Property

The term “Land Contract” is often used as a generic name for any land installment sale where the buyer makes payments to the seller over time.  However, a land contract has a specific meaning under the law and does not apply to all installment sales. A land contract is one type of land installment sale while seller-financed is another.  While the land contract and seller-financed option allow buyers to acquire property without traditional bank financing, they differ significantly in terms of legal implications and practical considerations.  In this article, we will discuss the difference between a land contract installment sale and a seller-financed installment sale.

Land Contracts: An Overview

A land contract is a legal agreement between a property seller and a buyer. In this arrangement, the buyer agrees to purchase the property over time by making regular payments to the seller, who retains legal title to the property until the contract is fully paid off. After the final payment is made, the seller signs the deed over to the buyer.  Land contracts are a popular choice for buyers who may not qualify for traditional financing due to credit issues or other reasons.

Key Characteristics of Land Contracts in Ohio:

Legal Title: In Ohio, the seller retains legal title to the property until the contract is satisfied, while the buyer obtains equitable title, allowing them to possess and use the property.

Payment Structure: Buyers make monthly or annual payments to the seller, including principal, interest, and sometimes taxes and insurance. The specific terms are negotiable and outlined in the contract.

Default Consequences: If the buyer defaults on payments and the contract has been in effect for less than five years or less than 20% of the payment has been made, the seller can terminate the contract and retake possession of the property.  If the contract is older than five years or more than 20% of the purchase price has been paid, the seller must foreclose and will be paid from the proceeds of a judicial sale.

Legal Requirements:  Ohio Revised Code Section 5313.02 requires sixteen specific requirements for a land contract.  If entering a land contract, be sure all requirements are met so that the land contract is enforceable for both buyer and seller.

Seller-Financed Land Sales: An Overview

Seller-financed land sales involve the property seller acting as the lender, providing financing to the buyer for the purchase. Legal title to the property is transferred to the buyer at the time of sale.  This method allows buyers to acquire the property without the need for a traditional bank loan.

Key Characteristics of Seller-Financed Land Sales in Ohio:

Title Transfer: Unlike land contracts, seller-financed land sales typically involve the immediate transfer of both legal and equitable title to the buyer upon the completion of the sale.

Payment Structure: Buyers make regular payments to the seller, which include principal and interest, similar to a traditional mortgage. These terms are negotiated between the parties and documented in a promissory note and mortgage.  The mortgage provides security to the seller in the event the buyer defaults.

Default Consequences: If the buyer defaults on payments, the seller can initiate a foreclosure proceeding, similar to traditional lenders, to ensure payment is made.

Legal Requirements:  There are no specific legal requirements for a seller-finance sale.  However, a promissory note should be provided to the seller that includes the amount owed, interest rate and payment schedule.  A mortgage should also be executed and recorded to provide security to the seller in the event of buyer’s default.

Key Considerations

Title Transfer: The most significant difference between land contracts and seller-financed land sales in Ohio is the timing of title transfer. In a land contract, the seller retains legal title until the contract is fully satisfied, while in seller-financed land sales, both legal and equitable title transfer to the buyer upon sale completion.

Negotiability: Both methods offer flexibility in negotiating terms, including interest rates, down payments, and property responsibilities. Buyers and sellers should carefully consider and document these terms to avoid future disputes.

Legal Assistance: Given the complexities of real estate transactions, it is advisable for both buyers and sellers to seek legal counsel to ensure that the chosen method aligns with their interests and complies with Ohio law.

Which is Better?

It depends.  For the seller, a land contract is often better because the deed is not transferred until the final payment is made.  This allows the seller to keep legal title and potentially have more protection if the buyer defaults.  For the buyer, the seller-financed option is usually better.  The seller will prefer to have the legal title throughout the transaction so that they have full control over the property.  Tax consequences are similar for both a land contract and seller-financed sale.

Conclusion

When it comes to land transactions in Ohio, understanding the difference between land contracts and seller-financed land sales is crucial. These methods provide alternatives to traditional financing, but they come with distinct legal and practical implications. Buyers and sellers should carefully evaluate their options, negotiate terms diligently, and consider consulting legal professionals to ensure a smooth and legally compliant transaction. Ultimately, a well-informed decision can lead to a successful and mutually beneficial real estate transaction.

With just over a week left until echoes of “Hang on Sloopy” and chants of “O-H” and “I-O” can be heard from Buckeye faithful across the nation, we thought we would provide you with some light reading to hold you over until that long awaited 3:30 kick off. In this edition of our Ag Law Harvest, we focus on three recent Ohio Supreme Court cases that could potentially impact business owners, Northern Ohio landowners, and Ohio taxpayers. 

Assault and Battery: Is it Covered Under an Insurance Policy?
A victim of a stabbing at an Ohio adult care facility is unable to collect judgment from the facility’s insurance company after a recent decision by the Ohio Supreme Court. The victim was living at the facility when another resident stabbed him. The perpetrator was later indicted on criminal charges but found not guilty by reason of insanity. 

The victim then filed a civil lawsuit against the perpetrator and the facility to recover for damages resulting from the stabbing injuries. The victim ultimately dropped his lawsuit against the perpetrator and entered into a settlement agreement with the facility. As part of the settlement agreement, the victim agreed not to pursue the judgment against the facility, and instead, sought to collect his judgment from the facility’s insurance company.   

At the time of the stabbing, the adult care facility had a commercial general liability policy. When the victim sought judgment from the facility’s insurance company, the insurance company refused to provide coverage. The insurance company explained that the insurance policy contained a provision that specifically excluded coverage for any bodily injury resulting from an assault or battery. The specific provision at issue stated: 

“1. This insurance does not apply to ‘bodily injury,’ * * * arising out of or resulting from: (a) any actual, threatened or alleged assault or battery; * * *.”

The victim argued that because the perpetrator was found to be not guilty by reason of insanity in the criminal trial, the exclusion provision was nullified because the perpetrator lacked the subjective intent to commit any assault or battery. 

The Ohio Supreme Court disagreed. The Court explained that the plain language of the exclusion provision of the insurance policy at issue is clear – there is no intent requirement included in the exclusion language. Therefore, the Court held that coverage did not exist for the willful assault on the victim. The Court sympathized with the victim but ultimately could not interpret the insurance policy language to include a subjective intent requirement where none existed. 

This case demonstrates the importance of reading and understanding your business insurance policy. Insurance policies are, at the core, contracts between two parties and the language contained within the policy will usually govern that contractual relationship. What you assume is covered under your policy may not necessarily be the case. Furthermore, not all insurance policies are the same. We have seen Ohio cases where an insurance policy does require the presence of some subjective intent in order for an assault and battery exclusion to apply. Speak with your insurance agent and/or attorney to make sure you understand when and where coverage exists, knowing this can be critical to protecting you, your farm, and/or your business. 

Ohio Supreme Court Approves Northern Ohio Wind Farm. 
Residents of Huron and Erie Counties along with Black Swamp Bird Conservatory (the “Plaintiffs”) recently lost their battle in court to prevent the construction of a new wind farm in Northern Ohio. The Plaintiffs argued that the Ohio Power Siting Board (the “Board”) failed to satisfy Ohio law before granting the new wind farm its certificate of environmental compatibility and public need. Specifically, the Plaintiffs assert that the wind farm could “disrupt the area’s water supply, create excessive noise and ‘shadow flicker’ for residents near the wind farm, and kill bald eagles and migrating birds.” 

The Ohio Supreme Court found otherwise. The Court concluded that the Plaintiffs failed to establish that the Board’s granting of the certificate was unlawful or unreasonable. As approved, the new wind farm will consist of up to 71 turbines and cover 32,000 acres of leased land. To read more about the Ohio Supreme Court’s decision visit: In re Application of Firelands Winds, L.L.C.

Ohio Supreme Court Sets New Precedent on Interpreting Ohio Tax Law.
In Ohio, most retail sales are subject to sales tax unless a certain exemption applies. Ohio law does have a sales tax exemption for equipment used directly in the production of oil and gas. A fracking business recently challenged a decision by Ohio’s Tax Commissioner and Board of Tax Appeals that levied the sales tax on certain equipment purchased by the business. The fracking equipment at issue included: a data van, blenders, sand kings, t-belts, hydration units, and chemical-additive units.

The Tax Commissioner concluded that the fracking equipment was not used directly in the extraction of oil and gas, only indirectly, and therefore, did not qualify for the tax exemption. The Ohio Supreme Court felt differently. 

The Court found that all the equipment, except the data van, is used in unison to expose the oil and gas. Because the equipment is used to expose the oil and gas – a necessary part of fracking – the Court had little difficulty concluding that the equipment is being used directly in the production of oil and gas. 

In addition to the equipment’s direct use in the production of oil and gas, the Court also recognized that the fracking equipment may also have a storage or delivery function/purpose. However, the Court reasoned that a piece of equipment’s function must be viewed through the “primary purpose” lens. For example, the Court held that although the blender equipment in this case performs a holding function, the primary use of the blender is to mix “the critical ingredients in the fracking recipe seconds before the mixture is inserted into the well.” Therefore, the Court found that the blender’s holding function did not disqualify it from Ohio’s sales tax exemption. 

Additionally, in this case, the Court also issued an opinion on how Ohio courts should interpret tax law moving forward. Normally, courts use the ever-important legal principal of stare decisis to help it decide on new cases. Stare decisis is the principal that courts and judges should honor the decisions, rulings, and opinions from prior cases when ruling on new cases. Here, the Court took its opportunity to acknowledge that in the past the Court interpreted tax exemptions against the taxpayer, favoring tax collection. But the Court made clear that from here on out, the Court “will apply the same rules of construction to tax statutes that [it applies] to all other statutes” without a slant toward one side or the other. The Court concluded that its task “is not to make tax policy but to provide a fair reading of what the legislature has enacted: one that is based on the plain language of the [law].” 

To read the Ohio Supreme Court’s decision visit: Stingray Pressure Pumping, L.L.C. v. Harris

A new Ohio law took effect last year that impacts some landowners who want to terminate their farm crop leases. If a farm lease does not include a termination date or a termination method, the law requires a landowner to provide termination notice to the tenant by September 1. The law was adopted to prevent late or otherwise untimely terminations by landowners that could adversely affect tenants.

It is important to note that the law only applies to verbal leases or written leases that do not include a termination date or method of notice of termination.  If a written lease includes a termination date or method of notice, the terms of the lease apply and not the termination notice law.  Also, the law does not apply to leases for pasture, timber, farm buildings, horticultural buildings, or equipment.

The notice can be provided to the tenant by hand, mail, fax, or email.  If termination is provided by September 1, the lease is terminated either upon the date harvest is complete or December 31, whichever is earlier.  While no specific language is required for the termination notice, it is good practice to include the date of notice, an identification of the leased farm and a statement that the lease will terminate on the completion of harvest or December 31.  If termination is provided after September 1, the lease continues for another year unless the tenant voluntarily agrees to terminate the lease early.

A tenant is not subject to the new law and can terminate a lease after September 1 unless the leasing arrangement provides otherwise.  Because it is generally easier for a landowner to find another tenant, even on short notice, the law protects only the tenant from untimely terminations, not landowners.

For more information, see Ohio’s New Statutory Termination Date for Farm Crop Leases law bulletin available at farmoffice.osu.edu.

When a landowner legally challenges an agency’s use of eminent domain to appropriate property, Ohio law requires a trial court to hold a hearing to determine the agency’s right to make the appropriation, according to a recent decision by the Ohio Supreme Court.  The Court held that an appeal to a higher court is not permissible until the trial court holds such a hearing and rules on the issues raised in the hearing.  For landowner Diane Less, the ruling means the trial court--the Mahoning County Court of Common Pleas--must hold a hearing to determine whether Mill Creek MetroParks had the right to make the appropriation of her land and whether that appropriation is necessary.

The case is one of several lawsuits and long-running controversies over Mill Creek MetroPark’s use of eminent domain to appropriate land for a bike path.  The Mahoning County disputes are one reason behind a current legislative proposal to revise Ohio’s eminent domain laws, which includes a prohibition against the use of eminent domain for recreational trails. The legislation is at a standstill, however, with many opponents lining up against the recreational trails and other provisions of the bill.

Basis for the decision

The current Mill Creek MetroParks v. Less case made its way to the Ohio Supreme Court after the Seventh District Court of Appeals reversed the Mahoning County court’s summary judgment decision that MetroParks was authorized to use eminent domain to take Less’ land.  MetroParks appealed that decision to the Ohio Supreme Court.  But rather than addressing the issue of authority to take the land, the high court focused on the procedures outlined in Chapter 163 of the Ohio Revised Code.  The statutes “provide a uniform eminent domain procedure for all appropriations sought by public and private agencies,” including procedures for when a property owner contests an appropriation.  The Court reviewed the statutory requirements in ORC 163.09, which require a trial court to hold a hearing when:

1. A property owner files an answer to a petition for eminent domain that specifically denies the right to make the appropriation or the necessity for the appropriation,
2. The answer alleges sufficient facts in support of the denial, and
3. The appropriation is not sought in a time of war or other public exigency or not for the purpose of making or repairing roads.

When MetroParks filed the eminent domain action against Less, she did file an answer that denied the Park District’s right to make the appropriation and the necessity for the appropriation.   Less also filed a motion for summary judgment, asking the court to rule in her favor and dismiss the case because there were no genuine issues of material fact in the case.  The trial court denied her motion, however, and Less filed an appeal of that denial to the Seventh District Court of Appeals.  The Supreme Court points out that the appeal should not have occurred, however, because the statutory procedures required the trial court to hold a hearing after it denied the summary judgment motion by Less.  Nevertheless, the Seventh District ruled on the appeal, reaching a decision that agreed with Less’ argument that the Park District did not have authority to take her land.

The Supreme Court accepted the case for review, but its purpose was not to rule on the issue of whether there was authority for the use of eminent domain.  Instead, the Court held that it had no jurisdiction to hear MetroPark’s appeal of the Seventh District’s decision, and that the Seventh District Appeals Court did not have jurisdiction to review the decision of the trial court.  Because the trial court had failed to follow the statutory procedures for a hearing and decision on the authority and necessity of the appropriation, there was no “final appealable order” that either party could appeal to a higher court. 

What happens next?

The Supreme Court vacated the decision of the Seventh District Court of Appeals and sent the case back down to the Mahoning County Court of Common Pleas.   The county court must now hold a hearing to review the landowner’s arguments on the authority and necessity for the park’s appropriation.  The court’s decision after that hearing will be an order that either party may choose to appeal to the Seventh District.  The best answer to the question of what happens next, most likely, is that case will continue to roll on for quite some time.

Read the Supreme Court’s Decision in Mill Creek MetroParks v. Less.