Contracts

By: Evin Bachelor, Wednesday, April 24th, 2019

Since our last legislative update in March, Ohio’s legislators and staffers have been busy introducing more legislation.  As of this morning, there are 332 bills that have been introduced by members of the Ohio General Assembly since January.  Some have already passed both the Ohio House and Senate, but most are still pending.  While we cannot write about every pending bill, the following bills relate to agricultural, local government, or natural resource law.  In addition to these bills that we have not yet covered, see the end of this post for an update about bills we mentioned in our last blog post.

Tax

  • Senate Bill 183, titled “Allow tax credits to assist beginning farmers.”  Many agricultural news outlets quickly picked up on this bill.  The bill would authorize two nonrefundable tax credits.  One is for beginning farmers who attend a financial management program, while the other is for individuals or businesses that sell or rent farmland, livestock, buildings, or equipment to beginning farmers.  The Ohio Department of Agriculture would be responsible for certifying individuals as beginning farmers and for approving eligible financial management programs.  Click HERE for more information about the bill, and HERE for the current official bill analysis.
  • House Bill 109, titled “Grant tax exemption for land used for commercial maple syruping.”  The bill would exempt “maple forest land” from having to pay property taxes.  The landowner would have to apply for the designation with the Ohio Department of Taxation.  Eligible lands are those lands bearing a stand of maple trees where 1) an average of at least thirty taps are drilled each year into at least fifteen different maple trees per acre of land, 2) the harvested sap is incorporated into a maple product for commercial sale, 3) the land is managed under a forest land maintenance plan, and 4) the property has ten or more acres or the sap harvest produces an average yearly gross income of more than $2,500.  Note that all four requirements must be met in order to qualify as an exempt maple forest land.  Click HERE for more information about the bill.

Real property

  • House Bill 103, titled “Change law relating to land installment contracts.”  Ohio’s Land Installment Contract Law, which applies to contracts involving properties with a residence but not contracts involving only open farmland, would see some significant changes under this proposed legislation.  The bill would shift the burden of paying property taxes and homeowner’s insurance from the buyer to the seller.  The seller would also be prohibited from holding a mortgage on the property.  The contract would have to include provisions stating that the seller is responsible for all repairs and maintenance on the property.  Interest rates would also be capped so that the rate cannot exceed the Treasury bill rate for loans of the same length of time by 2%.  For example, if a 5-year land installment contract is entered into on September 7th and the 5-year Treasury bill rate on that day is 2.64%, the interest rate for the land installment contract would not be able to exceed 4.64% under this bill.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

Estate planning

  • House Bill 209, titled “Abolish estate by dower.”  Dower provides a surviving spouse with rights in any real property owned by a decedent spouse.  This bill would end dower estates moving forward, but any interests that vest before the change would take effect would still be valid.  Click HERE for more information about the bill.

Local government

  • Senate Bill 114, titled “Expand township authority-regulate noise in unincorporated area.”  A board of township trustees is currently limited to regulate noise coming from either areas zoned as residential or premises where a D liquor permit has been issued.  The bill would expand the township’s authority to regulate noise anywhere within the unincorporated territory of the township.  However, the bill does not affect another section of the law that exempts agriculture from noise ordinances, so agricultural activities would not be subject to any new noise ordinances, should this law pass.  Click HERE for more information about the bill, and HERE for the current official bill analysis.
  • Senate Bill 12, titled “Change laws governing traffic law enforcement.”  Notably for townships, this bill would prohibit township law enforcement officers or representatives from using a traffic camera on an interstate highway.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

Regulation of Alcohol

  • House Bill 181, titled “Promote use of Ohio agricultural goods in alcoholic beverages.”  The bill would authorize the Ohio Department of Agriculture to create promotional logos that producers of Ohio craft beer and spirits may display on their products.  Specifically, the bill would authorize an “Ohio Proud Craft Beer” and an “Ohio Proud Craft Spirits promotion.  Click HERE for more information about the bill.
  • House Bill 160, titled “Revised alcoholic ice cream law.”  Under current Ohio law, those wishing to sell ice cream containing alcohol must obtain an A-5 liquor permit and can only sell the ice cream at the site of manufacture, and that site must be in an election precinct that allows for on- and off-premises consumption of alcohol.  This bill would allow the ice cream maker to sell to consumers for off-premises enjoyment and to retailers that are authorized to sell alcohol.  Click HERE for more information about the bill.
  • House Bill 179, titled “Exempt small wineries from retail food establishment licensing.”  The bill would exempt small wineries that produce less than 10,000 gallons of wine annually from having to obtain a retail food establishment license in order to sell commercially prepackaged foods.  The sales of the prepackaged foods cannot exceed more than 5% of the winery’s gross annual receipts.  The winery would have to notify the permitting authority that it is exempt, and also notify its customers about its exemption.  Click HERE for more information about the bill.

Energy

  • House Bill 20, titled “Prohibit homeowner associations placing limits on solar panels.”  The bill would prohibit homeowners and neighborhood associations, along with civic and other associations, from imposing unreasonable restrictions on the installation of solar collector systems on roofs or exterior walls under the ownership or exclusive use of a property owner.  Condominium properties would similar be prohibited from imposing unreasonable restrictions where there are no competing uses for the roof or wall space where a solar collector system would be located.  According to the bill analysis, an unreasonable limitation is one that significantly increases the cost or significantly decreases the efficiency of a solar collector system.  Individual unit owners would also have the right to negotiate a solar access easement.  Click HERE or more information about the bill, and HERE for the current official bill analysis.
  • Senate Bill 119, titled “Exempt Ohio from daylight savings time.”  The bill would require Ohio to observe Daylight Savings Time on a permanent basis effective March 8, 2020.  The state’s clocks would spring forward in March, but there would be no falling back in the fall.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

As for the bills that we previously covered in our March legislative update, the following chart explains where those bills stand.  Those that have passed at least one chamber have their passage status underlined in the column on the right.  Those that have had at least one committee hearing list the number of hearings, while those that have not had any activity in committee state only the committee that the bill has been referred to from the floor.

Category

Bill No.

Bill Title

Status

Hemp

SB 57

Decriminalize hemp and license hemp cultivation

- Passed Senate

- Completed first committee hearing in House

Watershed Planning

SB 2

Create state watershed planning structure

- Referred to Senate Agriculture and Natural Resources Committee

Animals

HB 24

Revise humane society law

- Completed third committee hearing in House

Animals

HB 124

Allow small livestock on residential property

- Referred to House Agriculture and Rural Development Committee

Oil and Gas

HB 55

Require oil and gas royalty statements

- Completed first committee hearing in House

Oil and Gas

HB 94

Ban taking oil or natural gas from bed of Lake Erie

- Referred to House Energy and Natural Resources Committee

Oil and Gas

HB 95

Revise oil and gas law about brine and well conversions

- Referred to House Energy and Natural Resources Committee

Mineral Rights

HB 100

Revise requirements governing abandoned mineral rights

- Referred to House Energy and Natural Resources Committee

Regulations

SB 1

Reduce number of regulatory restrictions

- Completed three committee hearings in Senate

Business Law

SB 21

Allow corporation to become benefit corporation

- Passed Senate

- Completed first hearings in two separate House committees

Animals

SB 33

Establish animal abuse reporting requirements

- Completed fifth committee hearing in Senate

Local Gov’t

HB 48

Create local government road improvement fund

- Referred to House Finance Committee

Local Gov’t

HB 54

Increase tax revenue allocated to the local government fund

- Referred to House Ways and Means Committee

Property

HB 74

Prohibit leaving junk watercraft or motor uncovered on property

- Completed first committee hearing in House

By: Peggy Kirk Hall, Monday, July 31st, 2017

Written by Chris Hogan, Law Fellow, OSU Agricultural & Resource Law Program

Several pipeline projects are crisscrossing the state. While some landowners are just seeing equipment and workers show up on their property, others are seeing pipelines be buried and the land being reclaimed. Some Ohio landowners question whether pipelines on their property and reclamation of the land are being carried out properly.

Safety Issues Related to Construction of Pipelines

In certain circumstances, landowners with completed pipelines on their property can contact the Public Utilities Commission of Ohio (PUCO) with their concerns. PUCO has the authority to oversee safety issues on completed pipelines in Ohio. If a landowner is concerned that an existing pipeline on their property has a legitimate safety issue, that landowner should contact PUCO to report suspected safety issues. PUCO inspectors may issue a noncompliance letter to pipeline companies, if a violation is discovered.

If the landowner specifically suspects that the pipeline company is not following recommended standards and construction specifications, local Soil and Water Conservation Districts or the Ohio Department of Agriculture (ODA) may be able to assist. By law ODA must cooperate with other agencies to protect the agricultural status of rural lands adjacent to projects such as pipelines. ODA publishes model pipeline standard and construction specifications intended to limit the impact of construction of a pipeline on agricultural productivity.

Contract Disagreement Issues (Non-Safety Issues)

If a landowner has an issue that is not related to safety, that issue may be addressed in the easement agreement between the landowner and the pipeline company. A pipeline easement is a contract. Both parties agree to uphold their obligations under the contract. Essentially, the landowner agrees to provide subsurface land and access rights to a pipeline company in return for monetary compensation.

Of course, an easement is much more complicated than that. As part of this contractual relationship, a landowner has the right to request that the pipeline company uphold their duties under the contract. If a landowner doesn’t believe that a pipeline company is following the terms of an easement, the landowner has the right to enforce the agreement. While the landowner may seek an attorney to do this, it may be best to work with the pipeline company first.

Landowners should consider keeping detailed notes of issues as they arise. For example, a landowner may wish to take written notes on and photographs of the property after noticing a construction issue. This may be helpful in presenting the issue to the pipeline company. It may be cheaper and faster to raise the issue with the pipeline company first, before speaking with an attorney. However, if a landowner’s complaints aren’t resolved in a timely manner after speaking with the company, the landowner will want to speak with an attorney to enforce the contract.

What to Remember When Speaking with a Pipeline Company Representative

As a practical note, it is important for a landowner to realize that the workers on a pipeline might not be from the pipeline company itself. For example, if a landowner has an issue with the way that the easement is re-soiled and re-planted, it could be a third party that did the work. Landowner’s should re-read their easement to ensure that sub-contracting is allowed. When a landowner calls a company, he or she should realize that the company may not have done the work, but rather a subcontractor completed the work. Therefore, the landowner should fully describe the issue to the pipeline company so that the company understands the issue. Any evidence, such as photographs or written notes may be very helpful in resolving an issue with the pipeline company.

It is always best to identify potential issues early. Landowners may want to check the progress of pipeline construction on their property as it occurs. If there is an issue, landowners should promptly contact the company. Landowners should check their easement agreement to see if the easement outlines a process to dispute terms of the agreement.

If the contract does not outline a process to dispute terms of the agreement, it would be best for landowners to speak with the construction foreman first, then moving up the management chain if the company doesn’t react favorably. If the company and the landowner can’t come to a resolution, the landowner may need an attorney at some point.

Reclamation of the Land

After a pipeline is buried, the soil and the surface of the land is ideally placed back in its original condition. This process is sometimes referred to as reclamation. The pipeline easement agreement between a landowner and a pipeline company usually discusses how this process will be completed. Landowners and pipeline companies often agree beforehand how the land will be reclaimed after the pipeline is constructed. Pipelines may disturb trees, soil, and waterways during the construction process. These disturbances may impact crop yields and grazing habits in future years. For this reason, landowners may wish to carefully monitor the reclamation process and enforce the terms of the easement.

Living with a Pipeline Easement

When landowners have concerns or questions regarding a pipeline on their property, the best place to start is the pipeline easement. Landowners may have recently signed an easement, or landowners may be subject to a pre-existing easement signed by a previous owner of the property. Current landowners are subject to pre-existing easements, because easements “run with the land.” Old easements don’t typically expire, unless the original easement language provides for extinguishment of the easement under certain circumstances (for example, abandonment the easement).

Pipelines are a common tool for the transportation of natural resources. Many Ohio landowners have pipelines crisscrossing their property. Landowners should raise any pipeline safety or construction issues with the appropriate state agency, and any contractual issues should be brought to the pipeline company. As always, a landowner should pay careful attention to the language of the pipeline easement in determining how to approach a potential problem.

More information on pipeline easements is here.

Peggy Kirk Hall, Asst. Professor, OSU Extension Agricultural & Resource Law Program

A written lease is a valuable tool to use in a farm lease situation, but many farm lease arrangements never progress beyond a conversation and a handshake.    A written lease brings certainty to the farming arrangement by laying out important terms such as lease duration, notice of termination, payment provisions and conservation practices. Verbal farm leases are risky; problems can arise with legal enforceability and disputes over rights and obligations.  For those dealing with a verbal lease agreement, here are a few strategies for protecting interests in the verbal farm lease situation.

Put the verbal lease in writing.  The first recommendation is no surprise; attorneys have long encouraged farmers to use written farmland leases rather than relying on verbal agreements.  But many landowners and tenants are uncomfortable using a written lease, for a variety of reasons.  Consider the following concerns and recommendations for addressing them:

  • “We’ve always operated on a verbal agreement and a handshake.”  Transitioning from a long-time verbal agreement to a written lease can be awkward and uncomfortable, and the landowner or tenant farmer who wishes to make the change may be uncertain about how to introduce the change.  To address an awkward transition, consider using a third party to “intervene” and facilitate the process of converting to a written agreement.  Have a farm manager, attorney or accountant explain the reasons for moving to a written agreement and begin the process of discussing lease terms.  Provide the other party with ample time to respond and to consider its own concerns and suggested lease terms.
  • “We don’t want everyone to know the terms of our lease.”  Landowners and tenants often express concern that a written farm lease must be recorded in the county recorder’s office, thus revealing private terms such as the price paid for the lease.  In this case, the parties may utilize a provision under Ohio law referred to as the “memorandum of lease.”  Ohio Revised Code section 5301.251 allows the parties to record a shortened form of the farmland lease.  The only provisions the parties must include in a recorded memorandum of lease are the names and addresses of the landowner and tenant, the date of executing the agreement, a description of the leased property, the starting date and duration of the lease and any rights of renewal or extension.   With the recorded memorandum of lease, there is public notice that the lease exists but key terms remain confidential between the landowner and tenant.  The parties can include a term in the written lease verifying their agreement to execute and record a memorandum of lease rather than recording the entire lease.
  • “A written lease is overwhelming or too much detail.”  It is true that farmland leases can be lengthy and detailed, although attorneys usually have sound reasons for drafting detailed leases.   Note that the parties can make a gradual transition.  Even a simple lease or a checklist can bring certainty to the relationship by outlining key obligations or providing resolutions if problems arise in the future.  Additionally, there are many good resources that simplify and explain farm lease provisions, and a few good “model” leases for reference.  For helpful resources, visit the website http://aglease101.org .

Pay attention to lease payments and possession.  If the parties can’t convert a verbal lease to a written lease, be aware that one problem with a verbal lease is that it’s not clear when the lease agreement actually begins.  In the event of a dispute, Ohio courts often look to factors such as possession and lease payments to determine the term of the lease.  Two indicators that a farm lease agreement is in place are possession of the property by the tenant coupled with acquiescence by the landowner, or a lease payment made by the tenant and accepted by the landowner.  Both parties should be mindful of these important actions and should maintain records to document these occurrences.

Address financial fairness.  Determining the payment amount for a farm lease is a challenging task, particularly when the farm economy is in flux.  Disagreement over the lease price can quickly end a verbal farm lease relationship.   Thorough research and equitable approaches can maintain the lease relationship by ensuring a financial arrangement that is responsive to the market and fair to both parties.   OSU’s Farm Management website at http://aede.osu.edu/programs-and-research/osu-farm-management contains data on farmland values and cash rental rates.  Consider a flexible cash lease to accommodate economic changes; information on flexible cash leases is also available through OSU’s Farm Management website and at http://www.aglease101.org.

Maintain records of the lease relationship.  Good records that document the leasing history can help establish a “course of dealing” between the parties.  While a written farm lease is preferable, a record of how the parties managed the lease or handled issues in the past can be a useful point of reference for ensuring consistency in the relationship.  If there is litigation over the lease, a court might rely on proof of the parties’ course of dealing to help resolve an issue.  Both parties should maintain thorough records of payments, agreements, farm management practices, soil sampling, nutrient applications, improvements and any other facts or data that establish the details of the leasing relationship.

Maintain communication.   Don’t underestimate the power of good communication between the leasing parties.  A landowner can provide a tenant with valuable certainty by keeping the tenant informed on potential changes with land ownership or financial management.  Tenants can keep a landowner apprised of the condition of the farm property by providing reports on a regular basis, especially in the case of an absentee landowner or a crop share lease.  A report that includes pictures and a brief summary of improvements made,  management practices adopted or crop share calculations may go a long way toward ensuring a solid leasing relationship.

A written and comprehensive farm lease is a valuable tool for farmland owners and tenant farmers alike; those who still rely on verbal farm leases should carefully consider making a transition to a written lease.  Parties that continue to use a verbal farm lease face legal and financial risks, but can adopt some practices to help protect the verbal farm lease situation.  For resources and examples of written farm leases, see http://aglease101.org.

Thanks go to my colleague Robert Moore for  submitting our first guest blog and sharing the following expertise on the issue of vomitoxin detection in corn.

by Robert Moore, Attorney, Wright Law Company, LPA

Ohio and other areas of the Corn Belt have seen unusually high levels of vomitoxin in corn.  Vomitoxin is a mycotoxin that can cause livestock to reduce feed intake and reduce weight gain.  Some elevators and ethanol plants have been rejecting corn that has tested too high for vomitoxin.  What legal standing do producers with rejected corn have?

Producers with a Contract                       

Producers who have a contract with a buyer must look to the contract to determine their rights.  All provisions, including any small print on the back of the contract, must be read entirely before assessing legal rights.  The language of the contract is what matters; any verbal agreements made outside the contract have very little effect in enforcing legal rights.  Even if the producer and buyer agree to certain terms, if the terms do not find their way onto the contract then the parties are probably not bound by the terms.

In regards to Vomitoxin, the key terms are those describing the quality of the corn required to be delivered.  Grain contracts will include at least the bare minimum “No.2 Yellow Corn” requirement.  No. 2 Yellow corn is a grade established by the USDA and may have up to 5% damaged kernels.  The USDA defines damaged kernels as “kernels and pieces of corn kernels that are badly ground-damaged, badly weather-damaged, diseased, frost-damaged, germ-damaged, heat-damaged, insectbored, mold-damaged, sprout-damaged, or otherwise materially damaged.”  Therefore, if the only grade standard in the contract is No. 2 Yellow Corn, a producer’s corn should not be rejected or discounted solely for Vomitoxin unless more than 5% of the kernels are diseased.  However, corn could likely be rejected if 3% of the kernels were diseased with Vomitoxin and another 3% were damaged in another manner.  The 5% threshold is the accumulation of all damaged kernels and not just a single type of damage.

Some contracts will include more restrictive grade terms such as “must be suitable to be fed to livestock” or “must meet all FDA guidelines”.  The FDA has established a 5 part per million (ppm) threshold for hogs and 10 ppm threshold for cattle and poultry.  Therefore, an elevator that requires corn to meet FDA standards or to be safe for livestock consumption can reject corn if it has more than 5 ppm vomitoxin.  It is important to note that corn could have less than 5% damaged kernels but have more than  5 ppm vomitoxin.  That is, the USDA No.2 Yellow Corn grade is a completely different standard that the FDA’s ppm standard.  Ethanol plants must be extra concerned with vomitoxin becoming concentrated in the distillers grain by-product and may have even more restrictive terms than FDA.

Producers that have corn rejected can have the dual problem of having corn rejected and still being obligated to fulfill the contract.  A worse case scenario would see a producer not being able to sell his corn due to high vomitoxin levels while still being required to fulfill his contract obligations for untainted corn with the elevator.  Local reports indicate that elevators have been letting producers out of their contracts if their corn has been rejected for vomitoxin but this could change at any time.

Producers without Contracts

A producer who intends to sell a load of corn to the elevator without a contract has very little legal protection from the corn being rejected.  The elevator is under no obligation to buy the corn and can simply opt not to buy the corn for any reasonable reason.  Without a contract, the elevator is not bound to any predetermined grade standards.  Even the smallest amount of vomitoxin in the corn could cause it to be rejected.

Disputed Grain Samples

Producers have the right to appeal the grain grading determination performed by the elevator.  The Federal Grain Inspection Service (FGIS) oversees grain grading procedures and methods and also provides inspection and appeal services.  A producer who disputes the elevator’s grading can send a sample to FGIS and FGIS’ determination will be binding on both parties.  A FGIS office is located in Toledo.  For more details and information on grading appeals, contact FGIS at 419- 893-3076.

Crop Insurance

Some crop insurance policies cover Vomitoxin damage. It is best to have the corn checked by an adjuster while still in the field to avoid tainted corn from being mixed with untainted corn in bins.  Many producers have opted to not file a claim due to the significant impact on APH.  They would rather maintain a higher APH than to file a marginal crop insurance claim.  The deadline for any claims on vomitoxin was December 25, 2009.  In the future, a producer’s crop insurance agent should be contacted at the first sign of Vomitoxin to ensure that all claim procedures are property followed.

Future Implications

Will we see grain contracts move away from the USDA No.2 Yellow Corn standard and towards the FDA ppm standard for vomitoxin and other mycotoxins?  Elevators relying on the USDA standard could get stuck buying corn that exceeds the FDA’s ppm standards.  Unless blended with non-tainted grain, this grain would seemingly be unmarketable as it could not be used for human consumption, livestock consumption, and/or export. Producers should anticipate possible changes to grading standards in contracts offered by elevators and other buyers.  A careful reading of all new grain contracts should be a must for producers to make sure they fully understand the quality and grade of grain they are expected to deliver to the buyer.

Robert Moore is an attorney with Wright Law Co. LPA in Dublin, Ohio, www.wright-law.net.  E-mail:  rmoore@wright-law.net

Subscribe to RSS - Contracts