Real Property Rights, Encumbrances, and Governmental Controls

The subject of “Rights and Restrictions on Real Estate Ownership: Leases, Encumbrances, and Government Restrictions” is a cornerstone in understanding real estate market dynamics and asset management. This chapter, within the course “Real Estate Rights and Obligations: A Guide for Owners and Investors,” aims to provide participants with in-depth knowledge of the rights enjoyed by property owners, as well as the restrictions limiting these rights, whether resulting from contractual agreements, third-party rights, or government interventions.

The scientific significance of this topic lies in:

• Legal Foundations: Understanding the legal rules and principles governing real estate ownership, identifying possible types of rights (such as usufruct and easements), and how they arise and are extinguished.
• Economic Applications: Analyzing the impact of rights and restrictions on property value, marketability, and income-generating potential.
• Effective Management: Enabling owners and investors to make informed decisions regarding property management and avoid potential legal disputes.

This chapter will cover three main areas:

1. Leases: Exploring different types of lease agreements (fixed-term lease, periodic lease, tenancy at will, tenancy at sufferance) and their impact on the rights of both lessor and lessee. It will also address the assessment of tenants’ rights in cases such as inheritance division or expropriation.
2. Encumbrances: Studying non-ownership related restrictions that burden the property. These include liens (voluntary and involuntary, general and specific), easements (appurtenant and in gross), profit a prendre, and private restrictions. It will discuss how these encumbrances affect property use and value.
3. Government Restrictions: Analyzing government powers in restricting real estate ownership rights, including eminent domain, taxation (general property taxes and special assessments), police power (urban planning, zoning laws, building codes, environmental protection), and escheat.

I. Leases

• A lease is a contract where the property owner (lessor) grants another person (lessee) the right to use the property for a specified period in exchange for money (rent).
• Types of Leases:
  • Tenancy for Years: A lease for a fixed period, automatically expiring at the end of the term without notice. Formula for present value of a fixed-term lease: PV = PMT * [(1 - (1 + r)^-n) / r] where PV is present value, PMT is periodic rent, r is discount rate, and n is the number of rental periods.
  • Periodic Tenancy: A lease that automatically renews for periodic intervals (month-to-month, year-to-year) until one party notifies the other of termination.
  • Tenancy at Will: A lease without a fixed term, terminable by either party at any time.
  • Tenancy at Sufferance: Arises when a tenant remains on the property after the lease term expires without the landlord’s consent.
• Value of Leasehold Interest: Important for estates, partnership dissolution, divorce, and eminent domain.
• Leased Land: In some areas, houses are built on leased land, where the appraiser should consider the remaining lease term, renewal probability, and lease conditions.

II. Encumbrances

• Encumbrances are rights or interests that do not include the exclusive right to use or occupy the property; non-possessory interests.
• Financial Encumbrances (Liens):
  • Lien: A right held by a creditor to sell the debtor’s property to satisfy a debt. Foreclosure is the forced sale of property to repay the debt.
  • Types of Liens:
    • Voluntary Lien: Created willingly by the debtor (e.g., mortgages).
    • Involuntary Lien: Arises by law (e.g., tax liens, judgment liens, construction liens).
    • General Lien: Affects all of the debtor’s property (e.g., judgment liens).
    • Specific Lien: Applies only to a specific property (e.g., mortgages, property tax liens, construction liens).
• Non-Financial Encumbrances: Affect the use of the property.
  • Easement: A non-exclusive right to use another person’s property for a specific purpose. The property subject to the easement is the Servient Tenement.
    • Right-of-Way: An example of an easement, allowing passage through another’s property.
    • Appurtenant Easement: Benefits a specific property (Dominant Tenement).
    • Easement in Gross: Benefits individuals or organizations (e.g., utility easements).
  • Profit a Prendre: The right to take something from the property (e.g., crops, minerals).
  • Emblement: The “sole” right of a tenant to harvest a crop he planted before the property is sold.
  • private❓ Restrictions: Private restrictions are also known as private deed restrictions or CC&Rs (Covenants, Conditions, and Restrictions). These are restrictions are created via deed, typically when a subdivision is created.

III. Governmental Restrictions on Property Rights

• Private property rights are subject to government powers.
• Eminent Domain: The government’s power to take private property for public use, with just compensation to the owner. Condemnation lawsuits may be used.
• Taxation: Property ownership is subject to property taxes (ad valorem taxes). Special assessments are taxes on specific properties to cover the cost of public improvements benefiting those properties.
• Police Power: The government’s power to enact and enforce regulations to protect public health, safety, and welfare. It is the basis for land-use regulations, zoning laws, building codes, subdivision development regulations, and environmental protection legislation.
• Escheat: Government right related to inheritance.