2 Rights and Interests in Real Estate (New Jersey) - Vocabulary Flashcards
Land, Real Estate, and Real Property: Key Concepts
Real estate is defined as air, water, land, and everything affixed to the land. It may be owned privately or publicly. Private ownership rights are not absolute; government can impose taxes and restrictions, and other private parties can exert rights on the property (e.g., a bank can foreclose; a neighbor may have easements after long usage).
To understand real estate rights and interests, distinguish between:
land vs. real estate
real estate vs. property
real property vs. personal property
Land, Real Estate, and Real Property: Land
Land includes:
the surface of the earth
everything beneath the surface extending downward to the center
all natural things permanently attached to the earth
the air above the surface extending outward to infinity
Land includes minerals beneath the surface, water on or below the surface, and the air above the surface, plus natural vegetation (e.g., trees, grass).
A parcel (tract) of land is a defined portion with boundaries.
Physical characteristics of land (three key properties):
\text{Three unique physical characteristics: }{\text{immobility},\ \text{indestructibility},\ \text{heterogeneity}}.Physical immobility means the land itself cannot be moved; parts of land (e.g., coal, dirt) can be transported, but detached elements are no longer land.
Indestructibility means land cannot be destroyed; even if a portion is removed, the remainder remains.
Heterogeneity means no two parcels of land are exactly the same; even adjacent parcels have unique locations.
Real Estate: The Concept of Real Property
Real estate comprises land plus all man-made structures permanently attached to the land (improvements: fences, streets, buildings, wells, sewers, sidewalks, piers).
The term "permanently attached" is largely based on the intent of attachment. If a structure is intended as a permanent dwelling (e.g., a house), it is real estate. If something is attached with intent to move (e.g., a tent), it is not real estate.
Property and the Bundle of Rights
In common understanding, property is something owned by someone; it also refers to a set of rights to the item, known as the "bundle of rights." (Exhibit 2.1)
The Bundle of Rights (Exhibit 2.2): ownership includes the right to
possess
use
transfer (sell, rent, donate, assign, bequeath)
encumber (mortgage as collateral)
exclude
Example: when Bill Brown buys a car, he owns the car and gains the legal rights to transfer, use, encumber, exclude, and possess the car.
Classifications of Property
Two major classifications:
Real property: ownership of real estate and the bundle of rights associated with owning real estate.
Personal property (chattels or personalty): ownership of anything not real estate, with its own bundle of rights.
All real estate in the U.S. is real property; private/organizational/government ownership applies.
Tangible vs. intangible property:
Tangible property: physical, visible, material (e.g., boats, cars, jewelry).
Intangible property: abstract, no physical existence (e.g., stock certificates, contracts, patents).
All real estate is tangible property by its physical nature; personal property may be tangible or intangible.
Real Property Rights: The Bundle Applied to Real Estate
Real property rights consist of the bundle of rights tied to owning a parcel of real estate. Core rights:
possession
use (e.g., mining, cultivating, landscaping, razing, building) within legal and zoning constraints
transfer (sell, bequeath, lease, donate, assign) – can transfer subset rights (e.g., mineral rights) without transferring total ownership
encumber (mortgage as collateral) – may be restricted by others (e.g., a spouse’s rights in a homestead)
exclude (control access and prosecute trespass)
The bundle of rights applies to components of real estate: air, surface, subsurface. Rights can be separated and transferred individually (e.g., sub-surface rights or air rights) or leased (e.g., air space for a walkway).
An ordinary lease is a transfer of a portion of rights: the tenant may possess/use the building during the term, but not the subsurface or airspace, and cannot encumber or transfer the property. The tenant may exclude persons only to a limited degree (not the legal owner).
Surface, Air, and Subsurface Rights
Surface rights: apply to the real estate contained within the surface boundaries; include the ground, natural things affixed to the ground, improvements, and water rights.
Air rights: apply to space above the surface boundaries (imaginary vertical lines extended to infinity). Since aviation, air rights are curtailed to allow overflight so long as it does not interfere with the owner’s use and enjoyment.
Subsurface rights: apply to land beneath the surface; include rights to extract minerals, gas, and subsurface water; extend from the surface boundaries downward to the Earth’s center (center of the earth).
Water Rights
Water rights concern ownership and use of water found in lakes, streams, rivers, and oceans, and impact parcel boundary determination with respect to adjoining bodies of water.
Three variables determine water rights (as a general framework):
1. \text{Whether the state controls the water}
2. \text{Whether the water is moving}
3. \text{Whether the water is navigable}Doctrine of Prior Appropriation (for scarce water):
The state owns/controls all bodies of water; property owners obtain permits for water usage; permits can attach to the property of the permit holder over time.
\text{If a state operates under prior appropriation, water use is regulated by permits attached to property.}
If not under prior appropriation, common law doctrines apply: littoral rights and riparian rights.
Littoral rights (abutting non-moving bodies of water such as lakes or seas):
Owner has the right to use water but does not own the water or the land beneath it.
Ownership generally extends to the high-water mark; public property may own below that line.
Littoral rights transfer with the property on sale.
Riparian rights (abutting moving bodies of water such as streams or rivers):
If water is navigable, the waterway is a public easement; ownership extends to the water’s edge and the state owns land beneath the water; the property does not own the land beneath the water; usage must be reasonable and not polluting or altering the water flow; rights transfer with the property.
If water is non-navigable, owner owns land to the waterway’s midpoint and has unrestricted use of water; waterownership may extend to the water surface.
Riparian rights are subject to reasonable-use constraints and downstream rights; similar to littoral rights, they attach to the property.
Real vs Personal Property; Fixtures, Trade Fixtures, Emblements, Factory-Built Housing
Distinguishing real vs personal property hinges primarily on whether the item is permanently attached to land or a structure, but there are exceptions.
Fixtures: personal property converted to real property by attachment to real estate. Examples include chandeliers, toilets, water pumps, septic tanks, window shutters. The seller’s inclusion of fixtures in a sale is assumed unless expressly excluded; exclusions must be itemized in the sale contract.
Differentiation criteria (beyond attachment):
Intention: original intent matters; if attached with intent to remove later, may be personal property; conversely, intent to fix it as a fixture can classify it as real property.
Adaptation: if an item is uniquely adapted to the property or custom-designed for it, it may be real property.
Functionality: if an item is integral to the building’s operation, it may be a fixture.
Relationship of parties: for tenants who install fixtures to conduct business, those items may be trade fixtures (tenant’s personal property).
Contract provisions: sale/lease contracts override other criteria; unless stated otherwise, fixtures included in sale.
Trade fixtures (chattel fixtures): temporary personal property items attached to a landlord’s real property to conduct business (e.g., grocer’s freezers, racks, tavern’s bar, dairy milking machines, printer’s press). They may be removed by the tenant before surrender; failure to remove may cause ownership to vest in the landlord via accession (transfer from personal property to real property).
Emblements (fructus industriales): growing plants or crops that require human intervention. Naturally growing crops are real property; crops requiring labor/planting/harvest are emblements and are personal property. If a tenant grows crops, they have rights to the harvested crop even after lease ends; if the landlord grows them, landlord owns them.
Factory-built housing: off-site constructed dwellings transported to a site and assembled; includes mobile homes (per HUD standards since the Manufactured Housing Construction and Safety Standards Act of 1976). Factory-built housing can be real property or personal property depending on attachment to land and applicable state law. Local laws should be consulted before selling factory-built housing.
Conversion: Changing Real Property and Personal Property Classifications
Conversion is the process by which a property’s classification changes between real and personal.
Severance: conversion of real property to personal property by detaching it from real estate (e.g., cutting down a tree, removing a door, taking an antenna down).
Affixing (attachment): conversion of personal property to real property by attaching it to the real estate (e.g., constructing a dock or permanently fixing items to the building).
Regulation of Real Property Interests
Regulation covers the bundle of rights (possession, usage, transfer, encumbrance, exclusion), legal descriptions, financing, insurance, inheritance, and taxation.
Regulatory framework can be federal, state, local, or judicial (case law/common law).
Federal regulation focuses on broad standards of usage, natural disaster, land description, and discrimination; federal agencies promote home ownership and environmental standards. Federal flood insurance mandates exist for certain homeowners. Federal Fair Housing Act prohibits discrimination; Americans with Disabilities Act prescribes design/accessibility standards. The federal government does not levy real estate taxes.
State regulation governs licensing laws/requirements for real estate professionals, commissions, and broader regional controls; state environmental and ownership-transfer rules; some states’ mortgage property may transfer to lender until mortgage is satisfied; states levy real estate taxes through local governments.
Local regulation centers on land use, zoning, building permits, and taxation; local governments determine how land can be developed, improved, demolished, or managed, and levy local real estate taxes.
Judicial regulation arises from case law and common law, guiding real estate ownership and usage based on prior judicial decisions and customary practices.
Exhibit 2.7: Regulation of Real Property Interests (Summary of Regulatory Framework)
Federal Constitution: establishes the right of private ownership of real estate; prohibits federal government from levying real property taxes.
Federal Laws: create and regulate real estate-related agencies, prohibit discrimination, create standards for legal descriptions, and establish environmental standards.
Agencies (federal): establish mortgage lending standards, housing construction standards, and environmental standards.
State Constitution: may establish the right to levy tax or delegate that right to counties/municipalities; laws regulate licensing of practitioners, general usage standards, and ownership rights.
Agencies (state): regulate real estate practitioners and administer license laws.
Local Laws: create and enforce real estate taxation; control land use over specific parcels of land.
Courts/Common Law: govern real estate ownership and usage according to customary practices; case law evolves from prior decisions.
Exhibit 2.1–2.2: Property, Real Property Rights, and the Bundle of Rights (Key Concepts)
Property: something owned by someone; ownership includes a bundle of rights.
Real Property Rights: rights applied to airspace (air rights), surface (surface rights), and subsurface (subsurface rights).
Water rights: doctrine and rights vary by jurisdiction (Prior Appropriation, Littoral Rights, Riparian Rights).
Real vs Personal Property: depends on attachment and other circumstances; fixtures convert personal property to real property; trade fixtures and emblements have special classifications.
The process of conversion (severance and affixing) changes classification between real and personal property.
Snapshot Review: Key Takeaways (Based on Exhibit 2.7)
Real Estate as Property: private ownership exists but is not absolute; owners face claims from others; bundle of rights governs control.
Land: defined by surface, subsurface, natural attachments, and air above; characteristics are immobility, indestructibility, heterogeneity.
Real Estate: land plus permanently attached improvements; includes fixtures.
Property: something owned with a bundle of rights; can be real or personal; real property rights extend to airspace, surface, and subsurface.
Water Rights: doctrine varies by state; Prior Appropriation vs. Littoral/Riparian rights; navigability of water affects ownership and use.
Real vs Personal Property: determined by attachment; fixtures, emblements, trade fixtures, and factory-built housing each have distinct rules.
Fixtures: converted from personal property by attachment; sale contracts generally include fixtures unless excluded.
Differentiation Criteria: Intention, Adaptation, Functionality, Relationship of Parties, and Contract Provisions influence classification.
Trade Fixtures: tenant’s personal property used for business that may be removed; may become landlord’s property if not removed.
Emblements: crops requiring labor; generally personal property even though attached to land; tenant’s rights to harvested crops survive lease terms.
Factory-Built Housing: off-site construction; can be real or personal property depending on attachment and state law; HUD standards apply to manufactured housing.
Conversion: severance (real to personal) vs. affixing (personal to real).
Regulation of Real Property Interests: federal, state, local, and judicial influences; planning for ownership rights, tax treatment, descriptions, and environmental considerations.
Note: All terms in Exhibits 2.1–2.7 (e.g., Exhibit 2.1, Exhibit 2.2, Exhibit 2.4–2.5, Exhibit 2.6) are reflected in the detailed explanations above. The examples and criteria provided are representative of how real property interests are defined, transferred, regulated, and adjudicated across different jurisdictions.
Real estate encompasses land, water, air, and all permanently affixed structures. Private ownership is subject to government taxes, restrictions, and other private party claims.
Land
Land includes the surface, everything beneath (to Earth's center), natural attachments, and air above (to infinity). Key physical characteristics are: immobility, indestructibility, and heterogeneity.
Real Estate: Real Property
Real estate is land plus all man-made permanent improvements. A structure is considered real estate if the intent of its attachment is permanent.
Property and the Bundle of Rights
Property is something owned, along with a "bundle of rights" including the rights to: possess, use, transfer, encumber, and exclude. These rights can be applied to different components of real estate, like air, surface, and subsurface.
Classifications of Property
Property is classified as either Real property (ownership of real estate and its associated rights) or Personal property (chattels, anything not real estate). All real estate is tangible property.
Water Rights
Water rights depend on state control, water movement, and navigability. The Doctrine of Prior Appropriation regulates water use via permits in scarce water regions. Otherwise, common law doctrines like Littoral rights (for non-moving bodies) and Riparian rights (for moving bodies) apply. Littoral rights extend to the high-water mark, while riparian rights vary based on navigability (to water's edge for navigable, to midpoint for non-navigable).
Real vs Personal Property; Fixtures, Trade Fixtures, Emblements, Factory-Built Housing
Distinguishing real from personal property often depends on permanent attachment. Fixtures are personal property converted to real property by attachment (e.g., chandeliers), determined by intention, adaptation, functionality, party relationship, and contract provisions. Trade fixtures are a tenant's personal property for business, removable before lease end. Emblements are crops requiring human labor and are personal property. Factory-built housing can be real or personal property depending on attachment and state law.
Conversion
Severance changes real property to personal property by detachment (e.g., cutting a tree). Affixing converts personal property to real property by attachment (e.g., building a dock).
Regulation of Real Property Interests
Real property interests are regulated by a multi-tiered framework:
Federal: Establishes broad standards, prohibits discrimination, sets environmental rules, and creates mortgage lending standards. It does not levy real estate taxes.
State: Governs real estate professional licensing, regional controls, and ownership transfer rules. States may delegate real estate tax authority to local governments.
Local: Focuses on land use, zoning, building permits, and levies local real estate taxes.
Judicial (Case Law/Common Law): Guides ownership and usage based on prior decisions and customary practices.