Chapter 1

Concepts of Real Estate

The basis of all wealth is derived from the land. As an investment, land has both economic and physical characteristics, which give it, value and enhance its desirability. The economic characteristics are based upon scarcity, demand, utility and transferability. Physically, land is immovable and permanent, and no two parcels of land are alike.

LAND

Land is the immovable, solid material of the earth in whatever natural form it may be found, whether soil, rock or other substance, including things permanently attached by nature, such as water, soil, and plants. Although land is generally thought to be only the surface of the earth, in modern practice, it includes the rights to the soil and mineral deposits below the surface and the air space above.

LAND CHARACTERISTICS. The three characteristics of land are :

1. Immobility. Land is immovable. The geographic location is rigidly fixed.

2. Indestructibility. Land is durable, possibly lasting forever. Despite natural or man-made disasters, land will always be there. Form varies, but the basic element remains the same.

3. Non-homogeneity. No two parcels of land are alike. If a person agreed to buy a parcel of land the seller could not substitute a different parcel even though it was identical to the one agreed upon.

REAL ESTATE

Real estate includes the definition of land as well as all natural and man-made improvements, which are permanently attached or affixed to the land. In practice, the term is used synonymously with the words realty and real property to describe land and improvements in a physical sense as well as the rights and incidents of ownership.

REAL PROPERTY

Real property is defined as the interest, benefits, and rights, which are included with ownership of land as well as the physical rights of ownership. These inherent rights of ownership are referred to as the bundle of legal rights.

BUNDLE OF LEGAL RIGHTS THEORY.                                                                

According to the bundle of legal rights theory, ownership of real estate is compared to a bundle of sticks, each one representing an individual right.

These rights are:

1. Possession. The owner may live on the land, move away, or come and go as he or she pleases.

2. Control. The owner may control the way in which the land is used, build on the land, leave it vacant, lease it to others, farm it, or mine it for minerals.

3. Quiet enjoyment. Quiet enjoyment insures the owner's right to use and enjoy the property without interference from other parties.

4. Disposition. The owner has the right to sell, will, give away, dedicate or in any way dispose of the property.

PHYSICAL RIGHTS OF OWNERSHIP OF LAND

Ownership of land includes (1) surface rights, (2) sub-surface rights, (3) air rights and (4) water rights.

Surface Rights. This includes the crust and underlying soil, which provides substance for vegetation and for support of structures. Surface rights also include the right of lateral support, which insures that the support and stability of property received from adjacent properties will not be destroyed or removed.

For example, if the excavation for a building foundation removes land support from neighboring properties, the neighboring owners have a claim due to their right of lateral support.

Subsurface Rights. Subsurface rights are known as mineral rights. Mineral rights pass to the grantee (buyer) with the sale of the land unless the contract specifies otherwise and entitles an owner to mine various ores, drill for oil or tap natural gas reserves, and enjoy the profits they provide. Associated with the idea of mineral rights is the law of capture which allows for siphoning liquid or gas resources from underground reserves that extend beyond the boundaries of one's own property.

Air Rights. Ownership includes the right to use and enjoy the air space above the land to infinity. Air rights protect owners from unreasonable obstruction of their property from above. For example, an owner would be prohibited from building a patio with a roof that extended over his or her neighbor's air space.

Water Rights. Ownership of land includes water or riparian rights. Riparian rights entitle the owner to the use and enjoyment of the water, which abuts the land, passes through the land, or lies on or beneath the surface of the land.

RIPARIAN LAND. Land bordering a natural watercourse, such as a lake, river or stream, is known as riparian land, and persons who own such land have riparian rights which exist as a natural and inherent incident of the ownership of the land. Riparian rights generally include the right to use the water for irrigation, swimming, boating, fishing, and construction of piers and boathouses. Where the body of water is navigable, land rights extend only to the water's edge, and the use of water must not interfere with public rights. An owner of land that borders a non-navigable waterway owns the land under the water to the exact center of the waterway.

LITTORAL LAND. Land on the bank or shore of a sea, ocean or large lake is known as littoral land, and persons who own such land have littoral rights. Littoral rights are similar to riparian rights except that they extend only to the mean high water mark. 

The various rights to land may be owned and controlled by different persons. For example, one person may own the surface rights, while another owns the rights to the mineral deposits, and a third person may own the air rights. Air space may be sold to a developer, for example, who plans to utilize the space above a highway for a hotel, store or restaurant. In coal mining and oil producing areas, the purchase of land expressly excludes mineral rights.

PERSONAL PROPERTY — CHATTELS

Personal property is movable. It includes all property except land and improvements. Personal property may be tangible (corporeal) or intangible (incorporeal). Chattels are tangible personal property, having physical substance such as clothing, furniture and vehicles. Intangible property has no intrinsic value or material being. Its value is derived from what it represents. Examples of Intangible personal property include stocks, bonds, checks, and promissory notes. Real property may become personal property by the process of severance. For example, a growing tree is real property, but when cut down it becomes personal property. If it is later used to construct a house, it will become real property. Title to real property is transferred by deed. Title to personal property is transferred by a bill of sale.

TREES AND CROPS.

Trees, perennial shrubs, and grasses, which are permanently rooted in the ground, are considered real property and pass with transfer of title.

ANNUAL CROPS.

Wheat, corn, and vegetables, which require cultivation and seasonal planting, are referred to as emblements and are treated as personal property even while they are growing. A previous tenant who planted the crops has the right to re-enter the property to harvest them.

FIXTURES

A fixture is a chattel, which has become permanently attached to real estate. For example, a chandelier, when purchased, is personal property. When permanently installed on the dining room ceiling, the chandelier becomes a fixture.

LAW OF AFFIXATION (ANNEXATION).

Ownership of real property includes everything that is permanently affixed or annexed to the land. Note: An item is considered to be "real estate" when it is permanently attached to the property. Thus, when title to real estate is conveyed, it includes all buildings, structures and chattels even though they might not be specifically mentioned in the deed. Unless there is a written agreement to the contrary, all improvements automatically pass with title. For example, buyer and seller enter into a purchase agreement for the sale of seller's home. Prior to the closing, seller removes the valuable chandelier from the dining room ceiling and replaces it with another fixture. Unless the purchase agreement excluded the original chandelier from the sale, buyer has a right to the original fixture.

DETERMINING WHAT IS A FIXTURE.

Because the distinction between real and personal property is not always apparent, disagreements may arise as to whether an item should or should not be included in the sale. To avoid such problems, purchase and sale agreements should contain a list of items, which will either be included or excluded from the sale. The list would include such items as carpeting, shades, venetian blinds, room air conditioners, fireplace fixtures, TV antennas, heating and electrical appliances, washers, dryers and stoves.

LEGAL TESTS OF A FIXTURE.

When parties resort to litigation to determine whether a chattel has become a fixture, the court will apply the following tests:

1. The manner of the attachment. How permanently is it attached? Has it become attached in such a way that it has lost its identity, such as bricks or mortar? Would removal result in substantial damage to the property? For example, a stained glass window mounted in its frame would usually be considered a fixture, since its removal might severely damage the structure of the property.

2. The intention of the parties. Did the installer intend the item to remain personal property or to become a part of the real estate? For example, a tenant who installs a window air conditioner would most likely expect to remove it when vacating the apartment. A person who builds a picket fence around his or her property probably intends to make it part of the property.

3. The type and adaptability to the real estate. Is it being used as real or personal property? For  example, a portable heater is personal property, but an oil heating plant is part of the real estate.

4. The relation of the parties. The relation between the parties may negate the ordinarily presumed intention of the installer. For example, if an apartment building owner installs window air conditioners in each apartment, a prospective buyer would expect them to remain as part of the real estate, since their purpose is to enhance rental income.

An agreement between the parties may determine whether an item may be removed or not, but is not a test of a fixture. For example, a landlord may agree to the removal of light fixtures installed by the tenant even though they became a part of the real estate when installed.

TRADE FIXTURES. Trade fixtures are items of personal property necessary to carry on a business. Although affixed to real estate, the tenant upon termination of the tenancy may remove trade fixtures. For example, a supermarket may remove its frozen food counters and freezers upon termination of the lease. Trade fixtures that are not removed within a reasonable time after the premises have been vacated by the tenant, are considered abandoned and become the property of the landlord by accession.

Concepts of Ownership

FEUDAL SYSTEM AND ALLODIAL SYSTEM. Under early English law, absolute ownership of all land was vested in the king or sovereign, with the subjects having only a right to use the land in return for services provided. This was known as the Feudal system, and was eventually abolished in favor of the Allodial system, which recognizes the right of individuals to own land subject to no proprietary  control of the government. The Allodial system is used in the United  States.

LIMITATIONS ON OWNERSHIP — GOVERNMENTAL POWERS. An individual's rights to the use and enjoyment of property are limited by certain governmental powers, which may be exercised for the common good of the community. They are as follows:

1. Taxation. Government has the right to tax property and to receive revenue to finance necessary public expenditures, such as schools, police and firemen.

2. Escheat. Escheat is the right of the state to take title to property of a deceased who dies intestate (without a will) and with no heirs.

3. Eminent Domain. Eminent domain is the right of the state to take property for public purposes upon the payment of just compensation. The procedure for taking property by eminent domain is known as condemnation.

4. Police Power. Government has the inherent right to restrict the use of land to preserve order and to protect the public health and safety. Rent control, zoning laws, buildings codes and environmental protection laws are examples.

LIMITATIONS ON OWNERSHIP — PRIVATE OR CONTRACTUAL.

Owners may enter into contracts or arrangements, which limit or restrict their use of land or their bundle of rights. They include the following:

1. Lease. The owner gives up possession for a temporary period of time.

2. Mortgage. Title is pledged as security for a loan.

3. Easement. An easement is a right of way given to another to use the land for a specific purpose.

4. License. A license is a privilege to use land without exclusive control as in a lease or tenancy at will.

TENEMENTS, APPURTENANCES AND HEREDITAMENTS

TENEMENTS. Tenements are property rights of a permanent nature, which relate to the land and pass with a conveyance of the title. They may be tangible (corporeal) , such as buildings or fixtures, or intangible (incorporeal), such as an easement over a neighbor's land.

APPURTENANCES. Appurtenances are rights, privileges and improvements that belong to and pass  with transfer of title. Appurtenances include such things as easements, water rights, and improvements.

HEREDITAMENTS. Hereditaments are real (corporeal) and personal (incorporeal), property, which pass to heirs upon the death of the owner.

KEY WORDS AND PHRASES