Please join me as we celebrate the 35th Anniversary of the Section of Real Property, Trust and Estate Law’s National CLE Conference in Washington, DC, on May 10-12, 2023. This marks RPTE’s first time back in the nation’s capital in eight years and our return to an entirely in-person program.
This year’s Conference will present the latest developments in real estate and trust and estate law, as you capture a year’s worth of CLE credits. Our speakers feature leading practitioners and professionals, as well as governmental and judicial insiders. The Conference will also offer valuable networking opportunities with attorneys from across the country, including working lunches hosted by our substantive committees.
To take advantage of this wonderful venue, a variety of social events are planned for your enjoyment, highlighted by a private reception on Thursday evening at the Smithsonian National Museum of African American History and Culture.
I look forward to seeing you in Washington, DC, in May!
Sincerely,
Hugh F. Drake Chair of the American Bar Association’s Section of Real Property, Trust & Estate Law
A monthly webinar featuring a panel of professors addressing recent cases or issues of relevance to practitioners and scholars of real estate or trusts and estates. FREE for RPTE Section members!
Register for each webinar at http://ambar.org/ProfessorsCorner
AND WEALTH INEQUALITY IN THE 21ST CENTURY
Tuesday, March 14, 2023 12:30-1:30 pm ET VICTORIA J.
Creighton University
REGULATION AND A FUNDAMENTAL RIGHT TO PRIVATE PROPERTY
Tuesday, April 11, 2023 12:30-1:30 pm ET
JAN LAITOS, Sturm College of Law, University of Denver
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Probate & Property (ISSN: 0164-0372) is published six times a year (in January/February, March/ April, May/June, July/August, September/October, and November/December) as a service to its members by the American Bar Association Section of Real Property, Trust and Estate Law. Editorial, advertising, subscription, and circulation offices: 321 N. Clark Street, Chicago, IL 60654-7598.
The price of an annual subscription for members of the Section of Real Property, Trust and Estate Law ($20) is included in their dues and is not deductible therefrom. Any member of the ABA may become a member of the Section of Real Property, Trust and Estate Law by sending annual dues of $70 and an application addressed to the Section; ABA membership is a prerequisite to Section membership. Individuals and institutions not eligible for ABA membership may subscribe to Probate & Property for $150 per year. Single copies are $7 plus $3.95 for postage and handling. Requests for subscriptions or back issues should be addressed to: ABA Service Center, American Bar Association, 321 N. Clark Street, Chicago, IL 60654-7598, (800) 285-2221, fax (312) 988-5528, or email orders@americanbar.org.
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Transitioning from private practice to an in-house counsel role is a major career move and one that I made 12 months ago. If you are contemplating such a move yourself or have just begun your first in-house role, I hope you find the following pointers helpful.
There are many considerations when deciding whether to move in-house. Some of the ones you may have heard of include being part of a business (vs. a pure legal) work environment, worklife balance, pay, and long-term career trajectory. The following, however, are several considerations that you may not have thought of.
It is important to have a strong interest in the company’s industry and believe in its products and services
Lawyers in private practice often work for many clients conducting business in a host of industries, some of which may be closely aligned with their interests and values but others that may be contrary to them. Working for clients that provide products and services that interest you and you believe in provides motivation and makes day-to-day work enjoyable and exciting! For better or for worse, in-house lawyers have a single client and will be supporting that client day after day. Therefore, I encourage you to target in-house roles with the companies and industries that most excite and motivate you. Such sectors may include healthcare, finance,
Young
oil and gas, telecommunications, public utilities, hospitality, retail, and transportation.
You need to be a generalist. Lawyers in private practice, especially with larger firms, are often subject-matter experts in narrow or niche practice areas. Although this may also be true in some in-house roles—particularly those within giant legal departments of companies in specialized industries—most in-house legal departments are smaller and require tremendous flexibility from their teams to address quickly and competently a vast scope of long-term and day-to-day legal matters. These matters include contract review (especially IT and HR contracts in addition to those more directly pertaining to the company’s primary business), labor and employment, privacy, corporate governance, intellectual property, and tax. As an in-house lawyer, you will most certainly encounter legal questions and matters that you have never seen before (or even thought of) that may need to be addressed within hours. Before deciding to move in-house, consider expanding the breadth (vs. depth) of your core competencies. This could include volunteering to work in other substantive practice groups of your firm instead of remaining in a singular practice where you are most comfortable.
After you decide to move in-house and accept an offer, you will find yourself in a completely new environment. The day-to-day business will be busy, and, as a new member of a legal department, you may need some direction. The following are suggestions for your first year.
Gain institutional knowledge— meet as many people and learn as much about your company as you can. Unlike at a law firm, little of your daily
interaction will be with lawyers. Instead, you are there to provide legal support to the company itself. To effectively do this, you must understand its operations as fully as possible. Here are a few things to do in the first two to three months:
• Review and keep available the company’s personnel organization chart.
• Introduce yourself to as many business and operations personnel as you can, especially those you will directly work with the most. Building good relationships at the start of your tenure is critical. If possible, in-person or by phone is preferable to e-mail. Consider setting up lunches. Understand the roles of all these people, the regular legal support they will require, and the upcoming business and legal challenges they foresee.
• Learn as much as possible about the company’s business model. This could include reading external annual reports and internal documentation as well as speaking with colleagues. In particular, do not overlook the employees who have been with the company the longest and likely have the most institutional knowledge.
• Educate yourself concerning the company’s underlying products and services, even if they are highly technical. Though you may not need to understand at the same level as, for example, a design engineer, it is critical to have adequate base knowledge. Most people like to talk about their jobs and work products, so it shouldn’t be difficult to find someone.
• Take time to understand the larger industry that your company is in, the legal issues that are most pertinent and unique to it, and outside resources that may be available (e.g., trade associations and specialized legal organizations).
Familiarize yourself with and (generally) follow existing practices while identifying areas for long-term improvement. During the first three to 12 months, you will become very familiar with existing (and sometimes longstanding) business practices, forms, templates, policies, etc. Unless something is clearly problematic or deviates notably from best practices, as a new inhouse lawyer it is best not to be overly critical. This is especially true for petty, stylistic, and non-substantive issues in
which changes could disrupt day-to-day business. Here are a few things to consider doing instead:
• As you identify critical and problematic shortcomings, bring them to the attention of your business colleagues and propose specific and reasonable solutions. You should not ignore shortcomings that could result in significant legal exposure to the company. If you have begun to build those internal business relationships (above), then these recommendations will likely be well received.
• Identify and maintain a list of longer-term changes and needed improvements. These may include making substantive changes to or completely replacing standard forms, revising
processes to be more efficient or cost-effective, and adopting and implementing revised policies and practices needed to better address a changing legal and regulatory environment.
• When appropriate (e.g., maybe around the time of the one-year mark and review), rank your list of long-term matters and present them to your colleagues. Be prepared to justify the need for the changes, potential proposals to accomplish the same, and estimated timelines and costs.
Whether you are considering serving as in-house counsel, or just starting your first in-house position, the above information will help guide you in the right direction. n
The Uniform Law Commission (ULC) comprises volunteer attorneys appointed by the 50 states, the District of Columbia, Puerto Rico, and the US Virgin Islands. All facets of the legal profession are represented on the commission: practitioners, academics, judges, legislators, and legislative staff.
Commissioners are tasked with studying subjects of state statutory law for which there may be a need for uniformity among the states and, once those areas are identified, with providing state legislatures with well-drafted, non-partisan, uniform legislation. When the ULC receives a proposal for a new project, typically a study committee is appointed to consider the proposal. If the study committee recommends the project and the ULC leadership approves, a drafting committee is appointed. All commissioners can apply to serve on study and drafting committees. The ULC President reviews all applications and typically appoints a committee of 10-12 commissioners, from all areas of the country, who have subject-matter expertise or some other relevant experience to contribute.
In addition to commissioners, ULC Drafting Committees are open to any interested party, and the Committee Chair will actively recruit representatives from stakeholder organizations to join and help the committee draft effective and enactable laws. These non-commissioner members play a vital role in shaping uniform laws, and the ULC is always seeking input from outside experts. There is one caveat: all participants are expected to disclose any potential conflicts of interest and to
Uniform Laws Update Editor: Benjamin Orzeske, Chief Counsel, Uniform Law Commission, 111 N. Wabash Avenue, Suite 1010, Chicago, IL 60602.
Uniform Laws Update provides information on uniform and model state laws in development as they apply to property, trust, and estate matters. The editors of Probate & Property welcome information and suggestions from readers.
engage productively in policy discussions rather than advocate for the benefit of any particular constituency. A longstanding tenet of the ULC is that all commissioners “leave their clients at the door.”
For non-commissioners, there are two ways to join a ULC drafting committee: as an ABA Advisor or as an Observer.
The ABA and ULC have enjoyed a productive working relationship for over 130 years. The ULC began as an ABA committee to study uniform state laws. The committee members quickly realized that a drafting body would have to be independent of the ABA (or any advocacy organization), and thus the ABA passed a resolution in 1890 urging states to appoint uniform law commissioners. This effort resulted in the first “National Conference of Commissioners on Uniform State Laws” in 1892, and the organization, now known as the ULC, has met regularly ever since and produced over 450 uniform and model state laws.
By agreement, the ABA appoints at least one ABA Advisor to each ULC drafting committee and covers the cost of the Advisor’s attendance at drafting committee meetings. ABA Sections may appoint additional advisors at
their own expense. The role of the ABA Advisor is to act as a liaison between the drafting committee and any interested ABA entities. The Advisor files periodic reports with the ABA, keeping its members informed about the scope and policies of the evolving uniform law. At the same time, the Advisor solicits feedback from ABA members and conveys the collective views of the legal profession to the drafting committee. ABA Advisors often will serve an important role at the enactment stage as well, acting as an expert resource for ABA members who want to advocate for the adoption of uniform laws in their own state legislatures.
To become an ABA Advisor, watch for notice of new ULC drafting projects and use the ABA’s self-nomination procedure to apply for the role.
Each drafting committee will have, at most, a handful of ABA Advisors, but the number of Observers is unlimited. Observers have no reporting obligations and choose their level of participation. Some Observers simply monitor the committee’s progress by reviewing drafts and other committee materials. Some will submit written comments for the committee’s consideration, and some attend drafting meetings in person to fully participate in the discussion and debate.
It is very common for stakeholder organizations to appoint Observers to ULC drafting committees. For example, the American College of Real Estate Lawyers, the American College of Mortgage Attorneys, and the American Land Title Association typically appoint Observers for projects to draft uniform real property laws. For trust and estate projects, the American College of Trust and Estate Counsel, the National
Association of Elder Law Attorneys, the National Guardianship Association, and AARP are frequent participants. Additionally, individuals with an interest in the subject are welcome to join as Observers and participate to whatever extent they wish.
Observers (or their sponsoring organizations) must fund their own participation, but this has recently become
far less burdensome. Since 2020, most ULC drafting committees offer a remote participation option, which eliminates travel expenses for drafting meetings. The Uniform Law Foundation also provides grants to cover the costs of attendance for qualified non-profit organizations that appoint an Observer.
RPTE Members are invited and encouraged to contribute their expertise
to help draft new uniform laws by joining a drafting committee either as an ABA Advisor or an Observer. The list of current projects is available at www. uniformlaws.org/projects. For more detailed information about the role of ABA Advisors and Observers, download a manual from www.uniformlaws.org/ newsandpublications/publications
The Editorial Board of Probate & Property magazine is interested in reviewing manuscripts in all areas of trust and estate or real property law. Probate & Property strives to present material of interest to lawyers practicing in the areas of real property, trusts, and estates. Authors should aim to provide practical information that will aid lawyers in giving their clients accurate, prompt, and efficient service.
Manuscripts should be submitted to the appropriate articles editor:
FOR REAL PROPERTY: FOR TRUST & ESTATE:
Kathleen K. Law
Nyemaster Goode PC
Michael A. Sneeringer
Porter Wright Morris & Arthur LLP
700 Walnut Street, Suite 1600 9132 Strada Place, 3rd Floor Des Moines, IA 50309-3800
Naples, FL 34108 kklaw@nyemaster.com
MSneeringer@porterwright.com
On our website (www.americanbar.org/groups/real_property_ trust_estate/publications/probate-property-magazine/) click on the links under the “Probate & Property Resources” section for complete author guidelines and submission requirements.
If you have any questions, please email erin.remotigue@americanbar.org
Ecologists around the world acknowledge that a single organism’s extinction affects other organisms in the ecosystem and that the loss of even one species can start a harmful chain reaction affecting the environment as a whole. To address environmental and conservation goals in the United States, Congress passed the Endangered Species Act (ESA) in 1973, which was designed to promote the recovery of threatened and endangered species and to prevent extinction. See Benefits of Conserving Endangered Species, FEMA (Apr. 1, 2022), https://bit.ly/3jlNzRA. Over 2,300 species of wildlife and plants that Congress has determined to be “of aesthetic, ecological, educational, historical, recreational, and scientific value to the Nation and its people” are listed on the ESA. Id. The ESA has recognized that one of the most effective ways to protect the threatened and endangered species in the United States is to protect and conserve the “critical habitat” on which these species depend. Id.
Conserving critical habitats is a primary way humans can help protect threatened species, in combination with implementing specialized wildlife management and protection programs. See ESA, Pub. L. No. 93-205, 87 Stat. 884; see also Benefits of Conserving Endangered Species, supra. A geographical area that contains certain physical and biological features essential to conservation of an endangered or threatened species is considered a “critical habitat.” For example, floodplains are critical habitat for the survival of several endangered species like sturgeon. See Benefits of Conserving Endangered Species, supra. For the Atlantic Salmon, which was originally listed as an endangered species in 2000, it is critical to protect the oxygenated pools in which they live. Id. The US Federal Emergency Management Agency (FEMA), one of the leading federal agencies implementing the ESA, recognizes that the preservation and protection of these natural habitats is critical for the survival of the many species. FEMA specifically proposes that to recover the most threatened species, government action should include the
Elizabeth M. “Liz” Hughes is an attorney in Akerman’s Tax Group in Miami, Florida. She represents clients in all aspects of trust, estate, and guardianship litigation. She currently serves on the Board of Directors for the Miami Dade Bar and is the immediate past Chair of the Probate and Guardianship Committee. Hughes is a Vice Chair of the Guardianship Committee and sits on the Executive Council of the Real Property, Probate, and Trust Law Section of the Florida Bar. She is a graduate of the Florida Fellows Institute for ACTEC.
acquisition of conservation easements and conservation management agreements, making the US government a key player in undertaking conservation efforts through the use of conservation easements. Id
Of the more than 40,000 animals on the International Union for Conservation of Nature’s (IUCN) Red List of endangered species, over 16,000 of them are facing extinction primarily due to habitat loss. See Background & History, IUCN Red List, https://bit. ly/2TRpCkn Some notable North American species threatened predominantly by territory destruction include the Gulf sturgeon, Hine’s emerald dragonfly, bog turtles, Columbia Basin pygmy rabbit, the lesser prairiechicken, Mississippi sandhill cranes, the Florida panther, and the monarch butterfly. For instance, the lesser prairie-chicken’s population has declined by as much as 97 percent and the species is currently endangered because of habitat fragmentation resulting from industrial development and farming. Similarly, the pygmy rabbit, one of the smallest rabbit species, is endangered due to large-scale destruction of sagebrush plains. The need for preservation extends to aquatic habitats as well. Water habitats are being destroyed, threatening precious species such as the Devil’s Hole pupfish, which is facing a high risk of extinction due to habitat loss. These are just a few examples of the harmful effects to wildlife from habitat destruction caused by human development.
When discussing and recommending actions that have the greatest affect on the recovery of a species, ecologists often propose an ecosystem approach, an approach that includes identifying, protecting, and acquiring appropriate habitats to support that particular species. Take, for example, the Gulf sturgeon. Gulf sturgeon are profoundly affected by development and other land-use decisions that affect the water quantity and quality within the floodplain areas where they live. To protect Gulf sturgeon, we need to protect the habitats that affect their life cycle, including floodplains adjacent
to the streams and rivers where they spawn. See Top 10 U.S. Endangered Species Threatened by Human Population, Ctr. for Biological Diversity, https:// www.biologicaldiversity.org/programs/ population_and_sustainability/species.html (“Gulf sturgeon lay eggs on the waterlines along the banks of rivers, and maintaining the right level of water is critical to their breeding success…”). But how can the US tax code help restoration, protection, and acquisition of these critical habitats for these most threatened species?
Surprisingly, the US tax code provides for an excellent remedy to ease habitat loss for vital animals and protect the lands they need to survive through the creation of conservation easements. The United States’ foresight in establishing preferred tax treatment of conservation easements to encourage landowners to actively participate in undertaking conservation efforts on private property has already proven to be one of the most significant conservation tools available for combating habitat loss.
This article will be presented in two parts, discussing how conservation easements are a necessary part of conservation advancement in the United States. Part I will review the legislative intent behind conservation easement law and address the tax and legal benefits of successful easement establishment. Part II, in a later issue of this magazine, will delve into the current legal landscape surrounding conservation easements and pitfalls to avoid when practicing in this area of the law. Part II will also highlight the successes of certain conservation areas and present proposals for legislative reforms for the improvement of conservation easement law in order to curtail litigation of certain aspects.
Journalist William Whyte is credited with coining the term “conservation easement” in the 1950s when he advocated for using private land-use controls to accomplish landscape preservation
goals. See Carol Necole Brown, A Time to Preserve: A Call for Formal PrivateParty Rights in Perpetual Conservation Easements, 40 Ga. L. Rev. 85 (2005) (U. of Ala. Pub. L. Rsch. Paper No. 08-07), https://bit.ly/3PRUEWg; see also William H. Whyte, The Last Landscape 2–14 (1968). Generally speaking, conservation easements are designed to preserve the servient land in an undeveloped or natural state. See 4 Powell on Real Property § 34.11[3] (Michael Allan Wolf ed., 2022); Protecting the Land—Conservation Easements Past, Present, and Future (Julie Ann Gustanski & Roderick Squires eds. 2000); see also Cohen, Progress and Problems in Preserving Ohio’s Natural Heritage Through the Use of Conservation Easements, 10 Cap. U. L. Rev. 731, 731 n.2 (1981). The “core purpose of conservation easements, however, is to protect from the inexorable march of development.” Nicholas Carson, Note, Easier Easements: A New Path for Conservation Easement Deduction Valuation, 109 Nw. U. L. Rev. 739 (2015). In practice, easements typically protect wildlife habitats, open space, outdoor recreation areas, and scenic views but also are regularly used for establishing public parks and historic sites and buildings. Farmland and working forests can also be protected with the use of conservation easements. See Melissa Waller Baldwin, Conservation Easements: A Viable Tool for Land Preservation, 32 Land & Water
L. Rev. 89, 103 (1997); Jess R. Phelps, Defining the Role of Agriculture in Agricultural Conservation Easements, 45 Ecology
L. Rev. 647, 677–701 (2018).
Currently, almost all state legislatures and Congress have passed laws establishing conservation easements to support and encourage nationwide conservation goals. State laws and the Internal Revenue Code provide for useful tax incentives to encourage landowners to consider setting up conservation easements. See IRC § 170(h) (2012) (allowing a conservation contribution for “a restriction (granted in perpetuity) on the use which may be made of the real property”). See also C. Timothy Lindstrom, Recent Developments in the Law Affecting Conservation Easements: Renewed Tax
Benefits, Substantiation, Valuation, “Stewardship Gifts,” Subordination, Trusts, and Sham Transactions, 11 Wyo. L. Rev. 433, 435–443 (2011); Itzchak E. Kornfeld, Conserving Natural Resources and Open Spaces: A Primer on Individual Giving Options, 23 Env’t L. 185, 197 (1993).
The language of the Internal Revenue Code sheds light on the legislative intent behind implementation of conservation easement laws. For instance, a qualified conservation contribution under §170(h)(1) of the IRC means a contribution of a “qualified real property interest,” to a “qualified organization” that is made “exclusively for conservation purposes.” See generally 26 C.F.R. § 1.170A-14(b)(2) (qualified conservation contributions). In the context of conservation contributions, “conservation purpose” is defined to mean (i) the preservation of land areas for outdoor recreation by, or the education of, the general public; (ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem; (iii) the preservation of open space (including farmland and forest land) where such preservation is effected (I) for the scenic enjoyment of the general public; or (II) pursuant to a clearly delineated federal, state, or local governmental conservation policy, and will yield a significant public benefit; or (iv) the preservation of a historically important land area or a certified historic structure. 26 U.S.C.A. § 170.
The donation of a “qualified real property” interest to protect a significant relatively natural habitat in which fish, wildlife, or plant communities normally live will typically meet the conservation purpose standard. Significant habitats include, and are not limited to, (1) habitats for rare, endangered, or threatened species of animal, fish, or plants; (2) natural areas that represent quality examples of a terrestrial community or aquatic community; and (3) natural areas that are included in, or that contribute to, the ecological viability of a local, state, or national park, nature preserve, wildlife
refuge, wilderness area, or other similar conservation area. See generally IRS, Conservation Easement Audit Technique Guide (rev. 2021); see also Champion Retreat Golf Founders, LLC v. Comm’r, T.C. Memo 2022-106 (Oct. 17, 2022); Champions Retreat Golf Founders, LLC v. Comm’r, 959 F.3d 1033, 1036–37 (11th Cir. 2020).
A charitable deduction is also allowed for preserving open space (including farmland and forest land) if the preservation will yield a significant public benefit and is undertaken either (1) under a clearly delineated federal, state, or local government policy or (2) for the scenic enjoyment of the general public. 26 U.S.C.A. § 170. Public benefit will be evaluated by considering all pertinent facts and circumstances. Among the factors considered are (1) uniqueness of the property to the area,
(2) intensity of land development, (3) opportunity for the general public to use the property or appreciate its scenic values, (4) importance of the property in preserving a local or regional landscape or resource that attracts tourism or commerce, (5) likelihood that the charity will acquire equally desirable and valuable substitute property, and (6) consistency of the open space use with a legislatively mandated program identifying particular parcels of land for future protection. Id. The ecological
importance and clear intent of protecting natural land and wildlife habitat are evident from the direct language of the IRC relating to the provisions for conservation easements.
The concept of conservation easements was born out of necessity as Congress “recognized the need for preservation of open land and historic buildings, [but also acknowledged that] owning the land outright, or ‘in fee’ would be expensive and inefficient.” Carson, Easier Easements, supra. The conservation easement tax deduction would “encourage private landowners to voluntarily restrict the use of their land in exchange for a decrease in taxes owed to the federal government.” Id. And this incentive has worked. Studies show a steady increase in land protected by conservation easements since the laws were enacted. See Jess R. Phelps, Moving Beyond Preservation Paralysis?: Preservation Easements in an Uncertain Regulatory Future, 91 Neb. L. Rev. 121 (2012).
The legislative history underlying section 170(h) is further illuminating. A 1980 Senate Report addressing conservation easement law states:
The committee believes that the preservation of our country’s natural resources and cultural
heritage is important, and the committee recognizes that conservation easements now play an important role in preservation efforts. The committee also recognizes that it is not in the country’s best interest to restrict or prohibit the development of all land areas and existing structures. Therefore, the committee believes that provisions allowing deductions for conservation easements should be directed at the preservation of unique or otherwise significant land areas or structures.
S. Rep. No. 96-1007, at 9 (1980), 1980-2 C.B. 599, 603.
The 1980 Senate Report lends additional insight to the legislative intent behind conservation easements and explains:
For the contribution to be protected in perpetuity, [t]he contribution must involve legally enforceable restrictions on the interest in the property retained by the donor that would prevent uses of the retained interest inconsistent with the conservation purposes. . . . By requiring that the conservation purpose be protected in perpetuity, the committee intends that the perpetual restrictions must be enforceable by the donee organization (and successors in interest) against all other parties in interest (including successors in interest).
Id. at 13–14, 1980-2 C.B. at 605–06. The case of Glass v. Commissioner is an example of the court considering the legislative intent and conservation goals of easement law in the context of
applying section 170(h). 124 T.C. 258 (2005); see Nicholas M. Agopian, Conservation Easements—Preserving Privately Owned Natural Habitats: Guidance for Interpreting 26 U.S.C. § 170(h)(4)(a)(II), 6 Wyo. L. Rev. 447, 476–77 (2006). The Glass court interpreted section 170(h) (4)(A)(ii) to provide that a qualified real property interest will meet the conservation purposes test if that interest is contributed “to protect a significant relatively natural habitat in which a fish, wildlife, or plant community, or similar ecosystem, normally lives.” In this case, the taxpayer’s expert testified that the contributed land was a known roosting spot for bald eagles. The taxpayers were able to prove that the shoreline they were conserving met the conservation purpose of protecting a natural habitat or ecosystem and, accordingly, qualified under section 170(h)(4)(A). The Glass court noted that Congress, through the enactment of section 170(h), intended to support preservation of our country’s natural resources through the contribution of easements and, in this case, though contributions of the conservation easements, which serve to preserve this nation’s natural resources of bald eagles, Lake Huron tansy, and an area bluff, which were consistent with the statute’s objective. Glass v. Comm’r, 124 T.C. 258, 283–84 (2005), aff’d, 471 F.3d 698 (6th Cir. 2006) (citing S. Rep. No. 96-1007, at 9, 1980–2 C.B. at 603).
What are the benefits to a private landowner? A charitable contribution of a qualified conservation easement can result in several tax benefits, such as allowing for income, gift, and estate tax deductions. The tax benefits derived
from easement contributions are some of the primary considerations for individuals when contemplating these contributions. 5.10 Charitable Conservation Easements, 2012 WL 2515347; Howard Zaritzky, Tax Planning for Family Wealth Transfers: Analysis with Forms, ¶ 5.10 (Oct. 2022) (Charitable Conservation Easements). Taxpayers may also appreciate that they can continue to use the property even after the establishment of an easement, although changes in the use of the land may be prohibited or restricted in certain aspects. Id.
An individual can maximize the benefits of the charitable contribution by imposing an easement on land and then transferring the property, subject to the easement, to a noncharitable donee, such as the person’s heirs. Id. Implementing this plan of devising property with a conservation easement in place serves dual purposes: It prohibits the donee’s development of the land, but it also functions as a reduction in the value of the property for tax purposes. See id.; see also C. Timothy Lindstrom, A Guide to the Tax Aspects of Conservation Easement Contributions (Mar. 2007), https://bit.ly/3FH1Tve. To properly implement this plan, the contributed real property interest must be the decedent’s entire interest in the property (other than a qualified mineral interest, which the decedent’s estate may retain), a remainder interest, or a perpetual conservation easement. The benefits may be significant, and the conservation contribution can result in an income tax deduction for the donor while alive, can reduce the gift tax on the interest given to the family member, and can lessen the overall value of the estate for estate tax purposes. See IRC § 170(h)(2).
Qualified conservation contributions are allowed up to the excess of 50 percent of the taxpayer’s adjusted gross income (AGI) over the amount of all other allowable charitable contributions—and the carryover can be extended for 15 years. 26 U.S.C. § 170(b)(1)(A)–(C). (Qualifying farmers and ranchers can deduct up to 100
A charitable contribution of a qualified conservation easement can result in several tax benefits, such as allowing for income, gift, and estate tax deductions.
percent rather than 50 percent of AGI.)
Generally, the deductible amount of a conservation easement is the difference between the values of the burdened property before and after the donation. Zaritzky, supra, ¶ 5.10. It is rare but possible that the value of the taxpayer’s retained property may increase because of the easement. In these instances, the contribution is deductible only to the extent that its value exceeds the value of the benefits received. See LTR 200208019; Shannon R. Jemiolo & Ian Redpath, The Benefits and Pitfalls of Qualified Conservation Contributions, 102 Tax Notes State 625 (Nov. 8, 2021).
The amount of the tax deduction will depend on the form of the interest given. In the case of perpetual restrictions (including easements), the deduction is equal to the fair market value of the easement, based on the sale of comparable easements at the date of the contribution. In a scenario where there are no adequate easement comparables (which arise often) then the general rule is that the value equals the difference between the fair market value of the property before granting the easement and the fair market value of the property after granting the easement. See Treas. Reg. § 1.170A-14(h) (3)(ii). See also, e.g., Dunlap v. Comm’r, TC Memo. 2012-126 (May 1, 2012). This is referred to as “before-and-after” valuation.
If the “before-and-after” valuation method is used, then the fair market value of the property before granting the easement must be measured based on the property’s highest and best use. See, e.g., Esgar Corp. v. Comm’r, TC Memo. 2012-35 (Feb. 6, 2012), aff’d, 744 F.3d 648 (10th Cir. 2014) (holding that agriculture was the highest and best use of the property where taxpayers were not able to show that there was demand for use as a more profitable gravel pit); see, e.g., Mountanos v. Comm’r, TC Memo. 2013-138 (June 3, 2013), aff’d, 651 F. App’x 592 (9th Cir. 2016) (taxpayer presented expert testimony that the highest and best use of his recreational ranch was for a vineyard and residential development, but taxpayer
could not show that this use was legally permissible; charitable contribution deduction was denied because taxpayer failed to demonstrate that the easement impeded the highest and best use of the property).
The grant of a conservation easement may also reduce the property’s value for ad valorem taxes under respective state law for property tax purposes. For instance, Florida Statute § 193.501 provides, in pertinent part, that land subject to a conservation easement for at least 10 years will be valued by the property appraiser for tax purposes based only on its “value for the present use, as restricted by” the conservation easement.
It is important to provide a qualified appraisal in support of the charitable deduction with claimed values over certain amounts. IRC § 170(f)(11)(c).
See Costello v. Comm’r, TC Memo. 201587 (May 6, 2015) (denying charitable deduction of more than $5.5 million where appraisal was not a qualified appraisal because it did not provide an accurate description of the property contributed and did not inform the IRS of the key terms of the agreements among the taxpayers). Problems with
appraisals can arise when the appraisal reports fail to apply sanctioned methods of valuation, apply unreasonable valuation methods, or make use of comparable property sales that are too distant in time or location to be truly comparable to the transaction at hand. See, e.g., Butler v. Comm’r, TC Memo. 2012-72 (Mar. 19, 2012).
When properly implemented, conservation easements can be an enormous benefit to the environment and contribute significantly to the overall success of U.S. conservation efforts. Many landowners have viewed the tax deductibility of unrealized value impairment from conservation easements as a worthwhile incentive for undertaking conservation efforts on their private property, but this legal landscape is not without its perils, of which practitioners should be aware.
Part II will delve further into the current legal landscape surrounding conservation easements and pitfalls to avoid when practicing in this area of the law and will discuss proposed legislative changes for the productive advancement of federal conservation easement law. n
ADVERSE POSSESSION: Repudiation of owner’s title is not required where adverse claim begins with easement and hostile acts exceed those rights. The Dowlings purchased property located on a peninsula protruding into Long Island Sound from the Bradleys for $2.6 million. All the abutting owners in the area had a common rightof-way easement over a shoreline parcel owned by the Old Black Point Association. After taking title, the Dowlings started to expand the house but were told by their architects that any expansion would encroach on Old Black Point’s parcel. The Dowlings searched the land records and concluded that the Bradleys had acquired title to the parcel by adverse possession, even though they had never claimed ownership of it. An attorney they hired concurred. Thereafter, the Dowlings filed a quiet title action against Old Black Point based on adverse possession. The defendant denied the claim and filed a counterclaim alleging slander of title by the filing of the notice of claim in the land records. The trial court rejected the Dowlings’ claim, finding the record established the defendant’s title to the parcel and nothing served as a repudiation of that title by the Bradleys. In addition, the court also found that none of the claimed possessory acts met the requirements for adverse possession. It also found the Dowlings liable for slander of title because they had filed the notice of claim “with a reckless disregard for its truth and for the purpose of slandering the defendant’s title to the fee.” The supreme court affirmed on the
Keeping Current—Property Editor: Prof. Shelby D. Green, Elisabeth Haub School of Law at Pace University, White Plains, NY 10603, sgreen@law.pace.edu. Contributor: Prof. Darryl C. Wilson.
adverse possession claim but reversed on the slander of title claim. The court first pointed out that the trial court erred by requiring evidence of repudiation, a doctrine under which possession that is permissive in its inception may become hostile. When a claimant has the right to use land for a particular purpose but uses the land for a different, more-extensive purpose, the use may be considered hostile and may give rise to a claim of adverse possession, without more. Here, the Bradleys’ claim was founded on an easement but rested on rights outside those granted by the easement, making repudiation not applicable. Nonetheless, the court agreed that the acts asserted by the Dowlings had failed to establish the required claim of right. Explaining that the only relevant intent is that the possessor claim the land as her own, the facts as found by the trial court still fell short. Although the Bradleys had repaired the seawall, they did so only to protect their own property, and they asked for contributions toward their costs. They planted trees but only with permission and on the condition that they would remove the trees on demand by the owner. The Bradleys installed a septic system but with permission, and it was underground, negating the open and notorious element. On slander of title, the supreme court ruled that the plaintiff’s position was not malicious even though based on an incorrect legal theory. Because
the court dismissed the slander of title counterclaim, Old Black Point was not entitled to the $370,000 in attorneys’ fees and costs awarded by the trial court. Dowling v. Heirs of Bond, 282 A.3d 1201 (Conn. 2022).
AUCTIONS: Seller may reject high bid based on presumption that auction is with reserve and not absolute. Williams and Hendrick decided to sell their 31-acre parcel of land and advertised an auction via a mass mailing. The ad gave details about the property and stated a requirement of a non-refundable deposit of $5,000 in certified funds payable at the auction with the balance of the price due in 14 days. No financing contingencies were allowed. Janson got a copy of the ad but was unable to reach Williams for more information. At the auction, Williams read out the terms in advance of the bidding, including the sales agreement that would be required to complete the sale. Janson bid $35,000, but not hearing a bid for at least $45,000, Williams declared “no sale.” After the auction, Janson asked whether his bid was the highest, and Williams stated it was but that he declined to sell at that sum. Janson sued for specific performance. The trial court held for Janson. The supreme court reversed. First, it explained the two kinds of auctions. In an auction with a reserve, the owner is free to withdraw the property anytime up to the hammer coming down, and no sale occurs until the auction is complete. In contrast, an absolute auction is a continuing offer to sell to bidders, meaning each bid is the consummation of a contract, subject only to a higher bid. By default, an auction is with reserve; an absolute auction occurs only when it is explicitly stated to be. Here, Williams never explicitly stated the auction to be absolute nor made any statement that limited his ability to withdraw the property or
otherwise nullify the sale. The statement that the property would be sold to the high bidder was a mere declaration of the intention to hold the auction at which bids would be received. Williams’s statement was virtually identical to the ad, which Janson conceded indicated that the auction would be an auction with reserve because it did not state that it was absolute. Williams v. Janson, 878 S.E.2d 714 (Va. 2022).
EASEMENTS: Implied easements do not arise when landowner has another practical means of access to parcel. In 2008, the plaintiffs purchased a 70-acre parcel surrounded by several adjoining parcels, each of which had road frontage or other means of access to one of three public roads: Flamstead Road, Crow Hill Road, and Trebo Road. The plaintiffs also owned property adjoining the 70-acre parcel that had public road frontage on Crow Hill Road to the west. The plaintiffs’ predecessor in title, Higgins, acquired the 70-acre parcel in 1978 and periodically used a logging road across neighboring parcels owned by Luce and Scott. In 2020, the plaintiffs sued Luce and Scott, arguing that they had the right to travel from the 70-acre parcel across the logging road to Flamstead Road because of an easement implied from prior use and an easement by necessity. The trial court denied the claim. When Higgins crossed the defendant’s adjoining parcels, he had a reasonable and practical alternative method of access to the 70-acre parcel. Although access from Trebo Road was more difficult than the Luce/Scott route given the steepness of the terrain, it was not unreasonable, impractical, or infeasible to access the 70-acre parcel from that way. Based on these findings, the trial court determined that there was no necessity as required to establish an easement by prior use or by necessity. The supreme court affirmed, noting that in making its finding on necessity, the trial court recognized the different levels depending on whether the asserted easement is by grant or reservation. Even so, necessity is only one factor in the analysis; easements by prior use are created
based on the presumed intentions of the parties that the use existing at conveyance would continue. Here, Higgins stated that he did not need the easement claimed by plaintiffs and that he used the parcel only for hunting and recreation. The court also upheld the trial court’s denial of the claim for an easement by necessity, noting that the modern test is not as stringent as at common law, yet plaintiffs had failed to show they lacked a practical means of reaching their parcel. In fact, at the time the 70-acre parcel was conveyed to the plaintiff’s predecessor, the parcel was not landlocked but had access from his adjoining property which had frontage on a public road. Greenfield v. Luce, 2022 Vt. Unpub. LEXIS 97 (Vt. Nov. 10, 2022).
EMINENT DOMAIN: Statute giving oil and gas operators right to use surface owners’ pore space is unconstitutional taking of property. Northwest Landowners Association brought a facial constitutional challenge to newly enacted legislation, North Dakota S.B. 2344, which regulates subsurface pore space. Pore space is defined as a cavity or void, natural or artificial, created in a subsurface sedimentary stratum. One part of the statute allowed oil and gas operators to use subsurface pore space without payment of compensation to the surface owner. Another section adopted a new definition of land that excluded pore space, thereby narrowing owners’ potential for recovery under the Damage Compensation Act, N.D. Cent. Code. § 38-11.1-04. Another section barred tort claims for injection or migration of substances into pore space. The district court granted summary judgment to the Association, and the state appealed. The supreme court affirmed, finding some sections of the bill unconstitutional and severing others. The court reviewed the history of surface owners’ rights to pore space and concluded that owners had long-established property rights, with presumed title to pore space beneath their lands. Giving oil and gas operators the right physically to invade surface owners’ property to inject substances into the
pore space amounted to a per se taking of property. The statute restricted owners from having any control over the timing, extent, or nature of the invasion and thus eliminated the right to exclude. The statute was unconstitutional as it simultaneously curtailed the rights of surface owners and denied compensation for the invasion. Northwest Landowners Ass’n. v. State, 978 N.W.2d 679 (N.D. 2022).
agreement waives landowner’s statutory right to reclaim condemned property on account of nonuse by government. In 2008, the owner of a 77-acre parcel near a municipal airport filed an action for inverse condemnation to prevent the town of Dubois from condemning any portion of the parcel. The town filed an answer and a counterclaim seeking to condemn 35 acres under the Wyoming Eminent Domain Act, Wyo. Stat. § 1-26-501. The town asserted the land was necessary to complete its “Airport Master Plan.” At the end of a bench trial in 2009, the district court held the town met its burden to establish condemnation and was entitled to take 30.17 acres of the property. The court scheduled a hearing to determine the amount of compensation. Before the hearing, the parties negotiated a settlement agreement, with the town promising to pay $229,430 to the landowner for the 30.17 acres, representing the town’s initial offer of $170,430 plus an additional $59,000. The settlement agreement also granted road and utility easements to the landowner over the 30.17 acres. The agreement also contained several terms releasing the town from “all past, present, and future claims related to the disputed 30.17 acres.” Under the agreement, the landowner signed and delivered a special warranty deed to the town, conveying the 30.17 acres. The parties subsequently filed a stipulated motion to dismiss, which the court granted with prejudice. More than 10 years later in 2020, the landowner filed an action for declaratory judgment seeking to reclaim the 30.17 acres. The landowner contended the
town failed to make substantial use of the property during the preceding 10 years and therefore the landowner was entitled to relief under Wyo. Stat. § 1-26-801(d), which provides that if a public entity acquires property in fee simple title under the eminent domain act, but fails to make substantial use of the property for a period of 10 years, there is a presumption that the property is no longer needed for a public purpose and the previous owner may apply to the court to request the return of the property upon repayment of the amount originally paid to the owner in the condemnation action. A public entity may rebut the presumption created under this subsection by showing good cause for the delay in using the property. Id. § 1-26-801(d). The town moved for summary judgment on two grounds: (1) the landowner expressly waived any future claims related to the 30.17 acres under the settlement agreement; and (2) there was no taking under the Wyoming Eminent Domain Act because the town acquired the property by special warranty deed and the parties stipulated to dismissal of the condemnation action with prejudice. The trial court ruled for the town, and the supreme court affirmed. The terms of the settlement agreement were clear and unambiguous; they purported to settle and resolve fully and finally the issue of compensation and all claims, demands, and actions and released the town from any and all claims, known or unknown. It was broad and unequivocal. The court went on to observe that recognizing the landowner’s waiver of his statutory right to reclaim the property did not impair the public interest reflected in the Eminent Domain Act; indeed, the public interest is served when parties can freely enter into binding agreements. Colton v. Town of Dubois, 519 P.3d 976 (Wyo. 2022).
HOMESTEAD: Non-consenting spouse cannot set aside mortgage on homestead that exceeds statutory homestead exemption amount. Steve Matherly owned a residence where he lived with his wife, Jenny Matherly, after they married in 2012. In 2013,
Steve granted a mortgage to Citizens Bank to secure his debts. Matherly defaulted in 2016, and Citizens Bank foreclosed and bought the Matherly property for $275,000, leaving a deficiency on Steve’s outstanding debts in the amount of $277,934. In 2018, Citizens Bank filed suit to quiet title to the Matherly property. Jenny first learned of the litigation when she discovered a letter at the marital home demanding that Steve vacate the property in 10 days. Jenny then petitioned to intervene as a party claiming homestead, arguing that the mortgage was void because she did not consent to it, relying on the Alabama homestead statute. Ala. Code § 6-10-3. In 2021, the trial court ruled that Citizens held a valid mortgage to the property but that Jenny was entitled to $5,000 as compensation for her homestead interest. On appeal, the supreme court reviewed the history of the homestead exemption, noting that at the time Steve executed the Citizens Bank mortgage the homestead value limit was $5,000 (in 2015 the Alabama legislature increased the limit to $15,000). Id. § 6-10-2. The court then rejected Jenny’s claim that the mortgage was void. Although the homestead statute requires a spouse’s signature and assent to mortgage or alienate homestead property, the right to prevent homestead alienation does not apply to a mortgage or conveyance in excess of the statutory homestead value, as long as the non-consenting spouse is paid the homestead-interest amount. In other words, the only right available to Jenny under the statute is to receive the homestead interest amount of $5,000, which is what the circuit court awarded to her. Matherly v. Citizens Bank, 2022 WL 15683592 (Ala. Oct. 28, 2022).
LANDLORD-TENANT: “Area fair market rent” in statute refers to fair market rents set by HUD and not rents set by local public housing authorities. Thompson leased a dwelling unit from Dominion and claimed that Dominion violated the Minnesota Bond Allocation Act (Act), Minn. Stat. §§ 474A.01-.21, which imposes rent limits on residential rental projects that are financed by
municipal bonds. Under the terms of this affordable-housing program, rent in the subsidized units may not exceed “the area fair market rent or exception fair market rents for existing housing, if applicable, as established by the federal Department of Housing and Urban Development.” Id. § 474A.047(1) (a)(2). Thompson claimed Dominion overcharged her rent by thousands of dollars over several years. Dominion argued the rent did not exceed the payment standard set by the local public housing agency, which it contended was the applicable rent limit under the law. The lower court dismissed Thompson’s complaint, and the appellate court affirmed. The supreme court reversed and remanded. The court noted that though the Act does not define “area fair market rent,” the context of the terminology makes it clear that the legislature tied the interpretation to rent figures established by HUD; the statute explicitly states it is a rental rate established by HUD. This suggested that the legislature meant to rely on the special meaning given to the term in federal housing assistance law. The court rejected Dominion’s argument that HUD indirectly establishes payment standard amounts when it sets fair market figures that define the range in which local agencies are limited in setting payment standards. The court explained that HUD establishes the fair market rent figures for each area because HUD itself sets them. Thompson v. St. Anthony Leased Housing Assoc. II, LP, 979 N.W.2d 1 (Minn. 2022).
LANDLORD-TENANT: Retail tenant is not excused from paying rent on grounds of impossibility or frustration of purpose as a result of COVID-19 government shut-down orders. NTS W. USA Corp. (DUSA) is a retail distributor of clothing and accessories. On January 17, 2020, it executed a three-year commercial lease for retail space in New York City. Under the lease, the parties agreed that the landlord would deliver the premises to DUSA “on or about May 1, 2020, and in no event earlier than April 1, 2020,” with DUSA’s obligation to pay rent waived for the first 60
days. Section 5.05 of the lease, entitled “Interruption of Access, Use or Services,” described “natural occurrences,” changes to “applicable law,” and “other condition beyond landlord’s reasonable control,” which events could prevent DUSA from accessing or using the property. In such cases, the lease expressly preserved DUSA’s obligation to pay rent. In March 2020, the New York governor issued executive orders that shuttered all non-essential in-person businesses in the state. On March 25, while these shutdown orders were in effect, the landlord advised DUSA of its intent to deliver the property on April 1. DUSA responded with a letter declining to accept delivery, citing the pandemicrelated restrictions that prohibited it from operating its retail business. Even as subsequent executive orders allowed retail stores to open, subject to safety protocols, DUSA still refused to take occupancy, and, when the 60-day freerent period ended, DUSA defaulted on its rental obligations. Shortly thereafter, DUSA filed for bankruptcy. During the bankruptcy proceeding, DUSA brought an action against the landlord seeking, among other relief, a declaratory judgment that the doctrines of frustration of purpose and impossibility excused or abated its obligation to pay rent. The bankruptcy court disagreed, concluding that neither doctrine applied because the lease contemplated events, like the pandemic, that could affect DUSA’s ability to access or use the property. The district court affirmed. In a de novo review, the Second Circuit stated that under the frustration of purpose doctrine, a defendant may be excused from a contractual obligation when “a virtually cataclysmic, wholly unforeseeable event renders the contract valueless to one party.” However, the doctrine “is not available where the event which prevented performance was foreseeable and provision could have been made for its occurrence.” Impossibility, on the other hand, excuses a defendant from a contractual obligation when performance is impossible due to “the destruction of the means of performance by an act of God… or by law.” Economic hardship, even to the brink
of insolvency, does not excuse performance. As with frustration of purpose, the inability to perform must arise from “an unanticipated event that could not have been foreseen or guarded against in the contract.” Both theories fail here because the lease expressly allocated the risk of events like the COVID-19 pandemic and ensuing government shutdown orders to DUSA, requiring DUSA to pay rent even if “natural occurrences” or changes to “applicable law” interfered with its use of the premises. The court found no merit in the claim that a different analysis should apply because COVID began after the lease was signed but before taking possession. Instead, the relevant focus is on the expressed intentions of the parties in the lease. In re NTS W. USA Corp., 2022 U.S. App. LEXIS 28811, 2022 WL 10224963 (2d Cir. Oct. 18, 2022).
MARKETABLE TITLE: Reversionary interest in 1882 deed donating land to city for public park is not extinguished by marketable title act. In 1882, Jeptha Wade donated a 73-acre parcel to the city of Cleveland to develop “as a Public Park to be open at all times to the public” and to be used for no other purposes. The deed conveying the land contained a reversionary clause that, should the land ever be diverted from public use, the land would revert to Wade or his heirs. In the 1930s, the Garden Center of Greater Cleveland (CBG) was founded,
and the entity leased a boathouse on the park’s lagoon. CBG and the city later entered into a series of leases covering various parts and uses of the park area. In 2003, CBG sought permission from the city and Wade’s heirs to permit charging admission to the park. CBG later started charging admission despite reaching an impasse with several heirs. In 2013, CBG sought a declaratory judgment that its use, operation, and maintenance of the park was consistent with Wade’s deed restrictions; that it could charge admission and parking fees for the garage it had constructed on the land; and that it could set hours for park visitation. CBG maintained that to be open “at all times” did not mean being free. The trial court found the original deed not only restricted use but also promoted the development of the land and that CBG’s operations were a permissible park purpose. The court further decided the Marketable Title Act (MTA), Ohio Rev. Code. § 5301.47, extinguished the possibility of reverter. The appellate court agreed that CBG’s practices did not violate the deed’s park use restrictions but reversed the finding regarding the application of the MTA. The supreme court affirmed. The court stated that because the reversionary interest was contained in the root of the title, the MTA does not extinguish it. Instead, only interests and claims that pre-date the effective date of the root of title are extinguished. Further, CBG had notice of the heirs’ reversionary interest from the time of the initial 1882 deed, such that the filing of a notice preserving the interest would have been redundant and futile. Cleveland Botanical Garden v. Worthington Drewien, 2022 Ohio LEXIS 2153 (Ohio Oct. 20, 2022).
TITLE INSURANCE: Coverage terminates when insured conveys title to his parents, even though insured claimed conveyance was to secure his debt. In 1959, Silva acquired a life estate in real property, which she purported to sell in fee simple interest to Shah for $350,000, conveying by a grant deed in 1995. Shah obtained a title insurance policy insuring fee title to the property. Silva died on May 4, 2002, and the
remainder became possessory in her heirs. But the heirs did not enter, and Shah stayed in possession. On June 19, 2002, Shah recorded a grant deed in favor of his parents. Later Shah alleged that his transfer to his parents was intended to secure his debt to his parents, who were to reconvey title to him upon subsequent repayment. In 2007, Shah borrowed $350,000 against the property from a private lender, giving a deed of trust as security. Nine months later, when Shah was unable to repay as promised, the lender commenced foreclosure. While trying to refinance, Shah learned that Silva had held only a life estate. The refinancing fell through, and in 2009 the Schwartzes purchased the property at a foreclosure sale. Later in 2009, Shah sued the Silva heirs, the Schwartzes, and the lender to quiet title on the basis of adverse possession. In 2011, Shah sued the title insurance company for damages under the title policy. The insurer denied the claim on the basis of section 2(b) of the Conditions and Stipulations, which provides that the coverage of the policy shall continue “so long as the insured retains an estate or interest in the land.” Even though by the original deed to his parents in 2002, Shah had nothing to convey because Silva’s life estate had terminated, when Shah later acquired title by adverse possession, that title
vested in his grantee (the parents) under the doctrine of after-acquired title. Shah’s deed was a voluntary transfer that triggered section 2(b). Because his deed used the term “grant,” there was no basis for concluding that an interest less than a fee was transferred; nothing suggested a mortgage. And the policy insured Shah’s estate, not a mere right to possess. Shah v. Fidelity Nat’l Title Ins. Co., 2022 WL 17333295 (Cal. Ct. App. Nov. 30, 2022).
LANDLORD-TENANT: In Rights to Tenant Property Upon Termination of a Commercial Lease, 17 Del. L. Rev. 39 (2021), Robert J. Krapf explores the subject of landlord and tenant rights regarding improvements, fixtures, equipment, and other personal property on leased premises at termination of a commercial lease. The article shows how the law treats the various categories of tenant property differently with respect to the tenant’s right to remove its property. He also shows that the dichotomy between trade fixtures and non-removable regular fixtures is more apparent than real and offers guidance for making the determination.
Prof. Ryan P. Sullivan provides a comprehensive historical review of Nebraska landlord-tenant law from
1974 to the present in his article
Nebraska’s Anything-but-Uniform Residential Landlord and Tenant Act, 100 Neb. L. Rev. 831 (2022). Prof. Sullivan settled on 1974, as that was the year Nebraska partially adopted the Uniform Residential Landlord-tenant Act (URLTA). The URLTA, first promulgated in 1972, has been adopted in some form by 21 states. Prof. Sullivan meticulously compares Nebraska’s initial adoption to the language of the original URLTA, highlighting the abandonment of many URLTA provisions to the detriment of Nebraska’s tenants. The tenants are characterized as living in a woeful state, toiling for decades without the assistance of any dependable advocates to assure the protection of their rights and interests. He cites many instances of the Nebraska legislature’s decisions, including the reduction of adequate notice for nonpayment of rent, rules for personal notice of an eviction, removal of the right to jury trials, and a lessening of the landlord’s duty to maintain the leased premises. Though there were some improvements for tenants, they were very limited, and Prof. Sullivan points out that it was not until changes in 2021 that Nebraska comprehensively upgraded tenants’ rights. He finds the recent amendments long overdue, yet still falling short in terms of balance and equity for tenants. He advocates for ongoing consistent review of landlord-tenant laws to avoid another near half-century of biased and inequitable treatment of residential tenants. Although the article thoroughly documents factual changes in the law over the identified time period, it is high on unfavorable landlord-oriented presumptions as the basis for the language settled on. For attorneys who have represented both landlords and tenants in practice, and for persons who have transacted in both roles, some of the criticisms may feel heavy-handed. There is limited discussion of pre-1974 statutory and common law, including common law that continued to exist that may have affected the ultimate legislative drafting. For example, some states have statutes that specifically outline landlords’ duties regarding
the maintenance of the premises, and most states have recognized a commonlaw doctrine of implied warranty of habitability. Likewise, many localities have code enforcement regulations and similar laws enforced by government entities, which affect the total rights available to each side when property maintenance is in dispute. Nonetheless, the article is an extremely helpful tool for those who seek to be tenant activists in Nebraska.
LAND USE: In Confronting the Local Land Checkerboard, 56 U. Rich. L. Rev. 665 (2022), Prof. Daniel Rosenbaum discusses the phenomenon of fractured public land ownership. By this, he refers to pockets of land owned by local governments, interspersed within neighborhoods of private land holdings and alongside highways. The phenomenon is troubling for many reasons, not the least of which are the bureaucratic costs associated with management and resolving conflicts with other owners’ rights. Prof. Rosenbaum also believes it contributes to an inequitable imbalance of local power between formal and informal landowners. He uses the community of Mechanicsville, Georgia, to illustrate the point, showing that the fragmented ownership regime serves as an obstacle to revitalizing economically declining communities as development becomes more costly due to the difficulties of surveying and assembling parcels, the hold-out problems, and the logistics of coherent management. Prof. Rosenbaum draws upon federal land law to offer a pragmatic solution, using land exchanges to consolidate disparate parcels. He cautions that land exchanges promise only the starting point, but what needs to be done is to address land governance issues, particularly through agreements between local governments, which he calls “interlocal agreements.”
DELAWARE amends mortgage law to provide for statutory satisfaction. The amendments set a presumption that the mortgage is paid and satisfied
after ten years from the maturity date stated in the mortgage and after 40 years when no date is stated. An action to enforce a mortgage within that time extinguishes the mortgage but not the underlying obligation. The amendments apply to mortgages recorded before, on, and after the effective date of the act. 83 Del. Laws 466.
DELAWARE amends landlord-tenant to provide protections against bedbug infestation. Landlords are required to investigate evidence of an infestation, remediate it, and give notice to incoming tenants of infestation in adjacent units. The amendments establish a timeframe for tenant reporting and landlord responding to alerts of infestation. Tenants are prohibited from knowingly bringing infested furniture onto the premises. 83 Del. Laws 451.
DISTRICT OF COLUMBIA amends property law to protect property held in tenancy by entirety after transfer to a trust. Such property is presumed to have the same immunity from the claims of the separate creditors of the spouses or domestic partners as would exist if the property were still held by the spouses or domestic partners as tenants by the entirety. 2021 D.C. Ch. 639.
DISTRICT OF COLUMBIA enacts Uniform Partition of Heirs Property Act. Cotenants are given a right of first refusal to purchase the ownership interest of the cotenant who commences the action for partition. Any sale must be
in the open market at a price not lower than the court-determined value of time and must be made in a commercially reasonable manner. 2021 D.C. Ch. 638.
DISTRICT OF COLOMBIA enacts
Bedbug Control Act. The act requires housing providers to give notice to a tenant of any bedbug infestation within the last 120 days before the tenant signs a lease and requires professional pest control remediation within 10 calendar days of notification from a tenant that bedbugs may be present in his or her unit, with monitoring services for 12 months thereafter. Tenants must allow access for inspections and treatments. 2021 D.C. Ch. 659.
NEW YORK amends abandoned property law to add virtual currency. Virtual currency that remains unclaimed by the person entitled to it for five years is deemed abandoned. The property must be turned over to the state comptroller as soon thereafter as practicable to be deposited in the abandoned property fund. 2022 N.Y. Laws 640.
NEW YORK amends foreclosure statute to prohibit registration of mortgages after default without prior recording of lis pendens. In case of registration, local authorities may charge a fee of up to $75, which may not be passed on to the mortgagor. 2022 N.Y. Laws 600. n
By Michael A. Sneeringer
Real estate attorneys are fast talking, dress well, and are aggressive, but up until 2020 may not have been as busy as in 2021 and 2022. There appears to have been a real estate boom in the United States. Interest rates helped. See Diana Olick,
Michael A. Sneeringer is a partner in the Naples, Florida, office of Porter Wright. He is Probate & Property’s articles editor for Trust and Estates. Portions of this article are adapted from the author’s Outline: Michael Sneeringer, “Did I Do That? UnFamilyiar Real Estate Matters in the Estate Administration Process,” presented at the Real Property, Probate & Trust Law Section of The Florida Bar: Probate Law 2022, in Fort Lauderdale, Florida, on November 18, 2022.
Confused About the Housing Market? Here’s What’s Happening Now—and What Could Happen Next, CNBC (Sept. 9, 2022), https://cnb.cx/3CqwEEc. But the recent real estate boom coupled with COVID and now a post-COVID world has shown attorneys that estate administration can play a crucial role with real estate. During the COVID years, there was an increase in deaths, leading presumably to more sales of real estate inherited by beneficiaries. Shannon Sabo & Sandra Johnson, Pandemic Disrupted Historical Mortality Patterns, Caused Largest Jump in Deaths in 100 Years, U.S. Census Bureau (Mar. 24, 2022), https://bit.ly/3WSYCQZ. In any given estate administration, a multitude of things can go wrong in a hurry when it comes to real estate.
There are a lot of attorneys who have clients that spend time in Florida and acquire Florida real estate in the form of either property or timeshare interests. For non-Florida attorneys, Florida’s “Legal Chameleon” homestead poses an issue. Snyder v. Davis, 699 So. 2d 999, 1001 (Fla. 1997). Most Florida attorneys understand by now how to properly dispose of a homestead . . . or do they?
For clients with nontaxable estates and estates with few assets, real estate can make up the bulk of a family’s inheritance. For some families, it is the only asset. Estate planning attorneys try to do right by their clients and honor their testamentary intentions, but sometimes the best laid plans in 2023 may not work out so well in 2035 because of factors outside of the estate
planning attorney’s control . . . or were they?
If lucky enough to be local counsel for a snowbird client in one of the southern states, the estate planning attorney may have the benefit of visiting the client in the summer in a much milder climate. But when the client ceases to be a resident of state X and instead desires southern state residency, what does an estate planning attorney have to help the client accomplish to avoid real estate problems?
Even if the estate planning attorney follows real estate law adroitly when dealing with the client’s real property, might other issues derail what would otherwise be an easy process? Could state or federal estate taxes slow down the process?
For many attorneys, international clients are a constant. International clients have tricky real estate issues. Likewise, clients with foreign real estate have issues, too, and there are also clients
tax savings” applicable to a homestead exemption). The second protects the home from the claims of a client’s creditors (so called asset protection). But the third, important to the discussion in this article, provides mandatory inheritance rights to a client’s surviving spouse and minor children. Snyder, 699 So. 2d at 1001–02.
If a client is married or has minor children, Florida law restricts what the client may do with Florida homestead property. During marriage, absent a prenuptial or postnuptial agreement, clients can’t sell, gift, mortgage, or otherwise encumber any part of their Florida home without the consent of the spouse, even if the spouse isn’t an owner of the home. If a client is survived by a spouse, the spouse won’t be able to freely devise the home. Fla. Stat. § 732.4015.
If survived by a spouse and a minor child, absent a prenuptial or postnuptial agreement, a client can’t devise the
all and such property under Florida law will be divided among the client’s thenliving children (adults and minors) on a per stirpes basis. This causes the guardian of the client’s minor child to have control over that child’s ownership interest in the homestead until the minor child turns age 18. Id. In a divorced spouse situation, this can be a huge problem and is often a sticking point for the client. In Texas, neither the probate court nor any other court in Texas has jurisdiction to order the sale of a homestead to pay debts when there is family left who have the right to occupy it. Cline v. Niblo, 8 S.W.2d 633, 636 (Tex. 1928).
The following situations illustrate real estate issues related to homesteads that come up in the estate administration process.
with property in countries with unique inheritance laws for real estate.
This article will discuss some of the real estate issues that can be encountered in estate administration. Some attorneys never encounter these issues in their general practice, while other issues may seem routine.
Some states, such as, but not limited to, Florida and Texas, have generous homestead exemptions. In Florida, three distinct homestead protections are available. The first provides some exemption from ad valorem real property taxes and limits annual increases in the property-tax-assessed value of the client’s Florida home (the “property
client’s home at all. If a client is survived by a spouse but no minor child, the client is permitted to devise the home outright only to the spouse. In an attempted devise of the Florida home in a manner that isn’t permitted, that direction—whether in a client’s will, in a trust, or in the deed to the home—will be invalidated by Florida law. Instead, Florida law will automatically grant the client’s surviving spouse the lifetime right to use the residence and the client’s descendants will receive the Florida homestead only at the spouse’s death. If the client has no descendants, the property will pass outright to the spouse. Id.
If the client is survived by a minor child, the client can’t devise the home at
1. How can this right interfere with an estate plan benefitting the surviving spouse? In the case of a married couple with children from prior relationships, it is common for the spouse who owns the family home to direct that it be held in trust for the surviving, nonowner spouse. That trust often provides that the home will then pass to the children of the owner-spouse. The trust terms generally instruct upon the responsibility for residence expenses that are incurred during the surviving spouse’s lifetime. The trust may also give the surviving spouse the right to direct that the home be sold and replaced. But if the surviving spouse hasn’t waived the homestead right, this trust arrangement will be invalidated. Instead, the surviving spouse will have a statutory right to use the home for the spouse’s lifetime; the descendants of the deceased spouse will have a remainder interest. See, e.g., Fla. Stat. § 732.401.
Although the statutory life estate seems similar to the trust arrangement, it is different in several ways. First, the statutory life estate gives the surviving spouse the lifetime right to use of the home, and not merely a right to reside in the home. Use of the home is broader than the right to reside in the home. In particular, a surviving spouse who has
In the case of an invalid homestead devise, title must be cleared before closing the sale of the same real estate.
use of the home can rent the home to third parties and retain the rental proceeds for the spouse’s use.
Second, generally, a trust doesn’t give a surviving spouse any equity interest in the home. Under the statutory life estate, however, a surviving spouse can elect to receive a one-half ownership interest in the home instead of a life estate if the surviving spouse makes an election within a short window after the spouse’s death. See, e.g., id. § 732.401(2).
Third, in a trust arrangement, the client can set the terms for how expenses of maintenance and repair will be paid during the surviving spouse’s lifetime. Under the statutory life estate, the surviving spouse will be responsible for most expenses of maintenance, including property taxes, homeowners’ insurance, and homeowners’ association dues and assessments. A client’s descendants, as the remainder beneficiaries of the home, could be called upon to contribute to capital repairs that are expected to outlive the client’s spouse’s use. Finally, through a trust, clients can control how the home might be sold or disposed of either during the spouse’s lifetime or at the spouse’s death. Under the statutory life estate, a client’s descendants will have a vested interest in the home. Id. § 732.401(1).
Their participation or consent might be required if the client’s spouse wants to sell or otherwise transact with the home. Further, at the client’s spouse’s death, the descendants will receive the home outright without any control or restriction.
2. What if the client is divorced from the other parent of the minor child and the client doesn’t want the ex-spouse to have control over the homestead if the client predeceases the ex-spouse and is survived by the client’s minor child? Florida law allows the creation of an irrevocable inter vivos trust to hold a homestead for the benefit of the client’s minor child with the same beneficial terms that the client has in the client’s will or revocable trust. Id. § 732.4017. The client deeds homestead property to the trustee of the irrevocable trust but reserves a life estate in the deed of conveyance. Id. The trustee can be someone other than the minor child’s guardian or client’s ex-spouse. Id. The reserved life estate preserves the exemption from creditors and the homestead property tax exemption. The trust instrument would provide for mandatory distribution of the homestead property back to the client on the first to occur of their child’s death or the child’s 18th birthday (when the child is no longer a minor
and the homestead restrictions on devise go away), whichever occurs first.
The issue here is one of control: giving up control of the homestead, in trust, using a third party as trustee. The estate planning attorney has to explain the issues presented by this type of arrangement, clarifying to the client that although the trust would be structured to revert the homestead to the client or the client’s revocable trust when the youngest minor beneficiary passes away or attains age 18 (the reversion event), until the reversion event, a trustworthy trustee is in de facto “control” of the homestead. The client should also be advised that banks are loathe to deal with this type of trust in applying for a mortgage or financing using the homestead as collateral.
3. What if the client and the spouse owned their homestead property in a joint revocable trust that became irrevocable on the first spouse’s passing? In the case of an invalid homestead devise, title must be cleared before closing the sale of the same real estate. From a practical standpoint, this title-clearing could wait until the surviving spouse’s passing or much later in the future. What the astute estate planning attorney is looking for in an invalid devise is either the homestead remaining in
a continuing trust for the surviving spouse or language whereby the surviving spouse retains the power to revoke the trust, but the trust doesn’t cause an automatic disposition of the homestead to the surviving spouse at the first spouse’s death. For example, assume the following language was included in a revocable trust that remained revocable even after the first spouse’s passing:
Upon the death of the first of the settlors to die, the Trustee shall continue to administer the trust as provided in the preceding articles. After distributing any gifts, and as soon as practicable after the death of the first of us to die, the Trustee shall receive any amounts devised to it under the terms of the decedent-settlor’s Last Will, or receivable in any other fashion, and the Trustee shall continue to hold the trust estate for the benefit of the living settlor, to the exclusion of all other persons, including any children of ours born or adopted after the execution of this Trust.
The above example would cause an invalid homestead devise. The reason for the invalid homestead devise is because the surviving spouse doesn’t receive an interest in the homestead outright and free of further trust; the trustee is “continu[ing] to administer” the trust. Often non-Florida clients have this invalid devise issue. Their
non-Florida attorney prepares a joint revocable trust and advises their client to purchase property in the name of the trust to avoid probate. The clients (a married couple) move to Florida, establish residency, and apply for homestead (inadvertently triggering the homestead devise issue). For estate planning attorneys, to avoid the estate administration issue, all joint trusts should be reviewed. Another idea would be to advise out-ofstate clients to execute a deed waiving homestead restrictions on descent and devise, even when such property is deeded into a joint revocable trust, to avoid the invalid homestead devise problem. See id. § 732.7025(1). But such a deed brings up a host of issues, including adequate legal representation and whether each spouse should be represented by separate legal counsel. See Jeffrey S. Goethe & Jeffrey A. Baskies, Homestead Planning Under Florida’s New “Safe Harbor” Statute, 93 Fla. Bar. J., no. 3, May/June 2019, at 36, 38, 40.
4. What is my modular home: a motor vehicle or real estate? A mobile home (also called a modular home) permanently affixed to real estate qualifies as a homestead. Gold v. Schwartz, 774 So. 2d 879, 880 (Fla. 4th DCA 2001). The fact that a decedent’s residence is a permanently affixed mobile home rather than a traditional house constructed thereon doesn’t render the property ineligible for homestead status; the key is whether the decedent owned and resided on the subject real estate in the mobile home.
In other states, probate issues can arise in determining whether a mobile home is personal property or real property. See, e.g., In re Estate of Parker, 25 S.W.3d 611 (Mo. Ct. App. 2000). Such characterization can have implications in the taxation, disposition, and creditor protection of such asset. See, e.g., In re Estate of Dahn, 464 P.2d 238 (Kan. 1970) (applying Kansas law to find that although decedent’s surviving spouse had a homestead interest in a mobile home, it remained subject to a purchase contract).
What if a client seeks to sell real estate during the pendency of estate administration, only to find out during the due diligence process that the client can’t close on time? In addition to an invalid devise of homestead described above, what other issues might there be?
As mentioned above, homestead may be one of the biggest impediments to a smooth transaction. For estate administration attorneys, it is important to set expectations with eager beneficiaries and personal representatives on the timeline to closing. For example, if an estate administration hasn’t commenced and is required, it might be unrealistic to guarantee closing in 30 days. But homestead problems differ because they are often undetected by novice or unsophisticated estate administration attorneys. Take, for example, the joint revocable trust example from above. When a surviving-spouse client passes away, the beneficiaries and often the estate administration attorney may all miss the fact that the beneficiaries are unable to convey good title because they did not initiate a probate administration on the first spouse’s passing, despite an invalid homestead devise on the first spouse’s passing. Often a title insurance company asked to insure title will catch the mistake only weeks from the closing date. If a 30-day closing was “promised,” the promise will surely not be kept.
Advise out-of-state clients to execute a deed waiving homestead restrictions on descent and devise, even when such property is deeded into a joint revocable trust, to avoid the invalid homestead devise problem.
If an estate tax return is required for a decedent—that is, the Form 706, U.S. Estate Tax Return, filing requirement— a federal estate tax lien attaches to all of the decedent’s gross estate. The estate tax lien doesn’t have to be publicly recorded to be valid, and it is in effect only for estates that are required to file Form 706. If, at closing, a title agent won’t give the clear sign to close, the estate administration attorney can apply for a discharge of the estate tax lien by submitting Form 4422, Application for Certificate Discharging Property Subject to Estate Tax Lien. Sell Real Property of a Deceased Person’s Estate, IRS, https://bit.ly/3ICXI6K (last visited Sept. 28, 2022).
Similarly, a decedent may have federal (and even state) income tax liens. Federal tax liens must be satisfied before sale. Thus, if a decedent had a federal tax lien on their real estate, during the estate administration process, care should be taken to determine the
nature and number of the federal tax liens in conjunction with the equity in the real estate. Clearly, if there is equity in the property, a tax lien could be paid out of the sales proceeds at the time of closing. But if instead the real estate is under water, other considerations may come into being. What If There Is a Federal Tax Lien on My Home?, IRS, https:// bit.ly/3jVyd6G (last visited Sept. 28, 2022).
The sale of real estate involving any minor beneficiaries may require the appointment of a guardian to adequately represent the minors’ interest in the sale. This issue has been found to be present in an estate administration where property is left to a minor beneficiary and there is no specific authority for distributing property to said minor beneficiary (such as there being no testamentary trust in a will or no holdback for minor beneficiary provision in a trust (and the property passes outright
to somebody who is a minor by mistake)). Instead of solely having the minor beneficiary’s parent “sign off on” the closing sale documents, a guardianship would be necessary where the sales proceeds are over $15,000 (otherwise, a Uniform Transfer to Minors Account could be established for the sales proceeds, requiring solely the sign-off by the minor’s natural guardian to approve the sale, using a “Petition Authorization Distribution of Proceeds of Sale to UTMA Account Custodian”). See Fla. Stat. § 710.108(3).
A common scenario occurs when a grandparent mandates the sale of real property and the proceeds of sale are to be split among their grandchildren, some of whom are minors. What is the personal representative or executor to do? Using the state of Florida as one example, one approach might be as follows. There are processes for guardian appointment outlined by state law that would be followed depending on whether the minor is a resident of the
probate administration state. See id. §§ 744.3021 (resident minor beneficiary), 744.308 (nonresident minor beneficiary). The guardianship requirement is necessary because where a sale generates a monetary amount in excess of $15,000, the court requires more formal supervision of the sales proceeds (as opposed to an UTMA account owned by an adult parent until the minor reaches a specific age, where no reporting is necessary).
Under Florida Statutes § 710.107, a personal representative may transfer the sales proceeds to another adult or custodian of a minor where the governing document is silent on transferring the property (meaning a trust isn’t created or the terms of the document (will or trust) do not allow a custodian to hold back funds for the benefit of the minor)). See Fla. Stat. § 710.107. But a court would have discretion to approve or disapprove of this arrangement. Id. Why does this matter? It matters because if there is no trust arrangement outlined for the minor beneficiary and a sales transaction is to occur, the title insurance company underwriting the sale will want the signoff of such minor’s “representative” in order for the transaction to close; a buyer can’t be assured good title where a minor is involved as minors can’t contract to the sale (hence the reason for the appointment by the court of the guardian or representative for the guardian).
In a situation where multiple beneficiaries all stand to benefit from the sale of a decedent’s property, some of the beneficiaries are minors, and other beneficiaries are the minors’ parents, it would be necessary for the nonbeneficiary parent to be the UTMA custodian or appointed guardian, as the case may be, for purposes of representing the minor. An overreaching issue, outside the scope of this article, is whether a beneficiary’s other parent provides adequate representation where the beneficiary’s other parent is married to a beneficiary (i.e., where the decedent’s beneficiaries are children and grandchildren, who can adequately represent the grandchild . . . his or her other
parent (married to a child of the decedent?)). For example, in the situation where a grandfather provides for his son and grandson to be beneficiaries of real estate, should his daughter-inlaw (the grandson’s mother) be allowed to represent the grandson? Should the answer vary depending on whether the sales price would yield the grandson $10 million as opposed to $10,000?
What if the estate administration attorney is advising a personal representative who is about to sell property (homestead, vacant, or otherwise) and an environmental issue is discovered? What if a beneficiary is inheriting property and an environmental issue is discovered or known? What can the personal representative or beneficiary do?
In general, state law provides that the personal representative has, without court authorization, powers specific to environmental issues relating to property subject to estate administration. See id. § 733.6121. State law provides no personal liability of a personal representative to any beneficiary or other party for a decrease in value of assets in an estate due to the personal representative’s efforts to comply with environmental law, including reporting. See Unif. Prob. Code § 5-430(e); Fla. Stat. § 733.6121(3). Thus, a personal representative should identify whether there are any environmental issues and immediately begin to comply with any reporting obligations.
Federal and state law typically provide that a beneficiary can disclaim any interest in or power over property. See 26 U.S.C. § 2518; Fla. Stat. § 739.104. That would encompass property in that state and elsewhere. If the estate administration attorney happens to be counsel to an estate beneficiary and that beneficiary discovers there are environmental issues, the attorney would be wise to advise the client,
and possibly the client’s heirs, to make a disclaimer where it appears the property is of no value. An issue comes up when there are no further beneficiaries following a disclaimer: Where does the property go? Who is in charge of the cleanup (the beneficiary now, the personal representative, or other beneficiaries (the non-disclaiming ones) of the decedent’s estate)?
Donating real estate to charity occasionally results in difficulties. As an example, child-beneficiaries can’t simply donate their inheritances in the family home to a local university and expect that university to accept their gift and, in turn, the Internal Revenue Service to allow a charitable deduction either for the contribution of the property or an easement given on the property for the home’s historic significance. These issues are illustrated in the following text.
If parents donate their home to a university, that university may not accept the gift. In fact, this can cause estate administration issues for, if the university won’t accept the gift, who should receive the home or proceeds of sale? Should the heirs be able to sell it and receive a monetary distribution following the sale, even though the parents had charitable intentions? Or should the principle of cy pres allow another charitable institution to receive the home as a gift in lieu of the university? In a recent Florida case, the principle of cy pres was allowed by a court in order to substitute one charity for another in accepting a gift of real property. Reno v. Hurchalla, 283 So. 3d 367, 371–72 (Fla. 3d DCA 2019). When a charity’s declination makes a charitable transfer impossible to receive, a trustee of a testamentary trust or successor trustee of a lifetime inter vivos trust would have the authority to modify the transferee to be an accepting charitable institution. In the estate administration context, this would come up if a testamentary trust
was used. Otherwise, if a will purported to distribute assets to beneficiaries free of trust, a Petition to Determine Beneficiaries could be used to petition the court to determine where proceeds from the sale or the home itself should go. Similarly, a Petition to Determine Beneficiaries can be a useful tool where a will creates a testamentary trust for beneficiaries who have outlived conditions placed in the trust (i.e., the trust terminates when the beneficiary attains age 25 and all beneficiaries have attained age 25; instead of creating a trust only to immediately terminate it to distribute assets to beneficiaries, a court could be presented with a Petition to Determine Beneficiaries whereby the judge is asked to set aside the testamentary trust terms in favor of a distribution directly to the testamentary trust’s ultimate beneficiaries).
Similar to charities, government entities have been known to decline charitable bequests. In one Massachusetts case, the decedent conditioned a gift of land and buildings to a town “[t]o be used as a home for aged women.”
Ford v. Rockland Tr. Co., 116 N.E.2d 669, 670 (Mass. 1954). The town voted not to accept the gift. Id. The issues presented in both Reno and Ford could have been avoided had the decedents spoken to the prospective beneficiaries, apprised them of their desire, and worked with the charitable beneficiary and town to come to an agreeable donation situation, or find another beneficiary or town.
A conservation easement allows property owners to donate their property interests in exchange for a charitable deduction. Charitable contribution deductions are generally restricted for a donation of an interest in property that is less than a taxpayer’s entire interest in said property. See Long Leaf Prop. Holdings, LLC v. Comm’r, No. 1198216, 2022 U.S. Tax Ct. LEXIS 192, at *5 (Aug. 31, 2022). “Qualified conservation contributions” (e.g., conservation easements) are an exception to the
general rule whereby a donation of an easement is in perpetuity. Id. The thinking goes that urban development of a particular area or parcel of property is desired, but that needs to be balanced with the preservation of scenic areas, natural resources, and cultural heritage within such area or parcel of property. Richard J. Roddewig, Conservation Easements & Their Critics: Is Perpetuity Truly Forever. . . And Should It Be?, 52 UIC J. Marshall L. Rev. 677, 679 (2019). The IRS pushes back at these easements when taxpayers, typically having been encouraged by a promoter armed with a questionable appraisal, take an inappropriately large deduction in exchange for the easement. Conservation Easements, IRS, https://bit.ly/3WRvfP7 (last visited Oct. 1, 2022). Further, abusive conservation easements have been found if deductions are taken when a taxpayer isn’t entitled to one at all (the property was used in a manner inconsistent with I.R.C. § 501(c)(3)). Id. Additionally, historic easements, particularly façade easements, have been abused when some taxpayers have taken improperly large deductions by agreeing not to modify the façade of their historic house (already subject to restrictions under local zoning ordinances). Id. The taxpayers may be giving up nothing, or very little, based on local zoning restrictions and ordinances. Id.
If an easement was donated based on the location and historical significance of the family home, a family personal representative should take care to determine whether the easement was proper: Is there a façade easement on the home even where there is a local restriction in place, is the appraisal of the easement from a reputable appraiser at a well-known valuation company, or was the charitable deduction misleading or suspect? Ways to avoid issues in the charitable deduction arena would be to abandon the charitable deduction, obtain an appraisal from a reputable appraiser, and check the local restriction in the area regarding development and changes to the local aesthetic. In an estate administration, the personal representative will have authority to make
decisions using the suggestions in the immediately preceding sentence.
The means by which real estate descends or is distributed from a decedent to the decedent’s beneficiaries or heirs varies from country to country. The varying approaches of the multiple jurisdictions that may need to be considered in an international estate plan will have significant bearing upon the estate planning options available to the client. To properly advise a client of the implications of an international estate plan, the estate administration attorney should be acquainted with the different approaches that countries take when distributing the assets of a decedent— that is, estate jurisdictions as opposed to inheritance jurisdictions.
In the United States, the assets of a decedent pass to a temporary and separate legal entity known as an “estate,” which is generally subject to judicial supervision. In “estate jurisdictions,” certain steps are completed before assets are distributed from the estate to heirs or beneficiaries. In these jurisdictions, a legal representative (e.g., the personal representative) is appointed by a court to undertake such steps. First, the personal representative collects the decedent’s assets and addresses ownership issues. Second, claims against the estate are identified. Third, those claims that are presented and validated are paid from the assets collected within the estate, as are expenses of administration. Valid claims that are secured by estate assets, whether by contract or by law, such as estate tax obligations and mortgages, are also paid. Finally, the remaining estate assets are divided and distributed according to the decedent’s will, if the decedent had a valid will; otherwise, the personal representative divides the remaining assets among the decedent’s heirs according to the law and distributes any resulting shares. See, e.g., Fla. Stat. § 732.101 et seq. If a tax is levied, it is generally levied as
an estate tax to be paid by the estate; a separate inheritance tax isn’t typically levied upon the recipients.
In contrast to estate jurisdictions, descent and distribution in other countries happen differently. In “inheritance jurisdictions,” a decedent’s assets pass to beneficiaries or heirs according to the decedent’s will or, if none, according to the country’s laws of descent and distribution. Italy is an example of an inheritance jurisdiction. In countries like Italy, there is no separate legal entity or “estate” through which a decedent’s assets pass. Unlike estate jurisdictions, inheritance jurisdictions do not provide a process for the identification and payment of creditors’ claims. Instead, beneficiaries or heirs take title to the decedent’s assets subject to the claims of the decedent’s creditors and tax obligations. Inheritance jurisdictions “pass down” obligations that the beneficiaries or heirs are then personally obligated to pay. Although this doesn’t preclude an heir from challenging the claims of the decedent’s creditors, a separate court procedure would have to be filed to address these claims. To completely avoid personal responsibility for these claims, beneficiaries or heirs must reject their inheritance within a certain period after the decedent’s death.
The nature of an asset having its situs in a foreign country may determine whether that country will claim jurisdiction over that asset and subject the same to its laws of descent, distribution, and taxation. It is important to determine the nature of the assets that the client may own or intend to own in any outside jurisdiction. US real estate located in one state is subject to the laws of that state, regardless of its owner’s state of domicile, and the same typically holds true of foreign real estate. That is, real estate is generally subject to the laws of descent, distribution, and taxation of the jurisdiction in which it is located. But this doesn’t mean that the foreign real estate isn’t also subject to tax by the country of
The practice of executing multiple wills is a favored international planning strategy involving the client’s execution of a different will for each of the countries implicated by the client’s international plan. The theory is this: I have real estate in a southern state and Canada; why not have a will in each jurisdiction? The practice evolved as a result of the varying requirements for the proper preparation and execution of wills. In certain jurisdictions, a will-maker’s execution of a will must be attested by lawyers or notaries; in other jurisdictions this isn’t required. Some jurisdictions allow handwritten, or holographic, wills; others do not. Some jurisdictions employ notarial wills that are transcribed and retained by notaries; others do not. The use of multiple wills, each of which is valid in the jurisdiction in which it is meant to operate, overcomes the problems that otherwise arise when a will made in one jurisdiction doesn’t conform to the requirements of the jurisdiction that controls the disposition of a particular asset. In some cases, the nonconformity of a decedent’s will adds complication and complexity to the process of distributing the decedent’s real estate. In other cases, the nonconforming will may be completely ineffective to dispose of real estate subject to that jurisdiction’s law of descent and distribution.
When properly implemented, multiple wills can mitigate risks plaguing the estate planning attorney. The advantage of this approach is that it can substantially facilitate the transfer of real estate following death. When real estate subject to the laws of a particular jurisdiction is to be transferred by way of a will prepared under the laws of that jurisdiction, the transfer will be more efficient and expeditious than the same transfer made by way of a will prepared under the laws of a foreign jurisdiction. This approach also ensures that the client’s dispositive desires are carried out
just as the client intended.
One issue with multiple wills is the level of complexity and expense that clients may want to avoid. More importantly, the use of multiple wills can have undesirable consequences. For example, in many jurisdictions, the execution of a will has the effect of revoking all prior wills and codicils. If a client signs multiple wills, there is a danger that a will meant to dispose only of real estate in a particular jurisdiction may have the unintended effect of revoking a prior will meant to dispose of real estate in another jurisdiction. Further, in inheritance jurisdictions, beneficiaries under a will who do not specifically renounce their inheritance may become liable for the obligations of the testator or inheritance taxes.
Despite the aforementioned risks, multiple situs wills are still common. That isn’t to say that efforts haven’t been undertaken to establish a universally acceptable form of will. In 1973, the International Institute for the Unification of Private Law, an intergovernmental organization aimed at harmonizing international laws (commonly referred to as UNIDROIT) developed the Convention Providing a Uniform Law on the Form of an International Will (the Convention). Jennifer Bost, Nothing Certain About Death and Taxes (and Inheritance): European Union Regulation of Cross-Border Successions, 27 Emory Int’l L. Rev. 1145, 1155–56 (2013). Under the Convention, participating countries have agreed to permit or recognize “international wills” that are prepared and executed under certain safe harbor guidelines enumerated in the Convention. Id. The Convention established a form of international will that could be used to dispose of property (including real estate) in any of the participating countries. The acceptable form of international will would be witnessed by two witnesses and a third “authorized” witness who is either a lawyer or notary. The authorized witness must ask the will-maker if she wishes to make a declaration concerning the safekeeping of the will. The authorized witness must then complete
a certificate of execution that must be attached to the will. Although the Convention doesn’t supplant any jurisdiction’s own laws and doesn’t require that practitioners use the international will form in all events, it gives estate planning attorneys the option of using such a form.
Although the United States isn’t a full signatory to the Convention, some states have thus far adopted the Wills Recognition Act (the WRA), which implements terms of the UNIDROIT Convention. See Prefatory Note, in Uniform Wills Recognition Act (1977), https://bit.ly/3jMFW6M (Feb. 3, 2015). Twenty states have adopted the WRA. 1977 Wills Recognition Act: Enactment History, Unif. L. Comm’n, https://bit. ly/3QiSXBj (last visited Sept. 28, 2022). Even if the United States doesn’t adopt the Convention, signatories to the Convention will recognize wills executed in the United States that are executed in accordance with the WRA.
In the United States, there are few inheritance restrictions. For example, the elective share, homestead, family allowance, and exempt property (vehicles, personal property, and qualified tuition plans) are property interests that must be distributed or given to certain individuals (absent a prenuptial agreement in some cases). See, e.g., Fla. Stat. §§ 732.201, 732.401, 732.402, 732.403. Otherwise, beneficiaries can be disinherited. Hodel v. Irving, 481 U.S. 704 (1987). In other countries, there is no concept of “disinheritance” or testamentary freedom. Beneficiaries inherit property based on birth order and gender, to the detriment of charities and other worthy causes that could have instead been chosen as the beneficiary. See Elaine Lam, Disinheritance vs. Forced Heirship: Comparative Study Between the Succession Regimes of the U.S. and France, 32 Prob. & Prop. 1, Jan/Feb 2018, at 40. Accordingly, when working with clients, it is important to retain local counsel where a client owns or can inherit property in a foreign country with
forced heirship. Likewise, in working with a client domiciled outside of the United States, it should not be assumed that clients realize they can disinherit certain beneficiaries, and the estate planning attorney must advise clients of their options.
Instead of outright ownership, a non-US decedent may use a US corporation (or other entity) or a foreign corporation (or other closely-held entity). Either one of these ownership structures, without more, could result in adverse tax consequences. See Robert H. Moore & Michael J. Bruno, When Intended Estate Planning Results in an Accidental Inversion, 27 J. Int’l Tax., no. 6, June 2016, https://bit. ly/3vJvwYp. Depending on the ownership, both of these could result in estate administration issues. For example, if real estate is owned by a limited liability company and the decedent was the sole member, the decedent’s heirs can’t simply sign off on a sale of the underlying property in their capacity as the successor managers, or successors-in-interest. Instead, the decedent’s estate plan would control where the decedent’s interest in the limited liability company would descend upon the decedent’s death and that successor member would have to sign off on the sale of property. If there is direct US property ownership by a foreign corporation or other foreign entity, care will need to be taken that the formalities in the foreign jurisdiction are followed to properly transfer the ownership interest of the decedent before sale. As mentioned above, the use of an entity could be problematic where the entity is used to try and avoid forced heirship; however, such a discussion is outside of the scope of this article.
The purpose of the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) is to govern the taxation of dispositions of U.S. real property interests by foreign persons. Id. at 5. Tax applies under FIRPTA if there is a sale of US real property by a foreign
individual. The reason for its application (under these circumstances) is that because Congress was desirous of collecting this tax, the buyer of U.S. real property from a foreign person is required, as withholding agent, to withhold 10 percent of the total amount realized by the foreign person. Jennie Cherry & Stephen K. Vetter, Dispositions of US Real Property Interests by Foreign Persons, Lexology (Sept. 14, 2006), https://bit.ly/3Gnvo5V. The seller may obtain from the IRS a certificate adjusting the amount that may be withheld from the sale. Id. But the thinking here is that Congress wanted the tax collected so it put it on the buyer to be the enforcer. Although most real estate agents understand this requirement, a decedent foreign property owner’s heirs may not and may only find out about the requirement following a real estate sale (as opposed to factoring it into the sales price before listing the real estate). This becomes an issue particularly because buyers may be less inclined to purchase a property owned by the estate of a foreign person (and the selling heirs may not understand this point of contention). A full discussion of this issue is outside the scope of this article, but note its existence where a foreign owner is the seller.
This article discussed real estate issues encountered in estate administration. It isn’t an all-exhaustive list of issues. For example, the author isn’t an international law expert, and experts in that field should be consulted for any of the international issues described above. By identifying some of the issues that can be encountered in the estate administration, estate administration attorneys are able to collaborate with their colleagues to come up with unique solutions for unique issues. n
DIVORCE: Revocation on divorce statute applies when insured dies after effective date. South Carolina’s revocation on divorce statute, S.C. Code Ann. § 62-2-207, was amended in 2013 to apply to life insurance beneficiary designations, among other non-probate property designations. In Meier v. Burnsed, No. 2019-000518, 2022 WL 4488505 (S.C. Ct. App. Sept. 28, 2022), the South Carolina intermediate appellate court for the first time dealt with an appeal of a trial court decision holding that the amended statute did not apply to a life insurance beneficiary designation where the policy was purchased and the divorce occurred before the effective date of the amendment even though the insured ex-spouse died after the effective date. In an opinion examining cases from several other jurisdictions, the court reversed, holding that the statute does apply, based on the statute itself, the law of other states dealing with similar statutes, and the surviving ex-spouse’s lack of any vested right in the policy.
ERISA: Profit-sharing plan is unassignable and therefore exempt from levy. A creditor garnished a debtor’s interest in a profit-sharing plan and an IRA. The party holding the plan and the IRA moved to intervene to ask the court to formulate an order on the disposition of both assets. The trial court denied the motion, ordered the liquidation of both assets and delivery of the proceeds to the creditor, then reconsidered concerning the profit-sharing plan, holding that it was exempt because
ERISA preempted California law. On appeal, the intermediate appellate court in Coastline JX Holdings LLC v. Bennett, 296 Cal. Rptr. 3d. 437 (Cal. Ct. App. 2022), affirmed, using a different rationale. The profit-sharing plan is subject to ERISA under which it is not assignable. Under California Law, Calif. Enf’t Judgments L. §§ 695.030 & 704.210, property that is not assignable is exempt from levy. ERISA preemption is not involved. The order with respect to the IRA stood because the debtor did not file a timely appeal.
2022), holding that the language regarding retirement accounts was sufficiently specific to constitute a valid waiver and was not preempted because the agreement applies only to the surviving spouse’s actions with regard to the accounts following distribution by the plan administrator.
EXECUTOR: Court lacks authority to refuse letters to nominated personal representative who is qualified. In its opinion in Araguel v. Bryan, 343 So. 3d 1236 (Fla. Dist. Ct. App. 2022), an intermediate Florida appellate court held that the trial court lacks the authority to refuse to appoint as the executor of a testator’s estate the person named in the decedent’s will who satisfies the statutory requirements—that is, is a resident of Florida at the time of the decedent’s death, is sui juris, and has not been convicted of a felony—even though the trial court determines that the nominee may have a conflict of interest with the estate.
Contributors
Paula Moore, Prof. William P. LaPiana, and Jake W. Villanueva.ERISA: Separation agreement is sufficient waiver and enforceable without regard to ERISA. Spouses entered into a separation agreement in anticipation of divorce. The agreement specifically stated that it would be enforceable against each party’s estate. The agreement also stated that each spouse was entitled to one-half of the total retirement assets acquired during the marriage. One spouse died before the entry of a final decree of dissolution, and the personal representative of the estate sought a judgment declaring that the surviving spouse was entitled to one-half of the decedent’s retirement accounts. The Superior Court found that the agreement was a valid waiver and not preempted by ERISA. On appeal by the surviving spouse, the Washington intermediate appellate court affirmed in Matter of Estate of Petelle, 515 P.3d 548 (Wash. Ct. App.
HARMLESS ERROR: Harmless error rule authorizes probate of lost will. The testator’s original will had been in the testator’s possession and could not be found after the testator’s death. The testator’s child, who was the nominated executor, offered a copy for probate, and the decedent’s other children denied any knowledge of a will and asked the court to open an intestate administration. Both parties moved for summary judgment, and the trial court ordered probate of the will, finding that the will had not been in the testator’s “exclusive possession” because all of the children had access to the place where it was kept in the testator’s residence and that the will did express the testator’s testamentary intent. The New Jersey intermediate appellate court in Matter of Estate of Iapalucci, No. A-367020, 2022 WL 5054416 (N.J. Super. Ct. App. Div. Oct. 5, 2022), affirmed,
Keeping Current—Probate offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.
holding that although the law does not require that the will be in the testator’s “exclusive possession” for the presumption of destruction with intent to revoke to have effect, clear and convincing evidence showed that the will expressed the testator’s testamentary intent and was entitled to probate under the harmless error rule codified in N.J. Stat. Ann. § 3B:3-3.
NO-CONTEST CLAUSES: Untimely challenge to trust violates no-contest clause. California law, Cal. Prob. Code § 16061.7, requires the trustee of a revocable trust to give notice to the beneficiaries of certain events in the life of the trust to permit them to bring an action to contest the validity of the trust within given time limits. In its opinion in Meiri v. Shamtoubi, 297 Cal. Rptr. 3d 397 (Cal. Ct. App. 2022), a California intermediate appellate court held that a contest can be subject to an enforceable no-contest clause even though it is brought after the expiration of the time limit triggered by proper notice of the trust becoming irrevocable. The untimely nature of the contest also means that there is no “reasonable likelihood” that relief can be granted, and therefore it was brought without probable cause.
SPENDTHRIFT TRUSTS: Funds set aside for debtor-beneficiary are not subject to levy. A creditor garnished the debtor’s interest in two discretionary trusts whose terms included valid spendthrift provisions. The trial court denied the beneficiary’s motion to quash, and, on appeal, the Iowa intermediate court in A.Y. McDonald Industries v. McDonald, No. 21-1365, 2022 WL 3905059 (Iowa Ct. App. Aug. 31, 2022), affirmed as to one trust because the decision was res judicata but reversed as to the other where the trustee continued to hold dividends on closely-held stock in what appears to be a sub-trust. The court concluded that because the trustee continued to hold the funds in trust, they had not been distributed and therefore were not subject to the creditor’s claim because the trust was discretionary and the creditor
could not compel the trustee to make a distribution.
WILL EXECUTION: Signatures of witnesses on self-proving affidavit but not will is sufficient execution. Evidence showed that the testator signed the testator’s will in the presence of two witnesses and a notary. Although the testator signed the will, the witnesses signed only the self-proving affidavit attached to the will and their signatures were notarized. The will was admitted to probate, and a disinherited child of the testator appealed on the grounds that the will had not been duly executed because the witnesses had not signed the will. The intermediate Connecticut appellate court in In re Harris, 282 A.3d 467 (Conn. App. Ct. 2022), affirmed the decree, holding that, based on prior judicial decisions, the testator’s signature was properly attested by two witnesses.
CHARITABLE REMAINDER ANNUITY TRUST: Taxpayers cannot deduct value of crops transferred to trust as a charitable deduction. The taxpayers transferred in kind agricultural crops to the CRATs. The trusts used the proceeds from the sale of the crops to purchase annuity plans. The plans made cash distributions to the taxpayers. The Tax Court in Furrer v. Comm’r, T.C. Memo 2022-100 (2022), determined that the taxpayers were not entitled to charitable contribution deductions for the portions of the crops transferred to the trusts. The court reasoned that taxpayers did not provide any substantiation for the value of the crops transferred. Also, any charitable deduction would be limited to their cost or adjusted basis in the crops, but their basis was zero as taxpayers had fully expensed all costs of growing the crops. Additionally, the annuity distributions were taxable to the taxpayers as ordinary income because the sale of the crops from which the annuities were purchased was ordinary income to the CRATS. The distributions are ordinary income to
the extent that the trusts received ordinary income from the crops.
TAX DEFICIENCY: The trustee could not substitute for the decedent when filing a petition to redetermine tax deficiencies. At the decedent’s death, her daughter became the sole trustee of a trust the decedent had established during her life. Her heirs did not open a probate estate, and thus there was no court-appointed personal representative. The daughter as trustee filed a petition for redetermination of deficiencies after the IRS issued a notice of deficiency to the decedent. The Tax Court in Sander v. Comm’r, T.C. Memo 2022-103 (2022), determined that the daughter as trustee could not be substituted for the decedent as a party in the determination case. Florida law did not authorize the trustee to bring the action, as no trust property was directly involved. The Tax Court reserved ruling on the motion to dismiss for lack of jurisdiction to allow probate to be opened for the estate and a personal representative to be appointed.
TAX REFUND: Trust must return refund proceeds to IRS. The decedent’s trust became irrevocable at death. The trust assets included an ownership interest in a limited liability company. The company reported capital gains in 2009 and 2010, which resulted in flowthrough income to the trust. After the decedent’s death, his estate borrowed money from the company. The interest paid by the estate to the company resulted in flowthrough income for the trust. The flowthrough income was reported. Separately, the estate filed a petition in tax court objecting to proposed adjustments to its Form 706. The parties’ settlement limited, among other things, the estate to a deduction of 6 percent interest on the note. As a result, the trust accrued less interest as income for 2010. The trust filed a tentative claim for refund on Form 1045 to recover an overpayment of income tax paid by the trust for 2009 and 2010. The company did not file an amended partnership income tax return. The Tax Court in Richard
J. O’Neil Trust v. Comm’r, T.C. Memo. 2022-109 (2022), determined that the trust was not the appropriate taxpayer to file a claim for a refund. It also held there was no claim of right because the company had an unrestricted right in the sales proceeds. No portion of the item was repaid as a result of the legal disputes involving the company. The trust’s right to the income was always unrestricted, and Section 1341 claim of right did not apply. The trust’s mitigation theory failed as the trust should have filed a refund claim for the years it claims it overpaid—2009 and 2010 — but instead, it filed for 2014. The trust’s equitable recoupment theory failed because the trust is not the appropriate party to seek a refund. The deficiency upon which the argument is based arises from deficiencies directly related to the estate’s taxes, not the trust’s.
EAST ASIAN LAW: In Cross-Border Trust Disputes and Choice of Law in East Asia, 31 Wash. Int’l L.J. 117 (2021), Ying Khai Liew analyzes the choice of law rules in the Hague Convention on the
Law Applicable to Trusts and on Their Recognition, ultimately suggesting that the four East Asian jurisdictions (Japan, Korea, Taiwan, and China) should develop comprehensive choice of law rules based on the Convention.
In Guardianships vs. Special Needs Trusts, and Other Protective Arrangements: Ensuring Judicial Accountability and Beneficiary Autonomy, 72 Syracuse L. Rev. 423 (2022), A. Frank Johns, Robert D. Dinerstein, and Patricia E. Kefalas Dudek focus on rising tensions and conflicts (perceived and actual) occurring among guardianships, special needs trusts, and other protective arrangements. They present policy recommendations and practice pointers for working groups and National Guardianship Summit delegates to consider in their deliberations.
INHERITED CITIZENSHIP: In Inheriting Citizenship, 58 Stan. J. Int’l L. 1 (2022), Scott Titshaw analyzes the history, current rules, global trends, politics, and particularly the purposes of formal inherited citizenship laws around the world, exploring the relevance of whether the rules play a primary or supplemental role in defining a nation’s citizenry.
RIGHTS: Gary E. Spitko’s article, Integrated Nonmarital Property Rights, 75 SMU L. Rev. 151 (2022), argues that, despite the increasing prevalence of nonmarital cohabitants, American family property law generally fails to support unlicensed nonmarital couples and proposes an “integrated” approach to nonmarital property rights.
GAP: Sarah Moore Johnson and Raymond C. Odom propose to use tax policy to repair the racial wealth gap. In The Forgotten 40 Acres: How Real Property, Probate & Tax Laws Contributed to the Racial Wealth Gap and How Tax Policy Could Repair It, 57 Real Prop. Tr. & Est. L.J. 1 (2022), the authors posit that these reparations can be achieved by
using the estate tax and new charitable contribution rules to create a public and private partnership that makes both direct payments and communitybased payments with a focus on the cornerstone of all American rights, that is, property.
SPERM DONOR PRIVACY: In her Note, Privacy vs. Identity Rights: A Call for the United States to Adopt the United Kingdom’s “Open ID” System for Artificial Reproductive Technology, 54 Case W. Rsrv. J. Int’l L. 419 (2022), Rachel L. Emerson argues that, as a social policy issue, the United States must learn from other countries to provide a unified and sustainable solution that balances the identity rights of a donor-conceived child and the protection of the privacy rights of gamete and embryo donors.
Rebekah Diller explores the potential of SDM for older adults, identifies some of the obstacles that have prevented SDM from being used more broadly by this population, discusses ways of surmounting those obstacles, and makes recommendations for how we can move forward to ensure that older adults’ human and decision-making rights are respected on an equal basis to others in the United States in Supported DecisionMaking Potential and Challenges for Older Persons, 72 Syracuse L. Rev. 165 (2022).
CALIFORNIA enhances its provisions governing guardians ad litem. 2022 Cal. Legis. Serv. Ch. 843.
CALIFORNIA establishes procedures for the replacement of an incapacitated or deceased professional fiduciary. 2022 Cal. Legis. Serv. Ch. 612.
CALIFORNIA updates the law regarding accounts complying with the federal Achieving a Better Life Experience Act of 2014. 2022 Cal. Legis. Serv. Ch. 896.
DELAWARE enacts the Revised Uniform Law on Notarial Acts. 2022 Del. Laws Ch. 425. n
When a condominium or cooperative decides to incorporate sustainability modifications into its buildings, it is usually the result of some basic fundamentals. Some of these include a desire to reduce operating expenses, including a reduction in energy and water use. Other factors could be to improve resident health and safety, increase value, or comply with a law that requires that the property become greener. Whatever the reasons, if the entity controlling the property is a cooperative or condominium, it generally has some typical and otherwise condo- or coop-specific protocols that need to be followed so that
the buildings reach the sought-after sustainability goal. This article will show how a condominium or cooperative can achieve whatever the desired result with as little liability as possible. Although most of this article focuses on New York properties, they merely exemplify how many other cities and states are affecting the homeowner associations.
At the most basic level, sustainability efforts that result in cost savings make sense. The low-hanging fruit of swapping out fluorescent bulbs with LED bulbs is only the tip of the iceberg in making incremental green changes. Installing light sensors and waterreducing shower heads and faucets provides other examples of this concept. Replacing equipment that has reached, or will soon reach, the end of its useful life with energy-efficient equipment is yet another. There are
even some condominiums and cooperatives that have chosen to go green for the greater good. With the enactment of the Climate Mobilization Act of 2019 (the CMA), many properties must now go down the sustainability road. One thing is constant in anything being done under any green regime, however, which is that the condominium board of managers or cooperative board of directors needs to decide what gets done, how to do it, and, most importantly, how to pay for it.
A board is typically made up of ownervolunteers who devote their time to running the property. For larger, non-self-managed buildings, a paid managing agent typically takes care of the day-to-day issues, usually in conjunction with a resident manager. For issues requiring a material expenditure (as set forth by the board) or a major change in the property or its
staff, however, the board often makes the decisions to do or not to do certain things. In some cases, when an assessment needs to be imposed on shareholders or unit owners, a supermajority is required. Regardless of where the board obtains the authorization to have something done, whether from itself under the condo or coop organizational documents or from the shareholders or unit owners themselves, the board carries out or directs the action.
The Board’s Authority to Commence and Manage the Project. Coop boards have statutory authority, without shareholder approval, to perform retrofits to comply with law under New York Business Corporation Law (NY BCL) § 702. Condo boards, however, lack authority to undertake a similar renovation project, unless the condominium organizational documents
provide for it. See generally N.Y. Real Prop. Law §§ 339-d–339-kk (the Condominium Act). The default rule under the Condominium Act is that, if not specified otherwise in the condo’s bylaws, the condo board is barred from undertaking building improvements without unit owner approval. See Gennis v. Pomona Park Bd. of Managers, 828 N.Y.S.2d 472 (N.Y. App. Div., 2d Dep’t 2007). Nonetheless, condo boards that have certain renovations performed to comply with CMA (in particular, Local Law 97) without unit owner approval could assert that their decisions are protected by the business judgment rule, which “prohibits judicial inquiry into actions of [both coop and condo board] directors [which are] taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.” See Levandusky v. One Fifth Ave. Apartment Corp., 75 N.Y.2d 530, 537–38 (1990) (holding that the business judgment rule
shielded the board’s decision).
Initial Planning of the Project. Once the project is authorized by the board, the initial planning stage begins, which would usually require an energy audit, a retrofit plan, an assessment of capital need, and a financing plan.
• The Energy Audit and Retrofit Plan Initially, a consultant of sufficient expertise will need to be engaged. The consultant should be an engineer or environmental consultant, certified to conduct energy audits and determine current emissions and energy usage of the following: equipment, appliances, and lighting; windows; window air conditioners; hot water systems; any solar panels the building may have; the building’s ventilation; and the roof.
• The Cost Estimate and Financing Plan. Once the energy audit is complete with a list of recommended retrofits, the board
should develop a financing plan for the project. Funding methods are numerous and discussed below.
Project Management and Post-Completion Risks: Mitigating and Managing Cost Overruns and Other Project Liabilities. See Bill Henley, Planning and Managing a Construction/Renovation Project (PowerPoint), Nat’l Ass’n of Hous. Coops. Annual Conf. (2021). There are two primary types of legal risks that can arise from a cooperative or condominium’s green retrofit project: (a) common, traditional construction contractual claims; and (b) issues based on the cooperative or condominium’s failure to operate the enhanced project successfully. The first set of claims could arise from the contractor or subcontractor breaching the construction contract by failing to complete aspects of the project on time or as specified. These could be mitigated with simple provisions such as completion guarantees. See Completion Guaranties in Construction Financing, West Practical Law, Practice Note w-027-4065, https://bit.ly/3jcT44P, and provisions specifying with particularity the work to be done.
A common construction contractual pitfall arises from inevitable changes to the work during the course of the project. Because changes in scope and design are almost always inevitable, it is crucial for cooperatives and condominiums to ensure that the construction contract include provisions that (1) authorize changes to be made to the work (specifically authorizing either increasing or decreasing the scope of the project) without voiding the contract; (2) obligate the contractor to perform the permitted changes, even if an agreement cannot be made about whether the change does or does not arise from the original scope, and entitle the contractor to an increase in compensation due to the change order; (3) allow for any decrease or increase in the monetary amount given in the contract; and (4) determine whether the contractor is entitled to extensions of the contract schedule, and if so, for how long. Changes in the Work in Construction Contracts: Drafting Strategies, West
Practical Law, Practice Note 5-573-5705, https://bit.ly/3BWpkQt.
Another set of legal issues relating to green retrofit projects involves ongoing compliance with law in the operation of the buildings. In this regard, making the retrofit itself only gets the condominium or cooperative part of the way to satisfying legal compliance—i.e., the results from the retrofit are what matter. A prudent method for managing this type of liability is for the parties to allocate the risk. Although a design professional or contractor may have designed and constructed a retrofit with a specific local law’s requirements in mind, a party should be liable if the project’s goals are not realized. In this case, a provision for risk allocation may take the form of an indemnity from the architect or contractor but will probably have a requirement that the retrofit be operated under any manufacturer’s specifications. Furthermore, there will probably be a time limitation on such indemnification. The prudent condominium or cooperative should have the installed equipment commissioned before taking over operation of it. Accordingly, while there is currently no New York judicial precedent on failure of compliance with CMA, boards should consider contractual options for limiting liability.
Once a board decides which of the myriad things it desires to (or is required
to) implement, the real work begins, both procedurally and physically. Typically, an architect or engineer will be engaged to determine what needs to be done, and then a contractor or contractors will bid on the job. Once the total cost is ascertained, the second item of business is how the condominium or cooperative will pay for it. There are many routes that can be followed in that regard, and, in each case, there could be long-term effects on the shareholders and unit owners.
For some condominiums and cooperatives, there may be a reserve fund that is set aside already for major capital improvements. It could be that this account was created by forward-thinking boards and may satisfy the cost of the work. But the amount of the reserve fund may be insufficient to pay for everything planned. In that case, the shareholders and unit owners are the ones who may need to foot the bill or any resulting deficiency in funding, either upfront or through financing. Keep in mind that these funds need to be in place, or at least programmed to be in place, when needed. Some of the ways to pay for the work are discussed below.
Raising Monthly Fees. One way to plan to pay for a sustainability upgrade is by raising the monthly fees charged to shareholders or unit owners so that, over time, the increases will pay for the work. Although this is a viable methodology, it lacks practicality in two respects. First, any increase, except a material one that would produce undue hardship among those having to pay them, will need a long lead time before there are enough funds available for the work. Second, increases in maintenance or common charges are not tax-beneficial to the owner of the property, except in the case of investment property. One advantage of increasing monthly maintenance or common charges, however, is that shareholder and unit owner approval is not required. See NY BCL § 702, which states that a corporate board of directors has the sole authority
Making the retrofit itself only gets the condominium or cooperative part of the way to satisfying legal compliance—the results from the retrofit are what matter.
count if the assessment is paid up front, in full. One disadvantage of imposing an assessment, however, is that shareholder or unit owner approval is typically required. That, in and of itself, has its own logistical issues. If an annual meeting is not taking place soon after the board’s decision to make a green enhancement to the property, a special meeting will have to be called for which a quorum needs to be present, as it does for an annual meeting, and receiving the required number of votes approving the assessment is mandatory. Id.
Payment Plan. One way to help fund a green project that boards might and should consider is to ask the contractor performing the work to provide for a payment plan, with or without interest. Although not typical, attorneys representing boards should recommend that they find out if the contractor is willing to do this. If the contractor is so willing, it may be more financially beneficial to the cooperative or condominium than
any other form of financing, especially if no interest is imposed on balances
Institutional Financing. Another method to pay for the work is through traditional institutional financing, i.e., a bank loan, which could be a mortgage or a line of credit. Each has its own advantages and disadvantages.
Coop Financing. Many cooperatives already have a historical mechanism for borrowing money. Most of them have underlying mortgages already. Because the cooperative corporation is the entity owning the real property, the coop has the ability to borrow against that collateral. See Richard J. Kane, The Financing of Cooperatives and Condominiums: A Retrospective, 73 St. John’s L. Rev 101, 115–16 (1999).
Condo Financing. Condominiums have a different set of rules. Until the late 1990s, New York condominiums were unable, as entities, to borrow funds, except in limited circumstances in which they were able to borrow with a mortgage on a super’s (now called “resident manager’s”) apartment. In 1997 this limitation was removed, and there is a mechanism for condominiums to borrow against “future income
are various financing resources avail able for green property enhancements. See Michael A. Bedke, Owning and Leasing Green Real Estate, Westlaw: Practical Law: Real Estate (2022), https://tmsnrt. rs/3vcqiE9. These typically-discounted borrowing opportunities are uniquely beneficial because they can offset the costs of green retrofits, thereby lessening the burden that would otherwise need to be satisfied through assessments or, in the case of coops, increased mortgage borrowing. The following is a list of common financing mechanisms that are applicable to green property enhancements in New York:
• Property Assessed Clean Energy (PACE) Financing. The Basics of PACE. PACE “pays for 100% of the hard and soft costs of completing an energy efficiency, renewable energy or resiliency project.”
See What Is PACE Financing?, PACENation (2019), https://bit. ly/3Vl1IMb. PACE is “a financing mechanism that enables low-cost, long-term funding for energy efficiency, renewable energy and
on the property’s regular tax bill, and is processed the same way as other local public benefit assessments (sidewalks, sewers) have been for decades . . [and] [d]epending on local legislation, PACE can be used for commercial, nonprofit and residential properties.” See PACE Basics, PACENation (2016), https://bit. ly/3BWtKH3.
o NYC Accelerator PACE Financing. The CMA authorized a New York City PACE program called the “NYC Accelerator PACE Financing,” which nyc. gov describes as “an innovative financing tool to benefit all commercial and multifamily building owners . . offer[ing] building owners a new way to fund energy efficiency and renewable energy projects that can dramatically decrease their utility bills.” See NYC Accelerator PACE Financing, NYC Accelerator (2022), https://
on.nyc.gov/3HRpNai. Property owners can connect with quali fied PACE lenders and apply for PACE financing on the NYC Accelerator PACE website. See NYC Mayor’s Off. of Sustainability & NYC Energy Efficiency Corp., NYC Accelerator PACE Financing: Program Guidelines 2 (Apr. 22, 2021), https://on.nyc. gov/3VkcqSX.
o NYC Accelerator PACE Financing Eligibility Requirements. To be eligible for NYC Accelerator PACE financing, applicants must meet the requirements set forth in the Rules of the City of New York (City Rules) and the corresponding guidelines published by the NYC Mayor’s Office of Sustainability and the NYC Energy Efficiency Corporation (NYC PACE Guidelines). Id. The City Rules require applicants to meet three factors:
(1) be the property owner,
(2) enter into the program with a qualified lender, and
(3) comply with other project
Accelerator PACE Financing can pay for not only 100 percent of the hard costs of green retrofits, but also a broad array of green projects required in the retrofit process, such as energy audits and renewable energy system feasibility studies. Moreover, the NYC PACE Guidelines help to protect the interests of condo unit owners and cooperative shareholders by requiring applicants’ projects to meet various financial integrity standards, including that projects must have a Savings-to-Investment Ratio (SIR) of 1.0 or greater and that all holders of mortgages on the subject property must provide consent to the NYC Accelerator PACE Financing loan and its terms. Finally, the NYC Accelerator PACE Financing has no monetary limit: If the elements listed in the City Rules and NYC PACE
Guidelines are satisfied, then the property owners receive whatever amount is necessary for the covered project. The NYC Accelerator PACE Financing loan also does not require applicants to meet a specific amount of potential emissions reductions for their project to receive approval; rather, projects must merely be considered feasible.
• Green Bonds. See Bedke, Owning and Leasing Green Real Estate, supra. Green bonds are liquid, fixed-income financial instruments sold to raise capital exclusively for environmentally friendly projects and activities. New York State’s Green Jobs Green New York Program issues bonds to fund sustainable community development projects, generate green jobs, and create a revolving loan fund to finance energy audits and green retrofits for the owners or occupants of residential, multifamily, small business, and not-for-profit structures. Private entities, including real estate investment trusts (REITs), also issue green bonds. Id. (highlighting bonds issued by Bank of America, Vornado Realty, Boston Properties, Kimco Realty Group, Digital Realty Trust, and Equity Residential). As the green bond market continues to develop in the United States, opportunities for developers and owners of coops and condos to fund their green projects with green bonds should proliferate. See Jake Mooney & Chris Hudgins, Green Bonds Growing as a Share of REIT Debt Issuance, S&P Glob.: Mkt. Intel. (Sept. 13, 2021), https://bit. ly/3YMjhHK.
• New York City’s Green Housing Preservation Program (GHPP). See Home Repair and Preservation Financing: Green Housing Preservation Program, N.Y.C. Dep’t of Hous. Pres. & Dev. (2022), https:// on.nyc.gov/3WCMhQl. GHPP provides low, or no-interest, loans for
energy efficiency and water conservation enhancements, lead remediation, and moderate rehabilitation work for small and midsize building owners. Eligible buildings must have “at least 3 units and less than 50,000 square feet (approximately 50 units) that require energy efficiency and water conservation improvements . . . [and] [p]roject scopes of work must reduce a building’s energy usage by at least 20%.”
NYC’s Department of Housing Preservation and Development (HPD) is permitted to lend up to $50,000 per residential unit for buildings needing moderate rehabilitation work and up to $80,000 per residential unit for 3–15-unit buildings requiring more substantial work. If an applicant needs additional funds to complete the project, HPD will work with the applicant to find private funding with favorable terms. For owners requiring assistance with pre-development costs arising from the loan closing (for example, building assessment or IPNA, architect or engineer, environmental reports, legal fees, etc.), HPD, in partnership with the New York City Energy Efficiency Corporation (NYCEEC), has established a pre-development loan fund for owners working with HPD. The loan application is a three-page form and funds, if approved, will be deposited within one to three weeks of loan application submission. Notably, “[i]n exchange for our assistance, participants enter into an affordability agreement with HPD.”
• Green Tax Incentives See Bedke, Owning and Leasing Green Real Estate, supra; Michael Scorrano, Preparing for the Climate Mobilization Act (PowerPoint), 20210210P NYCBAR 8, https:// bit.ly/3jtkzHm. At the federal level, tax benefits for green improvements include the Internal Revenue Code’s energyefficient commercial building tax
deduction, which is available for a variety of green construction expenditures. The tax deduction is for an amount equal to the cost of the energy-efficient building placed into service during the taxable year, subject to a cap. The US Department of Energy (DOE) maintains a directory of tax savings available both nationally and on a state-by-state basis.
On April 18, 2019, the New York City Council passed the CMA. See Climate Mobilization Act: The New York City Council Passed #GreenNewDeal4NY to Mitigate the Significant Effects of Greenhouse Gas Emissions from Buildings, N.Y.C. Council, https://on.nyc. gov/3Ga26sp (last visited Feb. 11, 2021) [hereinafter NYC Council Passed CMA]. The CMA’s primary purpose is to reduce the greenhouse gas emissions (GGE) produced by buildings in New York City. See Press release, NYC Mayor’s Off., Mayor de Blasio Signs Executive Order to Adopt Goals of Paris Climate Agreement for New York City (June 2, 2017), https://on.nyc.gov/3FRQ4m4; Greenhouse Gas Emission Reporting, N.Y.C. Dep’t of Bldgs., NYC Codes (2022), https://on.nyc.gov/3GaB1FA. By restricting large buildings’ GGE, the CMA is intended to further the city’s goal to “achieve carbon neutrality and 100 percent clean electricity.”
See N.Y.C. Mayor’s Off., Executive Summary to OneNYC 2050: Building a Strong and Fair City 15 (Apr. 2019), https://bit. ly/3WzoiBG. The CMA regulates not only office buildings, but also residential buildings, which contribute a large share of the city’s carbon emissions. NYC Council data show that residential use accounts for 36 percent of New York City’s GGE from buildings over 50,000 square feet—the largest share of GGE of all uses identified in the dataset. NYC Council Passed CMA, supra. The centerpiece of the CMA is Local Law 97 of 2019 (LL 97), which limits GGE for “Covered Buildings,” including (i) buildings that are greater than 25,000 square feet (see N.Y.C. Local Law 97 (2019),
https://on.nyc.gov/3FJkBm6); (ii) tax lots containing more than one building and that in the aggregate exceed 50,000 square feet; and (iii) more than one building held in condominium form that are governed by the same board of managers and that in the aggregate exceed 50,000 square feet. See N.Y.C. Admin. § 28-320.1 (noting exceptions to the definition of covered buildings). Once the limits begin in 2024, a covered building must show, in mandatory annual emissions reports, that the building’s emissions are under the applicable limits. See id. § 28-320.3.7 (detailing when reports must be filed with the department). Noncompliant buildings face a fine of $268.00 multiplied by the difference between the emissions limit for a given year and the emissions that the building reported. See id. § 28-320.6. For many buildings, compliance during the 2024–2030 period will not be an issue, as it is estimated that only 20 percent of covered buildings will be out of compliance during that time. See Justin Gerdes, After Pandemic, New York’s Buildings
Face Daunting Decarbonization Mandate, Green Tech Media (Apr. 23, 2020), https://bit.ly/3VkEpCf. This figure is estimated to exceed 75 percent by 2030, when compliance targets are set to increase dramatically. Id. Because compliance with the CMA could be a costly endeavor, cooperatives and condominiums should begin planning to ensure retrofits are affordable. The silver lining to the CMA is that carbon emissions limits will make many residential buildings greener—and, usually, more energy efficient. See, e.g., Energy Star Impacts: Energy Star for the Residential Sector, US Env’t Prot. Agency (EPA) & DOE: About Energy Star (2020), https://bit. ly/3v9bypE.
Limiting Carbon Emissions. LL 97’s emissions limits vary depending on the “occupancy group” of the particular property. Occupancy groups are “groups and sub-groups . . established for classifying buildings and spaces” in accordance with use. See N.Y.C. Admin.
§§ 27-234–27-287 (“Occupancy and Construction Classification”), https:// on.nyc.gov/3WFqbN4. Because cooperatives and condominiums are multifamily residential properties, they are covered buildings and must comply with the emissions limits applicable to their occupancy group. If cooperatives and condominiums have nonresidential portions of their property, however, they must also review the limits for the particular nonresidential use and ensure the emissions released by those portions are within the applicable limits. See N.Y.C. Bldg. § 508.1 (for mixed use buildings, “[e]ach portion of a building shall be individually classified . . . [and] [w]here a building contains more than one occupancy group, the building or portion thereof shall comply with the applicable provisions”). The occupancy groups and their respective emissions limits are given in the above table. See N.Y.C. Admin. §§ 28-320.3.1–28-320.3.5 (stating the GGE limits for each period until 2050); N.Y.C. Bldg. §§ 301–312 (stating the occupancy group classifications).
How to Comply with the CMA Potential Retrofits. There are several ways a condominium or cooperative can comply with LL 97 and the other CMA requirements without having to face any penalties. The most obvious way is to reduce carbon emissions. The following is a list of things that can be done to achieve this. Although the list is not exclusive, it provides some concrete retrofit suggestions.
Equipment, Appliance, and Lighting Upgrades. See, e.g., Ask the Experts: How-To, US EPA & DOE: Energy Star: Ask the Experts, https://bit.ly/3BUpCak (last visited Sept. 18, 2022); Energy Saver: Lighting Choices to Save You Money, US DOE: Energy Saver, https:// bit.ly/3Vqzn6V (last visited Sept. 18, 2022).
• Replacement of appliances with highly rated ENERGY STAR appliances and, when possible, gas ranges with electric ones. See Energy Efficiency Products for Consumers, US EPA & DOE: Energy Star, https://bit.ly/3Gb7jPJ (last visited Apr. 7, 2022).
• Replacement of existing bulbs and lamps with LED bulbs. See US DOE, Electricity & Fuel: LED Lighting, US DOE: Energy Saver, https:// bit.ly/3ve89pF.
• Installation of smart plugs for remote control of equipment and appliances. Smart plugs and smart thermostats that offer energy monitoring are even better to help with data reporting. See Emily Kemper & Dane Christensen, Adopting Energy Efficiency in Connected Homes, 11th Rocky Mountain Util. Efficiency Exch. (Sept. 27–29, 2017), https://bit. ly/3YMFcPi.
• Installation of occupancy sensors, timers, or daylight detectors for all common areas, equipment rooms, and fire stairwells (all subject to compliance with local laws). Id
• Installation of motion sensors in common areas such as hallways, laundry rooms, and health clubs. See Electricity & Fuel: Lighting
Controls, US DOE: Energy Saver, https://bit.ly/3PQQPjP (last visited Sept. 18, 2022).
• Insulation of hot water and heating pipes. See Services: Do-It-Yourself Savings Project: Insulate Hot Water Pipes, US DOE: Energy Saver, https://bit.ly/3FS6Txb (last visited Sept. 18, 2022).
• Installation of a separate hot water heater as opposed to having hot water heated by the boiler. See Heat & Cool: Tankless or Demand-Type Water Heaters, US DOE: Energy Saver, https://bit.ly/3I0Gjoq.
Window Replacements. See Design: Windows, Doors, & Skylights, US DOE: Energy Saver, https://bit.ly/3HYN9Lh (last visited Sept. 18, 2022). Older windows can often be energy inefficient as they may have merely single or double glazing or leak air, either where the pane sits or from the window frame. See NYC Landmarks Pres. Comm’n, Fact Sheet: Repairing, Retrofitting and Replacing Windows at 1 (Jan. 30, 2017), https://on.nyc. gov/3FO4iEx. Buildings can improve energy efficiency by replacing windows with those that are:
• High performance—see High-Performance Window System, US DOE, Off. of Energy Efficiency & Renewable Energy, Bldg. Am. Sol. Ctr., https:// bit.ly/3HTwSqS (last visited Sept. 18, 2022);
• Triple glazed—see Bldg. Energy Exch. & NYC Retrofit Accelerator, Tech Primer: High Performance Windows: State-of-the-Art Windows Significantly Improve Comfort, Reduce Operating Costs, and Save Energy (Jan. 2020), https://on.nyc.gov/3I2NWdZ; or
• Airtight. Id.
Window Air Conditioner Replacements. See Why You Should Switch to a New Energy-Efficient AC System, PETRO Home Servs.: Res. Ctr. (2022), https://bit. ly/2VRdu6i.
• High ENERGY STAR ratings. See US EPA, About ENERGY STAR® 2020, (Apr. 2021), https://bit. ly/3Vg3Q7X.
• Air sealing around windows. See Bldg. Energy Exch. & NYC Retrofit Accelerator, Tech Primer: Air Sealing
at Room Air Conditioners: Low-Cost Measures to Increase Cooling Efficiency and Improve the Building Envelope (June 2021), https://bit. ly/3hONi9o.
Domestic Hot Water Systems. See Heat & Cool: Selecting a New Water Heater, US DOE: Energy Saver, https:// bit.ly/3HVf5Q9 (last visited Sept. 18, 2022).
Going Electric. See Urban Green Council, Going Electric: Retrofitting NYC’s Multifamily Buildings 30–31 (Apr. 22, 2020), https://bit.ly/3FUbXBp.
• Installation of non–fossil fuel systems to electric systems. See id.
• Installation of heat pumps. Id. at 6–12, 28.
Solar Panels. See Planning a Home Solar Electric System, US DOE: Energy Saver, https://bit.ly/3hOQQZa (last visited Sept. 18, 2022).
Building Ventilation. See Weatherize: Ventilation, US DOE: Energy Saver, https://bit.ly/3WnUiJa (last visited Sept. 18, 2022).
• Replacement of older exhaustonly ventilation systems with balanced systems. See Weatherize: Whole-House Ventilation, US DOE: Energy Saver, https://bit.ly/3jlJf4J (last visited Sept. 18, 2022).
• Addition of an energy recovery ventilation system.
• Increased airtightness throughout the ventilation system.
Roof Repairs. See Jack Wisniewski, 7 Energy-Efficient Roofing Options That Save You Money, Fixr (Apr. 13, 2021), https://bit.ly/3PTJ4dg.
• Green Roofs. See US EPA, Heat Islands: Using Green Roofs to Reduce Heat Islands, US EPA, https://bit.ly/3Wl3kqv (last visited Sept. 18, 2022).
• Cool Roofs. See NYC CoolRoofs NYC Bus. (2022), https://on.nyc. gov/3YIQ5S2.
There are also alternative methods for compliance authorized by LL 97. These include carbon offsets—specifically, a deduction of up to 10 percent of a building’s emissions limit with no geographical restriction, but the offset must be generated in the same year
2029. See William D. McCracken, Big Questions (and Some Answers) About the Climate Mobilization Act (PowerPoint), Hot Topics Affecting Cooperatives & Condominiums 2020: Climate Mobilization Act, 20200423P N.Y.C. Bar 44, 2020 WL 6591734 (Apr. 23, 2020); N.Y.C. Admin. § 28-320.3.6. Cooperatives and condominiums may also deduct from emissions limits by means of renewable energy credits (RECs), which must be generated in NYC in the same year used. Unlike with carbon offsets, REC deductions under LL 97 are not limited to 2024–2029. Finally, LL 97 also allows deductions for purchase of greenhouse gas offsets and for on-site generation of clean energy resources distributed by the building. See N.Y.C. Admin. §§ 28-320.3.6.2–28-320.3.6.3.
Certain Buildings. LL 97 also requires certain buildings to follow 13 new energy conservation measures. These measures include, without limitation, maintenance of heating systems, repair of leaks, adjustment of temperature
thermostat settings for hot water and heat, weatherization, air sealing, light ing upgrades, and insulation of pipes. See id. § 28-321.2.2. Although many cooperatives and condominiums fall outside the separate definition of covered buildings that applies to these provisions, cooperatives and condominiums can nonetheless improve their energy efficiency, help ensure compliance with other green laws, and potentially earn green financial and tax incentives, if they adopt the energy conservation measures voluntarily.
Before building owners decide on a retrofit plan to comply with LL 97, they should familiarize themselves with the other local laws included in the CMA to ensure that the chosen retrofit plan addresses all applicable local green building laws.
• Local Law 96 (LL 96)—NYC Accelerator PACE See NYC Mayor’s Off. of Climate & Sustainability, Local Law 96: PACE Financing, https:// on.nyc.gov/3Gdjcpg (last visited Sept. 18, 2022). Although many
green building laws are regulatory, LL 96 provides a green building incentive: With the enactment of LL 96, NYC Council established supra.
Local Law 95 (LL 95)—Building Energy Efficiency Grade See NYC Mayor’s Off. of Climate & The Climate Mobilization Act, 2019: Local Laws 92, , Legislation (2022). LL 95 amended how building energy efficiency grades are calculated pursuant to Local Law 33 of 2018 (LL 33). LL33 mandated that NYC building owners display their buildings’ energy efficiency scores and grades for buildings that are required under Local Law 84 of 2009 (LL 84) to benchmark their energy and water consumption annually. The energy labels include both a letter grade and the energy efficiency score and must be displayed near a public entrance on covered buildings. Local Laws 92 and 94 (LL 92 and LL 94)—Green Roofs and Solar PV Ray Ramos, Local Laws 92 and 94 of 2019: A Practical Guide, Nearby Eng’rs (Nov. 19, 2019), https://bit.ly/3I2SfG4; NYC Dep’t of Bldgs., Service Notice: Local Law 92 of 2019 and Local Law 94 of 2019: Green and Solar Roof Requirements for New Buildings and Complete Roof Replacements (Oct. 2019), https://on.nyc. gov/3VFfv0l. LL 92 and LL 94 generally mandate that all building owners reduce their buildings’ urban heat hazards and require all new buildings and buildings that undergo major roof renovations to be covered with solar panels (a minimum of 4 kW) or green roofs (a minimum of 200 square feet). If the project is merely replacing the roof membrane or adding/ replacing insulation, however, these are typically not a trigger for compliance. The measuring stick is typically if the work requires a building permit, and if PV installation is not practical, the green roof must be the
alternative. Although there are certain exemptions that apply, the condominium or cooperative should have its architect or attorney confirm whether an exception is warranted and how to provide for it. In addition, New York City provides the Green Roof Tax Abatement program to incentivize green roofs. See Green Roof Tax Abatement, NYC Dep’t of Finance: Property (2022), https://on.nyc. gov/3Gk7dq3.
• The Greener Greater Buildings Plan (GGBP), 2009: Local Laws 84, 85, 87, 88 See supra
Local Law 84 of 2009. See N.Y.C. Local Law 84 of 2009, https://on.nyc. gov/3VjceU8 (codified at N.Y.C. Admin. §§ 28-309.1–28-309.10). Local Law 84 requires owners of buildings with more than 50,000 square feet to submit annual benchmarking data for public disclosure by May 1, with the goal of increasing the transparency of energy and water usage and informing both building owners and occupants about how to improve their buildings’ energy efficiency.
NYC Energy Conservation Code. See 2020 Energy Conservation Code, NYC Dep’t of Bldgs. (2022), ttps://on.nyc. gov/3YTxRxs. Although the original GGBP exempted renovations affecting less than half of the building system from certain energy conservation code requirements, Local Law 85 of 2009 (LL 85) (see N.Y.C. Local Law 85 of 2009, https://on.nyc.gov/3Z17qpA) amended GGBP to require buildings to meet the most current energy code for any renovation or alteration project. This requirement is premised on a collection of local energy laws called the New York City Energy Conservation Code (NYCECC). Currently, NYCECC comprises the 2010 Energy Conservation Construction Code of New York State (ECCCNYS) (see N.Y. State Dep’t of State & Int’l Code Council, 2020 Energy Conservation Construction Code of New York State (Nov. 2019), https://on.ny. gov/3I1sPsw), LL 85, Local Law 48 of 2010, and Local Law 1 of 2011. Local Law 87 of 2009—Energy Audits and Retro-Commissioning.
Under Local Law 87 of 2009, large buildings must audit, retro-commission, and submit certain information to the NYC government. Such information includes basic building information, an inventory of existing equipment, an energy end-use breakdown, energy conservation measures identified from the audit, and retro-commissioning measures.
The decision to go green is no longer a matter of nice-to-have. Rather, a property becoming more sustainable is quite often mandated by law. This not only affects large commercial buildings but also cooperatives and condominiums. If property owners merely focus on compliance with existing green building laws, however, they may be missing out on what may be required in the not-too-distant future. Similarly, satisfying current regulation may be the impetus to dive a little deeper into the sustainability world than what local law mandates. Attorneys representing condominiums and cooperatives should be focusing the respective board’s attention on the bigger picture. It is incumbent upon practitioners to guide their clients to not just energy and water efficiency, but also the overall operation of their buildings and individual apartments or units. The clients will reduce their carbon emissions and, by doing so, may avail themselves of the many available green financial and tax incentives. Becoming green is sometimes a scary prospect for many coops and condos, but it should not have to be.
Furthermore, although New York is highlighted in this article, it is merely an example of what some local municipalities and states are enacting regarding climate change and sustainable buildings. Some examples of this are the following: (i) California Governor Gavin Newsom signed into law A.B. 2446, “The Carbon Intensity of Construction and Buildings Materials Act” (Sept. 16, 2022), which lays out the framework for the state to reduce by 40 percent its carbon footprint by 2035; (ii) Massachusetts Governor Charlie
Baker signed into law Senate Bill 9, “An Act Creating a Next Generation Roadmap for Massachusetts Climate Policy,” which set CHG emission limits of 50 percent for 2030 and 75 percent for 2040 (see Press release, Off. of Gov. Charlie Baker, Governor Baker Signs Climate Legislation to Reduce Greenhouse Gas Emissions, Protect Environmental Justice Communities (Mar. 26, 2021), https://bit. ly/3YHQ8xo); (iii) the State of Maryland legislature passed the Climate Solutions Now Act of 2022, which, in part, requires buildings greater than 35,000 square feet to achieve a 20 percent carbon emission reduction no later than 2030 and netzero by 2040 (see Sierra Club Celebrates “Climate Solutions Now Act,” a Major Climate Victory in Maryland, Sierra Club, Md. Chapter (Apr. 20, 2022), https://bit. ly/3WLIXT0); and (iv) the Washington State Building Code Council updated the energy code to prohibit fossil fuel used in new commercial and multifamily residential buildings greater than four stories (see Leah LaCivita, New Legislation, Guidance Targets a Green Energy Future in Washington, MRSC Insight Blog (Aug. 22, 2022), https://bit.ly/3GjYbJH).
The payment for sustainable endeavors is also not a concern limited to New York. Tax incentives for sustainability efforts are available from federal and state programs. The Inflation Reduction Act provides many such benefits. See Maximizing the Inflation Reduction Act Benefits for Affordable Housing, Enter. Cmty. Partners Blog (Oct. 18, 2022), https://bit. ly/3I338YL. Finally, PACE financing, at the state level, is available in a majority of the states in the United States. See PACE Programs, PACENation, https://bit. ly/3C3Q15I (last visited 12/2/2022).
Clearly there are many legal and practical issues that can arise in each major aspect of a renovation project: the stages of authorization and initial planning, financing, project management, and ongoing compliance, all of which require meticulous due diligence, planning, and drafting. This requires boards to work actively with counsel, contractors, and other necessary stakeholders to proactively prepare for these potential issues and mitigate the risks they pose. n
One of the lessons of the COVID19 pandemic has been that tenants looking to insurers for coverage for their losses under a business interruption (BI) policy have been losing because of either the lack of “physical damage” necessary to trigger coverage or a specific exclusion in their policy for losses due to a “virus, bacterium or microorganism resulting in physical distress, illness or disease.” Insurers became prone to add such exclusions from their standard BI policies and contingent BI policies after the SARS outbreak in 2002–2003. As a response to claims arising for losses from the COVID-19 pandemic, insurers have largely taken the position that communicable diseases not expressly defined in the policy at issue are not covered, although there may be some coverage in an environmental claim for cleanup of the building to allow tenants to safely enter and use the premises.
Some insurance policies already specifically disallow coverage for events such as the COVID-19 pandemic. The endorsement “Exclusion of Loss Due to Virus or Bacterium, CP 01 40 07 06”
specifically excludes coverage for loss due to virus or other microorganism resulting in physical distress, illness, or disease. Its prohibitions apply to property damage to buildings or personal property and include business interruption, extra expenses, and civil authority actions, although it does provide coverage for losses from fungus and wet and dry rot and has been amended to include coverage for losses from bacteria.
BI coverage typically applies to reimburse an insured for “losses sustained due to the total or partial suspension of the policyholder’s operations during a period of interruption.” Although policy wordings and case law interpreting these provisions vary, business interruption policies generally require (1) a loss or damage to insured property to trigger coverage, (2) interruption of the business due to a covered loss, (3) loss of income or profits, and (4) the loss that occurs within a “period of restoration.” Companies expecting potential business interruption should review potentially applicable insurance policies and provisions, including BI and contingent BI insurance. BI insurance is intended to cover losses resulting from direct interruptions to a business’s operations and generally covers lost revenue, fixed expenses such as rent and utilities, or expenses from operating from a temporary location.
Similarly, contingent BI insurance is intended to cover lost profits and costs that indirectly result from disruptions in a company’s supply chain, including failures of suppliers or downstream customers.
BI losses often present complex valuation and calculation challenges. Further coverage may require that the insured “expedite repairs, mitigate losses and/or track expenses in a way that is not consistent with your normal business practice.” Depending on policy language, there may also be coverage for “extra expense” associated with maintaining production while the property is undergoing repair or for “certain expenses incurred before physical damage to property.” Covered extra expenses generally include such costs as rent, moving and hauling expenses, overtime, temporary labor, and even advertising. An early evaluation of coverage can help smooth the path to making sure covered expenses are properly captured and presented to insurers. Many policies include coverage for outside professional fees incurred in quantifying the loss. Steven Gilford & Sheri Drucker Davis, Insurance Considerations in Hurricanes, Floods and Other Natural Disasters, Proskauer (Sept. 1, 2011). Coverage in the case of a disaster like the World Trade Center tragedy came from many types of insurance. BI insurance and rent insurance were just
a couple. Generally, insurance costs are really borne by the tenant in the form of operating expenses or a combination of base rent and escalations and operating expense escalations. Landlords argue that tenants should rely on BI insurance, but tenants argue that landlords should rely on their rent insurance to cover displacements. But neither type of insurance is paid forever. There are limits. In the aftermath of the WTC disaster, certain types of insurance became very costly or even unobtainable.
Though these policies frequently require physical property damage, businesses have been submitting claims for coverage of losses due to business interruptions resulting from COVID-19. Cordish Co. Inc. v. Affiliated FM Ins. Co., Case No. 2N-1-20-002952 (Balt. City, Md., Cir. Ct. filed July 9, 2020) (alleging effects of COVID-19 constitute “physical loss or damage to the property” since
costs that indirectly result from disruptions in a company’s supply chain, including failures of suppliers or downstream customers. The typical clause will state that the insurer will pay for actual loss of business income “due to suspension of your operations during restoration period [but] the suspension must be caused by direct physical loss of or damage to property.” Despite 11 states and Puerto Rico having introduced legislation in 2020 forcing insurers to retroactively pay for BI losses from COVID shutdowns, legislation is unlikely to become law.
A few courts have held that a tenant may be entitled to BI coverage for its lost business income resulting from the COVID-19 pandemic. See, e.g., N. State Deli, LLC v. Cincinnati Co., No. 20-CVS02569 (N.C. Sup. Ct. Cty. of Durham, Oct. 7, 2020) (holding that governmental orders mandating suspension of business operation caused a “physi-
Fin. Corp., No. A 2001747 (Ohio Common Pleas, Hamilton Cty. Jan. 7, 2021) (these are all instances where the courts denied insurers’ motions to dismiss for claims by dentists, optometrists, and restaurants, respectively, for BI coverage for “physical damage” COVID losses). Citations and case materials provided by Prof. Shelby Green, Jack Fersko, and George P. Bernhardt.
the virus “renders property dangerous and potentially fatal”). The viability of these claims depends on the terms of the insurance policy at issue, but the historical trend, based on prior viral epidemics, has been against coverage for business interruptions related to a pandemic like COVID-19.
Carriers have been reluctant to provide coverage under traditional BI policies. Insurers intend BI insurance to cover actual losses resulting from direct interruptions to a business’s operations and generally covers lost revenue, fixed expenses such as rent and utilities, or expenses from operating from a temporary location. Contingent BI insurance is intended to cover lost profits and
cal loss” where policy promised to pay for loss of “business income” caused by “direct loss to property caused by . . . any Covered Cause of Loss“); Studio 417, Inc. v. The Cincinnati Ins. Co.; K.C. Hopps, Ltd. v. The Cincinnati Ins. Co., No. 20-cv00437 (W.D. Mo. Aug 12, 2020) (court held the presence of COVID-19 satisfied plain meaning of “direct physical loss” under BI policy where a group of hairdresser salons and restaurants were shut down due to COVID); Blue Springs Dental Care, LLC v. Owners Ins. Co., No. 20-cv-00383 (W.D. Mo. Sept. 21, 2020); Optical Serv. USP/JCI v. Franklin Mut. Co., No. BER-L-3681-20 (N.J. Super. Ct. Bergen Cty., Aug 13, 2020); Queens Tower Rest. Inc. DBA Primavista v. Cincinnati
The trend to date is for insurers to deny coverage, however, with the courts supporting the insurers’ denials. In the most recent cases, the courts have torpedoed bids by insureds to claim BI coverage in the absence of a direct physical loss or damage to property. E.g., Zwillo V v. Lexington Ins. Co., 504 F. Supp. 3d 1034 (W.D. Mo. 2020) (policy contained a virus exclusion and no relief for “physical damage”); Henry’s La. Grill v. Allied Ins. Co. of Am., 495 F. Supp. 3d 1289 (N.D. Ga. 2020) (court rejected restaurant-insured’s argument that its losses were due to Governor Brian Kemp’s executive order closing restaurants, which constituted a physical loss or damage covered in its BI policy); Infinity Exhibits, Inc. v. Certain Underwriters at Lloyds’ London, 489 F. Supp. 3d 1303 (M.D. Fla. 2020) (no BI coverage for physical loss or damage where exhibitor suffered losses when Fla. Gov. Ronald DeSantis issued an executive order similar to Gov. Kemp’s); Oral Surgeons, P.C. v. Cincinnati Ins. Co., 491 F. Supp. 3d 455 (S.D. Iowa 2020) (no “physical” or “accidental” loss when local government suspended nonemergency dental procedures). See also It’s Nice, Inc. v. State Farm Fire & Cas. Co., No. 2020L 0000547 (18th Jud. Cir., Ill., Sept. 29, 2020); Wilson v. Hartford Cas. Co., 492 F. Supp. 3d 417 (E.D. Pa. 2020) (federal courts in Pennsylvania and Illinois granted insurers’ motions to dismiss BI coverage related to COVID closures and government orders). Other cases where coverage has been denied are Vizza Wash, LP v. Nationwide Mutual Insurance Co., 496 F. Supp. 3d 1029 (W.D. Tex. 2020), and 10e v. Travelers Indemnity Co., 483 F. Supp. 3d 828 (C.D. Cal. 2020) (no recovery to insured since policies in question required “distinct, demonstrable physical alteration [of
The trend to date is for insurers to deny coverage, with the courts supporting the insurers’ denials.
property]”). Rose’s 1 LLC v. Erie Insurance Exchange, Case No. 2020 CA 002424B, 2020 D.C. Super. LEXIS 10 (Aug. 6, 2020), confirmed that there is no coverage for COVID-19 losses where the insured could not demonstrate a direct physical loss.
Carriers have been enjoying near unanimous success in the recent wave of BI decisions in the federal circuit courts and at the appellate level. See 10012 Holdings Inc. v. Sentinel Ins. Co., Ltd., 21 F.4th 216 (2d Cir. 2021); Terry Black’s Barbecue, L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450 (5th Cir. 2022): Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398 (6th Cir. 2021); Sandy Point Dental, PC v. Cincinnati Ins. Co., 20 F.4th 327 (7th Cir. 2021); Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir. 2021); Mudpie, Inc. v. Travelers Cas. Ins. Co., 15 F.4th 885 (9th Cir. 2021); Goodwill Indus. of Cent. Okla., Inc. v. Phila. Indem. Ins. Co., 21 F.4th 704 (10th Cir. 2021); Ascent Hosp. Mgmt. Co. v. Emps. Ins. Co. of Wausau, 2022 U.S. App. LEXIS 1161 (11th Cir. Jan. 14, 2022). See also Elizabeth Daley, Seattle Café Drops 9th Cir. Virus Coverage Appeal, Law360 (Sept. 27, 2022).
State courts have also been hard on claimants seeking BI relief without showing physical damage. See SFMB Mgmt., LLC v. Starr Surplus Lines Ins. Co., No. 653203/2021 (N.Y. Sup. Ct. Jan. 20, 2022); Inns-by-the-Sea v. Cal. Mut. Ins. Co., 71 Cal. App. 5th 688 (Nov. 15, 2021); Marshall v. Safety Ins. Co., 2021 WL 2226454 (Mass. Super. Ct. May 21, 2021). Cf. Molly Chiu, Baylor College of Medicine Wins COVID Insurance Verdict, www.bcm.edu (Sept. 2, 2022), describing how a Harris County, Texas, jury returned a $48.5 million verdict in August 2022 against Lloyd’s of London underwriters in favor of Baylor College of Medicine, agreeing with the plaintiffs that the COVID virus caused direct physical loss or damage to Baylor’s property and, thus, required its commercial BI policy to cover its losses. We can expect the verdict to be appealed.
The courts have consistently denied claimants’ petitions for relief under BI coverage in the absence of any physical damage. See, e.g., Zwillo V, 504 F. Supp.
3d 1034; Henry’s La. Grill, 495 F. Supp. 3d 1289; Infinity Exhibits, Inc., 489 F. Supp. 3d 1303. In June 2022, the US Supreme Court indicated that it will not hear an appeal of a decision that denied coverage for losses caused by COVID19 shutdown orders, effectively closing the last door for such claims in the federal court system. The Court declined a petition by Goodwill Industries of Central Oklahoma to review a decision by a panel of the Tenth Circuit Court of Appeals that found there was no direct physical loss or damage to Goodwill’s property. All 11 of the regional circuit courts of appeal have issued similar opinions, as have state high courts in Iowa, Massachusetts, and Wisconsin. Jim Sams, U.S. Supreme Court Refuses to Hear COVID Business Interruption Case, Claims J. (June 8, 2022).
In the commercial leasing and insurance fields where changes often move with glacial speed, the courts have given us almost clear certainty as to how business interruption policy provisions will be interpreted and the extent to which an insured can rely upon its policy for recovery of its losses. Although only a few years ago—at the beginning of the COVID-19 pandemic in the United States—the law was unclear about the rights of insureds versus their insurers for protection under their policies for BI coverage (and similarly for tenants under their leases for rent abatement and termination rights under force majeure clauses), the law seems fairly settled at this time that insureds have few rights under these policies absent direct physical loss or damage to their property and, even then, only in the
event of the absence of a virus exclusion in their policies, similar to that of endorsement CP 01 40 07 06 mentioned above. This is a fairly quick and definitive settlement of the law in a field where such certainty may take years, if not longer.
The COVID-19 virus has wrought havoc on the operations of commercial tenants. The recent bad experiences of these tenants in seeking relief under their force majeure and rent abatement clauses and of insureds for obtaining coverage under their business interruption policies for their losses indicates the need for these parties to better assess their rights and review their policies with their insurance brokers and risk managers. At the same time, tenants need to strengthen their lease clauses: first, to assure they have written these rights into their leases; and, second, to have the imagination to try to anticipate the next great “casualty” and not be caught flatfooted in being left out in the cold in trying to assert their rights under inadequate language. All too often, we see new and updated provisions only in reaction to a catastrophic event rather than lawyers being creative in anticipating a future event for which their drafting may then offer adequate protection.
For further information, the author refers readers to his book Casualty and Insurance Issues in Commercial Leases (Am. Bar Ass’n 2022), https://bit. ly/3ZadBrm, and Drafting and Negotiating Commercial Leases, co-authored with John B. Wood (Fastcase 2022), https:// bit.ly/3i7NFMx. n
This article provides a brief summary of the most significant opinions issued by federal appellate courts during the period July through December 2022, which addressed, among other topics, contracts, governmental takings, COVID shutdown orders, arbitration, bankruptcy, and consumer law.
We start, as we often do, with arbitration. Questions regarding whether parties agreed to arbitrate are common, and we find several cases on this issue. The Third Circuit held that whether parties agreed to arbitrate is the principal inquiry in an arbitration dispute, and, accordingly, a court must determine whether two competing contracts
require arbitration even when the arbitration itself is subject to a “gateway” clause permitting the arbitrators to determine their own jurisdiction. Field Intel. Inc. v. Xylem Dewatering Sols. Inc., 49 F.4th 351 (3d Cir. 2022). And although emails may constitute an “exchange of letters” under the Convention of the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) sufficient to constitute an agreement to arbitrate, the emails must demonstrate an unequivocal agreement to arbitrate. Jiangsu Beier Decoration Materials Co., Ltd. v. Angle World LLC, 52 F.4th 554 (2d Cir. 2022). A curious case out of the Ninth Circuit held that no agreement to arbitrate was formed by use of a debit card, which card was involuntarily created as a method to return money to released inmates whose cash was confiscated at the time of arrest and incarceration. Reichert v. Rapid Invs., Inc., 56 F.4th 1220 (9th Cir. 2022).
The arbitration process itself also
produced some cases during our most recent time frame. The Second Circuit, applying New York law, held that attachment in aid of arbitration can be used during the arbitration process, if permitted by the controlling law of the arbitration, and that New York law permits a judge to consider nonstatutory factors (e.g., extraordinary hardship) on a motion to vacate or modify an attachment. Iraq Telecom Ltd. v. IBL Bank S.A.L., 43 F.4th 263 (2d Cir. 2022). The Third Circuit issued two cases of interest, holding that failure to produce evidence during the discovery phase of arbitration proceedings can constitute sufficient fraud to vacate the arbitration award, France v. Bernstein, 43 F.4th 367 (3d Cir. 2022), and that a trial court does not abuse its discretion by dismissing a case with prejudice under Federal Rule of Civil Procedure 41 where a plaintiff’s refusal to follow orders to arbitrate the dispute makes adjudication of the case impossible. R & C Oilfield Servs. LLC v. Am. Wind
Arbitration awards themselves also garnered some attention. The First Circuit held that arbitration damage awards issued in seriatim are final awards at the point of the last award, i.e., each interim damages award is not considered a final award that must be confirmed within the time limitation of the Federal Arbitration Act. Univ. of Notre Dame (USA) in England v. TJAC Waterloo, LLC, 49 F.4th 132 (1st Cir. 2022). The Ninth Circuit agreed with the Second, Third, Fifth, Sixth, Tenth, and D.C. Circuits that the grounds for vacatur under the Federal Arbitration Act are available for awards governed by the New York Convention, and that accordingly, an arbitration panel may award in accordance with a settlement agreement (which directed arbitration of disputes) so long as the award draws its essence from the parties’ agreement and does not ignore the agreement’s controlling terms. Hayday Farms, Inc. v.
In a case that should send shivers down the spine of all transactional lawyers, the Eleventh Circuit held that a financing statement that lists the debtor as “1944 Beach Blvd., LLC” instead of its legal name of “1944 Beach Boulevard, LLC” is “seriously misleading” under Florida Statutes and is not enforceable against a bankruptcy trustee exercising strong-arm powers. 1944 Beach Boulevard , LLC v. Live Oak Banking Co. (In re NRP Lease Holdings, LLC), 50 F.4th 979 (11th Cir. 2022). This case serves as a warning that all financing statements should be carefully scrutinized to ensure the correct legal name of the debtor is used. The Eleventh Circuit also clarified its view of objections to discharges and held that a debtor is acting in a “fiduciary capacity” under 11 U.S.C. § 523(a)(4) only when there is a “trustee” who holds an identifiable
trust res for the benefit of an identifiable beneficiary or beneficiaries, there are sufficient trust-like duties imposed on the trustee with respect to the trust res and the beneficiaries sufficient to create a “technical” trust, and the debtor acted in a fiduciary capacity before the act of fraud or defalcation creating the debt. In re Forrest, 47 F.4th 1229 (11th Cir. 2022).
Some controversy was created by the Fifth Circuit’s holding that a debtor’s decision whether to assume or reject a lease is reviewed under the business judgment rule from the debtor’s perspective and is not analyzed as to the beneficial or detrimental impact on third parties, including sublessees of the debtor. In re J. C. Penney Direct Mktg. Servs., 50 F.4th 532 (5th Cir. 2022). The Fifth Circuit jumped into the equitable mootness discussion by disclosing it views equitable mootness on a claim-by-claim basis, instead of a full appellate basis, and examines “(i) whether a stay has been obtained, (ii) whether the plan has been ‘substantially consummated,’ and (iii) whether the relief requested would affect either the rights of parties not before the court or the success of the plan.” In re Highland Cap. Mgmt., L.P., 48 F.4th 419 (5th Cir. 2022).
The interplay between bankruptcy proceedings and nonbankruptcy proceedings is always interesting, and the Sixth Circuit produced two cases on judicial estoppel. First, it ruled that judicial estoppel bars an undisclosed suit when a separate bankruptcy proceeding is involved if “(1) the debtor assumed a position contrary to one she asserted under oath while in bankruptcy; (2) the bankruptcy court adopted the contrary position either as a preliminary matter or as part of a final disposition; and (3) the debtor’s omission did not result from mistake or inadvertence.” Stanley v. FCA US, LLC, 51 F.4th 215 (6th Cir. 2022). To place a finer point on the discussion, its Bankruptcy Appellate Panel held that a bankruptcy court may apply judicial estoppel to determine the feasibility of permitting amendment to an answer, which amendment would defeat a motion for summary
judgment. In re Wood, 647 B.R. 165 (B.A.P. 6th Cir. 2022).
On other matters of interest, the Seventh Circuit held that Bankruptcy Code section 1327(a) (11 U.S.C. § 1327(a)) is no bar to modification of a confirmed Chapter 13 plan, In re Terrell, 39 F.4th 888 (7th Cir. 2022); the Third Circuit held that a bankruptcy court retains jurisdiction to enforce its own orders even after plan confirmation, In re Essar Steel Minn., LLC, 47 F.4th 193 (3d Cir. 2022); and the Eleventh Circuit held that amounts paid post-petition that qualify as an administrative expense claim under Bankruptcy Code section 503(b)(9) (paid within 20 days of the bankruptcy petition) also count toward a “new value” defense under section 547(c)(4). Auriga Polymers Inc. v. PMCM2, LLC, 40 F.4th 1273 (11th Cir. 2022). Finally, the Ninth Circuit discussed the “solvent-debtor exception” and held that creditors possess an equitable right to receive post-petition interest at the contractual or default rate set by the forum state before the debtor collects surplus value from the bankruptcy estate. In re PG&E Corp., 46 F.4th 1047 (9th Cir. 2022).
A fair number of cases during this time-period addressed when a contract is formed. First up is Stackpole International Engineered Products, Ltd v. Angstrom Automotive Group, LLC, 52 F.4th 274 (6th Cir. 2022), a case all transactional lawyers should read. It details when a letter of intent over a “proper subject matter,” together with “consideration,” “mutuality of agreement,” and “mutuality of obligation,” constitutes a binding contract. Also
on the “must-read list” is Franlink Inc. v. BACE Services, Inc., 50 F.4th 432 (5th Cir. 2022), in which the Fifth Circuit explained when non-signatories to a franchise agreement are not bound to the contract’s choice-of-forum provision under the “closely related” equitable doctrine, i.e., the doctrine that holds that non-signatories who are “closely related” to the contract can be bound even if they did not sign the contract. The Seventh Circuit examined Illinois law and held that a party proceeding under Illinois law may have a cause of action for breach of an “executory agreement to form a partnership.”
KAP Holdings, LLC v. Mar-Cone Appliance Parts Co., 55 F.4th 517 (7th Cir. 2022). Thus, practitioners should be sure to clearly express in preliminary discussions and documents that there is no binding agreement unless and until a definitive written agreement is signed. Cases interpreting contractual provisions were also plentiful. The Third Circuit parsed a contract’s terms and held that a challenge to the legality of assignment of a loan contract containing an arbitration provision does not challenge the very formation of the arbitration agreement, i.e., challenging the assignment is not tantamount to challenging entering into an agreement to arbitrate. Zirpoli v. Midland Funding, LLC, 48 F.4th 136 (3d Cir. 2022). Likewise, rules implemented subsequent to an online agreement supplement and thus control over the online agreement, including waiving arbitration in favor of a forum selection clause in the courts of a particular state. Suski v. Coinbase, Inc., 55 F.4th 1227 (9th Cir. 2022). In addition, so long as the two are consistent, a settlement agreement providing
for a fixed base operations lease is not superseded or invalidated by a subsequent integrated contract relating to the same subject matter. Bos. Exec. Helicopters, LLC v. Maguire, 45 F.4th 506 (1st Cir. 2022).
Some decisions appeared to be common sense but still provide guidance. The Third Circuit held that all previous contractual agreements are merged into a final judgment and a court cannot rewrite a judgment to include items not in the judgment. Sovereign Bank v. Remi Capital, Inc., 49 F.4th 360 (3d Cir. 2022). A clear contractual provision, without conditions, must be enforced when it allows a party to terminate a contract if closing has not occurred by a date certain. Finsight I LP v. Seaver, 50 F.4th 226 (1st Cir. 2022). A “floating forum selection clause,” i.e., one that is applicable at a mutable location, is enforceable. AFC Franchising, LLC v. Purugganan, 43 F.4th 1285 (11th Cir. 2022). Misrepresentations made during the performance of a party’s contract do not fall into the exception to Wisconsin’s Economic Loss Doctrine for fraud in the inducement. Taizhou Yuanda Inv. Grp. Co., Ltd. v. Z Outdoor Living, LLC, 44 F.4th 629 (7th Cir. 2022). Finally, a contract that is closed and deems assets and liabilities transferred to the purchaser upon closing controls for bankruptcy purposes even if third parties who hold rights to the assets or permission did not consent to the transfer. In re PetroQuest Energy, Inc., 54 F.4th 299 (5th Cir. 2022).
COVID claims cases are still appearing, and governments are still winning these cases. The Fifth Circuit followed this trend of rejecting claims and held that a mandatory shutdown of tanning salons is not compensable for violation of Equal Protection, as other similarly situated businesses were also shut down. There is no fundamental right to work so the actions taken are subject to rational basis review (not strict scrutiny review), and there was no taking because neither Cedar Point Nursery v. Hassid, 141 S. Ct. 2063 (2021), nor Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), applied. Golden Glow
COVID claims cases are still appearing, and governments are still winning these cases.
Tanning Salon, Inc. v. City of Columbus, 52 F.4th 974 (5th Cir. 2022).
On the corporate side, Delaware law continues to be followed in multiple fora. A good example is Whitten v. Clarke, 41 F.4th 1340 (11th Cir. 2022), in which the Eleventh Circuit held that a party that files a derivative suit under Delaware corporate law must either make a demand on the board of directors to rectify the alleged wrongs or show why demand is excused, and if so, must adequately plead why demand is excused. This case is a good reminder to check the choice of law provisions in all your contracts.
Two cases of interest in the finance and lending arena give guidance to commonly used contractual provisions. Carnegie Technologies, L.L.C. v. Triller, Inc., 39 F.4th 288 (5th Cir. 2022), held that novation after assignment of a promissory note requires the extinguishment of the prior party’s liability, and Hovde v. ISLA Development, LLC, 51 F.4th 771 (7th Cir. 2022), held that an unconditional and continuing guaranty typically waives defenses to liability under the guaranty but, unless specifically mentioned, does not waive the defense of unenforceability under the statute of limitations.
As is to be expected at this stage of the real estate transaction cycle, land use cases were plentiful. Of particular interest was the treatment of short-term rentals by some courts. The Third Circuit held in Nekrilov v. City of Jersey City, 45 F.4th 662 (3d Cir. 2022), that an ordinance limiting long-term vacation rentals of property owners is not a per se (total) taking, is not a regulatory partial taking under the Penn Central test, is not a violation of the Contracts Clause, and does not violate substantive due process. Similarly, Hignell-Stark v. The City of New Orleans, 46 F.4th 317 (5th Cir. 2022), held that a city’s regulation of short-term rentals does not violate the Takings Clause, a residency
requirement does not violate the Dormant Commerce Clause, and advertising restrictions are not a violation of the First Amendment. Said another way, the courts seem to be saying that the ability to rent one’s property is not a fundamental right subject to constitutional protection.
Local government’s winning streak in this area continued outside of the short-term rental cases. Village Green at Sayville, LLC v. Town of Islip, 43 F.4th 287 (2d Cir. 2022), held that the State Exhaustion Requirement for federal review of land use decisions was overruled in Knick v. Township of Scott, 139 S. Ct. 2162 (2019), but the Second Circuit’s Final Decision Doctrine remains good law and thus remains a requirement for federal court standing in the Second Circuit. The Sixth Circuit held in Golf Village North, LLC v. City of Powell, 42 F.4th 593 (6th Cir. 2022), that requiring developers to apply for permits before allowing development is not a violation of substantive due process and does not impose a de facto “exhaustion requirement.” The Ninth Circuit held that that Knick and Pakdel (Pakdel v. City & Cnty. of San Francisco, 141 S. Ct. 2226 (2021)) do not limit federal court abstention under Railroad Commission of Texas v. Pullman Co., 312 U.S. 496 (1941), and, accordingly, a district court may abstain from considering the constitutional deprivation claims of a developer whose project was rejected by the municipality that later instituted eminent domain proceedings against the same property whose development
the local government refused to permit. Gearing v. City of Half Moon Bay, 54 F.4th 1144 (9th Cir. 2022).
Finally, the Eleventh Circuit held that application of nondiscriminatory zoning and building ordinances to “sober homes” is not a violation of the Fair Housing Act, 42 U.S.C. § 3604, or the Americans with Disabilities Act, 42 U.S.C. § 12132. Sailboat Bend Sober Living, LLC v. Fort Lauderdale, Fla., 46 F.4th 1268 (11th Cir. 2022). The Seventh Circuit held that street vendors have no compensable property interest or constitutional right in licenses to sell their products or services. Williams v. City of Detroit, 54 F.4th 895 (6th Cir. 2022).
Until reversal of the panel decision in a later en banc decision, Hunstein v. Preferred Collection & Management Services, Inc., 48 F.4th 1236 (11th Cir. 2022) (en banc) created quite a stir. The en banc decision mollified the creditor bar as it held that a plaintiff claiming harm from a statutory violation has to demonstrate the harm is “real” and concrete in order satisfy Article III standing requirements, and it is acceptable to compare the statutory harm to a common-law tort. Under this analysis, a creditor sending financial information to a third-party vendor is analogous to the tort of public disclosure, but such claim fails because under these facts the information was not disclosed to the public. As a result, the Fair Debt Collection Practices Act’s prohibition against disclosing borrower information to
third parties is not violated by a lender employing a collection agency to send demand letters. This decision was followed by Shields v. Professional Bureau of Collections of Maryland, Inc., 55 F.4th 823 (10th Cir. 2022), in which the Tenth Circuit adopted Hunstein.
There were several cases in which parties tried to escape regulatory scrutiny by arguing the regulatory agency’s authority was limited under Seila Law LLC v. CFPB, 140 S. Ct. 2183 (2020). The Tenth Circuit ruled in Integrity Advance, LLC v. Consumer Financial Protection Bureau, 48 F.4th 1161 (10th Cir. 2022), that a party cannot escape enforcement action under the Truth in Lending Act by arguing the CFPB’s structure was held unconstitutional in Seila Law when the chair of the CFPB was properly appointed at the time of the enforcement action. And the Sixth Circuit ruled in Rop v. Federal Housing Finance Agency, 50 F.4th 562 (6th Cir. 2022), that, although the acting director of the Federal Housing Finance Agency was not violating the Appointments Clause and Collins v. Yellen, 141 S. Ct. 1761 (2021), at the time he signed the third amendment to the stock agreement, the district court is still required to determine whether the unconstitutional removal restriction inflicted harm on shareholders. But opponents of enforcement action were cheered by the Fifth Circuit’s ruling in Community Financial Services Association of America, Limited v. Consumer Financial Protection Bureau, 51 F.4th 616 (5th Cir. 2022), in which the Fifth Circuit ruled that the
structure of the CFPB violates the Constitution as the result of the Bureau’s holding both enforcement and fundraising capabilities.
Also in favor of creditors was Lavis v. Reverse Mortgage Solutions, Inc., 40 F.4th 181 (4th Cir. 2022), which held that a creditor’s failure to comply with its Truth in Lending Act § 1635(b) obligations following a borrower’s notice of rescission does not relieve a borrower of her obligation to tender the loan proceeds back to the creditor. And Lamirand v. Fay Servicing, LLC, 38 F.4th 976 (11th Cir. 2022), held that a periodic mortgage statement of money owed sent as required by the Truth in Lending Act can also double as a demand for payment under the Fair Debt Collection Practices Act (FDCPA) and must, accordingly, be truthful and correct to avoid liability under the FDCPA. Bibbs v. Trans Union LLC, 43 F.4th 331 (3d Cir. 2022) opined that a credit report that shows an account has been written off and closed is not seriously misleading and thus is not a violation of the Fair Credit Reporting Act.
Two more Fair Debt Collection Practices Act cases were determined in favor of creditors. Magdy v. I.C. System, Inc., 47 F.4th 884 (8th Cir. 2022), ruled that the FDCPA applies only to “consumers” and thus does not apply to an attorney mistakenly contacted by a debt collection firm as representing a bankruptcy debtor. And Lutz v. Portfolio Recovery Associates, LLC, 49 F.4th 323 (3d Cir. 2022), held that a debt collector does not “negotiate” a loan and thus cannot
be charged with violating the FDCPA, 15 U.S.C. §§ 1692e and 1692f based on Pennsylvania’s limitation on consumer interest charges.
Surprisingly, we had two tax deed cases this time around. Gunsalus v. County of Ontario, New York, 37 F.4th 859 (2d Cir. 2022) caught some attention when it ruled a tax deed sale is not entitled to the presumption of an exchange for “reasonably equivalent value” under 11 U.S.C. §548(a) and BFP v. Resolution Trust Corp., 511 U.S. 531 (1994). The case, however, appears to be limited to its facts, as the court ruled that BFP is not applicable to tax deed sales and did not take its analysis any further. And the Fourth Circuit ruled in Brusznicki v. Prince Georges County, 42 F.4th 413 (4th Cir. 2022), that Maryland Code Ann., Tax–Prop. § 14-817(d)(3) (tax deed certificates must be offered first to local county residents and employees before being offered to the general public), violates the Privileges and Immunities Clause.
There are two final decisions of interest that do not fit neatly into other categories. Bluegrass Materials Co., LLC v. Freeman, 54 F.4th 364 (6th Cir. 2022), interpreted Kentucky law and held that oil and gas leases terminate by their own terms (typically passage of time), by abandonment, and by forfeiture, and forfeiture requires a prior demand for production that is not accepted. And Wells Fargo Bank, N.A. v. Stewart Title Guaranty Co., 55 F.4th 801 (10th Cir. 2022) delved into the details of title insurance coverage and held that the inability to assemble an insured parcel with other parcels might diminish the value of the land that is conveyed, and thus may affect the amount of coverage under the title policy.
This was a very busy period of time with some interesting decisions but no opinions of note from the Supreme Court. n
A creditor’s failure to comply with its Truth in Lending Act § 1635(b) obligations following a borrower’s notice of rescission does not relieve a borrower of her obligation to tender the loan proceeds back to the creditor.
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The co-hosts of the Digital Planning Podcast (DPP), Justin Brown, Jennifer Zegel, and Ross Bruch, recently sat down with Suzanne Brown Walsh, a partner at Murtha Cullina in Hartford, Connecticut, a fellow in the American College of Trust and Estates Counsel (ACTEC), and the chair of the Committee of the Uniform Law Commission that created the Uniform Electronic Estate Planning Documents Act (UEEPDA), and Professor Gerry W. Beyer, the Governor Preston E. Smith Regents Professor of Law at the Texas Tech School of Law, and an ACTEC fellow whom the Uniform Law Commission appointed as the Reporter for the UEEPDA.
The Q&A below consists of selected parts of the podcast conversation with Suzy and Professor Beyer and has been lightly edited for flow. Readers interested in hearing more of the conversation can find DPP’s November 16, 2022, episode with Suzy and Professor Beyer wherever you listen to podcasts.
DPP: Can you tell us a little bit about the basis for creating UEEPDA and why the Uniform Law Commission believed that this project was so important?
SBW: This flows out of the Uniform Electronic Wills Act. While we were framing the Uniform Electronic Wills Act and determining how wide its scope should be, we determined that all of the other documents that our clients sign—trusts, powers of attorney, and the like—the ones covered by UEEPDA—we thought they were all allowed under the
Contributing Authors: Justin H. Brown and Jennifer L. Zegel. Technology—Probate
Editor: Ross E. Bruch, Brown Brothers Harriman & Co. , One Logan Square, 14th Floor, Philadelphia PA 19103-6996.
Technology—Probate provides information on current technology and microcomputer software of interest in the probate area. The editors of Probate & Property welcome information and suggestions from readers.
Uniform Electronic Transactions Act (UETA). There’s some doubt about that. Ultimately, we decided that UETA didn’t facilitate the signing of these other nontestamentary estate planning documents. The purpose of this project was to make sure those documents will be validated, just as other documents that are e-signed are validated.
DPP: Although some practitioners believe that the UETA already permits the execution of certain electronic estate planning documents that are not wills, many believe that the comments in the UETA about the unilateral nature of those documents should prohibit the electronic execution of those documents. What do you think?
GWB: When you look at the UETA, it says that it deals with transactions, and transactions require two people to be interfacing, and most estate planning documents are unilateral. I thought, as did many others, that, although it is debatable, there is definite authority, or definite strong arguments, that the UETA would not apply to unilateral documents. That type of uncertainty is not acceptable for attorneys who practice law—maybe it works or maybe it doesn’t work. That’s not good for a practitioner.
DPP: UEEPDA only applies to
nontestamentary estate planning documents. Can you define what is meant by “nontestamentary estate planning documents”?
GWB: Well, this is an interesting discussion to have because we had to discuss and had to figure out how to define what these types of documents were. The first approach we came up with was to come up with a laundry list of documents that would be designated as nontestamentary estate planning documents. That got to be cumbersome trying to list everything. Then we switched to trying to have a broad definition, a capacious definition that we could use to define what the documents would be. But, after we worked on that definition, we discovered that that didn’t work either, so we went back to a laundry list. The laundry list in the statute covers things like trusts and related trust documents, financial powers of attorney, advance directives, similar health documents, powers of appointment, guardian declarations, disclaimers, body disposition documents, et cetera.
And then certain documents are specifically excluded from the scope of the act. Obviously, wills and codicils are excluded, real property deeds are excluded, and certificates of title for motor vehicles, watercraft, and aircraft are excluded. In the comments, states are given the option to add or subtract from that list because, for example, in the list is a community property survivorship agreement, which is not relevant in common law marital property states. Some states don’t have body disposition documents, so that can be removed, or maybe the state wants to add other documents to the list. Although there is a formulated
definition, states can add or subtract documents from that list as they so desire.
The act is restricted to records that are readable as text. You can’t use oral or video recordings as documents. Following the lead of the Uniform Electronic Wills Act, they all must be text-based files such as documents or pdfs.
DPP: There’s a catch-all phrase that essentially says any other record that’s intended to carry out an individual’s intent would be included as a nontestamentary estate planning document. What is the scope of that catch-all provision?
SBW: The catch-all is intended to cover, or capture, any documents that aren’t otherwise allowable under UETA. For example, I’ve observed that beneficiary designations of retirement accounts and life insurance are being electronically signed more often than they’re being signed in ink, and I’m sure that’s because the companies who offer those contracts correctly view those beneficiary designations as a contract between the custodian of the account or the life insurer and the owner of the policy or the account holder. But there are probably a lot of documents we didn’t list, or that’ll arise in the future that we didn’t list, and the catch-all could pick those up.
DPP: UEEPDA essentially provides that, if a signature on a nontestamentary estate planning document is required, it may be in either ink or electronic form. But one of the things that we as practitioners had to deal with during the pandemic was remote witnessing and the physical presence of remote witnesses. Why didn’t the committee dive into the physical presence requirement for witnesses or notaries and instead leave those decisions to the individual states?
GWB: The people in different states have tremendously diverse views as to whether or not remote witnessing, and even remote notarization, should be allowed. And, if we put a remote witnessing component into the act, I think it would’ve slowed up enactment, so we decided that we are not going to
require an enacting state to authorize the remote signing of witnesses if the validity of a document is dependent on having witnesses, but the act does have optional language. If a state wants to make that decision that remote witnessing is to be allowed, that they can appear by electronic presence rather than being physically present, they’re free to enact it.
SBW: I’m going to chime in and add one more thing. At one of our last meetings, I proposed the inclusion of this optional section that allows states to expressly say they can have remote witnessing if they want to. And I made that case in section 207 of the act, because I think, if you’re going to electronically sign, you have to recognize the possibility that folks don’t want the witnesses in that room. The whole point, especially emphasized during the pandemic, is that electronic signing facilitates remoteness in a time or a place where people don’t necessarily want to be, or aren’t able to be, in the same room.
DPP: How does UEEPDA address the retention of nontestamentary estate planning documents that are executed electronically, and what are the requirements about who can hold and retain the documents?
SBW: The answer is it doesn’t, and it doesn’t address those requirements deliberately for a couple of reasons. Number one, the ULC has had a positive result drafting the UETA to be less prescriptive of technology, and that act has been in place for a long time without the need for an update because of updates in technology. Number two, we looked at the existing drafting models for electronic wills when we started drafting that act, and a lot of them included some prescriptive custodian requirements. There had been a previous law enacted in Nevada that was very prescriptive of the technology that had to be employed and which no one used. Essentially, what we’re doing is we’re leaving that to market forces.
DPP: Under UEEPDA, what happens if someone signs electronic nontestamentary estate planning documents in a jurisdiction that has UEEPDA but then moves to a jurisdiction where it is
GWB: The answer to that question is going to depend upon that new state, the state that they move to, and what type of savings statute that state has about giving validity to documents that are valid in other states. Almost all states have a statute for wills that says, if the will is valid in the state where executed, it will be valid in our state even if it doesn’t meet our state’s requirements.
It gets interesting with electronic wills because there are a few states that will not recognize an electronic will, even though it’s valid in the state where executed. They’ve said, “Our policy is no.” It’s going to depend upon what states have within their own statutes giving validity to documents executed in other states, which already exists with regard to paper documents, so it should extend to electronic documents unless the state has decided to exclude an electronic document from its savings statute.
DPP: If you had a crystal ball, where would you predict we’ll be in 20 years, as an industry, with estate planning documents and signings and probate processes?
GWB: I think, in the future, that we will move continuously into more electronic documents. And you asked me to predict what I would like to see happen in 20 years, well, I’d like to see one estate planning document where it is a will, it’s a trust, it’s a power of attorney, it’s a financial power of attorney, health care, body disposition, the whole thing in one document rather than having seven or eight documents. And I know, in my state, the execution requirements are all different. Some need witnesses, some need notarization, some need notarization and witnesses, and some need notarization or witnesses. They’re all different. To have one estate planning document and then have everything together, all electronic, is what I’d like to see happen in 20 years.
DPP: Many, many, many thanks to our esteemed guests, Suzie and Gerry, today. It was an honor to have you on the podcast and we greatly value your time and expertise. It will be interesting to see how this develops. n
Your client is planning to build a new subdivision of 300 homes. The county planning commission told her that she must dedicate ten percent of her land to the county without compensation, as a condition for subdivision approval, to widen the adjacent road because her subdivision will create an increase in road traffic.
The planning commission also told her that a county ordinance requires that ten percent of the land in new subdivisions must be conveyed to the county without compensation for public parks as a condition for subdivision approval. In addition, another county ordinance requires an impact fee of five thousand dollars for each home in a new subdivision. The county will use the fee to expand its water plant to provide for the additional water demand that the subdivision creates. Your client tells you that these requirements will force her to raise the cost of the homes, which will make marketing more difficult. She asks for your advice.
The demands the county made on your client’s subdivision are exactions. An exaction is a government requirement that a developer must pay or provide for a public facility or public amenity as a condition to receiving approval for her development. The first exaction is an adjudicative exaction. The second exaction is a legislative exaction. The third exaction is a fee. All of them are uncompensated. The issue is whether they are an unconstitutional taking of property because they shift the cost of public facilities and amenities from the public to the private sector without compensation.
The US Supreme Court has adopted takings tests for uncompensated exactions that are based on its unconstitutional conditions doctrine. This doctrine prohibits the government from requiring that a person give up a constitutional right as a condition to receiving a government benefit; for example, giving up the right to compensation in exchange for land use approval.
There are two takings tests for exactions. One is an “essential nexus” test, which requires some logical connection between a legitimate governmental objective and the exaction the government demands. This test is not difficult to meet. For example, there is a logical connection between a need for public parks and the conveyance of land for a public park. A more difficult “rough proportionality” test requires “some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.” Dolan v. City of Tigard, 512 U.S. 374, 391 (1994). For example, a conveyance for a road widening must not exceed what is needed to mitigate increased traffic demand stemming from the developer’s project.
The Court’s takings tests for exactions are more demanding than its takings tests for zoning and shift the burden of proof to the government. They apply to adjudicative exactions, such as the road widening exaction, but the Court has not decided whether they apply to legislative exactions, such as an impact fee. This update discusses this problem.
development and is related to a problem caused by that development. A legislative exaction is enacted by an ordinance and is applied uniformly to all development without adjudication.
Dolan recognized this distinction. It distinguished “essentially legislative determinations classifying entire areas of the city,” such as zoning, where the “conditions imposed were ... simply a limitation on the use petitioner might make of her own parcel,” from an adjudicative decision to condition a property owner’s application for a building permit on an individual parcel. The Court did not provide advice on how this distinction should be applied. Id. at 385.
Without the benefit of advice, courts have adopted different views on legislative exactions. One view holds that legislative exactions present some danger of improper leveraging, but are “subject to the ordinary restraints of the democratic political process.” San Remo Hotel L.P. v. City and County of San Francisco, 41 P.3d 87, 105 (Cal. 2002). A local government that adopts extortionate legislative exactions unjustified by mitigation needs will face widespread and well-financed opposition at the next election. Adjudicative exactions require special judicial scrutiny because they affect fewer citizens, evade systematic assessment, and are more likely to escape political controls. Id.
The contrary view holds that an ad hoc exaction is more likely to be a taking but that it is “entirely possible that the government could ‘gang up’ [through legislation] on particular groups to force exactions that a majority of constituents would not only tolerate but applaud, so long as burdens they would otherwise bear were shifted to others.” Town of Flower Mound v. Stafford Estates Ltd. Partnership, 135 S.W.3d 620, 641 (Tex. 2004).
Land Use Update Editor: Daniel R. Mandelker, Stamper Professor of Law Emeritus, Washington University School of Law, St. Louis, Missouri.Exactions are either adjudicative or legislative. An adjudicative exaction is adjudicatively determined for each
These two views make different assumptions about the adjudicative process, the political process, and how each process functions. Two recent cases that considered legislative exactions reached different
conclusions about which assumption is correct.
In Knight v. Metropolitan Government of Nashville & Davidson County, 572 F. Supp. 3d 428 (M.D. Tenn. 2021) (appeal filed), a sidewalk ordinance provided that a property owner could receive a building permit to construct a new residence only if he agreed to construct a city sidewalk on his property, unless the Metropolitan Government waived this requirement or substituted an in-lieu fee. Knight sued, claiming that the ordinance had to comply with the US Supreme Court’s exaction takings tests.
Quoting Dolan’s distinction between “essentially legislative” determinations and adjudicative conditions, the court held that the sidewalk ordinance was essentially legislative, not individualized, adjudicatory decision-making. Although it shared some features of an adjudicative exaction because it involved an application for a building permit, the granting of a public right-of-way or easement, and the building of a sidewalk, it applied broadly to all new or substantial redevelopment in entire areas of Metropolitan Nashville. The in-lieu payment was set by a formula in the ordinance, it was not linked to a specific development proposal, and its requirements were not unique.
Neither did the US Supreme Court’s takings tests apply. The Court extended its takings tests to include monetary exactions, like the exaction in this case, in Koontz v. St. Johns River Water Management District, 570 U.S. 595 (2013), because it found two “realities” underlying the “permitting process.” Id. at 604-05. One reality was that land-use permit applicants are especially vulnerable to the coercion prohibited by the unconstitutional conditions doctrine because they are especially vulnerable to extortionate money demands. The Knight court concluded that the risk of an extortionate demand from the sidewalk ordinance did not exist, however, because it did not pose a significant risk of abuse of power or overreaching by land-use officials. The ordinance was generally applicable, the in-lieu fee was calculated under a defined procedure, and the fee was capped at three percent of a permit’s total construction value.
The “second reality in the permitting
process” described in Koontz was that “many proposed land uses threaten to impose costs on the public that dedications of property can offset.” Id. at 605.
The Knight plaintiffs agreed and claimed, “that the cost of sidewalks is being imposed upon them, as developers of property, when it should be borne by the public at large.” 572 F. Supp. 3d at 442.
The court rejected this claim. It held that the sidewalk ordinance exaction and the alternative in-lieu fee were more like a tax or user fee than the “individualized, property-specific” exactions that the US Supreme Court had considered. It quoted an appellate court’s concerns that applying the exaction takings tests to legislative exactions would require higher scrutiny for any development regulation and judicial interference with the exercise of local government police powers.
In Anderson Creek Partners, L.P. v. County of Harnett, 876 S.E.2d 476 (N.C. 2022), a county ordinance, as a condition for county concurrence in obtaining water and sewer permits from the North Carolina Department of Environmental Quality, charged each new residential connection with a one-time, non-negotiable “capacity use” fee of $1,000 for water service and $1,200 for sewer service. Koontz made monetary fees subject to its exaction takings tests because local governments could easily evade them by “phrasing its demands for property as conditions precedent to permit approval.” 570 U.S. at 606. Koontz did not give advice on what types of monetary fees had to comply with the US Supreme Court’s takings test. The North Carolina Supreme Court held that the county’s capacity use fee had to comply.
The court first decided that the capacity use fee was an exaction. It approved Black’s Dictionary definition of an exaction as a “requirement imposed by a local government that a developer dedicate real property for a public facility or pay a fee to mitigate the impacts of the project, as a condition of receiving a discretionary land-use approval.” The capacity use fee met that definition because it charged a cost to expand water and sewer services
required by new development. It was not a user fee, which is a fee charged for the contemporaneous provision of water and sewer service to a user of these services.
The court then held that the “essential nexus” and “rough proportionality” tests applied because Koontz held that they applied to a broad range of governmental demands for money payments as a condition for a land use permit. It was enough, the North Carolina court held, if a local government demands property as a condition for a land-use permit applicant by requiring a dedication of land or the payment of money. Whether the fee was administrative or legislative was not relevant because the court was not concerned about the identity of the governmental actor that made the demand.
Neither was the court persuaded that the validity of the fee should be decided by the legislative, not the judicial, branch. The capacity use fee was non-discretionary and generally applicable, but its legislative basis did not eliminate or mitigate its “coercive pressure.” 876 S.E.2d at 497. The fee required judicial review because it was inherently coercive in the constitutional sense as a condition of obtaining county support for the state water and sewer permits.
On remand, the supreme court instructed the trial court to consider whether the fee was roughly proportional to the costs that new development would generate for the county’s water and sewer infrastructure. The plaintiff conceded the nexus issue.
Krupp v. Breckenridge Sanitation District, 19 P.3d 687 (Colo. 2001), is a contrary case. The court declined to apply Dolan to a plant investment fee assessed on all building projects by a special district providing wastewater services.
Courts that decide whether legislative exactions are a taking make fundamental decisions about the legislative and judicial function and the financial resources that are available for governmental needs. Questions unsettled by the US Supreme Court complicate these decisions. Courts that consider these questions must make difficult choices with important consequences for the financial responsibilities of local governments and land developers. n
A mentor is a person who can provide support, guidance, encouragement, information, contacts, and guidance to another person. A mentor can provide support with respect to both personal development and professional development.
I found the following quote about mentoring and thought it shared the heart of what mentoring can be. Bob Proctor says: “A mentor is someone who sees more talent and ability within you than you see in yourself and helps bring it out of you.”
A good mentor is a good listener. The good mentor asks questions and listens carefully to responses. The mentor gets to know what you are and where you are in life right now so that any support and guidance can be tailored specifically to what might help you on your life path.
A good mentor admits what the mentor doesn’t know. None of us can be all things to all people or even all things to one person. As a result of good listening, a good mentor will be able to identify where the mentor can provide support and where the mentee might be best served by the suggestion of an alternative resource.
I have long been a yoga teacher. I remember being at a national yoga conference and having a conversation with a popular yoga teacher. She had an almost cult-like following. In our conversation, she mentioned that she was seeking a way to convey to her students that they would all be best served by going to classes of many other teachers as well as her classes. She noted that her way of teaching was based only on her perspective and that our perspective overall would be broadened by hearing the views of others with knowledge and experience. This is true in our professional and personal lives. I have always had a few trusted mentors to provide guidance and support in various areas of my life.
Contributing Author: Mary E. Vandenack, Vandenack Weaver LLC, 17007 Marcy Street, #3, Omaha, NE 68118.When it comes to professional mentors, it is great if your employer provides a professional mentor. Even if we have a mentor in our own firm or business with whom we are a good match, there may be law or issues that are better discussed with someone who is not working in the same place. If the mentor at our place of work is not a good fit for us, it is even more important to seek outside mentoring.
Just as with any other type of relationship, a mentoring relationship requires commitment from both the mentor and the mentee. Some mentoring relationships are formal. In that context, it is important to identify the goals of the relationship. In addition, it is important to discuss how often you will connect and the amount of time that you will spend. Both the mentor and the mentee should take responsibility for honoring the commitment to the relationship.
Another quote that I like is from Shunryu Suzuki: “In the beginner’s mind, there are many possibilities, but in the expert’s, there are few.” Mentoring is truly a two-way relationship. One of the joys of mentoring for me is all that I learn from the mentee.
In some cases, the answer is the same. An organization might have a formal mentoring program. Sometimes professional associations offer mentoring programs. For example, RPTE has a leadership mentoring program. Many state bar associations have mentoring programs.
Mentors can also be found informally. When I was a young lawyer, I would read a local business journal and look for women who were successful whom I would like to get to know. It was amazing how often I got a “yes” when I reached out. These are some of my best long-term mentoring relationships. Many of my mentors were in businesses other than law. They shared their business experiences with me and their views on how lawyers could improve their services and relationships with business clients.
I openly acknowledge that part of my commitment to the ABA is the result of the generous mentoring I received in so many areas of my life. Though the organization is a professional organization, the people whom I have gotten to know have offered me so much more than professional mentoring. I practice law in a
small, big town. Everyone knows a lawyer or is related to a lawyer. As a result, it was difficult to feel comfortable in a mentoring relationship with another lawyer in my own hometown. Meeting people who had no connection to my home state but understood what I did made it easier to mentor. In an era of the readily-available videoconferencing, it is easy to remain connected or become connected to
mentors outside of your own geographical area.
A significant value of mentorship is that a positive mentoring relationship can improve the mental health and state of wellbeing of both the mentor and the mentee. n
Since I last wrote about Per- and Polyfluoroalkyl Substances (PFAS) in the March/April 2020 issue of Probate & Property magazine, there has been seemingly non-stop activity at both the state and federal levels in the regulation of PFAS. Just to give the reader a flavor of the flurry of activity, here is a sampling of significant actions taken on PFAS across the country.
In September 2022, the Environmental Protection Agency (EPA) issued a proposed rule that would designate two PFAS compounds, perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS), as hazardous substances under Section 102(a) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). 87 Fed. Reg. 54415 (Sept. 6, 2022). If the proposed rulemaking becomes law, expect immediate impacts to CERCLA National Priority List (NPL) sites, including potential re-openers and a broad swath of new potentially responsible parties (PRPs).
Tangential to that issue is EPA’s adoption of ASTM’s E1527-21 standard for Phase I environmental site assessments, effective as of February 13, 2023, as satisfying the all-appropriate-inquiries rule. The new standard is the first to adopt consideration of emerging contaminants, including PFAS, in a Phase I assessment. If, however, EPA ends up listing PFAS compounds as CERCLA
Environmental Law Update Editor: Kyle R. Johnson, Brown Rudnick LLP, 185 Asylum Street, Hartford, CT 06103, kjohnson@ brownrudnick.com, 860.509.6570.
hazardous substances, evaluation of PFAS impacts will become compulsory. Purchasers of real estate will need to ensure that they are asking the right questions in evaluating the property. Given the range of industries that have historically used PFAS compounds— from aviation to cosmetics to textiles—a close evaluation of current and historical uses of the property and adjacent properties will be necessary. PFAS is also highly mobile in groundwater. As a result, evaluation of surrounding land uses for PFAS-related industry will be crucial. PFAS compounds have also been historically prevalent in certain firefighting foams. As such, purchasers should evaluate the history of fire at a property, as well as the current and historic firefighting infrastructure in place at the property.
Environmental professionals wishing to go the extra mile could potentially incorporate a review of the Toxic Release Inventory (TRI), a publicly available database containing information on chemical use and waste management. Those companies that use TRI-listed chemicals, subject to a weight threshold, are required to report their use to EPA. In late 2019, EPA added certain PFAS required to be reported to EPA. Although initial reporting numbers were underwhelming due to the relatively low quantity of PFAS compounds required for most uses, EPA has signaled its intent to categorize PFAS as a “Chemical of Special Concern” that would eliminate the de minimis exemption used by companies that use small quantities of PFAS compounds. As a result, the number of companies reporting PFAS use is expected to increase significantly in 2023.
Although the TRI is typically used by communities, governmental agencies, and others to identify potential sources of contamination, it could also be used by environmental professionals in evaluating a property and its surrounding properties for PFAS use.
California, New York, and Vermont have taken action on PFAS in food packaging. The California Safer Food Packaging Cookware Act of 2021, which went into effect on January 1, 2023, prohibits the sale or distribution of any food packaging that contains PFAS. The act defines food packaging to be any “nondurable package” that is originally derived from plant fibers. Cal. Health & Safety Code § 109000(a)(1). The act also requires cookware manufacturers that sell cookware in the state of California to list the presence of PFAS in the cookware handle or any surface of the cookware that comes into contact with food. New York’s ban, which went into effect on December 31, 2022, is similar to California’s ban but does not extend to the cookware labeling requirements. California’s and New York’s bans follow Maine, which was the first state to enact a food packaging ban. Maine’s ban went into effect in July 2022.
Notably, the bans enacted to date in Maine, California, and New York do not specify particular PFAS that cannot be used in the packaging. Past regulations around PFAS have often zeroed in on PFOA or PFOS or five or six other highly prevalent PFAS compounds. As a result, the laws apply to any of the nearly 9,000 PFAS compounds that exist today. A handful of other states—Colorado,
Connecticut, Hawaii, Maryland, Minnesota, Rhode Island, Vermont, and Washington—also have implemented bans that take effect in the next two years. Many food companies, including Wendy’s, Burger King, McDonald’s, Whole Foods, and Chipotle, have proactively eliminated, or plan to eliminate, all PFAS from their food packaging.
Although not as widespread as the food packaging bans, several states have enacted or proposed bills that would restrict the manufacture and sale of cosmetics and textiles that contain certain PFAS compounds, including PFOA and PFOS. California’s initial ban on
PFAS-containing cosmetics was limited to 15 or so compounds. In 2022, however, a California statute broadened the ban to all PFAS compounds. Cal. Health & Safety Code § 108981.5. Maryland, Minnesota, New York, Maine, and Colorado also have moved to act on PFAS-containing cosmetics.
In addition, California, Washington, and a few other states have enacted bills that phase out the use of PFAS in certain textiles. Under the California Safer Clothes and Textiles Act of 2022, textiles are broadly defined to include “apparel, accessories, handbags, backpacks, draperies, shower
curtains, furnishings, upholstery, beddings, towels, napkins, and tablecloths.” Cal. Health & Safety Code § 108970(i) (1). California’s law contains a few notable carveouts, including apparel meant for exclusive use by the United States military, architectural fabric structures (e.g., stadium shades), and filtration media. Outdoor apparel for “severe wet conditions,” such as outerwear used in offshore fishing, offshore sailing, whitewater kayaking, and canyoneering, has a delayed ban that does not take effect until 2028. Id. §§ 108970(d), 108971(a)(2). n
Consider these statements:
1. Migrating can be hard for aliens.
2. James Bond favors a cool drink. Each statement creates interpretative uncertainty. Both are unclear but for different reasons. The first is vague; the second is ambiguous. The two introduce quite different concepts. Both can distract from persuasion and understanding.
Vague means something is uncertain, indefinite, or of unclear character or meaning. When we read a vague word, we’re challenged to understand what the writer or speaker intended. When you first read the sentence about migrating aliens, you likely didn’t have a clear mental picture of what was meant. Does migrating refer to outer space beings seasonally relocating like birds, individuals from one country attempting to move to a different one, or something else? Regardless, is what is hard a legal, physical, emotional, or another issue?
Ambiguity is not a synonym for vagueness. When something is ambiguous, it means that it may be interpreted in more than one way. The root of ambiguity, ambi, is Latin for “both.” Thus someone who can use both hands with equal dexterity is ambidextrous. So, does James Bond like a drink that is trendy or one that is chilled? Both are legitimate interpretations of cool in the sentence. And, if the latter, the statement also is vague. After all, how cold is cool?
Unfortunately, vagueness is ubiquitous in the law. Practitioners and law students are constantly exposed
to language that is general, abstract, and vague. When discerning a trend in case rulings, side-by-side comparisons, balancing tests, and supplementary doctrines can be employed. When drafting a document, awareness of vague words and terms can trigger the author to help the reader with clues, most typically done via context. Perhaps Mr. Bond prefers the taste of his drink when cool but not cold.
Similarly, disambiguation can be achieved through context. The proper packaging of a reference with more than one meaning can eliminate all but the intended concept. This leads to the focus within the law to adopt and use plain English. As Supreme Court Justice Clarence Thomas once said, the “beauty is not to write a five-cent idea in a ten-dollar sentence” but rather “to put a ten-dollar idea in a five-cent sentence.” The Atlantic (Feb. 23, 2013).
Of course, the challenges inherent in legal writing are not limited to the law. Our federal government is another source of muddled communication. Like legal writing, government publications are often stodgy and full of dry legalisms and jargon. As a counter, the Plain Writing Act of 2010, Pub. L. No. 111-274, 124 Stat. 2861, requires federal agencies to write clear government communication that the public can understand and use.
H.W. Fowler summed up recommendations for making word choices in his influential book The King’s English (1906). He encouraged writers to be simpler and more direct in their style by preferring:
• The familiar word to the far-fetched
• The concrete word to the abstraction
• The single word to the circumlocution
• The short word to the long
• The Saxon word to the Romance word
Id. at 1. Anglo-Saxon words have Germanic roots and are generally shorter and more concrete. Latinate (Romance) words have French or Latin origins and are abstract, scholarly, and often multisyllabic. Anglo-Saxon words make writing more understandable and easier to read, quickening the pace of the reader. Latinate words may require more focus and time, as they are contemplative. Use the former to deliver a story and the latter to analyze after the story is told.
Recognition of the benefit of clear expression in the law is not new. Courts have been acknowledging the need for decades. Indeed, I’m reminded of a remark by Joe Kimble, Professor Emeritus at Western Michigan University Cooley Law School and author of over 30 books, including the seminal Lifting the Fog of Legalese: Essays on Plain Language (2005). Prof. Kimble proclaimed that “no reform would more fundamentally improve our profession and the work we do than learning to express ourselves in plain language,” Benchmark Alumni Magazine 3 (Winter 2015), see also https://www.cooley.edu/ faculty/joseph-kimble. To that, I would add not just learning, but also doing.
Bottom line: Anticipate when a word, term, or expression may be vague or ambiguous, and then craft the use to ensure clarity and fluency by choosing another word, selecting another placement, or providing sufficient context. And we should all be cool with that.n
