In June of 2020, the Supreme Court of Ohio held in LRC Realty, Inc. v. B.E.B. Properties, Slip Opinion No. 2020-Ohio-3196 that absent an express reservation, the right to receive rental payments runs with the land and follows legal title.
A brief recitation of the facts in LRC Realty, Inc. follow herein. In 1994, B.E.B. Properties (“B.E.B.”) leased a portion of a commercial tract (“subject tract”) and granted an easement to Northern Ohio Cellular Telephone Company (“Northern Ohio Cellular”). Id. at ¶ 2. The lease and the easement were recorded, and Northern Ohio Cellular erected a cellular tower on the subject tract. Id. Shortly thereafter, in 1995, B.E.B. sold the subject tract to Keith Baker and Joseph Cyvas. Id. at ¶ 3. The deed from B.E.B to Baker and Cyvas (“B.E.B. Deed”) contains the following language:
“B.E.B. Properties * * * the said Grantor, does for itself and its successors and assigns, covenant with * * * Grantees [Baker and Cyvas] * * * that it will warrant and defend said premises * * * against all lawful claims and demands whatsoever, such premises further to be subject to the specific encumbrances on the premises as set forth above.” Id. at ¶ 18.
Several months later, two of the three B.E.B. general partners sold their partnership interests to the third partner and his wife, Bruce and Sheila Bird. Id. at ¶ 3. The Birds assumed that this transaction included the assignment of the right to receive future rental payments under the Northern Ohio Cellular lease. Id. The Birds actually received rental payments from Northern Ohio Cellular and its successor in interest, New Par, until 2013, when LRC Realty, Inc. (“LRC”) purchased the subject tract from 112 Parker Court, L.L.C. (“Parker Court”), the successor in interest of Baker and Cyvas. Id. at ¶ 5. In 2014, LRC filed a complaint against B.E.B., Parker Court, and New Par seeking a declaratory judgment that it was entitled to the rental payments under the Northern Ohio Cellular lease, and further seeking to recover the rents paid to the Birds in 2013. Id. at ¶ 6.
The issues before the Court were (1) whether, absent an express reservation in a deed conveying real property, the right to receive rental payments runs with the land and (2) whether language in a deed indicating that the property being conveyed is “subject to” a recorded lease agreement and easement is sufficient to reserve the grantor’s right to receive future rental payments under that lease agreement. Id. at ¶ 10.
As to the first issue, the parties and the Court agreed that absent a reservation in a deed conveying real property, the right to receive rental payments runs with the land. Id. at ¶ 12. This statement of law is firmly established by precedent and has been codified by the General Assembly in Ohio Revised Code Section 5302.04. Therefore, the Court held that the right to receive rental payments runs with the land unless the grantor reserves such right in the deed conveying the property. Id. at ¶ 15.
As to the second issue, the Court focused on the plain language of the B.E.B. Deed, which specifically states that the subject tract is “subject to the specific encumbrances on the premises set forth above.” The Court then looked to Black’s Law Dictionary, which defines a reservation as “[t]he creation of a new right or interest (such as an easement), by and for the grantor, in real property being granted to another.” Black’s Law Dictionary 1500 (10th Ed.2014). The Court made note that no particular words are necessary for the creation of a reservation, but reservation clauses typically contain the words “reserve,” “reserving,” “reservation,” “except,” or “excepting.” L.R.C. Realty, Inc. at ¶ 20. See Gill v. Fletcher, 74 Ohio St. 295, 304, 78 N.E. 433 (1906). However, the Court cautioned that an exception is technically distinct from a reservation. L.R.C. Realty, Inc. at ¶ 20.
The court declined to interpret the words “subject to the specific encumbrances on the premises as set forth above” as a specific reservation clause in the B.E.B. Deed. Id. at ¶ 21. Therefore, because no words of reservation appear on the face of the B.E.B. Deed in connection with the words “rent” or “rental payments,” the Court ultimately held that B.E.B did not reserve the right to receive future rental payments for the leased land in the B.E.B. Deed. Id. Thus, B.E.B.’s assignment to the Birds was ineffective to convey the right to receive rental payments under the Northern Ohio Cellular lease. Id.