Chapter 1 - Property Ownership, Land Use Controls and Regulations - 15% Flashcards
Classes of Property
Property is anything which can be owned, like land, a car, or share of stock. Property is also sometimes referred to as a Bundle of Rights in a thing, rights which arise out of the object, meaning real estate in our case.
Ownership is the right to possess and use the property to the exclusion of others. The right to possess and use property includes the right to:
occupy, sell or dispose, encumber, or lease the property.
The classes of property are divided into two primary categories:
- REAL ESTATE, also called REAL PROPERTY – Real estate is immovable and illiquid (solid). Bundle of Rights go with the land and are real property. Appurtenances, incidental rights in adjoining property such as stock in a mutual water company, are real property as well. Crops can be real property when, like a fruit tree, they remain after harvesting the fruit.
- PERSONAL PROPERTY, also called CHATTEL (moves like cattle) – Personal property is movable and defined, by way of exclusion, as all property which is not classified as real estate. Personal property is transferred by a bill of sale signed by the seller. A search of public records will NOT show title to personal property, but will for Real Estate. Crops however are generally considered personal property when they are planted annually. Crops are also personal property when they are harvested, mortgaged or sold.
Both real and personal property can be hypothecated, ie. used as collateral for a loan while the owner retains ownership of the asset.
Property Characteristics
The PHYSICAL COMPONENTS of real estate include:
- the land
- anything affixed to the land, such as a fixture, like a cemented firewood stand
- anything appurtenant to the land and
- anything which cannot be removed from the land by law, like a Joshua Tree.
REAL ESTATE includes buildings, fences, trees, water courses and easements within a parcel’s horizontal and vertical boundaries. Anything below the surface, such as water and minerals, or above the surface in the airspace, such as timber is part of the real estate.
The primary component of real estate is LAND. Land includes: the soil, rocks, other materials of the earth, and the reasonable airspace above the Earth.
A FIXTURE is a personal property item which has become permanently attached to the real estate. When a personal property becomes a fixture, it is part of the real estate and is there after conveyed with it.
Use the acronym – MARIA – as a fixtures test
M = method of attachment
A = agreement of the parties
R = relationship of the parties
I = intention of the parties
A = adaptability of the fixture
TRADE FIXTURES, which are used to render services or make products for the trade or business of a tenant, are always personal property. Lumber that is cut is always known as personal property.
IMPROVEMENTS are the structures built upon land, including Residential and Commercial properties consisting of:
- FOUNDTATIONS, generally built as slab foundations or as footings supporting the floor joists and subfloor containing a crawl space below it
- FRAMING consisting of
- Joists and headers which are horizontal
- Studs which are vertical
- Rafters which are angled to the roof beam and
- ROOFING – know roof Styles
- Gambrel, looks like a barn
- Gable, looks like a typical house
- Hip Roof, looks like our outdoor room
- Mansard, looks like an X on top
- Single Dormers, looks like Fairbanks
- Shed Dormer/Dustpan, one big dormer
Encumbrances
EASEMENTS are ENCUMBRANCES - easements are the right to enter or use another’s land as an encumbrance on their title. A dominant tenement benefits from the easement. The servient tenement is burdened by the easement.
Easements are classified as:
- PRESCRIPTIVE, a right of access gained through use
- APPURTENANT, the right to Cross or use a property which runs with the land/property as an interest held in the burdened real estate. For example a buyer of real estate in which the seller possessed a dominant tenancy would gain that same right over the servient property when either property is transferred.
- IN GROSS, which belongs to an individual, not land, as their personal right in the burdened real estate, generally applied to a utility company, for example UPS, fire department, SDGE, cable company.
LIENS are ENCUMBRANCES - Other interests in real estate can be created, such as liens. Liens are interest in real estate which secure payment or performance of a debt or other monetary obligation. A trust deed loan or local property taxes are examples of liens. On non-payment of a lien amount, the lienholder can force the sale of the real estate to pay off and satisfy the lien.
A lien always has a dollar value and can be:
- VOLUNTARY (debt) this is a good debt
- INVOLUNTARY (property tax, mechanics lien) placed against a specific property or
- GENERAL (judgment, income tax) filed against the individual and applied to all real estate owned by them in the county where the lien is recorded. This is a bigger lien. An income tax lien by the IRS applies to ALL properties.
OTHER ENCUMBRANCES include:
- ENCROACHMENTS, which are a trespass upon a neighbor’s property and
- RESTRICTIONS, which are created by deed or by written agreement, such as conditions, covenants and restrictions (CCR) in a community governed by an HOA. If a CCR is broken it usually results in a fine.
Types of Ownership
The ownership interest a person may hold in real estate are called Estates, classified as:
FREEHOLD ESTATES - both FEE TITLE and LIFE ESTATES are FREEHOLD ESTATES
- FEE ESTATES, aka PERPETUAL ESTATES or INHERITANCE ESTATES where the owner holds in perpetuity the fee title to a parcel of real estate.
- LIFE ESTATES, which are properties that have an ending and held for a finite period of time. When a life estate ends, the interest in the property is either returned to the original owner, called a Reversionary Right (goes back) or transfer to another party called a Remainder Interest (goes forward).
- LEASEHOLD ESTATES, aka LESS THAN FREEHOLD ESTATES and comes in a number of agreements.
- Periodic Tenancy - a month-to-month rental
- Fixed Term Tenancy / Estate For Years - a lease with a fixed term and termination date
- Estate at Will - a tenant’s continued occupancy beyond the lease term, (when a landlord says it’s fine, ex. the tenant writes a rent check past their lease term and the lessor (landlord) cashes it.)
- Estate at Sufferance - a tenant holdover of a property beyond the expiration of the lease
Ownership of a condominium CONDO is defined as airspace. Condominium properties generally contain a shared common area. This is also true of a PLANNED UNIT DEVELOPMENT (PUD) which may be a gated community or include a recreation center. On the state exam,
- CONDO questions will refer to air space
- PUD questions will refer to common areas.
The parties to a lease are the:
- lessor, the owner of the real estate and
- lessee, the tenant (EE is on recIEving end)
Rent is compensation, usually paid periodically, and received by the landlord in exchange for the tenants use, possession and enjoyment of the property.
In COMMERCIAL REAL ESTATE, rental payments may be arranged in different ways.
- a GROSS LEASE - states that the rental amount includes all property expenses
- a NET LEASE - states the tenant will be obligated to pay certain property expenses such as taxes, insurance and maintenance, usually the tenant needs to pay utilities
- a PERCENTAGE LEASE - states the rental payments will equal portion to the sales or income generated by the business of the tenant occupying the space. like a nail salon.
Facts applicable to leases include:
1. A lease in excess of one year must be in writing to be enforceable
- Items that must be stated in a written lease include
* termination date
* rental amount
* name of the parties involved and
* a description of the property, it does not need to be the formal legal description - Written leases must be signed by the lessor (the owner of the real estate) to be enforceable
- A copy of the signed lease must be given to the lessee within 15 days
- Agricultural leases cannot exceed 51 years. Urban / City leases are limited to 99 years
- Transfer of a lease may occur by
* sublease, the original lessee retains an interest in the lease and is responsible for the rental payment while the right of possession is given to another, note the original lessee is on the hook for payments
* an assignment of the lease, All rights and possession are transferred to a new tenant, it’s transferred - When the tenant relinquishes possession by mutual agreement with the owner, it is referred to as a surrender. If the tenant relinquishes possession with no intent of returning and without the agreement of the owner, it is called abandonment.
- The security deposit on a residential rental is limited to 2 months rent on an unfurnished unit and 3 months rent on a furnished unit. Any unused security deposit needs to be returned within 21 days of the tenant’s surrender of the premises and a letter of explanation of any money not returned.
Descriptions of Property
Specific property may be described in a variety of ways:
- METES AND BOUNDS, is used when a great deal of accuracy is required. It sets forth all the boundary lines together with their terminal points and angles. Meets (length or measurements) and Bounds (boundaries).
- LOT, BLOCK TRACT, based on a recorded Subdivision map and
- GOVERNMENT SURVEY, which is broken into a series of sections and townships. There are numerous questions on the state exam related to the size and location of sections as well as the number and location of the three Baseline and Meridian systems in California consist of:
- Humboldt (North)
- Mount Diablo (Central) and
- San Bernardino (South)
1 Township = 36 square miles broken into 36 sections 1 Section = 640 acres = 1 square mile 1/2 Section = 320 acres 1/4 Section = 160 acres 1/8 Section = 80 acres 1/4 of a 1/4 Section = 40 acres Acre = 43,560 square feet 1 Mile = 5280ft or 320 rods 1 Square acre = approx 209ft x 209ft 1 yard = 3 ft 1 square yard = 9ft 1 rod = 16.5 ft or 5.5 yards
Government Rights in Land
The authority of the California legislature to enact laws regulating real estate activities comes from four main Constitutional Powers (use acronym PETE):
- POLICE POWER, - the California Constitution confers an equal power to local cities and counties to protect the public good. Like CHP on freeway, police power is the basis for laws governing such things as Highway construction and maintenance, rent control, zoning and traffic.
- EMINENT DOMAIN POWER - Process of using the power of eminent domain is called CONDEMNATION - it is the right of a government to take private property for public use. However, the government must pay the owner the FMV of the property taken. Usually a 6 month process.
Examples of eminent domain including condemning property in order to:
* provide highways and Roads - like taking Judy’s home to widen highway
* establish parks
* construct flood control levees
* provide land for redevelopment - TAX POWER - state and local governments also regulate the crucial power to tax real estate activities to generate revenue and fund state and local governmental functions under their police power.
- ESCHEAT POWER - similarly, escheat occurs when property reverts to the state government when someone dies with no will or heirs. There is no compensation and only the state government May acquire property through escheat, never an individual. think of it as “someone got cheated” because the property went to the government and not an individual.
Public Controls
Police Power relates to government control of public health and safety.
Zoning and Building Codes relate to government control of real estate development.
New construction is built in conformance with PUBLIC CONTROLS. Public controls are enacted through:
- State codes and regulations
- Zoning ordinances
- Local general and master plans
- Building codes
The SUBDIVIDED LANDS LAW is administered by the Real Estate Commissioner and PROTECTS BUYERS from misrepresentation or fraud in the initial sale of a subdivided property of 160 acres or less.
A subdivision, which includes land, common interest developments (CIDs or PUDs) and timeshare projects, cannot be sold in California until the Real Estate Commissioner issues a PUBLIC REPORT to be made available to buyers. The public report provides critical disclosures and information.
The SUBDIVISION MAP ACT has to do with the PHYSICAL ASPECTS of a subdivision (locally controlled through general plans and planning commissions). The Subdivision Map Act is a California - state specific - subdivision law setting forth the conditions for approval of a Subdivision map and requiring enactment of subdivision ordinances under which local governments control the types of subdivision projects which may be undertaken and the physical improvements to be installed in the area.
Basic regulation of the housing and Construction Industries is performed by:
- The state Housing Act,
- The state contractor’s license law, and
- Local building codes.
COURT PROCEDURES and JUDICIAL ACTIONS also relate to public controls including:
1. QUIET TITLE ACTION aka PERFECTING TITLE, which clears a cloud from a property title
- PROBATE, a Judicial proceeding to satisfy debt and properly distribute assets after a property owner’s death. Intestate = means without a will and goes to probate
- ADVERSE POSSESSION is a method of acquiring title to real property/real estate through possession of the property by a person other than the owner of record for a period of 5 years in an open, notorious manor. This is squatter’s rights, remember the story about professional squatters.
- INTESTATE SUCCESSION is when a property owner with airs dies with no will, title is transferred through an order of the probate court and
- EXECUTION SALE is when a property is sold to satisfy a judgement (General lien).
Environmental hazards and regulations
More on this subject later but in regards to land use controls and regulations, a NEGATIVE DECLARATION regarding a proposed development means a subdivision does NO HARM TO THE ENVIRONMENT.
Flooding, an environmental hazard, is considered “frequent” when it occurs more often than once every 10 years, this means it has to happen at least TWICE in 10 years for it to be considered frequent.
Private Controls
Private controls are restrictions/limitations on an owners use of their property created by those other than the government, such as a developer or homeowners association.
Private controls may be created individually through:
- DEED RESTRICTIONS by an owner, for example Judy buying The Oasis property and the seller wanted to put a deed restriction indicating that she was to feed all the animals at the Oasis.
- DEVELOPER’S RESTRICTIONS for a subdivision, including a Mello-Roos district
- CCR RESTRICTIONS which place limitations on a properties use mutually agreed to by all property owners in a condominium or planned unit development (PUD) .
Water Rights
Water is characterized in 1 of 2 categories based on its physical location relative to a parcel of real estate:
- SURFACE WATER, consisting of watercourses, lakes, springs, marshes, ponds, sloths and any other water flowing OVER THE SURFACE of the Earth caused by rain, snow, springs or seepage.
- GROUNDWATER, consisting of PERCOLATING, subterranean bodies of water located in UNDERDGROUND basins. You don’t see this water.
Holders of rights to withdraw surface waters are said to have RIPARIAN RIGHTS, and are called riparian land owners.
Holders of rights to pump groundwater are said to have OVERLYING RIGHTS, and are called overlying land owners.
Legal rights to extract and use water are based on priorities and are classified as:
- LANDOWNERS RIGHTS, this best, consisting of both riparian and overlying rights
- APPROPRIATEIVE RIGHTS to withdraw water under license from the state and
- PRESCRIPTIVE RIGHTS to withdraw water legally entitled to be used by others
Special Categories of Land
Every city and county has a Planning Commission, which is advised by the Local Agency Planning Department.
The Planning Commission is tasked with reviewing and approving a general plan - governing the growth of their municipality.
A general plan is all the planning - it sets forth acceptable land uses within a jurisdiction, including a statement of development policies on:
- land use
- circulation patterns
- housing
- conservation
- open space
- noise and
- safety
Special Categories of land may include:
- timeshares
- resorts
- rural subdivisions
adverse possession
Adverse possession is a method of acquiring title to real property or real estate by a person other than the owner of record through open possession of the property for a 5-year statutory AND a payment of all property taxes.
appurtenance
Appurtenances are rights belonging to a property which affect title to other property.
Appurtenances are all those rights, privileges and improvements which belong to and pass with the transfer of the property, but which are not a part of the property.
Appurtenances to real property pass with the real property, they run with the land to which they are appurtenant, unless a contrary intention is manifested. Typical appurtenances are rights of way, easements, water rights, and use of improvements located on other property.
easement
Easement is a right held by one property owner to use the land of another for a specific purpose, such as Ingress and egress to the owner’s property.
eminent domanin
Eminent domain is the right of a government to take private property for public use. The government on taking pays the owner the fair market value of the property.
encroachment
Encroachment is an improvement on one parcel of real estate which extends onto real estate belonging to another person.
encumbrance
Encumbrance is any claim or lien on a parcel of real estate, such as trust Deeds, CCRs, easements, taxes or assessments.
escheat
Escheat is the reverting of property to the state when there are no heirs capable of inheriting the property.
