REAL ESTATE CH2

Chapter 2: Legal Foundations to Value

Overview

  • Learning changes everything.

  • Discussion focuses on property rights, real property, and personal property.

The Real Property Bundle of Rights

  • Important Questions:

    • What do we mean by rights?

    • What are property rights?

    • What is real property?

    • What is personal property?

    • What do we do when the difference is unclear?

What Are Rights?

  • Definition: Claims the government is obligated to enforce.

  • Origins: Derived from the Constitution.

  • Characteristics:

    • Differs from raw power; it is non-revocable.

    • Subject to public health, safety, and welfare considerations.

    • Enduring and not limited to the memory of owners or others.

    • Cannot be “erased” by other citizens or the government.

Personal Rights vs. Property Rights

Personal Rights:

  • Freedoms guaranteed by the Constitution and interpreted by the Supreme Court.

Property Rights:

  • Exclusive possession: Right to use the property.

  • Enjoyment of the use: Includes the use, collection of rents, and harvesting of resources.

  • Freedom to dispose: Can sell, convert, or rebuild the property, within safety limits.

Real Property vs. Personal Property

Real Property:

  • Rights in land and its permanent structures:

    • Surface of the earth and improvements.

    • Air, up to reserved air space or tallest structure.

    • Beneath the earth: minerals, oil and gas, water.

Personal Property:

  • All other types of property:

    • Personal and household goods.

    • Intellectual property, including music.

Rights in Our Society

Personal Rights:

  • Freedom of assembly

  • Freedom of expression

  • Protection from unreasonable search or seizure

  • No double jeopardy or self-incrimination

  • Protection of life, liberty, and property

  • No taking property without compensation

  • Right to a speedy, public, fair trial

Property Rights:

  • Personal property includes:

    • Vehicles

    • Household goods

    • Stocks and bonds

    • Patents

    • Software

    • Music

  • Real property includes:

    • Residences

    • Airports

    • Commercial buildings

    • Government buildings

    • Religious buildings

    • Streets, railroads, bridges, utilities

Real Property: Rights in Three Dimensions

  • Dimensions of Real Property Rights:

    • Air Traffic Space

    • Buildable Air Space

    • Surface

    • Subsurface

Fixtures

Definition of Fixture:

  • Real property that was previously personal property.

Rules for Identifying a Fixture:

  1. Manner of attachment: How the item is attached to the property.

  2. Character of the article and manner of adaptation: Example: custom screens or storm windows.

    • Church pews, custom designed furniture.

  3. Intention of the parties: Dominant rule in fixture assessment.

    • Example: Kitchen appliances may differ in ownership based on property type (owned home vs. apartments).

  4. Relation of the parties: Variant of the intention rule.

    • Trade fixtures of a commercial tenant are considered personal property.

    • Items installed by a residential tenant are also considered personal property.

Importance of Fixtures:

  • Fixtures automatically go with real property during transfer.

  • It is essential to identify possible fixtures explicitly stating if they stay with the property or not.

Real Property Interests

Definition of Interest:

  • Any “bundle” of rights in real property.

Types of Interests:

  • Estates: Interest with the right of exclusive possession.

  • Non-possessory Interests:

    • Easements

    • Restrictive covenants

    • Liens

Estates Overview

  • Ownership with Inheritance:

    • Fee simple absolute

    • Fee simple conditional with reverter interest

    • Ordinary life estate with remainder interest

  • Ownership without Inheritance:

    • Legal life estates (homestead, dower) with remainder interest

  • Leasehold Estates:

    • Tenancy for years

    • Periodic tenancy

    • Tenancy at will; Tenancy at sufferance

Ownership (Freehold) Estates

Characteristics:

  • Estates with indefinite length.

  • Fee Simple Absolute: Contains all possible rights.

  • Fee Simple Conditional: All rights, revocable if specific conditions are violated.

Leasehold Estates

Types:

  1. Tenancy for Years:

    • For a specific time; must be written if over one year.

    • Governed by a written lease contract.

  2. Periodic Tenancy:

    • Automatically renews until terminated by either party, usually by oral agreement.

    • Governed by state law on termination notice.

  3. Tenancy at Will and Tenancy at Sufferance:

    • Based on mutual agreement or existence of a lease without permission.

Modernizing Leasehold Law:

  • Historical context derived from agrarian society may not be suitable for modern living conditions leading to the establishment of residential landlord and tenant laws.

Non-Possessory Interests in Land

Definitions:

  • Easement: The right to use land for specific, limited purposes.

  • Liens: Legal rights or interests that a lender has in the borrower's property until a debt obligation is satisfied.

  • Restrictive Covenants: Private restrictions on land use that bind purchasers to specific limitations.

Easements Types

Easement Appurtenant:

  • Right of use for a dominant parcel over an adjacent servient parcel.

Examples of Affirmative Easements:

  • Driveway or access right-of-way, sewer line, drainage, common wall.

Negative Easements:

  • Light and air easement, scenic easement.

  • Concept: “Runs with the land”: Rights and obligations are tied to the land.

Easements in Gross (Commercial Easements):

  • Right to use land unrelated to any parcel.

  • Examples include:

    • Extracting minerals or oil and gas,

    • Building roadways or railways,

    • Lay pipelines, maintain billboards, or harvest crops.

  • Characteristic: Transferable separately from land title or ownership.

Additional Easement Concepts:

  • Exclusive & nonexclusive easement in gross:

    • Exclusive grants all rights; recipient can extend access to others.

    • Nonexclusive limits rights to one user.

  • License: Similar to easement in gross, but conveyance is permission rather than a right; it is revocable.

Rights Included in Various Real Property Interests

  • Estates:

    • Fee Simple: Exclusive possession, use, and enjoyment, disposition.

    • Leaseholds: Limited rights depending on type of tenancy.

  • Easements:

    • Appurtenant: Rights tied to the dominant parcel.

    • In Gross: Limited right of use.

Restrictive Covenants (Deed Restrictions)

Definition:

  • Private restrictions on land use created at the conveyance of the land to a new owner.

Examples:

  • Setback lines, height restrictions, minimum floor area.

  • No freestanding structures, standard of architectural review, or use of specific landscaping services.

Creation Methods:

  1. Restriction in a deed conveying a single parcel of land.

  2. Restrictions applicable to all parcels within a subdivision (recorded as a separate document).

Enforcement:

  • Enforced by court injunctions; applicable to interested parties only (owners, mortgage holders).

  • Courts may be reluctant to enforce due to delayed enforcement, abandonment, changes in neighborhood, or public policy.

Liens

Definition:

  • A security interest for an obligation, generally a debt.

Types:

  1. General Liens: Arise from unrelated events (court-awarded damages, federal tax liens).

  2. Specific Liens: Developed from property ownership/use (mortgage, mechanics’ lien, property tax liens).

Three Levels of Liens on a Personal Residence:

  1. First Priority: Property tax liens, assessment liens, CDD liens.

  2. Second Priority: Based on chronology (first in time, first in right; include mortgages, HOA liens).

  3. Other Judgment Liens: Can be nullified by the homestead exemption or specific tenancy arrangements.

Forms of Co-Ownership

Direct Co-Ownership:

  1. Tenancy in Common: Default form.

  2. Joint Tenancy: Right of survivorship; restricts inheritance.

  3. Tenancy by the Entirety: Joint ownership for spouses.

  4. Condominium: Combines ownership with tenancy in common.

Indirect Co-Ownership:

  • Ownership by entities (e.g., corporations, partnerships).

Automatic Ownership from Marriage

Early Forms:

  • Dower/Curtesy: Automatic life estate for a surviving spouse.

Modern Forms:

  1. Elective Share: Up to one-third of decedent’s personal property; selected by the surviving spouse within a specified timeframe.

  2. Community Property: Joint ownership of property acquired during marriage; excludes pre-marital or inherited properties.

Timeshare Ownership

Characteristics:

  • Commonly involves shared ownership intervals (e.g., week).

  • Types may include condominium share or leasehold.

Risks:

  • Market uncertainty; heavily reliant on developer promises.

Summary

  • Understanding the distinction between real property and personal property, including the complexity regarding fixtures and the essential bundle of property rights.

  • Recognizing various ownership forms and rights including estates, co-ownership types, and the importance of easements, restrictive covenants, and liens.