Much of the U.S. body of law is devoted to the idea of property. Rights in
property often represent the most valuable asset that a business possesses.
Real property interests include ownership of land and/or buildings, while
personal property interests can range from ownership of a vehicle or
furniture to ownership of a patent or copyright. Businesses depend on
property interests and the ability to transfer those interests in exchange for
other assets.
In the United States (and elsewhere), law distinguishes between real
(land/buildings on the land) and personal property. Personal property is
anything that is not real property—any property that is moveable, such as
furniture, motor vehicles, signs, animals, annual crops, and the like.
Intangible items such as stocks, patents, copyrights, and creative products
such as books, art, and musical recordings are also considered to be
personal property. Certain tax and other legal implications may exist for
both real and personal property. For example, some jurisdictions allow liens
on personal property as well as on real property; in other jurisdictions, liens
on personal property are more limited.
Types of Ownership or Interests in Real Property
Ownership in “fee simple absolute” represents the right to possess real
property for life and to will the property to heirs upon death. “Fee simple
absolute” is the most complete interest in real property. A “conditional
estate” is an interest comparable to fee simple absolute, except that the
interest will terminate upon the occurrence or non-occurrence of a
specified condition. A “life estate” is granted for the lifetime of an individual;
the right to possess property terminates upon the life estate holder’s death,
and the property will then pass to another party designated by the original
grantor.
A “future interest” in real property is a person’s right to property ownership
and possession in the future. A “leasehold estate” represents the right to
possess property for a stipulated period of time. An easement constitutes
an irrevocable right to use a portion of another’s land for a specified
purpose.
“Easements,” “profits,” and “licenses” are examples of “non-possessory”
estates. An easement is the irrevocable right to use part of another’s land
for a specific purpose, without taking anything from the land. An example of
an easement is a utility easement. A profit is the right to enter another’s
land and take part of the land or take away a product of it. An example of a
profit is the right to harvest timber from another’s land. A license is the
temporary, revocable right to use another’s property. An example of a
license is a theater ticket.
Real property can be co-owned through “tenancy in common,” “joint
tenancy,” or “tenancy by the entirety.” With tenancy in common, equal or
unequal shares may be held by co-owners, and creditors can attach any
owner’s interest. A deceased owner’s share in a tenancy in common is
transferred to his or her heirs. A joint tenancy is represented by equal
ownership shares. Creditors can attach any owner’s interest in a joint
tenancy, and a deceased owner’s share is reapportioned equally among
surviving joint tenants. A tenancy by the entirety is available only to married
couples; ownership shares are equal, one owner’s creditors cannot attach
the property, and a deceased owner’s share passes to the surviving spouse.
Transfer of Ownership
A voluntary transfer of real property requires execution of the deed,
delivery of the deed to the grantee (with the intent to transfer ownership of
the real property to the grantee), the grantee’s expression of the intent to
possess and own the property (in other words, the grantee’s acceptance),
and filing the deed with the appropriate county office in order to protect
the interests of the grantee (a process known as “recording”).
Ownership of real property can expose owners to liability for personal or
business debts and judgments. Having proper insurance that covers home-
based business activities is crucial. Additionally, landowners who operate a
business on their home property might consider selling or leasing their land
to the business (if it is a corporation) to provide some measure of protection
from personal liability. This is typically not an option for sole proprietorship
and partnerships that operate a home-based business, and thus they may
have a greater risk of personal liability exposure.
Adverse “possession” and “condemnation” are two types of involuntary
transfers of real property. Adverse possession occurs when a person openly
treats real property as his or her own, without protest or permission from
the real owner, for a statutorily established period of time. Upon
satisfaction of the adverse possession requirements, ownership is
automatically vested in the adverse possessor. Through condemnation, the
government acquires ownership of private property for “public use” after
“just compensation” is paid to the owner, even if the property owner
protests the condemnation.
Restrictions on Land Use
A person who has an ownership or lease interest in real property is not free
to do anything he or she wants with that property. There are many federal,
state, and local laws governing land use. For example, you would likely be
prohibited from opening a strip club next to an elementary school or
building a fireworks factory in a residential neighborhood.
Restrictions on land use include “restrictive covenants” and “zoning.”
Restrictive covenants are typically written into the deed and reflect
promises to use or not to use land in particular ways. Zoning is the
restriction of property use to allow for the orderly growth and development
of the community and to protect the “health, safety, and welfare” of its
citizens. It is importantthat business owners and managers learn the zoning
regulations applicable to the properties utilized by the business.
