“Crucially, in this case, no words of reservation appear on the face of the instrument in connection with the words ‘rent’ or rental payments,’ which are entirely absent from the deed.”

Justice Fischer, Opinion of the Court

On June 9, 2020, the Supreme Court of Ohio handed down a merit decision in LRC Realty, Inc. v. B.E.B. Properties, Slip Opinion No. 2020-Ohio-3196. In a unanimous opinion written by Justice Fischer, the Court held that the deed at issue in this case did not contain an express reservation of the rights to receive rental payments from a cellular tower on the leased property involved, but because of unresolved equitable issues the Court could not determine who was entitled to those rents and sent the case back to the appeals court to address those issues. The case was argued December 11, 2019.

Case Background

In 1994 B.E.B Properties leased part of the commercial property it owned in Chardon, Ohio to Northern Ohio Cellular Telephone Company and also gave the company an easement on that property.  Both the lease and the easement were recorded. A cellular tower was built on the property. 

In 1995 B.E.B. Properties sold the property to Keith Baker and Joseph Cyvas. Shortly after that sale, two of the three general partners in B.E.B properties sold their shares in the partnership to the third partner, Bruce Bird, and his wife Sheila Bird. The Birds are appellees in the case. The Birds understood this sale to include the assignment of the right to receive future rents for the cell tower on this property, and they did in fact receive those rents from Northern Ohio Cellular and its successor, appellee New Par, during the time Baker and Cyvas owned the property.  

In 2003, the property was sold by Baker and Cyvas’s successor in interest to appellant 112 Parker Court, L.L.C. (“Parker Court”).  The Birds continued to receive the rental payments from New Par. 

In none of these transfers was there an express reservation of the right to receive rental payments in the deeds.  

In 2013, appellant LRC Realty, Inc. acquired the property from Parker Court and inquired about its rights to the rental payments on what was now its property, which ultimately resulted in this litigation.

The Litigation

In 2014 LRC brought a declaratory judgment action against B.E.B. Properties, Parker Court, and New Par seeking a declaration that it was entitled to the annual rental payments from the cell tower on its property.  LRC Realty also sought to recover the rent New Par had paid the Birds in 2013. The Birds counterclaimed and cross-claimed, seeking a declaration that they were entitled to those annual rental payments and to reform several of the deeds in the chain of title to this property to reflect this fact. New Par filed a notice of interpleader of that year’s rental payments. The parties filed cross-motions for summary judgment.

The trial court granted the summary judgment motions of Parker Court and LRC Realty and ordered the Birds to pay Parker Court the rent they had received from 2007 to 2013 and to pay LRC Realty the rents they had received in 2013. The court also awarded the interpleaded funds to LRC Realty. The Birds appealed.

The Appeal

The Eleventh District Court of Appeals affirmed in part and reversed in part.Pertinent here, the appeals court held that the Birds were entitled to all past and future rental payments based on the language in the deed transferring the property to Baker and Cyvas and remanded the case to the trial court to enter judgment in favor of the Birds.

Read the oral argument preview of the case here and the analysis here.

Key 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.”)

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

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.”)

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.) 

Liberal S. & L. Co. v. Frankel Realty Co., 137 Ohio St. 489 (1940) (the general rule that the right to receive rent and profits follows the legal title is not applicable when the grantor included a specific provision reserving the right to receive rental payments in the deed conveying the property.) 

Smith v. Barrick, 151 Ohio St. 201 (1949) (syllabus) (it is impossible to assign an interest in land that one does not possess.) 

Jolliff v. Hardon Cable Television Co., 26 Ohio St.2d 103 (1971) (the best way to determine the parties’ intent is to adhere to the plain meaning of the language used within the four corners of a deed.)

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.”)

Propositions of Law Accepted for Review

LRC Realty’s First Proposition of Law 

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 Realty’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 

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

Does the Court adopt the Appellants’ Propositions of Law?

The Court accepts these as general truisms, but because of the unresolved equitable issues, does not decide who gets the rents.

Merit Decision 

Analysis 

Case Issues

The Court identifies two issues in the case. The first is whether it is still good law that absent an express reservation in the deed conveying the property, the right to receive the rents runs with the land.  The second is whether language in a deed indicating that the property is being conveyed is subject to a recorded lease agreement and easement is sufficient to reserve the grantor’s rights to receive future rental payments under the lease agreement.

The Right to Receive the Rents

No debate here. The general rule is absent a reservation in the deed conveying the property the right to receive rents runs with the land. That’s been true like forever. One exception to that rule is that when the grantor includes a specific provision reserving the right to receive rental payments in the deed conveying the property.  All of this is now codified. So, the first holding in the case is that “the right to receive rents runs with the land and follows the legal title unless it is reserved by the grantor in the deed conveying the property.” This is also Parker Court’s proposition of law, and LRC Realty’s first proposition, in slightly wordier fashion.

The Reservation Clause

The question here is whether the deed in this case did effectively reserve the right to receive the future cell tower rents to B.E.B. Properties and then to the Birds. 

The court of appeals in this case found that the “specific encumbrances on the premises as set forth above” language referred to the previously recorded lease and easement and thus reserved to B.E.B. Properties and then to the Birds via assignment, the right to receive the future rents. The Supreme Court rejects this finding. The Court simply doesn’t find that language good enough to “make up for the lack of a specific reservation clause or some language in the deed reserving the right to receive future rental payments.” Without that kind of language, B.E.B. Properties did not reserve the right to future rents for the leased property when it conveyed the property to Baker and Cyvas. So, the Court finds that B.E.B. Properties’ subsequent assignment of the right to receive those rents to the Birds was ineffective. “After all,” wrote Justice Fischer, quoting the syllabus of Smith v. Burrick, “it is impossible to assign an interest that one does not possess.” The judgment of the court of appeals was reversed.

BUT……

It ain’t over till it’s over. Despite all these black letter real estate conveyance law principles, the Court can’t determine who gets the rents, because there are too many unresolved issues, like which equitable defenses apply based on the course of conduct of the parties. So, back it goes to the court of appeals to decide these things.

Case Disposition

The court of appeals is reversed, and the case remanded to the appeals court for further proceedings.

Trial Court Judge

Geauga County Common Pleas Court Judge Forrest L. Burt 

Eleventh District Panel (Majority Reversed)

Opinion Author Judge Timothy P. Cannon, joined by Judge Thomas R. Wright

Dissent by Judge Diane V. Grendell 

Concluding Observations

After argument, I wrote that it looked 

“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 (counsel for the Birds) 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.”

Student contributor Carson Miller agreed, and predicted that the Court would overturn the Eleventh District’s ruling but remand to determine any of the remaining equitable issues. He also wrote that he would be surprised if LRC and Parker Court did not prevail on their main argument that the deed did not contain an express reservation of rights to the rent.

The bench was surprisingly quiet during this argument. Justice DeWine asked almost all the questions, and most were about the equitable arguments that the appeals court had not addressed, including why Parker Court didn’t complain about not getting the rent and why  the Birds didn’t try and reform the deed in 1995. He also asked whether the case should be remanded to decide the equitable claims. And so it was.  The blog will follow the case on remand to see what happens to those claims.