Richard Hamlin and Marnie Cody of the Hamlin|Cody Law Firm gave Billboard Insider excellent feedback on Easements provide more protection than leases against tax foreclosure.

California attorney Marnie Cody gives a summary analysis…

California law is even more explicit than Michigan. Under CA Revenue and Taxation Code §3712(d) the tax sale deed conveys title to the purchaser free of all encumbrances of any kind existing before the sale,except “Easements of any kind, including prescriptive, constituting servitudes upon or burdens to the property; water rights, the record title to which is held separately from the title to the property; and restrictions of record.”

In recent years, we had a client OOH operator with a license agreement that was expunged with the tax sale. Fortunately, the new fee owner desired to enter a new license agreement with the OOH company on essentially the same terms as the prior license. It could have gone another way being that the new owner essentially had all the leverage. But the OOH operator’s business practices were excellent, and the terms and conditions of the prior license agreement were fair to both parties. Kudos to the operator!

Certainly, in OUTFRONT’s case, it and Five Star need only sign a new lease identical to the old to restore the status quo. On the other hand, the lease is already 18 years old and either or both sides might be thinking now is the right time for a renegotiation. Either way, I suspect both OUTFRONT and Five Star end up happy at the end of the day because they have developed and enjoyed a relationship over the past 18 years. Easements may be a first line of defense, but good business practices and educating new ownership goes a long way to preservation!

California attorney Richard Hamlin expands…

California has a similar statute, Revenue and Tax Code, Sec. 3712, ” The deed conveys title to the purchaser free of all encumbrances of any kind existing before the sale, except:
“(d) Easements of any kind, including prescriptive, constituting servitudes upon or burdens to the property; water rights, the record title to which is held separately from the title to the property; and restrictions of record… .”

The Michigan court separated the lease (Eastside to Outfront) from the easement (now owned by Five Star). the easement survived, but the lease did not. Five Star and Outfront can indeed enter into a new lease, but Five Star may want to change the terms. Can it do so?

Missing from the story, and the decision, is the relationship between Five Star and Outfront. It looks like Outfront was paying rent to Five Star, apparently on the same terms as the original lease from Eastside. Is there a written agreement between Outfront and Five Star? Is there an oral agreement? Is there an implied agreement based on eighteen years of rental payments? Did Eastside assign its interest as lessor to JJ, LLC? Did JJ, LLC then assign its interest as lessor to Five Star?

We found the case and a good summary of it (in about one minute, using AI … see my article published in Billboard Insider on 5/27). Here are some additional points that help to make sense of the decision.

• Eastside leased the Property to Outfront and entered into a perpetual easement agreement with JJ LLC the next day.
• Eastside and JJ LLC are affiliated. The same person signed the Easement Agreement on behalf of both entities.
• CHHC asked the court to cancel the easement, but court refused to do that.
• Although the lease and the easement overlap, Outfront did not challenge the easement. CHHC had no right to do so.
• Even if Eastside and then JJ LLC assigned the lease to Five Star along with the easement, the lease was extinguished by the tax sale.
• Outfront and Five Star both asserted that the easement survived the tax sale. In this case, they did not express any disagreement between themselves.

Conclusion: The owner of Eastside wanted to be able to sell the property while retaining the right to lease it for billboard purposes. He apparently created JJ LLC to hold the rights to lease the property to an out-of-home company. If Eastside had first created the easement and then used JJ LLC to lease the easement to Outfront, CHHC would not have had any standing to challenge the lease.

It is not clear how the court would have ruled if JJ LLC and Five Star had expressly assumed the lease obligations. Regardless, it would be difficult for Five Star to assert it no longer had to honor the obligations it had assumed.

If Outfront and Five Star are happy with the existing lease terms, they should sign something that says so. It can be as simple as a single page binding adopting the terms of the foreclosed lease. As it stands, Five Star might be in a position to force renegotiation of the lease terms (which will depend on its relationship with Outfront).

Lessons: Out-of-Home companies can protect themselves with due diligence.

• Verify title of the lessor.
• When you know the owner intends to carve out an easement, or has done so, the lessor should be the easement holder.
• The easement should be recorded!
• When a new owner asks for rent, ask them to provide a copy of the assignment of the lease and assumption of the lessor’s obligations under the lease.
• If the new lessor is an easement holder, the assumption of the lessor’s obligations should expressly apply to the easement.

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