Chapter 2
Estates: Legal Foundations
Real Estate
FIN 331
Fall 2015
REAL PROPERTY AS A BUNDLE OF
RIGHTS
A. Learning Objectives
1. What do we mean by Rights?
2. How do property rights differ from personal
rights?
3. How does real property differ from personal
property
4. What do we do when the difference is not
clear?
REAL PROPERTY AS A BUNDLE OF
RIGHTS
A. What do we mean by rights?
1. Claims that the government is obligated to
enforce
a. Derived from the Constitution & Bill of Rights
2. Non revocable and Enduring
3. Can be reduced in the interest of health, safety,
and welfare
4. Not limited to the memory of owners or others
5. Cannot be nullified by other persons or by
government
REAL PROPERTY AS A BUNDLE OF
RIGHTS
B. How do personal rights differ from property
rights?
1. Personal rights
a. Freedoms guaranteed by Constitution
b. Supreme Court interpretations of Constitution
2. Property rights
a. Exclusive possession
b. Enjoyment of the use or benefit: Use, collect rents,
harvest.
c. Freedom to dispose as one pleases (within limits of
safety): sell, convert, rebuild, etc.
REAL PROPERTY AS A BUNDLE OF
RIGHTS
C. How does real property differ from personal
property?
1 Real property: Rights in land and its permanent
structures (see Exhibit 2-2)
a Surface of the earth and improvements
a Air, up to reserved air space or tallest structure
b Beneath the earth as far as technology allows: Minerals, oil
and gas, water
2 Personal property: All other property
a Personal and household goods
b Intellectual property
c Music
REAL PROPERTY AS A BUNDLE OF
RIGHTS
D. How do we distinguish real from personal
property?
1. Fixtures (Real): typically something not
readily movable.
Examples: custom screens & draperies, kitchen
appliances such as radar ranges, garbage disposals
(attached to property)
2. Personal: typically something moveable
Examples: furniture, pictures, “customary
assumptions of the realm”
REAL PROPERTY AS A BUNDLE OF
RIGHTS
3. Special rule for “Fixtures”
a. The manner of attachment
b. The character of the article and manner of
adaptation
c. The intention of the parties
d. Relation of the parties: landlord and tenant
relationships
1) Trade fixtures considered personal property
2) Agricultural fixtures at taxes are considered property of
the tenant
3) Same rules apply for residential tenants
Estates in Land: Possessory Rights
Freehold
Leasehold
A. Possessory
A. Possessory
1.
The right to possess the
property
B. Indeterminate Duration
C. Holds Title
1.
The right to occupy the
property (tenancy)
B. Limited Duration
C. Does not hold title
Both can exist at the same time on the same property: i.e., the
owner of the property (the freeholder) may lease the property to
a tenant. The tenant has a leasehold estate
Non Possessory Rights
A. Non Possessory Interests in Property
1. Does not include the right to possess and
occupy the property
2. Examples
a. Liens
b. Easements
Possessory Interests [Estates]
A. Freehold Estates
1. Fee Simple Absolute - all possible rights
2. Fee Simple Conditional - all rights, but revocable
if specific condition is violated
3. Life Estate – limited to life of specified person or
persons
a. Estate in Reversion: property reverts to grantor (or
heirs)
b. Estate in Remainder: property goes to person other
than the grantor (the remainderman)
c. Life tenants have the same rights as the fee simple
except may not sell the property.
Possessory Interests [Estates]
B. Leasehold Estates
1. “Less-than-Freehold”: holder is a tenant
2. Tenant has right to exclusive possession for
specified period
3. Created by a lease [agreement]: Landlord (lessor)
& Tenant (lessee)
4. 4 Types
a.
b.
c.
d.
Estate for years
Periodic tenancy
Tenancy at will
Tenancy at sufferance
Leasehold Estates
A. Tenancy for Years: tenancy for fixed term.
Created by expressed agreement.
Automatically expires at end of term.
Landlord-Tenant relationship determined
by lease agreement.
B. Periodic Tenancy: no fixed termination
date in sense that it renews automatically
for similar successive periods - unless one
party gives notice (state law applies).
Assignable unless expressly forbidden.
Leasehold Estates
C. Tenancy at Will: tenant has possession of
property with landlord’s consent for an indefinite
period. Generally an oral agreement between the
tenant and the landlord
D. Tenancy at Sufferance: when tenant holds on to
property after the lease has expired. This does not
constitute trespassing because of the previous
leasehold interest
Are These Houses Really Alike?
A. Implied easements?
B. Prescriptive easements?
C. Easements in gross?
2-
Nonpossessory Interests in Land
A. Easements: The right to use land for a specific and
limited purpose
1. Affirmative easements:
a.
b.
c.
d.
Driveway or access right-of-way
Sewer line
Drainage
Common wall
2. Easements Appurtenant
a. Involves the relationship between 2 adjacent parcels of land
b. The dominant parcel benefits from the easement
c. The servient parcel is constrained or diminished by the
easement
d. May be positive (some intrusion) or negative (no intrusions)
Nonpossessory Interests in Land
3. Easements in Gross (Commercial
Easements): right to use land unrelated to
other parcels
a. Extract natural resources, harvest timber/crops
b. Add roadways, ditches, pipeline, etc.
c. May be transferred separately from land title or
ownership
Nonpossessory Interests
Examples:
On parcels A and C is a common
driveway easement.
On parcel C is an implied
easement of access in favor of
parcel B.
Parcel E as an involuntary
driveway easement known as an
easement by prescription.
Parcel F has an implied easement
for access to extract oil.
The power lines and the roadside
electric lines are easements to
permit installation and
maintenance.
The wildlife preserve on parcel G
may be protected by a conservation
easement.
Nonpossessory Interests in Land
A.
B.
C.
License
1.
2.
An easement is the right to use another’s land for a specific and limited purpose
A license is permission to do so and is revocable by the grantor
Restrictive Covenants
1.
2.
3.
4.
In a deed for a single parcel of land OR an entire subdivision
Enforceable in court of law or by “parties at interest” ~ HOA
Type of building and materials, minimum square footage, fences, etc.
Can only be enforced by those who hold a legal interest in the property
Liens: An interest in property as security for an obligation
1.
General Liens: Arise from events unrelated to the property
a.
b.
2.
Court awarded damages
Federal tax liens
Specific liens: Arise from ownership and use of the property
a.
b.
c.
Mortgage
Mechanics’ lien
Property tax, assessment or Community Development District (CDD) lien
Liens
A. An interest in property that serves as security for an
obligation
1. General Liens: Arise from events unrelated to the
property
a. Court awarded damages
b. The lien is security for the payment of the judgment
2. Property Tax and Assessment Liens
a. Enjoy top priority among liens
b. Assessment liens can last for several years
3. Community Development District (CDD) lien
4. Specific liens: Arise from ownership and use of the
property
a. Mortgage
b. Mechanics’ lien
Liens: Priority
FORMS OF CO-OWNERSHIP
A. Indirect: Through business organizations
or trusts
1.
2.
3.
4.
5.
General Partnerships
Limited Partnerships
Limited Liability Companies
Corporation (Co-op)
Trust
Entity holds title. Ownership passes through the entity.
Interest may not be divided.
FORMS OF CO-OWNERSHIP
B. Direct:
1.
Tenancy in Common
a.
b.
2.
Joint Tenancy
a.
b.
c.
3.
Two or more individuals are joint and equal owners of property
On death of one of the owners, ownership passes to other joint owners (right of
survivorship)
Property passes free and clear from any liabilities of the deceased partner.
Community Property
a.
b.
4.
All have undivided fee simple interest
Death of one owner: ownership share passes to his/her estate (heirs)
In certain states, ownership by married couples subject to community property laws.
Some limitations; inherited property or property bought with separate funds, prenuptials
Tenancy by the Entirety: similar to 3 above but in non community property
states
a.
b.
Typ. Husband and wife. Protection against liens & judgments if against one spouse
Right of survivorship
FORMS OF CO-OWNERSHIP
5. Ownership interests from marriage
a. Dower/Curtesy: common law granting of one third life
estate to survivor in the real property of the decedent
b. Dower covers the widow’s claim, curtesy the widower
c. Life estate is not marketable
6. Elective Share
a. In law, grants the surviving spouse a share of most of
the wealth of the decedent
b. Elective share applies to both real and personal
property
c. Elective share law may not encompass all of the
decedent’s wealth
Two Main Forms of Marital Property Rights
FORMS OF CO-OWNERSHIP
C. Common Interest Developments
1. Condominiums: single ownership (fee
simple) with tenancy in common (of
communal elements). Bylaws define owner
rights
2. Cooperatives: Cooperative; a proprietary
corporation – each owner has a proprietary
lease (in effect ownership of a specific
portion) and can be sold, transferred, or
bequeathed.
FORMS OF CO-OWNERSHIP
3. Timeshare
a. Multiple individuals having use of property but
not simultaneous interests
b. the estate is divided into separate time intervals
c. Timeshare rights
1) any contract that may convey any level of real property
interest
2) Buyer often acquires a leasehold interest rate fixed
number of years
3) A buyer may also acquire a license for partial use
SPECIAL ISSUES REGARDING LAND
A. Rights to Water (Riparian Rights)
1. Who owns the land under a body of water?
2. Who controls use of land under a body of
water?
3. Who has the right to use the surface?
4. Who has the right to use the water itself?
5. Who has the right to use groundwater?
Appurtenances: Water Rights
A. Riparian Rights
1. Rights to water when water flows through or adjacent to
property
2. Property owner has right to make reasonable use of
stream’s natural flow: drinking, bathing, watering a
personal use garden.
3. Upstream owners not allowed to use water in ways that
would deprive downstream owners of its use.
4. How about ownership of the land under the water?
a. Is the stream navigable? Navigable = large enough for
commercial use.
b. If YES, does not own. If No – owns the land under the stream.
c. If stream is border between two adjacent pieces of property,
ownership extends to mid-stream.
Dr. D.P. Echevarria
All Rights Reserved
29
Appurtenances: Water Rights
A. Riparian Rights (cont.)
5. Littoral Property
a. Property located next to a lake.
b. Owners have right to have lake maintained at its
natural level.
c. To use the lake for fishing and recreation.
d. To have the quality of the water maintained.
e. If the lake is not navigable, each littoral owner
owns a portion of the lake bed adjacent to their
property.
Dr. D.P. Echevarria
All Rights Reserved
30
Appurtenances: Water Rights
A. Appropriative Rights
1. Dose not depend on ownership of property next to
body of water.
2. Appropriative rights depend on priority of use.
3. The first person to make use of water had right to
continue that use: prior appropriation.
4. In time of scarcity, the first user had priority over
later users.
5. In most western US states, the state or federal
government holds the water in trust.
a. Water is allocated by permit
b. Water can be used on property not adjacent to the source of
water.
Dr. D.P. Echevarria
All Rights Reserved
31
SPECIAL ISSUES REGARDING LAND
B. Rights to Oil, Gas, and Minerals
1. Rights to the subsurface include rights to
minerals
2. Mineral rights can be separated from land
ownership
3. In some states, mineral rights imply ownership
of the space minerals occupy
4. Oil rights
a. Ownership states: Oil is simply another mineral
b. Traditional “rule of capture” (If you can remove it, it’s
yours) is being limited due to extensive secondary
recovery methods.
HOMEWORK ASSIGNMENT
A. Key terms: Dominant vs. Servient parcel,
Types of Liens, Property rights, Restrictive
Covenants, Forms of Tenancy, Fee Simple
types, Easements, Mineral Rights – Rule of
Capture
B. Study Questions: 1, 3, 5, 7