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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.
EASEMENTS: Dedication. A landowner claimed a right to drive on a road in an adjacent subdivision, claiming the mere statement of dedication of the road in the recorded plat constituted a common law dedication. The court held that neither the statutory nor the common law requirements for dedication of public roads were satisfied, because no public entity had accepted the platted streets. Stafford v. Klosterman, 998 P.2d 1118 (Idaho 2000).
EMINENT DOMAIN: Compensable interests. The Missouri Court of Appeals held a tenant may recover for the loss of a purchase option when the optioned property is condemned, because a tenant’s purchase option brings with it, on exercise, the ownership right of disposition. Because the lease is terminated on the date of condemnation, the value of the option is determined as if exercised on the condemnation date, however, and the tenant may not recover for the loss of the balance of the lease term. City of Peerless Park v. Dennis, 2001 WL 205972, 2001 Mo. App. LEXIS 310 (2001).
LANDLORD AND TENANT: Continuous use. The court upheld a shopping center landlord’s right to recover damages for violation of an implied continuous operation covenant based on the diminution in value of the center in addition to damages for lost percentage rent. BVT Lebanon Shopping Center, Inc. v. Wal-Mart Stores, Inc., 2001 WL 201518, 2001 Tenn. LEXIS 142 (2001).
LANDLORD AND TENANT: Purchase options. The tenant exercised a purchase option that defined the purchase price as “fair market value” without indicating whether the lease was to be considered or disregarded in this determination. After finding that “fair market value” was an unambiguous term, the court held the lease should be taken into account when determining “fair market value,” thereby doubling the property’s appraised value. Petula Assoc. v. Dolco Packaging Corp., 240 F. 3d 499 (5th Cir. 2001).
LANDLORD AND TENANT: Renewal option. When a long-term ground lessee attempted to exercise a renewal option, the lessor refused to renew or accept rent, based on alleged lease defaults. The lessor’s claim that the lessee’s improvements violated the lease requirement for a “standard waffle house” was disposed of by strict construction. The court held the lessor waived whatever rights it had under the lease to provide the lessee’s financing, because it raised its demand 15 years after third party financing allegedly occurred. The lessor’s reliance on the lessee’s violation of governmental land use restrictions was held nothing more than an invalid “pretext” for termination. Bennett v. Waffle House, Inc., 771 So.2d 370 (Miss. 2000).
MORTGAGES: Prepayment penalty. A mortgagee foreclosed on the mortgaged property after learning of the mortgagor’s Medicare fraud. At the same time, the government brought a forfeiture claim and objected to the mortgagee’s collection of a prepayment penalty based on its acceleration of the debt. The court held that the mortgagee could collect the prepayment penalty, because the mortgagee was a “bona fide purchaser” under federal forfeiture law and the mortgage provided for a prepayment penalty in such circumstances. United States v. Harris, 246 F.3d 566, 2001 WL 321215 (6th Cir. 2001).
MORTGAGES: Subrogation. A mortgagor refinanced its property using the same mortgagee after a third party obtained an intervening judgment lien against the property. The mortgagee discharged the senior loan in ignorance of the judgment lien. The court held the mortgagee was not entitled to assume its former priority position through equitable subrogation, because it had constructive notice of the judgment lien. It was unsympathetic to the plight of the mortgagee’s title insurer, who presumably overlooked the lien, because it was paid to insure against the risk of title defects. Wilshire Servicing Corp. v. Timber Ridge Partnership, 743 N.E.2d 1173 (Ind. Ct. App. 2001).
NUISANCE: Parties. Neighbors of a pig farm, including those who rightfully occupied but did not own any interest in the neighboring land, could bring claims for temporary nuisance. Damages for a temporary nuisance are for personal injury inflicted upon the person occupying the property rather than diminution in value of the property. Furthermore, although the smell, flies and water contamination created by the pig farm could not be completely eliminated, the court held that it nevertheless constituted a temporary nuisance rather than a permanent one, because the annoyance could be reduced below the threshold constituting a nuisance. Hanes v. Continental Grain Co., 2001 WL 118532, 2001 Mo. App. LEXIS 280 (2001).
OPTIONS: Third parties. A father granted his sons options to purchase remainder interests in the father’s land, but before they exercised the options the father sold the timber on his land. The court held the father was contractually obligated to refrain from substantially reducing the value of his land. Accordingly, a summary judgment was reversed in part to allow the sons to prosecute claims of tortious interference with contractual right and waste against the timber purchasers, though not for trespass and timber theft. McCorkle v. LouMiss Timber Co., 760 So.2d 845 (Miss. Ct. App. 2000).
SERVITUDES: Mobile homes. An owners’ association sought to enjoin placement of a doublewide mobile home in a subdivision that prohibited mobile homes. The court held that the term “mobile home” was inherently ambiguous and that a prior interpretation made by a general partner of the developer before creation of the owners association permitting doublewides would be controlling upon the association. Holiday Acres Property Owners Ass’n v. Wise, 998 P.2d 1106 (Colo. Ct. App. 2000).
SERVITUDES: Owner associations. The court rejected the business judgment rule in favor of a stricter reasonableness test for amendments adopted by a simple majority vote of the owners. The court held unreasonable an association right to record a notice of member violation. An occupancy prohibition against type III sex offenders was remanded. The court upheld a one-sided association right to recover its attorney fees in litigation with members, restrictions on inspection of association records and board nomination and election provisions. Mulligan v. Panther Valley Property Owners Ass’n, 766 A.2d 1186 (N.J. Super. Ct. App. Div. 2001).
SERVITUDES: Termination. Certain homeowner association members obtained an injunction against another member for constructing a wood shop in violation of subdivision servitudes. The court upheld the injunction and held the architectural review committee’s approval of the wood shop irrelevant, since it could not validate a prohibited building. The presence of small garden sheds on 19 of 50 lots did not constitute a complete abandonment of the outbuilding prohibition, the court held. An association vote to terminate the restriction was held invalid under the declaration of covenants. Swenson v. Erickson, 998 P.2d 807 (Utah 2000).
SELLER AND BUYER: Liquidated damages. The seller at a foreclosure sale required the winning bidder to pay a 15% deposit. The memorandum of sale executed at the auction stated the deposit would be forfeited upon failure to consummate the sale. After the winner reneged, the seller promptly resold the property for $65,000 less than the original purchase price. The winner sought to avoid forfeiture of its deposit on the basis it greatly exceeded the actual damages. The court upheld the prospective approach to liquidated damages analysis, disregarding the disparity of the actual damages and upheld the amount of the deposit as reasonable. United States v. Ponnapula, 246 F.3d 576, 2001 WL 321576 (6th Cir. 2001).
TAXATION: Ownership. A corporate subsidiary that operated a production plant on a parcel vested in the name of the corporate parent won a property tax protest notwithstanding its lack of title to the property. The court held that the subsidiary was an “owner” within the meaning of the tax appeal statute and therefore had standing to bring the appeal because “ownership” is comparable to control and can mean an interest in real estate other than that of holding title. Kankakee County Bd. of Review v. Property Tax Appeal Bd., 735 N.E.2d 1011 (Ill. Ct. App. 2000).
ZONING AND PLANNING: Exactions. A traffic improvement impact fee requirement is upheld against a facial challenge to its constitutionality. The court held the impact fee is not a tax, and the public agency therefore need not also contribute to the traffic improvement fund the amount necessary to cover the cost share not funded by development impact fees. Home Builders Ass’n of Dayton and the Miami Valley v. City of Beavercreek, 729 N.E.2d 349 (Ohio 2000).
Exactions. In Hard Bargains and Real Steals: Land Use Exactions Revisited, 86 Iowa L. Rev. 1 (2000), Lee Anne Fennell suggests that the nexus and proportionality requirements established by the Supreme Court in the Nollan and Dolan cases do not help landowners avoid unfair exactions as long as the Court is unwilling to impose similar requirements on all land use regulations. Fennell suggests that a better way to address the issues presented in exaction cases would be to allow landowners to pay their neighbors compensation for the negative externalities they cause when they use their property in a manner that otherwise would be forbidden by the land use laws.
Land use litigation and equal protection. In Nasty Motives Visit the Supreme Court: A Consideration of Recent Land-Use Damage Cases, 32 Urb. Law. 787 (2000), Paul D. Wilson concludes that landowners who think they have suffered monetary losses as a result of excessive land use regulation stand a much better chance of recovery if they can couch their damage claims in the language of equal protection analysis. Wilson argues that simply claiming a land use decision is arbitrary and violates substantive due process is less likely to result in a damage award than if the claim is phrased in terms of discrimination based on personal animosity.
Sprawl antidote. In Sprawl’s Political Economy and the Case for a Metropolitan Green Space Initiative, 32 Urb. Law. 367 (2000), William W. Buzbee argues governments should spend their resources creating incentives for people to stay in urban areas rather than trying to address sprawl with a maze of complex land use regulations.
Sprawl ideology. Conventional wisdom about suburban sprawl holds that liberals and environmentalists oppose sprawl because of the way it “wastes” land and other natural resources, while conservatives and libertarians either deny that sprawl is a real problem or oppose regulatory programs that seek to limit the free market’s allocation of housing and other resources. In Suburban Sprawl: Not Just an Environmental Issue, 84 Marq. L. Rev. 301 (2000), Michael Lewyn asserts that conservatives who prefer less government should see sprawl as a product of poorly conceived and poorly managed social engineering programs of the federal government. Thus, true conservatives should see sprawl as a threat to their values and fight the problem by seeking reform of the “misguided” social engineering programs, rather than by denying that sprawl is a problem at all.
Sprawl’s tax break. Roberta F. Mann agrees with Michael Lewyn’s assertion that federal policies designed to encourage home ownership have contributed greatly to the problem of suburban sprawl. In The (Not So) Little House on the Prairie: The Hidden Costs of the Home Mortgage Interest Deduction, 32 Ariz. St. L.J. 1347 (2000), Mann argues the home mortgage interest deduction effectively subsidizes home purchases by reducing the real cost of borrowing money to buy a home. She notes that the subsidy is greater for people in higher tax brackets and encourages them to purchase more expensive homes than they otherwise might purchase. Conversely, it provides less incentive for people in lower tax brackets to buy homes and forces them to buy smaller, less expensive homes. Because the deduction encourages middle and upper class citizens to buy newer, bigger homes
further out in the suburbs, Mann proposes eliminating the home mortgage interest deduction. She asserts that a refundable federal shelter tax credit would have the dual benefit of making tax policy more equitable while removing a major incentive for suburban sprawl.
Sublease negotiation. Andrew L. Herz and Russell G. Wohl discuss subleasing issues in Subleases: The Same Thing as Leases, Only Different, 35 Real Prop., Prob. & Trust J. 667 (2000). The authors review issues that should concern a subtenant and provide a chart summarizing a typical subtenant’s views on each issue. The authors also provide a checklist for due diligence when representing a client in a subleasing transaction and suggest language for a couple of important clauses in a sublease agreement.
Title insurance owner’s policy. Robin Paul Malloy and Mark Klapow assert that “ . . . a lawyer commits malpractice in representing a home buyer if that attorney fails to require a fee owner’s commitment and policy of title insurance as part of the transaction,” in Attorney Malpractice for Failure to Require Fee Owner’s Title Insurance in a Residential Real Estate Transaction, 74 St. John’s L. Rev. 407 (2000). Because the role of a buyer/ borrower’s lawyer includes being a risk manager for his or her client, the authors reason it is malpractice not to strongly encourage that client to purchase owner’s title insurance coverage in addition to the lender’s title insurance coverage.
Zoning and planning case survey. Bruce M. Kramer reviews recent state and federal court decisions treating land use issues in Current Decisions on State and Federal Law in Planning and Zoning, 32 Urb. Law. 655 (2000). Kramer summarizes cases dealing with due process claims, equal protection claims, regulatory taking claims, vested rights claims, first amendment claims and claims concerning regulation of signs and billboards.
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.
Keeping Current—Property Editor: Eugene L. Grant, 1211 SW 5th Ave., Ste. 1600, Portland, OR 97204-3795, firstname.lastname@example.org. Contributing editors: Robert Flores and Terry Frazier, email@example.com.