Conservation Easements

Conservation easements – increasingly popular in recent years – allowlandowners to permanently preserve property from development. Theyallow continued private ownership with certain tax benefits with thecomforting knowledge that a beneficial usage will continue for futuregenerations.

For agencies or governments representing the public, they provide away to preserve open spaces, provide water conservation and protect wildlands at a much-reduced cost as compared to outright purchase.

Conservation easements come in several flavors according to theirpurpose. A landowner may grant an easement for the protection of habitatfor endangered plants and/or animals, for the protection of water, orfor the protection of farmland. A multi-generational farmer may desirethat his farmland never be turned into a neighborhood and so may grantan agricultural easement. A bird lover may desire to establish a birdrefuge and observation area. One might even be specific enough toprotect a milkweed meadow known to host migrating monarch butterflies.

A conservation easement can be granted now with the proviso that itbe made effective at death. Years ago, our firm, Johnson & Johnson,represented a generous, public-spirited family that made arrangement soon their deaths their large wetlands south of Western Reserve Roadpassed to Mill Creek Park. As a result, today there is a magnificentviewing area overlooking the Mill Creek wetlands that is maintained bythe park on Calla Road, just off New Buffalo Road.

Qualifying easements may be given to the Ohio Department of NaturalResources, to a public park, a soil and water conservation district, to atownship, city or county, or to a qualified charity. Real estate taxestypically are reduced on a parcel of land over which an easement hasbeen granted. Additionally, a landowner receives a charitable deductionagainst state and federal income taxes.

The easiest way to accomplish a conservation goal is to work with alocal conservation district. We are fortunate in northeastern Ohio, aswe have many active, reputable charitable organizations that havesuccessfully preserved huge amounts of ground. A simple internet searchfor “land conservation” will return dozens of local options. The key tochoosing the right one depends on one’s goals.

Each institution has its own rules, regulations and processes fordetermining whether a particular property meets its needs. Distance fromheadquarters, cost and difficulty of maintenance, necessary precautionsagainst trespassers, outstanding environmental issues, ease of insuringthe property and potential use of the property are all considerations.The process is similar to interviewing a prospective employee – theremust be a proper fit.

The vast majority of conservancy districts take title via permanenteasements. As suggested, easements also allow the granting party to havean ongoing relationship with the property.

Of particular note are farming conservation easements, which allowfarmers to continue living on and farming land, but which also prohibitfuture division or development. Similarly, a landowner may rest easyselling the homestead with the knowledge that a beloved forest at theback end of the property will never be cut.

Conservation easements have become popular with corporate America aswell. TJX Companies, for instance, is openly discussing its desire todedicate a large portion of its potentially-acquired property inLordstown to a conservation district. TJX proposes to build a $160million warehouse and distribution center at the site.

In sum, properly drawn conservation easements provide a win-win for both environmentally-minded, landowners and the public.

Incentives for Remediation

At one time our “Steel Valley,” was one of the great steel regions ofthe world, hosting mills along the Mahoning River from Warren to thePennsylvania line. Fierce competition from overseas, followed by theclosing of Youngstown Sheet and Tube in the 1970s started a long slidein industrial production in the region. Yes, a few of the old plantshave reopened, but great stretches of industrial land lie fallow, notproducing profits, tax revenues nor jobs.

However, the location and attributes that once made northeastern Ohioattractive for industrial development – interstate highway systems,water transportation via the Great Lakes and Ohio River, naturalresources, skilled workforce and proximity to markets – remain. Theexploration of natural gas and natural gas liquids in the Utica andMarcellus shale formations will incentivize cracker plants and plasticsfactories throughout the Ohio Valley. The Shell cracker plant underconstruction in Monaca, Pa., will not be the first such operation.

Cheap energy and the fact that we are one day’s trucking from themajor markets on the East Coast, as well as Detroit, Chicago and St.Louis, also mean companies are going to be nosing around northeast Ohiofor industrial locations.

What hoops do they have to jump through to acquire an ancientindustrial site? Environmental regulations say someone buying a pollutedbrownfields site is responsible for cleaning it up, if it can be shownthat pollution could be readily detected when the buyer made thepurchase.

One might question the logic and fairness of forcing a new owner tobe responsible for pollution from 100 years ago. Be that as it may,environmental laws have made many old industrial properties taboo. Theywill be the subject of a future article, while today we will focus ontax abatement as a spur to clean up brownfields and redevelop them.

If a company is considering buying an industrial site that is knownto be contaminated, the cost of remediation affects the price it iswilling to offer. It also must take into consideration the effect ofclean-up on future real estate taxes. It is a catch-22. If the companyspends the money to clean the site, the land’s value will rise, causingreal estate taxes to head north, creating a double incentive not toinvest.

Recognizing the dilemma, in 1994 the Ohio Legislature passed ORC 5789.87 and amended the law last year.

Under the law, a landowner can:

• Acquire property and then design and begin a remediation plan.
• Enter into an agreement with the director of the Ohio EPA thatpromises the landowner will not be sued to force remediation as long asthe landowner follows along with its plan.
• Receive a promise from Ohio that the increase in value resultingfrom remediation will not result in increased taxes for 10 years. (If alandowner sells tax-abated property, the buyer will continue to enjoythe abatement for the remainder of the 10 years.)

Obviously, the fair market value of a polluted parcel should be much less than that of similar pristine property.

However, old industrial sites – often owned by defunct entities – aretypically carried on the books by the county auditor at values far inexcess of fair market value. This being the case, an acquirer shouldfight through the reassessment procedure before applying for a taxfreeze under ORC. 5789.87 (otherwise valuation would be frozen at anunrealistically high level).

At a valuation hearing, according to the case law, the cost ofremediation may not simply be deducted dollar for dollar from what wouldbe the fair market value of a non-polluted site. Sophisticatedappraisal testimony will be required.

By using this recently revised statute, industry can breathe new lifeinto old industrial sites, improving local tax bases and creating jobs.

Ohio's Legacy Trust Procedures

Business clients typically minimize exposure to creditor claims byusing liability-limiting business structures, by maintaining appropriateinsurance coverages, by maximally funding qualified retirement plansand by dispersing asset ownership within the family.

High-net-worth clients, whose activities subject them toextraordinary claims, may now also use an additional tool to protect aportion of their assets – an Ohio Legacy Trust (OLT).

Placing assets into a plain vanilla revocable living trust does notshield them from creditors. An OLT is an irrevocable trust, the assetsof which are protected. An OLT is funded with “excess” assets – assetsthat are not needed to take care of existing obligations and assets thatare not “already-protected.”

Step 1: Solvency analysis.  

•  Assets are listed and debts deducted, along with actual and contingent liabilities (lawsuits, personal guarantees, etc.).
•  Already protected assets (such as funds in qualified retirement plans) are also deducted.
•  Future earnings are considered.
•  A cushion is added – in case calculations are off.

Some or all of the resulting “exposed net worth” can be moved to an Ohio Legacy Trust.

Step 2: Solvency affidavit.

An affidavit is recorded saying the client is legal owner of theproperty being transferred, that creditors are not being defrauded, thatthe client will not be rendered insolvent by the transfer, that nolawsuits or administrative proceedings have been filed or arethreatened, and that bankruptcy is not contemplated.

Step 3: Waiting period.

Having created the Ohio Legacy Trust, filed the solvency affidavitand transferred property to the trust and waited, in most instances 18months, a creditor’s claims against the OLT are barred, unless thecreditor can prove by clear and convincing evidence the transfer wasfraudulent – a high and difficult hurdle.

Structure of OLT.

The client (and possibly the client’s spouse and children) is thelifetime beneficiary of the OLT. The trustee can be a qualifiedfinancial institution, or any person, other than the client. The trusteeshould not be a subordinate of the client. At least one trustee musthave ties to Ohio.

Client rights over the OLT.

The client can retain these rights and powers over the Ohio Legacy Trust:

•  To receive trust income and to receive principal – at the trustee’s discretion.
•  To name by will ultimate trust beneficiaries (but not the client’s estate or creditors).
•  To veto distributions to other current trust beneficiaries.
•  To remove the trustee and appoint a new one.
•  To demand up to 5% of the trust property annually.
•  To live in a residence owned by the OLT.

Client Management rights.

The client can retain control and management of assets moved into trust as follows:

•  A limited liability company is created to hold financial or business assets, or real estate.
•  The client is named the manager of the LLC, perhaps under a long-term contract.
•  The member’s interest in the LLC is then assigned to the OLT.

The result: While the client owns no member’s interest that could be attached, he still is in management control.

In sum, clients can achieve a great degree of asset protection bytaking common-sense steps in arranging their affairs. In addition, aclient with a large net worth and one whose activities subject him topotential extraordinary claims might now also consider setting up an OLTfor a portion of their assets.

Frequently Asked Questions about Solar Leases

Q: How long does a solar lease last?

A: The term of a solar lease is typically between 20 and 30 years

Q: What effect will the solar lease have on my property?

A: If you currently receive a special tax valuation (in Ohioa “current agricultural use valuation,” in PA a valuation under Act 319) youmay lose that status and have your real estate taxes increase.  There may be a recapture of previous taxesthat were foregone.  Finally, theinstallation of the solar facility may trigger a personal property tax.  The lessee should agree to pay theseassessments.

Q: What does a solar array involve? 

A: A solar array involves row after row of dark panels mounted on posts. There might also be associated equipment and access roads installed to service this equipment. The panels may be fixed, or they may be motorized to track the sun.  They are connected by wires, which are buried.

Q: Once a solar array is installed, will that land have any further agricultural use?

A:  Probably not.  However, in theory “low” animals like sheep (not goats) could graze underneath. This should be negotiated with the solar company.

Q: If I sign a solar lease, can I later sign an oil and gaslease?

A: Yes, however, the solar company will require the oil andgas lease be “non-drilling” so that no oil and gas operations will be conductedon the surface.  (This is not a problemin these days of horizontal drilling…)

Q: If I sell my land, can I keep future payments generated by the solar array?

A: Yes, if your lease is written properly.

Q:  How much will I be paid for signing a solar lease?

A: Payments for landowners signing a solar lease are typically one of two options: either a percentage of the electricity sold (but beware "Hollywood" accounting), or a per-acre fee annually. A third option might include a combination of these two options.

Q: What is the per-acre annual payment for signing a solar lease?

A: Presently (i.e. August, 2019) landowners in Ohio and Pennsylvania are being offered about $600 per acre and up. The price received depends on the distance to the utility sub-station (the closer the better), the flatness of the land, the size of the farm, the proximity to a market, and of course, the amount of sun the property receives. For context, in sunny South Carolina, a 10-acre parcel next to the sub-station was leased for $2,000 an acre.

Q: What effect does signing a solar lease have on on surrounding non-leased land?

A: The solar company will want the right to take down trees or other obstacles that block sunlight on non-leased land. Depending on what use the landowner contemplates for non-leased land, the lease should be negotiated accordingly.

Q: Why does the solar company need to option my land for a period of time, instead of just installing the arrays immediately?

A: A solar company needs to test for solar “irradiance” to make sure the proposed site will be profitable.  This typically takes one year.

Q: Can I use roads that the solar company will install?

A: Probably, but this should be negotiated with solar company and written into the lease.

Q: Can I still sign a solar lease if my property has a mortgage on it?

A: Yes, but the solar company will ask the landowner to obtain a mortgage subordination that gives the solar company priority over the mortgage. The landowner can certainly try to obtain the subordination on their own, but final responsibility should be on the solar company.

Q: Who maintains the land subject to a solar lease?

A: The solar company is typically obligated under the lease to maintain the land with solar arrays on it.

Q: What if someone becomes injured on the land?

A: The landowner should require the solar company to complywith Workers Compensation statutes and to carry a minimum amount of insurancecoverage and to name the landowner as an insured. 

Q: What happens when the solar lease expires?

A: It depends on what the lease says. Ideally, the lease should obligate the solar company to remove all equipment, foundations and roads not wanted by the owner.  It might also require the solar company to test the soil to ensure that heavy metals included in the solar array have not leaked.  The solar company might agree to post a bond to insure complete clean-up and removal of the equipment.

Reader's Choice Award - Vindy.com - Favorite Law Firm 2018

The fine folks at The Vindicator recently ran their first ever Reader's Choice Awards, and we're very pleased to announce that the readers have voted our law firm their favorite.Thank you all for your support!  We could not have done it without you. 

Atty. Nils P. Johnson, Jr. - Artist in Residence

The fine folks at the Business Journal stopped in to see the progress I've been making on a rather large painting for the City of Canfield.You can view their video interview of me here.

Arbitration - Frequently Asked Questions

What is arbitration?

Arbitration is a dispute resolution process.

When will a dispute be resolved by arbitration?

A dispute will be resolved by arbitration if the disagreeing parties have previously agreed in writing to resolve future disputes via arbitration.

How do I know if I agreed to arbitration?

You will know if you agreed to arbitration by reading carefully the contract or agreement that governs whatever item/service you purchased or signed up for. Nearly all online services will include an arbitration clause in their standard user licensing agreements. In fact, if you've ever clicked "I Agree" before installing software or upon creating a username/password for an online service, you have likely agreed to arbitrate a future dispute.

What if I didn't know I agreed to arbitrate a future dispute?

If you signed a contract containing an arbitration provision, you will probably be bound to arbitrate future disputes even if you weren't aware that the contract contained an arbitration provision.

What is the advantage of arbitration?

Arbitration can often be finalized more quickly than litigation in the state or federal court systems. Arbitration is also entirely private: there is no publicly searchable database of pending arbitration cases or their results. Arbitration can also be less formal than litigation. Of course, this depends on the complexity and size of the controversy. Smaller matters such as a consumer purchase can be resolved in a matter of months and via email exchanges and conference calls. More complex matters, such as a large construction project, will likely take over a year to resolve, and may require several in-person appearances in a faraway location and extensive personal testimony.

What are the disadvantages of arbitration?

Arbitration can be expensive. The fees for arbitration are tied to the amount of the controversy: the more expensive the claim, the more expensive the filing fees. More information about arbitration fees can be found at the American Arbitration Association's website. In addition to filing and administrative fees, arbitrators themselves will have hourly or fixed-rate fee schedules.Besides the costs, arbitration results can generally not be appealed. In this way, the stakes of arbitration are much higher than those in formal litigation which affords several offers opportunities for appeal.

Who will arbitrate my claim?

It depends on what your arbitration clause says. Some arbitration provisions require the parties to mutually agree on a single arbitrator. Other agreements might require three arbitrators: one party selects an arbitrator, the other party selects another, and the two arbitrators themselves appoint a third. And other agreements might allow for one party to unilaterally select the arbitrator. The same arbitration provision might also require the arbitrator(s) to have certain qualifications (i.e. the arbitrator must have ten or more years of experience in the oil and gas industry).

If my opponent can pick the arbitrator, can they appoint someone favorable to them?

Yes. If your arbitration agreement allows your opponent to unilaterally select the arbitrator, you are at a disadvantage. To take an extreme example, imagine your opponent selecting their mother to arbitrate the dispute. This is admittedly unlikely to happen. However, it is commonplace for corporations to routinely employ specific arbitrators.Fortunately, Ohio has laws that authorize a local court to review the arbitrator's determination for things such as corruption, fraud, or undue influence. In this way a party can ensure that they obtained a reasonable result.

Can I appeal an arbitration?

In short, no. The result you obtain at arbitration is quite likely binding and final on all the involved parties. There is no arbitration appeals court.However, Ohio law allows a local court to modify or vacate an arbitration award. But the court's review authority is quite limited, and should not be understood as a second chance for a brand-new trial on the merits. In fact, Ohio caselaw strongly favors the arbitrator's conclusions and routinely cautions Ohio courts from substituting their judgment for the arbitrator's.

What if I don't want to arbitrate my dispute?

If you don't want to arbitrate your dispute, you might still file a lawsuit in your local court system. However, your opponent may simply ask the court to arbitrate the issue per the arbitration clause you agreed to in the contract. If your opponent never asks the court to do that, however, your issue could be resolved entirely within the court system.

Phone Scam - February 8, 2018

A local woman called this afternoon indicating she had received a voicemail from our office requesting credit card information.  I verified that nobody in our office had ever heard of this particular person, and that nobody in our office made such a call.  It would appear, then, that someone is spoofing our office's phone number in an attempt to defraud people of money.Caller ID is quite easy to manipulate.  Many smartphone apps permit a caller to select the number they appear to be calling from. The Federal Communications Commission offers this information about Caller ID "spoofing."Here, the caller poses as a law firm attempting to collect on a debt.  Some firms (particularly collection law firms) make similar, legitimate phone calls, making it difficult for the victim to discern the authenticity of the alleged debt.  This link will explain your rights as a debtor in such a situation, and may provide you with some useful information to determine if the call you are receiving is a legitimate one.If you receive a call appearing to originate from our office, please take note of the time of the call, and contact me at the information above.Be careful out there-NP