Keeping Current--Property offers a look at selected recent cases, rulings and regulations, literature and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
* BANKRUPTCY: Cram down. The Supreme Court invalidated a Chapter 11 plan that would have crammed down an impaired unsecured lender. The Court said that the debtor "doomed" its cram down plan by providing its partners with the exclusive right to the equity without an opportunity for anyone else to compete for it by offering more new value or a competing plan. Bank of Am. v. North Lasalle St. Partnership, 119 S. Ct. 1411 (1999).
* DEEDS: Merger. The merger doctrine does not apply to a repurchase agreement that is both a condition subsequent and collateral to a subsequently executed deed. Bruggeman v. Jerry's Enters., Inc., 583 N.W.2d 299 (Minn. Ct. App. 1998).
* EASEMENT: Assignability. An easement in gross is assignable as long as the intent is clearly stated. The servient owner will not be unfairly burdened by an assignment, because the use of the easement will be as specified by the parties that originally established it. Assignability of easements in gross is consistent with the broader public policy favoring free alienability of land. O'Donovan v. McIntosh, 728 A.2d 681 (Me. 1999).
* EASEMENT: Illegality. An easement is unenforceable to the extent that it allows a use conflicting with zoning regulations. The court held that the owners of a commercial building may not use an easement area consisting of one half of an alley that was zoned for residential use, because such a commercial use would be contrary to city zoning restrictions. Teachers Ins. & Annuity Ass'n v. Furlotti, 83 Cal. Rptr. 2d 455 (Cal. Ct. App. 1999).
* EASEMENT: Scope. The silence of a road easement as to the scope of use requires the trial court to make a factual determination of whether a proposed use is reasonable in the circumstances. Summary judgment was denied when traffic would increase from occasional ranch vehicle use to continuous use by gravel mining trucks. Burkhart v. Jacob, No. 91,527, 1999 Okla. LEXIS 8 (Okla. Feb. 23, 1999).
* EASEMENT: Termination. A divorce property settlement decree was held to terminate an existing easement because the dominant estate was awarded to the ex-husband without explicitly including the appurtenant easement. The ex-husband claimed that the award of "any and all interest" in the dominant estate implicitly included the easement across his ex-wife's servient estate because the easement was an "interest" in the dominant estate. The court disagreed, holding that an easement is an interest in the servient estate that is an appurtenance to the dominant estate. Milligan v. Niebuhr, No. 03-98-00246-CV, 1999 Tex. App. LEXIS 1220 (Feb. 25, 1999).
* EMINENT DOMAIN: Leasehold award. Even though a lease contained a clause stating that the lease would terminate on condemnation, the lessees' right to condemnation proceeds was not extinguished because the lease contained provisions allocating the condemnation award between the parties. Musser v. Bank of Am., 964 P.2d 51 (Nev. 1998).
* LANDLORD AND TENANT: Continuous operation covenant. The court adopted the diminution in value of the entire shopping center as the measure of damages in awarding $4.65 million against Wal-Mart for moving down the street. The court found an implied covenant of continuous operating because: (a) the base rent was below market rent at the outset, (b) the percentage rent was substantial in relation to base rent, (c) the lease term was lengthy, and (d) the tenant had to obtain the landlord's consent to change the use of the premises. BVT Lebanon Shopping Ctr., Ltd. v. Wal-Mart Stores, Inc., No. 01-A-01-9710-CV-00607,1999 Tenn. App. LEXIS 267, (Apr. 23, 1999).
* LANDLORD AND TENANT: Duty to mitigate. A non-breaching landlord has no duty to mitigate damages when the tenant abandoned the property in violation of the lease. The court's rationale for this conclusion in-cluded the bargained-for reliance of the landlord on the lease consideration and the fundamental unfairness of requiring the landlord to expend time, money and energy to mitigate rental damages that the tenant caused. Stonehedge Square Ltd. Partnership v. Movie Merchants, Inc., 715 A.2d 1082 (Pa. 1998).
* LANDLORD AND TENANT: Insurance. The scope of the landlord's additional insured coverage is coextensive with the scope of the tenant's own liability under the indemnity clause. The tenant's indemnity contained an exception for injuries resulting from the landlord's negligence. The third-party injury claim resulted from the landlord's failure to patch a pothole in the parking lot as required under the lease. Thus, the tenant's insurance company was not required to cover the third-party claim against the landlord. Pennsville Shopping Ctr. Corp. v. Am. Motorists Ins. Co., 719 A.2d 182 (N.J. Super. Ct. App. Div. 1998); Compare Liberty Village Assocs. v. West Am. Ins., 706 A2d 206 (N.J. Super. Ct. App. Div. 1998) (Landlord covered by tenant's insurance for patron's slip and fall on snow covered sidewalk near store).
* LANDLORD AND TENANT: Lease termination. A commercial tenant was not required to show substantial damages to its business, such as lost profits, to establish a landlord default. The court upheld termination based on the landlord's failure to repair potholes within a 30 day contractual cure period to avoid giving the landlord "a free pass to . . . ignore contractual agreements." Decade 80-I, Ltd. v. PDQ Food Stores, Inc., No. 98-0810, 1999 Wisc. App. LEXIS 329, at *14 (Mar. 24, 1999).
* LANDLORD AND TENANT: Nuisance abatement. A state statute imposing a one year closure of property on finding of a nuisance would be unconstitutional without sufficient judicial discretion to protect innocent owners by requiring a finding of the owner's acquiescence or participation in the nuisance. The court stated that it was difficult to conceive what additional measures the landlords could have legally and safely taken, beyond their efforts to evict the tenants creating the nuisance judicially and, in one case, to assist the police in removing a trespasser. State ex rel. Pizza v. Rezcallah, 702 N.E.2d 81 (Ohio 1998).
* LANDLORD AND TENANT: Synthetic leases. In what is apparently the first consideration of synthetic lease transations in a real estate context by a federal appeals court, the Ninth Circuit recognizes synthetic leases as a valid alternative form of financing real estate transactions. They are to be construed in accordance with their terms and will not be recharacterized. Unocal Corp. v. Union Oil Co. of California, Nos. 97-53324 et seq., 1999 U.S. App. LEXIS 9323 (9th Cir. May 18, 1999).
* LIQUIDATED DAMAGES: Penalties. Revoking rent concession on a tenant's default was held an unenforceable penalty. Raffel v. Medallion Kitchens, 139 F.3d 1142 (7th Cir. 1998). A loan document late charge of 5% and default interest rate of 15% were held an unenforceable penalty. Metlife Capital Fin. v. Washington Ave. Assocs., 713 A.2d 527 (N.J. Super. Ct. App. Div. 1998).
* MORTGAGES: Duty to repair. A mortgagee in possession, or one that is receiving rents under an assignment, has a duty to make repairs to the premises. When the plaintiff's landlord defaulted, the mortgagee foreclosed. The plaintiff sued for damages alleging, inter alia, that the mortgagee, as successor landlord, had failed to repair and maintain the premises. The court held that the mortgagee stepped into the shoes of the landlord and assumed its repair obligations. Touma v. St. Mary's Bank, 712 A.2d 619 (N.H. 1998).
* RESTRICTIVE COVENANTS: Third-party enforceability. A neighbor without privity of estate may enforce a covenant as an intended third-party beneficiary. The covenant specifically stated it was for the benefit of the neighbors. The Nature Conservancy v. Congel, No. 0199, 1999 N.Y. App. Div. LEXIS 3069 (Mar. 19, 1999).
* RESTRICTIVE COVENANTS: Architectural controls. A two story height limit was too ambiguous to be enforceable, because the height of a story is not defined. Hiner v. Hoffman, No. 21408, 1999 Haw. LEXIS 148 (Haw. May 18, 1999). A developer could require removal of vinyl siding on completed homes when the developer, in enforcing a covenant conferring broad but standardless architectural approval, had consistently rejected vinyl siding. Hoffman v. Gould, 714 A.2d 1071 (Pa. Super. Ct. 1998).
* SELLER AND BUYER: Implied warranties. The implied warranty of habitability does not extend to nonresidential property such as a clubhouse belonging to a residential property owners' association. Board of Directors of Bloomfield Club Recreation Ass'n v. Hoffman Group, Inc., No. 85333, 1999 Ill. LEXIS 675 (Ill. May 20, 1999).
* TITLE INSURANCE: Access rights. An insurer has a duty to defend a lawsuit or pay a policy claim based on a claimed lack of access when the only access is by water. United Bank v. Chicago Title Ins. Co., 168 F.3d 37 (1st Cir. 1999).
* ZONING AND PLANNING: Cellular tower siting. The Telecommunications Act of 1996 ban on prohibiting personal wireless service means that a town must approve only an application for a facility that is the least intrusive means of closing a significant gap in the users' ability to reach a cell site that provides access to land lines. A town's denial of an application for siting three cell towers was upheld, because three towers were not needed for a rural level of service and the community was small enough to justify the planning board's desire to limit the service to a rural level. Sprint Spectrum, L.P. v. Willoth, No. 98-7442, 1999 U.S. App. LEXIS 10032 (2d Cir. May 24, 1999).
* ZONING AND PLANNING: Regulatory taking. The Supreme Court upheld a $1.45 million jury verdict against the City of Monterey, California, as a regulatory taking. The Court distinguished a condemnation action from a § 1983 action. In condemnation, there is an appropriate forum for the landowner to pursue a compensation claim, and there is no constitutional wrong committed because compensation is provided. The Court concluded that a regulatory taking was more akin to a tortious act committed by the city. City of Monterey v. Del Monte Dunes, 119 S. Ct. 1624 (1999).
* Brokers: duty to disclose. In To Disclose or Not to Disclose: The Dilemma of Homeowners and Real Estate Brokers Under Wisconsin's "Megan's Law," 81 Marq. L. Rev. 1161 (1998), Thomas D. Larson proposes a compromise between caveat emptor and placing an affirmative duty on sellers and brokers to disclose to potential purchasers information on the presence of a registered sex offender within the area. He proposes potential purchasers be informed of where they can obtain information about registered sex offenders.
* Cellular towers: free speech. Daniel J. Drazan argues that land use restrictions prohibiting the placement of cellular relay towers implicate the free expression guarantee found in Article I, section 8 of the Oregon Constitution, because a restriction that prohibits or limits the siting of the cellular relay towers has the effect of limiting speech, in Siting of Cellular Relay Towers: Are Prohibitive Land Use Regulations Consistent With Oregon's Constitutional Guarantee of Free Expression?, 34 Willamette L. Rev. 81 (1998).
* Community associations. In Preparing Community Associations For The Twenty-First Century: Anticipating The Legal Problems and Possible Solutions, 73 St. John's L. Rev. 3 (1999), Patrick J. Rohan argues for an abandonment of the traditional strict construction of restrictive covenants as disfavored by the law. He contends restrictive covenants should now be looked "upon favorably . . . and enforced whenever reasonably possible."
* Environmental law. Alex Polonsky advocates mandatory disclosure of the presence of underground storage tanks on residential property, shifting the risk of loss if one is discovered to the seller, in "Tanks For The Memories:" Abandoning Caveat Emptor For The Transfers of Residential Property Contaminated With Petroleum From Leaking Underground Storage Tanks, 22 Vt. L. Rev. 979 (1998).
* Takings. David Schultz provides an in-depth analysis on property valuation for temporary takings that in-cludes a discussion on the process for ascertaining the time of the taking, the duration of the taking and the measure of damages resulting from the taking, in The Price Is Right! Property Valuation For Temporary Takings, 22 Hamline L. Rev. 281 (1998).
* Takings. In Regulatory Takings and the Supreme Court: How Perspectives on Property Rights Have Changed from Penn Central to Dolan, and What State and Federal Courts are Doing About It, 28 Stetson L. Rev. 523 (1999), David L. Callies surveys recent high court rulings and concludes that its pronouncements are reasonably clear, but state and lower federal courts have not done a good job of interpreting them.
* Transferable development rights. In Transferable Development Rights and the Deprivation of All Economically Beneficial Use: Can TDRs Salvage Regulations That Would Otherwise Constitute a Taking?, 34 Idaho L. Rev. 679 (1998), Franklin G. Lee argues that TDRs should be considered by a court when determining whether a taking has occurred because the value of the TDR mitigates the loss suffered by the landowner, and that TDRs may save a zoning regulation from being considered a taking.
Readers interested in a comprehensive review of current developments in real estate law are encouraged to subscribe to the ABA Real Estate Quarterly Report, which is prepared by the Real Property Division's Decisions Committee. For more information on this publication, contact Pam Hollins at (312) 988-5651.
This issue marks a transition in the editorship of Keeping CurrentProperty. After seven years of faithful service, Nicholas White and Ralph Brashier have decided that the time has come to pass the reins to other hands. The editorial board thanks Nick and Ralph for their service and welcomes aboard Eugene Grant and Terry Frazier. Robert Flores will continue supplying readers with interesting legislative developments.
Keeping Current--Property Editor: Eugene L. Grant, 1211 SW 5th Ave., Ste. 1600, Portlant, OR 97204-3795. Contributing editors: Robert Flores and Terry Frazier.