Chapter 8: Estates and Interests

Water Rights

The rights to own and use water found in lakes, streams, rivers, and the ocean. The water rights an owner of a property that contains or adjoins a body of water has will depend largely on: - Whether or not the water is moving - Whether or not the water is navigable

Co-Ownership

Title ownership held by two or more persons who must agree on how the property is used.

Act of Waste

When a possessor who holds less than fee ownership (i.e., tenant, vendee, and mortgagor) misuses or abuses the property. Some examples include: - Using the property for something other than was intended. - Causing a fire that destroys the home. - Neglecting to pay property taxes. - Conducting activities that would decrease the value of the property.

Subsurface Rights

"Real property rights" that apply to the land beneath the surface of the real estate parcel extending from its surface boundaries downward to the center of the earth. - The rights to remove mineral and gas deposits and subsurface water from the water table are examples of subsurface rights. - A landowner could decide to sell or lease the rights to any gas or oil found in the land. Much of the farmland in southwestern New York State are subject to oil and gas leases.

Surface Rights

"Real property rights" that includes the ground, all natural things affixed to the ground (and all improvements), as well as water rights.

Air Rights

A "real property right" in which the owner has the right to use, control and occupy the space above a particular parcel of land (outlined by imaginary vertical lines that extend to infinity).

Right to Use

A "real property right," in which an owner is normally entitled to use her property as she wishes, as long as she does not infringe on the rights of others. - For example, an owner may be restricted from building a large pond on his or her property; if in fact the pond would cause flooding and drainage hazards to the next-door neighbor.

Right to Exclude

A "real property right," in which the owner has the legal right to keep others off the property and to prosecute trespassers.

Right to Encumber

A "real property right," in which the owner has the right to mortgage the property as collateral for debt. There may be restrictions to this right, such as a spouse's right to limit the degree to which a homestead may be mortgaged.

Right to Transfer

A "real property right," in which the owner has the right to transfer interests in the property includes the right to sell, bequeath, lease, donate, or assign ownership interests. - An owner may transfer certain individual rights to the property without transferring total ownership. - Also, one may transfer ownership while retaining individual interests. For example, a person may sell mineral rights without selling the right of possession.

Sole Proprietorship

A business owned and managed by a single individual. - Many real estate brokers choose this type of business structure.

Joint Tenancy

A form of co-ownership that includes the right of survivorship.

Syndicate

A group of two or more people who combine their financial resources to achieve certain investment objectives. - They are able to acquire real estate that could not be purchased by an individual alone.

Limited Liability Company (LLC)

A hybrid business entity having characteristics of both a corporation and a partnership. Limited liability companies provide the limited liability protection of corporations without the regulations associated with corporations. It is a more flexible structure in that the owners have limited liability for the actions and debts of the company, and it is suitable for smaller companies with a single owner. The primary corporate characteristic is limited liability. The primary partnership characteristic is the availability of pass-through income taxation.

Condominium Ownership

A hybrid form of ownership of multi-unit residential or commercial properties. It combines ownership of a fee simple interest in the airspace within a unit with ownership of an undivided share, as a tenant in common, of the entire property's common elements, such as lobbies, swimming pools, and hallways. - A condominium unit is one airspace unit together with the associated interest in the common elements. - The condominium unit can be owned jointly, in severalty, in trust, or in any other manner allowed by state law. Unit owners hold an exclusive interest in their individual apartments, and co-own common elements with other unit owners as tenants in common.

Proprietary Lease

A lease issued by a cooperative corporation to its shareholders.

Fee Simple Absolute Estate

A perpetual estate that is not conditioned by stipulated or restricted uses. It may also be freely passed on to heirs. For these reasons, the fee simple absolute estate is the most desirable estate that can be obtained in residential real estate. It is also the most common.

Fixture

A personal property item that has been permanently attached to land or a building and becomes part of the real estate. - Typical examples are toilets, water pumps, septic tanks and window shutters. - Fixtures not included in the sale must be listed and excluded in the sale contract.

Uniqueness

A physical characteristic of "real property" in which no two pieces of property are ever exactly the same. Although they may be similar, each has its own location. Also, each parcel of property has unique characteristics, even if the differences are very small.

Indestructibility

A physical characteristic of "real property" in which the property is permanent and the structures attached to it are usually for the long term. However, those improvements to the property can depreciate and become obsolete, which could substantially reduce the property's value.

Immobility

A physical characteristic of "real property" in which the property itself cannot be moved from one place to another, even though some elements on the property can be removed, such as soil, and the topography of the land can be changed.

Parcel of Land

A section of land defined by boundaries. - Also called a "tract" of land.

Corporations

A separate legal entity established under state law by the filing of articles of incorporation with the Secretary of State. Because a corporation is a legal person, real estate ownership by a corporation is an ownership in severalty.

Bundle of Rights

A set of legal rights that are attached to the ownership of that parcel that includes both tangible and intangible components. - Tangible: includes such things as the land, the improvements, the fixtures, the trees, and the plants. - Intangible: includes the rights to: Sell, Lease, Encumber, Use, Enjoy, Exclude, Devise by will, Occupy, Cultivate, Explore, License, Dedicate, Give away, Share, Mortgage, Trade, Exchange

Real Estate

Air, water, land, and everything affixed to the land. - This is not only made up of land, but also all of the man-made structures that are "permanently" attached to the land (including such things as fences, streets, buildings, wells, sewers, utilities, sidewalks and piers). - When a buyer purchases this, he or she is buying the rights that were held by the previous owner, the seller. - Includes the physical land at the earth's surface, extending downward to the center of the earth AND upward into space, PLUS all the items permanently attached to that land by nature or humans.

Land Trust

Allows the trustor to convey the fee estate to the trustee and to name himself or herself the beneficiary. - - This applies only to real property (not to personal property).

Living Trust

Allows the trustor, during his or her lifetime, to convey title to a trustee for the benefit of a third party. The trustor charges the trustee with all necessary responsibilities for managing the property, protecting its value, and securing whatever income it may produce. - The trustee may also be ordered to sell the property at a given point. The beneficiary receives all income and sales proceeds, minus the trustee's fees.

Chattel Fixtures

Also called, "trade fixtures" and include items of a tenant's personal property that the tenant has temporarily attached to a landlord's real property in order to conduct business. They may be detached and removed before the lease is up or at the time the tenant vacates the property. If the tenant fails to remove them, it may become the property of the landlord through accession. From that point on, the fixture is considered real property. - Examples of trade fixtures include a grocer's food freezers, a merchant's clothes racks, a tavern owner's bar, a dairy's milking machines and a printer's printing press.

Improvements

An economic characteristic of "real property" in which adding structures and improvements to the land adds to its value and use. The improvements can also add value to the surrounding property and neighborhood. For example, the construction of a shopping center or the selection of a site for a toxic waste dump could have a dramatic effect on the property in the neighboring community.

Supply and Demand

An economic characteristic of "real property" that refers to the amount of a product or service that is available in the market for use or purchase. Demand refers to how much of that product or service buyers actually want. - There is a principle that says that the price of a product will vary directly with demand and inversely with supply. What that means is when the supply is low, the price will be high. However, when the supply is high, if there is little demand, the price will be low.

Location

An economic characteristic of "real property" that refers to the preference of one area over another, based on any number of factors (including history, reputation, convenience, and beauty, as well as geography). - This characteristic of property has a significant effect on value. For example, a railroad track runs through the center of a large town, virtually dividing it in half. The homes on the north side of the track sell for $200,000, while identical homes on the south side of the track sell for upwards of $250,000. The only difference is the perception on the part of the community that the south side is a better neighborhood.

Estate

An interest that includes the right of possession. Depending on the length of time a person may enjoy the right to possess the estate, the relationships of the parties owning the estate, and specific interests held in the estate, an estate is a freehold or a leasehold estate.

Undivided Interest

An owner's interest in a property in which two or more parties share ownership. The terms "undivided" and "indivisible" signify that the owner's interest is in a fractional part of the entire estate, not in a physical portion of the real property itself.

Land

Applies to more than just the earth's surface. It includes: - Minerals beneath the earth's surface - Water on or below the earth's surface - The air above the surface - All plants attached to the ground or in the ground (such as trees and grass).

Tenancy in Common

Co-ownership of property in which each party owns an undivided interest that passes to his or her heirs at death.

Permanence of Investment

Constructing improvements on real property requires a large investment of capital and labor. Even when a building is demolished to make way for a new structure, the sewers, drainage, electric and water remain in place. - The return on such investments is usually stable. Investors usually invest for the long term, since real estate suffers from illiquidity - meaning that it is not quickly or easily converted to cash, as short-term investments in stocks are.

Trustee

Has fiduciary duties to the trustor and the beneficiary to maintain the condition and value of the property. The specific responsibilities and authorities are set forth in the trust agreement.

Trust Ownership

Held by a third party for the benefit of someone else.

Rights of Survivorship (NY)

If a joint tenant dies, all interests and rights pass to the surviving joint tenants free from any claims of creditors or heirs. - When only one joint tenant survives, the survivor's interest becomes an estate in severalty, and the joint tenancy is terminated. The estate will then be probated upon the severalty owner's death.

Riparian Rights

If a property borders a stream or river, the owner's riparian rights are determined by whether the water is navigable or not navigable. - If the property borders a non-navigable stream, the owner enjoys unrestricted use of the water and owns the land beneath the stream to the stream's midpoint. - If the property borders a navigable stream, the stream is considered to be a public easement. In such a case, the owner's property extends to the high-water mark as opposed to the midpoint of the stream. The state owns the land beneath the water.

Reversion

If no remainder estate is established, the estate reverts to the original owner or the owner's heirs. For example, Mr. Smith gives his home to his ill cousin Jim with the stipulation that when Jim dies, the home will revert to Mr. Smith or his heirs.

Improvements (to the Land)

Include any fixed structures such as buildings, fences, walls, and decks.

Real Property

Includes real estate, land, all of the man-made structures that are "permanently" attached to the land, AND the bundle of rights: - Right to Use - Right to Transfer - Right to Encumber - Right to Exclude

Commercial Property

Income-producing property, such as office buildings, restaurants, shopping centers, hotels and motels, parking lots and stores. Some industrial properties may also fall into this category. A type of "real property."

Residential Property

Land or improved property with buildings designed for humans to live in, such as single-family homes, multi-family homes, apartments, vacation homes or condominiums. A type of "real property."

Industrial Property

Land used for industrial purposes, such as warehouses, factories, distribution centers and power plants. A type of "real property."

Agricultural Property

Land used primarily for growing crops or raising livestock, such as farms, pastureland, orchards and timberland. Zoning ordinances are usually favorable for agriculture use. A type of "real property."

Freehold Estate

Means, "I own the property." It is what we think of as "ownership." There is no definite ending date. The estate lasts at least a lifetime because the property can be willed to a person's heirs. Types Include: - Fee Simple, including fee simple absolute, fee simple defeasible, fee simple on the condition, and qualified fee simple - Life estate

Leasehold Estate

Means, "I rent the property." It is what we think of as "renting" or "leasing." There is usually a definite ending date. Sometimes, these are referred to as less-than-freehold-estates or non-freehold estates. Types: - Estates for years - Periodic estate - Estate at will - Estate at sufferance

Beneficiary

One who benefits from something; a person who is left money or other property in a will or the like.

Homestead

One's principal residence. - Homestead laws protect family members against losing their homes to general creditors attempting to collect on debts. New York does not recognize a homestead estate.

Severalty Ownership

Ownership of real property by one person only, also called sole ownership.

Cooperative Ownership (CO-OP)

Ownership that usually takes the form of shares of stock in a corporation owning the entire building and a property lease giving the stockholder/tenant the right to occupy a unit for which he pays a proportionate share of the maintenance and operating expenses.

Emblements

Plants and crops that need human involvement and labor. Even though they are attached to the ground, they are considered personal property. - If owned by a tenant farmer, the tenant has the right to the harvested crop whether the lease is active or expired. If the tenant grew the crop, it is his or her personal property, and the landlord cannot take it.

Special Purpose Real Estate

Real property that has a unique use to the persons who own and use it, such as churches, hospitals, schools and government buildings. Other types of property that fall into the special use category include: - Public open space - usually owned by private persons or the government and includes undeveloped shorelines, public parks and lakes. - Recreational areas, such as parks, water access areas, trails and shorelines. These are usually preserved for ecological or educational reasons. In New York, these areas are supervised by the local government, the Department of Environmental Conservation (DEC), and/or the Office of Parks, Recreation and Historic Preservation (OPRHP).

Property

Something that someone owns that naturally comes with a set of rights (e.g., he or she can sell it, rent it, donate it, will it, mortgage it or prevent others from using it, etc.).

Fee Simple Estate

The highest form of ownership interest one can acquire in real estate. It includes the complete bundle of rights and the tenancy is unlimited.

Grantor

The individual who conveys the ownership rights of real property. Also called the "trustor."

Remainder Interests / Remainderman

The person who is to receive the property after the termination of the prior estate.

Community Property Rights

This type of ownership defines property rights of legal spouses before, during, and after their marriage, as well as after the death of either spouse. - Does not exist in New York.