DC Metropolitan Business Law Alert - Updates on Important Legal Developments that Impact the Business Community in DC, Md and Va.

The Virginia Supreme Court recently considered whether a municipal corporation has the authority to impose additional real property taxes against a tax paying entity which owns real property as a tenant in common with a tax exempt entity.  The court held that there is no such authority.

The City of Richmond sought to impose real property taxes (both prospectively and retroactively) on two properties that SunTrust Bank, a tax paying entity, and Richmond Redevelopment and Housing Authority (“RRHA”), a tax exempt entity, owned as tenants-in-common.  As a tax exempt entity, RHHA did not pay real property taxes on its interests in the properties.  Agreements between SunTrust and RHHA allowed SunTrust to use the entirety of the properties without paying rent to RHHA for use of its undivided interests in the properties.  The City contended that it had the authority to tax SunTrust for RHHA’s ownership interest because:

                i.  pursuant to the operating agreements, SunTrust had the exclusive right to use and possess the properties as if it were the fee simple owner;

                ii.  SunTrust did not use the properties for a "public purpose”; and 

                iii.  leasehold interests exempt from taxation of the owner are assessed to the lessee and the practical effect of the agreements between SunTrust and RRHA was to create a leasehold interest in RHHA’s undivided property interest.

The court held, however, that, as a tenant in common, SunTrust has the right to use and possess the properties without any agreement with RRHA; no Virginia law imposes a “public purpose” requirement to maintain RHHA’s exempt status; and the arrangement between SunTrust and RHHA do not constitute a leasehold because the parties are tenants-in-common.  Consequently, the City’s arguments did not prevail.  Throughout its opinion, the court indicated that holding title to the properties as tenants-in-common, rather than as joint venturers, was a significant factor in its decision. 

In Hovnanian Land Investment Group, LLC, et. Al. v. Annapolis Town Centre at Parole, LLC the Maryland Court of Appeals held that a party’s conduct (whether express or implied) may waive a condition precedent set out in a written purchase agreement despite a specific clause in the agreement requiring that all waivers must be in writing.  Relying on its own past opinions and the opinions of renown jurists, Benjamin Cardozo and Oliver Wendell Holmes, the court, quoting Cardozo, determined that “[t]he clause [in a contract] which forbids a change may be changed like any other.  The prohibition of oral waiver may itself be waived.”  Citing the common law rule, the court reaffirmed its past holding that the freedom to contract does not guarantee the validity of a non-waiver clause, and that “even when a contract specifically states that no non-written modification will be recognized, the parties may yet alter their agreement by [oral] negotiation.”  This decision is an important reminder that actions can speak louder than words.  Thus, a contracting party’s actions may result in the waiver of a contract’s express terms even with the most careful and artful drafting.

Under the foreclosure rules in Maryland, interest may accrue on the unpaid balance of the foreclosure purchase price from the date of the foreclosure sale until final settlement.  The Court of Special Appeals of Maryland recently held in Zorzit v 915 W. 36th Street, LLC that a court may abate the accrued foreclosure sale interest only when third parties cause delays in the final settlement.  A court does not have discretion to abate accrued interest due to delays resulting from the judicial process or caused by the purchaser when the "Terms of Sale" set out in the foreclosure advertisement provide that the purchaser will pay interest through the date of final settlement.