120 Week 1 F /For WIZARD KIM

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Chapter 32: The real estate exists 225

After reading this chapter, you will be able to:

• distinguish between personal property and real estate; • comprehend the physical characteristics of real estate; • understand a property’s appurtenant and riparian rights; and • determine whether an item is a property fixture or trade fixture.

Learning Objectives

The real estate exists

Chapter

For most people, the term “property” means a physical or tangible thing. However, property can be more broadly defined, focusing on the rights which arise out of the object. Thus, property is referred to as a bundle of rights in a thing, which for the purposes of this material, is real estate.

Further, property is anything which can be owned. In turn, ownership is the right to possess the property owned and use it to the exclusion of others.1

The right to possess and use property includes the right to:

• occupy;

• sell or dispose;

1 Calif. Civil Code §654

Physical and legal aspects of real estate

appurtenant rights

common interest development (CID) mechanic’s lien

fixture

lien

personal property

profit a prendre

real estate

riparian right

trade fixture

Key Terms

For a further discussion of this topic, see Chapter 3 of Legal Aspects of Real Estate.

226 Real Estate Principles, Second Edition

• encumber; or

• lease the property.

Property is divided into two primary categories:

• real estate, also called real property or realty; and

• personal property, also called personalty.2

Real estate is characterized as immovable, whereas personal property is movable.3

Personal property is defined, by way of exclusion, as all property which is not classified as real estate.4

While the distinction between real estate and personal property seems apparent at first glance, the difference is not always so clear.

Real estate can be physically cut up by severance of a part of the earth (i.e., removal of minerals). Title to real estate can also be cut up in terms of time, providing sequential ownership.

For example, fee ownership can be conveyed to one person for life, and on their death, transferred by the fee owner to another. Time sharing is another example of the allocation of ownership by time, such as the exclusive right to occupy a space for only three weeks during the year.

Title to real estate can also be fractionalized by concurrently vesting title in the name of co-owners, such as tenants-in-common who each hold an undivided (fractional) ownership interest in the real estate.

Possession to real estate can be cut out of the fee ownership for a period of time. For instance, the fee owner of real estate acting as a landlord conveys possession of the property to a tenant under a lease agreement for the term of a lease. When the tenancy expires or is terminated, possession of the property will revert to the landlord. The landlord retains fee title to the real estate at all times.

Possession can also be cut up by creating divided interests in a property, as opposed to undivided interests. For example, an owner can lease a portion of their property to a tenant. The tenant, in turn, can sublease a portion of their space to yet another person, known as a subtenant.

Other interests in real estate can be created, such as liens. Liens are interests in real estate which secure payment or performance of a debt or other monetary obligation, such as a:

• trust deed lien; or

• a local property tax lien.

2 CC §657

3 CC §§659, 657

4 CC §§658, 663

real estate Land and anything permanently affixed or appurtenant to it.

personal property Moveable property not classified as part of real estate, such as trade fixtures.

Cutting up the real

estate

lien Interests in real estate which secure payment or performance of a debt or other monetary obligation.

Chapter 32: The real estate exists 227

On nonpayment of a lien amount, the lienholder can force the sale of the real estate to pay off and satisfy the lien.

Thus, an owner’s rights in a parcel of real estate extend beyond the mere physical aspects of the land, airspace and improvements located within the legally described boundaries of the property.

The physical components of real estate include:

• the raw land;

• anything affixed to the land;

• anything appurtenant (incidental rights in adjoining property) to the land; and

• anything which cannot be removed from the land by law.5

Real estate includes buildings, fences, trees, watercourses and easements within a parcel’s horizontal and vertical boundaries. Anything below the surface, such as water and minerals, or above the surface, such as crops and timber, is part of the real estate.

For example, the rental of a boat slip includes the water and the land below it, both of which comprise the total of the rented real estate. Thus, landlord/ tenant law controls the rental of the slip.6

In the case of a condominium unit, the air space enclosed within the walls is the real estate. The structure itself, land and air space outside the unit are the property of the association or all the owners of the separate parcels within the condominium project, creating what is called a common interest development (CID).7

A parcel of real estate is located by defining its legal description on the face of the earth. Using the property’s legal description, a surveyor locates and sets the corners and horizontal boundaries of the parcel.

The legal, horizontal boundary description of real estate is documented in numerous locations, such as:

• trust deeds;

• public records of the county where the parcel is located;

• subdivision maps; and

• government surveys relating to the property.

Real estate is three dimensional and reaches perpendicular to the horizontal boundary. In addition to the surface area between boundaries, the classic definition of real estate consists of the soil below to the core of the earth as well as the air space above to infinity.

5 CC §658

6 Smith v. Municipal Court (1988) 202 CA3d 685

7 CC §4125(b)

Real estate components

common interest development (CID) Condominium projects, cooperatives or single family residences in a planned unit development. [See RPI Form 135]

The boundaries of real estate

228 Real Estate Principles, Second Edition

All permanent structures, crops and timber within this inverse pyramid are also a part of the parcel of real estate. The three dimensional aspect of real estate has its source in the English common law.8

The first component of real estate is land. Land includes:

• soil;

• rocks;

• other materials of the earth; and

• the reasonable airspace above the earth.9

The soil and solid materials, such as ores and minerals, are considered land while they remain undisturbed as a part of the earth. For example, unmined gold dormant in the earth is real estate.

However, when the gold is mined, it becomes personal property since it is no longer embedded in the earth. The gold has been converted from something immovable — part of the rock below the soil — to something movable.

Minerals in the soil are severable from the earth. Also, fee ownership to the soil and minerals can be conveyed away from the ownership of the remainder of the land.

When ownership of minerals in a parcel of land is transferred, the transfer establishes two fee owners of the real estate located within the same legal description — an owner of the surface rights and an owner of the mineral rights beneath the surface.

These parties are not co-owners of the real estate, but individual owners of separate vertically located portions of the same real estate. Both fee owners are entitled to reasonable use and access to their ownership interest in the real estate.

For example, an owner sells and conveys the right to extract minerals to a buyer. On conveyance, there now exists:

• a surface owner; and

• a mineral rights owner.

Later, the surface owner conveys the real estate to a developer. The developer subdivides the parcel of real estate and plans to construct homes on the lots.

The mineral rights owner objects to the construction, claiming the homes, if built, would interfere with their right to enter the property and remove their minerals.

Is the mineral rights owner entitled to enter the property to remove the minerals?

8 CC §659

9 CC §659

Land

Right to extract

minerals

Chapter 32: The real estate exists 229

Yes! But only as necessary to use their mineral rights. The rights of the surface owner and the mineral rights owner are thus balanced to determine the precise surface location to be used to extract the minerals.10

The right to remove minerals from another’s real estate is called a profit a prendre.

Unlike solid minerals which are stationary, oil and gas are mobile. Oil and gas are referred to as being fugacious matter as they are transitory.

Oil and gas are perpetually percolating under the earth’s surface. Due to their fleeting nature, a real estate owner does not hold title to the physical oil and gas situated under the surface of their real estate. At any given time, a real estate owner will have more or less oil or gas depending on the earth’s movements. The ownership interest in unremoved oil and gas referred to as a corporeal hereditament.

In California, oil and gas are incapable of being owned until they are actually possessed. Once they have been removed, they become personal property.11

A fee owner has the exclusive right to drill for oil and gas on their premises, unless that right has been conveyed away to others for consideration.

Rather than owning the physical oil and gas, the fee owner has a right, called an incorporeal hereditament, to remove the oil or gas for their purposes.12

A land owner has the right to extract all the oil and gas brought up from their real estate even if it is taken from an underground pool extending into an adjoining owners’ real estate.13

However, an owner cannot slant drill onto another’s property to reclaim the oil or gas that has flowed from their property.14

Land also includes the airspace above the surface of a property. Under traditional English common law, the right to airspace continued to infinity. However, modern technological advances have altered the legal view on airspace.

For example, an owner runs a farm near a military airport with heavy air traffic. The government expands the military base by extending the runway to accommodate larger (and louder) aircraft. The aircraft, on their approach to the airport, now fly directly over the farmer’s barn, scaring the animals and causing the farmer financial loss.

The farmer sues the government for trespass on their real estate since the airspace is being occupied by others — the military.

10 Callahan v. Martin (1935) 3 C2d 110

11 Callahan, supra

12 Gerhard v. Stephens (1968) 68 C2d 864

13 Alphonzo E. Bell Corporation v. Bell View Oil Syndicate (1938) 24 CA2d 587

14 Alphonzo E. Bell Corporation, supra

profit a prendre The right to remove minerals from another’s real estate.

Oil and gas

Airspace

230 Real Estate Principles, Second Edition

Can the owner keep the aircraft from flying into their real estate?

No! The common law doctrine regarding the ownership of airspace to the edge of the universe is obsolete. The owner only owns the airspace necessary to allow them a reasonable use of their real estate. The owner’s real estate extends only so far above the surface of the earth as can be reasonably occupied or used in connection with the land.15

However, when the flight of airborne vehicles intrudes upon an owner’s use and enjoyment of their real estate below, the intrusive entry may constitute a taking of the real estate. The continued noise and disturbance of low-flying aircraft has effectively taken something from the owner – the quite use and enjoyment of their property. Thus, the owner is to be compensated for their loss.16

The airspace portion of land has also been modernized with the concept of the condominium. An owner of a condominium unit legally owns the right to occupy the parcel of airspace they have acquired which is enclosed between the walls, ceilings and floors of the structure.

Included in these ownership rights are incidental rights of ingress and egress, called appurtenances. Also included is the exclusive right to use other portions of the real estate for storage and parking, plus an undivided fractional interest in the common areas, directly or through a homeowners’ association (HOA).17

Also, the installation of active solar collectors has led to the right of access to sunlight and air which passes through airspace above property owned by others. This right of access to the sun for a solar collector is considered an easement.18

Water in its natural state is considered land since it is part of the material of the earth. While water is real estate, the right to use water is an appurtenant (incidental) right to the ownership of real estate. [See Chapter 36]

Three key rights in water include:

• the right to use water;

• the right to take water by appropriation; and

• the right to take water by prescriptive rights.

The right to use water is called a riparian right. Riparian rights refer to the rights of a real estate owner to take surface water from a running water source contiguous to their land, such as a river or stream.19

15 United States v. Causby (1946) 328 US 256

16 Causby, supra

17 CC §4125

18 Calif. Public Resources Code §§25980 et seq.; CC §801.5(a)(1)

19 Calif. Water Code §101

Other blue sky to be sold

Water

riparian right The right of a real estate owner to take surface water from a running water source contiguous to their land.

Chapter 32: The real estate exists 231

The right to take water can be acquired by appropriation. The appropriator of water diverts water from a river or watercourse to their real estate for reasonable use.20

Also, an individual may obtain prescriptive rights in water by wrongfully appropriating nonsurplus water openly and adversely under a claim of right for an uninterrupted period of at least five years.21

However, all water in the state of California belongs to the people based on a public trust doctrine. Riparian, appropriation, and prescriptive rights are subject to the state’s interest in conserving and regulating water use.22

Real estate includes things which are affixed to the land. Things may be affixed to the land by:

• roots (e.g., shrubs and trees);

• embedment (e.g., walls);

• permanently resting (e.g., structures); or

• physically attached (e.g., by cement or nails).23

Things attached to the earth naturally are real estate. Natural fixtures to the land, called fructus naturals, include:

• trees;

• shrubs; and

• grass.

However, natural items planted and cultivated for human consumption and use are fruits of labor, called fructus industriales.

Fructus industriales include such things as crops and standing timber. Crops and timber are ordinarily considered real estate. However, industrial crops and standing timber sold under a purchase agreement and scheduled to be removed are considered personal property.24

A fixture is personal property which has become permanently attached to real estate. As it is permanently attached, it effectively becomes part of the real estate and is conveyed with it.25

Factors which determine whether an item is a fixture or removable improvement include:

• manner of attachment

• agreement between the parties;

• relationship of the parties;

20 In re Water of Hallett Creek Stream System (1988) 44 C3d 448

21 City of Barstow v. Mojave Water Agency (2000) 23 C4th 1224

22 Wat C §101

23 CC §660

24 Calif. Commercial Code §9102(a)(44)

25 CC §660

Affixed to the land

Fixtures

fixture Personal property permanently attached to real estate and conveyed with it.

232 Real Estate Principles, Second Edition

• intention of the parties; and

• adaptability of attachment to the real estate’s use.26

These factors can be memorized using the mnemonic device MARIA.

The most important factor when determining whether an item is a fixture or improvement is the intent of the parties.

Intent to make an item a permanent part of the real estate as a fixture is determined by:

• the manner of attachment; and

• the use and purpose of the item in dispute.

For example, when an item is attached to real estate by bolts, screws, cement or the like, the item is a fixture and part of the real estate. An item need not be attached to the real estate in this manner to be a fixture. Items of such weight and size that gravity maintains them in place are sufficient to give the item the character of permanence and affixation to be real estate.

Also, the item may be constructively attached when the item is a necessary, integral or working part of improvements on the real estate.

Fixtures which are used to render services or make products for the trade or business of a tenant are called trade fixtures.

Trade fixtures are to be removed by the tenant on termination of the tenancy, unless agreed to the contrary with the landlord. The removal cannot unduly damage the real estate.27

Thus, trade fixtures are considered personal property.

To be considered a trade fixture, a fixture needs to be an essential part of the tenant’s business and its removal cannot substantially damage the real estate.

In the instance of a beauty salon, trade fixtures would include:

• mirrors;

• dryers; and

• sink bowls and installed wash stations.28

Real estate also includes any incidental rights which are not located on the real estate nor reflected on its title, called appurtenant rights. Appurtenant rights include the right of ingress and egress (entry and exit) across adjoining properties.29

26 San Diego Trust & Savings Bank v. San Diego County (1940) 16 C2d 142

27 CC §1019

28 Beebe v. Richards (1953) 115 CA2d 589

29 CC §662

Trade fixtures

trade fixture A fixture used to render services or make products in the trade or business of a tenant.

Appurtenant rights

appurtenant rights Incidental property rights which are not located on a parcel of real estate nor reflected on its title, including the right of ingress and egress across adjoining properties.

Chapter 32: The real estate exists 233

An appurtenant easement is an interest held by an owner of one parcel of real estate to use adjoining real estate. [See Chapter 40]

Under an appurtenant easement, an owner’s right to use adjoining real estate is part of their real estate, although it is not reflected on the title to the real estate. This right to use adjoining property runs with the land and is automatically conveyed with the real estate when the owner sells it. Appurtenant rights remain with the real estate they benefit and do not transfer from person to person.

Other appurtenant rights to real estate include the right to the lateral and subjacent support provided by the existence of adjoining real estate. For example, the owner of real estate cannot remove soil from their land if doing so causes the adjoining real estate to subside or collapse.

Appurtenant rights held by an owner of one property are a recorded encumbrance on title to the adjacent property burdened by the appurtenant rights, such as an easement.

Property is divided into two primary categories: real estate and personal property. Real estate is immovable whereas personal property is movable.

The first component of real estate is land, which includes materials of earth and reasonable airspace above the earth. Oil and gas are incapable of being owned until they are actually possessed. Once they have been removed, they become personal property. While water is considered real estate, the right to use water is an appurtenant (incidental) right to the ownership of real estate

Real estate also includes objects which are affixed to the land, such as fixtures. A fixture is personal property which has become permanently attached to real estate and is conveyed with it. Fixtures which are used to render services or make products for the trade or business of a tenant are trade fixtures. Trade fixtures are to be removed by the tenant on termination of the tenancy, unless agreed to the contrary with the landlord or the removal would cause undue damage the real estate.

Real estate also includes incidental rights, such as an appurtenant easement held by an owner of one parcel of real estate to use adjoining real estate.

Chapter 32 Summary

• intention of the parties; and

• adaptability of attachment to the real estate’s use.26

These factors can be memorized using the mnemonic device MARIA.

The most important factor when determining whether an item is a fixture or improvement is the intent of the parties.

Intent to make an item a permanent part of the real estate as a fixture is determined by:

• the manner of attachment; and

• the use and purpose of the item in dispute.

Also, the item may be constructively attached when the item is a necessary, integral or working part of improvements on the real estate.

Fixtures which are used to render services or make products for the trade or business of a tenant are called trade fixtures.

Trade fixtures are to be removed by the tenant on termination of the tenancy, unless agreed to the contrary with the landlord. The removal cannot unduly damage the real estate.27

Thus, trade fixtures are considered personal property.

To be considered a trade fixture, a fixture needs to be an essential part of the tenant’s business and its removal cannot substantially damage the real estate.

In the instance of a beauty salon, trade fixtures would include:

• mirrors;

• dryers; and

• sink bowls and installed wash stations.28

26 San Diego Trust & Savings Bank v. San Diego County (1940) 16 C2d 142

27 CC §1019

28 Beebe v. Richards (1953) 115 CA2d 589

29 CC §662

Trade fixtures

trade fixture A fixture used to render services or make products in the trade or business of a tenant.

Appurtenant rights

appurtenant rights Incidental property rights which are not located on a parcel of real estate nor reflected on its title, including the right of ingress and egress across adjoining properties.

234 Real Estate Principles, Second Edition

Quiz 7 Covering Chapters 31-36 is located on page 612.

appurtenant rights .................................................................... pg. 233 common interest development (CID) ................................... pg. 227 fixture ............................................................................................pg. 231 lien ................................................................................................. pg. 226 personal property ...................................................................... pg. 226 profit a prendre ........................................................................... pg. 229 real estate .................................................................................... pg. 226 riparian right .............................................................................. pg. 230 trade fixture ................................................................................. pg. 232

Chapter 32 Key Terms

Chapter 33: Fee vs. leasehold 235

Fee vs. leasehold

After reading this chapter, you’ll be able to:

• identify the different interests held in real estate; and • distinguish the different types of leasehold interests.

estate master lease

fee estate parcel

fixed-term tenancy periodic tenancy

ground lease profit a prendre

leasehold estate sublease

legal description tenancy-at-sufferance

life estate tenancy-at-will

For a further discussion of this topic, see Chapter 4 of Legal Aspects of Real Estate.

Learning Objectives

Key Terms

Chapter

Real estate, sometimes legally called real property or realty, consists of:

• the land;

• the improvements and fixtures attached to the land; and

• all rights incidental or belonging to the property.1

A parcel of real estate is located by circumscribing its legal description on the “face of the earth.” Based on the legal description, a surveyor locates and

1 Calif. Civil Code §658

A matter of possession

parcel A three-dimensional portion of real estate identified by a legal description.

236 Real Estate Principles, Second Edition

sets the corners and surface boundaries of the parcel. The legal description is contained in deeds, subdivision maps or government surveys relating to the property.

All permanent structures, crops and timber are part of the parcel of real estate. The parcel of real estate also includes buildings, fences, trees, watercourses and easements within the parcel’s boundaries.

A parcel of real estate is three dimensional. In addition to the surface area within the boundaries, a parcel of real estate consists of:

• the soil below the parcel’s surface to the core of the earth, including water and minerals; and

• the air space above it to infinity.

In the case of a statutory condominium unit, the air space enclosed within the walls is the real estate conveyed and held by the fee owner of the unit. The structure, land and air space outside the unit are the property of the homeowners’ association (HOA).

The ownership interests a person may hold in real estate are called estates. Four types of estates exist in real estate:

• fee estates, also known as fee simple estates, inheritance estates, perpetual estates, or simply, the fee;

• life estates;

• leasehold estates, sometimes called leaseholds, or estates for years; and

• estates at will, also known as tenancies-at-will.2

In practice, these estates are separated into three categories: fee estates, life estates and leasehold estates. Estates at will are considered part of the leasehold estates category. Leasehold estates are controlled by landlord/ tenant law.

A person who holds a fee estate interest in real estate is a fee owner. In a landlord/tenant context, the fee owner is the landlord.

Editor’s note — If a sublease exists on a commercial property, the master tenant is the “landlord” of the subtenant. [See Chapter 76]

A fee owner has the right to possess and control their property indefinitely. A fee owner’s possession is exclusive and absolute. Thus, the owner has the right to deny others permission to cross their boundaries. No one can be on the owner’s property without their consent, otherwise they are trespassing. The owner may recover any money losses caused by the trespass.

2 CC §761

legal description The description used to locate and set boundaries for a parcel of real estate.

Possessory interests in real estate

estate The ownership interest a person may hold in real estate.

Fee estates: unbundling

the rights fee estate An indefinite, exclusive and absolute legal ownership interest in a parcel of real estate.

sublease A leasehold interest subject to the terms of a master lease.

Chapter 33: Fee vs. leasehold 237

A fee owner has the exclusive right to use and enjoy the property. As long as local ordinances such as building codes and zoning regulations are obeyed, a fee owner may do as they please with their property. A fee owner may build new buildings, tear down old ones, plant trees and shrubs, grow crops or simply leave the property unattended.

A fee owner may occupy, sell, lease or encumber their parcel of real estate, give it away or pass it on to anyone they choose on their death. The fee estate is the interest in real estate transferred in a real estate sales transaction, unless a lesser interest such as an easement or life estate is noted. However, one cannot transfer an interest greater than they received.

A fee owner is entitled to the land’s surface and anything permanently located above or below it.3

The ownership interests in one parcel may be separated into several fee interests. One person may own the mineral rights beneath the surface, another may own the surface rights, and yet another may own the rights to the air space. Each solely owned interest is held in fee in the same parcel. [See Case in point, “Separation of fee interests”]

In most cases, one or more individuals own the entire fee and lease the rights to extract underground oil or minerals to others. Thus, a fee owner can convey a leasehold estate in the oil and minerals while retaining their fee interest. The drilling rights separated from the fee ownership are called profit a prendre.4

Profit a prendre is the right to remove profitable materials from property owned and possessed by another. If the profit a prendre is created by a lease agreement, it is a type of easement.5

A life estate is an interest in a parcel of real estate lasting the lifetime of an individual, usually the life of the tenant. Life estates are granted by a deed entered into by the fee owner, an executor under a will or by a trustee under an inter vivos trust.

Life estates are commonly established by a fee owner who wishes to provide a home or financial security for another person (the life tenant) during that person’s lifetime, called the controlling life.

Life estates terminate on the death of the controlling life. Life estates may also be terminated by agreement or by merger of different ownership interests in the property. The holder of a life estate may not impair the fee interest.6

Leasehold estates, or tenancies, are the result of rights conveyed to a tenant by a fee owner (or by the life estate tenant or master lessee) to possess a parcel of real estate. 3 CC §829

4 Rousselot v. Spanier (1976) 60 C3d 238

5 Gerhard v. Stephens (1968) 68 C2d 864

6 CC §818

Exclusive right to use and enjoy

profit a prendre The right to remove minerals from another’s real estate.

Life estates and the life tenant

life estate An interest in a parcel of real estate lasting the lifetime of the life tenant.

Leasehold estates held by tenants

238 Real Estate Principles, Second Edition

tenancy-at-will A leasehold interest granted to a tenant, with no fixed duration or rent owed. A tenancy-at-will can be terminated at any time by an advance notice from either party.

periodic tenancy A leasehold interest which lasts for automatic successive rental periods of the same length of time, terminating upon notice from either party. [See RPI 551 and 552-5]

fixed-term tenancy A leasehold interest which lasts for the specific lease period set forth in a lease agreement. A fixed term tenancy automatically terminates at the end of the lease period. [See RPI Form 550 and 552]

Tenancies are created when the landlord and the tenant enter into a rental or lease agreement that conveys a possessory interest in the real estate to the tenant.

The tenant becomes the owner of a leasehold with the right to possess and use the entire property until the lease expires. The ownership and title to the fee interest in the property remains with the landlord throughout the term of the leasehold. The landlord’s fee interest is subject to the tenant’s right of possession, which is carved out of the fee by the lease agreement.

In exchange for the right to occupy and use the property, the landlord is entitled to rental income from the tenant during the period of the tenancy.

Four types of leasehold estates exist and can be held by tenants. The interests are classified by the length of their term:

• a fixed-term tenancy, simply known as a lease and legally called an

estate for years; • a periodic tenancy, usually referred to as a rental;

• a tenancy-at-will, previously introduced as an estate at will; and

• a tenancy-at-sufferance, commonly called a holdover tenancy.

A fixed-term tenancy lasts for a specific length of time as stated in a lease agreement entered into by a landlord and tenant. On expiration of the lease term, the tenant’s right of possession automatically terminates unless it is extended or renewed by another agreement, such as an option agreement. [See Figure 1, Form 552 §3.1]

Periodic tenancies also last for a specific length of time, such as a week or a month. Under a periodic tenancy, the landlord and tenant agree to automatic successive rental periods of the same length of time, such as in a month-to-month tenancy, until terminated by notice by either the landlord or the tenant.

In a tenancy-at-will (also known as an estate at will) the tenant has the right to possess a property with the consent of the fee owner. Tenancies-at- will can be terminated at any time by an advance notice from either the landlord or the tenant or as set by agreement. Tenancies-at-will do not have a fixed duration, are usually not in writing and a rent obligation generally does not exist.

A tenancy-at-sufferance occurs when a tenant retains possession of the rented premises after the tenancy granted terminates. [See Chapter 34]

In addition to the typical residential and commercial leases, you will find special use leases.

Oil, gas, water and mineral leases convey the right to use mineral deposits below the earth’s surface.

leasehold estate The right to possess a parcel of land, conveyed by a fee owner (landlord) to a tenant.

Types of leaseholds

Leaseholds conveying

special uses

Chapter 33: Fee vs. leasehold 239

The purpose of an oil lease is to discover and produce oil or gas. The lease is a tool used by the fee owner of the property to develop and realize the wealth of the land. The tenant provides the money and machinery for exploration, development and operations.

The tenant pays the landlord rent, called a royalty. The tenant then keeps any profits from the sale of oil or minerals the tenant extracts from beneath the surface of the parcel.

A ground lease on a parcel of real estate is granted to a tenant in exchange for the payment of rent. In a ground lease, rent is based on the rental value of the land in the parcel, whether the parcel is vacant or improved. Fee owners of vacant, unimproved land use leases to induce others to acquire an interest in the property and develop it.

An original tenant under a ground lease constructs their own improvements. Typically, the tenant encumbers their possessory interest in a ground lease with a trust deed lien to provide security for a construction loan.

Master leases benefit fee owners who want the financial advantages of renting fully improved multi-tenant property, but do not want the day-to- day obligations and risks of managing the property.

For instance, the fee owner of a shopping center and a prospective owner- operator agree to a master lease.

Another type of special-use lease is the farm lease, sometimes called a cropping agreement or grazing lease. Here, the tenant operates the farm and pays the landlord either a flat fee rent or a percentage of the value of the crops or livestock produced on the land.

Easements and use licenses are not real estate but they give a holder of the rights a limited and nonexclusive use of someone else’s property. [See Chapter 40]

An easement is a right to use another’s property for a specific purpose. An easement is an interest held in someone else’s real estate. It grants its holder the right to limit the activities of others on the property burdened by the easement, including the owner of the burdened property.7

For example, a landowner holds an easement allowing them to construct and have access to a pipeline across their neighbor’s property. The neighbor’s right to develop their own property is limited since the neighbor may do nothing to interfere with the easement owner’s access to the pipeline.

A license grants its holder a personal privilege to use property, but no possessory right to occupy it to the exclusion of others. Unlike easements, licenses are not exclusive rights — an owner may give many licenses to per- form the same or different activity in the same area.

Unlike an easement, a license may be revoked at the will of the person who grants it, unless agreed to the contrary or it has become irrevocable.

7 CC §§801 et seq.

tenancy-at-sufferance A leasehold condition created when a tenant retains possession of the rented premises after the tenancy has terminated. [See RPI Form 550 §3.3]

ground lease A leasehold interest for which rent is based on the rental value of the land, whether the parcel is improved or unimproved.

master lease A leasehold interest granted to a master tenant with the right to sublease the property in exchange for rent paid to the fee owner.

The rights of others in a property

240 Real Estate Principles, Second Edition

Covenants, conditions and restrictions (CC&Rs), collectively called encumbrances, are recorded against title to a property and limit an owner’s right to use their property. By recording restrictions against the title to real estate on a sale, a seller may prohibit certain uses of the property, or require the property be used for specific purposes only. [See Chapter 37]

Regulations governing how a condominium owner may use their unit and the rights and responsibilities of the common interest development (CID) are typically contained in a declaration of CC&Rs filed with the condominium subdivision plan.

The CC&Rs bind all future owners to comply with the CC&Rs since the use restrictions they contain run with title to the land. [See Chapter 37]

Binding on all future owners

Four types of estates exist in real estate: fee estates, life estates, leasehold estates and estates at will. In practice, estates at will are considered leasehold estates. Leasehold estates are controlled by landlord/tenant law.

Four types of leasehold interests exist and can be held by tenants: fixed- term tenancies, periodic tenancies, tenancies-at-will and tenancies- at-sufferance. In addition, several special use leases exist, including ground leases, master leases and subleases.

estate ............................................................................................... pg. 236 fee estate ........................................................................................ pg. 236 fixed-term tenancy ...................................................................... pg. 238 ground lease .................................................................................. pg. 239 leasehold estate ........................................................................... pg. 238 legal description .......................................................................... pg. 236 life estate ........................................................................................ pg. 237 master lease ................................................................................... pg. 239 parcel............................................................................................... pg. 235 periodic tenancy .......................................................................... pg. 238 profit a prendre ............................................................................ pg. 237 sublease .......................................................................................... pg. 236 tenancy-at-sufferance ................................................................ pg. 239 tenancy-at-will ............................................................................ pg. 238

Chapter 33 Summary

Chapter 33 Key Terms

Quiz 7 Covering Chapters 31-36 is located on page 612.