Does the right to receive rent payments transfer with the sale of property?

A recent Ohio Supreme Court case reminds property owners that it is critically important to clearly describe what rights and interests are being conveyed - and, more importantly, what rights and interests are being reserved - in any real estate transaction. The absence of such clear language can give rise to issues down the road, as evident in the case of LRC Realty, Inc. v. B.E.B Properties (2020-Ohio-319.)

Background

B.E.B. Properties (B.E.B.) was the original owner of a property located in Chardon, Ohio. In 1994, B.E.B. entered into and recorded a lease with Northern Ohio Cellular Telephone Company (NOC); under the lease, NOC constructed a cellular tower and made rent payments to B.E.B.

B.E.B. subsequently sold the property to Keith Baker and Joseph Cyvas (Baker and Cyvas), and the partners in B.E.B. assigned their respective interests in B.E.B. to Bruce and Sheila Bird (the Birds).

During Baker and Cyvas’s ownership of the property, NOC (and, later, its successor in interest) paid rent to the Birds. NOC continued to pay rent to the Birds even after Baker and Cyvas sold the property to 112 Parker Court, L.L.C. (Parker Court), and Parker Court later sold the land to LRC Realty, Inc. (LRC). It was only after LRC took title to the property in 2013 that LRC filed suit seeking declaratory judgment that LRC was entitled to the rent payments.

Lower Court Decisions

The trial court held that the right to receive rents runs with the land, and as such, Parker Court and LRC were entitled to the rent payments during their respective periods of ownership of the property. On appeal, the Eleventh District Court of Appeals reversed in part, finding that the language in the deed from B.E.B. to Baker and Cyvas - which noted that “such premises further to be subject to the specific encumbrances on the premises as set forth above” - reserved B.E.B.’s right (and thus the Birds’ right) to receive future rent payments under the lease.

Supreme Court Decision

The Supreme Court of Ohio focused on two issues: whether the right to receive rents runs with the land, and whether language in a deed indicating that the property is being conveyed “subject to” is sufficient to reserve the grantor’s right to receive rent payments under a lease.

To address the first issue, the Supreme Court of Ohio reaffirmed the common law notion that the right to receive rents runs with the land unless it is reserved by the grantor in the deed conveying the property.

For the second issue, the Supreme Court of Ohio analyzed the language of the deed from B.E.B. to Baker and Cyvas, holding that the language in the deed that the property was being conveyed “subject to” certain encumbrances was insufficient to reserve the right for B.E.B. to continue receiving rents. Instead, the court noted that the deed should have used words such as “reserve” or “excepting” to reserve the right, and, further, that B.E.B. should have clearly indicated its intention to keep receiving rent payments under the lease with NOC. Without that language, the court held that the right to receive the rents ran with the land, and as such, each of the subsequent property owners, not the Birds, were entitled to the rent payments during their respective periods of ownership.

If you have questions about an upcoming real estate transaction or the issues this case brings up, please contact the McDonald Hopkins attorney listed below.