Update: On June 9, 2020, the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

Read the analysis of the oral argument here.

On December 11, 2019, the Supreme Court of Ohio will hear oral argument in the case of LRC Realty, Inc. v. B.E.B. Properties New Par, d.b.a. Verizon Wireless, et al., v. Bruce Bird, et al., 2018-1262. At issue in the case is who is entitled to receive the rent money for a cellphone tower following the sale of the property the tower sits on. More specifically, the issue is whether a former real property owner’s right to receive rents must be expressly stated in a conveyance, or whether such rights may be implied.

Case Background

The procedural posture of this case is complicated, but at its core, this case involves multiple parties claiming the right to receive rental payments from a cellphone tower lease associated with the same real property.

In 1994, B.E.B. Properties (“B.E.B.”), a general partnership, owned the property located at 112 Parker Court in Chardon, Ohio. Bruce Bird was a partner in B.E.B. In March of 1994, B.E.B. executed a 35-year lease agreement with Northern Ohio Cellular Telephone Company (“NOCTC”), authorizing NOCTC to construct a cell tower in exchange for rent on the property payable to the landlord. The lease was signed and recorded in March of 1995. The lease requires a single yearly rental payment, made to the property owner on or before the first of April.

After the lease was signed, B.E.B. sold the property to non-parties Keith Baker and Joseph Cyvas (“Baker and Cyvas”). The deed conveying the property contained no express provision reserving the rental payments due under the lease to B.E.B.

By June of 1995, B.E.B. executed an Assignment of Partnership, in which two of B.E.B.’s three general partners assigned their interests to the remaining partner Bruce Bird, and his wife, Sheila Bird (“the Birds”).  And, in 1997, NOCTC assigned the lease to its affiliate, New Par, d.b.a.Verizon Wireless (“New Par”). In June 1999, Baker and Cyvas transferred legal title to the property to Magnum Machine Co. No express reservation of rental payments was included in this deed, either.

Then, in October 2003, Magnum transferred title to 112 Parker Court, LLC (“Parker Court”)—again without an express provision reserving any rental payments associated with the property. And finally, in January 2013, Parker Court transferred title to the property to LRC Realty (“LRC”), again without an express reservation of rent.

On March 13, 2013, New Par paid that year’s rent to the Birds. On March 28, 2014, New Par paid that year’s rent to LRC.

In August 2014, LRC filed a complaint against B.E.B., Parker Court, and New Par seeking a declaratory judgment to determine the legal rights of the parties to past and future rental payments associated with the lease. In its complaint, LRC sought to be named the entity entitled to the rents from the time it acquired title.

Then, in September, the Birds filed a complaint, claiming anticipatory breach of contract against New Par and tortious interference with contract against LRC. The Birds sought a declaratory judgment that they were the assignees of B.E.B. and were therefore entitled to receive the rental payments throughout the duration of the lease.

New Par made a counterclaim and cross claim for interpleader to allow the court to determine who was entitled to the rent, as well as crossclaims against the Birds and LRC for indemnification in the event that it needed to pay rent to either.

The Birds then raised a combined counterclaim against LRC and a cross claim against 112 Parker Court, seeking to reform the warranty deed between Parker Court and LRC, to clarify that rights to receive the rental payments were not transferred in the conveyance and that the Birds were entitled to payment as assignees of B.E.B. Parker Court filed answers and cross claims seeking a declaratory judgment that it was entitled to rental payments for each year that it owned the property. In short, the Birds, LRC, and Parker Court all claim entitlement to rent from New Par.

Each party filed motions for summary judgment. Geauga County Common Pleas Court Judge Forrest L. Burt denied the Birds’ requested reformation of the deed on the grounds that they were not a granting or contracting party, and found that B.E.B. owned the property and was the granting party under the deed. Judge Burt ordered the Birds to pay Parker Court the rent they received from New Par during the time that Parker Court owned the property, and that they pay LRC for the rent they received while LRC owned the property. Finally, Judge Burt ordered New Par to pay rent in the future according to instructions from the property owner—currently, LRC. The Birds appealed.

The Appeal

In a 2-1 opinion by Judge Timothy P. Cannon, joined by Judge Thomas R. Wright, the Eleventh District Court of Appeals affirmed the trial court’s ruling that the Birds could not reform the deed, but reversed the trial court’s holding that Parker Court and LRC had the right to receive rent.

Judge Cannon reasoned that the Birds could not reform the deed between Parker Court and LRC because they were not in privity with either party—a requirement for reformation of an instrument.

On the right to receive rent, however, Judge Cannon, while agreeing that the lease describes the landlord as the property owner at the time the lease was executed, disagreed with the trial court that meant that the rent must be paid to the property owner. Rather, he found that the lease was incorporated as an encumbrance within the original warranty deed from B.E.B. to Baker and Cyvas, through language that made the premises “subject to the specific encumbrances on the premises . . . .”

Further, according to the majority, the lack of express language giving B.E.B. the right to receive rent was not determinative because the “subject to” language on the deed “clearly indicates that the parties’ intention was to reserve the right to receive rent for the benefit of B.E.B. Properties.” Finding this implied intent clear, the majority reversed all damages claims against the Birds, and the court remanded the case with instructions to enter judgment in favor of the Birds.

In dissent, Judge Diane V. Grendell agreed that the Birds could not reform the deed and agreed summary judgment should not have been granted, but for entirely different reasons than the majority. She disagreed with the majority’s finding of any implied reservation of the right to receive rent in any of the conveyance documents in this case. Judge Grendell criticized the majority’s lack of citation to authority in finding this implied transfer and finds that under no circumstance could the warranty deed’s boilerplate language indicate intent to reserve the right to the rent, let alone clear intent as the majority found.

Further, Judge Grendell conceded that while there were legitimate equitable issues with Parker Court and LRC’s entitlement to recover damages from the rental payments that should have precluded summary judgment, the majority’s complete reversal on the grounds that the title was subject to specific encumbrances was not appropriate.

Parker Court and LRC appealed.

Votes to Accept the Case

Yes: Justices DeWine, Fischer, French, and Kennedy.*

No: Chief Justice O’Connor, and Former Justices O’Donnell and DeGenaro.

*Justices DeWine, Fischer, and Kennedy would accept the case on all propositions of law.

LRC’s First Proposition of Law Accepted for Review

A covenant to pay rent pursuant to a lease runs with the land and, in the absence of a reservation of rent by the grantor prior to a conveyance of the land, the right to rent which accrues thereafter follows the legal title and right to possession of the grantee.

LRC’s Second Proposition of Law Accepted for Review

When a warranty deed states that a conveyance of real estate is “subject to” a recorded lease agreement and easement, neither of which instrument reserves to the grantor the right to receive future rents as they become due under the lease agreement, the right to all such future rents is conveyed to the grantee since the right to rents follows the legal title and right to possession of the encumbered real estate.

LRC’s Proposition of Law Not Accepted for Review

Parker Court’s Proposition of Law Accepted for Review

Absent an express reservation, the right to receive rents runs with the land.

Parker Court’s Proposition of Law Not Accepted for Review

Appellate courts should not decide cases based on issues that were not raised by any party without first providing the parties an opportunity to brief those issues.

Key Statutes and Precedent

R.C. 5302.04 (“In a conveyance of real estate or any interest therein, all rights, easements, privileges, and appurtenances belonging to the granted estate shall be included in the conveyance, unless the contrary is stated in the deed, and it is unnecessary to enumerate or mention them either generally or specifically.”)

R.C. 5301.25(A) (“All deeds . . . and instruments of writing properly executed for the conveyance or encumbrance of lands . . . shall be recorded in the office of the county recorder . . . . Until so recorded or filed for record, they are fraudulent insofar as they relate to a subsequent bona fide purchaser having, at the time of purchase, no knowledge of the existence of that former deed, land contract, or instrument.”)

Smith v. Harrison, 42 Ohio St. 180 (1884) (Rent runs with the land unless expressly reserved in a deed.)

Commercial Bank & Sav. Co. v. Woodville Sav. Bank Co., 126 Ohio St. 587 (1933) (The right to rents and profits of real estate follows legal title.)

Gill v. Fletcher, 74 Ohio St. 295 (1906) (syllabus) (“Whether the language used in a deed creates a reservation or exception from the grant depends upon the intention of the parties as evinced by a construction of the whole instrument in light of the circumstances of each case.”)

Fuller v. Drenberg, 3 Ohio St.2d 109 (1965) (When a deed is accepted without qualification to another agreement, there is no cause of action against the deed and the express terms of the deed control.)

Emrick v. Multicon Builders, Inc., 57 Ohio St.3d 107 (1991) (“[A] bona fide purchaser for value is bound by any encumbrance upon land only if he has constructive or actual knowledge of the encumbrance.”)

Thames v. Asia’s Janitorial Service, Inc., 81 Ohio App.3d 579 (6th Dist. 1992) (“[T]he proper recording of those instruments referenced in R.C. 5301.25(A) serves as ‘constructive’ notice of that interest or encumbrance to all who claim through or under the grantor by whom such deed was executed.”)

National City Bank v. Welch, 2010-Ohio-2981 (10th Dist. 2010) (“There is no injustice done by enforcing a valid deed restriction against a subsequent purchaser when that purchaser had knowledge of the restriction.”)

 Koprivec v. Rails-to-Trails of Wayne County, 2018-Ohio-465 (“[t]he first rule of deed construction in Ohio is that when the parties’ intentions are clear from the four corners of the deed, we will give effect to that intention.”)

LRC’s Argument

The Birds have never been entitled to receive rent from the property under the original lease agreement; they have never been the owners of the Parker Court property. Although they claim to be entitled to payments based on being the assignees of B.E.B., they only became assignees after B.E.B. conveyed its entire interest in the property to Baker and Cyvas. The assignment to the Birds could not convey more than B.E.B. had at the time, which did not and could not include the right to receive the annual rental payments. Just because the Birds and the other partners in B.E.B. failed to reserve the right to receive the annual rental payments does not mean LRC should not receive them. LRC Realty is lawfully entitled to the payment of all future rental payments owed by New Par for the duration of the Lease Agreement and for as long as LRC Realty is the owner of the property.

The Eleventh District majority decided the case on issues neither briefed nor raised by any party at any time in this case—the only issue has always been whether the right to receive rent under the lease agreement was legally retained by B.E.B. after B.E.B. sold the property in 1995.

It is well-established under Ohio law that a covenant to pay rent runs with the land. In the absence of an express reservation of a right to receive the rent, such rights transfer after conveyance of legal title.  The Eleventh District ignored more than a century of precedent when it held that the “subject to” language in the warranty deed created the necessary language to constitute an express reservation. Because no deed in any of these transactions ever reserved future rental payments to B.E.B. or the Birds, the right to rent transferred with each conveyance.

Further, no case law exists to support the Eleventh District’s opinion that the “subject to” language in the deed reserved any right to future rents. The Eleventh District’s sua sponte decision to reverse on these grounds and its mandate to enter final judgment to the Birds violated LRC’s due process rights because LRC never had an opportunity to be heard on the issue.

Parker Court’s Argument

When there is no express reservation of the right to receive rental payments associated with a given property, the right to receive those payments runs with the land.

A seller of real property transfers all rights to that property unless expressly stated otherwise in the deed. This has been the controlling law in Ohio for more than a century. When a buyer purchases property, the deed is recorded to put the public on notice of the extent of that property ownership. This allows new buyers to know the extent of what they are buying.

The Birds have no claim of record to the rental payments. Their receipt of the assignment of B.E.B.’s rights was executed three months after B.E.B. sold the property to Baker and Cyvas, a sale which contains no express reservations of rental payments. Because there is no express reservation, B.E.B. transferred its right to payments before it assigned the rights to the Birds.

Additionally, the deed’s definition of “landlord” includes subsequent property owners. The document itself defines landlord as the property owner. At most, this provision is ambiguous and cannot be interpreted as granting perpetual landlord status to B.E.B.

Finally, the trial court’s granting of summary judgment and damages to LRC and Parker Court should be reinstated. This case has no material facts in dispute, and as a matter of law, without an express reservation, B.E.B.’s assignment was void as to any right to receive rents because it could not convey rights it did not own. Therefore, LRC and Parker Court are entitled to summary judgment as a matter of law.

The Birds’ Argument

The trial court’s ruling grants a windfall to LRC which they did not pay for, and results in a forfeiture from the Birds for what they did pay for, and must be reversed. The Eleventh District did not misstate or otherwise deviate from established Ohio law. Rather, the ruling upheld the status quo on how rental payments were made on the property for more than twenty years.

LRC and Parker Court omit important corollaries to the general rule that rent runs with the land unless expressly reserved in a deed. First, unrecorded reservations may be enforced against parties with actual knowledge of the reservation. At a minimum, the recorded documents in this case informed LRC and Parker Court that a lease and easement were associated with the property; that the lease had specified terms requiring the payment of significant amounts of rent; that B.E.B. retained some interest in the lease, which it assigned to the Birds; that this assignment involved rental payments. All of these facts are imputed to LRC and Parker Court because they were recorded.

Additionally, during the entire time that Parker Court owned the property, it did not believe or understand that it had any right to the rental payments, and never attempted to get them. LRC purchased the property from Parker Court with full knowledge of the situation. Neither party is innocent, and both have long known that the Birds have always been the only parties with the right to the rent, and the only parties that paid for that right. After owning the property for a year LRC suddenly decided it was entitled to the rental payments and demanded that New Par make the payments to it, even though the right to receive the rents had been assigned to the Birds. This court should not allow legal rules that protect against fraudulent claims to be used to bury the truth in this case.

B.E.B.’s assignment to the Birds is not outside the chain of title.  Neither LRC nor Parker Court can explain how the lease remains valid, but this assignment does not. Regardless, at summary judgment it cannot be argued that there is not a dispute about the chain of title. At a minimum, there is a question of material fact as to LRC’s status as a bona fide purchaser for value against whom the assignment of rent to the Birds would be unenforceable. Both the law and the facts of this case justify charging LRC with knowledge of some adverse claim to the cellphone tower rents.

Finally, the Eleventh District’s reading of the “subject to” language is correct and consistent with Ohio law. Magic words are not needed to create a reservation. In context, the Cyvas and Baker deed shows that B.E.B. reserved the right to rental payments, which Cyvas and Baker had declined to pay for and acquire, and that this reservation transferred with the new deed. Whether the language in a deed creates a reservation depends on the intent of the parties as shown in the construction of the whole instrument in light of the circumstances. From all of the circumstances of this case, it is clear that the parties intended to vest the right to receive rents in the Birds. The fact that the assignment is not specifically referenced in the deed does not alter this conclusion.

Amicus in Support of LRC and Parker Court

Ohio Association of Independent Title Agents (“OAITA”)

OAITA is a non-profit organization representing independent title insurance agents with the goal of ensuring clear standards in real estate transactions.

If the Eleventh District’s judgment stands, it will adversely affect title examinations in every real estate transaction in Ohio. Title insurance is a contract of indemnity designed to protect purchasers from unforeseen loss due to title defects such as liens, encumbrances, or other restrictions. Under Ohio law, no title insurance can be written unless it is based on a reasonable examination of title. To comply with this standard, title agents must complete an extensive search of public records before a policy will be issued.

From OAITA’s perspective, the Eleventh District’s finding of intent to reserve the right to rents based on the “subject to” language in the deed, as well as the ambiguous language in the lease and assignments, makes it nearly impossible for title insurance agencies to determine if title is good in a conveyance.

OAITA adopts all three propositions of law that LRC and Parker Court propose.

Student Contributor: Carson Miller