In particular, by “requesting” that commercial landlords and commercial lenders comply with this Executive Order and stating same does not “suspend” any federal or state law, Governor DeWine effectively avoids the complex legal issues and challenges this Executive Order seems to implicate.  On the other hand, if a commercial landlord pursues its legal rights, such an act undoubtedly will cast a bad light on that landlord for pursuing arguably legal remedies which go against the “plea” of the Executive Order. In short, the enforcement and impact of this Executive Order is highly controversial.

In this regard, the Executive Order has three pertinent aspects which include:

1. Landlords being asked to suspend–for a term of at least ninety (90) consecutive days–rent payments for small businesses and commercial tenants in the State of Ohio that are facing financial hardship due to the COVID-19 pandemic;
2. Landlords being asked to allow a moratorium from commencing evictions of small business commercial tenants for a term of at least ninety (90) consecutive days; and
3. Lenders being asked to provide commercial real estate borrowers with a commercial mortgage loan the opportunity for a forbearance of a term of at least ninety (90) consecutive days a result of a financial hardship due to the COVID-19 pandemic.

The Executive Order defines “Lender” as including “any banking organization, bank holding company, credit union, mortgage broker, mortgage loan servicer, master or special servicer, mortgage revenue bond issuer, mortgage revenue bond holder, mortgage loan originator, owning or holding any mortgage loan secured by property located in the State of Ohio, including commercial mortgage-back securities (CMBS) loans.”  Further, “forbearance” is defined as an “agreement to forbear from: (a) enforcing any remedies following any monetary or non-monetary default arising as a result of the COVID-19 pandemic, including the filing of suit against any borrower, maker, co-maker or guarantor, the filing of foreclosure, appointment of a receiver, impounding of reserve or other funds deposited in accord with any loan or security documents, or termination of any license to use cash, or (b) sweeping and/or seizing any cash regardless of a default or the existence of circumstances that may give rise to a cash sweep trigger event arising as a result of the COVID-19 pandemic, or (c) pushing any party to waive any legal rights or admit any default arising as a result of the COVID-19 pandemic.”  It appears these are pleas and not mandates for commercial landlords to refrain from enforcing their contractual rights for at least 90 days.  A copy of the Executive Order can be found at:

https://coronavirus.ohio.gov/wps/wcm/connect/gov/3bd3536c-cf6a-486a-8aa6-3949c55dc2b4/Executive+Order+-+Commercial+Evictions+and+Foreclosures+04.01.20.pdf?MOD=AJPERES&CONVERT_TO=url&CACHEID=ROOTWORKSPACE.Z18_M1HGGIK0N0JO00QO9DDDDM3000-3bd3536c-cf6a-486a-8aa6-3949c55dc2b4-n4TCUhI

While it is clear that the goal of this Executive Order is to stabilize local economies, Landlords and Lenders should evaluate, on a case-by-case basis, whether they should elect to suspend rent and loan payment obligations and evictions as requested in the Order. If a forbearance is chosen, the question becomes how to accomplish this through lease amendments, forbearance agreements or loan modifications.  In doing this, careful consideration should be given when drafting such agreements and close attention should be paid to language regarding the admission of defaults, dealing with guarantor covenants that are no longer being met and how deferred payment obligations are dealt with going forward.  If you have any questions about your rights, obligations and the impact of this Executive Order, please contact Dworken & Bernstein at 440-352-3391 or visit our website at www.dworkenlaw.com.

In general terms, a “Force Majeure” clause excuses a party from performance of a contractual obligation where the party is prevented from doing so as a result of circumstances beyond that party’s control. Examples include riots, strikes, war, severe weather, and acts of God. Typically, a party is entitled to be excused from performance until such time as the Force Majeure circumstances abate.

The current pandemic is causing attorneys, landlords, and tenants to examine their commercial leases. Most commercial leases (office, retail, and industrial) have a Force Majeure clause in some form or another. As to leases which do not have any such clause, the parties are left to the general common law creating and interpreting Force Majeure events. Given the scope of the current pandemic and its societal impact, as well as the corresponding federal, state, and local orders recently issued, it is likely that these circumstances will meet the legal requirements of a “Force Majeure” event, and that the Tenant will be temporarily excused from paying rent and performing its lease obligations. It is unclear (but doubtful) whether, once the Force Majeure event abates, Landlords will be able to recoup the unpaid rents that accrued during that time period.

Those commercial leases that do have Force Majeure clauses generally fall into two categories. The first is a general clause that excuses both Landlord and Tenant from performance if prevented by a Force Majeure event. In general, this form of clause favors the Tenant inasmuch as in the context of a commercial lease, it is the Tenant who has primary performance obligations in the form of a monthly rental obligation. The other typical clause states that while the parties are excused from performance, the Force Majeure event does not excuse the Tenant from payment of rent. This version obviously favors the Landlord.

This legal landscape and current events are creating a myriad of Tenant requests; and the asks are coming notwithstanding the Landlord friendly clause. While we are early in the event cycle, we are not seeing Landlord communications to Tenants asking that they be excused from routine repair and maintenance obligations, although that is theoretically possible. Landlords have several other material considerations:

1. Most commercial properties are subject to a mortgage in favor of a commercial lender. Most commercial loans contain a variety of restrictions, one of which is that Landlords cannot unilaterally amend tenant leases without Lender approval. Accordingly, even if it is prudent for a Landlord to re-write a lease to a given Tenant, it is running the risk of a mortgage default if it does so without Lender approval. It is an open question whether Lenders will grant such requests, which will likely be accompanied by Landlord requests for mortgage relief.
2. At some point, if the pandemic goes on long enough, Tenants will default (or go bankrupt) and thinly capitalized Landlords will be faced with the prospect of a mortgage default, and will have to consider whether they can or should subsidize their project with fresh capital. The fair market value of the property, the Ladlord’s equity position, lease terms, and whether the loan is non-recourse is going to largely dictate what a Landlord should do in these circumstances.
3. Many shopping center leases have “co-tenancy” requirements which allow a tenant to reduce its rent or terminate its lease if an anchor tenant (or some percentage of shopping center space) is not open and operating for a stated time period. Thus, a Force Majeure event may create a “domino effect” and impact cash flow just as a result of a single anchor temporarily closing, even if the anchor has no right to do so.
4. Landlords and their counsel are scrambling to review their Business Interruption policies. The ones we have reviewed contain several hurdles to obtain coverage, as well as a specific exclusion as to claims arising out of viruses.

Analysis of commercial lease rights in relation to the Covid-19 pandemic will largely be a fact specific exercise, and a function of the topics discussed here. We have already heard of litigation regarding business interruption insurance coverage, and there will undoubtedly be litigation as between specific landlords and tenants, and landlords and their mortgagees. If you are in need of real estate counsel as a result of the pandemic, contact Dworken & Bernstein at (440) 352-3391.

By Erik L Walter – Partner

Ohio Residential Landlord Key Facts to Know 

When renting to a residential tenant, the property owner must know certain key facts.  Accordingly, every residential landlord should have a written lease that contains all important legal terms.  

In doing this, it is highly recommended you consult a lawyer versed in drafting residential leases as there are certain provisions that “internet form leases” contain that are not recognized under Ohio law.  

Attorney Fees Provisions are Unenforceable

For instance, many form leases contain an attorney fee provision for the recoupment of attorney fees.  However, under Ohio law, attorney fees provisions in residential leases are unenforceable. Specifically, Ohio Revised Code §5321.13(C) provides: “no agreement to pay the landlord’s or tenant’s attorney’s fees shall be recognized in any rental agreement for residential premises or in any other agreement between a landlord and tenant.” Accordingly, any lease containing an attorney fees provision will not be recognized when it comes to a default.  

Even so, Ohio Revised Code §5321.05 does allow the recovery of “reasonable attorney fees” under certain breaches committed by a tenant.  

Security Deposits May Bear Interest & Must Be Accounted For

Next, when it comes to security deposits, a landlord must be cognizant of certain facts. 

First, any security deposit in excess of fifty dollars or one month’s periodic rent–whichever is greater–shall bear interest on the excess at the rate of five per cent per annum if the tenant remains in possession of the premises for six months or more, and shall be computed and paid annually by the landlord to the tenant. Ohio Revised Code §5321.16(A).  

Further, upon the lease ending or being terminated by a default of a tenant, a landlord must account for the security deposit.  

Specifically, Ohio Revised Code §5321.16(B) provides:

Upon termination of the rental agreement any property or money held by the landlord as a security deposit may be applied to the payment of past due rent and to the payment of the amount of damages that the landlord has suffered by reason of the tenant’s noncompliance with section 5321.05 of the Revised Code or the rental agreement. Any deduction from the security deposit shall be itemized and identified by the landlord in a written notice delivered to the tenant together with the amount due, within thirty days after termination of the rental agreement and delivery of possession. The tenant shall provide the landlord in writing with a forwarding address or new address to which the written notice and amount due from the landlord may be sent. If the tenant fails to provide the landlord with the forwarding or new address as required, the tenant shall not be entitled to damages or attorney’s fees under division (C) of this section. 

Accordingly, if a landlord fails to comply with the above, a tenant may recover the property and money due him, together with damages in an amount equal to the amount wrongfully withheld, and reasonable attorney’s fees—unless no forwarding address is given to the landlord.   

Proper Lease Termination Procedures Must be Followed

Finally, when terminating a lease, a residential landlord must follow proper procedures.  

1. First, if the default is for the non-payment of rent, a three (3) day notice must be posted.  If, however, it is for anything other than the non-payment of rent, a (30) day notice must be posted.  
2. Second, each notice must contain specific statutory language or it will be deemed invalid and the eviction process restarted if it is not contained in the notice.  
3. Third, if any rent is accepted after posting a default notice, the acceptance of the late rent may end the eviction process and allow the tenant to remain in possession of the leased space. 

Proper Name and Address of the Owner and Their Agent Must be Included

Next, every written rental agreement for residential premises must contain the name and address of the owner and the name and address of the owner’s agent, if any. In this regard, if the owner or the owner’s agent is a corporation, partnership, limited partnership, association, trust, or other entity, the address shall be the principal place of business in the county in which the residential property is situated or if there is no place of business in such county, then its principal place of business in this state, and shall include the name of the person in charge of the same.  

Corporations Must use an Attorney For Eviction Filings and all Hearings

Finally, if the landlord is a corporation, an attorney must file the eviction and conduct all hearings as anyone else doing so may be committing the unauthorized practice of law which carries severe ramifications.  

Secure the Services of a Skilled Attorney

While there are numerous other requirements that all landlords must know, these are some of the most important as they impact the rights and remedies of the landlord.  

Accordingly, every landlord must be familiar with Ohio statutory law before entering into a lease with a tenant.   

Therefore, in order to know all of your obligations and have a solid lease, it is imperative to seek the advice of a skilled attorney to protect your rights in this specialized and complicated area of the law. 

Don’t delay getting the advice you need. Contact us today to schedule a consultation.

The information presented in this post is not legal advice and does not form a lawyer/client relationship. Laws and circumstances can differ and change.
Please contact us for a personal review of your situation

By Grant Keating and Josh Strickland

Originally Published in NOAA’s Suites Magazine June 2019

On April 4, 2016, the Department of Housing and Urban Development (HUD) issued new guidelines on the use of criminal records in evaluating a prospective tenant for an apartment. 

That action titled “Office of General Counsel Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions” can be found online at https://www.hud.gov/sites/documents/HUD_ OGCGUIDAPPFHASTANDCR.PDF 

The Fair Housing Act & Criminal History

The Fair Housing Act (FHA) prohibits discrimination in the sale, rental, or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex, disability, familial status or national origin. 

It is not in and of itself illegal under the FHA to reject leasing applicants who have criminal records, but a blanket rejection of applicants based on criminal history may constitute a violation of the FHA if, without any justification, persons of any one race, color or national origin are rejected more frequently as a result of such policies. 

In other words, a policy that has a “discriminatory effect” may violate the FHA, even if it was unintentional. 

Intentional Treatment Discrimination

Intentional conduct, like treating applicants with similar or comparable criminal histories differently because of their race, color, national origin or other protected characteristics, also remains a violation of the FHA. 

For example, rejecting an African-American applicant having a criminal record while approving a white applicant having a comparable criminal record is what is referred to as “intentional discrimination” discrimination. 

Disparate Treatment Discrimination

“Disparate treatment” discrimination results when a policy that appears to be neutral on its face, (like not renting to convicted felons), has a disproportionate impact on members of a protected class as applied. 

Intentional and disparate treatment discrimination are both prohibited by the FHA. 

The Implications of the Updated Guidelines

So what is new and what is not? 

The legal principles on which the guidelines are based are not new and have been in place for many years. 

However, the update to the guidelines suggests a renewed focus on this issue and the possibility of increased enforcement actions. 

Criminal History Can Create an Unintentional Discriminatory Effect

Somewhere between 70 and 100 million U.S. adults, roughly one-third of the population, have some sort of criminal record. 

African-Americans and Hispanics are arrested, convicted, and incarcerated at higher rates than other population groups. 

Due to these facts, HUD has found that refusals to lease apartments based on criminal records constitute a barrier that has a disproportionate impact on minorities. 

In light of the well-documented inequities in the criminal justice system for persons of color, a policy that automatically rejects all housing applicants based on criminal history poses a real risk of creating an unintentional discriminatory effect. 

A landlord can violate the FHA if their seemingly neutral policies or practices have a discriminatory effect, even if the landlord did not actually have an intent to discriminate. 

Drug Offenses Are The One Exception

The one exception is that landlords may continue to automatically reject leasing applicants who have been convicted of the manufacture or distribution (but not simply possession) of illegal drugs, as this conduct is specifically excepted from the FHA discrimination statutes. 

Practically, What Should Landlords do?

So what is a landlord to do in this environment? 

– Case-by-Case Reviews

As an initial matter, blanket policies that automatically reject prospective tenants with a felony conviction (other than drug offenses as discussed above) should be avoided. 

Instead, those policies should be replaced with a policy that reviews individual criminal histories on a case-by-case basis. 

– Give the Applicant a Chance to Explain

Landlords should provide an applicant a chance to explain any offense and consider those explanations as part of their determination, including taking into account how long ago the conviction occurred, what it was for, and any evidence of rehabilitation. 

– Remain Mindful and Avoid Biases

A landlord must also remain mindful to avoid treating individuals with the same or similar criminal background differently based on sex, race, color or national origin, even if they had no discriminatory intent. 

As the process can be time-consuming, you may want to wait to the end of the application process to evaluate an applicant’s criminal history.

– Run FRCA-Compliant Background Checks

Lastly, when running background checks on applicants, a landlord must also comply with the Fair Credit Reporting Act (FRCA). 

The FCRA generally requires a person obtaining background information to: 

1. have a legitimate purpose to seek that information, 
2. only use that information in furtherance of that legitimate purpose, and 
3. requires consent and notice from the person whose background is being checked.

Leasing is specifically recognized as a legitimate purpose for performing background checks under the FCRA, but rental applications should contain provisions notifying applicants that you intend to run a background check as part of the application process and that the applicant expressly consents to your authority to do so. 

Get Expert Professional Legal Assistance

The expert attorneys at Dworken & Bernstein can assist landlords in navigating this policy minefield and defend against any actions brought by HUD, the Ohio Civil Rights Commission or other agencies. 

If you enjoyed this article, or if there is a particular legal topic of interest that you would like to be featured in the next edition of Suites, please reach out to Grant or Josh by calling 440-946-7656.

The information presented in this post is not legal advice and does not form a lawyer/client relationship. Laws and circumstances can differ and change.
Please contact us for a personal review of your situation

By: Jodi Littman Tomaszewski, Partner and Dworken & Bernstein Co., LPA

If you live in Northeast Ohio you may have recently received an unwelcomed notice in the mail informing you that your real estate taxes will be increasing.  You may be asking yourself how this is possible, especially if you haven’t made any significant improvements to your property lately.

Ad Valorem Taxes

Real property taxes in Ohio are ad valorem taxes, which means that the amount of tax you pay is based upon the value of your property.  

Ohio law requires each county to determine the value of all property within its jurisdiction, and this value becomes the basis of your tax assessment.   

The county completes this endeavor through a “sexennial reappraisal,” which occurs once every six years, and a “triennial update,” which occurs every third year between sexennial reappraisals. 

2018 was a Sexennial Reappraisal Year

2018 was a sexennial reappraisal year for most of the counties in Northeast Ohio.  As a result, many property owners will see an increase in their property tax bill for the tax year 2018, which is payable in 2019.   

For example, residential property values in Cuyahoga County will be increasing, on average, 10.8% over the prior value, and commercial properties will see an average increase of 8.7%. The increase varies from municipality to municipality so you may fall above or below that average.

Verify Your New Value is Accurate

These increases can be attributed to the robust real estate market that we have experienced in Northeastern Ohio over this last several years.  

However, as a property owner, you should verify that the new value set by the county accurately reflects the market value of your property.  

For tax purposes, “market value” is defined as price your property would likely sell on the open market between a willing buyer and a willing seller, with neither party being under any compulsion to buy or to sell and with both parties being aware of all the relevant facts.    

Several Ways to Establish Market Value

There are several ways a property owner can go about establishing the market value of his/her property.  

Recent Purchase Price

Did you recently purchase your property in an arms-length transaction?  If so, then the purchase price that you paid to the seller is, in most cases, the best indicator of the market value of your property.  If the new value set by the county is materially higher than the price you paid for the property in your recent sale, then you have a very compelling argument that the county should be using your sale price as the market value for tax purposes thereby lowering your tax bill.

Appraisal

What if you are a long time property owner with no recent sale to establish market value?  In that case, you may want to retain a certified property appraiser to determine the market value of your property.  

If your appraiser concludes that the market value of your property is materially less than the new value set by the county, then you have a good argument that the county should change its tax records to reflect the lower market value determined by your appraiser, which in turn will result in a lower tax bill.         

Take Action to Lower Your Real Estate Taxes

Informal Complaint

If you fall within either category discussed above, or if you have any other evidence to establish that the true market value of your property is materially lower than the new value set by the county, then you should consider taking action.  

Most counties offer an informal complaint process, either in person or online, which allows you to object to the county’s new value and to explain why you feel it is inaccurate.  

File a Complaint With the Board of Revision

If you are not satisfied with the result of this informal complaint process, then you may want to consider filing a complaint with the Board of Revision.

This complaint is a formal request to the county to decrease the value of your property for tax purposes.  

In order to challenge the new values that have just been set for 2018, you are required to file your complaint with the Board of Revision between January 1st and March 31st of 2019.  

Once the complaint is filed, you will get a hearing before the Board of Revision. There you can present witnesses and other evidence to establish that the true market value of your property is less than what is reflected in the tax records.  

Seek Expert Legal Counsel

Real estate tax valuation is a very complicated area of the law and each situation is unique.  

If you are considering challenging your tax valuation, I would highly recommend that you seek legal counsel to assist you with the process.  

Dworken & Bernstein Co., LPA has several attorneys who practice in this area and have experience presenting cases to the Board of Revision.

We can analyze your situation and may be able to assist you in getting your real estate taxes lowered.

Give us a call at 440.352.3391 to learn more.