P R O B A T E   &   P R O P E R T Y
November/December 2002
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Keeping Current - Property

Keeping Current–Property
offers a look at selected recent cases and literature. The editors of Probate & Property welcome suggestions and contributions from readers .

CASES

CONVEYANCE: Correction deed could not revoke interest. A mother conveyed property to her children and their spouses as tenants in common with cross contingent remainder interests. Subsequently the mother unilaterally recorded a “correction deed” clarifying that each couple received a 1 / 4 interest as tenants by the entirety that was silent as to the remainder interests. Years later a dispute erupted concerning whether the correction deed revoked the remainder interests. The court held the mother could not unilaterally revoke the interests previously conveyed without the agreement of all grantees. Hilterbrand v. Carter, 27 P.3d 1086 (Or. Ct. App. 2001).

DEDICATION BY IMPLICATION: Failure of acceptance. A plat showing an alley without indicating whether it would be a public or private road created an ambiguity. Based upon parol evidence that a public way was intended, the court held there was no clear evidence of public acceptance during the offeror’s lifetime. The declarant’s death revoked the offer. The interesting point was the imposition of a higher acceptance standard based upon the relative insignificance of the alley to the public. General Auto Service Station v. Maniatis, 765 N.E.2d 1176 (Ill. App. Ct. 2002).

HOME CONSTRUCTION: Warranty of habitability implied in Massachusetts. Joining the majority of states, the court held that buyers can obtain relief for latent defects that make a home unsafe or unfit for human habitation. The court, however, held that the defect must be so concealed that some destructive type of inspection would be necessary to observe the condition. The typical homeowner’s lack of the expertise to recognize a defect is insufficient to make it latent for purposes of the warranty. Furthermore, the court refused to apply the discovery rule to toll the statute of limitations, which was held to run from the date of purchase. The editor suspects that the virtual flood of warranty litigation currently overwhelming homebuilders may have influenced the court to conservatively limit this newly implied warranty. Albrecht v. Clifford, 767 N.E.2d 42 (Mass. 2002).

LEASING: Removal of structural improvements. A tenant originally spent about $200,000 improving its restaurant premises and sought a declaratory judgment allowing removal of all the improvements upon lease termination. The fixtures included doors, wood flooring, wallboard, an exterior deck, light fixtures, plumbing fixtures, mechanical ductwork, raised eating areas, and other items. The lease allowed removal of tenant’s additions “so long as the removal does not effect [sic] the structural element of the Demised Premises.” This ambiguous provision was construed against the tenant that drafted it. Structural elements were therefore held to include all of the elements necessary for a fully functioning building as opposed to only load bearing elements, such as studs and joists. The tenant should have been more specific as to the items it had a right to remove according to the court. Durnelco, Inc.  v. Double James, L.L.C., No. E2001-02010-COA-R3-CV, 2002 Tenn. App. LEXIS 450 (Tenn. Ct. App. 2002).

NUISANCE: Noise and radiation. The noise and electromagnetic field from high voltage electric lines having PUC approval were held not a trespass or inverse condemnation but possibly a nuisance. The landowner must show the utility company knew the line installation would likely produce an unreasonable invasion interfering with use and enjoyment of the owner’s property. The court held the PUC did not have authority to adjudicate the parties’ property rights and the PUC failed to establish a specific standard for acceptable noise and radiation, leaving the trial court to do so. Public Service Co. of Colorado v. Van Wyk, 27 P.3d 377 (Colo. 2002).

PREMISES LIABILITY: Spectator death by fireworks. The display was put on by a city in its park with the death from shrapnel allegedly resulting from the city failing to keep spectators a safe distance from the fireworks and to bury the launch tubes. The statutory immunity granted to recreational property owners for unsafe premises was denied the city, because a negligent fireworks setup would not constitute unsafe premises but simply the owner’s negligent act. To the editor this sounds like a distinction without much of a difference that could undermine the immunity intended for private owners of recreational property. The concurring opinion’s rationale that the recreational property immunity should only apply to private property owners seems better to the editor. Ryll v. Columbus Fireworks Display Co., 769 N.E.2d 372 (Ohio 2002).

PREMISES LIABILITY: Trespasser death by vagrant beating. An absentee owner of a derelict building obtained a begrudged victory from the court, because of the lack of any special landlord relationship with the trespasser and the lack of any willful and wanton misconduct by the landlord. The allegations that the owner knew or should have known violent vagrants would use its dilapidated building in the absence of prior violent crimes on or about the premises were held insufficient. As in the fireworks case, the court also relied on the questionable distinction between unsafe premises and the beating that resulted in the death. Salazar v. Crown Enterprises, 767 N.E.2d 366 (Ill. App. Ct. 2001).

RECORDING: Flawed notarial acknowledgment. New real estate associates take note to avoid malpractice. At a home loan closing, one spouse presented a power of attorney for the missing spouse. The trust deed signature block was changed to reflect the situation, but the notary acknowledgement incorrectly stated that both spouses personally acknowledged the trust deed. The couple went bankrupt and their bankruptcy trustee successfully challenged the trust deed, which was held void other than for the survivorship interest of the spouse who was present. Crim v. EMC Mortgage Corp., 81 S.W.3d 764 (Tenn. 2002).

SALE AGREEMENT: Vague property description. The property was described as “3949.62 acres, more or less, 20 miles NE of Rocksprings and 25 miles SW of Junction in NE Edwards County, Texas.” When the survey showed the actual size to be 600 acres more than the estimated amount, the seller reneged. The description would have been sufficient if the agreement had said the seller currently owned the property, and if the seller had owned only one parcel fitting the description. The court was unwilling, however, to infer current ownership from provisions of the contract such as the buyer’s agreement to accommodate the seller’s 1031 exchange. Moudy v. Manning, 82 S.W.3d 726 (Tex. App. 2002).

ZONING: Affordable housing. The New Jersey Supreme Court previously adopted a “builder’s remedy” by which lower courts may rezone property in order to permit sufficient affordable housing to remedy unconstitutional exclusionary zoning. Subsequently the New Jersey legislature adopted a Fair Housing Act that created a Council on Affordable Housing to review and approve local zoning as accommodating its fair share of affordable housing. Such approval provided local governments a 10-year presumption of affordability compliance. Approximately half of the municipalities failed to use this safe harbor or had let their approvals expire, including the township in question. The zone change ordered in this case was not to increase the number of affordable units allowed on the subject parcel, but to permit 15% of the units to be affordable and to allow small lot detached single-family homes in lieu of apartments or row houses. This zone change was rejected by the township but granted by the court based upon its belief that market demand was virtually nonexistent for attached housing in the township. Among other reasons, this lack of attached housing market demand explained why affordable housing was not being developed during a period when the total residential units in the township doubled. The dissent sided with the affordability advocates who wanted to require the developer to provide housing more affordable than the market would accommodate without subsidy (i.e., costing less than 40% of the median income). Although the court rejected the notion that the developer should subsidize affordable housing (and approved units costing 57% of the median income), it expressed a loss of patience with, and distrust of, the community’s dilatory compliance with its affordability fair share obligation. Toll Brothers, Inc. v. Township of West Windsor, 803 A.2d 53 (N.J. 2002).

ZONING: Variance. In a decision sure to anger the anti-growth alliance, a 100-acre farm owner was allowed by variance to develop 250 residential units after a rezoning application was denied. The claim that variances should be limited to small parcels was rejected in the absence of any words in the ordinance to that effect. The variance criteria were held satisfied based upon the $20,000 rental value of the farm (including two houses) being so unreasonably low as to render the agricultural zoning confiscatory absent a variance. The immediately surrounding land was also farmland, and the proposed development included deed covenants to protect the continued adjacent farming. In the larger surrounding community, the township had approved approximately 50 other residential developments on agriculturally zoned land and its master plan contemplated future residential development on the farm in question. The court upheld the variance as a reasoned approach to restrained and managed development. Janssen v. Holland Charter Township Zoning Board of Appeals, No. 226452, 2002 Mich. App. LEXIS 1036 (Mich. Ct. App. 2002).

LITERATURE

Bankruptcy. Chapter 11 bankruptcy filings (and bankruptcy practice) have returned to center stage, and real estate lawyers with little real contact with the bankruptcy system may find themselves drawn into the process. Fortunately, a wonderful new book , Bankruptcy in Practice by John D. Ayer, a professor at U.C. Davis Law School and a former bankruptcy judge, and Michael L. Bernstein, of Arnold & Porter, provides practicing lawyers with basic tools to confront bankruptcy law and practice. This is not a textbook. Rather, Ayer and Bernstein’s book is a highly readable and thorough nuts and bolts explanation of bankruptcy law, the role of the players, and the bankruptcy timeline. Although the authors do provide citations to important cases, and references to some secondary materials, most of the book is conversational (if wry) in tone. The book provides many examples and includes sample filings and motions. Ayer and Bernstein give the reader a sense of what to expect at the important stages of a bankruptcy, from the moment a debtor realizes a filing may be necessary, to the meeting of creditors and appearances before the judge, to confirmation of the plan and closing of the case. A chapter that may make the book singularly worthwhile is titled “The Role of the Lawyer.” This chapter covers fiduciary obligations of attorneys representing parties in the bankruptcy and pointedly explains how a lawyer can avoid “having her fees disallowed, or be sued in malpractice, or disbarred, or prosecuted for a crime.” The book is published by the American Bankruptcy Institute and may be obtained by calling (703) 739-0800.

Broker Liability. Craig W. Dallon takes a much needed and comprehensive look at the liability of real estate brokers to purchasers of real property in Theories of Real Estate Broker Liability and the Effect of the “As Is” Clause, 54 Fla. L. Rev. 395 (2002). Dallon traces the history of broker liability, beginning with the rise of caveat emptor. Brokers and sellers reading Dallon’s piece might pine for days gone by, when disappointed purchasers confronted a series of sturdy common law impediments to successful litigation. As Dallon points out, caveat emptor is not dead, but it is now much weakened by implied warranties of marketability and habitability, by title covenants, by judicially and statutorily imposed duties on brokers and sellers to disclose property defects, and by the broad application of exceptions to the doctrine based in affirmative fraud or misrepresentation. This article evaluates recent tools employed by brokers to deflect the rising trend in liability, including the inclusion of “as-is” clauses in standard form real estate sales contracts. Dallon explains that, although occasionally helpful to brokers, these provisions are no panacea. Courts rightfully view the provisions with skepticism, as they are typically not negotiated, and because purchasers mistakenly view the provisions as meaningless boilerplate.

Choice of Entity. In Choice of Entity for Real Estate After Check-the-Box and the Entity Explosion, 37 Real Prop. Prob. & Tr. L. J. 53 (2002), Norton L. Steuben provides attorneys with a discussion of entities that may be created for different types of real estate projects. He then analyzes the tax and state law factors attorneys might employ to determine the best combination of form of ownership and entity in a given case. Steuben explains that the IRS’s “realistic” decision to permit a “check the box” approach to entity choice, combined with the advent of LLCs and newer ownership entities, require lawyers to more carefully consider entity formation in real estate development.

Conservation Easements. Alexander R. Arpad’s Student Article, Private Transactions, Public Benefits, and Perpetual Control over the Use of Real Property: Interpreting Conservation Easements as Charitable Trusts, 37 Real Prop. Prob. & Tr. L. J. 91 (2002), treats a subject that the drafters of the widely adopted Uniform Conservation Easement Act expressly avoided: the application of trust law principles to conservation easements. According to Arpad, conservation easements are legal devices “by which a landowner can make an agreement with a nonprofit or governmental entity to place permanent limits on the use or development of property.” Arpad argues that conservation easements may be correctly interpreted as charitable trusts, to the same extent as any other “substantial” real property interest. As such, these easements would be subject to trust law restrictions on termination and modification, including the equitable trust law doctrine of cy pres. Indeed, if conservation easements are charitable trusts, Arpad suggests that the state attorney general or other public official might have standing to enforce the terms of the trust.

Construction Contracts. Emmie West evaluates what she terms the “confusing” state of construction law in Note, Construction Contracting: Building Better Law with the Uniform Commercial Code, 52 Case W. Res. L. Rev. 1067 (2002). West first briefly describes the basic construction contract, as well as “construction industry concerns.” She then provides a run down of the current state of the law, which applies a jumbled combination of UCC Article 2 (Sales), the common law of contracts, and rules and standards promulgated by industry groups. She argues that the typical imbalance of bargaining power (usually favoring owners of property) and the multiple and sometimes conflicting sources of law result in poor contracts and unnecessary litigation. West explains that construction contracts have been typically treated as “hybrid” agreements, governing not just the acquisition of goods (which would be governed by Article 2) but services as well. West proposes instead that courts uniformly apply UCC Article 2 to construction contracts, notwithstanding the services element of these agreements.

Iowa Mandatory Disclosure. Caveat emptor is the subject of statutory as well as judicial attack, and many state legislatures now require sellers to disclose defects in residential property prior to sale. Megan Peterson examines Iowa’s mandatory disclosure statute in Note, Seller Beware: Mandatory Disclosure Provisions in Iowa Put Sellers of Residential Real Estate on Alert, 50 Drake L. Rev. 569 (2002). Although focusing on the 1994 Iowa statute, this Note very briefly examines the history of the doctrine of caveat emptor, and the erosion of the doctrine nationally. Following enactment, Iowa courts questioned whether buyers’ failure to affirmatively argue nondisclosure under the statute precluded the court from providing a statutory remedy (it did); whether plaintiffs must prove elements common to fraud actions to prove a violation of the disclosure requirement (they must); and whether sellers have a duty to disclose true boundary line locations (they don’t, because buyers have an opportunity to obtain independent verification of the boundaries of the property). The Note identifies important questions left unanswered by case opinions and may prove helpful to attorneys confronting statutory disclosure requirements in other jurisdictions.

Landlord-Tenant. James E. Schwartz and Boris Serebro examine an important if little discussed issue in landlord/tenant law in Allocation of Environmental Risk as Between Landlords and Tenants: The New York View, 19 Pace Envtl. L. Rev. 49 (2001). Scholars have written much about environmental risk allocation between buyers and sellers and borrowers and lenders but have paid little attention to landlords and tenants. Schwartz and Serebro consider the relative positions of the parties under the national environmental scheme, CERCLA, and under New York’s Navigation Law and Local Law. The authors provide a brief explanation of the key provisions of the regulatory schemes, as they apply to landlords and tenants, and then review the applicable case law. According to Schwartz and Serebro, the landlord is ordinarily the “owner” for environmental law purposes, and as such, is primarily liable for environmental hazards on the leased premises. The landlord, however, may defend on the basis of its status as an innocent purchaser, or it may claim that the damage was caused by an unrelated third person. In addition, in some cases, the landlord may claim that the tenant is the “owner”; this tactic may work if the lease is characterized as a long-term, “net” lease with minimal landlord control over the premises. Even if the landlord is saddled with liability, it may be entitled to indemnification or contribution, on either statutory or contractual grounds. Lawyers representing landlords may find this article particularly helpful in drafting provisions to protect their clients against environmental problems that emerge after commencement of the term.


Keeping Current–Property Editor: Eugene L. Grant, 1211 S.W. 5th Ave., Ste. 1600, Portland, OR 97204-3795, egrant@schwabe.com. Contributing editors: Daniel Bogart and Robert Flores.

 

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