remainder immediately after the date of evaluation.”  Although the statute uses the term “whole property,” the court explained it is to be liberally construed.  The court laid out both parties arguments and then requested that the state supreme court provide guidance by resolving the issue.  (Certification was granted in November 2005.)

 

DOT’s Argument

The DOT applied the “unit rule,” which required them to show contiguity, unity of use and unity of ownership.  According to 4 Nichols on Eminent Domain § 12.02 [1] (rev. 3d ed. 2005), all parcels “that are in substantially identical ownership and are being used, or are reasonably suitable and available for use in the reasonably foreseeable future, for their highest and best use as an integrated economic unit, must be treated as if the entire property constituted a single parcel.”  With the exception of a residence, the property owner leased the entire property for use as a farm.  Additionally, case law and legal treatises have language which supports the view that contiguous undeveloped tax parcels used as a single economic unit must be treated as a single parcel.  Finally, raw land, without improvements or preparation for subdivision, should not be valued as if the land were subdivided, but should be valued as a whole.

 

Property Owner’s Argument

The property owner asserted that when the property consists of multiple continuous tax parcels, the statute requires the “whole” property to be valued based on the sum of the individual parcels.  As with subdivided property, the parcels have separate legal descriptions, can be freely bought and sold without further subdivision or attachment and are distinct entities to the taxing authorities.  According to 4 Nichols on Eminent Domain § 12B.14 [1], subdivided property may be valued individually.  Because the parcels are separate legal entities, separate valuation will not lead to speculation, conjecture or uncertainty.  Additionally, larger parcels typically sell for less per acre than smaller parcels and following this approach seems more consistent with giving the statute a liberal construction.


5. Seehafer v. Seehafer, 704 N.W. 2d 841 (N.D. 2005)

Brothers Arlo and Lyle held the family farm in joint tenancy.  Arlo married Janice and they moved into a trailer home on the property.  Six years later, Arlo died unexpectantly.  Shortly after Arlo’s death, Lyle and Janice’s relationship began to deteriorate and Lyle told her that he wanted her to move the trailer home from the property.

 

Janice moved, but she filed a Declaration of Homestead and a suit ensued.  The trial court found Janice was entitled to a homestead allowance and had involuntarily left the property.  The court awarded her the value of the homestead, reasonable rental value for land, and moving expenses.  Lyle appealed.

 

North Dakota’s provides for a probate homestead “upon the death of a person in whom the title to real property constituting a homestead is vested” and the “homestead estate shall survive…until otherwise disposed of according to law.”  The purpose of the probate homestead is to protect the family from creditors and improvident devising of the family home.  Here, the court had to determine whether a probate homestead may be imposed on land held by the claimant’s deceased spouse in joint tenancy with another.

 

After laying out the statute, the North Dakota Supreme Court noted that Janice’s claim was hinged on whether the title to the property had vested in Arlo because Janice had no interest in the property herself.  In joint tenancy, a joint tenant’s only vested interest is a life estate until he or she is the remaining survivor.  The deceased joint tenant’s interest divests at death, no interest remains, and the entire interest goes to the survivor.  Upon Arlo’s death, his interested divested and there was no interest to which a homestead could attach.  Rather, conversely, the interest was “otherwise disposed of according to law.”  Based upon this reasoning, and following the precedent of courts in Florida, South Dakota, and Oklahoma, the Court held that the spouse of a deceased joint tenant cannot claim a probate homestead on her husband’s property when his interest in the property terminated on his death and she held no interest of her own.

 


6. National Fuel Gas Supply Corp. v. Kovalchick Corp., 2005 WL 3675408 (Pa. Com. Pl.)

Kovalchick Corporation is a private business which owns a strip of land.  The previous owners,  Pittsburgh & Shawmut Railroad Company, granted three licenses and right-of-way agreements for natural gas pipelines.  National Fuel Gas Supply, a local producer engaged in exploring, drilling and producing local natural gas, is the successor-in-interest to each of those licenses and rights-of-way.

 

Under Pennsylvania statute 15 Pa. C.S. § 1511, a public utility corporation has the right to take, occupy and condemn property for primary and ancillary purposes including the production, generation, manufacture, transmission, storage, distribution or furnishing of natural gas to or for the public.  Pennsylvania law defines a public utility corporation as a corporation for profit that is subject to regulation by either a state or federal agency.  National filed applications to condemn the rights-of-way for three pipelines and Kovalchick challenged.  After consolidating the three actions, the court addressed this issue: whether a for-profit corporation operating natural gas lines has the power under 15 Pa. C.S. § 1511 to condemn privately owned property for its gathering lines.

 

Applying Pennsylvania statutes to the case at hand, the court entered a judgment in favor of National.  The lines at issue were used to receive and gather gas from local producers.  The court reasoned that although the statute does not expressly list “gathering” as a principle purpose, condemnation is available for ancillary purposes because gathering is necessary to accomplish the enumerated purposes.  Additionally, the court had no trouble finding that National is a public utility.  National is regulated by the Federal Energy Regulatory Commission and the pipelines are used to supply either directory to individual end-users or to corporations who then supply individual end-users.  Therefore, the court held that section 1511 gave National the authority to condemn Kovalchick’s property as was necessary to accomplish National’s purposes as a public utility.


7. Rausch v. Allstate Insurance Co., 882 A. 2d 801 (Md. Ct of App. 2005)

Rausch, a tenant in a single-family dwelling, left a flammable item on the rear burner of the electric range and left the house.  Harkins, a tenant in a multi-unit apartment development, lit scented candles on a nightstand and then left the room to answer the telephone. In both cases, the property caught fire, resulted in costly damage, and the landlords’ insurance paid for the damage.  Both insurance policies contained subrogation clauses and the companies brought suit as subrogees to recover from the tenants.

 

Both defendants brought summary judgment motions.  In the case against Rausch, the District Court refrained from ruling on the motion and certified the following issues for review: “(1) Does Maryland law recognize the doctrine of ‘implied co-insureds’ so that a tenant is an implied co-insured of the landlord” and “(2) “If so, is [the insurer] barred from bring the instant subrogation action against tenants of its insured?”  On the other hand, the Circuit Court upheld Harkins’ motion, relying on Sutton v. Jondahl, 532 P.2d 478 (Okla. Ct. App. 1975) to hold that Harkins was an implied co-insured and that the subrogation clause could not be enforced against her.  The insurance company appealed.

 

After examining the principles of law at play in this case, the Maryland Court of Appeals concluded that although the tenants’ responsibilities arise out of tort and contract liability principles, the case really turned on subrogation law and framed the issue as follows: “are tenants to be regarded, either as a matter of law or a matter of fact, as co-insureds under the landlords’ insurance policies and, if not, is there some other basis, including any paramount equity, favorable to them that precludes the enforcement of an otherwise valid subrogation clause?”

 

The Court laid out three approaches other courts take with respect to this issue.  First, the Sutton rule, is a presumption, if not per se rule, that absent an express agreement in the lease to the contrary, the landlord and tenant are co-insureds under a landlord’s policy.  As a result, the insurer has no right of subrogation against the tenant even if the damage was caused by his negligence.  The second approach contradicts Sutton and permits an insurer to bring a claim absent an express or implied agreement precluding such a claim.  Finally, the “middle approach” adopts the idea that the tenant’s liability should be determined by the reasonable expectations of the parties to the lease and examines the lease as a whole to determine those expectations.

 

The Court then chose the middle approach and presented its general framework, while noting that it also involves a case-by-case analysis.  First, the Court held that subrogation clauses are valid, but asserted two caveats: (a) provisions that create or enhance a tenant’s liability are subject to general contract law rules and (b) there is no right of subrogation unless there is liability in the first place by the tenant to the landlord.  Second, if the lease relieves the tenant of liability, there can be no subrogation claim.  Third, if the landlord has communicated to the tenant an express or implied agreement to maintain fire insurance, the tenant’s reasonable expectation was that the landlord would look only to the policy.  And forth, if the leased premise is a unit within a multi-unit structure, the court may conclude that the parties anticipated, and reasonably expected, that the landlord would have in place adequate insurance for entire building.  The Court then remanded the cases to determine the reasonable expectations of the parties.


8. Sleeping Indian Ranch, Inc. v. West Ridge Group, LLC., 119 P.3d 1062 (Colo. 2005)

In 1973, the Ashbys contracted to purchase a 120 acre parcel of land, but a year later, they began having difficulty making the payments.  They sought help from two friends, who each agreed to purchase 40 acre parcels through separate installment land contracts.  While these parties testified their intent to each own 40 acres, the evidence suggested a potential partnership formation or joint venture for the purpose of possessing all 120 acres.  One of these parcels (“Parcel A”) and the 40 acres the Ashbys retained (“Parcel B”) are at issue in this case.

 

In 1976, the owners of Parcel A constructed a cabin on what they believed to be their own property.  In fact, it encroached on Parcel B by 250 feet.  This fact remained unknown until they sold Parcel A to Sleeping Indian Ranch (SIR) in 1996.  West Ridge Group (West Ridge) bought Parcel B from the Ashbys in 1999.  SIR bought suit to quiet title to that portion of Parcel B on the ground that its predecessor had acquired title by adverse possession.  The district court ruled in their favor, but the court of appeals reversed.

 

Under the vendor-vendee exception to adverse possession, a vendee may not adversely possess against a vendor.  The purpose of this exception is to prohibit a vendee from avoiding a contractual obligation to pay for property by adversely possessing it.  The court of appeals held that SIR’s predecessor-in-interest was not a direct vendee, they were assignees of, or joint venturers with, the Ashbys.  The court then imputed a duty of fidelity and a contractual obligation for the benefit of the Ashbys, which would prevent them from adversely possessing against them.

 

The Supreme Court of Colorado disagreed.  The Court followed the rule from other jurisdictions which recognizes a vendee’s right to assert ownership by adverse possession over a tract of land not covered by contract.  The purchase is not a “vendee in possession” of land not included in the contract, and consequently, the vendor-vendee exception would not apply.  The remaining question became whether SIR’s predecessors-in-interest contracted to purchase only Parcel A or were implicated in the Ashbys’ entire 120 acre contract.

 

The Court held that although the Ashbys were still making payments on their land installment contract, they were the equitable owners of the 120 acres and had the authority to enter into a conveyance.  Because the record supported the trial court’s conclusion that the Ashbys and their friends had not entered into a partnership or joint venture, the Court reversed the court of appeals’ decision and reinstated the trial court’s order quieting title.


9. Thompson v. Higginbotham, 2006 WL 42228 (Mo. Ct. App.) (not yet released for publication)

Houseguests were injured when a balcony attached to a second-floor apartment collapsed while they were standing on it.  It was determined that three screws used to fasten the balcony to its supports had failed and were responsible for the collapse.  The houseguests sued the owners of the apartment building and the O’Rileys, the builder/vendor of the apartment building.  The O’Rileys moved for summary judgment and the circuit court granted the motion based on a ten-year statute of repose for builders.

 

The Court of Appeals agreed with the trial court that the statute provided some protection to the O’Rileys, but because they also sold the apartment building to the current owners, other duties outside the scope of the statute were raised.  While former owners do not generally owe a duty to injured parties for defective or unsafe conditions to property, the Restatement (Second) of Torts section 353 creates such a duty under certain circumstances:

(1) A vendor of land who conceals or fails to his vendee any condition any condition, whether natural or artificial, which involves unreasonable risk to persons on the land, is subject to the vendee and others upon the land with the consent of the vendee or his subvendee for physical harm caused by the condition after the vendee has taken possession, if

(a) the vendee does not know or have reason to know of the condition or risk involved, and

(b) the vendor knows or has reason to know of the condition, and realizes or should realized the risk involved, and has reason to believe that the vendee will not discover the condition or realize the risk.

The court chose to recognize this duty because it fosters greater openness and candor in real estate transactions.  While aware that it was potentially opening a door to unlimited liability, the court reasoned that each case will be decided on its face and without this duty, plaintiffs face significant hurdles to reach recovery.

 

Applying this duty to the case-at-bar, the court noted that as sophisticated, knowledgeable and experienced builders, the O’Rileys may have had reason to know that the three screws attaching the balcony to its support would not hold the weight of more than a few people.  Furthermore, because they built apartments close to a college campus, they may have had reason to know that the apartments would be rented to students who were likely to entertain large crowds on the balconies.  Conversely, the current owners, a college professor and a dentist, may not have been likely to discover the defective condition or realize the risk without disclosure.  Because what the parties knew or should have known constituted matters materially in dispute, the court reversed the circuit court’s decision to grant summary judgment and remanded for further proceedings.


10. Zografos v. Baltimore, 165 Md. App. 80 (Ct. Spec. App. 2005)

This case arose from the circuit court’s ruling on a motion in limine in a quick-take condemnation proceeding.  The court upheld the City’s motion to preclude the property owner from introducing tax assessments for any year except the one in which the taking occurred.  The property owner wished to introduce evidence of a diminution in value caused by Ordinance 412, which authorized the City to take the property for a public park.

 

According to Maryland law, fair market value in a condemnation proceeding is the price at the valuation date which a seller would be willing to accept and a buyer would be willing to pay.  However, the fair market value will also include any amount by which the price reflects a diminution in value occurring between the effective date of the legislation authorizing the acquisition and the date of the actual date of the taking if the diminution was proximately caused by the public project for which the property was condemned.

 

Generally, tax assessments are not admissible in condemnation proceedings because tax authorities do not prepare these assessments for such purposes.  However, a property owner may be allowed to present this evidence if the assessed value is greater than the appraised value.  The court held that when this rule is read together with the fact that the fair market value includes the price reflecting diminution in value between the date of the legislation and the date of the taking, the property owner should be able counter a condemning authority’s appraisal value with evidence that, at a relevant time, the state assessed the property at a higher value.

 

In this case, Ordinance 412 was passed in 1989.  The city did not commence the formal quick-take condemnation proceeding or make its deposit until 2002.  In the thirteen years in between, the property’s value decreased substantially.  In 1988, the City’s assessment was $528,810.  In 2002, on the other hand, the assessment was only $260,000.  The court held the tax assessments were relevant to establish that the enactment of Ordinance 412 proximately caused the diminution.  Because the property owner was substantially prejudiced by the exclusion, the court vacated the decision and remanded the case for a new trial.


11. Estes v. Thurman,---S.W. 3d-----2005 WL 2046008 (Ky. App. Ct. 2005)  (Only the Westlaw cite is currently available).

 

The court determined that the purchaser of real property under the terms of an installment land contract  is entitle to the proceeds of  an insurance policy carried by the vendor even though (1) the policy was purchased by the vendor; and (2) the insurance proceeds exceeded the balance owning on the purchase contract.

 

Seller (Thurman) entered into a seven-year installment contract of sale with Purchaser (Estes) for a house for a purchase price of $17,000.   Although the contract included a covenant for Estes to carry casualty insurance, Estes took possession and made payments on the contract, but did not purchase insurance.  Casualty insurance was purchased and paid for by Thurman.

 

Six months after Estes took possession the house burned down through the fault of neither party.   The balance owed  on the contract at the time of the accident was approximately $16,000, but the insurance company paid Thurman $34,000.

 

Thereafter, Thurman filed a suit against Estes to forfeit Estes’ rights under the contract because of Estes’ failure to purchase insurance in violation of the covenant. Estes counterclaimed for (1)  a deed to the property on the ground that the insurance proceeds had paid off the contract balance in full; and (2) the remaining insurance proceeds.

 

The court held for  Estes, indicating that Thurman held the proceeds on “constructive trust” for Estes’ benefit.  According to the court, it would unjust for Thurman to benefit from the insurance by more than the value of Thurman’s security interest, $16,000.  Hence, Estes is entitled to the balance.

 

Noteworthy: Estes’  gets a “double windfall”—the house and the exceed insurance proceeds.  Further, Estes  did not (1) obtain or pay for the casualty insurance; and (2) breached the sale contract by failing to obtain  insurance.

 

Query:  Was Thurman punished for wanting to have it both ways?


12. Goldman v. Fay, 797 N.Y.S. 2d 731 (2005).

 

The court held that the exclusion of condominiums and cooperatives from the definition of “residential real property” in the New York State property disclosure statutes violates the Equal Protection Clause.

 

After the purchase of a condominium the buyer discovered faulty air conditioning pipes on the property.  The buyer sued the seller on the  basis that the seller knew  of the faulty condition when the property was sold to the seller, but failed to disclose it.  Article 14 of the New York Real Property law requires that a Property Condition Disclosure form be completed prior to entering into a contract for the sale of residential real property.    The sellers defended the suit on the basis that the statute explicitly excludes the sale of condominiums and cooperatives from the definition of “residential real property.”

 

The acknowledged that while there was no statutory disclosure required, the common law rule requiring the disclosure of latent defects applied.  The court concluded that the buyer was not entitled to damages for the defective pipes because under the common law rule the buyer could not prove that the seller had actual or constructive knowledge of the defective condition.  Further, even if the buyer could prove that the seller had knowledge, the buyer could not recover because an unlicensed home improvement contactor completed the repairs.

 

The court requested that the New York legislature  either repeal the law, or stay its execution  until a disclosure requirement for condominiums and cooperatives was added.  The court also stated that the present exclusion violated the Equal Protection Clause of the U.S. Constitution.

 

NOTEWORTHY: Trial courts seldom invoke constitutional provisions.  The court indicates that is no “rational basis” for distinguishing between freestanding homeowners and owners of condominiums and cooperatives.  Query:  Is it all that clear that no rational basis exists?  Why were these two groups left out in the first place?

 


13. Thomas v. Laustrup, 800 N.Y.S. 2d. 238 (2005).

 

An action for specific performance will fail when the buyer does not have the ability to (1) tender the purchase price; or (2) a signed mortgage agreement.

 

Plaintiffs  agreed to purchase a motel from the defendants.  One defendant had advanced dementia and Alzheimer’s disease; her husband signed the necessary papers pursuant to a power of attorney.

 

Shortly thereafter, the defendants attempted to cancel the contract on the basis  that (1) certain legal terms were missing from the contract and it therefore had no legal effect; and (2) the power of attorney was ineffective due to the defendant wife’s lack of requisite mental capacity.  They asked for summary judgment on their claim.  The plaintiffs sought specific performance of the contract.

 

Neither party prevailed in this action.  The defendants’ claim for summary judgment failed because the court found that uncertified and  unsworn medical records pertaining to capacity were insufficient. On the other hand, since they could not produce  the purchase price or a signed mortgage agreement, the court determined that they were not “ready, willing and able” to perform the contract.


14. Larson v. Safeguard Properties, 317  F. Supp. 2d 1149 (D. Kan. 2005)

 

In essence, a buyer’s  express “mold waiver,”  an identified risk, will not insulate the seller from liability for the failure to disclose a latent defect.  In addition, a home repair contractor retained by the sellers to fix up the house prior to a sale had no duty to notify the buyers of known latent defects discovered during the repair process.

 

Buyers signed a contract to purchase property “as is;” affirming that they would use due diligence to discover mold on the property; and agreeing to an express mold waiver, releasing the seller from any liability resulting from mold. Prior to the sale the seller hired a contractor to repair the house.  In turn, the contractor hired a carpet-cleaning subcontractor; the subcontractor discovered  and disclosed it to the seller. The seller did not disclose the leak to the buyers and proceeded to close the transaction.

 

After the transaction closed the buyers inspected the premises and found the leak.  One of them fell ill, purportedly as the result of a mold allergy.  Thereafter, the buyers sued based on their allegations that the defect made the house uninhabitable.  Further, they alleged that the contractors retained by the buyers to fix the house h ad a duty to notify them of the mold defect.

 

The sellers argued that the “mold waiver” language put the buyers on notice to make a more thorough inspection for mold and moved to dismiss the buyers’ suit.  According to the court, the deciding factor was whether  the buyers could have discovered the defect through a reasonable inspection.  The court refused to grant the sellers’ motion to discuss, holding that the reasonableness of the  inspection created a question of fact.  In addition,

 

With respect to the buyers’ claims against the contractor the court held that a duty to disclose could arise outside of contractual relationship. Hence, the absence of privity between the contractor and the buyers did not necessarily preclude a claim of fraud against the contractor.    The contractor prevailed, however, because: (1) the buyers had not alleged any other circumstances that would impose a disclosure duty on the contractor; and (2) they had not opposed the contractor’s motion for summary judgment.

 


15. Frostar Corp. v. Malloy, 823 N.E. 2d 417 (Mass. 2005)

 

Environmental reports:  What is the nature of a “timely” environmental report?

 

Frostar entered into a lease with Malloy, granting Frostar the right of first refusal to the leased property.    After receiving notice of a third party offer, Frostar exercised its right of first refusal.    One contract provision provided for Malloy to provide Frostar with an “environmental study.”  Although the provision specified the maximum amount to  expended on the study, it did  provide for the scope or nature of the study.  In addition, the contract provided that Frostar could terminate the contract if the environmental study was “unsatisfactory.”

 

After the contract was executed an environmental study was produced a month later, revealing that the subject property formerly had been the site of a dry cleaning operation.  The study indicated that no tests on subsurface soil or water had been made.   Frostar objected, but Malloy’s attorney indicated that he considered the study to be complete and that his client was unwilling to extend the closing date for the purpose of further environmental testing.

 

On the closing date Frostar brought suit for specific performance, damages, and a preliminary injunction against the sale of the property to any third parties.   At trial, the jury found that Malloy had breached its obligations under the first of first refusal and the purchase contract.  The jury further found that Malloy had breached the state consumer protection statute.   Although the trial judge upheld the jury recommendation with respect to the right of first refusal and breach of the purchase contract, but not the consumer protection violation recommendation.

 

On appeal, Malloy contended that the purchase contract was not breached because the requisite environmental study was provided.  Further, Malloy contended that even if Frostar was relieved of its duty to perform,  Frostar failed to prove that it was ready, willing and able to perform.    The case was remanded on the breach of contract action only because the appellate court while there was sufficient evidence  for the jury to have found breach of contract, it should have been given instructions regarding Frostar’s ability to perform its obligations under the contract.

 


16. Oakwood Village LLC v. Albertsons, Inc., 104 P.3d 1226 (Utah, 2004).

 

This commercial leasing case appeared in Pacific Reporter in December of 2004.  In Oakwood Village, the Utah Supreme Court revisited the issue of whether a retail tenant may “go dark” in the absence of an express covenant of continuous operation.

 

Albertsons leased a 42,800 square foot “plot” of land for a term of 25 years, with eight five year renewal periods.  Albertsons’s space was a part of a 123,900 square foot shopping center developed by Oakwood, and Albertsons was the anchor tenant among 26 stores. Albertsons agreed to a simple monthly rental of $1667 with no percentage rent and no escalations of any kind.   Albertsons constructed its store in 1980 and operated out of that location for 21 years.  Eventually, Albertsons leased space in a competing shopping center only one block away.  Albertsons ceased operating its Oakwood Village store and “went dark.” It continued to pay its monthly rental.

 

Albertsons admitted, through its attorney, that the grocery chain “intentionally kept the old building unoccupied in order to restrict competition with its new store.” With anchor space now permanently vacant, Oakwood shopping center lost business and tenants.

 

The trial court dismissed Oakwood’s case for failure to state a claim, and required Oakwood to pay Albertsons’s attorneys fees.  The Utah Supreme Court affirms.

 

The parties could have included in the lease an express covenant for Albertsons to continuously operate, but failed to do so. Focusing on the terms of the lease agreement, the court refused to infer to Albertsons a covenant of continuous operation.  The court noted the absence of lease provisions that typically indicate the parties intended such a covenant.  The lease did not include provisions requiring percentage rents (as is most often the case in large retail leases), or forbidding it from razing the structure altogether.

 

In addition, the lease contained provisions contradicting any intention that tenant would be subject to a covenant to operate its business continuously.    For example, the assignment clause permitted Albertsons to assign or sublease without obtaining Oakwood’s consent. The only significant exclusive right was granted to Albertsons and not to Oakwood: Albertsons was granted the exclusive right to operate a grocery store.  The parties knew how to negotiate and draft an exclusive, but did so for Albertsons’s benefit.

 

The court determined that Albertsons did not act in bad faith by going dark and locking up space at the older shopping center.  Parties are required under Utah law to act in good faith, but good faith is measured by the “justified expectations” of the parties. The court found significant the fact that Albertsons was party to a true ground lease.  Albertsons did not lease property that had an already existing structure, but built the building entirely at its own expense, suggesting that Albertsons could do what it wanted with the property. The good faith requirement does not require Albertsons to act to its detriment just to benefit Oakwood, nor does it conflict with express terms of the contract.

 

The court admitted that Albertsons’s behavior departed from the “golden rule” and was “not nice.”  But Albertsons did not violate the terms of the lease by adhering to the letter of the contract.


17. South Road Assocs. LLC v. International Business Machines, 826 N.E. 2d 806 (N.Y. 2005).

 

Leases typically specify that Tenant return the Premises in good condition (or language to that general effect).  Does this include the land exterior to the building leased by the tenant?

 

IBM leased two buildings in Poughkeepsie , N.Y. in 1981 from South Road Associates for commercial and manufacturing purposes. IBM had used that site pursuant to prior agreements since the 1950s. IBM installed underground chemical storage tanks which contaminated groundwater and soil.  IBM attempted to remediate the problem independently.  In 1984, during the Term of the lease, IBM and South Road Associates entered a separate agreement concerning the environmental problems.  As part of the agreement, IBM admitted complete responsibility for the environmental problem and indemnified South Road Associates.  IBM then sought and received a reclassification of the site as “properly closed” by the State Department of Environmental Conservation. South Road Associates entered into an agreement with IBM at the termination of the lease in 1994 providing IBM the right to access the site as needed to monitor the environmental status of the property.

 

After conclusion of the lease term, South Road Associates sued IBM for breach of the lease agreement, alleging that IBM failed to return the property in good repair and order, as required by the lease.  South Road Associates did not allege that the buildings were returned in an unsatisfactory manner.  Its claim was limited to the exterior land burdened by environmental contaminants.

 

The trial court ruled in favor of South Road Associates, holding that the Premises was intended to include the land in addition to the buildings. The Appellate Division reversed, apparently focusing on the language of the lease agreement.  The Court of Appeals affirmed the appellate division, vindicating the tenant, IBM.

 

The IBM lease described the Premises by reference to an exhibit showing the floor plan of the buildings.  The exhibit calculated the total square footage of the floor plans alone, with no mention of the land exterior to the buildings. The lease agreement described other areas that were available for tenant use, but described these as “appurtenances.” The court therefore considered the definition of “Premises” in the lease to be “clear and unambiguous.” Unlike the trial court, the appellate court refused to examine extrinsic evidence, such as IBM’s payment of taxes on the land or IBM’s willingness to clean up the site. In his review of this case in Probate and Property magazine, Professor James Smith suggests that “this decision underscores the need for real estate lawyers to pay careful attention to the use of defined terms throughout the documents that they draft and review.”


18. Tenet Healthsytem Surgical, LLC v. Jefferson Parish Hospital Service District No. 1, 426 F.3d 738 (2005).

 

May Landlord refuse consent to Tenant’s assignment of the Premises because the proposed Assignee’s business competes with that of Landlord?

 

In 2001, Tenet (the Tenant) leased space in a shopping center for a five year term.  The lease provided that Tenet would use the Premises for “out patient surgical procedures and general medical and physician’s offices, including related uses and for other purposes reasonably acceptable to Landlord.” The lease specified that the Landlord would not unreasonably withhold its consent to Tenet’s request to assign the lease or sublease the space.

 

Prior to expiration of the Term, Landlord sold the shopping center to a local hospital. The hospital sat adjacent to the shopping center. Tenet ceased operating its surgery center in the shopping center in 2003, and requested that the hospital, as Landlord, consent to an assignment of the lease.  The proposed Assignee intended to operate an occupational therapy clinic.  Hospital denied the request, ostensibly because this use would be in competition with services it provided.

 

The District Court apparently focused on the impact the Assignee would have on the hospital generally. The District Court indicated that the Assignee intended to use the Premises for a broader array of health services than those provided by Tenet and would be therefore beyond the reasonable expectations of the parties.

 

The Fifth Circuit Court of Appeals reversed, stating that the “intent [of the parties] is to be determined by the words of the contract when they are clear, explicit and do not lead to absurd consequences.” However, in this case, the key words to be interpreted -- that Landlord would not “unreasonably withhold its consent” – had not been the subject of significant discussion in Louisiana opinions.  Nevertheless, the court read Louisiana law to permit hospital to withhold consent to a proposed assignment in the event the Assignee was “financially inferior” to the original tenant, if the Assignee’s proposed use does not fit within used permitted by the lease, or if the assignment would make leasing space to other tenants difficult.  In this case, the hospital did not demonstrate any of the factors necessary to refuse consent. The occupational therapy clinic generally fits the description  specified by the lease as “general medical” use.  The court did not discuss, and possibly the hospital did not argue, that the Assignee was financially inferior or that Assignee would harm the hospital’s ability to lease remaining space in the shopping center.

 

The hospital’s primary argument seems to simply have been that the Assignee would compete with services provided by the hospital.  The court rejected this basis for refusing consent, and indicated that the “only factors [that may be considered] relate to the landlord’s interest in preserving the Premises or in having the terms of the prime lease performed.”  In this case, there was every reason to believe that Assignee would preserve the leased property and that it would perform its obligations under the lease, including the payment of rent. Several commentators view this case as important because it directly addresses (and rejects) the right of Landlord to withhold consent to transfer merely because the transferee will compete with Landlord.


19. Eastside Exhibition Corp. v. 210 East 86th Street Corp., 801 N.Y. 2d 568 (N.Y. App. Div. 2005).

 

Does Landlord’s very minor, permanent, and physical intrusion into Tenant’s Premises permit Tenant to completely abate rent?  Modifying an older rule, a New York appellate court holds that Tenant is entitled only to a proportionate abatement.

 

In Eastside Exhibition Corp., Eastside (as Tenant) and East 86th Street (as Landlord) executed a lease for a two story building to be used as a cinema multiplex.  The lease commenced in 1998 and was to run until 2016.  In 2002, East 86th surprised its Tenant when it began construction of two additional floors onto the building, without giving prior notice to or seeking consent from Eastside.  As part of the construction, East 86th installed floor to ceiling cross bracing between existing steel columns.  The cross bracing occupied 12 square feet of space near an area that patrons had previously used as “informal seating.” The total Premises was comprised of 15,000 square feet.

 

Tenant responded to Landlord’s construction by abating rent altogether for what it termed a partial actual eviction.  Eastside also sought an injunction barring East 86th from additional construction that would constitute an invasion of the Premises, as well as damages. The trial court read the lease to permit East 86th reasonable access to the Premises in order to construct additional floors to the building, but not to permit East 86th to permanently deprive Eastside of a portion of the Premises. The trial court granted a permanent injunction prohibiting the East 86th from additional construction that would result in evicting Eastside from the Premises. The trial court fashioned a “de minimis” exception to New York’s long standing rule that would otherwise deny East 86th, as Landlord, the right to apportion its wrong.

 

The Supreme Court, Appellate Division, disagreed with the trial court.  The court could find “no decision that recognizes a de minimis exception to the rule.” Nevertheless, the court did not deny Eastside a remedy, explaining that it did find authority in earlier opinions for a “more proportionate remedy than total abatement of rent.” The court recognized that it was departing from earlier black letter law, but stated that the older rule was harsh and archaic. The court dissolved the permanent injunction barring additional construction that would result in evictions of Eastside.  On the one hand, the court may be right to eliminate the Tenant’s right to completely abate rent in the face of an insubstantial intrusion.  On the other hand, by dissolving the injunction, the court granted Landlord the unilateral right to redefine the boundaries and extent of the Premises, so long as the changes are not too burdensome and so long as the rent is abated in proportion to the loss of space.

 


20. Rhaney v. University of Maryland East Shore, 880 A.2d 357 (Ct. App. Md. 2005).

When is a Landlord liable for an unrelated third party’s criminal attacks on Tenant?  This liability can arise from myriad fact patterns, and should be of interest to landlord/owners of both commercial and residential real property.

 

Rhaney is unusual because the Tenant (Rhaney) was a dormitory student, and the Landlord was a University. The criminal attack took place when Rhaney was accosted by his roommate.  The roommate had been previously involved in fights on campus, and at one point had been suspended. The University did not inform Rhaney of his roommate’s violent nature or history at the school.

 

Rhaney sued the University, alleging that the University had a duty to warn him and take measures to protect him.  The trial court agreed with Rhaney.

 

The Maryland Court of Appeals reversed, holding that the University did not have a duty as Landlord to refrain a third person from committing an assault on its “tenants.”    Rhaney’s injuries did not result from defective conditions in the Premises or common areas – for example, his injuries did not result from the University’s failure to adequately light the common area. The court explained that University did not have a duty to eliminate criminal activity altogether.  Rather, the University, as Landlord, has a duty to take “reasonable measures, in view of existing circumstances, to eliminate those conditions contributing to the criminal activity.”  The court narrowly viewed “conditions” as “physical ones,” rather than the propensity of an individual towards violence.

 

Finally, exercising extreme generosity, the court held that “even if [the criminally inclined roommate] could be characterized as a “dangerous condition” … [the University] … neither had the knowledge nor could have foreseen” that the roommate would batter Rhaney.

 


21.  Does an express easement that provides access to a landlocked parcel continue to exist after the purposes for which the easement was granted have become obsolete due to the construction of a public road?  Wisconsin Court of Appeals says, “No,” out of a concern that a contrary rule would allow holders of obsolete easements to “hold out” for excessive settlements before relinquishing their rights, and follows the “changed conditions” test of section 7.10 of Restatement (Third) of Property—Servitudes. AKG Real Estate, LLC v. Kosterman, 691 N.W.2d 711 (Wisc. App. 2004), appeal granted 693 N.W.2d 75 (Wisc. 2005).

This is a fairly controversial opinion construing an express easement; the facts are complex but necessary to an understanding of the legal issue.  The Kostermans are the current owners of a landlocked parcel while AKG is the current holder of the land that locks them in.  Their predecessors executed and recorded an express easement in 1961, granting the dominant landlocked estate a right-of-way over a specific 66-foot wide strip of land to a public road.  This unusual width for a driveway was selected so that the strip could be dedicated for use as a public road if the parties ever so elected.  A slightly different (if ambiguously drafted) formulation of this easement appeared in the deed by which AKG acquired the servient estate in 1998, with the result that both variations of the easement apparently were in effect at the time of this litigation.

Upon acquiring the servient estate, AKG commenced plans to subdivide its entire parcel; it intended to integrate the landlocked Kosterman lot, which it did not own, into the residential subdivision.  This plan would provide the Kostermans access through the dedicated subdivision roads to a public road outside the subdivision, but along a route that differed from that of the two original rights-of-way.  AKG believed that the express easements would expire by their own terms once it had provided the Kostermans with an alternative access route.  The Kostermans objected, arguing that the existing documents required AKG to place a public street along the same path as the original easement.

AKG sought a declaration that it had the right to terminate the original easements after providing the Kostermans with alternative access.  Even if the original documents did require AKG to place the new access along the same route, it argued in the alternative, such a plan had become impossible in the intervening years due to more restrictive highway access rules promulgated by the state highway agency.  The Kostermans responded that the recorded documents required any new access to follow the path of the old easement, and that their home had been positioned on its lot in reliance on this road placement.  The trial court ruled in favor of AKG on the 1998 easement but held that the terms of the original 1961 easement required that AKG leave that right-of-way in place or replace it with a public road along the same route.  Both parties appealed.

As for the later deed, the appellate court found that the language unambiguously supported AKG’s reading, which would allow AKG to provide access along a different route.  Any other reading, the court asserted, would be “substantively preposterous” leading to an “absurd result.”  Moreover, the court applied the doctrine of changed conditions to both versions of the easement, concluding that the purposes for the easement would no longer exist once the Kostermans’ parcel ceased to be landlocked upon completion of the new subdivision’s streets.  Once it became apparent that the internal parcel would not forever be landlocked and that the access road could not follow the path of the original easement, the assumptions underlying the creation of the original easement no longer held and the need for a right-of-way along that particular path had ended.

The court stressed that it does not lightly interfere with private contractual arrangements.  However, in this case, “the Kostermans[’] insist[ence] upon preserving an obsolete servitude” would “halt the development” of a residential area.  “We cannot countenance this grossly inefficient allocation of resources.”  The court concluded by noting that its reasoning regarding changed conditions is in accord with the standard established in section 7.10 of the Restatement (Third) of Property—Servitudes.

 

 

 

 

 


22.  If a city owns an easement intended to provide ingress and egress between a public street and another piece of property, may the city use this easement as part of a longer greenway to be used by pedestrians and cyclists?  The Idaho Supreme Court says, “No,” holding that such a use would benefit property other than the identified dominant parcel, and adopts the test set forth in section 4.11 of the Restatement (Third) of Property—Servitudes. Christensen v. City of Pocatello, 124 P.3d 1008 (Idaho 2005).

The City of Pocatello is the current holder of the dominant estate in an easement that was created in 1974.  The easement provides access across lots owned by the Christensens to a separate parcel known as the “Sewer Lagoon.”  In late 1999 or early 2000, the City announced that it planned to extend an existing greenway along the easement, thereby connecting a public road to the Sewer Lagoon.  The Christensens objected on several grounds, with the most significant being that the public’s use of the greenway would increase the burden on their servient estate.  The trial court ruled in favor of the city, finding that the proposed use of the easement would not impermissibly increase the burden on the servient estate.

On appeal, the Idaho Supreme Court reversed on this issue.  If the city were allowed to proceed as it planned, an easement intended to provide ingress and egress between a public street and the Sewer Lagoon would become part of a thoroughfare.  This is not merely a change or increase in use of the easement; rather the easement will be used to benefit property other than the identified dominant estate.  Because this court had never before addressed this issue, it turned to the test set forth in section 4.11 of the Restatement (Third) of Property—Servitudes, along with an appellate decision from Arizona, and decided to adopt the test set forth in those two sources.  Under the Restatement test, “an appurtenant easement . . . may not be used for the benefit of property other than the dominant estate.”

The court noted that under the city’s plan, parcels along the public road that were not part of the original dominant estate would nonetheless benefit from the use of the greenway.  The court also noted that this would constitute a change in the use of the easement, from access to a specific parcel to part of a recreational thoroughfare, although this second point did not seem central to its analysis.  The needs of the dominant estate may have evolved, and such evolution in the use of an easement is sometimes permissible, but the central question here is whether the easement must serve parcels other than the original dominant estate, and the court concluded that it need not.

(Note that this decision was not a complete victory for the servient estate holders, as the Idaho court affirmed several other rulings favorable to the city that rested solely on issues of Idaho statutory law.)

 


23.  If a Property Owners Association (POA) Declaration defines the POA parking area as a “common area,” may the Board of Directors of the POA, acting under its power to adopt rules and regulations that are not inconsistent with the Declaration, assign specific parking spaces to individual property owners so that each owner may exclude others from their allocated spaces?  The Virginia Supreme Court says, “No,” states that parking spaces may be assigned only by amendment of the Declaration, and awards attorney fees to the complaining unit owner. White v. Boundary Association, Inc., 624 S.E.2d 5 (Va. 2006).

The nine unit owners in the Boundary, Inc., subdivision in Williamsburg, Virginia, each own their townhouse unit in fee simple and have an interest in common in various common areas, including an 18-space parking lot.  The POA Declaration authorizes the POA Board to “adopt such rules and regulations . . . as [it] may deem proper, not inconsistent with these by-laws and the laws of this State.”  Ostensibly acting under this authority, the POA Board assigned two specific parking spaces to each unit.  The Whites objected, arguing that the POA had exceeded its authority and violated the express terms of the Declaration.

The trial court found in favor of the POA, holding that both the applicable state statute and the Declaration itself authorized the POA to promulgate rules governing the common areas and that these regulations had been properly adopted.

On appeal, the Virginia Supreme Court reversed.  The court found both the statute and the Declaration to be unambiguous.  The Declaration “expressly granted each unit owner an easement of enjoyment in the common area.”  This right was “indefeasible,” and could be changed only under three specifically stated circumstances—not applicable here—or by amendment of the Declaration.  Changes to the bylaws could not effectively divest unit owners of property rights, which is what the Board had attempted to do here.

Although the only Virginia precedent that the court cited involved preferential allocation of parking spaces to some owners and not others, the court concluded that in both that case and the instant one, the POAs had attempted to use a regulation to divest owners of access to certain portions of the common area.  Boards may adopt rules, but many not contravene rights and privileges expressly set forth in the Declaration.

 

 

 


24.  If a landowner does not object to an exaction at the administrative level and complies with the requirements that a city imposes as a condition to partitioning land, but the landowner then brings an action seeking just compensation for a taking, is the city permitted to show rough proportionality for the first time at trial?  The Oregon Court of Appeals says, “Yes,” concluding that it is the absence of the required “rough proportionality,” and not the absence of a finding of rough proportionality, that constitutes a taking. Hammer v. City of Eugene, 121 P.3d 693 (Ore. App. 2005).

In this class action, landowners asserted that they were entitled to just compensation under the Fifth Amendment to the United States Constitution because the city did not make a showing of “rough proportionality” as required by Dolan v. City of Tigard.  The class representative complied with the city’s requirements that it convey title to, or easements on, portions of the property, but then sought just compensation in court, arguing that the city had taken the property because it had not met the Dolan threshold before imposing the exaction.  The trial court awarded just compensation.

On appeal, the landowner argued that the absence of a finding showing rough proportionality constitutes a taking on its own.  The city, by contrast, argued that a taking occurred “only in the absence of rough proportionality itself.”  Particularly in a case such as this one, in which the landowner had chosen not to appeal administratively, the government believed it should be permitted to introduce the same evidence at trial that it would have presented at the administrative level.

The landowner’s argument assumed that the Dolan rule is prophylactic, designed to prevent the government from acting without making the necessary showing in advance.  The court disagreed, stating that if the Framers had intended for the Takings Clause to include a procedural requirement, they would have said as much, as they did in the Due Process Clause.  A takings plaintiff cannot prevail without showing that the government has actually taken property.  The presence of prior findings does not prove that they are adequate, while the absence of prior findings does not prove that they will be inadequate when ultimately introduced.

 

 

 


25.  If an installment land contract buyer enters into a contract that clearly states that time is of the essence and that a default will lead to forfeiture of the land and all payments previously made, is that contract enforceable?  The Tennessee Court of Appeals says “Yes,” but its discussion is limited to construing the contract; the buyers did not attempt to argue that such clauses should be unenforceable for policy reasons. Kafozi v. Windward Cove, LLC, 2005 WL 2051292 (Tenn. App. 2005).

The Kafozis entered into an installment land sales contract with Windward Cove to purchase a residential lot for $100,000.  Under the contract, the Kafozis agreed to pay $25,000 immediately, plus $2,000 per month for 12 months, extendable to 18 months at their option, with the balance due at the end of the 12 or 18 months.  The contract also provided for a penalty in the event the contract remained unpaid after 18 months, and the Kafozis committed to begin construction of a home within 12 months with a designated builder.  The remedy section of the contract provided that time is of the essence.  In addition, upon default and following a ten-day grace period, the Kafozis would forfeit all payments they had made up to that point, along with all rights to the property.

The Kafozis made payments for 12 months, then they extended for six months more, and then extended for six months more (by mutual agreement).  Finally, Windward Cove sent a 10-day notice to the Kafozis—seemingly not required—and then sold the property on the twelfth day.  The Kafozis sued, seeking an order requiring either that: (a) Defendant convey the lot to Plaintiffs upon receipt of the balance of the price; or (B) Defendant return all money Plaintiffs had paid under the contract, plus interest.  The trial court ruled in favor of the Kafozis, on the grounds that the contract did not provide a clear due date for the final payment.

On appeal, the Court of Appeals reversed, examining just the one issue of contract ambiguity.  While acknowledging that this is a harsh result that the court might not prefer, the court stated that it is required to enforce the bargain the parties agreed to, and there is no ambiguity here.  The court noted that the construction of a contract depends on the intent of the parties to that contract at the time of execution.  The initial task of the court is to construe ambiguities, which means language that may fairly be understood in more than one way.  But the court found no ambiguities here: There was an original expiration date, there was a pre-arranged six-month extension period, there was a mutually agreed second six-month extension period, and the contract thus expired one years from the initial due date.