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

On December 11, 2019, the Supreme Court of Ohio heard 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 on March 3, 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, on March 22, 1995, 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. The trial court 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. The trial court 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, the trial court 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, 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.

The majority 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, the majority, 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, the majority 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 appeals court remanded the case with instructions to enter judgment in favor of the Birds.

The dissenting judge agreed that the Birds could not reform the deed and agreed summary judgment should not have been granted, but for entirely different reasons from the majority. The dissent 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. The dissent criticized the majority’s lack of citation to authority in finding this implied transfer and would find 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, while the dissenting judge 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.

Read the oral argument preview of the case here.

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.

Parker Court’s Proposition of Law Accepted for Review

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

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.”)

At Oral Argument

Arguing Counsel

Timothy J. Fitzgerald, Koehler Fitzgerald LLC, Cleveland, for Appellant LRC Realty, Inc.

Robert Dove, Kegler Brown Hill + Ritter LPA, Columbus, for Appellant 112 Parker Court LLC

James B. Rosenthal, Cohen Rosenthal & Kramer LLP, Cleveland, for Appellees Bruce and Sheila Bird, Individually and as Successors to B.E.B. Properties

LRC Realty’s Argument

For 135 years, dating back to this court’s opinion in 1884 in Smith v. Harrison, the law in Ohio has been that absent the reservation of the rights under a lease, the right to receive rents and profits from the real estate runs with the title to the property and is the right of the owner of the reversion of the property to receive those rents as they accrue and in the future. This legal principle is the background of the case before the court today. The issue is whether a prior owner who has not reserved the right to rent in any deed or other document that is within the chain of title to this property is entitled to receive future rents and has the ability to assign the right to those rents to a third party when the conveyance of the property took place before an assignment was attempted.

The court of appeals judgment must be reversed in this case. First, in the deed of conveyance between B.E.B properties and Baker and Cyvas, there was no reservation of the right to receive the rents. That is why the Birds unsuccessfully sought reformation of the deed between 112 Parker Court and LRC Realty –a deed to which the Birds were not a party. Second, the assignment that was attempted between B.E.B properties and the Birds took place after the conveyance to Baker and Cyvas had already occurred. Under this court’s precedent, a party cannot assign a right it has no legal ability to assign.  Finally, the appeals court decided this case on a legal theory that was never briefed or argued at any time in the case.

This court should reinstate the trial court’s summary judgment finding there was no prior notice that LRC Realty would have been aware of the reservation of rents.  The argument that LRC Realty was not a bona fide purchaser can be rejected for the simple reason that there is no evidence that LRC Realty had actual knowledge of the reservation of rents. Nor do any of the documents—the lease, the easement, or the assignment itself– or any other evidence support a finding of constructive notice.

Finally, the “subject to” language does not apply here. No one in the case ever argued that language was in any way a reservation of rights to the rental amounts. That “subject to” language is language that qualifies the warranties that are being given in a warranty deed, which has nothing to do with the reservation of rights to the rents.  Even the language in the deed itself does not mention the right to rents. Before these lawsuits, the Birds’ attorney had done his own examination of the documents that are in the chain of title, and he also concluded that there was no language anywhere in any recorded document that the right to rents had been reserved by B.E.B properties. Lastly, the Birds have presented the affidavit of David Eardley, who drafted the deed, and nowhere in that affidavit does he mention the fact that he construed the “subject to” language as meaning a reservation of the right to rents. Therefore, there’s nothing that appears in the deed itself that reserved the right to rents.

112 Parker Court’s Argument

This case begins and ends with whether one believes, in the sale of real property, all the rights in that property are transferred to the buyer absent an express reservation by the seller. In this case 112 Parker Court is asking to recover the rent it was entitled to under the lease during its period of ownership. As soon as 112 Parker Court became aware of its rights, it sought to execute them. Once the deed was accepted without qualification, and without an express reservation, the analysis ends. The Birds have no rights to the rental payments because the property was sold to others before the rents were purportedly assigned to them. So, the Birds are simply claiming a right they do not have. No equitable arguments need be reached.

Birds’ Argument

In this summary judgment case, every available fact and every inference that could be drawn from such facts supported the right of Bruce and Sheila Bird to retain the cellphone tower lease payments that they had received over 19 years and supported their right to continue to receive them in the future. They are the only parties who entered a transaction where they intended to acquire those rents and they are the only parties who actually paid for the right to receive those rents.

The evidence is undisputed, as supported by the affidavits of Baker, for the buyer, and Eardley, for the seller, that in 1995, B.E.B properties had no intention of transferring the cellphone tower rents to Baker and Cyvas and that Baker and Cyvas had no intention of acquiring the cellphone tower rents.

112 Parker Court owned this property for 10 years during which time it acknowledged in writing that it had no right to the rents, and it sold the property with no intent to transfer any rents on the property because it understood it never had a right to them.  112 Parker Court’s undisputed actual knowledge of the assignment of rent and its unequivocal waiver of its right to receive rent makes the lack of any express reservation in any deed irrelevant.  The law holds that a reservation, a restriction on land, or matters affecting the land is enforceable against a party with actual knowledge of it. 112 Parker Court had actual knowledge that the rents from the lease affecting this property had been assigned or reserved to a prior owner. Waiver, estoppel, and laches all apply here.

Unlike 112 Parker Court, which had actual knowledge of the reservation of rents, LRC had constructive knowledge of the assignment as a result of what is in the Baker and Cyvas deed. LRC entered into a deal where it was told there were no rents to be sold to them. It didn’t buy them or think it was buying them.  The memorandum of assignment, a properly recorded document,  referred to the lease, and the lease is referred to in the deed.  It is no stretch to charge LRC with constructive knowledge of the existence of the lease.

LRC signed a purchase agreement, and LRC’s provable, demonstrable, uncontested intent was not to acquire rents associated with the property. The purchase agreement has an express provision where it says LRC is not acquiring any tenant leases, deposits, rents or profits affecting the property. LRC was just buying the property as a property. It wasn’t investing in the rents.

LRC’s argument about the chain of title was never brought up or argued. There was no evidence in the trial court of what the chain of title was.  There were no experts describing what would or would not be in the chain of title for somebody who was looking at it.  LRC and the amicus are injecting facts and putative expert opinions into this case at the appellate level, which is improper.

LRC, for all its talk about what the deed didn’t say in terms of reserving the rents, clearly did not rely on that deed in any way in transacting business in this property.  And on the basis of this deed that it didn’t rely on in any way, LRC wants to impose a forfeiture on the Birds and earn an extraordinary windfall for itself in the case of future rents.

The court of appeals decision is consistent with every party’s provable intent in this case, it is consistent with every party’s reasonable contractual expectations based on the deals that they actually made in connection with this property. It is consistent with the status quo of more than 18 years. It preserves the Birds’ investment and gives both appellants the benefit of their bargains.  They suffer no harm or injury if the ruling is affirmed.

Reversing the appeals court and adopting the appellants’ preferred outcome, by contrast, imposes a forfeiture and a likely hardship on the Birds and bestows a windfall on the appellants.  It would reward a lack of investment and a lack of diligence on the part of 112 Parker Court and LRC Realty.

What Was on their Minds

Justice DeWine dominated the little questioning that took place.  Justice Fischer and the Chief each asked a few questions but other than that the bench was totally silent.

Equitable Issues

What about the equitable arguments that I don’t think the court of appeals got to, asked Justice DeWine, commenting he thought there were arguments made about estoppel and laches. Isn’t 112 Parker Court essentially seeking restitution? Isn’t that an equitable remedy? Why didn’t Parker Court complain about not getting the rent? Why didn’t the Birds try and reform the deed in 1995? Wouldn’t that have made things a lot easier? If the court were to agree with the appellants about the construction of the deed, what would be the equitable issues that haven’t been considered by the appeals court?  How would LRC be estopped, he asked, commenting that it didn’t seem like LRC had sat on its rights.

Didn’t 112 Parker Court sit on its rights during its period of ownership, asked Justice Fischer? Isn’t that what the appellate court would have to deal with if we remand? Aren’t the Birds claiming 112 Parker Court is estopped from arguing its right to rents?

Contract?

The trial court applied a contract statute of limitations, but there is no contract claim here, is there, asked Justice DeWine?

Purchase Agreement

Does the purchase agreement reflect no purchase of right to the rents, asked Chief Justice O’Connor? Would LRC be paying more if they were getting those?

Outcome

What should the court do here, asked Justice DeWine? Shouldn’t the case be remanded to decide the equitable claims raised by the appellees? Or should the trial court judgment be reinstated?

How it Looks From The Bleachers

To Professor Emerita Marianna Bettman

Like a remand to the appeals court to decide the equitable issues of laches, estoppel and waiver.  Something really doesn’t smell right about either appellant, particularly Parker Court, getting these rents.  Mr. Rosenthal made a persuasive argument about actual and constructive knowledge of both appellants, and it certainly sounded like Parker Court sat on its rights. But it also looks like there might have been some poor lawyering about reserving the right to receive the rents when the property was sold to Baker and Cyvas.

To Student Contributor Carson Miller

Without much input from the bench in this argument, it is difficult to know for sure how this will come out. I would be surprised if LRC and Parker Court do not prevail on their main argument that the deed did not contain an express reservation of rights to the rent. But, as Justice DeWine’s questions indicate, the real issue here may be the applicability of any equitable reasons to uphold the Birds’ arrangement. Some of the limited discussion from the bench indicated that Parker Court may have a more difficult time recovering any rents than LRC if those equitable issues apply, but it really is a toss-up. My best guess: The Court overturns the Eleventh District’s ruling but remands to determine any of the remaining equitable issues.