Chapter 7

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Chapter 7

  1. 1. Chapter 7 Real Estate Property Rights, Fixtures and Ownership “ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  2. 2. Major Topics <ul><li>What is real property? </li></ul><ul><li>Holding title to the real property </li></ul><ul><li>Property owner rights </li></ul><ul><ul><li>Surface, Water, Air </li></ul></ul><ul><ul><li>Duration of ownership </li></ul></ul><ul><ul><li>Fixtures </li></ul></ul><ul><ul><li>Subsurface </li></ul></ul><ul><li>Forms of ownership </li></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  3. 3. <ul><li>Surface of Land </li></ul><ul><li>Attachments to that surface </li></ul><ul><li>Area beneath surface </li></ul><ul><li>Rights in the air </li></ul>Real Property “ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  4. 4. Real vs. Personal Property <ul><li>Real property: Rights in land and its permanent structures </li></ul><ul><ul><li>Surface of the earth and improvements </li></ul></ul><ul><ul><li>Air, up to reserved air space or tallest structure </li></ul></ul><ul><ul><li>Beneath the earth as far as technology allows: Minerals, oil and gas, water </li></ul></ul><ul><li>Personal property: All other property </li></ul>
  5. 5. Fixtures <ul><li>Items that are attached to real property and have become integral part of the building’s function </li></ul><ul><li>An item classified as fixture is transferred as part of real property </li></ul><ul><li>Determining whether an item is a fixture or not: </li></ul><ul><ul><li>Intent </li></ul></ul><ul><ul><li>Attachment </li></ul></ul><ul><ul><li>Uniqueness or adaptation to the property </li></ul></ul><ul><ul><li>Ownership </li></ul></ul><ul><li>Trade Fixture – tenant-landlord </li></ul><ul><ul><li>Always personal property </li></ul></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  6. 6. Distinguishing Real and Personal Property <ul><li>Construction </li></ul><ul><li>Valuable chandelier </li></ul><ul><li>Custom drapes </li></ul><ul><li>Kitchen range and refrigerator? </li></ul><ul><li>Retail display cases </li></ul><ul><li>Restaurant booths and other furnishings </li></ul><ul><li>Basketball goal attached to a garage </li></ul><ul><li>Backyard playhouse </li></ul>Which are personal property and which are real property?
  7. 7. Texas Water Rights <ul><li>“ Texas owns all surface water in a natural body of water or watercourse. According to Texas case law, a watercourse contains three features: a defined bed, visible banks and a permanent supply of water.” </li></ul><ul><li>Navigable waters = public highways, streambed owned by state </li></ul><ul><li>Nonnavigable waters – owners own to exact center of waterway </li></ul><ul><li>Land transferred from state to private ownership before 7/1/1895 carries riparian rights </li></ul><ul><li>After, land subject to prior appropriation </li></ul>
  8. 8. Texas Water Rights <ul><li>Domestic & Livestock use exempt </li></ul><ul><li>Riparian Rights – Owner has right to use water, but not alter flow or contaminate </li></ul><ul><li>Prior Appropriation – Right to use water controlled by state </li></ul><ul><ul><li>Person must show beneficial use for water </li></ul></ul><ul><ul><li>Obtain permit </li></ul></ul><ul><li>1967 -- Water Rights Adjudication Act </li></ul><ul><ul><li>Riparian right claims granted &quot;Certificates of Adjudication“ </li></ul></ul><ul><ul><li>After 1969, all new claims need permits </li></ul></ul><ul><ul><li>Water bank </li></ul></ul>
  9. 9. Texas Water Rights <ul><li>Littoral Rights = lakes, oceans </li></ul><ul><ul><li>Land owned to “mean vegetation line” </li></ul></ul><ul><ul><li>Surfside Beach </li></ul></ul><ul><li>http://www.surfrider.org/texas/issues/suit/ </li></ul><ul><li>http://www.business.txstate.edu/users/gt10/Surfside.jpg </li></ul><ul><li>http://www.surfrider.org/texas/issues/archives/2005-Leg/index.html </li></ul><ul><li>http://www.surfrider.org/texas/issues/archives/protectubes/images/ProTecTube_cross-section.jpg </li></ul><ul><li>WSJ Article </li></ul>
  10. 10. Air and Subsurface Rights <ul><li>Air Rights </li></ul><ul><li>Mineral Rights </li></ul><ul><li>Oil and Gas </li></ul><ul><li>Groundwater </li></ul><ul><ul><li>“ Law of Capture” </li></ul></ul><ul><ul><li>Groundwater Conservation Districts -- read </li></ul></ul><ul><ul><li>Aquifers , GCDs , wells </li></ul></ul><ul><ul><li>Pickens </li></ul></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  11. 11. The Freehold Estates <ul><li>Fee simple or Fee simple absolute </li></ul><ul><li>Fee simple defeasibles </li></ul><ul><ul><li>Fee simple determinable </li></ul></ul><ul><ul><li>Fee simple subject to a condition subsequent </li></ul></ul><ul><li>Life estate </li></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  12. 12. Co-Ownership & Business Ownership “ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner <ul><li>Tenants in common </li></ul><ul><li>Joint tenancy </li></ul><ul><li>Community Property </li></ul><ul><li>Multi-Unit Ownership </li></ul><ul><ul><li>Condominiums </li></ul></ul><ul><ul><li>Cooperative </li></ul></ul><ul><li>Business (Investors): </li></ul><ul><ul><li>General, Limited Partnerships </li></ul></ul><ul><ul><li>Corporations and S-Corps </li></ul></ul><ul><ul><li>Limited Liability Corporations </li></ul></ul><ul><ul><li>Real Estate Investment Trusts </li></ul></ul>
  13. 13. Tenancies in Common <ul><li>‘ Tenants in common’ hold title together to same property </li></ul><ul><li>Each has an individual interest in the property </li></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  14. 14. Joint Tenancies <ul><li>Four unities of a joint tenancy: </li></ul><ul><ul><li>Time, Title, Interest & Possession </li></ul></ul><ul><li>Joint tenants must own equal shares </li></ul><ul><li>Joint tenants must have equal right of possession </li></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  15. 15. Condominiums <ul><li>Condominium </li></ul><ul><ul><li>Combines single ownership and tenancy in common </li></ul></ul><ul><ul><li>Owner holds fee simple interest in specified space </li></ul></ul><ul><ul><li>Owns common areas via tenancy in common </li></ul></ul><ul><li>Right to sell, lease, mortgage and convey by will the condominium interest </li></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  16. 16. Cooperatives <ul><li>The dwellers of a multi-housing own an undivided interest in their unit through their ownership of a corporation (shares) that owns the entire land and building </li></ul><ul><li>Cooperative affords existing owners more control over the transfer of the units </li></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  17. 17. Community Property <ul><li>A system of marital property ownership (Spanish origin) </li></ul><ul><li>Both spouses contribute equally to the benefit of the property as “community property” </li></ul><ul><li>Separate property </li></ul><ul><ul><li>Owned solely before marriage </li></ul></ul><ul><ul><li>Acquired by gift/inheritance after marriage </li></ul></ul><ul><ul><li>Purchased by separate funds </li></ul></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  18. 18. Partnerships <ul><li>General Partnerships </li></ul><ul><ul><li>“ Hands-on” ownership </li></ul></ul><ul><li>Limited Partnerships </li></ul><ul><ul><li>At least one partner has full and complete liability and is known as “general partner” </li></ul></ul><ul><ul><li>Liability of other “limited partners” is limited to their capital contribution to the partnership </li></ul></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  19. 19. Corporations <ul><li>Non-human entity with permanent legal existence and is owned by individual investors </li></ul><ul><ul><li>Advantage – limited liability </li></ul></ul><ul><ul><li>Disadvantage – Double taxation </li></ul></ul><ul><li>S Corporation </li></ul><ul><ul><li>IRS Code permits slight variation on the “double taxation” by flowing its income and losses through its shareholders </li></ul></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  20. 20. Limited Liability Companies (LLC) <ul><li>A statutorily-created entity offering limited liability of corporation and flow-through advantage of partnership </li></ul><ul><li>Pays no federal taxes on its income. All income and losses flow through owners (members/shareholders) </li></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  21. 21. REITs <ul><li>Real Estate Investment Trust: A statutory entity that permits investors to hold diversified real estate holdings by being beneficiaries in a trust </li></ul><ul><li>REITs might be “public” or “private” </li></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  22. 22. REIT Requirements <ul><li>Assets: invest at least 75% of the total assets in real estate assets </li></ul><ul><li>Income: 95% of income must be from dividends, interest, rents, or gain from sale of RE assets </li></ul><ul><li>Income: 30% max income can be derived from sale of stock/securities held < 6 months or RE property held < 4 years </li></ul>
  23. 23. REIT Requirements <ul><li>Composition: have a minimum of 100 shareholders </li></ul><ul><li>Composition: no more than 50 percent of the shares held by five or fewer individuals </li></ul><ul><li>Distribution: Must distribute at least 90% of taxable income </li></ul>
  24. 24. Non-Possessory Interests in Land <ul><li>Easement: The right to use land for a specific and limited purpose </li></ul><ul><ul><li>Easement Appurtenant </li></ul></ul><ul><ul><ul><li>Right of use a (dominant) parcel of land “enjoys” over an adjacent (servient) parcel </li></ul></ul></ul><ul><ul><ul><li>“ Runs with the land”: Rights and obligations are inseparable from the parcels involved </li></ul></ul></ul><ul><ul><li>Easement in Gross </li></ul></ul><ul><ul><ul><li>Right to use land, unrelated to any other parcel </li></ul></ul></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
  25. 25. How Easements Can Be Created <ul><li>Express easement </li></ul><ul><li>Implied easement (or Easement by necessity) </li></ul><ul><li>Easement by prescription </li></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner road Easement across A Servient Tenement A Dominant Tenement B Water
  26. 26. Non-Possessory Interests in Land <ul><li>License: Similar to an easement in gross, but conveys permission rather than right </li></ul><ul><ul><li>Revocable </li></ul></ul><ul><ul><li>Automatically terminated at the death of the grantor or sale of the land </li></ul></ul><ul><li>Liens </li></ul><ul><ul><li>Mortgage, Mechanic, Tax </li></ul></ul><ul><li>Covenants and Deed Restrictions </li></ul>“ Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

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