Partition
Sixty-six undergraduate students just completed our Agribusiness Law class in the College of Food, Agricultural, and Environmental Sciences at OSU yesterday. It’s always a challenge to teach students all I want them to know about agricultural law in the short time I have with them. And it always generates excitement and relief when I can see that they have learned.
In one assignment this semester, students had to consider the property laws we studied and devise three “real life” questions about the laws. Next, they had to write the answers to the questions they drafted. The legal accuracy of their answers is important, of course, and illustrates their comprehension of the laws we studied. But selecting and writing the questions is equally important, as students must predict when and how the law would apply in a “real world” situation they might encounter.
Many of the student works showed that learning had certainly taken place this semester. And some of their questions were so insightful and relevant that they should also be useful in the “real world.” Below are excellent questions and answers from four students. They illustrate what the students learned, but they will likely be helpful for our readers, too. Take a look at what our students are asking and answering about agricultural property laws!
Question 1 comes from Katie Anderholm, a senior from Medina, Ohio majoring in Agribusiness and Applied Economics.
Q: Am I at risk to be sued from my new neighbors who keep complaining about my cows?
A: A farmer is not as risk to be sued, or at least rightfully sued, by their new neighbors because of the Ohio Revised Code 929.04 and 3767.13. Both codes, the Right to Farm defense to civil action for nuisance and Ohio’s “Statutory Nuisance” Law, protect farmers and their operations from complaints regarding farming. The farmer’s neighbors who have been complaining about his cows do not have a strong argument for legal action because the agricultural activities were established before they moved adjacent to the farm. If the farmer is following proper animal care and manure handling and the neighbors moved after the farming began, then the neighbors will not have merit for a civil action. I would advise the farmer to have a conversation with the neighbors to ease tensions and explain that they knowingly moved next to a cattle operation and that there are certain things that come with that. I have learned that people who are not involved in agriculture in their everyday life to not understand the fundamentals, and sometimes education and consideration can go a long way.
Question 2 is from Cori Lee, a senior from Marysville, Ohio, graduating this May with a major in Sustainable Plant Systems Agronomy and a minor in Agribusiness.
Q: Two siblings own ground that was passed on to them by their parents, where one farms, and the other one has no interest in farming. Can one sibling sell the land, even if the other one does not want to? What can be done to prevent losing the ground?
Yes, as co-owners, one sibling can sell their share of the land, even if the other sibling disagrees and is actively using the land for income and farming. This would force the other sibling to either also sell their share of the land or buy the other sibling out. This is explained in Section 5307.01 of the Ohio Revised Code, the partition law. Whether it is considered a “Tenancy in Common” or “Survivorship Tenancy”, they are both subject to partition. The partition process is also explained in Chapter 5307, and is often lengthy and can ultimately result in both owners being forced to sell the land. However, placing the land in an LLC can prevent this situation, as it would remove partition rights completely and the LLC would be treated as the sole owner of the land. This also provides other opportunities to have more control over how the land could be sold and allow terms to be set to buy out other LLC members. In order to avoid a scenario like this, landowners should carefully plan the transition of their estate to avoid any costly mistakes for the next generation.
Question 3 is by Kole Vollrath, a senior from South Charleston, Ohio majoring in Construction Systems Management.
Q: I own a field and the state has contacted me seeking eminent domain for a roadway that they are planning to build cutting directly through my field. I am new to this sort of action and I am wondering what the proper actions will be in this case?
A: Ohio Revised Code Chapter 163 is the eminent domain law that contains the four required procedures the taking entity (the state in this situation) must provide to the landowner. The first is the notice which you have already received, followed by a “just compensation” offer for the land in question, then appraisal of the property, and then finally a hearing in court to decide on or stop the taking if you don't agree to the offer. In the situation of a road as in this case, it is hard to stop the taking, so the fourth option will likely be more about getting fair money out of the deal rather than stopping construction completely. The reason that it will be hard to stop a road construction is because of Ohio Constitution Article 1 Section 19. This explains that eminent domain is allowed to happen when it is for a valid public use of the property, and since this is a road, it will be hard to argue that is not valid. However, it can still be beneficial to the landowner to hold strong in steps 2 and 3 and get an appraisal, then go to court and try to extract fair money for yourself out of the situation.
Question 4 is from Lyndie Williams, a senior from Bucyrus, Ohio majoring in Agribusiness and Applied Economics.
Q: Can I be held accountable for damage to a neighbor’s property that they claim is due to water drainage from my property?
A: In short, yes it is possible to be held accountable for damage to a neighbor’s property if it was caused by water drainage from your property, but not always. While every property owner has the right to reasonably use their land, including water flow and drainage, there can be consequences of this if harm is caused to others. First, determining what is “reasonable” for water drainage when evaluating harm to another is necessary. Courts will look at four factors when determining reasonable drainage: utility of the use, gravity of the harm, practicality of avoiding the harm, and justice. If your purpose for drainage is valid, the harm caused by drainage use is not overly detrimental to others, it is impractical to use an alternative form of drainage, and it is not unfair to require other landowners to bear losses caused by your drainage, then you would not likely be held accountable for damage to their property due to water drainage from your property. However, if some or all of these “reasonable” requirements are not met, then you would need to look into drainage problem resolutions, as you could be accountable for their damages. Drainage problem resolutions include voluntary fix, drainage improvement projects, drainage easements, and litigation. For example, one drainage problem resolution is a drainage easement which is in writing, recorded, and involves an attorney. In a drainage easement you would pay the neighboring landowner for the right to drain your water onto their property for the damages they will incur as a result. Drainage easements are usually perpetual but can be termed and include access and maintenance rights and responsibilities for the easement holder.
Tags: property law, nuisance, Partition, drainage, eminent domain
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By Robert Moore
Attorney/Research Specialist
In the prior post, we explained partition and the risk it poses to family farmland. Fortunately, there are a few strategies that can be implemented to avoid partition.
One strategy that can prevent partition is the use of a Limited Liability Company (LLC). The concept of using the LLC is to replace the multiple owners of the land with one LLC owning the land. Then, those same owners own the LLC rather than the land. Partition rights only apply to real estate, not to business entities. So, instead of three people owning the land, three people own an LLC that owns the land. Since there are no partition rights with an LLC, no one owner can force the sale of the land.
Consider the following example. Andy, Betty and Charlie are siblings and own a farm together. Each is aware of partition rights and wants to prevent any of the owners, including future owners, from exercising their partition rights. They establish an LLC and transfer the land into ABC Family Farms LLC. The LLC operating agreement states that land can only be sold with the consent of all members.
The three owners of the land have eliminated the threat of partition to the family farmland. The legal owner of the farmland is now the LLC, not the three siblings. Andy, Betty and Charlie are the owners of the LLC but Ohio law does not provide for partition rights of an LLC. Additionally, as added protection, the siblings require unanimous consent before any of the land in the LLC can be sold. By placing the land in the LLC, the three owners have ensured that the only way the farm will leave the family is by joint agreement of the family. A well-designed LLC can make it nearly impossible for land to leave the family without the agreement of the family.
The above example illustrates how an LLC prevents partition by the owners and family members, but LLCs also protect against creditors and lawsuits. Let’s assume Andy has financial problems and creditors have filed and won lawsuits against him. Without the LLC, the creditor could force the sale of the land through foreclosure on Andy’s share. However, Ohio law only allows creditors to attach to an LLC owner’s interest. This means that a creditor is entitled to an owner’s share of the LLC profits but cannot force the sale of the assets owned by the LLC. In this example, Andy’s’s creditors are entitled to receive his share of the profits from the LLC but cannot force the sale of the land. An LLC can prevent an owner’s financial problems or lawsuits from causing the sale of family farmland.
LLCs are often used in estate and succession planning to protect the family farmland. Instead of multiple family members inheriting land (and the risk of partition), mom and dad may establish an LLC for the farmland. Then, the children inherit the LLC without the partition rights. By transferring the land via an LLC, mom and dad do not need to worry that one child or their creditors will force the family farmland to be sold.
Consider the following example. Mom and Dad want their three children to inherit their farmland. They would like their children to own the farmland together as it is too difficult to divide up the land equitably. Mom and Dad are aware of partition rights and want to make sure that no co-owner can force the sale of land against the family’s wishes. Mom and Dad transfer their land to an LLC. Their three children will inherit the LLC with the land. Because each child will own an interest in the LLC, and not an interest in the real estate directly, partition rights are not available. Mom and Dad also established the LLC with the requirement that any transfers of land require unanimous consent of all the members.
This example illustrates how LLCs can be incorporated into estate plans to minimize the risks of partition. By having multiple heirs and beneficiaries inherit the LLC, and not the land itself, the land will not be transferred out of the family due to partition. We often think of using LLCs for liability protection but LLCs may be even more valuable to protect against partition rights.
Another way to protect against partition rights for heirs is to use a trust. With this strategy, the land is owned by a trust rather than the beneficiaries. Since the beneficiaries do not legally own the land, they are not entitled to partition rights. The disadvantage to this strategy is that the trust beneficiaries will not be able to use the assets as collateral nor to build their wealth.
Consider the following example. Mom and Dad want their children to have the benefit of their land upon inheritance but want to be 100% sure that their children do not sell the land before their grandchildren can inherit it. Mom and Dad establish a trust that holds the land for their children’s lives. During the children’s lives, the children receive the rent but do not own the land. Thus, the children cannot take action to sell the land. Upon the death of the children, the grandchildren will receive the land.
While the land is in trust, the children do not own the land. Thus, they do not have partition rights and cannot force the sale of the land. The grandchildren are nearly certain to inherit the land. On the other hand, the land is not available as collateral for a loan and the other benefits of ownership are not available to the children.
As the example shows, trusts are an excellent method to avoid partition. However, trusts also severely restrict the rights of the beneficiaries while the land is held in trust. A careful analysis of the benefits and disadvantages of using a trust to avoid partition must be carefully considered.
In conclusion, before allowing land to be owned jointly, the owners should consider the risks of a forced sale of the land through partition. Partition can be avoided by using LLCs or trusts to hold the land. Be sure to consult an attorney to determine the best course of action to address the perils of partition.
By Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program
One of the more common ways that farm families involuntarily lose farmland is through partition. Under Ohio law, any person that is a co-tenant (co-owner) of real estate has partition rights. Essentially, partition rights allow a co-tenant to force the other owners to buy them out or force the land to be sold. Partition is a harsh, but arguably necessary, right of every co-tenant of real estate. With proper planning, partition can be avoided.
Partition law is codified in Section 5307 of the Ohio Revised Code. A partition is initiated by a co-tenant filing a petition for partition with the common pleas court. A partition must be filed in the county in which the real estate is located. Any co-tenant, even one owning a small percentage of the real estate, may file the partition. The petition is very similar to filing a lawsuit and all co-tenants are served notice the petition. All defendant co-tenants are provided an opportunity to respond to the petition.
After all co-tenants have been served and had an opportunity to respond to the petition, the court will appoint a commissioner. The role of the commissioner is to essentially oversee the petition process on behalf of the court. The partition commissioner is permitted to physically divide the real estate if the property can be divided without the loss of value. Due to the unique nature of farmland and the variation within each parcel, administrators rarely will physically divide the land. Instead, the commissioner will usually decide to sell the land at auction and divide the sale proceeds among the owners. The first step in selling the land is to obtain the value of the land by appraisal.
After the value of the property is established, each party will be given an opportunity to buy the land at the appraised value. If no party wishes to purchase, the land will be ordered sold by the court. The land may be sold at sheriff’s sale but the parties usually agree to sell the land at public auction. The one issue that the feuding co-tenants can usually agree upon is that they are likely to get a better price at an advertised auction rather than a sheriff’s sale. The land must bring at least 2/3 of the appraisal price at auction. After the land is sold, the proceeds are divided among the co-tenants in proportion to ownership.
The reason that partition law is a necessity is that Ohio law provides very little guidance to co-tenants as to how to manage their co-owned real estate. For example, Ohio law implies that unanimous consent must be obtained in the management of real estate. Therefore, one co-tenant holding a minority ownership percentage can prevent the land from being leased or sold. Ohio law solves this issue by providing partition rights. Basically, the law says that if the co-tenants cannot resolve their differences, then any one of them can force sale the land and divide the proceeds. Partition is necessary because the law seeks to allow individuals to divest themselves of any asset they may own. Without partition, a person could be forced to own real estate that they may not want to own and/or do not receive financial benefit.
Consider the following example. Amy, Bob and Charlie inherit a farm from their parents. Amy and Bob want to lease the land to a neighbor farmer but Charlie insists he is going to farm it. Charlie has no experience farming and Amy and Bob know it will end up in a disaster if Charlie gets his wish. Any potential tenant that Amy and Bob consider is contacted by Charlie and told the farm is not for lease. Amy and Bob get frustrated and decide to file a partition because they are tired of dealing with Charlie and do not think they will get a fair, financial benefit from the farm if Charlie is the operator. The court orders the farm sold and Amy, Bob and Charlie share the proceeds.
The risk of partition is not limited to just the initial family members who may own the land. Any future owner also has the same partition rights. Spouses, children and anyone else who may become a co-tenant can force a partition.
Using the same scenario as above, assume Amy dies. Her parents assumed that Amy’s share of the farm would go to her children (their grandchildren) but Amy never got around to doing and estate plan. So, under Ohio law, everything goes to her husband, Dale. Dale has no attachment to the farm and just sees dollar signs now that he is a 1/3 owner of the farm. Dale quickly files for partition and forces the sale of the land so that he can have money to buy the boat he has always wanted.
This example illustrates how easy it is for someone to become a co-tenant and gain partition rights. Deaths, divorces, and poor business and estate planning can allow someone to become a unexpected and unwanted co-tenant. Partition law does not care how long farmland has been in the family or how vital it is for a farming operation. Partition law treats a city lot that has been owned for a few months the same as a 1,000-acre farm that has been in the family five generations. Partition can lead to harsh results that should be avoided if possible.
With proper planning, partition can be averted. In the next installment, the various strategies to prevent partition will be discussed.
See the prior blog post “Ohio Case Illustrates the Risk of Leaving Farmland to Co-Owners” by Peggy Hall for a discussion of a Madison County case and the perils of partition.
