Department

Keeping Current - Property

Keeping Current—Property Editor: Daniel B. Bogart, Chapman University School of Law, One University Drive, Orange, CA 92866, bogart@chapman.edu. Contributing editors: Prof. James C. Smith and Prof. William G. Baker.

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

 

CASES

ADVERSE POSSESSION: Land owned by fraternal organization is not entitled to statutory immunity for charities. Neighbors of a Masons’ lodge claimed title by adverse possession to several strips of the Masons’ land. The Masons asserted that their land was immune to loss by adverse possession under a Vermont statute, which exempts “lands given, granted, sequestered or appropriated to a public, pious or charitable use, or to lands belonging to the state.” 12 Vt. Stat. § 462. The statute, enacted in 1785, is an extension of the rule applicable in many states that immunizes government-owned land from loss by adverse possession. In a case of first impression, the court denied the exemption, because the Masons’ use of their land primarily benefited the lodge members, rather than an indefinite segment of the public at large. Occasional use of the property for charitable purposes was not sufficient to confer adverse possession immunity. MacDonough-Webster Lodge No. 26 v. Wells, 834 A.2d 25 (Vt. 2003).

BROKERS: Broker who enters into co-brokerage agreement with out-of-state broker forfeits commission. Federal Express, a client of an Illinois brokerage firm, wanted to acquire a facility near Hartford, Connecticut. The Illinois firm entered into a co-brokerage agreement with a Connecticut brokerage firm, whereby the latter firm served as local representative for site selection and evaluation. The agreement called for a commission split of 80%-20% if Federal Express entered into a build-to-suit lease. Federal Express and a landlord consummated such a transaction, with the landlord signing a listing agreement obligating it to pay a $408,000 commission. The landlord paid half the commission, which was due at the completion of project financing, but refused to pay the remainder, which was due upon occupancy of the facility. The Connecticut brokerage firm brought an action to recover the balance. The court found that there was a binding broker’s contract and that the Connecticut firm was the proper party to bring the action. Nevertheless, it held that the co-brokerage agreement violated public policy. The Connecticut real estate brokers’ statute provides that a person without a broker’s license shall not “bring any action . . . to recover any commission, compensation or other payment” for the rendering of brokerage services. Conn. Gen. Stat. § 20–325a(a). The court broadly interpreted this statute and implementing regulations to prohibit the sharing of commissions with out-of-state brokers. The court relied on a line of out-of-state cases disallowing commission splits, none of which involved the interstate dimension of cooperating brokers licensed in different jurisdictions. The court’s decision is strikingly provincial in today’s age of national and global commerce, and ought to be overruled legislatively. The Connecticut Association of Realtors, to its credit, filed an amicus brief in support of the brokerage firms. Dow & Condon, Inc. v. Brookfield Development Corp., 833 A.2d 908 (Conn. 2003).

COTENANTS: Cotenant not liable for injury occurring on part of premises solely possessed by other cotenant. When a person is injured on property owned by another person, tort law determines whether that person has the right to recover damages from the owner. When ownership of the land is held in one of the forms of cotenancy, analysis usually does not become highly complicated. Generally, each cotenant is jointly and severally liable for the damages. A New York case, however, illustrates how an agreement between the cotenants can alter the liability. Brother and sister, tenants in common, entered into a written agreement that allowed each to occupy part of a house “free from interference with the personal lives and affairs” of the other. Sister built an addition to the house, which became part of the property she possessed exclusively. Plaintiff, a 15-year-old friend of sister’s son, injured herself by falling from a built-in bunk bed, which allegedly was negligently designed. Plaintiff sued both brother and sister. The court affirmed a summary judgment dismissal of brother based upon his lack of possession or control over the part of the premises where plaintiff was hurt. Butler ex rel. Butler v. Rafferty, 792 N.E.2d 1055 (N.Y. 2003).

EASEMENTS: Grantor as well as grantee can obtain easement by necessity. In 1946, the owner of a 120-acre parcel suffered a tax foreclosure of a 40-acre part, resulting in the 80-acre parcel becoming landlocked. For decades, the owners of the 80-acre parcel used a dirt road across the 40-acre parcel for access, until the current owners of the 40-acre parcel prohibited that use. The trial court granted the owner of the landlocked parcel an easement of necessity. In all states, the grantee of a landlocked parcel is eligible to obtain an easement by necessity. In a few states, however, a grantor of a parcel who retains a landlocked parcel cannot obtain an easement by necessity, the theory being that the grantor is responsible for causing the problem. Resolving a conflict in prior Wisconsin case law, the Wisconsin Supreme Court held that the grantor (or his successors) can obtain an easement by necessity. The court also decided that an easement of necessity does not arise as a matter of law, but as a matter of equity through the exercise of discretion by the trial court. Based on its review of the facts, it upheld the trial court’s grant of an easement. McCormick v. Schubring, 672 N.W.2d 63 (Wis. 2003).

GOVERNMENT PERMITS: Government’s revocation of site preparation permit does not violate due process. The duration of government permits needed to develop land is an important consideration for both developers and governments. In 1998, an owner of residentially zoned property obtained a “land disturbance permit” from the City of Mountain Brook, Alabama. Previously, the owner had unsuccessfully sought commercial rezoning, and the permit authorized work that would make the site suitable for commercial development. The owner used the permit to clear the property and perform other site preparation work. The permit, when issued, had no express time limit. In 2001, the city passed an ordinance, imposing a two-year limit from the date of issuance and applying it retroactively, revoking the permit as of 30 days after passage of the ordinance. The court of appeals rejected the owner’s claim that revocation constituted a violation of procedural and substantive due process. Given uncertainty over the prospects for rezoning, the court stated that the open-ended permit was not a “sufficiently certain property right” under state law to merit federal constitutional protection. Similar issues are raised by the issuance of demolition permits. The owner of a property that might be suitable for redevelopment, such as a historic structure, sometimes acquires a demolition permit even though he has no immediate plan to redevelop. This is an attempt to guard against the risk that the government will change its land use laws to prohibit or restrict demolition. The court’s decision suggests that local governments, as a matter of federal constitutional law, have the power to curtail previously issued demolition permits. Greenbriar Village, L.L.C. v. Mountain Brook, City, 345 F.3d 1258 (11th Cir. 2003).

LANDLORD-TENANT: Landlord cannot collect future rents upon tenant’s breach in absence of acceleration clause. A landlord entered into a ten-year ground lease with Amoco, under which Amoco was to construct a gas station and convenience store and obtain all necessary permits. Amoco’s rent obligation was expressly conditioned on obtaining the permits. Never having obtained the permits, Amoco sought to terminate the lease. The jury, however, found Amoco breached the lease because it did not use good faith efforts to get the permits. The landlord received judgment for unpaid rents up to the time of trial, but the court refused to grant damages for future rents. Because the ground lease did not contain an acceleration clause, under Pennsylvania law the landlord’s only legal option was to sue for unpaid rents as they became due. This outcome treats the lease as a conveyance of property, rather than incorporating the contract law doctrine of anticipatory repudiation. The case sends a strong message to landlords— include an express acceleration clause in the lease. In all likelihood, the landlord signed a standard lease form prepared by Amoco (which intentionally failed to include an acceleration clause), without having a competent real estate attorney review Amoco’s form. Onal v. BP Amoco Corp., 275 F. Supp. 2d 650 (E.D. Pa. 2003).

MORTGAGES: Refinancing bank entitled to equitable subrogation regardless of negligence. A bank agreed to refinance a mortgage loan, ordering a title report, which disclosed no defects. Twenty-seven days later, the bank funded the loan. Earlier on the day the bank filed its mortgage for recordation, plaintiffs, who were suing the owner, filed a prejudgment writ of attachment, which supplemented a lis pendens notice filed three days after completion of the title report. After obtaining judgment, plaintiffs sought a writ of execution in order to force a sale of the property. The court granted the bank priority over the plaintiffs’ lien by applying the doctrine of equitable subrogation. This allows the refinancing lender to retain the priority of the retired mortgage debt, up to the amount of that debt paid off by the new lender. In some states, the bank would not be entitled to equitable subrogation if it had actual notice of the intervening lien, had constructive notice, or had committed negligence. The court adopted the rule of Restatement (Third) of Property: Mortgages § 7.6 (1997), which disregards notice and negligence, provided the junior lienholder is not prejudiced. Thus, under the Restatement approach, plaintiffs’ claim that the bank was negligent in failing to update the title report before closing the loan was irrelevant. Houston v. Bank of America Fed. Savings Bank, 78 P.3d 71 (Nev. 2003).

RECREATIONAL USE STATUTE: Owner who fails to invite general public is not entitled to statutory immunity. Homeowners built and maintained a sled run in their backyard, often allowing neighbors and friends to use it without paying a fee. A neighbor’s friend slipped and fell down icy stairs, thereafter bringing a negligence action. The Illinois Recreational Use of Land and Water Areas Act, 745 Ill. Comp. Stat. 65/3, states that landowners owe “no duty of care to keep the premises safe for entry or use by any person for recreational or conservation purposes, or to give any warning of a natural or artificial dangerous condition, use, structure, or activity on such premises to persons entering for such purposes.” Based on this section, the trial court granted summary judgment to defendant homeowners, but the appellate court reversed. The court held that the Act only applies to property held open to the general public. The decision is questionable, because the Act, which is quite detailed in many other respects, contains no such limitation. It appears that the court, believing that the benefits of unbridled premises liability litigation outweigh the costs, substituted its policy judgment for that of the legislature. Hall v. Henn, 802 N.E.2d 797 (Ill. 2003).

SALES CONTRACTS: Description of land by street address satisfies statute of frauds. The statute of frauds requires that every contract for the sale of land contain a written description of the land. Nationally, there is a split of authority as to whether a street address alone suffices. When the street address lacks the city and state, the risk of contract failure is heightened. An informal writing referred to three properties being sold only as “808 4th Street,” “843 4th Street,” and “1251 14th Street.” The trial court granted summary judgment for the alleged seller, holding the description was insufficient as a matter of law. Following the trend to relax the statute of frauds requirements, the appellate court reversed, allowing the admission of parol evidence to identify the parcels intended to be sold. The writing was also defective in its identification of the seller. The owner and intended seller was a limited partnership, but the writing named a general partner as seller, without referring to the partnership or indicating that the named person was signing on behalf of another person. The appellate court also allowed this defect to be cured by parol evidence. Sterling v. Taylor, 6 Cal. Rptr. 3d 836 (Cal. Ct. App. 2003).

ZONING: Referendum power is not allowed to repeal a zoning amendment. The City of Canyon, Texas, rezoned two tracts of land from single-family residential to commercial use. Disgruntled residents sought to submit the rezoning ordinance to review by referendum. Two cases decided in 1969 and 1978 prohibited the use of initiative and referendum in zoning matters, but in 1993 Texas passed a statute authorizing a referendum to repeal zoning regulations “on the initial adoption of zoning regulations by a municipality.” Tex. Loc. Gov’t Code § 211.015. The residents claimed that “initial adoption” referred to the time that any particular zoning ordinance was enacted or amended, but the court held that it referred to the municipality’s first adoption of a set of zoning regulations (that is, adoption when none previously existed.). Thus, a referendum can only be used to overturn a municipality’s entire zoning code; it cannot be used piecemeal to change the zoning on specific parcels of land. City of Canyon v. Fehr, 121 S.W.3d 899 (Tex. App. 2003).

LIETERATURE

Adverse Possession; Slander of Title. Adverse possession remains an important aspect of property law practice. It is a mechanism by which a person without record title may nevertheless lay claim to property. Slander of title is a lesser known tort action that arises when one person deliberately makes false statements about the quality of title of another person’s property interest. Is it possible for an adverse possessor, who has not yet successfully concluded (or even initiated) a suit to quiet title, to bring a slander of title action regarding ownership of property that he adversely possessed? Brian Lester treats this interesting question in An Attempt to Quiet the Controversy: The Case for Automatically Equipping an Adverse Possessor with a Slander of Title Action, 37 New Eng. L. Rev. 249 (2003).

History; Medieval Property Law and the Black Death. An American lawyer’s vocabulary is replete with ancient words. Real property lawyers probably use and draft with words and phrases from dead languages more regularly than do those of any other practice area. But do we really know what these words mean? Where on earth did these words and phrases originate? Mark A. Senn answers some of these questions in a wonderful article, English Life and Law in the Time of the Black Death, 38 Real Prop. Prob. & Tr. J. 507 (2003). The author traces the origin of the doctrines of “quiet enjoyment, covenants running with the land, and the distinctions between assignments and subleases, or servants and independent contractors.” In the words of Mr. Senn, a study of medieval history reveals much about terms and concepts “that haunt modern land law.” The author sets the stage by explaining the system of feudal land tenure that defined life in the medieval period. He covers the rules and laws governing marriage, the Rule in Shelley’s Case, primogeniture, and the Statute of Uses, among other things. But perhaps the most intriguing facet of the article is Mr. Senn’s description of the Black Death and the effect it had on the law of property generally. After the Plague, manor lords could not easily control a population that was on the one hand much smaller and on the other more mobile. Leasing of agricultural land became a more common relationship, and the stage was set for technological improvements such as the “spinning wheel, watermill, [and] windmill.” According to the author, one indisputable result of the Black Death was the growth of the legal profession. Apparently, the Plague brought about endless legal “squabbles” concerning the ownership of land and the effect of the various property law statutes. This litigation required a professional class of lawyers. The article is a great read for property lawyers and, the editor would argue, a must read for property law professors.

Landlord Tenant; Drug Testing Tenants. Residential landlords face a slough of risks each time they make the decision to lease a unit; these risks include the possibility that the tenant will default on rent or abandon space, and the even more worrisome possibility that the tenant will harm another tenant or cause a forfeiture of the landlord’s property as a result of criminal drug use. As to the latter, some landlords now routinely drug test prospective tenants. In his article, Drug Testing Tenants: Does It Violate Rights of Privacy? 38 Real Prop. Prob. & Tr. J. 478 (2003), Professor Robert J. Aalberts anticipates legal challenges to this trend based on common law rights to privacy. Professor Aalberts analogizes the legal issues arising in the landlord tenant scenario to the law permitting (and limiting) drug testing of employees in the work arena. He suggests that drug testing tenants before obtaining the initial lease contract (rather than as part of a lease renewal) serves much the same purpose as drug testing prospective employees. He states that “[a]n employee who fails the tests would not get a job as opposed to the more serious consequence of actually losing a job. For some of the same reasons, testing prospective tenants might also not be an invasion of privacy.” Nevertheless, Professor Aalberts notes that there are significant differences between the two scenarios. Most importantly, tenants have a much greater expectation of privacy than employees, whose activities are largely observable throughout the work day. Furthermore, landlords may well have individuals other than the primary tenant in mind when beginning the drug testing program: it may be the tenant’s minor children who are preferred targets. Professor Aalberts asks whether it is permissible to test these individuals as well. Professor Aalberts suggests that periodically drug testing existing tenants probably crosses the line, whereas a test of prospective tenants does not. He examines the legal underpinnings of the common law right to privacy, and then carefully reviews Minnesota’s statute regulating pre-employment drug testing in order to identify what he believes to be workable elements of a model law in the landlord-tenant context.

Takings; Beach Front Access . In a number of states, private landowners “have been trying, via lawsuits and court orders, to keep the public-at-large from accessing the beaches in front of their multi-million dollar estates.” In his student note, Taking Stock in the Public Trust Doctrine: Can States Provide for Public Beach Access Without Running Afoul of Regulatory Takings Jurisprudence?, 52 Cath. U. L. Rev. 1015 (2003), Sean T. Morris weighs in on the side of public access and the power of government agencies to enforce “easements that were required by the State as a condition for building along the coastline.” Morris notes, for example, that the California Coastal Commission is attempting to use these easements to “cut a path to the beach every thousand feet along the shore.” Property owners argue that the use of their property to provide access to the public beaches is a taking under the Fifth Amendment to the Constitution. According to Morris, “[t]he Public Trust Doctrine is an ancient concept providing that submerged lands and those lying seaward of the mean high tide mark are held by the state in trust for the public and, as such, are not subject to private ownership.” Although the Supreme Court has limited this doctrine, Morris argues that it may be effectively extended to allow the state to permit public access to beaches.

Takings; the “Relevant Parcel.” The nature of the “relevant parcel” that is the subject of a takings action is the subject of both litigation and considerable scholarly debate. Dwight H. Merriam does a nice job of breaking down this concept into its critical components, in Rules for the Relevant Parcel, 25 U. Haw. L. Rev. 353 (2003). Merriam suggests that “size matters in a takings case.” Where the government takes (what to the ordinary person) may seem to be a significant parcel in the absolute sense, the behavior may not amount to a “taking” for Fifth Amendment purposes “if it is a tiny fraction of the total holdings.” Merriam does more than evaluate case law discussing the takings “fraction.” The author adopts a step-by-step approach to the problem, using graphical depictions of common relevant parcel scenarios. These include, among others, takings in the context of surface and subsurface mineral rights, air rights, noncontiguous holdings, and transferable development rights. Merriam reviews the conceptual severance issue and examines the Justices’ particular views in the primary cases. Among the many recent scholarly articles on takings law, this thorough article is useful and timely.

UCC Article 9; Transfer of Vendor Interests in Installment Land Sales Contracts. It will take some time for real estate lawyers to fully digest the effect of revised Article 9 of the Uniform Commercial Code. To help in this process, this column has highlighted scholarly articles aimed squarely at the interaction of revised Article 9 and real estate practice. In his article, Transfers by Vendors of Interests in Installment Land Contracts: The Impact of Revised Article 9 of the Uniform Commercial Code, 38 Real Prop. Prob. & Tr. J. 421 (2003), Professor Dale A. Whitman addresses an issue that might otherwise fly under the radar of some lawyers. As Professor Whitman notes, in many states owner-financed real estate is often structured as a land sales contract. In these arrangements, the purchaser receives a deed only after completing all installment payments. This differs from an outright purchase, in which the purchaser provides the seller with a mortgage. The basic economic terms of the installment contract will typically mirror the mortgage transaction, including an equivalent number of payments over the identical number of years. Professor Whitman initially explains both the reasons that purchasers and sellers agree to installment land contracts instead of traditional mortgage devices and the manner in which state law treats these contracts. As to the last issue, he notes that the modern trend has been to review installment contracts with concern, and often suspicion. The bulk of the article, however, examines the manner in which the UCC treats the personal property that arises on the transfer of the vendor’s interest in the installment land contract. Although the underlying security for the vendee’s obligations is real property, the installment land contract creates in the vendor a right to a stream of payments that may be transferred. Two broad categories of transfer are possible: an assignment for security purposes and an outright transfer in connection with a sale of the interest. Both transfers create interests covered by Article 9. If a bank makes a loan to the vendor of real estate, the vendor will assign his interest in the contract to secure the loan. Under revised Article 9, the vendor’s interest in an installment land contract is an “account,” rather than a “general intangible,” and is (in most cases) perfected by the filing of a financing statement. Revised Article 9 also treats an outright sale of the installment land contract as a security interest, which may be perfected by filing. Professor Whitman discusses a variety of related issues, including the method of foreclosure of the security when the vendor defaults on the note, and the documentation that careful attorneys might obtain from the vendor in addition to the financing statement.

LEGISLATION

New Jersey adopts the “Lead Hazard Control Assistance Act.” This law clarifies the responsibility of owners for lead paint inspection, evaluation, and abatement. 2003 N.J. Laws 311.

New Jersey allows checks from an attorney’s trust account or an insurance producer’s escrow account to be treated as “collected funds” available for disbursement. This change will simplify real estate closings and accelerate the disbursement of money to the interested parties at very little increased risk. 2003 N.J. Laws 234.

New Jersey enacts the Domestic Partnership Act. This Act treats domestic partners who file an Affidavit of Domestic Partnership as if they were spouses for laws against discrimination and housing. The rights accorded to domestic partners by this Act, although broad, are limited to the rights established by statute and do not encompass every right granted to married couples. 2003 N.J. Laws 246.

New Jersey requires mortgage lenders to provide residential mortgagors with a notice of intention to foreclose that includes a list of financial assistance programs. Before this law, the list was provided at the option of the mortgagee. 2003 N.J. Laws 298.

 

 

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