By Ryan Colquhoun

Prior to March 2020, most industry professionals and legal experts would have concurred that a local, let alone a state and/or national, eviction moratorium would be about as likely as a Bigfoot sighting. However, this fair-reaching and unlikely outcome was about to become a national reality. Not only did the eviction moratoriums become a reality, the eviction moratoriums, in some form, carried on for the following 16 months. An extend period that the full impact on the housing market, landlords, tenants, and other stakeholders is still unknown.

It is foundational to the discussion to understand the various acts and actors that played a role in the eviction moratoriums. More specifically, what actions were taken, when, by whom, and what constraints did each place on landlords and property managers. The earliest actor in PA, was the PA Supreme Court. On March 18, 2020, the PA Supreme Court declared a judicial emergency to restrict potential exposure to COVID-19. The judicial emergency mandated a statewide court closure that included Magisterial District Courts (MDJ). The MDJ court closure, restricted access to the court that most evictions in PA begin and end. As a result, new eviction cases could not commence with the filing of new landlord/tenant complaints, nor could existing eviction judgments conclude with the requisite order for possession and physical lockout. While the sole intent of the Court was not an eviction moratorium, indirectly they enacted the first eviction moratorium in PA. The Court’s action was first to end in early-April 2020, but it was extended before finally ending in May 2020. While the Court’s action was the first in PA, it was far from the most impactful.

Over the next few months, the federal, state, and local governments began to each impose their own variations of eviction moratoriums. From this point forward, the array of eviction moratoriums became a challenge for many MDJ courts to fully understand the overlaying actions. As a result, MDJ courts, in many jurisdictions, did not proceed with eviction matters even though the actions were not prohibited by an active regulatory or statutory prohibition. Therefore, not only were there express eviction moratoriums, but there were also eviction moratoriums that arose from MDJ courts’ decisions to not permit eviction matters to proceed.

The first eviction moratorium action to follow the PA court closure occurred at the federal level, when President Trump, on March 27, 2020, signed into law the Coronavirus, Aid, Relief and Economic Security Act (CARES Act). The CARES Act, in short, established a 120-day national eviction moratorium for evictions based on non-payment of rent for certain covered properties. In PA, the impact of the CARES Act eviction moratorium was mooted, because the PA Supreme Court mandated court closure was in place through May 4, 2020, and Governor Wolf issued an executive order on May 7, 2020. Both the court closure and Governor Wolf’s executive order were more restrictive than the CARES Act.

Governor Wolf’s May 7, 2020, executive order read in part that “the notice requirements mandated by the Landlord and Tenant Act of 1951 and the Manufactured Home Community Rights Act are stayed for 60 days, thereby tolling the ability to commence the timelines necessary for the initiation of eviction proceedings. All eviction proceedings requiring compliance with the Landlord and Tenant Act of 1951 and the Manufactured Home Community Rights Act cannot commence for 60 days until July 10, 2020. All eviction timelines must be computed with a start date of July 10, 2020, at which point any previously delivered Landlord and Tenant Act of 1951 and Manufactured Home Community Rights Act notices will be deemed delivered and any eviction proceedings may commence.” There was debate as to the application of Governor Wolf’s executive order to leases where the lessee waived their right to notice, however most MDJ courts would not entertain such an argument and remained closed to eviction actions. On July 9, 2020, Governor Wolf extended his executive order through August 31, 2020. At the time of extension, Governor Wolf expressed that he lacked the authority to extend the eviction moratorium beyond August 31, 2020.

By August 2020, most PA landlords and property managers had been unable to facilitate evictions, for any reason, for almost five months. Was Governor Wolf’s comments an indication that the end of eviction moratoriums was in sight? Not quite. Almost seamlessly, or coordinated, with the conclusion of Governor Wolf’s executive order on August 31, 2020; the Centers for Disease Control and Prevention (CDC) issued a national eviction moratorium commencing on September 4, 2020, through December 31, 2020. However, a narrow window opened for landlords and property managers.

The CDC eviction moratorium was the first opportunity, since the PA court closure on March 18, 2020, for PA landlords and property managers to commence and conclude evictions. The CDC eviction moratorium applied only to non-payment of rent evictions; meaning evictions based on holdover tenancy, other lease violations such as property damage, and the like were permitted to commence. As it pertained to non-payment of rent evictions, those too were permitted to commence, however, only if the tenant did not comply with the CDC eviction moratorium tenant declaration prerequisite. The tenant declaration prerequisite required the tenant to complete and provide to the landlord a written declaration indicating a variety of items such as qualifying income level, receipt of stimulus funds, using best efforts to make partial payment, and eviction would likely render the individual homeless or force the individual to move into and reside in close quarters in a new congregate or shared living setting.

Under the CDC eviction moratorium, evictions immediately commenced, and a considerable number concluded under what many came to refer to as the “holdover loophole.” The CDC eviction moratorium was extended from December 31, 2020, to March 31, 2021, by way of a President Biden executive order. The CDC later extended the eviction moratorium through June 30, 2021; and, later through July 31, 2021. There were several legal challenges to the authority of the CDC as it pertained to the eviction moratorium; although, none of the legal challenges were successful in achieving an enforced national injunction. In June 2021, the US Supreme Court finally weighed in and asserted that July 31, 2021, was the end of the CDC authority and any further extension would require Congressional action. The Court’s commentary was acquiesced by the CDC via a comment that July 31, 2021, would be their last extension. Although, it would not be the CDC’s last. On August 3, 2021, CDC Director Walensky extended the CDC eviction moratorium until October 3, 2021. This extension was widely condemned as unconstitutional, however the matter unable to work its way through the court system to the US Supreme Court until August 26, 2021. On that date, the US Supreme Court finally brought an end to federal rental eviction moratoriums.

In addition to the previously discussed eviction moratoriums, which applied to all of PA; locally, the City of Harrisburg enacted its own eviction moratorium. On December 18, 2020, in response to the approaching December 31, 2020, suspected end to the CDC eviction moratorium; Harrisburg City officials enacted an emergency order that suspended evictions for City residents for 30 days. The emergency order also provided for 30-day extensions. Mayor Papenfuse proceeded to extend the City of Harrisburg eviction moratorium multiple times until ultimately ending in mid-June 2021. The application of the City of Harrisburg eviction moratorium was unclear at commencement, and many understood it to apply only to non-payment of rent, similar to the CDC eviction moratorium. However, it was later clarified to permit evictions only for criminal activity, threats to the health and safety of other residents, or damage to property. Even though the application was clarified, most MDJ courts with jurisdiction in the City of Harrisburg did not process eviction matters. If evictions were processed and hearings were held, the order for possession to finalize the eviction were not issued. Therefore, in this specific local market most evictions were restricted or strongly impaired through at least mid-June 2021; if not the entire way to August 26, 2021, the end of the CDC eviction moratorium.

The impact the collage of eviction moratoriums will have on the housing market, landlords, tenants, and other stakeholders is still unknown. Absent the reimplementation of eviction moratoriums, clarity of the impact should begin to emerge in the fourth quarter of 2021 and first quarters of 2022. As unfettered access to evictions became available on August 26, 2021, it will soon become clear how many evictions were truly restricted. If the number is vast in specific markets, there may be an immediate localized impact (e.g., hundreds of new vacancies, hundreds of new tenants recently evicted seeking housing, potentially hundreds of new sales listings if landlords decide to exit the rental business, etc…). Alternatively, if the number is limited, the impact may be almost unnoticed. Most importantly, as the unprecedented eviction moratoriums end and the housing market transitions, it is imperative industry professionals remain alert to the potential localized market changes.

By R. Scott Barber, Philip J. Swartz and Carol A. Myers 

Eminent domain is the power of any sovereign government to take private property without the consent of the owner. This is a necessary power of government. The power, or rights of people, exceed the power of the individual. An example of this is the need for infrastructure required for society to function, such as highways, bridges, and pipelines.

Condemnation is a term often associated with eminent domain. The distinction is that eminent domain is the power, or right, to take property for public use and necessity; condemnation is the act of doing so.

The first recorded history of the use of eminent domain goes back more than 3,000 years. King Ahab had a palace in Jezrell that was an adjacent to a vineyard owned by Naboth. The king asked Naboth to give him the vineyard with an offer to pay him a fair price or give him a better vineyard, but Naboth said no. The king was so angry and depressed that eventually his wife Jezebel arranged to have Naboth murdered. Then she told Ahab, “Naboth is dead. Now go and take possession of the vineyard which he refused to sell to you.”

There are limitations on the power of eminent domain.

Unlike other countries, the United State of America has placed limitations on the taking of private property for public use and necessity. The limitations are constantly under scrutiny and the law continues to evolve. The four sources of law used when exercising the power of eminent domain are the Constitution, regulations, statutes, and case law.

Federal Constitutional limitations are found in the Fifth and 14th Amendments. The Fifth Amendment to the Constitution, which was a part of the Bill of Rights, contains a listing of personal rights and protections including, “Nor shall private property be taken for public use, without just compensation.” The 14th Amendment was added to the Constitution after the Civil War. Prior to the 14th Amendment, many states limited or deprived their own citizens of rights and protections under the Constitution believing they had the sovereign right to do so: “…nor shall any State deprive any person of life, liberty, or property, without due process of law…”

Each state is different, and each state constitution can place additional limitations on the power of eminent domain.

The Pennsylvania Constitution provides language like the Fifth Amendment: “Nor shall private property be taken or applied to public use, without authority of law and without just compensation being first made or secured.”

The role of regulations is to assist in the implementation of the intent or purpose of legislation. Regulations are intended to comply with the appliable statutes and cover the subject matter in greater detail.

Both federal and state statutes can limit the power of eminent domain. For example, a state cannot acquire more land than is needed to build a project. Prior to passing of the Pennsylvania Eminent Domain Code, Title 26 in 1964, there were 67 different methods of acquiring private property for public use in Pennsylvania, because each of the 67 counties had their own set of regulations.

Ultimately, it is the court that determines just compensation and how the power of eminent domain is applied. This is known as case law. Case law includes decisions written by an appellate court, is the most prolific source of law, and can overturn both statutes and regulations.

The formal condemnation process in compliance with all applicable law in Pennsylvania is accomplished by the filing of a Declaration of Taking under the provisions of the Eminent Domain Code. Except for unique circumstances such as certain Pennsylvania Public Utility Commission (PUC) actions and support coal within the jurisdiction of the Pennsylvania State Mining Commission, the Eminent Domain Code provides the exclusive provisions governing all formal takings in Pennsylvania no matter the agency or government entity. Two types of legal authority are required to file a Declaration of Taking: A condemnor must have both general statutory authorities to exercise the power of condemnation and specific authority to file the Declaration of Taking.

It is imperative that agency employees and those working on behalf of an agency with the power of eminent domain be fully aware and apply the requirements under the federal and state constitutions, regulations, statutes, and case law. There are19 federal agencies such as the Federal Highway Administration (FHWA), Federal Energy Regulatory Commission (FERC), Housing & Urban Development (HUD), Federal Aviation Administration (FAA), and others. States do not inherently have the power of eminent domain. For example, a state department of transportation (DOT) that is funding a project with federal and state funds is required to enter into an oversight agreement every five years with FHWA to give the state DOT the authority to exercise eminent domain, subject to audits by FHWA. Transmission projects for gas pipelines, electrical lines, etc. fall under the PA PUC, but once a transmission project crosses state lines it then falls to the oversight of FERC. Not following the laws, regulations, statutes, and case law can result in the loss of funding for a project and the project not being built.

To recap, eminent domain is the right to acquire private property for a public use, and condemnation is the process. Neither term should raise alarm; in fact agencies want to settle with property owners on an amicable basis and there are times when both the agency and property owner enter into a “friendly condemnation” to meet the timelines to clear a project for construction. The term clear means that an appraisal report was prepared and approved to set a basis for an offer of compensation; an offer must be presented to the property owner, the money has been paid or the amount deposited into court, and the agency has possession of the property so that a contract can be let to a construction company. An average rate for filing a Declaration of Taking on a project is usually 10% or less with many post-condemnation settlements. Certainly, all property owners have remedies under the law.

If you are acquiring property for projects that possess the power of eminent domain, you need to know: which agency has the authority over the project, what are the funding sources; and most importantly, what laws, regulations, statutes, and case laws apply in the jurisdiction of the project.

By Kenneth J. McDermott, Esq.

Recent changes to the alcohol laws in Pennsylvania have dramatically increased the number of businesses seeking liquor licenses, specifically gas stations and grocery stores. Large retailers, such as Wal-Mart and Target, have also recently purchased licenses, indicating another wave of buyers may be entering the picture. Despite the significant increase in the number of businesses seeking liquor licenses, the supply of licenses has generally remained the same.

Retail liquor licenses, such as restaurant liquor licenses, are county-specific and are issued on a quota system – one license for every 3,000 residents in that county. Most counties met or exceeded their quota decades ago, meaning there are no new licenses available to issue. In some areas of the state, this has led to skyrocketing prices for liquor licenses. Recent listings for restaurant licenses (to sell beer, wine and liquor) have commanded prices of over $600,000 in Cumberland County (likely the highest in the entire state), $385,000 in Bucks County, $345,000 in Lancaster County and $165,000 in Dauphin County. The cost of a liquor license is prohibitively high for many restaurants and bars that are new and independent of any franchise or large restaurant group. However, there are a few options that exist outside of the usual liquor license marketplace that businesses wishing to offer their customers alcohol may consider.

Liquor License Auction

The Pennsylvania Legislature was at least partially aware that its changes to the state’s alcohol laws would cause license demand to increase substantially; however, without undoing the entire quota system upon which the marketplace is based, there were few options available to counter this. Instead of adjusting the quota amount directly to increase the number of licenses available to each county, the Legislature created an auction process wherein the Pennsylvania Liquor Control Board (PLCB) would be allowed to revive old licenses that have expired and sell them to the highest bidder. This has created a slow trickle of “new” licenses being added to the marketplace.

With demand still high, the first few auctions were dominated by gas stations and grocery stores trying to roll-out consistent alcohol availability across their stores statewide. That did little to reduce the liquor license prices in the short term; however, the 10th auction is concluding and there have been substantial decreases in prices for some counties, as well as some licenses receiving no bids at all. This creates an opportunity for a restaurant or bar to obtain a liquor license for a substantial discount. The minimum bid for a restaurant license is $25,000, far below the marketplace price for most restaurant licenses.

For example, the winning bid in an auction held in November 2018 for a Dauphin County license was $35,300 (recall there is a current listing of $165,000). A few months later in March 2019, no one bid on the Dauphin County license up for auction, meaning if someone had submitted the minimum bid of $25,000, it could have been theirs. Instead, the license was placed back in the pool to be auctioned again at a later date. The PLCB has been conducting the auctions two to three times per year. Additional information and all past auction results can be found can be found on the PLCB website in the Licensing section, under “Resources for Licensees.”

Economic Development Liquor License

Another option for a business that may be unable or unwilling to pay the current marketplace price for a liquor license is to obtain an economic development license. Although this is not a new program, it has not been widely used, likely due to the additional processes involved. There are a number of requirements that must be met before a business can even submit an application for such a license, including that the business is either in a Keystone Opportunity Zone or an area designated as an enterprise zone by the Department of Community and Economic Development, or the relevant municipality has approved the issuance of the license for the purpose of local economic development.

In addition to these pre-qualifications, there are other restrictions controlling economic development liquor licenses, such as the business’s food and non-alcoholic beverage sales must be at least equal to 50% of its sales of food and alcoholic beverages. Additionally, this type of license cannot be transferred to another location — it must remain at the location for which it was approved. This generally means that an economic development liquor license does not have the marketplace value of a regular liquor license. If a business wishes to sell to another buyer, it would need to sell the business as a whole and the new owner would need to continue operations at the current location. In exchange for these requirements, the cost to obtain an economic development liquor license is far less than the typical market rate — either $25,000 or $50,000 depending on the county class.

Saxton & Stump was recently successful in leveraging the economic development liquor license option to benefit one of our clients. Our client wanted to open a restaurant in a township that recently went from banning the sales of alcohol (“dry”) to allowing alcohol sales. The township was in Cumberland County, which, as previously mentioned, has the highest liquor license cost in the state. With licenses commanding prices of over $600,000, it would have been impossible for our client’s family-owned restaurant to finance the purchase of a liquor license in addition to the other costs associated with opening a new restaurant. Although the restaurant was not located in a Keystone Opportunity Zone or enterprise zone, we were able to secure the township’s approval of the license for purposes of economic development. The PLCB is limited to issuing only one or two economic development licenses per county per year, depending on the size of the county; however, in the 16 years that the economic development license program has been in effect, only two licenses have been issued for Cumberland County. Nonetheless, we made sure to submit the application at the earliest opportunity to ensure our client was the first in line if other applications were filed. Once the application is filed, the process is generally the same as any other liquor license application. Although there were a lot of additional processes we had to complete prior to receiving the license, to be able to obtain a license for $50,000 instead of $600,000 was a significant benefit to our client’s business.

Manufacturer Storage Licenses

Another option available to allow alcohol service in a restaurant without the need to purchase a full liquor license is for the restaurant to partner with a Pennsylvania alcohol manufacturer. Pennsylvania breweries, wineries and distilleries are permitted to sell alcohol at their manufacturing location but are also able to apply for additional licenses to sell alcohol at other locations. For breweries, the licenses are known as “storage” licenses and each brewery can apply for two additional locations. For limited wineries and limited distilleries, the licenses permit up to five additional “satellite” locations. Thanks to another recent change to the liquor laws, an alcohol manufacturer can now sell its own alcoholic beverages, as well as the alcoholic beverages produced by any other Pennsylvania alcohol manufacturer, even at its satellite or storage license locations. This effectively means that a Pennsylvania-licensed alcohol manufacturer has the equivalent of a full restaurant liquor license but is limited to Pennsylvania-produced alcohol products. A Pennsylvania brewery, for example, can sell its own beer, beer made by other Pennsylvania-licensed breweries, wine made by Pennsylvania wineries and spirits made by Pennsylvania distilleries. In order to take advantage of this opportunity, currently unlicensed restaurants would need to lease an area of their premises to a brewery, winery or distillery. All alcohol sales must occur within the manufacturer’s designated space, which will need to be partitioned in some manner from the unlicensed restaurant space. This is due to the fact that interior connections between licensed businesses and unlicensed businesses are generally prohibited, but as you have likely observed in your local grocery store, those connections and partitions are approved on a consistent and lenient basis.

It can be difficult to make this approach look seamless with the current restaurant operations; however, if a restaurant believes that having some alcohol availability would increase its food sales, it may be worth considering in lieu of a full restaurant liquor license.

Pennsylvania is known for having some of the most challenging liquor licensing laws in the country. When looking to launch a business or open a new location to offer alcohol to customers, an experienced attorney can help you navigate the highly regulated industry and provide guidance on licensing issues. Before paying full marketplace price to purchase a license, Saxton & Stump’s attorneys can partner with you to understand your business goals and develop an individualized approach.

By David Evenhuis

Municipalities under financial pressure from rising budgetary costs and long-term obligations are increasingly looking to monetize their public assets. Monetization is the process of converting assets into economic value. Looking for options to generate greater revenue, many municipalities and public sector entities are considering transfers of municipal water and wastewater systems to private operators.

Monetization is usually accomplished by entering into a long-term lease with a private operator under what is known commonly as a concession agreement. Municipalities might instead opt for an outright sale of assets. Whatever the process, it almost always involves the conveyance of significant real estate interests necessary to support the facilities in question. Too often, however, public sector entities jump into deals before undertaking thorough due diligence and without resolving thorny real estate issues to ensure a smooth transition.

Title Issues

With some of the nation’s oldest municipalities, Pennsylvania presents attorneys with unique and unusually complex real estate issues when advising clients about public assets. While a concession or sale has the potential to relieve budgetary pressure for many years into the future, municipalities often must resolve a tangled web of title issues that have gone unchecked as properties were donated, dedicated, or acquired through eminent domain over years, if not decades. Moreover, the sheer number of properties involved in a typical concession greatly increases the odds of uncovering title problems.

Before a private operator can move forward with a deal, it will need to obtain a commitment for title insurance covering the affected real estate. The standard for resolving title issues is generally set by the insurance underwriter. A title company may require a municipality to obtain quitclaim deeds or deeds of dedication, or even require it to bring actions for declaratory judgment or to quiet title for portions of water or wastewater systems with no clear record of dedication or public acquisition. Such assets may not be insurable without some additional confirmation of municipal ownership.

The preferred title cure option may also depend upon which third party is granting the remedy. For example, where undedicated water mains run through a planned community or condominium development, a quitclaim deed may be preferable to a deed of dedication, a conveyance which likely would trigger the need to obtain approval from a prohibitively high percentage of community members. Attorneys representing a public entity may also have to track down builders, developers, lenders, and homeowner associations to obtain approvals or releases required by the title company. However, negotiating alternative remedies with the title company to cure such issues—and knowing what options are available—can save a municipal client significant time and money.

Deed restrictions may also present a major roadblock as to the available use of the property. Since municipal real estate is often acquired by donation or dedication, many granting instruments restrict the use of land exclusively to public purposes or, say, for the storage and distribution of public water only. In such circumstances, title companies may require amendments to deeds, which can sometimes involve obtaining court approval. Even where a municipality is not contemplating the transfer of a large utility system, use restrictions still may have to be modified. Additionally, where a deed conveys only a ground lease to a municipality, the term of the ground lease may need to be extended to accommodate the entire term of the concession.

Realty Transfer Tax

The fact that a municipality or public entity is party to a transaction does not necessarily make the transaction itself exempt from realty transfer tax. The United States and Pennsylvania and its instrumentalities, agencies, and subdivisions are all parties exempt from the payment of realty transfer tax. The exempt status of a municipal party, however, does not relieve any other party to a transaction from liability for the tax. In general, municipal transactions are excluded only where real estate is transferred to a municipality for no or nominal consideration or where all parties to the transaction are exempt parties. Any transfer to a private entity or corporation when seeking to monetize public assets likely will be taxable.

Realty transfer tax notably applies to real estate leases of 30 years or more, since such durable interests qualify as “title to real estate” under the transfer tax statute. Moreover, any writing or document transferring title to real estate is subject to the tax. Under a concession agreement, where the typical lease term will exceed 30 years, the parties should anticipate the imposition of realty transfer tax based upon the computed value of all affected parcels. As noted above, municipal ground leases may need to be extended before entering into a concession agreement. Where the extended lease terms exceed 30 years, additional transfer taxes may be triggered prior to the close of the concession.

Transfers of permanent easements are also subject to realty transfer tax, since easements represent an express taxable interest in real estate. In grants of permanent easements, transfer tax is based upon the actual consideration paid for the easement or its actual monetary worth. There is an exemption excluding any transfer of an easement to a public utility, and easements less than 30 years are not subject to realty transfer tax.

Parties must also be careful when assigning any interest in a concession or purchase agreement. If not handled properly, an assignment may trigger the imposition of additional realty transfer tax. Even if assigned to a subsidiary, the assignment may constitute a taxable transfer. While there are effective ways to avoid such additional taxation, any solution should be carefully reviewed by an attorney experienced with complex realty transfer tax matters.

Strategies for Closing

It may be obvious, but the development of a transaction plan should be the first priority, setting forth the requirements for closing upon the conditions that will achieve your client’s objectives. The plan should guide contract negotiations, so that the concession or purchase agreement reflects the objectives and any steps needed for closing or post-closing use. If zoning modifications or easements are needed—or environmental remediation or regulatory clearance—the transaction plan and final agreement should address those issues and include all applicable requirements as conditions to close.

Parties should plan on unexpected issues arising on the path to closing, which may require creative solutions and further negotiation. Sometimes these issues arise as a result of facts learned during due diligence investigations. Other times they arise because third parties affected by the transaction have interests adverse to those of the parties or the lender. When obstacles arise, tailored solutions may be required to accommodate the needs of all concerned parties so that the transaction can move forward.

Controlled chaos leading up to closing is typical when transferring public assets. Whether dealing with lenders; appraisers; local planning, zoning or taxing authorities; project surveyors; environmental consultants; title companies; adjoining property owners; engineers; or other third parties, it will often be the case that attorneys must wait for them to react before being able to proceed. Regardless of the obstacles, however, the benefits to a municipality of monetizing assets, when structured properly, can be significant and lasting.

By Steve Williams, Esq.

Investigations by the Pennsylvania Office of Attorney General (PAOAG) relating to businesses’ dealings with consumers are on the rise. It appears that the current administration believes that businesses are more frequently than ever dealing unfairly with consumers, and it is dead set on correcting this. Of course, in reality, most businesses are not unscrupulous and treat their customers fairly. This does not, however, make them immune from becoming a target of PAOAG.

The Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL) and the Administrative Code of 1929 vest the PAOAG with the power to investigate “unfair methods of competition” and “unfair or deceptive acts or practices” by companies doing business in Pennsylvania. The statutory definition of these phrases is quite lengthy, consisting of 21 separate, prohibited acts ranging from deceptive advertising and pyramid schemes to unlawful telephone solicitations and excessive shipping delays. Perhaps this catchall definition best sums up the essence of conduct prohibited under the UTPCPL: “fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.” Penalties for violating the UTPCPL include what you might expect: civil penalties and the payment of costs and restitution. However, these penalties often pale in comparison to the PAOAG’s power to obtain injunctive relief and/or forfeiture of the right to do business in Pennsylvania. Thus, it is imperative that companies handle such investigations properly.

In light of the broad investigative power of the PAOAG to investigate consumer protection violations and the dire consequences possible under the UTPCPL, below are five tips for successfully handling consumer protection investigations.

Pay attention to the signs. An official consumer protection investigation is usually kicked off by a letter or administrative subpoena from a Deputy Attorney General assigned to the Bureau of Consumer Protection (BCP) demanding an extremely broad amount of information. This often sends the company scrambling for outside counsel before the deadline for production set by the PAOAG expires. However, there are often warning signs that trouble may be brewing. These generally consist of repeated correspondence from special agents of the BCP asking the company to respond to informal complaints filed against the company by consumers. In these cases, the PAOAG acts more like a mediator than investigator. While the occasional consumer complaint may not warrant the attention of the C-suite, repeated consumer complaints evidencing a pattern of misconduct should be addressed comprehensively and proactively to avoid the likelihood of an official investigation.

Hire experienced counsel. Perhaps this goes without saying, but hiring counsel experienced in consumer protection investigations in general and the PAOAG in particular is essential to a successful outcome. Using the same outside counsel that handles litigation matters for the company may result in an overly contentious exchange with the PAOAG, which while entirely appropriate in litigation often proves to be extremely harmful in government consumer protection investigations.

Communicate early and often. While the PAOAG’s opening salvo of requests to the company demanding every document under the sun may appear calculated to overwhelm and intimidate the company into an early settlement, it is most often the result of a lack of understanding of the company’s operations and record-keeping practices. This is completely understandable given the multitude of industries the BCP investigates each year. The fact of the matter is that the PAOAG does not want to wade through thousands of irrelevant documents any more than the company wants to collect them. A good starting point for all parties is a candid discussion about the nature and extent of the consumer complaints that most often precipitate an official investigation. Since any challenge to the PAOAG’s authority will often force it to explain why the requested documents are relevant to an investigation that it has the jurisdiction to conduct, many Deputies Attorney General will err on the side of limiting their original request to get the documents they need while avoiding the imposition of an undue burden on the company.

Lend some perspective. A Deputy Attorney General conducting a consumer protection investigation may be under the impression that 5-10 consumer complaints against the company for a specific transaction or series of transactions is significant. However, this may be a miniscule number when compared to the total number of transactions conducted by the company in a given year for which no complaints have been made. As a result, it is important for counsel to educate the PAOAG on the full scope of the company’s consumer operations to lend the PAOAG the proper perspective. This may in turn lead the PAOAG to close its investigation early and devote its limited resources elsewhere.

Use caution when settling. The UTPCPL allows the PAOAG to enter into an Assurance of Voluntary Compliance in order to resolve an official consumer protection investigation. But these agreements can be onerous, allowing the PAOAG (by agreement) to monitor the activities of the company and investigate matters that would otherwise fall outside of its jurisdiction. These agreements are also publicly filed, and may be accompanied by a loud press release that will dog the company on the Internet for years to come. Therefore, it is important to understand all of the consequences of any proposed settlement before the company agrees to it.

To avoid unintended consequences, companies who find themselves in the crosshairs of the PAOAG should consult immediately with an attorney who is familiar with and experienced in these types of investigations.

By Ryan P. Mellinger, Esq.

“Did you hear about Smith’s title company? They received a phone call from their client saying that the client had switched banks and therefore the wire had to be sent somewhere else. They did it and sent $75,000 to fraudsters.”

Unfortunately, this isn’t a fictitious story. The title company name has been changed, but the scam was real. The company received a funds transfer agreement from their real sellers, but then received a phone call saying they had to change banks due to a relocation. The title company did the right thing and asked for a new form to be completed and sent it to the email address given to them over the phone. The seller from the phone call filled it out and sent it back. The phone call and the second form were both phony. Because the title company did not have cyber insurance, they lost the $75,000 and their E&O insurance.

Criminals and fraudsters are becoming bolder and more sophisticated in their schemes, resulting in an increasing rate of victims. The FBI’s 2017 Internet Crime Report stated that in the real estate/rental sector alone there were more than 9,600 victims who lost an accumulated $56 million. The type of fraud with the highest reported business losses globally in 2017 was Business Email Compromise, also known as Email Account Compromise, with losses totaling more than $675 million. The report also noted that Pennsylvania ranked fifth in the number of reported victims of Internet fraud in 2017.

These scams often start with the criminal finding a weak link in a personal or business email account or using phishing techniques to obtain personal information. The victim can be any member of the real estate transaction — the agent, buyer, seller, mortgage lender, attorneys, and/or the title company. Once the fraudsters have compromised the email account, they typically sit and watch. They monitor the conversations back and forth and wait for the perfect time, usually toward the end of the transaction when communications pick up pace and it is easy to slip in without anyone noticing. They will either use their victim’s actual email account or they will create a fake account closely resembling it. They will copy everything from the email account including the signature line, addresses, and logos. Sometimes they will even provide a phone number to confirm the last-minute change, but it goes right to the criminal. Their goal is to get your money into their hands as soon as possible after settlement and it usually works.

It is not just title companies that are the victims; it could be your client as well. An example is a couple in Colorado who lost their life savings during the purchase of their retirement home. The couple sold their previous home and planned to use the $272,536 in proceeds as a down payment. Somewhere along the line, the hackers gained access to the accounts of someone in the transaction and the couple received an email with instructions on wiring the down payment in preparation for the settlement. In the lawsuit that followed against the mortgage lender, the real estate agent and mortgage broker alleged that “during the negotiation, inspection, and closing process, the defendants routinely sent sensitive financial information through non-secure email, violating their own and industry guidelines.” The money was never recovered from the scammers and the resolution between the defendants and the plaintiffs is unknown.

Is there a solution to this problem that doesn’t involve hiding under our desks? The hard answer is no. While the FBI and other state and local organizations have increased their efforts to take down the cyber hackers, the hackers seem to be one step ahead, using technology and industry knowledge to their advantage and making it harder to stop the fraud scheme once it starts.

As an industry, we need to use a mixture of common sense, due diligence, and some simple technological enhancements to protect ourselves. Here are a couple of suggestions from the FBI to mitigate the risk of being scammed:

• Avoid free web-based email accounts. Establish a company domain name and use it to establish company e-mail accounts in lieu of free, web-based accounts.
• Be suspicious of requests for secrecy or pressure to act quickly.
• Do not use the “Reply” option to respond to business emails. Instead, use the “Forward” option and either type in the correct email address or select it from the email address book to ensure the intended recipient’s correct email address is used.
• Verify changes in vendor payment location by adding additional two-factor authentication such as having a secondary sign-off by company personnel.
• Confirm requests for transfers of funds. When using phone verification as part of two-factor authentication, use previously known numbers, not a number provided in the email request.
• Know the habits of your customers, including the details of, reasons behind, and amount of payments.
• Beware of sudden changes in business practices. For example, if a current business contact suddenly asks to be contacted via their personal e-mail address when all previous correspondence has been through company email, the request could be fraudulent. Always verify via other channels that you are still communicating with your legitimate business partner.
• Be very aware of emails that come before a long weekend or bank holidays. The scammers love to use these extra days to gain more time and distance between you and your money.

If you believe you have become the victim of wire fraud, it is important to report the fraudulent wire transfers to both the sending and receiving banks as soon as possible after the transaction. It is also imperative to contact the FBI and report the transaction to the FBI’s Internet Crime Complaint Center at www.ic3.gov. Once 72 hours pass, the chances of getting the money back are slim to none.

On June 11, 2018, federal authorities announced a major coordinated law enforcement effort to disrupt international Business Email Compromise schemes that were designed to intercept and hijack wire transfers. Called Operation WireWire, the six-month maneuver culminated in 74 arrests, with 42 in the United States. The operation resulted in the disruption and recovery of approximately $14 million in fraudulent wire transfers.

Even with this coordinated effort, all indications are that this fraudulent activity is far from over; in fact, we will most likely see an increase in the future. Recently, a new scam alert was sent from an underwriter where the criminals intercepted a request for a payoff. They sent the unsuspecting title company a payoff on bank letterhead saying that they would only accept wired funds for payment. After settlement occurred, the title company wired the funds expecting a satisfaction to be filed in the courthouse. A month later, the seller received a notice of payment from the mortgage company and contacted the title company, but by that time the money was long gone with no chance of ever being recovered.

Fraud is an issue that impacts everyone involved in the mortgage process, but by being proactive and making wire fraud a hot button issue in the industry, we can protect our colleagues and clients from suffering unimaginable losses.

By Ryan P. Mellinger, Esq.

“Did you hear about Smith’s title company? They received a phone call from their client saying that they switched banks and therefore the wire had to be sent somewhere else. They did it and sent $75,000 to fraudsters.” Unfortunately, this isn’t a fictitious story. The title company name has been changed, but the scam was real. They received a funds transfer agreement from their real sellers, but then received a phone call saying they had to change banks due to a relocation. The title company did the right thing and asked for a new form to be completed and sent it to the email address given to them over the phone. The seller from the phone call filled it out and sent it back. The phone call and the second form were both phony. Because the title company did not have cyber insurance, they lost the $75,000 and their E&O insurance.

Criminals and fraudsters are becoming bolder and more sophisticated in their schemes, resulting in an increasing rate of victims. In a 2017 Internet Crime report by the FBI, it was stated that in the real estate/rental sector alone there were more than 9,600 victims who lost an accumulated $56 million. The type of fraud with the highest reported business losses globally in 2017 was Business Email Compromise, also known as Email Account Compromise, with losses totaling more than $675 million. It was also detailed that Pennsylvania ranked fifth in the number of reported victims of internet fraud in 2017.

These scams often start with the criminal finding a weak link in a personal or business email account or using phishing techniques to obtain personal information. The victim can be any member of the real estate transaction – the agent, buyer, seller, mortgage lender, attorneys and/or the title company. Once they have compromised the email account, they typically sit and watch. They monitor the conversations back and forth and wait for the perfect time, usually towards the end of the transaction when communications pick up pace and it is easy to slip in without anyone noticing. They will either use the actual email account of their victim or they will create a fake account closely resembling it. They will copy everything from your email account including your signature line, addresses and logos. Sometimes they will even give a phone number to confirm the last-minute change, but it goes right to the criminal. Their goal is to get your money into their hands as soon as possible after settlement and it usually works.

It is not just title companies that are the victims; it could be your client as well. An example is a couple in Colorado who lost their life savings during the purchase of their retirement home. The couple sold their previous home and planned to use the $272,536 dollars in proceeds as a down payment. Somewhere along the line the hackers gained access to the accounts of someone in the transaction and the couple received an email with instructions on wiring the down payment in preparation for the settlement. In the lawsuit that followed against the mortgage lender, the real estate agent and mortgage broker alleged that “during the negotiation, inspection, and closing process, the defendants routinely sent sensitive financial information through non-secure email, violating their own and industry guidelines.” The money was never recovered from the scammers and the resolution between the defendants and the plaintiffs is unknown.

Is there a solution to this problem that doesn’t involve hiding under our desks? The hard answer is no. While the FBI and other state and local organizations have increased their efforts to take down the cyber hackers, they seem to be one step ahead using technology and industry knowledge to their advantage and making it harder to stop the fraud scheme once it starts.

As an industry, we need to use a mixture of common sense, due diligence, and some simple technological enhancements to protect ourselves. Here are a couple of suggestions from the FBI to mitigate the risk of being scammed:

• Avoid free web-based email accounts: Establish a company domain name and use it to establish company e-mail accounts in lieu of free, web-based accounts.
• Be suspicious of requests for secrecy or pressure to act quickly.
• Do not use the “Reply” option to respond to any business emails. Instead, use the “Forward” option and either type in the correct email address or select it from the email address book to ensure the intended recipient’s correct email address is used.
• Verify changes in vendor payment location by adding additional two-factor authentication such as having a secondary sign-off by
  company personnel.
• Confirm requests for transfers of funds. When using phone verification as part of two-factor authentication, use previously known
  numbers, not number provided in the email request.
• Know the habits of your customers, including the details of, reasons behind and amount of payments.
• Beware of sudden changes in business practices. For example, if a current business contact suddenly asks to be contacted via their personal e-mail address when all previous correspondence has been through company email, the request could be fraudulent. Always verify via other channels that you are still communicating with your legitimate business partner.
• Be very aware of emails that come before a long weekend or bank holidays. The scammers love to use these extra days to gain more time and distance between you and your money.

If you believe you have become the victim of wire fraud, it is important that you report the fraudulent wire transfers to both the sending and receiving banks as soon as possible after the transaction. It is also imperative to contact the FBI and report the transaction to the FBI’s Internet Crime Complaint Center at www.ic3.gov. Once seventy-two hours pass, the chances of getting the money back are slim to none.

On June 11, 2018, federal authorities announced a major coordinated law enforcement effort to disrupt international Business Email Compromise schemes that were designed to intercept and hijack wire transfers. Called Operation WireWire, the six-month maneuver culminated in 74 arrests, with 42 in the United States. The operation resulted in the disruption and recovery of approximately $14 million in fraudulent wire transfers.  Even with this coordinated effort, all indications are that this fraudulent activity is far from over; in fact, we will most likely see an increase in the future. Just last week, a new scam alert was sent out from an underwriter where the criminals intercepted a request for a payoff. They sent the unsuspecting title company a payoff on bank letterhead saying that they would only accept wired funds for payment. After settlement occurred the title company wired the funds expecting a satisfaction to be filed in the courthouse. A month later, the seller received a notice of payment from the mortgage company and contacted the title company, but by that time the money was long gone with no chance of ever being recovered. Fraud is an issue that impacts everyone involved in the mortgage process, but by being proactive and making wire fraud a hot button issue in the industry, we can protect our colleagues and clients from suffering unimaginable losses.

By Jessica T. Zolotorofe, Esq.

For  decades, some Pennsylvanians have loudly opposed billboard advertising, deeming it to be aesthetically displeasing and environmentally unfriendly. Movements led by groups such as the Pennsylvania Resources Council and the Society Created to Reduce Urban Blight have advocated for stronger enforcement of billboard construction and control laws in Pennsylvania. Other states, like Vermont, Alaska, Hawaii, and Maine have banned billboards altogether.

However, despite the controversy, billboards are being constructed in record numbers across the United States and well-negotiated billboard leases have proven very lucrative for land owners. Justin Vermuth, former VP of Real Estate and Public Affairs for Clear Channel Outdoor, one of the largest billboard tenants in the industry, now invests in them himself. “Billboards are a wonderful passive income stream,” he said.

With constantly evolving forms of billboard advertising, and the increasing popularity of digital marketing, billboard leases are expected to remain a staple in the advertising industry. There are a number of items that are important to address in the drafting and negotiation of a billboard lease to protect a land owner.

1. Compliance with Law

First, it should be clear in any billboard lease that the tenant is liable for familiarizing itself with local code provisions as they pertain to height, size, location and content of signage. There should be an indemnification provision in the lease whereby the tenant has the obligation to indemnify, hold harmless, and defend the land owner in the event that there are any claims against, or damages incurred by the land owner for the billboard’s failure to comply with the law.

All approvals and permits, including zoning approvals, should be obtained by the tenant, at the tenant’s expense, as should all surveys, site plans, municipal or other application fees, attorneys’ fees, cost of engineers’ reports or testimony, and all other costs and expenses in connection with the approvals process.

2. Easement or Lease

Many billboard tenants seek perpetual, or permanent easements that run with the land. Typically, an easement will provide the billboard tenant a non-exclusive right to utilize the lessor’s land until the end of time in exchange for a lump sum of money, as opposed to ongoing rental payments. The grantee of the easement will have an actual interest in the real property memorialized in the public records. While a lump sum payment may be attractive to a land owner as opposed to receiving smaller monthly rent payments, it can pose a significant problem if the owner seeks to sell or redevelop the property. The owner may be unable to do so as a result of the prohibitions drafted in the easement agreement or location of the easement itself. Additionally, by virtue of the lump sum structure of payment, future owners derive no monetary benefit from the encumbrance.

The more beneficial manner for a land owner to contract with a billboard tenant would be by ground lease. In a ground lease, the tenant is responsible for maintenance of not only the structural components of the billboard itself, but the ground area around it. It is important to include that the tenant must keep the property in good condition, and must maintain the property in a safe manner by putting up fencing where appropriate, and exercising other precautionary measures to eliminate the possibility of injuries. A ground lease typically has an expiration date and the owner retains far more rights than with an easement.

Billboard lessor, Robbie Jansky, owned a vacant piece of land and a billboard lease was the perfect fit for him. His experience has been very positive, but he notes that it is of the utmost importance to negotiate the terms of the lease with knowledge of the nuances of the billboard business. “I wanted to conserve as many of my own rights as a landowner, as opposed to giving them away forever to the billboard company with the permanent easement. I was only willing to give them permission to use the land for a certain period of time,” he said.

3. Use of the Property 

Notwithstanding that it is a ground lease, however, the tenant should not have an unfettered right to operate any business on the premises, or build any building or structure other than the billboard. The lease should expressly provide that the property can only be used for billboard advertising and for no other purpose.

4. Other Expenses

As with any ground lease, the tenant should be responsible for paying all expenses of the property, including utilities and property taxes. Especially where the land was previously vacant, the construction of a billboard will significantly increase the land valuation, thereby increasing the land owner’s property taxes, all of which should be passed through to the tenant.

5. Metes and Bounds

It is advisable to attach a metes and bounds description of the property being leased to the tenant as an exhibit to the lease. Sometimes a billboard tenant will attempt to expand the area actually leased to it in order to accommodate the installation of additional equipment or supports and the land owner should be fairly compensated.

6. Assignment and Subleasing

The lease should prohibit a tenant from assigning or subleasing without the land owner’s consent. It is important that the land owner has the ability to ensure that the tenant remains a responsible operator. For example, a land owner would not want ‘Verizon Wireless’ to assign its lease to ‘Mom and Pop Telephone Company’, which has no assets, no credit, and no experience in the billboard or advertising industry, whether or not the use would remain the same.

7. Guaranty

To the same point, just like with any commercial lease agreement, it should be considered whether a lease guaranty is important to the land owner. For example, if the property is leased to advertise for Verizon Wireless, but VW 123, LLC is the actual tenant, that tenant entity likely has no assets other than what is located on the property, so it is beneficial, if possible, to obtain the guaranty of a parent company, or an individual guarantor.

8. Content

The lease should also restrict the content of the billboard for two main reasons. First, land owners do not want the billboard to compete with existing commercial tenants, if applicable. For example, if there is a gym in an adjacent shopping center owned by the land owner, the land owner would not want a competing gym advertisement on the billboard. Second, it is important that the land owner has control over the content so that the billboard does not portray anything distasteful or offensive. Some land owners even choose to specifically prohibit certain types of content such as religious or political advertisements.

9. Expiration of Term

Finally, a land owner should attempt to negotiate that it is within land owner’s discretion at the expiration of the lease term to either require that the billboard be removed and the premises repaired to its original condition, or that the tenant leave the fixture in place to become the property of the land owner. From a land owner’s perspective, assuming the billboard has proven a positive investment, Vermuth adds, “Many billboards are legal nonconforming uses due to changes in zoning regulations, so in that case it is very rare you would want to remove it”, though if another development opportunity arises and the land would be more useful for another use, the owner may not want the billboard to remain, or become his responsibility to remove.

According to Outdoor Advertising Association of America, there was 7.7 billion dollars in ad revenue just in 2017, an increase over the previous year, with nearly 350,000 billboards throughout the United States. According to the Pennsylvania Department of Transportation, Pennsylvania leads the eastern region states with over 14,000 billboards on its highways, followed by New York, which has less than half as many. Especially in light of the rapid growth and evolution of the industry, it is important to always consult an attorney before signing a billboard lease or easement.

By Erik M. Hume

For many landowners, cell tower leases provide a steady, reliable stream of income for a piece of their property that would otherwise sit unused. When it comes time to sell a property, some landlords don’t want to lose the regular payments they receive from the tower company. Fortunately, when it comes to cell tower rental income, you can take it with you – without a subdivision.

Many people think that if you want to keep a portion of the land for yourself when you sell it, you must obtain subdivision approval. If you want complete and unfettered use of the property, a subdivision is your best bet. But subdividing off a small piece of land holding a cell tower can be extremely difficult under modern zoning requirements. Instead, what if a landowner reserves just certain rights in the property, rather than the dirt itself? Fortunately, the law provides for such a mechanism.

Most people are familiar with easements. The power company may have one to string power lines over your property. Or you may have an easement over your neighbor’s property for a shared driveway. And easement rights have been in the news lately in connection with the construction of pipelines. In short, an easement is a right to use someone else’s property. But easements aren’t limited to utilities or access. An easement can be created to cover any number of uses.

Cell tower lease buyout companies, who pay landowners large, upfront payments in order to purchase the future rents generated by the leases, have known about and used easements for years. When a landowner enters into a buyout agreement, typically the landowner conveys to the buyout company an easement over their land for the use and operation of a cell tower. The easement boundaries generally match those of the leased premises for the cell tower. The easement allows the buyout company to maintain control of the tower area, and to receive the income generated by the lease. But the landowner still owns the underlying dirt, subject to the buyout company’s rights.

A landowner looking to sell her property can do the same thing as the buyout company, except she would be transferring the easement rights to herself. What the landowner would do is have prepared and filed in the courthouse a “Declaration of Easements” that would create the easement rights for the cell tower. The Declaration must provide specific rights related to the cell tower and the income generated by it. The Declaration should also address what happens with the current lease and what rights the easement holder has to enter into amendments and new leases. The terms and conditions of the Declaration are extremely important, and a landowner should work closely with legal counsel in preparing the document.

Once those easement rights are created, they then need to be transferred. The transfer can be handled in several ways. In some instances, a landowner will want to keep them for herself, which she could accomplish by reserving the easement rights in the deed conveying the property. A landowner could also transfer the rights to an entity created by her, such as an LLC or a trust, by recording an instrument in the county courthouse. How those rights are held in the future could have significant tax consequences, so landowners should consult with their tax advisors on how to structure such a transaction.

Reserving the cell tower income sounds simple enough, but what are the drawbacks? There are several factors a landowner needs to consider. First, she needs to confirm that her lease permits such a scheme. A cell tower lease, like most commercial contracts, is a negotiated agreement between two parties. There is no set “form” for a cell tower lease. It is possible that the existing lease could include language that would make it difficult to or even impossible to reserve the income by easement. For example, a lease may say that only the “fee owner” (that is, the person that owns the dirt) may be the landlord under the lease. If that’s the case, it would be much more difficult to use the easement model. Review of the lease by legal counsel is very important early in the process.

Even if the lease doesn’t expressly prohibit the easement model, its terms could present issues moving forward. Careful attention needs to be paid to the lease provisions governing who receives notices, who receives insurance protection and what the tower company can and cannot do. Again, an attorney can help in reviewing the lease and identifying these issues.

Another important concern is the effect the easement scheme would have on the marketability of your property. Properties with cell towers on them are not attractive to some buyers. Separating the income generated by the tower from ownership of the property will have an effect on value and could make a property less desirable to certain buyers. Furthermore, many buyers will want a say in the terms and conditions of the Declaration of Easements as a condition to closing. Before electing to retain the tower rental income, a seller should discuss with the listing agent the effect retaining the income may have on efforts to sell the property.

Property owners should also realize that in addition to receiving rental checks, they will also likely have certain responsibilities. Using the easement model, the person receiving the rent checks must work with both the cell tower company and the new property owner. While the cell tower company is usually responsible for its site, if it fails to maintain the site or if there is another problem, the new landowner will look to the old landowner to address any issues. Furthermore, an astute buyer will require that the seller include indemnification and insurance language in the Declaration of Easements to provide additional protections. While a landowner may be willing to accept the risks associated with a cell tower if she is the beneficiary of the income generated by it, if she is not receiving the rent, she will expect the party that is to make her whole.

The easement model for retaining cell tower rental income is a convenient way to keep a revenue stream while still permitting the sale of the underlying property. It can even be used outside of a sale situation, such as in conjunction with estate planning. Before embarking on such a program, however, landowners should consult with legal counsel experienced in this area, as well as real estate professionals experienced in the sale and marketing of real property. While the easement model does not have many of the barriers faced in the subdivision process, it is still a complex mechanism that can have long-lasting effects on your property and finances.