© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 1

Chapter 48Real Property

Business LawLegal, E-Commerce, Ethical, and International

Environments

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 2

Real Property• Real property is immovable or

attached to immovable land or buildings– Land– Buildings– Subsurface Rights– Plant Life and Vegetation– Fixtures

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 3

Land and Buildings• Most common form of real

property.• Landowner usually

purchases surface rights.• Buildings constructed on

land are real property.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 4

Subsurface Rights

• These are mineral rights to the earth located beneath surface.

• Are often sold separately from surface rights.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 5

Plant Life and Vegetation• These are considered real

property until they are harvested.

• Includes both natural and cultivated plants.

• Sold with land.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 6

Fixtures• Personal property that is so

closely associated with real property that it cannot be separated without damaging real property.

• Becomes part of the realty.• Included in sale of building.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 7

Estates in Land• Ownership rights in real

property.• Bundle of legal rights that the

owner has to possess, use, and enjoy the property.

• The type of estate is determined from the deed, will, lease, or other document that transferred the ownership rights.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 8

Freehold Estate• An estate where the owner has a

present possessory interest in the real property.

• Estates in Fee– Fee simple absolute– Fee simple defeasible

• Life Estates

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 9

Estates in FeeFee Simple Absolute

• Highest form of owner-ship of real property.

• Ownership:– Is infinite in duration– Has no limitation on inheritability– Does not end upon the occurrence or

non-occurrence of an event

Fee Simple Defeasible• Grants owner all of the incidents of a

fee simple absolute except that it may be taken away if a specified condition occurs or does not occur.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 10

Life Estate• Interest in property that lasts for

the life of a specified person.• Called estate pour autre vie.• A life estate terminates upon the

death of a named person and reverts back to the grantor.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 11

Concurrent Ownership

• When two or more persons own a piece of real property.

• Also called co-ownership.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 12

Joint TenancyJoint TenancyTenancy in Tenancy in CommonCommon

Tenancy by Tenancy by the Entiretythe Entirety

Community Community PropertyProperty

CondominiumCondominium

CooperativeCooperative

Forms of Co-ownership

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 13

Joint Tenancy• Words must clearly show

intent to create.• Co-owners have right of

survivorship.– Deceased partner’s property

automatically passes to surviving partner.

– Contrary provisions in will ineffective.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 14

Tenants in Common• Interests of deceased

partner passes by will, not by survivorship.

• May encumber, sell, gift, or devise their interest at any time.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 15

Tenants by the Entirety• Co-ownership form that can

only be used by married couples.

• Created by express wording.

• Surviving spouse has right of survivorship.

• Neither spouse may sell, gift, devise, or otherwise transfer property without permission of other spouse.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 16

Community Property• Nine states recognize this

form of co-ownership.• Applies only to married

couples• Each spouse owns one-half

of assets acquired by income during marriage.

• Property received by gift or inheritance or held before marriage belong to that partner alone.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 17

Concurrent Ownership

Form of Ownership

Right of Survivorship

Tenant May Unilaterally Transfer His or Her Interest

Joint Tenancy Yes. Deceased tenant’s interest automatically passes to co-tenants.

Yes. Tenant may transfer his or her interest without the consent of co-tenants. Transfer severs joint tenancy.

Tenancy in Common

No. Deceased tenant’s interest passes to his or her estate.

Yes. Tenant may transfer his or her interest without the consent of co-tenants. Transfer does not sever tenancy in common.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 18

Concurrent Ownership (continued)

Form of Ownership

Right of Survivorship

Tenant May Unilaterally Transfer His or Her Interest

Tenancy by the Entirety

Yes. Deceased tenant’s interest automatically passes to his or her spouse.

No. Neither spouse may transfer his or her interest without the other spouse’s consent.

Community Property

Yes. When a spouse dies, surviving spouse automatically receives one-half of the community property; other half passes to the heirs of the deceased spouse as directed by will.

No. Neither spouse may transfer his or her interest without the other spouse’s consent.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 19

Condominium• Common form of ownership in a

multiple-dwelling building.• Purchasers of a condominium:

– Have title to their individual units.

– Own the common areas as a tenant in common with the other condominium owners.

• Owners may sell or mortgage their units without the permission of the other owners.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 20

Cooperative• Form of co-ownership of a

multiple-dwelling building.– A corporation owns the

building– The residents own shares in

the corporation

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 21

Future Interests• The interest that the grantor

retains for himself or a third party.

• Reversion – a right of possession that returns to the grantor after the expiration of a limited or contingent estate.– Implied by law– Do not have to be express

• Remainder – a right of possession that goes to a third party upon the expiration of a limited or contingent estate.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 22

Sale of Real Estate

• The passing of title from a seller to a buyer for a price.

• Also called a conveyance.• Closing – the finalization of

a real estate sales transaction that passes title to the property from the seller to the buyer.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 23

Deeds• A writing that describes a

person’s ownership interest in a piece of real property.– Warranty Deed– Quitclaim Deed

• Grantor – the party who transfers an ownership interest in real property.

• Grantee – the party to whom an interest in real property is transferred.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 24

Recording Statutes• A state statute that requires the

mortgage or deed of trust to be recorded in the county recorder’s office of the county in which the real property is located.– Gives constructive notice of interest

in property.

• Quiet title action is brought by a party concerned about ownership rights in a parcel of real property– Can have a court determine the

extent of those rights.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 25

Marketable Title• Title that is free from any

encumbrances or other defects that are not disclosed but would affect the value of the property.– Attorney’s Opinion– Torrens System– Title Insurance

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 26

Tax Sale• A method of transferring

property ownership that involves a government lien on property for unpaid property taxes.

• If the lien remains unpaid after a certain amount of time, a tax sale is held to satisfy the lien.

• Most states provide for a period of redemption

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 27

Gift, Will, or Inheritance• Gift

– A transfer of property from one person to another without exchange of money.

• Will– If a person dies with a will, his or her

property is distributed to the beneficiaries as designated in the will.

• Inheritance– If a person dies without a will, his or

her property is distributed to the heirs as stipulated in the state’s intestate statute.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 28

Adverse Possession• Occurs when a person who

wrongfully possesses someone else’s real property obtains title to that property if certain statutory requirements are met.– Statutorily prescribed time period– Open, visible, and notorious– Actual and exclusive– Continuous and peaceful– Hostile and adverse

• Property owned by federal and state governments are not subject to adverse possession.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 29

Nonpossessory Interests

EasementsEasements

LicensesLicenses

ProfitsProfits

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 30

Easement• A given or required right to make

limited use of someone else’s land without owning or leasing it.– Easement Appurtenant

created when the owner of one piece of land is given an easement over an adjacent piece of land.

– Easement in Gross authorizes a person who does not own adjacent land the right to use another’s land.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 31

License• Grants a person the right to

enter upon another’s property for a specified and usually short period of time.

• A license does not transfer any interest in the property.

• A license is a personal privilege that may be revoked by the licensor at any time.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 49 - 32

Profit• Grants a person the right to

remove something from another’s real property.– Gravel, minerals, grain, or timber– Profit Appurtenant – grants the

owner of one piece of land the right to go onto another’s adjacent land and remove things from it.

– Profit in Gross – authorizes someone who does not own adjacent land the right to go onto another’s property and remove things from it.