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Real Estate
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Real Estate
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| THE MEANING OF
OWNERSHIP One of the most difficult things a person can be asked to do is to define a word that everyone knows and understands. An example of this would be a homework assignment where a student is asked to define the word "own" or "ownership". Everyone intuitively knows what it means to "own" a house, but defining that term could be a challenging task indeed. This text will define ownership to be the exclusive possession of certain rights with respect to a property. This concept is often referred to as the "bundle of rights" theory of ownership. Specifically, the owner is the only person who would have the following rights regarding that property:  The right to possess and use that property and to exclude all
others;The right to sell, give away, or otherwise dispose of that
property;The right to enter the property;The right to lease or rent the property to others;The right to encumber a
property, such as pledging a property as collateral for a loan; andThe right to do nothing with a property.Virtually every real estate course or text will compare this bundle of rights to having a bundle of sticks. A person who owned a bundle of sticks would have the right to sell all of those sticks at the same time, or to sell each stick individually. In this analogy, each stick could be used to represent one of the rights included in the concept of ownership. Suppose, for example, that a person owns a house. That owner could give someone else the stick (the right) labeled "possession" in return for a payment of perhaps $500 per month. This would constitute a lease of the property, where the lessee (the tenant) would have the right of use and possession of the property, but none of the other rights of ownership. As will be discussed later, these rights of ownership are not absolute, since there are limitations imposed by government and society. REAL PROPERTY There are only two types of property: real and personal. Real property is what is commonly thought of as real estate and would include the land, things affixed to the land, and appurtenances. (These terms will be defined shortly.) Personal property is any property other than real property. Notice that if something is not real estate, it is therefore considered personal property. An easy rule of thumb can be applied to determine whether a particular item is real or personal property. Real property is immovable, meaning that it cannot be easily carried away. Personal property is movable. In fact, California law has codified this rule of thumb. The California Civil Code (Section 658) defines real property to be anything that is immovable by law. As was stated earlier, real property includes: land;anything affixed to the land; andappurtenances.Land Naturally, land is considered real property. Land includes not only the surface of the ground, but would also include all the material beneath the surface of the ground, including rock, soil, minerals, oil, natural gas, and any other substances. It should be noted that in legal terms, ownership of the land would include all the material under the surface of the ground all the way to the center of the earth and all of the airspace above that ground to the upper limits of the sky. In theory, this would mean that people should have the right to charge airliners a fee for crossing their property lines. In the 1920s, Congress realized that this would make air travel impractical, and so it gave airplanes the right to fly over property as long as they were high enough not to disturb the property owner. Similarly, the law assumes that ownership of the land includes the ownership of the rights to the minerals underneath that land. In theory, if a person sells his or her land without mentioning the mineral rights, then the mineral rights would automatically pass with the land. It is legal, however, to sell the land but retain the mineral rights. Using the analogy discussed above, this would be like selling all of the sticks except the one labeled "mineral rights". In actual practice, the mineral rights to a given property in California were typically separated from the surface rights many years ago. Earlier in this century, it became the common practice to sell the land but keep the mineral rights. As a result, today when a person buys a property, they rarely own the mineral rights to that property. Buyers most often have the surface rights to the property, but not any mineral rights. Land may be divided either horizontally or vertically. For example, if a person owns a large plot of land, it might be possible to do a lot split, where the land is divided into two or more smaller lots. This would be a subdivision. It would also be possible to build condominiums on the property. In a multi-story condominium project, the buyer holds title to the airspace in the unit, which would amount to owning a box in the sky. Landowners also have the right to lateral and subjacent support. This means that if one property begins mining or otherwise excavating his or her property, the adjoining owners have the right to expect that care will be taken so that no damage is caused to their properties, such as through a cave-in. Things Affixed to the Land Real property also includes anything which is permanently or legally attached to the land. This attachment could be in the form of being imbedded in the land, such as the roots of a tree, or permanently resting on the land, such as a building. Trees, cultivated perennial plants, and uncultivated vegetation are classified as fructus naturales, and are considered real property. Annually cultivated crops are called "emblements." If the crops are sold for cash, they are called "industrial crops." This category would also include what are called fixtures. A fixture is an item which used to be personal property but is now permanently fastened to real property. It then becomes part of that real property and would be itself classified as real property. Examples of fixtures would include built-in stoves, wall-to-wall carpeting, track-lighting and the like. The attachment of a fixture might also be legal, rather than physical. For example, the keys to a house are easily movable, and that would argue that they are items of personal property. However, they are legally attached to the house, and are considered fixtures, and therefore they are real property. It is important to understand the legal significance of whether or not a particular item will be considered a fixture. The sale of a parcel of real property can be assumed to include all items of real property associated with it, unless the parties agree otherwise. Therefore, if an item is determined to be a fixture, it would automatically be included in the sale of a property. If an item is determined not to be a fixture, it would be personal property and the seller could keep the item and not include it in the sale. Tests of a Fixture There are five tests which can be used to determine if a particular item has become a fixture or not. (1) The method of attachment. In general, anything which is permanently attached to real property becomes a fixture and is therefore considered real property. (2) The adaptability of the item. If an item is so unique as to be useless apart from the real property, it becomes a fixture. For example, consider an electronic garage door opener. The machinery in the garage is permanently affixed to the roof of the garage and is therefore considered to be a fixture. The remote control device, however, is readily movable. One might argue that it is therefore personal property. However, since the remote control device is virtually useless apart from the machinery in the garage, it too is considered to be a fixture. (3) The relationship of the parties. Sometimes, it makes a difference who the parties are. Crops are a good example of this. Suppose a person buys a farmer's farmland. In that case, the crops would be considered to be fixtures and would be included in the sale of the land. Suppose, however, that someone rents farmland from someone else. The land belongs to the landowner, but the crops are considered the personal property of the tenant, even though they are imbedded in the soil. In another example, it is a common practice for farmers to sell their crops prior to the harvest. When this occurs, the crops immediately become the personal property of the buyer, even though they remain rooted in the soil. (4) The intention of the parties. In cases where the status of a particular item is in doubt, the courts place great emphasis on the intention of the parties. Suppose, for example, that a valuable painting has been bolted to the wall of a residence. The permanence of the attachment would argue that the painting has become a fixture and should therefore be included in the sale of the house. If the owner of the house set the listing price without including the value of the painting, however, the courts might conclude that it was not the intent of the seller to include the painting with the sale of the house. (5) The agreement between the parties. Clearly the best way to avoid any potential disputes between buyers and sellers is for the buyer and seller to come to some agreement prior to the transaction. This is usually accomplished by the seller, who specifies in detail what is and is not included in the sale of the house. This list would supersede any of the other tests of what constitutes a fixture. It is important to note that the size and cost of a particular item are not tests of whether the item has become a fixture. Consider, for example, a swag lamp. This is a lamp that hangs from hooks in the ceiling. A homeowner might easily spend $1,000 on an elegant swag lamp. When the home is sold, the seller could unhook the lamp, unplug it from the wall, and take it along when the seller moves. It would be considered personal property of the seller. The seller may have spent $10 on the hooks in the ceiling. These are permanently fastened to the real property and would be considered fixtures and therefore real property. Notice that the $1,000 swag lamp is personal property while the $10 hooks are real property. TRADE FIXTURES Trade fixtures are fixtures which are attached by a tenant for use in a trade or business. They are legally considered personal property. A tenant may remove a trade fixture if it can be removed without serious damage to the building. Trade fixtures are articles of personal property which are permanently affixed to real property but which are unique to the tenant's trade or business. Examples of trade fixtures can include dentist's chairs, barber's chairs and poles, dry cleaning equipment and the like. Trade fixtures may be removed by the tenant as long as the removal occurs prior to the expiration of the lease. APPURTENANCES Appurtenances are also real property. They are anything used with the land for its benefit, like easements, stock in a mutual water company, and watercourses. When real property is sold, appurtenances "run with the land" to the new owner, just as buildings do, even if they are not mentioned in the deed or contract. Easements can be defined as a non-possessory right to use another person's real property. Easements will be discussed in more detail later. The most common type of easement is the right to cross someone else's land. Suppose, for example, a person owns a home with a large lot. Suppose also that the owner does a lot split, and sells off the front of the property. If the only access is from the street at the front of the property, the owner would likely reserve an easement across this front lot, so that the owner would have some means of access to the back lot. This easement would be an appurtenance. The back lot could not be sold without the new owner also having the same right to that easement as did the original owner. Stock in a mutual water company can also be an appurtenance. Suppose some people own land in a remote area of the California desert, but nearby the Colorado river. The state might give the landowners permission to form a mutual water company, which would then be given permission by the state to take water from the river to supply to the landowners in that area. Each landowner would receive stock in this mutual water company. This stock would become an appurtenance, in that the land could not be sold without the stock. It might be more accurate to consider the stock as being owned by the land, rather than by the owner of the land, since ownership of the two could not be separated. Water Rights Sometimes ownership of the land also entails water rights. Whether a landowner has water rights is not determined through the public records, but rather through inspection of the property. Generally, landowners only have water rights if their land is directly adjacent to some body of water. There are two types of water rights: Riparian Rights: This is the right to reasonable and appropriate use of water from a flowing source, such as rivers, streams and watercourses. The property must be directly adjacent to the water source for the owner to have this right. Littoral Rights: This is the right of a landowner to the reasonable and appropriate use of water from a lake, sea or ocean which is adjacent to the property. Owners of riparian water rights cannot give permission to non-riparian owners to use water from that river or stream. Only the state can give such permission. This act of granting water rights is called an appropriation. CHANGE OF STATUS It is, of course, possible to change real property into personal property and personal property into real property. For instance, if a man cuts down a tree, he has just changed real property into personal property. Whereas before it was immovable, it is now movable. On the other hand, if a man took sand, gravel, cement and water, and mixed them and poured a sidewalk in front of his house, he would have changed personal property into real property. |
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Copyright © 1998, Real Estate Trainers, Inc.