BUILD ON THIS
March 2013 - Volume 6, Issue 1
Buckingham, Doolittle & Burroughs, LLP’s Real Estate & Construction Newsletter
NOTES FROM THE EDITOR
Welcome to the March 2013
edition of Build On This. In
our first article, we will
examine a change to Ohio
statutory law that may have
a significant impact on the
way real property is valued
for tax purposes. Attorney
John Slagter will explain
how the Ohio legislature
Editor - David J. Lindner
moved away from strict
reliance on the recent sale price in determining a
property’s value by changing just one small word in
the statute. Our second article focuses on a number
of “traps for the unwary” contained in lease renewal
provisions. As always, we appreciate your comments
and feedback. And don’t forget that the Real Estate
Practice Group will be holding its annual Real Estate
& Construction Seminar on April 17 at the Fairlawn
Hilton. We hope to see you there.
In This Issue
Notes from the Editor - Page One
Ohio Legislature Changes
Property Valuation Rules for County
Auditors - Page One & Two
Beware of These Lease Renewal Traps
- Page Two & Three
Upcoming Real Estate & Construction
Seminar - Page Four
OHIO LEGISLATURE CHANGES PROPERTY VALUATION RULES FOR COUNTY
AUDITORS By John P. Slagter
The Ohio Legislature recently adopted House Bill 487
(“HB 487”), which changed the property valuation rules for county
auditors. HB 487, which became effective on September 10, 2012,
does two important things:
(1) Clarifies the property interests to be valued, and
(2) Provides flexibility to the county auditor in determining the
value of property that is the subject of a recent arm’s length sale to
consider factors other than just the sale price.
Ohio Revised Code (“R.C.”) §5713.03 provides that the county auditor is
John P. Slagter
charged with the responsibility of determining the taxable value of each separate tract, lot or parcel of
real property, building or structure. Every three years, each county in the State of Ohio goes through a
valuation analysis of property located within the county as required by R.C. §5713.01. The valuations
are characterized as either a reappraisal year or an update year. (Continued on page 2.)
Build On This
March 2013 - Volume 6, Issue 1
OHIO LEGISLATURE CHANGES PROPERTY VALUATION RULES FOR COUNTY
AUDITORS (Continued from page 1.)
A reappraisal year requires a physical review of all properties within the county. Those physical
reviews occur every six years and are often referred to as a “sexennial reappraisal.” In the interim period,
between the six-year reappraisal, the auditor will conduct an update, which is often referred to as a
“triennial update.” The update is typically done by reviewing the overall percentage changes in certain
areas of the county and making an overall percentage adjustment for such areas, as opposed to an
individual adjustment for each parcel.
The new law gives discretion to the auditor to determine the taxable value of property based on
factors other than a recent sale of the property at issue. This change in discretion occurred by changing
the statutory language from “shall” to “may.” Specifically, HB 487 changes R.C. §5713.03 to read, in
pertinent part that, “in determining the true value of any tract, lot or parcel of real estate under this
section, if such tract, lot or parcel has been the subject of an arms’ length sale between a willing seller
and a willing buyer within a reasonable length of time, either before or after the tax lien date, the
auditor may consider the sale price of such tract, lot or parcel to be the true value for tax purposes.” This
simple one word change in statute will make a considerable change in the discretion of the county
auditor.
The impact of this change is tied to an Ohio Supreme Court case known as Berea City School Dist.
Ed. of Bdn. v. Cuyahoga Cty. Bd. of Revision (2005) 106 Ohio St. 3d 269. In the Berea case, the Supreme
Court held that, when a property has been the subject to a recent arms’ length sale between a willing
buyer and seller, the sale price shall be the true value for tax purposes. The Court responded that, since
§5713.03 contained the word “shall,” it was mandatory for the County auditor to use the sale price when
determining value. Therefore, the recent change from the word “shall” to the word “may,” eliminated this
mandatory obligation on county auditors and provided additional flexibility.
What does this mean for you?
Although R.C. §5713.03 deals with the county auditor’s authority for setting value, it is likely that
the Board of Revision and Ohio courts will use a similar methodology when determining value.
Previous case law restricted the use of other evidence, including that of appraisers, in determining
valuation when there was a recent sale. The change to R.C. §5713.03 allows the Board of Revision and
Ohio courts the flexibility to consider factors other than the sales price as to what should be most
applicable standard in the case of unique sale terms, such as a sale and leaseback. In a sale and
leaseback transaction, the owner of a property transfers possession and then leases the property back
from the new owner. This is frequently done for accounting and other business purposes, but
oftentimes this raises issues about whether or not such transactions reflect the true value of the
property or the fair market value of the property. It is often claimed that the lease may inflate or deflate
the conveyance value.
In Cuyahoga County, Lake County, Lorain County and Stark County, the reappraisal year is 2012,
which will be reflected in the tax bill you receive in 2013. Your rights to challenge such value must then
be filed by March 31, 2013. Likewise, if your property was recently subject to an arm’s length sale, the
auditor is no longer required to solely use the sale price and has discretion to use other evidence such
as appraisal information. As such, you may need to consider obtaining an appraiser or securing other
evidence to justify and support the value of the property beyond what the sale price reflects.
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Build On This
March 2013 - Volume 6, Issue 1
BEWARE OF THESE LEASE RENEWAL TRAPS
By David J. Lindner
A typical written lease agreement has a lease term that is specified as a number of months or
years, or that extends from a certain commencement date to a certain termination date. It is not
uncommon, though, for a tenant to remain in possession of the premises beyond the expiration of the
specified term.
When the tenant holds over beyond the term specified in the lease, a number of questions arise.
For instance, can the tenant immediately be evicted or is he entitled to stay for another term? If he
cannot be evicted immediately, how long is he permitted to stay and under what terms? The answers
to these questions turn on both the lease language and the conduct of the parties.
In Ohio, a tenant who holds over beyond the term of his lease is known as a “tenant at sufferance.”
The landlord has the option either to treat the tenant at sufferance as a trespasser and immediately file
an eviction action, or hold the tenant at sufferance to a new lease term. What sometimes happens,
however, is that the tenant continues paying rent to the landlord and the landlord continues accepting
it, even though the lease term has expired. In such a case, the law treats the tenant’s continued
payment of rent as an offer to hold over for an additional term, and the landlord’s acceptance of rent
constitutes an acceptance of that offer.
When this offer and acceptance occurs, the length of the holdover tenancy is determined by
looking to the rent payment provisions of the expired lease. Where the expired lease provided for
payment of rent on a monthly basis, the holdover tenancy is treated as a month-to-month lease, which
may be terminated upon 30 days’ notice by either party. If the lease provides for annual rent, then the
holdover term is from year-to-year.
In Kazmaier v. Fat Jacks, LLC, 2010 Ohio 3627, P4 (Ohio Ct. App., Wood County Aug. 6, 2010), the
landlord brought an eviction action against the tenant, which had held over beyond the lease
expiration date. The court ruled that the landlord, by continuing to accept rent after the lease had
expired, had agreed to an additional holdover term and therefore could not bring an eviction action
until that term had expired. Looking at the payment provisions of the expired lease, the court found
that the holdover was on a year-to-year basis because the rent, although payable in monthly
installments, was nevertheless stated as yearly rent.
Landlords will often dissuade tenants from holding over by including in the lease an express
provision governing holdovers. This provision may provide that the rent during any holdover term
increase to 150% or even 200% of the rent payable in the immediately prior term. Additionally, a
landlord should pay close attention to the rent payment provisions of the lease so that a holdover
tenancy is limited to a month-to-month term, rather than year-to-year. While it is tempting to accept a
check from a tenant after the lease has expired, a landlord must be aware that by doing so he
inadvertently may be renewing the lease term.
Of course, leases often contain express renewal provisions. For example, the tenant may have the
option to extend the term of the lease for a certain number of additional periods by providing written
notice to the landlord a certain number of days or months prior to the expiration of the current term.
The renewal terms will typically be upon all the same terms and conditions of the current lease,
except that rent will be increased. The rent increase may be stated as a fixed amount, a percentage, or
be based upon increases in the Consumer Price Index. (Continued on page 4.)
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Build On This
March 2013 - Volume 6, Issue 1
BEWARE OF THESE LEASE RENEWAL TRAPS (Continued from page 3.)
Another option is to state that rent for any renewal period will be the “fair market rent,” which then
must be agreed upon by the parties or determined through an appraisal process.
The automatic renewal clause is another possibility, but something both landlords and tenants
should consider carefully before including in a lease. An automatic renewal clause states that if neither
party affirmatively cancels the lease, the term will automatically renew for another term, thus creating
a perpetual lease. If the parties are not diligent about giving the required notice to terminate, they
may find themselves bound to an additional term when they may have thought the lease was about to
expire.
A trap for the unwary in using an automatic renewal clause is that even though the stated term
may be just one year, the fact that it is a perpetual lease makes it in reality a lease that is in excess of
three years. In Ohio, all leases over three years must be notarized to be effective. Therefore, if the
parties fail to notarize a lease with an automatic renewal clause and the rent is monthly rather than
yearly, the lease will be construed as a month-to-month lease.
As you can see, if the parties do not pay sufficient attention to these lease renewal issues, they
risk ending up with a result different than what was intended. Both landlords and tenants should give
careful thought to what they are trying to accomplish and be sure to consult with their attorneys
concerning the technical details of the lease renewal so they do not fall victim to one of these traps.
Practice Group Members
REAL ESTATE & CONSTRUCTION
SEMINAR
PRACTICE GROUP CHAIR
Nicholas T. George, 330.258.6498, ngeorge@bdblaw.com
AKRON
William L. Caplan, 330.258.6458, bcaplan@bdblaw.com
Steven A. Dimengo, 330.258.6460, sdimengo@bdblaw.com
Matthew R. Duncan, 330.258.6547, mduncan@bdblaw.com
David J. Hrina, 330.643.0212, dhrina@bdblaw.com
James D. Kraus, 330.258.6483, jkraus@bdblaw.com
Frederick M. Lombardi, 330.258.6474, flombardi@bdblaw.com
James S. Simon, 330.643.0268, jsimon@bdblaw.com
David W. Woodburn, 330.258.6506, dwoodburn@bdblaw.com
Brenda S. Schwartz, 330-258-6407, bschwartz@bdblaw.com
BOCA RATON
Richard A. Murdoch, 561.241.0414, rmurdoch@bdblaw.com
Eric J. Neuman, 561.241.0414, eneuman@bdblaw.com
CLEVELAND
Alan P. DiGirolamo, 216.615.7342, adigirolamo@bdblaw.com
David L. Drechsler, 216.615.7344, ddrechsler@bdblaw.com
David J. Lindner, 216.615.7358, dlindner@bdblaw.com
Michael J. Matasich, 216.736.4224, mmatasich@bdblaw.com
Dale A. Nowak, 216.615.7319, dnowak@bdblaw.com
John P. Slagter, 216.615.7331, jslagter@bdblaw.com
Anthony R. Vacanti, 216.453.4286, avacanti@bdblaw.com
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April 17, 2013
The Hilton, Akron-Fairlawn
3:00 Welcome
3:10 Purchase Agreement Autopsy
3:40 Adressing & Avoiding
Landlord-Tenant Disputes
4:10 Oil & Gas Law Update
4:40 Tax Issues Relating to the Holding,
Operation & Sale of Real Estate
5:10 Closing Remarks & Reception
Please contact seminars@bdblaw.com
for more information.
www.bdblaw.com
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