Build On This!

The Cleveland Plain Dealer reported today that the Ohio Senate unanimously passed Senate Bill 167, a bill designed to place a moratorium on the government's ability to seize homes and businesses for economic development in non-blighted areas until 2007. Senate Bill 167, co-sponsored by Senator Tim Grendell, was recently introduced in August in response to the U.S. Supreme Court decision in Kelo v. City of New Haven. The bill also creates a committee charged with the tasks of examining Ohio's eminent domain laws and making recommendations for reform. An analysis of SB 167 from the Ohio Legislative Services Commission can be found here.

SB 167 now must go to the House, and then to the Govenor for final approval. Speaker Jon Husted predicts that the chamber will approve some sort of eminent domain legislation by year's end. Another interesting aspect of SB 167 is that it provides a "grandfather clause" for eminent domain resolutions passed before SB 167 goes into effect. Municipalities who begin the process to take property for economic development purposes may still be able to acquire that land through eminent domain regardless of SB 167.

John Slagter, Chair of the Real Estate & Construction Practice Group at the law firm of Buckingham, Doolittle & Burroughs, LLP, will be discussing Senate Bill 167, among other topics related to eminent domain, at the Cleveland Bar Association's 27th Annual Real Estate Law Institute. The Institute will be held on October 18 - 19 at the Metropolitan Ballroom in the Huntington Bank Building, 917 Euclid Avenue, 21st Floor, Cleveland, Ohio 44114. You can register here for the event.

In Accent Group, Inc. v. Village of North Randall (October 6, 2005), 8th App. Dist. No. 85757, the Ohio Court of Appeals for the Eighth District held last week that a property owner’s failure to exhaust its administrative remedies precluded the trial court from granting relief in its declaratory judgment action challenging the constitutionality of a zoning ordinance. In Accent Group, Inc., a property owner (Accent Group) purchased land in 1996 in the Village of North Randall. It began operating an automobile electronics and customization business on the property, and spent $760,000 in improvements to convert a building on the property into a showroom and automobile accessory installation area. In 1999, the owner ceased its automobile electronics and customization business, and attempted to lease the building to three separate prospective tenants.

However, the tenants (an acupuncture clinic, check cashing business and an auto repair shop) never filed formal applications for zoning permits. On January 1, 2001, the Village of North Randall passed a new ordinance that prohibited auto repair on parcels similar to the owner’s property. On February 27, 2001, the owner filed suit seeking a declaration that the zoning ordinance was unconstitutional on its face, and that the ordinance, as applied to its property, amounted to a regulatory taking without just compensation.

The trial court granted summary judgment in favor of the Village of North Randall. The trial court held, citing to Karches v. Cincinnati (1988), 38 Ohio St.3d 12, 17, that there was no “actual controversy” because Accent Group (and its prospective tenants) did not file a zoning application with the Village. Accent Group could have obtained a use variance (if it exhausted its administrative remedies), and thus, a determination of the constitutionality of the zoning ordinance would not have been necessary. Consequently, Accent Group’s declaratory judgment action was not “ripe for review.”

The Indiana Law Blog reports that the Catholic Worker of Michiana may file a lawsuit under the Religious Land Use and Institutionalized Persons Act of 2000 ("RLUIPA”) to prevent the City of South Bend, Indiana from enforcing its residential zoning laws to shut down one of its shelters. The City of South Bend wants to prevent Catholic Worker of Michiana from operating a shelter in a residential area. RLUIPA is a federal statute that was passed in 2000 to provide protection for religious freedom in the land-use and prison contexts.

In Ohio, the Free Republic recently reported a similar story where the Ridgeville Township, Ohio Board of Zoning Appeals rejected a request for a permit that would have allowed a Toledo-area church to renovate its facilities to house Louisiana evacuees.

The constitutionality of RLUIPA was recently before the U.S. Supreme Court in Cutter v. Wilkinson which reversed a ruling by the Sixth Circuit Court of Appeals that held that the 2000 statute unconstitutionally advances religion by giving religious prisoners greater rights than their secular counterparts.

John Slagter of Buckingham, Doolittle & Burroughs, LLP filed one of the first cases in Ohio under RLUIPA.

The York Dispatch reported this afternoon that York County, PA commissioners Lori Mitrick and Doug Kilgore voted yesterday to take the first step toward seizing the bulk of a 750 acre farm through eminent domain. The owners of the farm, children of the late Laura Kohr and a bankruptcy trustee, vowed to fight any seizure of their property in court.

There's a good article in the Chesapeake Bay Journal discussing the legal wrangling in York County, Pennsylvania involving the County's attempts to seize land through the power of eminent domain.

In York County, PA, the County Commissioners recently voted to condemn, with the intention of seizing through eminent domain, an "archaeologically and ecologically valuable property along the Susquehanna on which a local developer had intended to erect a subdivision." As the Chesapeake Bay Journal reports:

The 80-acre parcel, on which developer Peter Alecxih Jr. had proposed to build more than 50 houses in a subdivision called Highpoint and over which Alecxih is now suing the county, was originally part of a much-larger property known as Lauxmont Farms, which was owned by the Kohr family for about 30 years. In the late 1980s, the Kohr family declared bankruptcy, and has since sold off portions of the property and pursued plans to subdivide others in an effort to fulfill their obligations to creditors. The family still owns about 500 acres, including a portion of the property with unquestioned archaeological significance. County officials have made purchase offers to the respective owners of each tract of land, but their offers were reportedly rebuffed. The Kohr family denies that most of their remaining 500 acres were ever even for sale, and has called the county’s contention that family members had made sale overtures to county officials as “fiction fabricated to advance [their] agenda.”The county officials, joined by state leaders including Gov. Ed Rendell, are hopeful the Lauxmont Farms and Highpoint properties will form the spine of a riverfront park that preserves the archaeological and ecological integrity of the landscape. They envision a publicly accessible “Susquehanna Riverlands Preservation Project” that will include an environmental education center, trail network and Native American heritage site.

A decision in the Highpoint eminent domain case is slated to come out today.

The Patriot News reports that the York County, Pennsylvania eminent domain dispute (among others) have placed some focus on recently proposed eminent domain legislation in the Commonwealth. Pennsylvania's Eminent Domain Staute can be found here. Currently, there are three proposed bills in Pennsylvania aimed at curbing eminent domain abuses. They are:

H.B. 1836 which amends the Eminent Domain Code’s Section 406 on Preliminary Objections and sponsored by: State Representative Thomas Yewcic. The bill was introduced on July 1, 2005, and sent to Committee on State Government.

S.B. 881 which prohibits the condemnation of private property for private commercial development. The bill is sponsored by State Senator Jeffrey Piccol. It was introduced on October 3, 2005, and sent to Senate Committee on State Government.

S.B. 897 which amends the eminent domain procedure code. The bill is sponsored by State Senator David Brightbill. It was also introduced on October 3, 2005.

The York County Court of Common Pleas rendered a decision in the High Point eminent domain case today. You can download the decision here.

On September 8, 2005, the Department of Justice's Antitrust Division filed a lawsuit against the National Association of Realtors (NAR), challenging a policy that obstructs real estate brokers who use innovative Internet-based tools to offer better services and lower costs to consumers. The Department said that NAR's policy prevents consumers from receiving the full benefits of competition and threatens to lock in outmoded business models and discourage discounting. The DOJ's press release can be found here. A copy of the Complaint filed by the DOJ can be found here.

There's an interesting story in the Real Estate Journal today discussing blogs and real estate marketing. Tara Siegel Bernard reports (Dow Jones Newswire) that more sellers are using blogs to market their homes.

The Cleveland Plain Dealer reported that on October 3, 2005, the Ohio Supreme Court accepted the appeal in Norwood v. Gamble. This will be the first time a State supreme court has accepted an eminent domain case after the U.S. Supreme Court decided Kelo v. City of New London. A copy of the jurisdictional brief filed with the Supreme Court petitioning the Court to review the case can be downloaded here.

Ohio gambling and tribal property rights are the subjects of a lawsuit filed by the Shawnee Tribe of Oklahoma in the U.S. District Court for the Northern District of Ohio, Western Division. However, the Cleveland Plain Dealer reported earlier this week that Jim Petro, the Ohio Attorney General, filed a motion to dismiss the complaint filed by the Eastern Shawnee Tribe of Oklahoma who claims property rights to 94,000 acres of land in several counties in Ohio. The complaint, filed earlier this summer, named 61 defendants, including Governor Taft and several state agencies, alleging that the Shawnee tribe was forced from the land in the 1830s.

The Shawnee tribe has been the center of a proposal to bring casinos in Ohio, and has announced plans to build casino resorts in Mahoning, Monroe, Logan, Shelby, Stark and Wayne counties.

In its motion to dismiss, the Attorney General’s Office contends that Ohio was not a party to the treaties signed by the Shawnee tribe more than a century ago to surrender their land. Consequently, "it would be inequitable and unconscionable to allow [the tribe] to set aside property interests of those who have no connection to the treaties at issue."

The Attorney General’s motion to dismiss can be viewed here.

Ohio law info blog recently reported that on October 13, 2005, Senators Dann, Roberts, Fingerhut, Brady, Miller, Fedor, and Hagan introduced Senate Bill 199. Senate Bill 199 proposes to expand the Consumer Sales Practices Act to include transactions involving dealers in intangibles and their customers. The bill also proposes to eliminate the requirement that information related to examinations and investigations of mortgage brokers remain privileged and confidential. A copy of the bill can be downloaded here.

Steven A. Dimengo recently gave a presentation to the Construction Financial Management Association on Ohio sales and use tax issues for construction contractors. Mr. Dimengo discussed how the Ohio sales and use tax rules pertaining to the construction contracting business affect the construction of real property (various manufacturing facilities, land improvements and related items), the sale and installation of tangible personal property (pumps, storage silos, etc.), and nontaxable services (e.g. excavation, grading and removal of tangible property).

Ohio law requires a contractor to pay sales tax on purchases of materials incorporated into real property. The law also requires a contractor to collect sales tax when the contractor installs personal property which does not become a part of real property. However, in both cases, the law permits certain exemptions from the tax depending on the nature of the project. Identifying real and personal property for the purpose of compliance with the Ohio sales and use tax laws can therefore be very important in the construction field.

Steven A. Dimengo is a shareholder in the Business Law and Taxation & Employee Benefits practice groups at the law firm of Buckingham, Doolittle & Burroughs, LLP.

If you would like a copy of the materials presented by Mr. Dimengo at the Construction Financial Management Association of Ohio, you can download it here. Otherwise, you can reach him directly here.

Yesterday, the U.S. Senate approved an amendment to the FY2006 Transportation, Treasury and Housing Spending Bill. The amendment, introduced by Senator Kit Bond (R-Mo.), would restrict the use of federal funds on private development projects that seek to use the power of eminent domain for economic development purposes. Senator Bond's amendment, adopted on a voice vote, also requires the Government Accountability Office to study the use of eminent domain. As Law.com reports, the full bill is expected to pass when it comes up for a vote next week.

Missouri, Senator Kit’s home State, has already commissioned a task force to study eminent domain. The task force’s report can be found here.

Commerical Real Estate blog reported today that CoStar Group (the largest data provider for real estate) and Google are in talks about integrating building information with Google's Earth mapping service. The deal is Google's initial foray into the realm of commercial real estate.

Google Earth "puts a planet's worth of imagery and other geographic information right on your desktop." The software is free. There is also a more robust version of the software that is available for a yearly charge. As Google states:

Google Earth allows architecture, engineering, and construction (AEC) firms to gain a new perspective on their projects. From site location feasibility studies, to land use impact analysis AEC firms rely on a plethora of geospatial data in planning and marketing projects. Google Earth provides the most efficient way to distribute that data to your project decision makers.

What is interesting is that many developers and land use professionals are beginning to use Google Earth in their projects. Because many Ohio counties have GIS (Geographic Information Systems) data programs available to the public, Google Earth's mapping program can be very useful because it permits you to integrate GIS data into its maps.

The Real Estate & Construction Practice Group at BDB often uses advanced GIS data for presentations for large commercial development projects as well as for zoning and land use hearings and trial. The CoStar and Google venture may provide even greater details for orthophotograhic and topographic displays for all different types of applications.

You can read about it in more detail here.

The Cinncinnati Inquirer recently reported that Chiquita Brands International Inc. acknowledged that it is considering moving its headquarters from Cincinnati, Ohio to either Miami, Fl or Atlanta, Ga. Talks have begun between chief executive Fernando Aguirre, Ohio's Department of Development

Senate Bill 204, introduced this week by Senator Robert Spada (R - 24th Dist.), intends to provide an expedited foreclosure procedure for lands that have had delinquent tax charges for a specified number of years and that are not occupied. The bill comes from a series of discussions between local and county leaders regarding the court clog problems associated with foreclosure actions. Recently in August, the Cuyahoga County Commissioners held an open meeting on this problem. A report was later issued that proposed short term and long term reform strategies, including recommendations similar to those proposed in Senate Bill 204. The report can be downloaded here.

Using the foreclosure process, municipalities can sometimes obtain vacant land for development projects from individuals who have seriously delinquent tax bills. Vacant land that would otherwise go unused, and is often an eye-sore for the community, can be acquired through the tax foreclosure process.

A recent case, Dugan & Meyers Constr. Co., Inc. v. State of Ohio Dep’t of Administrative Svcs., 162 Ohio App. 3d 491, 834 N.E.2d 1, has serious consequences for contractors. This case arose when a general contractor, Dugan & Meyers Construction Co., Inc. (“D&M”), sought to recover its contract balance and to reverse liquidated damages assessed against it in connection with building Phase II of the Ohio State University’s Fisher College of Business.

The project’s “requests for information” (“RFIs”) contained space for the issuing contractor to indicate any impacts the RFIs were expected to have on the construction schedule or project costs. Notice requirement language in D&M’s contract stated that it was required to request time extensions in writing within ten days of the delaying occurrence, otherwise all claims for extension or mitigation of liquidated damages were waived. Although D&M issued many RFIs, it attributed only 4 days of delay and no cost impacts to its RFIs.

The project became delayed and D&M submitted more RFIs, yet no requests for further time extensions were submitted. D&M was removed from part of the project when OSU concluded that D&M failed to cure various construction issues. OSU took deductions from D&M’s contract price to pay the project’s construction manager who took over for D&M. OSU also assessed liquidated damages against D&M.

The Ohio Court of Claims ruled D&M should recover the balance of its contract and that a complete reversal of the liquidated damages was warranted. D&M was also awarded delay or “cumulative impact” damages based on the Spearin doctrine (holding that contractors are not responsible for the consequences of owner-prepared plans and specification defects). The State of Ohio appealed the decision of the trial court.

The Bankruptcy Abuse Prevention and Consumer Protection Act (the “Act”) became effective on October 17, 2005. So how does the Act affect the real estate industry? One way involves the time limits for a debtor to assume or reject non-residential real property leases. Specifically, Section 404 of the Act makes changes to the rules governing the time a debtor has to assume or reject an unexpired commercial lease. Because a commercial landlord is often the largest unsecured creditor in a Chapter 11 bankruptcy, revisions to the rules governing the assumption or rejection of leases will have a big impact on landlords as well as debtor-in-possession lenders.

Before the Act, a Chapter 11 debtor who was a tenant under one or more commercial leases was required to assume or reject those leases within 60 days of filing bankruptcy. However, the Bankruptcy Code permitted a debtor to obtain extensions from the Court to make this decision even if the landlord objected. These extensions have, in the past, been liberally granted. Moreover, debtors would often obtain serial extensions, permitted them to defer the decision to assume or reject the commercial lease until it was time to confirm the plan of reorganization (so long as the debtor was current on post-petition rent).

Now, in all Chapter 11 bankruptcies that are filed on or after October 17, 2005, the debtor will have 120 days after the filing of its petition to assume or reject any commercial leases. The debtor may only obtain a single 90 day extension of that deadline, and only if the extension is obtained during the pendency of the initial 120 day period. Extensions beyond the combined maximum 210 days period are available to the debtor only with the prior written consent of the landlord. Unless the lease is assumed or such extensions are obtained, the lease is deemed rejected as a matter of law, and the debtor is required to vacate the premises.

Recently, a controversial bill, House Bill 23 (the "Community Defense Act of 2005"), was introduced in the Ohio legislature that proposes new restrictions on "strip clubs." However,the Ohio Senate recently postponed voting on House Bill 23.

The bill would prohibit dancers at the clubs from coming within six feet of patrons and gives townships more power to regulate the clubs. The bill was instead moved to the Senate Rules Committee for more study. A copy of the bill as re-referred to the Senate Rules Committee can be downloaded here.

The Cleveland Plain Dealer reported today that Senate Bill 167, a bill that would place a moratorium on the exercise of eminent domain for economic development purposes, was passed by the Ohio General Assembly yesterday.

The bill now goes to Governor Taft. Once sent to the Governor, he has ten days after receiving it to sign or veto it. If it is signed, SB 167 becomes law in 90 days unless otherwise specified. If it is vetoed, it is returned to Senate with the governor's written objections. A three-fifths majority is required in both houses to override a veto. If the governor fails to either sign or veto the SB 167, at the end of ten days, it becomes law without his signature.

However, even if passed, SB 167 does not place a moratorium on all eminent domain actions by the government. Municipalities, among other governmental entities, may still take property within blighted areas or for other traditional, public purposes such as road-building or utility projects. Moreover, the moratorium only applies to takings actions on or after the effective date of the bill. Consequently, eminent domain actions occurring (or commencing) before the effective date of the bill will be “grandfathered” or exempted from the moratorium.

For more information on Senate Bill 167, read previous posts by the Real Estate & Construction Practice Group at Buckingham, Doolittle & Burroughs, LLP here.

Springfield v. Gross (Oct. 14, 2005), Clark Cty. App. No. 2004-CA-81, 2005-Ohio-5527, a recent decision from the Ohio Court of Appeals for the Second Appellate District, is an important reminder of the importance of carefully drafting appropriation ordinances when taking property through eminent domain. In Gross, the City of Springfield, Ohio passed an ordinance to take private property for a sewer lift station. The City of Springfield then filed an action to take the property using its powers of eminent domain. The property owners (Donald and Carol Gross) filed a motion to dismiss the City's complaint on the basis that a portion of the property that the City sought to take was slated to be used as a construction and equipment storage area, and not for a sewer lift station. Consequently, the property owners contended that a portion of the property the City sought to take was not for a proper public purpose as set forth by the City's ordinance. The trial court agreed with the property owners and dismissed the City's appropriation action.

The Second Appellate court affirmed the trial court decision, and found that only a portion of the property was being taken for the stated purpose (sewer lift station), as the remainder was going to be used to store construction equipment. The Second Appellate court specifically held that: “Because the ordinance passed by the City Commission stated that the purpose of the appropriation was to install a replacement sewer lift station, we conclude that the City has failed to define specifically in its legislation the purpose of the excess appropriation in accordance with City of Cincinnati v. Vester, 281 U.S. 439 and City of East Cleveland v. Nau (1931), 124 Ohio St. 433.” Therefore, the trial court properly dismissed the action. Affirmed."