LEGAL AND REGULATORY DETERMINANTS OF VALUE 2. Legal Foundations to Value

Owning real property is a matter of having rights. These can include the rights of exclusive possession, of use (enjoyment), and of disposition. Rights are claims that organized gov- ernment is obligated to enforce; they are nonrevocable and they are enduring. Real property is rights in land and its permanent structures, while personal property is rights to any other object or to intellectual matters. Government can reduce the bundle of rights called real property through its police power. However, if the exercise of police power goes too far, it becomes a “taking,” which requires just compensation. Bundles of real property that include the right of exclusive possession are called estates. Estates are either titled (freehold) or untitled (leasehold) interests. Freeholds are indefinite in length, allowing the right of disposition, while leaseholds have a definite end- ing, thus no right of disposition. The most complete estate is the fee simple absolute, which is the common notion of ownership. Three important nonpossessory interests in real property are restrictive covenants, easements, and liens. Restrictive covenants are created in a deed or in subdivision decla- rations, and can impose a wide variety of restrictions on land use. An easement is the right to use land for a specific, limited purpose. The easement appurtenant involves the rela- tionship between a dominant parcel and a servient parcel, and “runs with the land.” The easement in gross often involves a right-of-way (e.g., road, pipeline, power line) and can be conveyed separately from the landownership. A lien is an interest in property as secu- rity for an obligation. Co-ownership is the simultaneous ownership of essentially the same set of rights by multiple persons. The most flexible and robust co-ownership is tenancy in common, which has rights of disposition the same as individual ownership. A joint tenancy gives no rights of inheritance to any but the last surviving co-owner. A tenancy by the entirety is a marital form of joint tenancy. Condominium combines individual ownership of a space (unit) with tenancy in common ownership of the related common facilities. Cooperative is a special form of corporation, which gives each shareholder a “proprietary” (indefinite) lease to one unit in the structure (usually an apartment). Marriage usually creates automatic co-ownership interests. The most important of these are elective share and community property. In recent years, property also has been conveyed to multiple owners through timeshare interests, which range from true ownership to no more than a license.

Which of the following is not a form of property right?

a. Lien.
b. Easement.
c. Leasehold.
d. License.
e. Mineral rights.

d. License

Which of these easements is most likely to be an easement in gross?

a. Common wall easement

b. Driveway easement.
c. Drainage easement.
d. Power line easement.

e. Sunlight easement.

d. Power line easement

Rules used by courts to determine whether something is a fixture include all except:

a. Intention of the parties.

b. Manner of attachment.

c. Law of capture.

d. Character of the article and manner of adaptation.

e. Relation of the parties.

c. Law of capture

Which of these is a titled estate?

a. Fee simple absolute.
b. Fee simple conditional.

c. Conventional life estate.
d. Legal life estate.
e. All of these.

e. All of these.

Which of these forms of co-ownership could best be described as “normal ownership,” except that multiple own- ers share identically in one bundle of rights?
a. Tenancy in common.
b. Joint tenancy.
c. Tenancy by the entirety.
d. Condominium.
e. Estate in severalty.

a. Tenancy in common.

Which of these marriage-related forms of co-ownership gives each spouse a one-half interest in any property that is “fruits of the marriage”?
a. Dower.
b. Curtesy.
c. Community property.
d. Elective share.
e. Tenancy by the entirety.

c. Community property

Which of these liens has the highest priority? a. First mortgage lien.
a. First mortgage lien.
b. Mechanics’ lien.
c. Property tax lien.

d. Second mortgage lien.
e. Unable to say because it depends strictly on which was

created first.

c. Property tax lien.

8. Restrictive covenants for a subdivision usually can be

   enforced by:
   a. Subdivision residents.
   b. Lenders with mortgage loans in the subdivision. c. Local government.
   d. a and b, but not c.
   e. All three: a, b, and c.

d. a and b, but not c.

Timeshare programs can involve which of the following claims or interests?
a. Fee simple ownership.
b. Leasehold interest.

c. License.
d. Condominium.
e. All of these are possible.

e. All of these are possible.

Every condominium buyer needs to know the details of which document(s):
a. Condominium declaration.
b. Bylaws.

c. Proprietary lease.
d. a and b, but not c.
e. All three: a, b, and c.

d. a and b, but not c.

Explain how rights differ from power or force, and from permission.

• Rights are “claims or demands that our government is obligated to enforce.”

• Power or force refers to intimidation or control not supported by law (e.g., gang claim).

• Permission is revocable; rights are nonrevocable and enduring.

A developer of a subdivision wants to preserve the open space and natural habitat that runs along the back portion of a series of large lots in the proposed subdivision. He is debating whether to use restrictive covenants to accomplish this or to create a habitat easement on the same space. What are the pros and cons of each choice?

• Restrictive Covenants: Limits land use by private agreeable, enforceable by parties with legal interest (e.g., homeowners); may expire or be unenforceable over time (due to abandonment or changing neighborhood)

• Easements: More durable than covenants, legal right to restrict use permanently, can be enforced by third parties or nonprofits; more legally complex to establish and could limit future development flexibility.

Why are restrictive covenants a good idea for a subdivision? Can they have any detrimental effects on the subdivision or its residents? For example, are there any listed in the chapter that might have questionable effects on the value of a residence?

• Benefits: Enhance quality, stability, and value of subdivision lots. Examples: no external antennas, architectural review, setback lines.

• Potential Downsides: Can limit flexibility or seem overly burdensome and may conflict with changing societal needs or tastes.

The traditional common law concept of the landlord–tenant relationship was that the landlord’s obligation was simply to stay off the property and the tenant’s obligation was to pay the rent. Explain why this is an obsolete arrangement for apartment residents in an urban society.

Urban life requires landlords to ensure habitability, safety, and services beyond merely collecting rent.

Today’s tenants expect:

• Functional plumbing, heating, electricity

• Timely repairs and security

A friend has an elderly mother who lives in a house adjacent to her church. The church is growing, and would welcome the opportunity to obtain her house for its use. She would like to support the needs of her church, but she doesn’t want to move and feels strongly about owning her own home. On the other hand, your friend knows that she will not be able to remain in the house many more years, and will be faced with moving and selling within a few years. What options can you suggest as possible plans to explore?

• Life estate with remainder to church (allows continued residence with future transfer)

• Sale-leaseback (church buys property, leases it to her)

• Revocable trust or gift deed with occupancy rights

  Each honors her wish to stay while enabling a smooth future transfer.

A friend has owned and operated a small recreational vehicle camp on a lake in Daytona Beach, Florida. It is close to the ocean and close to the Daytona Speedway, home of the Daytona 500 and a host of other prominent races. The occupants are very loyal, making reservations far in advance, and returning year after year. She is asking your thoughts on whether to continue the camp as a short-term rental opera- tion, to convert it and sell the parking spaces as condomin- ium parking spaces, or to convert to condominium timeshare lots. What thoughts would you offer?

Short-Term Rentals	Condo RV Spaces	Timeshare Lots
✔ Flexible, responsive to high-demand events (e.g., Daytona 500)	✔ Immediate capital via sale; permanent owners = lower turnover	✔ High per-use value
✘ Volatile revenue	✘ Complex condo governance	✘ Legal complexity, uncertain resale

Evaluate local zoning and market demand, but short-term or condo sale most likely.

In the United States the bundle of rights called real property seems to have gotten smaller in recent decades. Explain what has caused this. Why is it good? Why is it bad?

How do rights to an object differ from attaining it by force or intimidation? What distinguishes rights from permission?

Rights are claims or demands that government is obligated to enforce, whereas claims that are obtained by threat or force are not honored or supported by the government. Rights differ from permission in that rights are non revocable and permission is revocable. Finally, rights are enduring. They do not end.

List three components of property rights.

Exclusive possession, use (enjoyment), and disposition.

Is a fixture real or personal property? What is the dominant rule for determining whether something is a fixture? Under the “rule of intention,” identify two possible results for the example of kitchen appliances.

A fixture is defined as an object that formerly was personal property but has converted to real property. Although there are four rules used to determine whether something is a fixture, the dominant rule is the intention of the parties. For example, a kitchen appliance in a single-family residence is expected to remain with the seller when the residence is sold. On the other hand, if the appliances are furnishings in a rental apartment building, they normally would be expected to remain with the building. Thus, the rule of intention would treat the appliances as personal property in the single-family residence case and as fixtures in the apartment case.

When is a real property interest an estate?

Real property interests that include exclusive possession are called estates.

What is the basic definition of an easement?

The right to use land for a specific and limited purpose.

What is the major difference between an easement appurtenant and an easement in gross?

The major difference between the easement appurtenant and an easement in gross is that the easement appurtenant involves a dominant parcel constraining an adjacent servient parcel, and is an inseparable feature of both parcels. By contrast, an easement in gross involves only servient parcels. Also, the easement appurtenant “runs with the land” and the easement in gross can be transferred without the transfer of any parcel.

Who can enforce a restrictive covenant? How is it done?

Restrictive covenants are strictly private and can only be enforced by those holding a legal interest in the property. They would be enforced by filing suit for an injunction against a violation.

What is generally the determinant of lien priority? What lien always

preempts this order?

The lien priority is generally determined by the order in which they were created. However, property tax, assess- ment liens, and CDD liens are always superior to any other liens.

The most common and least specialized form of direct co-ownership is

The most common and least specialized form of direct co- ownership is tenancy in common.

The organization and rules of a condominium are very important because it serves as a small-scale... What are the two most important documents for a condominium?

Organization and rules are very important to a condomin- ium because it serves as a small-scale government. The two most important documents for a condominium are the decla- ration and bylaws.

Two types of modern co-ownership interest between spouses that occur automatically for any marriage are… or… depending on the state.

Two types of modern co-ownership between spouses, depending on the state, are elective share and community property.

What are three levels (qualities) of property rights found in timeshare

arrangements?

The three levels of property rights in timeshare arrange- ments are a part of a fee simple interest, a leasehold interest for a tenancy for years, or a license for partial use of the timeshare.

List three characteristics of rights that distinguish them from permission and power, list three components of property rights, distinguish between real and personal property, and define a fixture.

State the distinguishing characteristic of an estate, list three types of freehold estates, and distinguish a freehold estate from a leasehold.

Define an easement, distinguish it from a license, distinguish two basic types of easements, and identify four examples of each.

Define a restrictive covenant, state who can enforce it and how, and list five ways that restrictive covenants can become unenforceable.

List one type of general lien and three types of specific liens, list two factors that determine priority among liens, and state the significance of priority.

List the features that distinguish these forms of ownership: tenancy in common, joint tenancy, tenancy by the entireties, condominium, and cooperative.

Distinguish among the provisions of dower, elective share, and community property for the distribution of property between husband and wife.

List three common levels of timeshare claims, and identify what is most important to evaluate in a timeshare plan.