October 02, 2018 Feature

Keeping Current Property

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

CONSTRUCTION CONTRACTS: Choice of law provision does not create implied duty to comply with lien law. Skanska agreed to construct a building for B2 Owner for $116 million as part of a larger state-sponsored development project. Skanska failed to complete construction by the substantial completion deadline for reasons disputed by the parties. After the deadline passed, Skanska sent B2 Owner a notice of intent to terminate the contract, asserting that B2 Owner breached the contract by failing to comply with the N.Y. Lien Law § 5, which requires the posting of a bond or undertaking in the case of certain public improvement projects, to guarantee payment to contractors, laborers, and materialmen. Skanska thereafter stopped work and sued. B2 Owner moved to dismiss, which the trial court granted. The appellate division affirmed, finding that a guaranty issued by a minority owner of B2 Owner satisfied the mandates of the lien law. The court of appeals affirmed, but on different grounds. The contract did not expressly require compliance with the lien law. Contracts are to be enforced as written, and courts may not under the guise of interpretation add or excuse terms. The contract had a choice of law clause, specifying New York law, but that was not grounds for transforming all statutory requirements into contractual obligations. Skanska USA Bldg. Inc. v. Atlantic Yards B2 Owner, LLC, 98 N.E.3d 720 (N.Y. 2018).

COTENANTS: Prohibition on fractional ownership of campsite is not valid zoning regulation. Mackay owned and operated two campgrounds in a county where land use regulations limited campsite occupancy to “less than 31 days in any 90-day period.” In 2015, Mackay transferred undivided fee ownership interests to 22 separate entities. All campground owners signed tenancy-in-common agreements, which assigned several campsites to each owner who could camp at one campsite and rent out the rest. In 2016, the county sent a notice of violation to Mackay, asserting that the tenancy-in-common ownership violated a land use regulation that prohibited fractional ownership, timeshares, and membership of campsites. Mackay sought declaratory judgment that the regulations exceeded the county’s regulatory authority. The trial court granted summary judgment for the county, and the supreme court reversed, explaining that under state-delegated zoning power, the county may regulate land use and occupancy of land, but not the ownership of land. The county failed to show how a transfer of an ownership interest in the campgrounds would affect use or occupancy. The court rejected the assertion that tenancy-in-common ownership would interfere with tourism by creating campsite shortages because the new owners were bound by the same time limitations as other campers. Bd. of County Comm’rs v. Mackay Ives., LLC, 413 P.3d 1120 (Wyo. 2018).

DEEDS: Grantee’s acceptance of deed containing right of first refusal satisfies signature requirement for statute of frauds. The deed provided: “No sale of the above-described premises shall be consummated without giving at least 30 days written notice of the terms to Grantor. Grantor shall have the right to buy the lot on the same terms.” The grantee sold the land without notifying the grantor. The grantor sued for an order requiring the purchaser to convey the property to him. The grantee argued that the right of first refusal failed to satisfy the statute of frauds because it was not signed by the party to be charged. The trial court agreed and observed that the right of first refusal was not a reservation of right because it did not reserve to the grantor the right to use or enjoy any portion of the land. The supreme court reversed, finding that the right of first refusal is a nonvested property interest and a reservation. Reservations are not limited to easements; instead, a grantor may reserve any nonpossessory interest in the land that was not part of his existing estate. As for the required signature, the court found that just as with the creation of real covenants, the grantee’s acceptance of the deed containing the right of first refusal serves this purpose. Walters v. Sporer, 905 N.W.2d 70 (Neb. 2017).

FORECLOSURE: Fair value determination for confirmation of sale does not apply to liability of guarantor. A mortgagor borrowed $5 million from a bank, secured by a mortgage and guaranteed by a third party. When the mortgagor defaulted, the bank filed a foreclosure action, which included a claim for a money judgment under the terms of the guaranty. At the foreclosure sale, the bank purchased the property by a credit bid of $2.25 million and then sought judicial confirmation of the sale. The bank asserted that its bid constituted “the fair value of the premises sold” under Wis. Stat. § 846.165, that it would seek no deficiency, and that the bid would be credited against the $4.4 million owed by the guarantor. The mortgagor and guarantor disputed the latter contention, arguing instead that fair value as required by statute did not determine the amount of credit for measuring liability under the guaranty. They claimed that the actual value of the property sold exceeded $10 million. The trial court confirmed the sale but declined to rule on the credit to be applied to the judgment against the guarantor, leaving that determination for a separate proceeding. The appellate court reversed and remanded with direction to apply the purchase price amount against the guarantor’s debt. The supreme court reversed, explaining that the statute governs the procedure for confirmation of the sale of foreclosed property, but the plain language indicates it does not apply to a judgment against a third-party guarantor, which is determined under contract law. Because the question of fair value for purposes of sale confirmation presents a different question and involves different legal standards than that of the credit a guarantor receives when there is a foreclosure sale of the property, the trial court could properly decouple the guaranty and foreclosure sale proceedings. Horizon Bank v. Marshalls Point Retreat LLC, 908 N.W.2d 797 (Wis. 2018).

LANDLORD-TENANT: Fifteen-year lease lacking a seal or equivalent is not enforceable. A tenant under a 15-year written lease of space in a commercial shopping center vacated the premises and terminated what it called “its month-to-month periodic tenancy.” Rejecting the tenant’s characterization of the lease, the landlord sued seeking unpaid rent for the remainder of the term. The tenant argued that the lease was unenforceable because it did not contain a seal as required by the common law, nor one of the substitutes for a seal as available under Va. Code § 11-3. The trial court found for the landlord, holding that given its length, the lease was a “Deed of Lease,” meeting one of the substitutes for a seal. The supreme court reversed, explaining that under the statute of conveyances, “[n]o estate of inheritance or freehold or for a term of more than five years in lands shall be conveyed unless by deed or will,” Va. Code § 55-2, which in turn had to be a sealed writing. Ancient in origin, seals were required to give solemnity to the transaction, providing the highest form of certitude, indeed even more so than a signature. This requirement continues today and was not abolished by the limited list of specific statutory substitutes: an imprint or stamp of a corporate or official seal on paper or parchment, the use in the body of the writing of the words “this deed” or “this indenture,” or proper acknowledgement before a public officer. Va. Code § 11-3. The absence of either a seal or a substitute rendered the lease unenforceable as such. The tenant, having taken possession and paid rent on a regular basis, was liable only as a month-to-month tenant. Game Place, L.L.C. v. Fredericksberg 35, LLC, 813 S.E.2d 312 (Va. 2018).

INVERSE CONDEMNATION: Claimant under inverse condemnation statute is not required to show that government acted for public purpose. The plaintiffs owned property bordering a city lake, fed by natural springs and surface water runoff from the surrounding area. Two fixed pipes drained excess water from the lake. The plaintiffs and their neighbors successfully petitioned the city board of commissioners to modify the drainpipes so as to return the lake to its original shoreline as quickly as possible. But instead the city’s adjustments caused flooding of the plaintiffs’ property. After the city removed the modified piping, the plaintiffs filed a complaint seeking statutory compensation for a temporary taking of property pursuant to N.C. Gen. Stat. § 40A-51. The trial court ruled in favor of the plaintiffs. The appellate court reversed, accepting the city’s argument that the plaintiffs failed to establish that their property was taken for a public use or purpose. The supreme court reversed, explaining that although a condemning entity must establish that a proposed taking will further a public purpose, there is no reason to place a reciprocal burden on a property owner who brings an action for inverse condemnation. Giving a claimant whose property is taken for a public purpose a statutory inverse condemnation remedy, yet denying a remedy for a claimant who suffers the same injury for a non-public purpose, is inconsistent with the legislative intent. Wilkie v. City of Boiling Spring Lakes, 809 S.E.2d 853 (N.C. 2018).

RESTRICTIVE COVENANTS: Covenants limiting tracts to single-family residences and residential purposes are not violated by short-term rentals. Two years after purchasing a single-family home in a subdivision, Tarr moved to work in another city and entered into 31 short-term rental agreements, for one to seven days each, to tenants from a variety of cities and states. Each lease was for the entire home, and no services accompanied the rentals, nor was there any business activity at the home. The homeowners’ association notified Tarr that his rental activity violated deed restrictions pertaining to residential purpose and single-family dwellings and imposed fines. Tarr filed for a declaratory judgment that he had not violated the restrictive covenants. The trial court granted summary judgment for the association, and the appellate court affirmed. The supreme court reversed, finding that the covenants were unambiguous and did not address Tarr’s use of the property. The court distinguished the single-family residence restriction from the use restriction as they appeared in different covenant provisions. The single-family residence restriction described the type of structure that could be erected and said nothing about the relationship between the people in the structure or the types of activities that take place therein. The residential purpose restriction referred to use “solely for residential purposes” and prohibited “business purposes,” although the covenants unfortunately offered no definitions for either term. As long as occupants use the property as a residence, no matter how short-lived, neither their on-property use nor Tarr’s off-property use violated the covenants in the deed. Tarr v. Timberwood Park Owners Ass’n, 2018 Tex. LEXIS 442 (Tex.May 25, 2018).

WATER LAW: Public trust doctrine does not give riparian owner right to build pier on neighboring land covered by navigable waters. Normally a riparian owner has the right to build a pier that extends into navigable waters, but the situation becomes more complicated when the waterbed is private property. The Lobermeiers and the Movrichs owned neighboring properties on a man-made lake, but the Lobermeiers owned the waterbed adjoining the Movrichs’ property. The neighbors, who are brother and sister, coexisted in harmony for many years, but in 2012 a falling out occurred. The Lobermeiers contended that their ownership of the waterbed precluded the Movrichs from installing and maintaining a pier into the water and from accessing the water directly from their shoreline property. The trial court found in favor of the Movrichs based on the public trust doctrine, concluding that an abutting property owner may place a pier over a neighbor’s privately-owned land where that land is submerged beneath navigable water. A split supreme court reversed in part and affirmed in part. The court explained that both basic property rights and riparian rights are subject to and limited by the public trust doctrine, which vests title to the beds underlying navigable waters to the state in trust for all citizens. Although the Lobermeiers could not prevent the public from using the waters, they could prevent the construction of the pier on their waterbed land. At the same time, the public trust doctrine entitled the Movrichs, as members of the public, to access the water directly from their shoreline property. Movrich v. Lobermeier, 905 N.W.2d 807 (Wis. 2018).

ZONING: Natural gas fracking is not a public service facility eligible for conditional use permit. Inflection Energy applied for zoning permission for “drilling, completion, production, and operation of multiple gas wells”—hydraulic fracturing, commonly known as fracking—on land located in a Residential-Agricultural (R-A) district. The application proposed to improve the existing farm access road with a stone access drive, to install a level pad and wellhead, and to build a temporary water impoundment area with sediment and erosion controls. While the R-A district was created “to foster a quiet, medium-density residential environment at the same time encouraging the continuation of agricultural activities and the preservation of prime farmland,” the ordinance contained provisions for a variety of conditional uses, such as agricultural businesses, funeral homes, hospitals, and public service facilities. The Board of Supervisors approved Inflection’s application as a “public service facility” under a savings clause in the ordinance, which allowed for uses in the district that are “similar to and compatible with the other uses permitted in the zone” and “do not otherwise conflict with the purposes of the zone.” Residents of the town challenged the permit. The trial court reversed the Board’s decision because it did not explain how the proposed fracking was “similar to” a “public service facility.” The court noted that Inflection would not be providing any public service, such as furnishing natural gas to the residents of the homes in the zone or to the township. The intermediate appellate court reversed. The supreme court in turn reversed, explaining that “public service facility” uses are allowed because they provide the necessary infrastructure for residential and agricultural development in the district, like water, sewage, electricity, natural gas, as well as more general uses that support residential and agricultural development, like hospitals, inns, public recreation, and agricultural businesses. Inflection’s proposed use was plainly not of the “same general character as, or similar to,” those uses, as the proposed gas wells would offer none of the benefits identified, but were instead intended solely for the commercial benefit of Inflection. Gorsline v. Bd. of Supervisors of Fairfield Township, 186 A.3d 375 (Pa. 2018).

ZONING: Nonconforming use permits addition of structures and expansion of homes in mobile home park. After enactment of a new zoning ordinance, in 1955 the city issued a certificate of occupancy that allowed the Oak Hill Mobile Home Park to continue operation as a nonconforming use. In 2014, a zoning inspector cited the park owner with code violations. When no remedial action was taken, the city filed suit requesting Oak Hill cease operation. The trial court found that the use of the property had intensified enough to pose a threat to life or property in the event of an emergency. The trial court relied primarily on the testimony of the fire marshal, who admitted he had never inspected the mobile homes and was unaware of any outstanding violations. He also testified that although the ten-foot-wide roads in the park were half the size presently required, they would not prevent access by fire trucks. Although the city stated that citizens had filed complaints against Oak Hill, it provided no specifics. A split appellate court affirmed. The supreme court reversed. First, the record was largely bereft of evidence indicating a significant safety issue. Second, there was no significant change in form or intensity of use—the number and location of mobile homes were roughly the same as reflected in the first photos of the park in 1963. The court noted that intensification of a nonconforming use is permissible so long as the nature and character of the use are unchanged and substantially the same facilities are used. The additions on some mobile homes and the “detritus of life,” as the lower courts described it (garbage bins, recreational equipment, gardens, fencing, vehicles), did not warrant discontinuation of the legal nonconforming use. City of Des Moines v. Ogden, 909 N.W.2d 417 (Iowa 2018).

LITERATURE

Legal History. In Invention of a Slave, 68 Syracuse L. Rev. 181 (2018), Prof. Brian L. Frye provides a fascinating story of the evolution of patent law as it applied to inventions made by slaves and free African-Americans during antebellum America. Slaves and free African-Americans created many inventions that advanced industrial productivity—it is surmised that Eli Whitney’s cotton gin was not his, but his slave’s, invention. Inventions made by slaves posed a conundrum under US patent law. As explained in an opinion of the United States Attorney General, the inventions could not be patented. Neither the slave owner (because he was not the inventor) nor the slave (because he could not be a citizen of the United States) could take the patent oath. For free African-Americans, the cost of patenting was often prohibitive, and applications were often rejected on the basis of race. Before the Dred Scott decision, some free African-Americans were able to secure patents simply by not disclosing their race. After the ratification of the Reconstruction Amendments, the issue became moot, as at least in theory African-American patent applicants would receive the same treatment as anyone else. Prof. Frye’s article recounts the failed efforts of one slave owner to patent an invention of his slave, who argued that “the master has as good a right to the fruit of the intellect of his slave, as he has to the product of the labor of his hands.” He asserts that the whole story illustrates the peculiar and conflicted ideology of slavery. First, slaves were said to be intellectually inferior to whites and, by extension, incapable of creating patentable inventions. This led slave owners to characterize the denial of the right to patent the inventions of their slaves as a denial of equal protection. But this ideology led to the conundrum of explaining how it was possible for slaves to create inventions in the first place, which it accomplished by rationalizing slavery itself as a form of humanitarianism, which benefited African-Americans. The story of property in persons and their inventions reveals yet another dimension of the peculiar institution of slavery.

Mineral Rights. Cotenancy in mineral interests is fraught with risks, some owing to the nature of concurrent ownership, some peculiar to the regimes operating in particular jurisdictions. In Blood and Oil: Exploring Possible Remedies to Mineral Cotenancy Disputes in Texas, 50 Tex. Tech. L. Rev. 173 (2017), Caleb A. Fielder begins with an alarming description of the strategic maneuvers sometimes employed by cotenants to reap the benefits of ownership, such as refusing to drill in order to avoid a potential adverse impact on revenue and engaging in practices akin to ransom by “lease flipping.” In his view, cotenancy in the drilling scenario is pernicious. Fielder’s purpose is to give an overview of the key concepts of the oil and gas estate cotenancy and the economic impact cotenancy poses for the profitability of a well. Courts have developed different rules governing the rights and duties among cotenants—for example, the scope of an accounting, who owns and pays the royalties, and when partition may be ordered. This makes cotenancies in oil and gas interests particularly precarious. In the end, he offers strategies for mitigating some of the risks. Fielder’s hope is that an understanding of the existing landscape might serve to avoid the legislative adoption of a compulsory pooling regime.

Takings. In Shattering “Blight” and the Hidden Narratives That Condemn, 42 Seton Hall Legis. J. 29 (2017), Prof. Patricia Hureston Lee posits that there is a “systemic failure in blight takings that is due, in part, to the current blight terminology, false narratives, and flawed decision-making related to condemnation and takings.” She constructs the “Blight Framework,” which illustrates the systemic failures of the components that create a toxic foundation for blight takings. Blight terminology has evolved from concerns about public health and moral well-being to a focus on decline and economic stagnation. Prof. Lee identifies the claim that the future development will create better outcomes as a “false narrative,” often used to further governmental decisions to displace people and to destroy homes, churches, and businesses. Fear and stigmatization ensue. She writes that condemnations and takings operate indiscriminately, occurring whether a particular property is in excellent condition or whether it is not worth taking and regardless of whether the area near the property is safe, moral, or healthy. For a less destructive application of this governmental power, she argues for a new language of blight, one that first identifies the community’s underlying problem and designs thoughtful solutions that take into account whether the community is distressed due to depopulation, isolation, contamination, or weather conditions. In her view, these steps will lead to collaboration among the various stakeholders for better solutions. The next step is legislation to reform or eliminate blight codes.

LEGISLATION

IOWA reduces the period for redeeming foreclosed property. If the foreclosure occurs pursuant to a due-on-sale clause, the period allowed for redeeming the property is now 18 months from the day of sale, down from three years. In other cases, a mortgage on less than ten acres can include an agreement that reduces the period for redemption to six months, or three months if the property is not used for agricultural purposes, provided the mortgagee waives any right to a deficiency judgment. 2017 Iowa H.F. 2234.

IOWA adopts an act for the partition of jointly owned property. The act provides for partition by equitable proceedings and by sale unless one or more of the owners files a request for partition in kind and the court determines partition in kind is equitable and practicable. There are special provisions for “heirs” property, including the requirement of an appraisal and a formula for setting the sales price. 2017 Iowa Laws 1108.

KENTUCKY amends real property law to prescribe the writing of names of parties for deeds. For individuals, the names must include the surname, first personal name, and middle names or initials. The failure to comply with these requirements does not prevent the record from giving notice nor prevent the admissibility of the instrument as evidence. 2018 Ky. Laws Ch. 117.

KENTUCKY amends law on abandoned property. The amendments describe property broadly to include all tangible property and certain interests in intangible property, including money, virtual currency, checks, credit balances, security deposits, unpaid wages, unused tickets, mineral proceeds, income from property, and increments to property. The act provides for presumptive time periods for abandonment. A state administrator may take custody of abandoned property and sell such property no sooner than three years after giving notice to the putative owner that it has taken custody of the property. 2018 Ky. Laws Ch. 163.

MARYLAND amends landlord-tenant law to prohibit all forms of self-help in the city of Baltimore. The landlord’s termination of utilities, removal of doors and windows, and changing of locks without giving the tenant a key are misdemeanors. 2018 Md. Laws 637, 2018 Md. Laws 638.

MISSISSIPPI prohibits agreements in construction contracts that require dispute resolution outside the state or that restrict choice of law. The law applies when at least one of the parties is a Mississippi resident and covers contractors, subcontractors, materialmen, and design professionals. 2018 Miss. Laws 455.

NEW HAMPSHIRE amends landlord-tenant law to prescribe notice for terminating tenancy at will. The tenant may terminate by giving 30 days’ notice. If the date of termination does not coincide with the date when rent is due, the tenant is liable for rent for the month in which the notice expires. 2018 N.H. Laws Ch. 18.

OKLAHOMA adopts law requiring prospective tenants to submit supporting documentation for the need for disability-related assistance animals. Unless the person making the request has a readily apparent disability or disability-related need for an assistance animal, the landlord may request reliable supporting documentation that (1) is necessary to verify that the person meets the definition of disability pursuant to the Fair Housing Act, (2) describes the needed accommodation, and (3) shows the relationship between the person’s disability and the need for the requested accommodation. The landlord may independently verify the authenticity of any supporting documentation. Supporting documentation that was acquired through purchase or exchange of funds for goods and services is presumed to be fraudulent. 2018 Okla. Laws 223.

TENNESSEE amends property tax law to exempt appurtenant easements. The amendment provides that a tax lien does not attach to an easement appurtenant upon property that is a servient estate or to an easement in gross that was assessed separately from the property. 2018 Tenn. Pub. Acts 863.

TENNESSEE amends landlord-tenant law on disability-related need for assistance animals. The law makes it a material breach of the rental agreement for a tenant to pretend to have a disability-related need for an assistance animal in order to obtain an exception to a provision in a rental agreement that prohibits pets or establishes limits on the types of pets that tenants may possess on residential rental property. 2018 Tenn. Pub. Acts 960. n

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