1. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law 6 th Edition Chapter 29 Real Property

2. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 2 Nature of Real Property Real property is immovable and includes: –Land. –Buildings. –Trees and vegetation. –Airspace. –Subsurface (mineral) rights. –Fixtures. Real property is immovable and includes: –Land. –Buildings. –Trees and vegetation. –Airspace. –Subsurface (mineral) rights. –Fixtures.

3. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 3 Fixtures A fixture is personal property that becomes permanently affixed to real property. –Intent that it become a fixture is necessary. –Intent is determined by: The fact that the property cannot be removed without causing damage to the realty. The fact that the property is so adapted to the realty that it has become part of the realty. A fixture is personal property that becomes permanently affixed to real property. –Intent that it become a fixture is necessary. –Intent is determined by: The fact that the property cannot be removed without causing damage to the realty. The fact that the property is so adapted to the realty that it has become part of the realty.

4. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 4 Fixtures Trade fixtures: installed for commercial purposes by a tenant. They remain the property of the tenant and can be removed when tenant leaves, repairing any damage caused by removal. –Case 29.1 In re Sand & Sage Farm & Ranch, Inc. (2001). Trade fixtures: installed for commercial purposes by a tenant. They remain the property of the tenant and can be removed when tenant leaves, repairing any damage caused by removal. –Case 29.1 In re Sand & Sage Farm & Ranch, Inc. (2001).

5. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 5 Ownership of Real Property Ownership interests are classified as either Possessory or Non-Possessory: A Possessory interest such as a fee simple, life or leasehold estate, gives the owner a right to possess the land. A Nonpossessory interest such as an easement, profit or license, does not give the owner a right to possess the land. Ownership interests are classified as either Possessory or Non-Possessory: A Possessory interest such as a fee simple, life or leasehold estate, gives the owner a right to possess the land. A Nonpossessory interest such as an easement, profit or license, does not give the owner a right to possess the land.

6. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 6 Fee Simple (Absolute) Although not absolute, the fee simple (sometimes called fee simple absolute) gives the owner the greatest aggregation of rights, powers and privileges possible under American law and can assigned to heirs. A “conveyance” (transfer of real estate) “from A to B” creates a fee simple. A is the Grantor and B is the Grantee. Although not absolute, the fee simple (sometimes called fee simple absolute) gives the owner the greatest aggregation of rights, powers and privileges possible under American law and can assigned to heirs. A “conveyance” (transfer of real estate) “from A to B” creates a fee simple. A is the Grantor and B is the Grantee.

7. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 7 Life Estates Estate that lasts for the life of some specified individual. “A grants Blackacre to B for B’s life” grants B a life estate in Blackacre. When B dies, Blackacre returns to A or his heirs or assigns, or a third party in the same condition, normal wear and tear excepted. Grantor A retains a “future interest” in the property. During B’s life, she can possess, use, and take the fruits of the estate, but not take from the property itself. Estate that lasts for the life of some specified individual. “A grants Blackacre to B for B’s life” grants B a life estate in Blackacre. When B dies, Blackacre returns to A or his heirs or assigns, or a third party in the same condition, normal wear and tear excepted. Grantor A retains a “future interest” in the property. During B’s life, she can possess, use, and take the fruits of the estate, but not take from the property itself.

8. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 8 Reversionary Interest: Grantor retains right to re- possess land when Grantee’s life estate expires. Future Interests Life Estate Grantor Grantee Reversionary Interest

9. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 9 Future Interest Remainder Interest: The Grantor assigns/transfers/sells her future interest to a 3P who now has a remainder. When Grantee dies, interest passes to 3 rd Party. 3P Remainder Life Estate GrantorGrantee

10. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 10 Non-Possessory Interests An easement is a right of a person to make limited use of another person's real property without taking anything from the property. A profit is the right to go onto land in possession of another and take away some part of the land itself or some product of the land. Property that is benefited by easement/profit carries the the interest with the sale of land. An easement is a right of a person to make limited use of another person's real property without taking anything from the property. A profit is the right to go onto land in possession of another and take away some part of the land itself or some product of the land. Property that is benefited by easement/profit carries the the interest with the sale of land.

11. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 11 Non-Possessory Interests If the owner of the easement or profit is contiguous to the owner of the land, it is said to be “appurtenant.” If the owner’s property is separated, it is said to be “gross.” AB Appurtenant A B In Gross

12. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 12 Non-Possessory Interests Easements or profits can be created by: –Deed (physical delivery is sufficient). –Will (at Grantor’s death). –Contract between Grantor and Grantee. –Implication: circumstances surrounding creation of easement imply its creation. –Necessity. –Prescription: easement by adverse possession. Easements or profits can be created by: –Deed (physical delivery is sufficient). –Will (at Grantor’s death). –Contract between Grantor and Grantee. –Implication: circumstances surrounding creation of easement imply its creation. –Necessity. –Prescription: easement by adverse possession.

13. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 13 Termination of an Easement or Profit By deed back to owner of the land burdened by it. Owner of easement or profit becomes owner of the land burdened with it. Abandonment by the owner of the right. By deed back to owner of the land burdened by it. Owner of easement or profit becomes owner of the land burdened with it. Abandonment by the owner of the right.

14. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 14 Licenses Revocable right of a person to come unto another’s land without removing anything from the land. Personal privilege that arises from the consent of the owner of the land that can be revoked. Revocable right of a person to come unto another’s land without removing anything from the land. Personal privilege that arises from the consent of the owner of the land that can be revoked.

15. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 15 Transfer of Ownership Ownership in real property can be transferred by: –A written Deed. –A Gift. –A Sale. –An Inheritance. –Adverse Possession. –Eminent Domain. Ownership in real property can be transferred by: –A written Deed. –A Gift. –A Sale. –An Inheritance. –Adverse Possession. –Eminent Domain.

16. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 16 Deeds A Deed is the instrument setting forth the interests in real property being transferred. Necessary components of a Deed: –Names of Grantor and Grantee. –Words evidencing intent to convey. –Legally sufficient description of the land. –Grantor’s signature. –Delivery of the Deed. A Deed is the instrument setting forth the interests in real property being transferred. Necessary components of a Deed: –Names of Grantor and Grantee. –Words evidencing intent to convey. –Legally sufficient description of the land. –Grantor’s signature. –Delivery of the Deed.

17. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 17 Types of Deeds Warranty Deed. –Special Warranty Deed. Quitclaim Deed. Grant Deed. Sheriff’s Deed. –Period of redemption. Warranty Deed. –Special Warranty Deed. Quitclaim Deed. Grant Deed. Sheriff’s Deed. –Period of redemption.

18. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 18 Recording Statutes Recording a deed (or any interest in real property) puts the public on notice of the new owner’s interest in the land and prevents the previous owner from fraudulently conveying the same interest to another buyer. Race statute. –Pure notice statute. –Notice-race statute. Recording a deed (or any interest in real property) puts the public on notice of the new owner’s interest in the land and prevents the previous owner from fraudulently conveying the same interest to another buyer. Race statute. –Pure notice statute. –Notice-race statute.

19. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 19 Will or Inheritance Owner of real property dies, his property is transferred by: –Will (testate). –Without Will (intestate). Title is transferred at the time state law so provides in its testate and intestate laws. Owner of real property dies, his property is transferred by: –Will (testate). –Without Will (intestate). Title is transferred at the time state law so provides in its testate and intestate laws.

20. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 20 Adverse Possession One person possesses the property of another for a certain statutory period of time, that person automatically acquires title to the land, just as if there had been a conveyance by deed. Must be: Actual and exclusive. Open, visible and notorious. Continuous and peaceable. Hostile and adverse. One person possesses the property of another for a certain statutory period of time, that person automatically acquires title to the land, just as if there had been a conveyance by deed. Must be: Actual and exclusive. Open, visible and notorious. Continuous and peaceable. Hostile and adverse.

21. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 21 Limitations: Eminent Domain Rights in property are not absolute. They are constrained by federal and state laws, e.g., nuisance, tax and environmental. Eminent Domain: The 5 th amendment gives the government the right to “take” private land for public use with just compensation. Zoning: rational basis for classification of property. Environmental and Private Takings. Rights in property are not absolute. They are constrained by federal and state laws, e.g., nuisance, tax and environmental. Eminent Domain: The 5 th amendment gives the government the right to “take” private land for public use with just compensation. Zoning: rational basis for classification of property. Environmental and Private Takings.

22. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 22 Leasehold Estates Anyone who rents housing to the public for commercial purposes subjects herself to various state and federal Landlord-Tenant laws. Owner of the property is the LESSOR and Tenant is LESSEE; the contract is called the LEASE. The property interest is called a leasehold estate. Anyone who rents housing to the public for commercial purposes subjects herself to various state and federal Landlord-Tenant laws. Owner of the property is the LESSOR and Tenant is LESSEE; the contract is called the LEASE. The property interest is called a leasehold estate.

23. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 23 Leasehold Estates A real property owner or lessor agrees to convey the right to possess and use the property to a lessee for a certain period of time. Tenancy for Years: –Periodic Tenancy. –Tenancy at Will. –Tenancy at Sufferance. A real property owner or lessor agrees to convey the right to possess and use the property to a lessee for a certain period of time. Tenancy for Years: –Periodic Tenancy. –Tenancy at Will. –Tenancy at Sufferance.

24. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 24 Tenancy Interests Tenancy for Years: –Created by an express contract. –Property is leased for a specified period of time. Periodic Tenancy: –Does not specify how long lease lasts. –But rent paid at certain intervals. Tenancy at Will: –For as long as both agree. Tenancy at Sufferance: –Wrongful possession without the right to possess. Tenancy for Years: –Created by an express contract. –Property is leased for a specified period of time. Periodic Tenancy: –Does not specify how long lease lasts. –But rent paid at certain intervals. Tenancy at Will: –For as long as both agree. Tenancy at Sufferance: –Wrongful possession without the right to possess.

25. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 25 Landlord-Tenant Relationships Lease Agreement can be oral or written (oral may not be enforceable). Lease gives Tenant the temporary right to exclusively possess the property.

26. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 26 Creating the Landlord- Tenant Relationship Form of the Lease: –Must express intent to establish the lease. –Provide for transfer of possession to the Tenant. –Provide for the Landlord’s “reversionary” interest. –Describe the property. –Indicate length of the term, amount of rent, when and where rent paid. Form of the Lease: –Must express intent to establish the lease. –Provide for transfer of possession to the Tenant. –Provide for the Landlord’s “reversionary” interest. –Describe the property. –Indicate length of the term, amount of rent, when and where rent paid.

27. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 27 Legal Requirements URLTA prohibits clauses requiring Tenants to pay attorney fees in enforcement actions. State statutes prohibit leasing when property is not in compliance with local building codes. Landlords cannot lease in violation of state (gambling) or federal (discrimination) laws. Case 29.2 Osborn v. Kellogg (1996). URLTA prohibits clauses requiring Tenants to pay attorney fees in enforcement actions. State statutes prohibit leasing when property is not in compliance with local building codes. Landlords cannot lease in violation of state (gambling) or federal (discrimination) laws. Case 29.2 Osborn v. Kellogg (1996).

28. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 28 Rights and Duties Trend in the law is to curtail, by contract and real estate law, the immense freedom that Landlords had in the past. –Possession. –Using the Premises. –Maintaining the Premises. –Rent. Trend in the law is to curtail, by contract and real estate law, the immense freedom that Landlords had in the past. –Possession. –Using the Premises. –Maintaining the Premises. –Rent.

29. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 29 Possession Landlord has a duty to deliver actual physical possession under URLTA or legal right to possession (“American” rule). Tenant’s right to exclusive possession is only subject to Landlord’s limited right to come unto the property. Tenant has a “covenant of quiet enjoyment” by which Landlord promises Tenant’s peace and enjoyment of the property. Implied Warranty of Habitability: property is safe a suitable for people to live in. Landlord has a duty to deliver actual physical possession under URLTA or legal right to possession (“American” rule). Tenant’s right to exclusive possession is only subject to Landlord’s limited right to come unto the property. Tenant has a “covenant of quiet enjoyment” by which Landlord promises Tenant’s peace and enjoyment of the property. Implied Warranty of Habitability: property is safe a suitable for people to live in.

30. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 30 Eviction Occurs when Landlord: –Deprives Tenant of possession of the leased property; or –Interferes with this use or enjoyment of the property to the extent that Tenant cannot use or enjoy. Constructive eviction occurs when Landlord: – Breaches lease or covenant of quiet enjoyment; and –Makes it impossible for the Tenant to use and enjoy the property. Occurs when Landlord: –Deprives Tenant of possession of the leased property; or –Interferes with this use or enjoyment of the property to the extent that Tenant cannot use or enjoy. Constructive eviction occurs when Landlord: – Breaches lease or covenant of quiet enjoyment; and –Makes it impossible for the Tenant to use and enjoy the property.

31. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 31 Use of the Premises Tenant’s Duty Not To Commit Waste: –Tenant is liable for destruction or abuse of the property. –Tenant not liable for normal wear and tear or depreciation in value over time. Altering the Premises: –Tenant needs Landlord’s consent to make material alterations. –Installation of fixtures become the property of the Landlord. Whether Tenant can remove depends on state law and consent of Landlord. Tenant’s Duty Not To Commit Waste: –Tenant is liable for destruction or abuse of the property. –Tenant not liable for normal wear and tear or depreciation in value over time. Altering the Premises: –Tenant needs Landlord’s consent to make material alterations. –Installation of fixtures become the property of the Landlord. Whether Tenant can remove depends on state law and consent of Landlord.

32. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 32 Implied Warranty of Habitability Implied Warranty of Habitability applies to major (substantial) defects if Landlord knew or should have known about & he had a reasonable time to repair. To determine breach, Courts consider: –Whether Tenant caused damage. –How long defect existed and age of building. –Defects impact on Tenant’s safety and health. –Whether defect contravenes relevant statutes. Case 29.3 Schiernbeck v. Davis (1998). Implied Warranty of Habitability applies to major (substantial) defects if Landlord knew or should have known about & he had a reasonable time to repair. To determine breach, Courts consider: –Whether Tenant caused damage. –How long defect existed and age of building. –Defects impact on Tenant’s safety and health. –Whether defect contravenes relevant statutes. Case 29.3 Schiernbeck v. Davis (1998).

33. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 33 Breach of Warranty If Landlord breaches the warranty of habitability, depending on state law, Tenant may: –Withhold rent -- put in escrow. –Repair and Deduct -- notify, repair, and deduct repair from rent. –Cancel the Lease -- must be constructive eviction or breach of habitability. –Sue for Damages -- difference between what paid for and what received. If Landlord breaches the warranty of habitability, depending on state law, Tenant may: –Withhold rent -- put in escrow. –Repair and Deduct -- notify, repair, and deduct repair from rent. –Cancel the Lease -- must be constructive eviction or breach of habitability. –Sue for Damages -- difference between what paid for and what received.

34. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 34 Rent Rent is Tenant’s payment to the Landlord for the Tenant’s occupancy or use of the Landlord’s real property. –Payment based on agreement, custom, state statute, waiver. Security Deposits. –A deposit by Tenant which Landlord may retain for non-payment of rent or damage to premises. –URLTA has specific provisions as to when it may be kept and when it must be returned. Rent is Tenant’s payment to the Landlord for the Tenant’s occupancy or use of the Landlord’s real property. –Payment based on agreement, custom, state statute, waiver. Security Deposits. –A deposit by Tenant which Landlord may retain for non-payment of rent or damage to premises. –URLTA has specific provisions as to when it may be kept and when it must be returned.

35. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 35 Rent Late Charges. –Legal, if reasonable. Rent Escalation. –Not unless provided in lease, or at termination of lease and beginning of new lease. Property taxes. –Landlord is usually responsible for property taxes. Late Charges. –Legal, if reasonable. Rent Escalation. –Not unless provided in lease, or at termination of lease and beginning of new lease. Property taxes. –Landlord is usually responsible for property taxes.

36. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 36 Liability For Injuries Landlord is liable to Tenants and Licensees (Tenant’s guests) based on who has the right to controls the area where the injury occurred. Landlord is liable for injuries caused by defects in common areas. “Attractive nuisance” doctrine for children and an unfenced swimming pool. Landlord is liable to Tenants and Licensees (Tenant’s guests) based on who has the right to controls the area where the injury occurred. Landlord is liable for injuries caused by defects in common areas. “Attractive nuisance” doctrine for children and an unfenced swimming pool.

37. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 37 If Landlord makes any repairs, they must be done with reasonable care. LL may be liable for injuries caused by crimes or third persons when reasonably foreseeable. Exculpatory clauses may be unenforceable if injury results from violation of statutory duty. If Landlord makes any repairs, they must be done with reasonable care. LL may be liable for injuries caused by crimes or third persons when reasonably foreseeable. Exculpatory clauses may be unenforceable if injury results from violation of statutory duty. Liability For Injuries

38. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 38 Tenant’s Liability? –Tenant has a duty to maintain safe conditions in those areas under her control. –In commercial leases, both Landlord and Tenant may be responsible and liable for same area. Tenant’s Liability? –Tenant has a duty to maintain safe conditions in those areas under her control. –In commercial leases, both Landlord and Tenant may be responsible and liable for same area. Liability For Injuries

39. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 39 Transferring Rights to Leased Property Transferring Landlord's Interest. –Landlord may sell any and all of his rights in the real property. –New owner buys “subject to the lease,” if lease is recorded. Transferring Tenant’s Interest. –Landlord’s consent may or may not be required by statute or the lease itself. Transferring Landlord's Interest. –Landlord may sell any and all of his rights in the real property. –New owner buys “subject to the lease,” if lease is recorded. Transferring Tenant’s Interest. –Landlord’s consent may or may not be required by statute or the lease itself.

40. ©2005 by West Legal Studies in Business A Division of Thomson Learning Fundamentals of Business Law Miller Jentz 6 th Ed. 40 Transferring the Tenant’s Interest (cont’d) –Assignments: Tenant transfers his entire interest in the lease to a third person. Original Tenant is not released from liability under the lease. –Subleases: Tenant transfers all or part of his interest in the lease for a shorter period of time than the lease. Original Tenant is not relieved of liability under the lease. Transferring the Tenant’s Interest (cont’d) –Assignments: Tenant transfers his entire interest in the lease to a third person. Original Tenant is not released from liability under the lease. –Subleases: Tenant transfers all or part of his interest in the lease for a shorter period of time than the lease. Original Tenant is not relieved of liability under the lease. Transferring Rights to Leased Property