1. Chapter 2 Estates: Legal Foundations
Real Estate
FIN 331
Fall 2017
Dr. David P Echevarria
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2. Real property as a bundle of rights
Learning Objectives
What do we mean by Rights?
How do property rights differ from personal rights?
How does real property differ from personal property?
What do we do when the difference is not clear?
Dr. David P Echevarria
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3. Real property as a bundle of rights
What do we mean by rights?
Claims that the government is obligated to enforce.
Derived from the Constitution & Bill of Rights.
Non-revocable and Enduring.
Can be reduced in the interest of health, safety, and welfare.
Not limited to the memory of owners or others.
Cannot be nullified by other persons or by government.
Dr. David P Echevarria
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4. Real property as a bundle of rights
How do personal rights differ from property rights?
Personal rights
Freedoms guaranteed by Constitution
Supreme Court interpretations of Constitution
Property rights
Exclusive possession
Enjoyment of the use or benefit: Use, collect rents, harvest.
Freedom to dispose as one pleases (within limits of safety): sell, convert, rebuild, etc.
Dr. David P Echevarria
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5. Real property as a bundle of rights
How does real property differ from personal property?
Real property: Rights in land and its permanent structures (see Exhibit 2-2)
Surface of the earth and improvements
Air, up to reserved air space or tallest structure
Beneath the earth as far as technology allows: Minerals, oil and gas, water
Personal property: All other property
Personal and household goods
Intellectual property
Music
Dr. David P Echevarria
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6. Real property as a bundle of rights
D. How do we distinguish real from personal property?
Fixtures (Real): typically something not readily movable.
Examples: custom screens & draperies, kitchen appliances such as radar ranges, garbage disposals (attached to property)
Personal: typically something moveable
Examples: furniture, pictures, “customary assumptions of the realm”
Dr. David P Echevarria
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7. Real property as a bundle of rights
Special rule for “Fixtures”
The manner of attachment: permanence
The character of the article and manner of adaptation: agri., domestic, ornamental, trade
The intention of the parties
Relation of the parties: landlord and tenant relationships
Trade fixtures considered personal property
Agricultural fixtures are considered property of the tenant
Same rules apply for residential tenants
Dr. David P Echevarria
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8. Estates in Land: Possessory Rights
Freehold
Leasehold
Possessory
The right to possess the property
Indeterminate Duration
Holds Title
Possessory
The right to occupy the property (tenancy)
Limited Duration
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
Dr. David P Echevarria
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9. Real Property Interests
Interest: any set of rights in real property
Estate: real property interest that includes the right of exclusive possession
Non Possessory Interests in Property
Does not include the right to possess and occupy the property
Examples
Liens
Easements
Restrictive Covenants
Dr. David P Echevarria
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10. Possessory Interests [Estates]
Freehold Estates
Fee Simple Absolute - all possible rights
Fee Simple Conditional - all rights, but revocable if specific condition is violated
Life Estate – limited to life of specified person or persons
Estate in Reversion: property reverts to grantor (or heirs)
Estate in Remainder: property goes to person other than the grantor (the remainderman)
Life tenants have the same rights as the fee simple except may not sell the property.
Dr. David P Echevarria
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11. Possessory Interests [Estates]
B. Leasehold Estates
“Less-than-Freehold”: holder is a tenant
Tenant has right to exclusive possession for specified period
Created by a lease [agreement]: Landlord (lessor) & Tenant (lessee)
4 Types
Estate for years
Periodic tenancy
Tenancy at will
Tenancy at sufferance
Dr. David P Echevarria
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12. Leasehold Estates
Tenancy for Years: tenancy for fixed term. Created by expressed agreement. Automatically expires at end of term. Landlord-Tenant relationship determined by lease agreement.
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.
Dr. David P Echevarria
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13. 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.
Dr. David P Echevarria
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14. Class Break – 10 Minutes
Dr. David P Echevarria
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15. Are These Houses Really Alike?
Implied easements?
B. Prescriptive easements?
C. Easements in gross?
Dr. David P Echevarria
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2-15

16. Nonpossessory Interests in Land
Easements: The right to use land for a specific and limited purpose
Affirmative easements:
Driveway or access right-of-way
Sewer line
Drainage
Common wall
Easements Appurtenant
Involves the relationship between 2 adjacent parcels of land
The dominant parcel benefits from the easement
The servient parcel is constrained or diminished by the easement
May be positive (some intrusion) or negative (no intrusions)
Dr. David P Echevarria
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17. Nonpossessory Interests in Land
Easements in Gross (Commercial Easements): right to use land unrelated to other parcels
Extract natural resources, harvest timber/crops
Add roadways, ditches, pipeline, etc.
May be transferred separately from land title or ownership
Dr. David P Echevarria
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18. Dr. David P Echevarria
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19. 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.
Dr. David P Echevarria
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20. Nonpossessory Interests in Land
License
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
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
General Liens: Arise from events unrelated to the property
Court awarded damages
Federal tax liens
Specific liens: Arise from ownership and use of the property
Mortgage
Mechanics’ lien
Property tax, assessment or Community Development District (CDD) lien
Dr. David P Echevarria
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21. Liens
An interest in property that serves as security for an obligation
General Liens: Arise from events unrelated to the property
Court awarded damages
The lien is security for the payment of the judgment
Property Tax and Assessment Liens
Enjoy top priority among liens
Assessment liens can last for several years
Community Development District (CDD) lien
Specific liens: Arise from ownership and use of the property
Mortgage
Mechanics’ lien
Dr. David P Echevarria
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22. Liens: Priority
Dr. David P Echevarria
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23. Forms of Co-ownership
Indirect: Through business organizations or trusts
General Partnerships
Limited Partnerships
Limited Liability Companies
Corporation (Co-op)
Trust
Entity holds title. Ownership passes through the entity. Interest may not be divided.
Dr. David P Echevarria
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24. Forms of Co-ownership B. Direct: Tenancy in Common Joint Tenancy
All have undivided fee simple interest
Death of one owner: ownership share passes to his/her estate (heirs)
Joint Tenancy
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
In certain states, ownership by married couples subject to community property laws.
Some limitations; inherited property or property bought with separate funds, pre- nuptials
Tenancy by the Entirety: similar to 3 above but in non community property states
Typ. Husband and wife. Protection against liens & judgments if against one spouse
Right of survivorship
Dr. David P Echevarria
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25. Forms of Co-ownership Ownership interests from marriage Elective Share
Dower/Curtesy: common law granting of one third life estate to survivor in the real property of the decedent
Dower covers the widow’s claim, curtesy the widower
Life estate is not marketable
Elective Share
In law, grants the surviving spouse a share of most of the wealth of the decedent
Elective share applies to both real and personal property
Elective share law may not encompass all of the decedent’s wealth
Dr. David P Echevarria
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26. Two Main Forms of Marital Property Rights
Dr. David P Echevarria
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27. Forms of Co-ownership C. Common Interest Developments
Condominiums: single ownership (fee simple) with tenancy in common (of communal elements). Bylaws define owner rights
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.
Dr. David P Echevarria
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28. Forms of Co-ownership Timeshare
Multiple individuals having use of property but not simultaneous interests
the estate is divided into separate time intervals
Timeshare rights
any contract that may convey any level of real property interest
Buyer often acquires a leasehold interest rate fixed number of years
A buyer may also acquire a license for partial use
Dr. David P Echevarria
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29. special issues regarding land
Rights to Water (Riparian Rights)
Who owns the land under a body of water?
Who controls use of land under a body of water?
Who has the right to use the surface?
Who has the right to use the water itself?
Who has the right to use groundwater?
Dr. David P Echevarria
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30. Appurtenances: Water Rights
Riparian Rights
Rights to water when water flows through or adjacent to property
Property owner has right to make reasonable use of stream’s natural flow: drinking, bathing, watering a personal use garden.
Upstream owners not allowed to use water in ways that would deprive downstream owners of its use.
How about ownership of the land under the water?
Is the stream navigable? Navigable = large enough for commercial use.
If YES, does not own. If No – owns the land under the stream.
If stream is border between two adjacent pieces of property, ownership extends to mid-stream.
Dr. David P Echevarria
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31. Appurtenances: Water Rights
Riparian Rights (cont.)
5. Littoral Property
Property located next to a lake.
Owners have right to have lake maintained at its natural level.
To use the lake for fishing and recreation.
To have the quality of the water maintained.
If the lake is not navigable, each littoral owner owns a portion of the lake bed adjacent to their property.
Dr. David P Echevarria
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32. Appurtenances: Water Rights
Appropriative Rights
Dose not depend on ownership of property next to body of water.
Appropriative rights depend on priority of use.
The first person to make use of water had right to continue that use: prior appropriation.
In time of scarcity, the first user had priority over later users.
In most western US states, the state or federal government holds the water in trust.
Water is allocated by permit
Water can be used on property not adjacent to the source of water.
Dr. David P Echevarria
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33. special issues regarding land
Rights to Oil, Gas, and Minerals
Rights to the subsurface include rights to minerals
Mineral rights can be separated from land ownership
In some states, mineral rights imply ownership of the space minerals occupy
Oil rights
Ownership states: Oil is simply another mineral
Traditional “rule of capture” (If you can remove it, it’s yours) is being limited due to extensive secondary recovery methods.
Dr. David P Echevarria
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34. homework assignment
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
Study Questions: 1, 3, 5, 7
Dr. David P Echevarria
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