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Chapter 24 – Real Property


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Chapter 24 – Real Property

  1. 1. Personal Property and Bailments Real Property Landlord and Tenant Estates and Trusts Insurance Law© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Real PropertyStudy how a society uses its land, and you can come topretty reliable conclusions as to what its future will be. E.F. Schumacher, Small is Beautiful (1973) © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
  3. 3. Learning Objectives Scope of real property Rights and interests in real property Acquisition of real property and transfer by sale Obligations related to property condition Land use24 - 3
  4. 4. Overview The law of real property concerns the ownership, acquisition, and use of land Real property includes not only land but also things firmly attached to or embedded in land:  Buildings  Trees, crops, and other vegetation  Water and groundwater  Minerals  Airspace above24 - 4
  5. 5. Fixtures A fixture is an item of personal property that has become attached to or used in conjunction with real property in such a way that it ceases being personal property and becomes part of the real property  Fixtures belong to owner of real property  Example: Olbekson v. Huber  Oil furnace was a fixture24 - 5
  6. 6. Factors To Determine Status as Fixture Attachment  If firmly attached to real property so it cannot be removed without damaging property, the item is likely to be a fixture Adaptation  When an item would be of little value except for use with real property, item likely to be a fixture Intent  Judged by what the circumstances indicate as intended not person’s subjective intent24 - 6
  7. 7. Trade Fixtures An exception to the usual fixture rules involve trade fixtures, which are personal property attached to leased premises by a tenant for the purpose of carrying on the trade or business  Trade fixtures remain the tenant’s personal property and may be removed at lease end24 - 7
  8. 8. Security Interests in Fixtures Personal property may be subject to a lien or security interest at the time it is attached to real property Example: appliance store takes a security interest in a dishwasher installed in home and perfects the interest by filing a financing statement in the appropriate real estate records office24 - 8
  9. 9. Estates in Land The term estate is used to describe a person’s ownership interest in real property  Classified as either freehold or nonfreehold  Freehold estates are ownership interests of uncertain duration  Nonfreehold (or leasehold) estates are those held by persons who lease real property24 - 9
  10. 10. Freehold Estates Most common forms of freehold estates (rights to exclusive possession) are fee simple absolute and life estate  Fee simple absolute is the normal concept of “full ownership” of land  A life estate gives a person the right to possess and use property for a time measured by his or another person’s lifetime24 - 10
  11. 11. Co-Ownership Co-ownership of real property exists when two or more persons share the same ownership interest in property  Seven types of co-ownership are recognized in the United States: tenancy in common, joint tenancy, tenancy by the entirety, community property, tenancy in partnership, condominium ownership, cooperative ownership  For details, see Fig. 1 on page 619 of the text24 - 11
  12. 12. Easement An easement is the right to make certain use of another person’s property (affirmative easement) or to prevent another from making certain uses of his own property (negative easement) Easements may be acquired by grant, reservation, prescription, or implication24 - 12
  13. 13. Easement An express grant of an easement normally is subject to the statute of frauds and must be in writing to be enforceable The other types of easements are enforceable despite the lack of a writing A utility easement24 - 13
  14. 14. Profit & License A profit is a right to enter another’s land and remove some product or part of land A license is a temporary right to enter another’s land for a specific purpose The tenant who planted the cotton crop has a profit, the combine crew has a license to pick cotton24 - 14
  15. 15. Restrictive Covenants Real estate owners may create agreements that restrict use of real property called restrictive covenants  Covenants “run with the land” and bind subsequent owners of the property  Enforceability of covenants depends on purpose, nature, scope of restrictions24 - 15
  16. 16. Gardner v. Jefferys Facts and Procedural History:  Large tract of land conveyed to 3 separate parties  Jefferys (son of original owner), Gardners, Soules  The deed to land in question included a restrictive covenant and landowner Gardners filed suit to determine effect of the covenant, but began to build in the restricted area of the property  Trial court ruled that the benefit of the restrictive covenant ran with the land and Gardners had violated the covenant by beginning construction  Gardners appealed24 - 16
  17. 17. Gardner v. Jefferys Legal Reasoning & Holding:  A restrictive covenant will “run with the land” so that successor property owners may enforce its terms if: (1) covenant is written; (2) parties to the covenant intended it to run with the land; (3) the covenant does “touch and concern” the land; and (4) privity of estate exists between the parties  Evidence demonstrates the parties intended the restrictive covenant to run with the land and the intent was to maintain an open meadow  Affirmed in favor of Jefferys and Soules24 - 17
  18. 18. Acquisition of Real Property Title to real property may be acquired by purchase, gift, will or inheritance, tax sale, and adverse possession Adverse possession occurs when person wrongfully occupies land and acts in open and hostile manner as if he were the owner  True owner must take steps within a statutory time limit to eject the possessor from the land or forever lose the right to eject the possessor24 - 18
  19. 19. Steps for Sale & Purchase1. Contracting with real estate broker to locate buyer2. Negotiating and signing a contract of sale3. Arranging for financing of the purchase and other requirements (e.g., conduct a survey or acquire title insurance)4. Closing the sale, primarily involving payment of the purchase price and transfer of the deed5. Recording the deed24 - 19
  20. 20. The Deed A valid conveyance of real property occurs through execution and delivery of a deed Written instrument that transfers title from one person (the grantor) to another (the grantee)24 - 20
  21. 21. Types of Deeds A quitclaim deed conveys whatever title the grantor has at the time he executes the deed  Contains no warranty of title A warranty deed contains covenants of warranty about the title  Two types: general and special A deed of bargain and sale (grant deeds) grantor makes no covenants about the title24 - 21
  22. 22. Recording Statutes Race statute: first grantee who records a deed to a tract of land has superior title Notice statute: a later grantee of property has superior title if his interest acquired without notice of earlier grantee’s claim to the property under an unrecorded deed Race-notice statute: the grantee with priority is the one who both takes his interest without notice of any prior unrecorded claim and records first24 - 22
  23. 23. Methods of Assuring Title In a title opinion, an attorney examines the abstract of title and gives an opinion about whether the grantor has marketable title  Marketable title: title free from defects or reasonable doubt about its validity  Abstract of title: history of what public records show about the passage of title to, and other interests in, a parcel of real property  Not a guarantee of good title24 - 23
  24. 24. Methods of Assuring Title Under the Torrens system of registration (in a few states), one who owns land in fee simple obtains a certificate of title Purchasing a policy of title insurance is the preferred and most common means of protecting title to real property  Title insurance obligates insurer to reimburse insured for loss if the title proves defective24 - 24
  25. 25. Residential Property Historically, sellers of residential property made no warranty that property was habitable or suitable for buyer’s use and had no duty to disclose hidden defects24 - 25
  26. 26. Residential Property Over the last century, an implied warranty of habitability developed that guarantees the house is free of hidden defects rendering it unsafe or unsuitable for human habitation  Similar to implied warranties for sale of goods Seller may be liable for damages if seller breaches the implied warranty  Damages measured by either the cost of repairs or the loss in value of the house24 - 26
  27. 27. Premises Liability Premises liability refers to negligence cases in which property owners or possessors (such as business operators leasing commercial real estate) are held liable to persons injured while on the property  Negligence: failure to exercise reasonable care to keep the property reasonably safe  Generally includes duty to take reasonable security precautions to protect persons lawfully on premises from foreseeable wrongful (including criminal) acts by third parties24 - 27
  28. 28. Land Use Control: Nuisance Society imposes duties on landowners by nuisance, zoning, & eminent domain laws Nuisance refers to the lawsuit that may be filed if a property use unreasonably interferes with another person’s ability to use or enjoy her own property24 - 28
  29. 29. Land Use Control: Eminent Domain The Fifth Amendment to the Constitution guarantees that private property shall not be taken for public use without “just compensation” This implies the government’s power of eminent domain to effect the taking  The key is “just compensation” Eminent domain is controversial, perhaps more so given the Kelo decision24 - 29
  30. 30. Kelo v. City of New London Facts:  New London was in serious economic decline  City authorized private developer to “rejuvenate” an area that included 115 private properties  Most of 115 properties were in good condition  Developer negotiated purchase of most properties, but some homeowners had been there many years, liked their homes with water views, and would not sell24 - 30
  31. 31. Kelo v. City of New London Procedural History:  City brought a “condemnation” action under the power of eminent domain and plaintiffs brought suit claiming the taking of their properties for private development was not a “public use”  Trial court granted a permanent restraining order prohibiting the taking of properties for one area but not another and both sides appealed to state supreme court which held all takings valid  Case appealed to the U.S. Supreme Court24 - 31
  32. 32. Kelo v. City of New London Issue & Legal Reasoning:  “Two polar propositions are perfectly clear” – general rule is that taking from private party for another private party is unconstitutional, but equally clear that transferring property from one private party to another is valid if future “use by the public” intended  “The disposition of this case therefore turns on the question whether the City’s development plan serves a ‘public purpose.’ …defined broadly…“24 - 32
  33. 33. Kelo v. City of New London Holding:  “The City has carefully formulated an economic development plan…To effectuate this plan, the City has invoked a state statute that specifically authorizes the use of eminent domain to promote economic development.”  “Because that plan unquestionably serves a public purpose, the takings challenged here satisfy the public use requirement of the Fifth Amendment.”  Affirmed in favor of the City24 - 33
  34. 34. Land Use Control: Zoning Normally, zoning ordinances divide a city or town into various districts and specify or limit the uses to which property in those districts may be put  Single-family or high-density residential uses, or commercial, light industry, or heavy industry uses  Restrictions on building height, building footprint, and distance buildings must be from lot lines (setback regulations)24 - 34
  35. 35. Land Use Control: Zoning A zoning ordinance is prospective, thus the ordinance may require gradual phasing out of nonconforming uses and buildings that do not fit the general zoning plan Property owners may seek a variance, allowing a deviation from the zoning law24 - 35
  36. 36. Regulatory Takings Other takings litigation centers around land use regulations that make the use of property less profitable for development  Landowners challenge application of regulations Example: Lingle v. Chevron U.S.A., Inc.  Is a state statute that reduces a company’s income by capping rental income an unconstitutional “taking”24 - 36
  37. 37. Test Your Knowledge True=A, False = B  For his two dogs, Brett built a dog kennel and run of wood posts and wire fencing behind his house. When Brett sells his house, the kennel is a fixture that has become real property.  Carol opened a restaurant in an empty lease space in City Shopping Center food court. Carol equipped the space with ovens, shelving, glass cases, and refrigerators. When Carol’s lease is up, Carol must leave the ovens and refrigerators.24 - 37
  38. 38. Test Your Knowledge True=A, False = B  Sheila has a drainage ditch behind her house that is described in the written deed. Sheila is not permitted to alter the ditch in any way. The drainage ditch is an easement.  The implied warranty of habitability guarantees that a house has no hidden defects rendering it unsafe or unsuitable for human habitation  A warranty deed contains promises about the quality of the house construction24 - 38
  39. 39. Test Your Knowledge Multiple Choice  Chris slipped on a tomato that had fallen on the floor in the grocery store’s produce section. If Chris sues the store, what type of law will apply? (a) Tort law (b) Premises liability law (c) Breach of contract (d) Both A and B (e) All of the above24 - 39
  40. 40. Test Your Knowledge Multiple Choice  Newton owned 500 acres and leased 300 to Kevin for farming beans. When Kevin is working the 300 acres he leased, he is: (a) an invitee with the right to take the bean crop as a license (b) a lessor with the right to work the bean crop for the benefit of Newton (c) a licensee with the right to take the bean crop as a profit (d) none of the above24 - 40
  41. 41. Thought Questions Is the cliché, “good fences make good neighbors,” a true statement? What is your opinion of the Kelo decision?24 - 41