Ohio Real Estate Blog

Ohio 3rd Quarter Residential Report: Sales Up; Prices Down (but not by much)

noreply@blogger.com (Stephen D. Richman, Esq.) — Fri, 13 Nov 2009 21:42:00 +0000

The National Association of Realtors reported this week that sales of previously owned single-family homes, condos and co-ops for 3rd Quarter 2009 were 11.7% higher than 3rd Quarter 2008. While it is estimated that 30% of the sales were due to foreclosures and "short sales", and many of the sales were aided by low prices and the federal tax credit, a positive trend seems to be emerging. Ohio was not alone, as thirty-two (32) states also saw 3rd Quarter sales volume increases.

Prices also seem to be stabilizing in Ohio, even though many Ohio cities experienced some price decline. According to the NAR study, and the November 11, 2009 Cleveland Plain Dealer article: 'Existing-Home Sales Rise in Ohio and Nationwide' (by PD Reporter, Michelle Jarboe), the following Northeast Ohio metropolitan areas saw "modest price declines":

Cleveland-Elyria-Mentor: .5% ;

Akron: .8%;

Canton-Massilon: 9.3%.

According to Lawrence Yun, economist for the NAR, we are hopefully now experiencing a change from "a market in transition...to one that is becoming more balanced and stable".

DON’T FORGET THE RULES OF THE GAME

noreply@blogger.com (Stephen D. Richman, Esq.) — Mon, 19 Oct 2009 17:17:00 +0000

(a Primer for Ohio Residential Property Landlords)

Most real estate professionals agree that the residential-rental property "game" is still a good investment in these uncertain economic times. One of my friends at Johnson Capital recently announced their arranging of a ten (10) year, $4.9 Million loan on a 217 unit apartment building in Kansas City and expressed to me that they are very active in the residential-rental real estate market.

As with any game, however, it is important to play by the rules. Real estate investors and landlords of commercial property should not lose sight of the fact that the rules regarding residential property leases are often more stringent than those in commercial property. Accordingly, residential leases must be drafted by those with expertise and knowledge of residential landlord-tenant laws. As a general rule, in commercial leases, judges most often defer to the language in the lease (absent illegal, unconscionable or non-discernable provisions), but in residential leases, judges normally defer to the “rules (law) of the game”, and the presumed, unequal bargaining positions of the parties.

In Ohio, real estate practitioners must be familiar with the “State rule-book”, the Ohio Landlord-Tenant Act (Ohio Revised Code Chapter 5321); as well as the local rules (many municipalities in Ohio have landlord-tenant laws that supplement the Ohio Landlord-Tenant Act).

While the Ohio Landlord-Tenant Act has been around since 1990, I have seen many leases that are not in compliance with the law. At a minimum, residential landlords in Ohio should remember the following:

Terms Prohibited in Rental Agreement (ORC Section 5321.13)

According to this Section of the Ohio Revised Code, the following terms are prohibited from being in a residential rental agreement in Ohio:

1) A Warrant of Attorney to Confess Judgment;
2) An agreement to pay a landlord’s or tenant’s attorney’s fees;
3) Agreements by a tenant to waive its landlord’s liability or indemnify its landlord;
4) Tenant’s waiver of landlord’s obligations to keep the premises habitable, and other landlord obligations under Section 5321.04.

Acts Prohibited by the Landlord (ORC Sections 5321.15; 5321.02)

According to Section 5321.15 of the Ohio Revised Code, landlords may not terminate utilities or services, exclude (without judicial process) the tenant from its premises, or make threats of any unlawful act against a Tenant, when attempting to recover possession. In other words, residential landlords may not utilize “self help” evictions. They must follow O.R.C. Chapter 1923 re: judicial eviction proceedings. In addition, landlords may not seize the furnishings or possessions of a tenant, for the purpose of recovering rent, unless ordered by a court. A landlord who violates Section 5321.15 is liable not only for damages to a tenant but also for reasonable attorney’s fees. Also, pursuant to Section 5321.02 of the Ohio Revised Code, Landlords may not retaliate against tenants by increasing rent, decreasing services, or threatening to bring an action because a tenant has complained of a building/housing/health or safety code applicable to the premises, or the tenant has complained that the landlord has violated its obligations to the tenant pursuant to O.R.C. Section 5321.04. Tenant may also recover actual damages and reasonable attorneys fees for a landlord violation of Section 5321.02.

Obligations of the Landlord (ORC Sections 5321.04; 5321.08)

The Ohio Landlord Tenant Act also contains specific requirements and regulations regarding security deposits (Section 5321.08) and required obligations of the landlord, regardless of whether the same are contained in the Lease (Section 5321.04). There are also provisions in the Act pertaining to tenant obligations, but the majority of the Act is dedicated to protecting the tenant from the landlord, who typically has greater financial strength and bargaining position.

Don't Forget the "Local Rules"

Many real estate practitioners believe that the Ohio Landlord Tenant Act is the only source of “rules” in Ohio pertaining to residential tenancies. They would be wrong, and may already have found that out “the hard way” (in court). Even though there is a statutory Landlord- Tenant Act in Ohio, there are also many court decisions that have interpreted the Act, and have established rules of law for residential landlord-tenant issues, not covered in the Act. Additionally, there are local and municipal ordinances that must always be reviewed and evaluated.

Ordinance No. 1844A-99 (the City of Cleveland Landlords and Tenants Law)

In Cleveland, for example, Ordinance No. 1844A-99 (the City of Cleveland Landlords and Tenants Law) should always be consulted. Residential landlords in Cleveland may particularly wish to review their leases to ensure compliance with the following:

A. Automotive Renewal Provisions (Section 375.02B)

This Ordinance requires any automatic renewal provision in a lease to be set forth in bold type and in conspicuous (twice the size of the other print) type if the lease is for six months or longer.

B. Fees for Late Payment of Rent (Section 375.02C)

This Ordinance creates a maximum monthly amount for any fee for late payment of rent. The maximum amount is the greater of $25.00 or five percent of the monthly rent. There are additional rules for subsidized housing.

C. Tenant’s Payments for Gas, Electric or Water (Section 375.05)

This Ordinance permits landlords to require enants to pay for such utilities only if three conditions are met:
1. The utility services are provided through an individual meter or sub-meter that measures tenant’s usage only;
2. The rental agreement provides in clear language that the tenant shall pay for the utility service during its tenancy only; and
3. The tenant has (and the Rental Agreement provides as such) reasonable access at all times to the meter or sub-meter.

D. Minimum Statutory Damages

The Cleveland Ordinance also establishes a tenant remedy of “minimum statutory damages” (between $50 and $500) for certain landlord conduct that the Ohio Landlord Tenant Act prohibits, such as the knowing use of an unlawful lease term, unlawful entry of the dwelling unit, unlawful self-help eviction, and unlawful seizure of a tenant’s personal property.

Knowing all the rules of the residential-related real estate game (state laws, local laws, and court decisions), is the only way to truly win. Otherwise, the penalties can be very costly.

University of Dayton May Buy NCR Headquarters

noreply@blogger.com (Connie Carr) — Tue, 13 Oct 2009 17:42:00 +0000

According to news reports released on Monday, October 12, 2009, the University of Dayton is in discussions with NCR Corp.to potentially acquire the former NCR world headquarters building in Dayton. That would be great news for the Dayton commercial real estate market.

Click here to access the news article at the Dayton Daily News web site.

CLE Updates on Foreclosures and Road and Access Law

noreply@blogger.com (Connie Carr) — Thu, 08 Oct 2009 17:30:00 +0000

There are a couple more real estate-oriented continuing education seminars scheduled for the coming months:

First is a seminar sponsored by the Stirling Education Services, Inc. on December 1, 2009 in Akron, Ohio titled "Real Property Foreclosure in Today's Market". The seminar runs from 8:30 am to 4:30 pm, with registration beginning at 8:00 am, at the Hiltron Akron Fairlawn, 3180 West Market St. To register or for more information, call 715-855-0498 or go online at www.sterlingeducation.com.

Second is a seminar sponsered by the National Business Institute on December 2, 2009 in Cleveland, Ohio titled "Road and Access Law: Researching and Resolving Common Disputes." The seminar runs from 9:00 am to 4:30 pm, with registration beginning at 8:30 am, at the Holiday Inn Independence, 6001 Rockside Road in Independence. To register or for more information, call 800-930-6182 or go online at www.nbi-sems.com.

CLE Update: How to Obtain Good Title in Real Estate Transactions

noreply@blogger.com (Connie Carr) — Tue, 29 Sep 2009 22:34:00 +0000

The National Business Institute is sponsoring a one-day seminar on "How to Obtain Good Title in Real Estate Transactions" on December 10, 2009. The seminar will be held at the Holiday Inn Independence on 6001 Rockside Road, in Independence, Ohio.

The course has been approved for CLE and State Bar College credit. Credit for insurance and real estate are pending.

For more information, call 1-800-930-6182 or go online at www.nbi-sems.com.

Condos Getting Creative to Deal with Foreclosures

noreply@blogger.com (Connie Carr) — Thu, 24 Sep 2009 13:00:00 +0000

Condo associations, like developers and lenders, are facing significant issues due to the foreclosure crisis. Increasing foreclosures leads to less income from condo assessments as owners cannot pay their condo fees. The lower assessment income means insufficient operating funds to cover expenses such as insurance and maintenance.

To stave off financial disaster, condo associations are having to get creative. For example, some condo associations are using reserves to buy foreclosed units, and then renting them out until the sale climate improves and the unit can be sold at a decent market value. This action provides 2 advantages: the unit is prevented from being sold too far below market and the association is able to recoup some additional funds.

Some courts have ordered receivers in bankruptcy to collect rents where owners have rented the unit out but weren't paying the condo assessments and use the rental income to pay overdue condo assessments.

Some condo association that had banned owners from renting their units are relaxing those rules, or creating hardship exceptions, to allow owners to avoid foreclosures.

These are extraordinary times and it calls for creative action.

CLE Update: Residential Real Estate

noreply@blogger.com (Connie Carr) — Wed, 23 Sep 2009 14:58:00 +0000

The Ohio State Bar Association is sponsoring a live simulcast program titled "Residential Real Estate Transactions" on November 4, 2009 in 8 cities: Akron, Cleveland, Columbus (live and via webcast), Fairfield, Steubenville, Toledo, Wooster and Youngstown.

The program is eligible for CLE, Real Property: Residential Law Specialization hours, Title Insurance CE (pending), and Real Estate CE (pending).

For more information, contact the OSBA at (800) 232-7124 or online at www.ohiobar.org.

National Association of Realtors (NAR) Urges Congress to Extend 1st time Homebuyer Tax Credit

noreply@blogger.com (Stephen D. Richman, Esq.) — Wed, 16 Sep 2009 20:45:00 +0000

Most real estate professionals, economists and advisors claim that the $8,000 first-time homebuyer tax credit has definitely been a success. Recent home sales statistics support their claim. According to the National Association of Realtors, “Homebuyer interest and housing sales increased almost as soon as the ink was dry on the tax credit legislation. Today's lower prices and interest rates appeal to consumers, but it's been the tax credit that has attracted people to open houses and to homeownership”.

To re-cap, first-time home [condo, town-home and co-op] buyers (i.e. purchasers or their spouses who have not owned a home during the three years prior to the purchase) who purchase a home between January 1, 2009 and December 1, 2009 are eligible for a tax credit, to a maximum of $8,000.

The amount of the tax credit is determined by two factors:
(i) the price of the home- the credit is equal to 10% of the purchase price of the home, up to $8,000; and (ii) the buyer's income- single buyers with incomes up to $75,000 and married couples with incomes up to $150,000—can receive the maximum tax credit. The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for married couples filing jointly. Home buyers earning more than the maximum qualifying income—over $95,000 for singles and over $170,000 for couples are not eligible for the credit.

The good news is that the buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped on the sale. The bad news is that time is running out, since it generally takes between 45 and 60 days to go from contract signing to closing. The 30th of this month begins the “60 day countdown”.

According to the NAR, if the Credit is not extended through 2010, “uncertainty will return and the market might again be frozen -- possibly as soon as October”. In their “call to arms” draft letter to Congress, the NAR explains that “the market has improved, but it has not yet fully corrected itself. The credit needs to be extended for an additional period of time and expanded in order to build upon the progress that's been made. Uncertainty about the future of the credit will dampen consumer demand. The best way to assure continued housing activity is to extend and expand the credit and to do that NOW”.

Many real estate professionals (including this author) agree, and support the NAR in their efforts. If you are a Realtor, and wish to join the cause, simply click on the following link: http://takeaction.realtoractioncenter.com/campaign/hbtc?qp_source=dotorg, and send your message to Congress electronically, via the NAR website. If you are not a Realtor, but wish to add you voice, simply write a letter comparable to the NAR call to arms, send it to your Congressman/Congresswoman, and hope for the best.

Commercial Real Estate Forecast: Cloudy, Chance of Light at the End of the Tunnel- Early 2010

noreply@blogger.com (Stephen D. Richman, Esq.) — Wed, 09 Sep 2009 18:24:00 +0000

A perspective from Daniel Lisser, Managing Director of Johnson Capital

(re-printed with permission from Mr. Lisser)

Completing transactions in the commercial real estate market remains difficult due to a lack of securitized and unsecuritized lending activity. Commercial mortgage-backed securities (CMBS) lenders were once the most active capital source, but they left the market a year ago and their return is still a ways off. While a full recovery of the commercial real estate market may not be imminent, transactions are still getting done on a conservative basis, and the federal government’s stimulus plans provide hope for the near future.

Initial signs of distress in the commercial market could be seen in the beginning of 2008, with massive deleveraging and a sharp increase in defaults, and it has only worsened throughout 2009. Not only are we continuing to see rising defaults across all property types and in all markets, property values have dropped over 35% according to a number of different market reports. In an attempt to buoy the recession’s effect on the commercial market, the federal government implemented various programs including PPIP, TALF and TARP to spur lending, but these programs have not been especially effective in stemming the decrease in values or encouraging lenders to come back into the market.

Refinancing risk has become a key issue in recent months - many maturing loans cannot be paid off in full due to sagging property values and increasingly conservative underwriting standards. This is especially problematic for loans that were originated at the height of the market from 2005-2008, which will be maturing over the next few years. According to the Federal Reserve, a massive $271 billion of commercial real estate loans are expected to mature by the end of 2009.

The question on many people’s minds is, who will be the new lender for these maturing loans? The demise of the CMBS market, a $200 billion-a-year market at its peak, left a tremendous void that has not yet been filled by other lenders. Even if portfolio lenders such as banks and insurance companies were to extend all of their 2009 maturities (which is extremely unlikely), we would still need to find additional sources to fill the gap left by the lack of CMBS financing.

Banks and thrifts stand out as the most likely equity source, as they are currently the largest lenders in the commercial real estate market. Today, they have an almost 50% share of the $3.4 trillion commercial mortgage market. However, it is highly unlikely that banks would be able to grow their commercial mortgage portfolios in the face of rising delinquencies in their existing portfolio. Also, banks are failing at an increasing rate and are continuing to be overtaken by regulators, which has increased the strain on the entire banking system.

With a lack of capital in the market, banks are trying their hardest to avoid defaults - extending loans with borrowers who are able to cover their debt service out of property cash flow (pretend and extend) and trying to work out loans with borrowers who are unable to cover debt service.
The commercial mortgage market will not stabilize until the general economy recovers. In order for that to happen, the unemployment rate must stabilize, consumer confidence and retail sales need to rebound and the housing market must find stable footing. Until then, tight underwriting standards, rising cap rates and a weak economy will continue to impact existing credit and the extension of new credit in the commercial market. However, the federal government’s programs including PPIP, TARP and TALF along with the stimulus package will all be extremely beneficial for the commercial real estate market and are reasons to be optimistic that there is light at the end of the tunnel starting in early 2010.

Founded in 1987, Johnson Capital is one of the country’s top real estate capital advisory firms with eighteen locations nationwide. Their services include debt placement and acquisition financing for permanent, construction and repositioning in addition to joint venture equity placement for individual assets, portfolios, entities and discretionary funds. Johnson Capital transactions have ranged in total funding from $1 million to over $300 million and have financed all property types, including: multifamily, office, retail, industrial, hotels, mixed use, manufactured housing, credit-tenant leases, single-family housing and land developments. For more information about Johnson Capital, log on to their website at: http://www.johnsoncapital.com/

WATCH YOUR LANGUAGE WITH “REPAIR CLAUSES” IN OHIO COMMERCIAL LEASES -PART 2-

noreply@blogger.com (Stephen D. Richman, Esq.) — Thu, 03 Sep 2009 21:27:00 +0000

(or they could become "replace clauses")

Generally speaking, courts will uphold language in a commercial lease, unless it is contrary to statutory law or public policy. Consequently, commercial landlords and tenants have a lot of leeway in allocating the risk and responsibility of issues inherent in commercial leases.

When allocating responsibility for maintenance and repairs, most commercial landlords intend for their tenants to make most of the repairs, especially in long-term, triple-net (NNN) leases. While some landlords may think repair always means replace; as a general rule, courts faced with this issue typically decide that if a landlord wants a tenant to replace the roof, for example, (versus make periodic repairs), the lease must specifically provide that it shall be the tenant’s obligation to repair and replace the roof. “Courts have held that an express covenant to repair will not be enlarged by ‘language’ construction…a covenant to repair does not include a covenant to replace.” Ohio Real Property Law and Practice, § 20.08 1-3 (2007).

As with many general principals of law, however, there are always exceptions to the rule. In Brown v. Spitzer Chevrolet Co., 181 Ohio App. 3d 642, 2009-Ohio-1196, the Fifth District Court of Appeals of Ohio created one of these exceptions. In the Brown case, Spitzer Chevrolet was a long-term tenant, leasing the property from Brown (landlord/owner) for an auto dealership. The Brown-Spitzer lease contained the following clause for “Care, Maintenance and Repair of Premises”:

“Tenant shall commit no act of waste and shall take good care of the Premises and the fixtures and appurtenances therein, and shall, in the use and occupancy of the premises, conform to all laws…Tenant shall be responsible for the repair and maintenance of heating, plumbing, electrical and air conditioning equipment and fixtures. Tenant shall further be responsible for the replacement of broken glass. Tenant shall also maintain the exterior of the premises including the roof and the structural integrity of the walls and foundations of the buildings and gutters, downspouts and gas, water, and sewer line”.

The evidence presented at trial revealed that the roof was beyond its useful life and needed to be completely replaced; the HVAC unit was no longer operational and needed to be replaced; the boiler was compromised due to excessive rust (the result of roof leaks) and needed to be replaced; the asphalt parking lots required major work and the exterior wood trim was rotting or missing in many areas. Further, exterior bricks and masonry were cracked due to decay from water penetration from the roof.

The trial court held that the lease agreement was a “triple-net lease”, which imposed a greater duty (on the part of the tenant) than other leases require, relative to maintenance and repair. Spitzer appealed the decision of the trial court (requiring Spitzer to replace all of the afore-mentioned items), contending that the specific language of the lease should control, and that the “repair clause” language did not specifically include an obligation to replace or restore any items. The court of appeals in Brown agreed with Spitzer, acknowledging that the lease did not expressly impose a duty to replace or restore. The court of appeals also reiterated the general law in Ohio regarding commercial lease construction; “if the language of a lease is clear and unambiguous, courts must enforce the instrument as written”. See Brown at 653, quoting Hybud Equip. Corp. v. Sphere Drake Ins. Co., Ltd., 64 Ohio St. 3d 657, (1992).

Nonetheless, creating an exception of sorts to the general rule, the court in Brown held that Spitzer had a duty to replace or restore the items at the property when, through Spitzer’s complete disregard of its express obligation to repair and maintain, the property became so deteriorated that the only means of repairing would be through replacement.

The court in Brown, however, took a slightly different approach with regard to the issue of whether the roof needed to be replaced. The court first noted that the tenant’s lack of maintenance of the roof did not create the need to replace the roof because the roof was a “Twenty-year roof” and would have needed to be replaced due to its age, regardless of the extent of repairs. In addition, the court factored in the “Surrender of Premises clause” of the Spitzer-Brown lease. The surrender clause provided that “tenant must surrender the Premises in as good a condition as they were at the beginning of the occupancy”, and the new “barrel roof” that the landlord wanted replaced was not in existence at the inception of the lease. As a result of the foregoing, the court followed the general rule of lease interpretation regarding the roof (that repair does not equal replace, unless expressly provided in the lease) and held that Spitzer had no duty to replace the roof.

The moral of the story: “Say what you mean, precisely, or a court will tell you exactly what you meant”. Simply adding a specific obligation to replace the roof on the part of the tenant would have yielded a decision the landlord obviously intended at the outset (that the tenant should replace the roof as well as the other interior and exterior items). Moreover, using specific replacement language regarding the other “repair items” would have prevented the need for litigation in the first place. Tenants with gross leases, tenants in multi-tenant buildings, and shorter term tenants should especially review these clauses to ensure that its repair/replacement obligations are clearly and accurately described. Dollar thresholds can also be used to help “unblur the line” between repair and replacement obligations.

On another practical note, landlord and tenant should always ensure that the “surrender of the premises clause” is logically in congruence with the “repair clause”. Landlords typically want the premises returned in good condition, with the tenant making any repairs and replacements necessary to put the premises in good condition. Tenants, on the other hand, not wanting to inherit the problems of an old building should negotiate for language comparable to the following: “tenant shall return the premises in as good condition as received at the inception of the lease, reasonable wear and tear and insured casualty excepted.”

As always, lease review and negotiation with the assistance of qualified real estate brokers and attorneys (before the lease is signed) is the best way to ensure that lease deals intended at lease inception, remain in place throughout their lease terms.

Construction Contract Disputes CLE

noreply@blogger.com (Stephen D. Richman, Esq.) — Mon, 24 Aug 2009 16:13:00 +0000

Construction Industry Controversies: Analyzing and Preventing Contract Provision Disputes
Live Telephone Seminar / Live Audio Webcast Tuition: $199Wednesday, August 26, 2009 1 pm to 2:30 pm EDT

(Receive the text A Practitioner’s Guide to Construction Law, with 2009 Supplement for FREE! See below for details).

While the "construction" side of the construction industry is mired in a nationwide recession, the controversies emanating from construction matters are not. Construction industry disputes arise most frequently on account of two reasons – misunderstandings concerning the parties' respective responsibilities and poorly drafted contract documents (which often are the cause of the confusion). These disputes often are centered on the same recurring problem areas. This 90-minute audio program will help conference participants learn what issues repeatedly arise in today's construction industry disputes, which contract provisions most often cause them, and how these problems can be avoided through good communication and draftsmanship.

Topics to be covered include:

1)Delay and other impact claims;
2)Guaranteed maximum price
3)Liability limitation provisions
4)Changes
5)Unforeseen site conditions
6)Prompt payment issues

More information...
Special Book Offer - Register for the telephone seminar or the audio webcast, or attend the Construction Industry Controversies: Analyzing and Preventing Contract Provision Disputes and get the ALI-ABA text A Practitioner’s Guide to Construction Law, with 2009 Supplement for FREE (a $159 value)! Cannot be combined with other offers.

"Great CLE makes great lawyers. Meet your CLE requirements with ALI-ABA today!"©ALI-ABA 4025 Chestnut Street, Philadelphia, PA 19104 215.243.1600 www.ali-aba.org

Commercial Leases and Bankruptcy CLE

noreply@blogger.com (Stephen D. Richman, Esq.) — Mon, 24 Aug 2009 16:00:00 +0000

Commercial Leases and Bankruptcy: Strategies for Landlords and Tenants
Live Telephone Seminar / Live Audio Webcast Tuition: $199Thursday, August 20, 2009-

1 pm to 2 pm EDT

How can landlords protect their financial interests? How can tenants turn to bankruptcy protection to safeguard their assets?

As more and more businesses battle financial trouble, commercial landlords are dealing with outstanding rent payments while their tenants vacate in droves. While The Bankruptcy Code offers protections both to commercial landlords and tenants it also raises a number of complex legal issues. Counsel for both parties must consider effective strategies to protect against the fallout from tenant bankruptcy.

Topics include:
What are the significant issues that arise when a commercial tenant files for bankruptcy?
What are the best practices for mitigating risk of loss for both tenants and landlords?
What are the current trends for commercial tenant bankruptcy?
What are the breach issues that occur in both reorganization cases and liquidation cases?
What are the two discretionary collection tools and one automatic collection tool available in every bankruptcy case?

More information...

"Great CLE makes great lawyers. Meet your CLE requirements with ALI-ABA today!"©ALI-ABA 4025 Chestnut Street, Philadelphia, PA 19104 215.243.1600 http://www.ali-aba.org/

Featured Resource: "Green Shoots" -- a commercial real estate's green building blog

noreply@blogger.com (Connie Carr) — Tue, 18 Aug 2009 20:00:00 +0000

One blog worth visiting is Green Shoots, a commercial real estate blog on green building. It is operated through the National Real Estate Investor web site.

The site focuses on the latest news, data and analysis of the real estate green building industry as it evolves. Readers will find useful information regarding green leases, valuations, financing, and government regulations and incentives for new and existing buildings.

Click here to access the blog.

Ohio County Courts Vary in Accepting New Judicial Commitment Endorsement

noreply@blogger.com (Stephen D. Richman, Esq.) — Fri, 07 Aug 2009 19:55:00 +0000

Republished with Permission from Chicago Title

At the end of 2008, the Ohio Department of Insurance approved a new rate rule which allows for the modification of a standard owner's commitment to be used in judicial foreclosures of both residential property (comprising of four or more single family units) and commercial property.

The new rule allows extension of the commitment coverage beyond the normal contractual time of six months, to a date 30 days after the recording of the deed in the name of the new owner at judicial sale. This rule only applies when both polices (or endorsements) are issued by the same underwriter. The new rule took effect on December 1, 2008.

The premium for this new endorsement (known as a Judicial Commitment Endorsement) is set at $.50 per $1000 based upon at least the unpaid balance of the foreclosed-upon lien and is used in lieu of the standard title guaranty premium, which compared to the $3.50 per $1000 premium for conventional Preliminary Judicial Reports, can result in significant savings. In addition, unlike the cost of the title guaranty, the premium paid for the title commitment with the Judicial Commitment Endorsement can be credited toward the purchase of an ALTA Owner's Policy by the lender after the Sheriff's Deed has been recorded.

Most of the county courts in Ohio have not changed their local rules to accommodate this rule change. If the court does not require Preliminary Judicial Reports by their current rules, they are more likely to accept the title commitment with the Judicial Commitment Endorsement. The three largest Ohio counties -- Cuyahoga, Franklin, and Hamilton -- do accept the commitment. Counties close to Cuyahoga County (Lake, Summit, Geauga, Lorain) presently do not, however, the potential cost savings involved make it worthwhile to educate the remaining county magistrates about this new title product.

Chicago Title has been serving Ohio for over 50 years. Through their nationwide network, they provide title insurance, underwriting, escrow and closing services to every spectrum of the real estate industry. For more information, visit them at www.cticnow.com.

An Overview of Green Rating Systems

noreply@blogger.com (Connie Carr) — Mon, 03 Aug 2009 13:00:00 +0000

Article written by Scott Wick, summer associate at Kohrman Jackson & Krantz

LEED (Leadership in Energy and Environmental Design) is a green building rating system developed by the U.S. Green Building Council (USGBC) used to measure how successfully a building meets various environmental standards. While LEED is the most widely known green rating system, it is important to understand that there are many alternatives.

One popular and widely recognized alternative to LEED is Green Globes, sponsored by the Green Building Initiative (GBI). Like LEED, Green Globes is a rating system developed to emphasize energy saving, environmentally-friendly design and construction practices. Both programs have much in common, but there are some distinct differences.

The most striking similarity between LEED and Green Globes is the structure of the rating system used by each program. Both are third-party certified programs that operate based on point systems with the potential to earn one of four possible levels of achievement:

The newest version of LEED (LEED v3), introduced in early 2009, rates building projects on a 100 point scale (plus 10 possible bonus points) in the following areas:
• Sustainable Sites
• Water Efficiency
• Energy and Atmosphere
• Materials and Resources
• Indoor Environmental Quality
• Innovation in Design
• Regional Priority

Each LEED category has a maximum possible number of points. The better the overall score, the higher the level of LEED certification:

• Certified (40-49 points)
• Silver (50-59 points)
• Gold (60-79 points)
• Platinum (80 points and above)

Green Globes maintains a 1,000 maximum possible point scale in the following areas:

• Energy
• Indoor Environment
• Site
• Resources
• Water
• Emissions and Effluents
• Project Management

The program awards Green Globes based on a percentage of the total points possible that a project achieves:

• Four Green Globes (85-100%)
• Three Green Globes (70-84%)
• Two Green Globes (55-69%)
• One Green Globe (35-54%)

Both LEED and Green Globes are effective programs for rating development projects. There is approximately an 80-85% overlap between the points rated by each program. The rating structure for indoor environmental quality and site selection are comparable between the two.

However, one striking difference is the manner by which each program counts points. LEED rating is based on the total number of points possible from the seven areas of analysis. However, some projects are in essence penalized because not all areas that earn points apply to every project. The Green Globe rating, on the other hand, is based on a percentage of possible points rather than total points. This means that there are no penalties for missing out on points from areas of assessment that are not applicable to a given project.

Another key distinction is that Green Globes places a greater emphasis on energy savings while LEED has a stronger emphasis on the selection and use of material resources. Also, in terms of energy savings, LEED focuses on more efficient use of fossil fuels while Green Globes provides higher ratings for projects that utilize alternative sources of energy.

Also, LEED is more comprehensive and stringent, but it is also bogged down in greater administrative hurdles and much more expensive. While LEED v3 provides some online capabilities, something that earlier versions lacked, Green Globes was designed as an online tool, which is very user-friendly and extremely inexpensive in comparison to LEED.

Finally, it is important to realize that other options exist beside LEED and Green Globes. The links below connect to other organizations and similar rating programs that assess development projects or a specific aspect of development related to green building. The key is to know that there are options out there and to determine which program best serves the needs of a particular development project.

• LEED
• Green Globes
• SBTool 07
• Energy Star
• STARS
• GreenGuard

For more information on green rating systems and green building codes, see our earlier posts:

“LEED: The Good, Bad and Ugly”
and
"Green Building Codes: The alternative to LEED and other rating systems"

You Got to Know When to... Holdover and What it Will Cost

noreply@blogger.com (Stephen D. Richman, Esq.) — Thu, 30 Jul 2009 21:01:00 +0000

In general terms, a holdover occurs when a tenant maintains possession or occupancy of leased premises, past the expiration date of the lease agreement. Absent a provision in the lease, a landlord may treat a holdover “tenant” as no tenant at all, but as a trespasser, and initiate eviction proceedings (after Ohio’s “Statutory 3-day Notice”). Alternatively, absent lease language, a landlord can treat the holdover as a tenant, and hold that person to a new lease term. The conduct of the parties determines whether or not an implied contract to lease arises, and the landlord’s acceptance of rent is usually the conduct considered to be conclusive proof of a new tenancy.

How long is the new tenancy for? In Ohio (and many other jurisdictions), the general rule is that a tenant who holds over, can do so for a term equal to the term of the original lease, provided the period is for one year or less. For example, a tenant with a lease for six months would be entitled to a new six-month lease, but a tenant holding over after an expired five year lease would be considered a month- to-month tenant (unless, that tenant offered six months of rent in advance, which was accepted by the Landlord, thus establishing a new, periodic, six month tenancy). What is created as a new periodic tenancy, however, may not last that long, at least when a commercial landlord/tenant in involved.

The right of a Landlord to terminate a commercial, periodic tenancy prior to the end of its periodic term was reinforced by the Supreme Court of Ohio in Maggiore v. Kovach, 101 Ohio St.3d 184, 803 N.E.2d 790, 2004-Ohio-722. The specific issue in Maggiore was whether one month's notice was required to terminate a commercial month-to-month periodic tenancy. The Court acknowledged that Ohio Revised Code Section 5321.17 requires a landlord or tenant in a residential periodic tenancy to give seven days notice to terminate a week-to- week tenancy and thirty days for a month-to-month tenancy. However, the Court in Maggiore found that R.C. 5321.17 applies only to residential leases. As such, it concluded that commercial landlords are not required to give tenants thirty days notice to terminate a month-to-month periodic tenancy. The court found that the only notice necessary was the three-day notice required by R.C. 1923.04 in forcible entry and detainer actions.

The final determination in a holdover situation is price (i.e., rent). If the lease is silent, courts would look again to the action of the parties. If the tenant pays the same rent as called for in the original lease and the landlord accepts it, the original lease rent would be the amount due for the holdover period. On the other hand, if the landlord calls for rent in addition to the original lease rental, the holdover tenant would not be liable for the difference if the tenant dissents and fails to pay the increase. See Steiner v. Minkowski, 72 Ohio App.3d-754 (1991).

The Eleventh District Court of Appeals in Brunswick Limited Partnership v. Feudo et al., 171 Ohio App.3-369, 2007-Ohio-2163, recently confirmed Ohio’s general rule regarding holdover rent, when a commercial lease is not silent- the rent is what the lease says it is.

The landlord and tenant in Brunswick, both agreed that a rate of double the minimum rent, plus any additional rent was expressly designated “holdover rent” in the lease. According to the tenant in Brunswick, however, a holdover clause providing for double rent is unconscionable and should not be enforceable. According to the landlord in Brunswick, a provision calling for double rent during a holdover is not an illegal penalty provision, or an unconscionable provision, but an enforceable liquidated damages’ provision.

The Court in Brunswick agreed with the landlord, by first reiterating the general law regarding rental agreements. Quoting Ohio Revised Code Section 5321.05, the Court stated that “a landlord and a tenant may include in a rental agreement any terms and conditions, including any term relating to rent, the duration of an agreement, and any other provisions governing the rights and obligations of the parties that are not inconsistent with or prohibited by Chapter 5321 of the Ohio Revised Code or any other rule of law.

The Court in Brunswick also distinguished a previous decision of the 11th District (Village Station Associates v. Geauga Company, 84 Ohio App.3d (11th Dist. 1992) that held a specific holdover clause in a commercial lease providing for double rent to be unconscionable and unenforceable. The Court in Brunswick distinguished the Village Station case on the basis of differing facts. The issue in Village Station was whether the double rent called for in the Village Station lease should accrue for the nine day holdover period, or for thirty days, since the Village Station lease contained confusing language indicating that a holdover tenant would be a “tenant by will and by sufferance, on a month-to-month basis”. The Village Station case interpreted the holdover provision as creating a tenancy at-will, not a month to month tenancy, and therefore, the tenant was only obligated to pay double rent for the nine day holdover period.

The Court in Brunswick did acknowledge that evaluating whether a holdover provision constitutes an illegal penalty provision or a valid liquidated damages provision will depend on the facts and circumstances of each case. However, the Court in Brunswick reiterated that Ohio Revised Code Section 5321.06 is the overriding legal principal applicable in these cases.

As a practical note, the landlord in Brunswick crafted a holdover provision that landlords and those representing landlords may want to follow. The Brunswick holdover provision was as follows: “if Lessee . . . shall remain in possession of all or any part of the Premises after the expiration of the term of this Lease, no tenancy or interest in the Premises shall result therefrom but such holding over shall be an unlawful detainer and Lessee shall be subject to immediate eviction and removal, and Lessee shall pay upon demand to Lessor during any such period which Lessee shall hold the Premises after the term has expired, as rent for said Premises, a sum equal to all items of additional rent provided for in this Lease plus an amount computed at the rate of double the minimum base rent for such period.” The Brunswick language clarifies that there is no tenancy whatsoever, and sets the amount due for any holdover time. Tenants, on the other hand, will want to draft language to the effect that a tenancy from month-to-month is established, at the same rate as the original lease.

The overriding morale of the story to these cases is “Watch your language with holdover provisions and penalties in commercial leases.”

Green Building Codes: the alternative to LEED and other ratings systems

noreply@blogger.com (Connie Carr) — Tue, 28 Jul 2009 19:50:00 +0000

The article below was prepared by Scott Wick, summer associate with Kohrman Jackson & Krantz:

LEED (Leadership in Energy and Environmental Design) is a certification system developed by the U.S. Green Building Council (USGBC) to measure how successfully a building meets various environmental standards. Although acting with the best intentions, many local government officials push for LEED certification in a development project without truly understanding the consequences of such requests. This phenomenon illustrates two common misperceptions about LEED. First, green building and LEED are not synonymous; LEED is merely one of many available green construction alternatives. Second, LEED is not a standardized design guideline intended to replace building codes.

One criticism of LEED and other similar rating systems, such as Energy Star or Green Globes, is that these certification programs cannot be incorporated into building codes and are not specific enough to serve as model building guidelines. In light of these inadequacies, other organizations are developing true model “green” building codes and other guidelines that may work better than a rating system such as LEED for a particular project. These efforts are especially important if, as architects and climate experts claim, no single policy would be better for the environment and saving energy than the creation of green building codes.

Some state and local governments have developed and implemented green building codes. States like California and Florida, or cities like Austin, Texas, represent the cutting edge of local green development standards. However, most states require only minimum building standards and leave the adoption of building codes to local governments. In turn, the majority of local governments adopt a code from one of the family of codes developed by the International Code Council (ICC), a non-profit organization that developed the International Building Code.

The ICC is one of the key organizations working to develop green building standards. In January of 2009, the National Green Building Standard, a collaborative effort by the ICC and the National Association of Home Builders, was approved as an American National Standard for residential construction. Building on that success, the ICC has now teamed with the American Institute of Architects (AIA) and ASTM International in the International Green Construction Code (IGCC) initiative. Reaching beyond the limited scope of programs like LEED, the goal is to develop a green code specifically for commercial construction that is specific, reliable, and enforceable and reduces or eliminates the need for post-construction certification programs.

Leading green organizations, such as the USGBC and the Green Building Initiative (GBI), support the IGCC initiative. That the USGBC, the developer of LEED, supports the IGCC initiative reinforces the fact that such rating systems were never meant to and cannot replace standard building codes. Programs such as LEED, Energy Star, and Green Globes have been instrumental in raising awareness of the need for environmentally friendly and energy saving construction methods. It is clear, however, that the future of green development rests in the development and implementation of building codes that incorporate true green standards.

As noted, most states leave the adoption of building codes to local governments. Across the nation, awareness continues to increase and the desire to incorporate environmentally friendly and energy saving principles into development projects is obvious. Accordingly, it is essential that local leaders understand basic principles of green building and familiarize themselves with available resources. The IGCC initiative represents an important step that upon completion will provide local governments with an additional resource that will offer greater flexibility in implementing green building standards at the local level.

While rating systems such as LEED remain a viable alternative, it is essential to understand that LEED is only one of many options. When considering green development, it is advisable to investigate all options, their respective costs to a project and the potential result that will actually be achieved by each option before proceeding. If a certification program is deemed the best choice, it is important to understand that LEED is not the only available rating system. However, at a broader level, it is important to see that there are alternatives to rating systems. Increasingly, local governments are adopting green building codes as a means of achieving specific and reliable green standards to save energy costs and to reduce environmental impact. Rather than added administrative costs to determine post-construction whether a project meets varying standards, the development and adoption of a green code can provide specific and enforceable guidelines to meet standards specific to and important at the local level.

For more information on developing green building codes, check out the following:

The International Code Council
csemag.com: “USGBC, GBI support IGCC”
Architectural Record: “International Green Construction Code (IGCC) Now in the Works” by Bruce Buckley
USA Today: “‘Green’ Building Codes Sprout Up Across USA” by Wendy Koch
GreenBiz.com: “California Adopts Green Building Code for All New Construction” by Leslie Guevarra

Colliers Office and Industrial Market Reports for the Cleveland Market

noreply@blogger.com (Connie Carr) — Fri, 24 Jul 2009 14:00:00 +0000

Below are links to access the second quarter 2009 Cleveland market reports for the commercial and industrial markets published by Colliers Ostendorf-Morris.

Cleveland Office Market - 2nd quarter 2009

Cleveland Industrial Market - 2nd quarter 2009

Need to Enforce Your Utility Easement? - Your Day in Court May Now Be Your Day In Front of the Public Utilities Commission of Ohio

noreply@blogger.com (Stephen D. Richman, Esq.) — Thu, 23 Jul 2009 15:25:00 +0000

Last month, a dispute over the Illuminating Company’s (the “Company’s”) right to remove a tree within the Company’s easement was heard by the Supreme Court of Ohio in Corrigan v. Illuminating Company, Slip Opinion No. 2009-Ohio-2524.

As aptly put by Judge Lanzinger, who authored the Opinion, “[a]t first glance, this case appears to concern the fate of a single tree. The larger issue, however, is who controls that fate - the Court of Common Pleas or the Public Utilities Commission of Ohio [‘PUCO’].” In a 4-3 decision, the Supreme Court of Ohio overturned the prior rulings of the Cuyahoga County Court of Common Pleas, and the Eighth District Court of Appeals and held that the PUCO gets to control the fate of the tree. Troubling to many, however, is that homeowners contracting with utility companies (in the form of an easement) may no longer have their day in court, but will need to trust the PUCO to fairly resolve disputes regarding easement rights and obligations.

The majority in this case, however, indicated it was not intending to “put the courts out of business” in every utility easement matter. Quoting earlier cases on the subject, the court in Corrigan stated that “the broad jurisdiction of PUCO over service-related matters does not affect the basic jurisdiction of the Court of Common Pleas in other areas of possible claims against utilities, including pure tort and contract claims”. The majority’s distinction appears blurred, however, since a claim regarding a service/maintenance easement provision would constitute a contract claim as well as a service related claim. Reviewing the facts of Corrigan does not help much in understanding the distinction the court is trying to make when contract claims are involved.

The Corrigan case involved a dispute between the Illuminating Company and the Corrigans of Brooklyn, Ohio. The Illuminating Company told the Corrigans that it intended to remove a large maple tree that was on the Corrigan’s property, but within an easement giving the Illuminating Company the right to “cut and remove any trees, shrubs or other obstructions upon the…property which may interfere or threaten to interfere with the construction, operation and maintenance of the Illuminating Company’s transmission lines”. Additional facts in evidence indicate that (i) the maple tree stood within the easement for at least the last fifty (50) years, and (ii) from 1975 to 2000, the Illuminating Company pruned the tree away from the transmission line. In 2000, however, the Company changed its policy in favor of removing vegetation from within its easements. (The evidence showed that after 2000, when the Illuminating Company stopped pruning the tree, the Corrigans pruned the tree on their own, and injected it with a slow growth hormone to stave off further growth and interference with the transmission lines.) When the Company informed the Corrigans in 2004 that it intended to remove their tree, the Corrigans filed their action in Cuyahoga Common Pleas Court.

The Cuyahoga Common Pleas Court, the Eighth District Court of Appeals, and three dissenting judges of the Ohio Supreme Court believed that the courts should have jurisdiction over this matter, not the PUCO.

All of the judges, however, (dissenting as well as concurring), agreed that the “two part test” developed in Allstate v. Cleveland Elec. Illum. Co., (119 Ohio St.3d 301; 2008-Ohio-3917) should be applied to determine jurisdiction in these cases. The two part test is as follows:

1. Is PUCO’s administrative expertise required to resolve the issue in dispute; and

2. Does the act complained of constitute a practice normally authorized by the utility?”

If the answer to either question is in the negative, the claim is not within PUCO’s exclusive jurisdiction. The majority in Corrigan believed both parts of the test were met. It reasoned that the first part of the test was met because the Ohio Administrative Code requires inspections by utility companies at least once a year and the inspections are to be conducted in accordance with programs establishing preventative requirements for the utility to maintain safe and reliable service, which programs would include vegetation control. Because the Illuminating Company’s decision to remove a tree is governed by its vegetation management plan and that plan is regulated by the PUCO, the court concluded that PUCO’s expertise is required to resolve the issue of whether removal of a tree is reasonable. Since vegetation management (the act complained of) is necessary to maintain safe and reliable service, as established (and thus, authorized) in Ohio’s Administrative Code, the second part of the test, (according to the court in Corrigan) is satisfied.

With all due respect to the “Corrigan majority,” it appears that the reasoning proffered by the Eighth District Court of Appeals and the Corrigan dissenting judges offers the better argument to “who controls the fate of the tree”, and less of a potentially chilling effect on utility easement enforcement. In his dissenting opinion, Justice O’Donnell first agrees with the majority and the State ex. rel Ohio Edison Co. v. Shaker case (68 Ohio St.3d 2009, 2011 (1994), reiterating that “because PUCO has exclusive jurisdiction over service-related matters, does not diminish the basic jurisdiction of the Court of Common Pleas over other areas of possible claims against utilities, including pure tort and contract claims”. However, Justice O’Donnell (and the judges concurring in the dissent) maintains that the PUCO has no special expertise with respect to interpretation of an easement, and that the Company’s right to remove the Corrigan’s tree depends on the terms of the easement, not the utilities’ internal vegetation management plan. What worries Justice O’Donnell, worries this author. The fact that the Ohio Administrative Code requires a utility company to have a vegetation management plan should not mean that the utility company is authorized to implement that plan without regard to the terms of an easement negotiated and agreed to by a utility company and a property owner. Since utility easements usually include service/maintenance related (contract) provisions, the potentially disturbing effect is that property owners may not be able to fall back upon the right to bring to a court of competent jurisdiction, most utility easement -- enforcement and interpretation issues.

At first glance, “who controls the fate of a single tree - the Court of Common Pleas or the Public Utilities Commission of Ohio” may well be the larger issue as characterized by the majority in Corrigan. The largest issue, however, seems to be that the fate of trees, or any other potential obstruction in a utility easement (e.g., underground springs, mineral deposits, other vegetation, slopes) may no longer be in the hands of the parties to a utility easement agreement when they seemingly agree, or to the courts, when they don’t agree; but to administrative policies and commissions.

CLE Update: Construction Law

noreply@blogger.com (Connie Carr) — Mon, 20 Jul 2009 15:29:00 +0000

The Ohio State Bar Association is sponsoring the 2009 Ohio Construction Law Forum on September 2, 2009 in Columbus, Ohio at the OSBA's offices, 1700 Lake Shore Drive. A live webcast will also be provided (www.ohiobar.org/webcasts).

The Forum provides for a total of 6.0 CLE hours. Topics include:

Construction Contracting

Bid Disputes on Public Projects

Contractor Administration and Labor/Employment Issues

Construction Stimulus

Ohio Construction Reform Panel: Recommendations & Issues

Round Table Discussion on Current Construction Law Issues

For more information or to register: call (800) 232-7124 or (614) 487-8585, or visit online at www.ohiobar.org.

LEED: The Good, Bad and Ugly

noreply@blogger.com (Connie Carr) — Thu, 16 Jul 2009 13:00:00 +0000

The following article was prepared by Scott Wick, summer associate at Kohrman Jackson & Krantz:

LEED (Leadership in Energy and Environmental Design) is a widely recognized but often misunderstood program in the world of “green” construction. Many times local government officials and others will push for LEED certification in a development project with all the best intentions but without truly understanding the consequences of such requests.

What follows are some points that demonstrate the good, the bad, and the ugly of the LEED program.

I. LEED Is a Certification Process

LEED is a certification system developed by the U.S. Green Building Council (USGBC). The purpose of LEED is to measure how successfully a building meets various environmental standards, such as energy savings, water efficiency, and reduction of carbon dioxide emissions. The newest version of LEED (LEED v3), introduced in early 2009, rates building projects on a 100 point scale (plus 10 possible bonus points for region specific concerns and design innovation). The better the score, the higher the level of LEED certification:

Certified (40-49 points)
Silver (50-59 points)
Gold (60-79 points)
Platinum (80 points and above)

II. LEED Is Not a Substitute for Building Codes

A common misperception is that LEED is a standardized design guideline intended to replace building codes. However, LEED is not meant to be a building code substitute -- it is simply one method of certifying that a building’s design and construction meet various green standards. LEED represents the cutting edge of green development, not a baseline for all construction projects. The simple truth is that LEED is not the answer for every situation. Even when LEED is an option, it is only one of many available alternatives.

III. The Good

The goal of LEED is a good one. The promotion of green building programs helps to raise awareness and bring about real change that has a positive impact on the environment. The LEED process is rigorous; from the initial design stage, through construction, and ultimately in certification, LEED projects are undeniably greener than building only to code. LEED has been instrumental in helping more and more builders become aware of and interested in building green. In fact, recent studies demonstrate that green building has actually increased despite the current market realities in the construction industry.

IV. The Bad

Despite the positive impact of LEED, there are many factors to consider when deciding whether LEED is a good fit for a specific project. The inherent cost is an obvious factor. Generally, LEED certification results in a 1-10% increase in total project costs. And it is important to note that these figures are not compared only to building strictly to code, but also to similar green projects that are not LEED certified. The reality is that the money used to pursue the LEED certification could often be better spent on the construction itself to allow for additional green concepts that might otherwise be unavailable due to limited funding. In other words, money spent on LEED certification could be spent on other materials or procedures to make a project greener. The same study which demonstrated that green building is on the rise also showed that most builders’ view of LEED has become less favorable.

V. The Ugly

The reality with the LEED program is that builders are able to manipulate the certification system in a manner so that a project earns LEED certification without having a truly significant environmental impact. It has been demonstrated that some LEED certified projects have achieved as little as a 14% improvement in environmental impact over standard construction. Although not the norm, the reality is there are many LEED certified projects that are green in name alone. This is especially true in comparison to proven green builders who spend less on administrative costs and labels and invest more money directly into truly green changes. This reality demonstrates the true ugly side of LEED -- the real problem is not with the program itself but rather how people see LEED. The worst scenario is being a slave to labels or blindly turning to LEED, believing that it is the green replacement for building codes or that it is the only way to build green.

VI. Leed is not the only option

The introduction of LEED has had a positive impact on green building . However, green building and LEED are not synonymous. The reality is that LEED represents only one of many green construction alternatives. Other organizations are developing true model 'green' building codes and other guidelines that may work better for a particular project. Before choosing to pursuing LEED certification, it is advisable to investigate all options, their respective costs to a project and the potential result that will actually be achieved by each option before proceeding.

Environmental Liability Insurance

noreply@blogger.com (Stephen D. Richman, Esq.) — Tue, 14 Jul 2009 13:35:00 +0000

By: Mary S. Busby, Esq.
Environmental Practice Leader- Oswald Companies

Environmental Liability 101 – Real Estate

Environmental consultants performing Phase I Environmental Site Assessments to the All Appropriate Inquiry (AAI) Standard (ASTM 1527-05), know that the primary reason for performing these assessments is to help the client achieve a defense to CERCLA liability (e.g., innocent purchaser). We can often lose site of that in the hurry to get financing or close a deal, especially on such a tight budget. CERCLA makes an owner or operator of property liable for pollution conditions at, under or migrating through that property. This liability is “strict” and attaches without regard to fault. Although it has yet to be fully tested in court, the AAI Phase I ESA should allow a purchaser of property to assert that it did not know about adverse conditions (was innocent) at the property when it bought it, and therefore, it should not be held liable for those conditions.

So much environmental liability rides on the Phase I report, which costs on average about $2,700 and is often prepared in less than a two-week timeframe. When our clients stop to think about it in that light, it becomes clear that it would be risky to place all of their reliance on that one document.

Real estate attorneys will draft what are ostensibly iron-clad indemnifications that many clients also rely on to help them avoid environmental liability. For example, the seller may agree to hold the buyer harmless and indemnify the buyer for any environmental conditions existing at the property prior to sale. An indemnification is nothing more than a contractual right to sue and is only as good as the financial strength of the party giving it and the willingness of that party to abide by the terms of the contract. It does not provide any more liability protection than that. When things fall apart, it amounts to an invitation to litigation.

Once a client looks at the Indemnification in that light, both the client and the attorney realize it would be best to proactively engage in litigation avoidance. That is what insurance provides.

What Environmental Liability Insurance Covers

The broadest policy form will cover on- and off-site cleanup for new and preexisting conditions. It will also cover third-party claims for bodily injury and property damage as a result of those conditions. It will cover non-owned locations (such as non-owned disposal sites) for cleanup, bodily injury and property damage. It will also cover cleanup, bodily injury and property damage liability for pollution conditions arising from transported cargo or waste. In addition, the policy will cover business interruption suffered as a result of pollution conditions. None of these things are expressly meant to be covered on any policy other than an environmental liability policy.

You should advise your clients to seek the advice of a trusted insurance broker that specializes in environmental coverages, as it requires expertise in environmental and contract law. We often negotiate “manuscript endorsements” that we craft as a part of the insurance contract. As a trusted advisor, you would not want to recommend that your client seek the advice of a generalist on this subject.

The most overlooked reason for buying environmental liability insurance is legal fees. Legal fees are often the most costly portion of an environmental claim. Your client does not have coverage for the cost of these fees on any other insurance policy that it has and will be out of pocket for its defense costs if it does not have an environmental liability policy.

Case Study – Green Acre

This case is still in litigation. A small real estate developer wanted to purchase a vacant lot to build a strip center. He had an AAI Phase I performed, and no RECs were found. After purchasing the property, the EPA swooped in and took Corrective Action under RCRA against the new property owner, holding him liable for the cleanup of a 40-acre former RCRA facility. This buyer did everything (except one thing) right. What happened was that his one acre was the 40th acre from fence line to fence line of the former facility, and a 10-day storage pad (39 acres away and downgradient) at the facility had run afoul of RCRA. The former owner of the facility was gone, and the land was in Receivership. This innocent purchaser under CERCLA was the first to purchase a piece of the bankruptcy estate, and was the equivalent of the “Last Man Standing.”

The first question that I usually get asked when I tell this story, is “Did the environmental consultant have good Errors and Omissions Insurance?” I respond by stating that the environmental consultant was arguably correct in finding no RECs. The 10-day pad was 39 acres away and downgradient and very unlikely to have an adverse impact on the green acre that was the subject of the Phase I.

Now the innocent purchaser, who resembles many of your average clients, has completely lost the value of his real estate purchase, as he into the hundreds of thousands in legal fees. Had he simply gone one step farther and bought an environmental liability policy to cover this property at the time of purchase, his legal fees and ultimate liability would be covered.

A site with no RECs is inexpensive to cover, and is usually a drop in the bucket when compared to the value of the deal. Full coverage could have been placed for less than $10,000. This client is angry and ready to sue his consultants, his lawyers and anyone else he can find who led him into his current circumstance. This could all have been avoided.

Conclusion

Environmental Liability Insurance is one highly advisable component to any transaction involving real estate. As a trusted consultant, it is in both your clients’ and your best interests to guide them to the other experts that can help them.

For additional information, please contact Mary Busby at Oswald Companies at 216-367-4920 or at mbusby@oswaldcompanies.com.

Mortgage Meltdown - Causes Aren't What You Think

noreply@blogger.com (Connie Carr) — Tue, 07 Jul 2009 13:00:00 +0000

Mortgage foreclosures have been increasing exponentially since 2007. The common practice has been to blame subprime mortgage lenders and the so-called 'liar loans.' However, an analysis of loan-level data from McDash Analytics, a component of Lender Processing Services Inc., paints a vastly different picture.

The analysis was conducted by Stan Liebowitz, a professor of economics and director of the Center of Analysis of Property Rights and Innovation in the management school at the University of Texas in Dallas. The loan-level data from McDash Analytics is the largest source of such data available, covering more than 30 million mortgages.

Mr. Liebowitz's analysis indicated that the most important factor, by a large margin, related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home. Although only 12% of homes had negative equity, they comprised 47% of all foreclosures.

As reported by the Mortgage Bankers Association, 51% of all foreclosed homes had prime loans, not subprime. Also, the foreclosure rate for prime loans grew by 488% as opposed to a growth rate of 200% for subprime foreclosures.

Other factors that had some impact on foreclosures are FICO scores (i.e., creditworthiness), income levels, unemployment rates and whether the house was purchased for speculation. However, the 2 villains of the foreclosure mess, teaser rates and liar loans, had virtually no impact on foreclosures.

This data is important because most of the 'solutions' being pushed by various lawmakers and others are directed at the teaser rates, liar loans and other subprime issues that have no significant relationship to the mortgage meltdown and therefore cannot reasonably be expected to solve the problem.

For more information, check out Stan Liebowitz's article* published in the Wall Street Journal on July 3, 2009.

*links to WSJ articles online generally go stale in a week.

Real Estate Law 101 -- Easements

noreply@blogger.com (Connie Carr) — Mon, 06 Jul 2009 13:00:00 +0000

An easement is a common mechanism used in real estate law. An easement is the right to use or to control activities on the property of another. By definition, you cannot hold an easement on your own land. A typical example of an easement would be the easements provided to utility companies.

A "servient tenement" is the land that is subject to the easement. A "dominant tenement" is the land that is benefitted by the easement. The owner of the servient tenement has full use to the land to the extent that the use is not inconsistent with the easement owner's reasonable enjoyment of the easement.

There are 2 types of easements; "appurtenant easements" and in "gross easements". Appurtenant easements run with the land and whomever owns the land that controls the dominant tenement benefits from the easement. An example of this might be a landlocked owner's easement right to cross adjoining land in order to access the street. Should that owner transfer his or her parcel of land, the ingress and egress easement across the adjoining property would transfer with the parcel of land.

In gross easements do not run with the land, with ownership of the easement being independent of ownership of any parcel of land. An example would be utility easements controlled by utility companies.

Easements are presumed to be perpetual unless there is specific language in the grant of the easement that indicates otherwise. How an easement is worded is crucial as language and intent will govern. If a court become involved in an action to enforce an easement, it will not look beyond the wording in document granting the easement unless it finds the language to be ambiguous.

The easement owner has a duty to maintain its easement. If there is an express agreement relating to maintenance regarding an easement, the courts will enforce it.

When negotiating an easement agreement, the parties need to carefully consider the wording of the easement to clearly state the intent, what it covers (e.g., including a sufficiently accurate description so a surveyor can locate it on a survey), address whether it is an exclusive easement or not, and address any other duties or restrictions necessarily related to the easement..

Thanks to Scott Wick, summer associate at Kohrman Jackson & Krantz for his assistance in the preparation of this post.

Paying Off Your Mortgage Early

noreply@blogger.com (Connie Carr) — Thu, 02 Jul 2009 14:18:00 +0000

Below is a link to an article at CantonRep.com titled "How to painlessly prepay a mortgage and save thousands" by David Myers, which covers safe and easy ways to pay down that debt.

Click here to access the article.