BUSN Chapter 28 Real Property and Landlord-Tenant Law

Fixed-Term Tenancy

A fixed-term tenancy, also called a tenancy for years, is created by an express contract by which property is leased for a specified period of time, such as a day, a month, a year, or a period of years. Signing a one-year lease to occupy an apartment, for instance, creates a fixed-term tenancy. Note that the term need not be specified by date and can be conditioned on the occurrence of an event, such as leasing a cabin for the summer or an apartment during Mardi Gras. At the end of the period specified in the lease, the lease ends (without notice), and possession of the property returns to the lessor. If the tenant dies during the period of the lease, the lease interest passes to the tenant's heirs as personal property. Often, leases include renewal or extension provisions.

Landlord-Tenant Relationships

A landlord-tenant relationship is established by a lease contract. In most states, statutes require leases for terms exceeding one year to be in writing. The lease should describe the property and indicate the length of the term, the amount of the rent, and how and when it is to be paid. State or local law often dictates permissible lease terms. For example, a statute or ordinance might prohibit the leasing of a structure that is in a certain physical condition or is not in compliance with local building codes. As in other areas of law, the National Conference of Commissioners on Uniform State Laws has issued an act to create more uniformity in the laws governing landlord-tenant relationships. Twenty-one states have adopted variations of the Uniform Residential Landlord and Tenant Act (URLTA).

Leasehold Estates

A leasehold estate is created when a real property owner or lessor (landlord) agrees to convey the right to possess and use the property to a lessee (tenant) for a certain period of time. The tenant has a qualified right to exclusive possession—it is qualified because the landlord has a right to enter on the premises to ensure that waste is not being committed. The temporary nature of possession, under a lease, is what distinguishes a tenant from a purchaser, who acquires title to the property. The tenant can use the land—for example, by harvesting crops—but cannot injure it by such activities as cutting down timber for sale or extracting oil.

Periodic Tenancy

A periodic tenancy is created by a lease that does not specify how long it is to last but does specify that rent is to be paid at certain intervals. This type of tenancy is automatically renewed for another rental period unless properly terminated. Under the common law, to terminate a periodic tenancy, the landlord or tenant must give at least one period's notice to the other party. If the tenancy extends from month to month, for example, one month's notice must be given prior to the last month's rent payment. Today, however, many state statutes require a different period for notice of termination in a periodic tenancy.

Quitclaim Deeds

A quitclaim deed offers the least amount of protection against defects of title. Basically, a quitclaim deed conveys to the grantee whatever interest the grantor had. Therefore, if the grantor had no interest, then the grantee receives no interest. Quitclaim deeds are often used when the seller, or grantor, is uncertain as to the extent of his or her rights in the property. They may also be used to release a party's interest in a particular parcel of property, such as in divorce settlements or business dissolutions when the grantors are dividing up their interests in real property.

Adverse Possession

Adverse possession is a means of obtaining title to land without delivery of a deed. Essentially, when one person possesses the property of another for a certain statutory period of time (three to thirty years, with ten years being most common), that person, called the adverse possessor, acquires title to the land and cannot be removed from it by the original owner. The adverse possessor may ultimately obtain a perfect title just as if there had been a conveyance by deed. Requirements For property to be held adversely, four elements must be satisfied. 1. Possession must be actual and exclusive—that is, the possessor must take sole physical occupancy of the property. 2. The possession must be open, visible, and notorious, not secret or clandestine. The possessor must occupy the land for all the world to see. 3. Possession must be continuous and peaceable for the required period of time. This requirement means that the possessor must not be interrupted in the occupancy by the true owner or by the courts. 4. Possession must be hostile and adverse. In other words, the possessor must claim the property as against the whole world. He or she cannot be living on the property with the permission of the owner.

Implied Warranty of Habitability

As mentioned in regard to new home sales, the implied warranty of habitability also applies to residential leases. It requires a landlord who leases residential property to ensure that the premises are habitable—that is, a safe and suitable place for people to live. Also, the landlord must make repairs to maintain the premises in that condition for the lease's duration. Generally, this warranty applies to major, or substantial, physical defects that the landlord knows or should know about and has had a reasonable time to repair—for instance, a large hole in the roof.

Fixtures

Certain personal property can become so closely associated with the real property to which it is attached that the law views it as real property. Such property is known as a fixture—an item affixed to realty, meaning that it is attached to the real property in a permanent way. The item may be attached, embedded into, or permanently situated on the property by means of cement, plaster, bolts, nails, roots, or screws. The fixture can be physically attached to the real property, be attached to another fixture, or even be without any actual physical attachment to the land (such as a statue). As long as the owner intends the property to be a fixture, normally it will be a fixture. Fixtures are included in the sale of land if the sales contract does not provide otherwise. The sale of a house includes the land and the house and the garage on the land, as well as the cabinets, plumbing, and windows. Because these are permanently affixed to the property, they are considered to be a part of it. Certain items, such as drapes and window-unit air conditioners, are difficult to classify. Thus, a contract for the sale of a house or commercial realty should indicate which items of this sort are included in the sale.

Warranty Deeds

Different types of deeds provide different degrees of protection against defects of title. A warranty deed makes the greatest number of covenants, or promises, from the grantor to the grantee and thus provides the greatest protection against defects of title. In most states, special language is required to create a general warranty deed. Warranty deeds commonly include the following: 1. A covenant that the grantor has the title to, and the power to convey, the property. 2. A covenant of quiet enjoyment (a warranty that the buyer will not be disturbed in her or his possession of the land). 3.A covenant that transfer of the property is made without knowledge of adverse claims of third parties. Generally, the warranty deed makes the grantor liable for all defects of title during the time that the property was held by the grantor and previous titleholders.

Airspace Rights

Disputes concerning airspace rights may involve the right of commercial and private planes to fly over property and the right of individuals and governments to seed clouds and produce rain artificially. Flights over private land normally do not violate property rights unless the flights are so low and so frequent that they directly interfere with the owner's enjoyment and use of the land. Leaning walls or buildings and projecting eave spouts or roofs may also violate the airspace rights of an adjoining property owner.

Transferring Rights to Leased Property

Either the landlord or the tenant may wish to transfer her or his rights to the leased property during the term of the lease. If a landlord transfers complete title to the leased property to another, the tenant becomes the tenant of the new owner. The new owner may collect subsequent rent but must abide by the terms of the existing lease.

Eminent Domain

Even ownership in fee simple absolute is limited by a superior ownership. The U.S. government has an ultimate ownership right in all land. This right, known as eminent domain, is sometimes referred to as the condemnation power of government to take land for public use. It gives the government the right to acquire possession of real property in the manner directed by the U.S. Constitution and the laws of the state whenever the public interest requires it.

Recording Statutes

Every jurisdiction has recording statutes, which allow deeds to be recorded for a fee. Deeds are recorded in the county where the property is located. Recording a deed gives notice to the public that a certain person is now the owner of a particular parcel of real estate. Thus, prospective buyers can check the public records to see whether there have been earlier transactions creating interests or rights in specific parcels of real property.

Private Economic Development

In 2005, the United States Supreme Court ruled that the power of eminent domain may be used to further economic development. Since that decision, a majority of state legislatures have passed laws limiting the power of state governments to use eminent domain, particularly for urban redevelopment projects that benefit private developers.

Special Warranty Deeds

In contrast to a warranty deed, a special warranty deed, which is also referred to as a limited warranty deed, warrants only that the grantor or seller held good title during his or her ownership of the property. In other words, the grantor is not warranting that there were no defects of title when the property was held by previous owners. If the special warranty deed discloses all liens or other encumbrances, the seller will not be liable to the buyer if a third person subsequently interferes with the buyer's ownership. If the third person's claim arises out of, or is related to, some act of the seller, however, the seller will be liable to the buyer for damages.

Subsurface Rights

In many states, land ownership may be separated, in that the surface of a piece of land and the subsurface may have different owners. Subsurface rights can be extremely valuable, as these rights include the ownership of minerals, oil, and natural gas. Subsurface rights would be of little value, however, if the owner could not use the surface to exercise those rights. Hence, a subsurface owner has a right (called a profit, to be discussed later in this chapter) to go onto the surface of the land to, for example, discover and mine minerals. When ownership is separated into surface and subsurface rights, each owner can pass title to what she or he owns without the consent of the other owner. Of course, conflicts can arise between the surface owner's use of the property and the subsurface owner's need to extract minerals, oil, or natural gas. In that situation, one party's interest may become subservient (secondary) to the other party's interest either by statute or by case law. If the owners of the subsurface rights excavate (dig), they are absolutely liable if their excavation causes the surface to collapse. Many states have statutes that also make the excavators liable for any damage to structures on the land. Typically, these statutes provide precise requirements for excavations of various depths.

Seller's Duty to Disclose Hidden Defects

In most jurisdictions, courts impose on sellers a duty to disclose any known defect that materially affects the value of the property and that the buyer could not reasonably discover. Failure to disclose such a material defect gives the buyer the right to rescind the contract and to sue for damages based on fraud or misrepresentation. There is usually a limit to the time within which the buyer can bring a suit against the seller based on the defect, however.

Real Estate Sales Contracts

In some ways, a sale of real estate is similar to a sale of goods because it involves a transfer of ownership, often with specific warranties. A sale of real estate, however, is generally a more complicated transaction that involves certain formalities that are not required in a sale of goods. Usually, after lengthy negotiations (involving offers, counteroffers, and responses), the parties enter into a detailed contract setting forth their agreement. A contract for a sale of land includes such terms as the purchase price, the type of deed the buyer will receive, the condition of the premises, and any items that will be included. Unless the buyer pays cash for the property, he or she must obtain financing through a mortgage loan. Real estate sales contracts are often contingent on the buyer's ability to obtain financing at or below a specified rate of interest. The contract may also be contingent on the buyer's sale of other real property, the seller's acquisition of title insurance, or the completion of a survey of the property and its passing one or more inspections. Normally, the buyer is responsible for having the premises inspected for physical or mechanical defects and for insect infestation.

Land

Land includes the soil on the surface of the earth and the natural or artificial structures that are attached to it. It further includes all the waters contained on or under the surface and much, but not necessarily all, of the airspace above it. The exterior boundaries of land extend down to the center of the earth and up to the farthest reaches of the atmosphere (subject to certain qualifications).

Implied Warranties in the Sale of New Homes

Most states recognize a warranty—the implied warranty of habitability—in the sale of new homes. The seller of a new house warrants that it will be fit for human habitation even if the deed or contract of sale does not include such a warranty. Essentially, the seller is warranting that the house is in reasonable working order and is of reasonably sound construction. Thus, under this warranty, the seller of a new home is in effect a guarantor of its fitness. In some states, the warranty protects not only the first purchaser but any subsequent purchaser as well.

Transfer of Ownership

Ownership interests in real property are frequently transferred (conveyed) by sale, and the terms of the transfer are specified in a real estate sales contract. Often, real estate brokers or agents who are licensed by the state assist the buyers and sellers during the sales transaction. Real property ownership can also be transferred by gift, by will or inheritance, by possession, or by eminent domain. When ownership rights in real property are transferred, the type of interest being transferred and the conditions of the transfer normally are set forth in a deed executed by the person who is conveying the property.

Ownership Interests

Ownership of property is an abstract concept that cannot exist independently of the legal system. No one can actually possess or hold a piece of land, the airspace above it, the earth below it, and all the water contained on it. The legal system therefore recognizes certain rights and duties that constitute ownership interests in real property. Property ownership is often viewed as a bundle of rights. One who possesses the entire bundle of rights is said to hold the property in fee simple, which is the most complete form of ownership. When only some of the rights in the bundle are transferred to another person, the effect is to limit the ownership rights of both the transferor of the rights and the recipient.

Plant Life and Vegetation

Plant life, both natural and cultivated, is also considered to be real property. In many instances, the natural vegetation, such as trees, adds greatly to the value of the realty. When a parcel of land is sold and the land has growing crops on it, the sale includes the crops, unless otherwise specified in the sales contract. When crops are sold by themselves, however, they are considered to be personal property or goods. Consequently, the sale of crops is a sale of goods and thus is governed by the Uniform Commercial Code (UCC) rather than by real property law.

Deeds

Possession and title to land are passed from person to person by means of a deed—the instrument of conveyance of real property. Unlike a contract, a deed does not have to be supported by legally sufficient consideration. To be valid, a deed must include the following: 1. The names of the buyer (grantee) and the seller (grantor). 2. Words indicating an intent to convey the property (for example, "I hereby bargain, sell, grant, or give"). 3. A legally sufficient description of the land. 4. The grantor's (and usually her or his spouse's) signature. 5. Delivery of the deed.

Public Use Requirement

Property may be taken only for public use, not for private benefit. After the government determines that a particular parcel of land is necessary for public use, it will first offer to buy the property. If the owner refuses the offer, the government brings a judicial (condemnation) proceeding to obtain title to the land. Then, in another proceeding, the court determines the fair value of the land, which usually is approximately equal to its market value. When the government uses its power of eminent domain to acquire land owned by a private party, a taking occurs. Under the takings clause of the Fifth Amendment to the U.S. Constitution, the government must pay "just compensation" to the property owner. State constitutions contain similar provisions.

Will or Inheritance

Property that is transferred on an owner's death is passed either by will or by state inheritance laws. If the owner of land dies with a will, the land passes in accordance with the terms of the will. If the owner dies without a will, state inheritance statutes prescribe how and to whom the property will pass.

The Nature of Real Property

Real property consists of land and the buildings, plants, and trees that are on it. Real property also includes subsurface and airspace rights, as well as personal property that has become permanently attached to real property. Whereas personal property is movable, real property—also called real estate or realty—is immovable.

Rent

Rent is the tenant's payment to the landlord for the tenant's occupancy or use of the landlord's real property. Usually, the tenant must pay the rent even if she or he refuses to occupy the property or moves out, as long as the refusal or the move is unjustified and the lease is in force. Under the common law, if the leased premises were destroyed by fire or flood, the tenant still had to pay rent. Today, however, if an apartment building burns down, most state's laws do not require tenants to continue to pay rent. In some situations, such as when a landlord breaches the implied warranty of habitability, a tenant may be allowed to withhold rent as a remedy. When rent withholding is authorized under a statute, the tenant must usually put the amount withheld into an escrow account. The funds are held in the name of the tenant and are returned to the tenant if the landlord fails to make the premises habitable.

Tenancy at Sufferance

The mere possession of land without right is called a tenancy at sufferance. A tenancy at sufferance is not a true tenancy because it is created when a tenant wrongfully retains possession of property. Whenever a tenancy for years or a periodic tenancy ends and the tenant continues to retain possession of the premises without the owner's permission, a tenancy at sufferance is created. When a commercial or residential tenant wrongfully retains possession, the landlord is entitled to damages. Typically, the damages are based on the fair market rental value of the premises after the expiration of the lease.

Airspace and Subsurface Rights

The owner of real property has rights to the airspace above the land, as well as to the soil and minerals underneath it. Limitations on either airspace rights or subsurface rights normally must be indicated on the document that transfers title at the time of purchase. When no such limitations, or encumbrances, are noted, a purchaser generally can expect to have an unlimited right to possession of the property.

Rights and Duties

The rights and duties of landlords and tenants generally pertain to four broad areas of concern—the possession, use, maintenance, and, of course, rent of leased property.

Use and Maintenance of the Premises

The tenant normally may make any use of the leased property, provided the use is legal and does not injure the landlord's interest. The parties are free to limit by agreement the uses to which the property may be put. The tenant is responsible for any damage to the premises that he or she causes, intentionally or negligently, and may be held liable for the cost of returning the property to the physical condition it was in at the lease's inception. The tenant is not responsible for ordinary wear and tear and the property's consequent depreciation in value. Also, the tenant is not entitled to create a nuisance by substantially interfering with others' quiet enjoyment of their property rights In some jurisdictions, landlords of residential property are required by statute to maintain the premises in good repair. Landlords must also comply with any applicable state statutes and city ordinances regarding maintenance and repair of buildings.

Subleases

The tenant's transfer of all or part of the premises for a period shorter than the lease term is a sublease. Many leases also require the landlord's written consent for a sublease. If the landlord's consent is required, a sublease without such permission is ineffective. Also, like an assignment, a sublease does not release the tenant from her or his obligations under the lease.

Assignment

The tenant's transfer of his or her entire interest in the leased property to a third person is an assignment of the lease. Many leases require the landlord's written consent for an assignment to be valid. An assignment made without such consent can be nullified. State statutes may specify that the landlord may not unreasonably withhold consent, though. Also, a landlord who knowingly accepts rent from the assignee may be held to have waived the consent requirement. When an assignment is valid, the assignee acquires all of the tenant's rights under the lease. Nevertheless, an assignment does not release the original tenant (the assignor) from the obligation to pay rent should the assignee default. Also, if the assignee exercises an option under the original lease to extend the term, the assigning tenant remains liable for the rent during the extension, unless the landlord agrees otherwise.

Purpose

There are a number of public-policy reasons for the adverse possession doctrine. These include society's interest in resolving boundary disputes, determining title when title to property is in question, and ensuring that real property remains in the stream of commerce. More fundamentally, policies behind the doctrine include rewarding possessors for putting land to productive use and punishing owners who sit on their rights too long and do not take action when they see adverse possession.

Tenancy at Will

With a tenancy at will, either party can terminate the tenancy without notice. This type of tenancy can arise if a landlord allows a person to live on the premises without paying rent or rents property to a tenant "for as long as both agree." Tenancies at will are rare today because most state statutes require a landlord to provide some period of notice to terminate a tenancy (as previously noted). States may also require a landowner to have a sufficient reason to end a residential tenancy.