2. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. R EAL AND P ERSONAL P ROPERTY Chapter 8 Meiners, Ringleb & Edwards The Legal Environment of Business, 12 th Edition

3. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. L AW OF P ROPERTY Oldest part of common law Concepts from common law developed in England from 12 th to 16 th centuries Right guaranteed and protected by government Real Property: immovable (i.e. land) Personal Property (chattel): moveable (i.e. furniture and clothing) Contract law is used to make arrangements about the property use.

4. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. R EAL P ROPERTY Land Under - oil, minerals Attached - buildings, trees Property - “legally protected expectation of being able to use a thing for one’s advantage.’’ Owner has a “bundle of legal rights”. Governmental regulations may restrict property owner’s land use. (i.e. Endangered Species Act re: rare plants and animal protection)

5. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. D EEDS AND T ITLES Deeds o Most common way to transfer ownership o Quitclaim Deed vs. Warranty Deed vs. Special Warranty Deed o ID original owner, describe land, ID new owner, & state that the ownership is being transferred, possibly subject to certain conditions o Warranty deeds most often used in business property transactions – safer. Warrant there are no liens or encumbrances on property Titles o Comes from receipt of valid deed; is means by which owner has legal possession of the property o “Formal right of ownership” – sell, enjoy, give it – control it o Titles are recorded by state officials (usually county) o When property is transferred, usual to obtain title insurance

6. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. F EE S IMPLE Fee Simple - Indefinite time and right to dispose of real property; strongest form of ownership Up in the air “to the skies” Down to the core “to the center of the earth” these rights can be sold separately subsurface mineral rights often legally separated in Civil Law countries, all mineral rights belong to government Can be inherited, transferred, sold in part or in whole

7. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. T ENANCIES Tenancy in Common Each tenant (owner) has undivided interest in property If one tenant dies, that interest passes to estate/heirs Joint tenancy Each tenant has same interest in undivided possession of property Right of survivorship – if one tenant dies, ownership passes to other owner Joint tenants can force an end to joint tenancy by transferring an interest into a tenancy in common Tenancy by the Entirety Available only to married couples Used in little more than ½ of the states One tenant cannot force an end to it except by divorcing the other Life Estates Have use of land for life of tenant for life - but can’t ruin it!

8. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Form of ownership through common law Separates the legal and beneficial ownership of property Settlor (grantor) places property into a trust (often through what is call a deed of trust). Trustee owns legal title. Beneficiary holds an equitable title to the property. Trustee has a duty to manage the property for benefit of the beneficiary. Business Trusts commonly used in place of partnerships or corporations Beneficiaries receive certificates of beneficial ownership Can be traded like stocks & bonds T RUSTS

9. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. I NTERNATIONAL P ERSPECTIVE I NTERNATIONAL P ERSPECTIVE “INSECURE PROPERTY RIGHTS” In U.S., property ownership is by private parties or the government. Not so in other parts of the world. Farmers do not own land they farm; city dwellers do not own land under the houses they have built. Philippines: 1/3 of agricultural land and 43% of dwellings have clear title Peru: 81% of farmed land isn’t owned; only 1/2 of urban dwellings have clear title Haiti: 97% farm land not owned, just occupied by users Egypt: 92% of urban dwellings and 83% of farms are “unowned” Theory is that the persistence of poverty in such countries reduces the chance to capitalize on the value people place in farms and houses. With no secure property rights, economic progress is enjoyed by a minority who live in the formal economy.

10. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. E VOLVING P ROPERTY L AW : C ONDOMINIUMS Not seen much before 1960s; law adapts to how people want to live. Fee simple estate may apply Living space in building is owned in fee simple (numerous conditions attached) BUT land building sits on, as well as elevators & lobbies, are held in common (for condo owners) by another person (business) Most states have statutes to simplify the legal process of modern living arrangements consistent with traditional property law.

11. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Servitudes Property requirements imposed by an owner Positive and negative requirements Easements and covenants most important servitudes Easements Right to enter land of another and make use of it or take something If permanent, “runs with the land” Examples: sidewalks, utilities Becoming common in connection with solar and wind energy  Neighbors usually cannot block sunlight or solar collectors.  Can’t block wind from turbines. S ERVITUDES

12. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A DVERSE P OSSESSION Must be: Actual - does in fact possess property Open - visible so owner is on notice Hostile - without consent of owner Exclusive - not shared with others who have no right Continuous - goes on without major interruption State laws vary on time required – from 5-20 years

13. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE M ORAN V. S IMS Sims owned property surrounded by Moran property. Deed was recorded in 1985, but property in the family for over 50 years. Sims built a home in 1991. Access to property by driveway across the property bought by Moran in 1996. Sims asked the court to grant him an easement. Trial court held that Sims has a prescriptive easement; allowed use of driveway on Moran’s property. Morans appealed. HELD: Affirmed. Elements of adverse possession proven. Use of the property was Open and visible: Sims used the driveway since 1985 Hostile: No proof Morans consented (as owners) for Sims to use drive Claim of Ownership: Sims bought gravel for drive & hired it spread Exclusive: Driveway used by Sims family & those they permitted to use it Peaceful: No evidence of dispute of use of driveway Continuous/Uninterrupted for 10 years: Deed recorded in 1985; property in the family for 50 years.

14. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Covenants or Covenant Running With the Land Not actual legal interest in an estate More like a contract with an estate Most residential subdivisions have covenants May burden or benefit the land Tool for developing real estate Goes with the estate from owner to owner  “Covenant runs with the land” See Thayer v. Hollinger C OVENANTS

15. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE T HAYLER V. H OLLINGER Hollinger and Williams bought a lake and 800 acres around it in 1965. Subdivided the land around lake – 75 lots – sold as “lakeshore lots”. Developers of Big Sky Lake also built Perimeter Road around the lake. Homeowner lots are on lakeside of road. Homeowners association now owns the road. Hollinger and Williams kept land on the outside of the road. That land has trails on it that Hollinger allowed use by lakeside lot owners for hiking and horseback riding When lot owners began to drive motorized vehicles (including ATVs, snowmobiles, motorcycles) on trails, Hollinger blocked access. Group of lot owners sued, contending they had an easement to use trails with motorized vehicles. Said that use was establish by covenants on the property. District Court Held: Had no right of access. Lot owners appealed. (Continued)

16. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Easement for right of way is a servitude (servient tenement) in favor of another parcel of land (dominant tenement). Homeowners claimed right of way attached to their lots as dominant tenements. Homeowners claim their right of way arises from documents that documents established easement rights across Hollinger's’ land Homeowners relied on “Restrictive Covenants for Big Sky Lake” recorded in 1968 – as source of easements. Those covenants granted them right of way for ingress and egress “over roads as the same have been constructed by the Company.” This was “applicable to the perimeter road, which shall be the outer boundary of each tract and subdivision” and to the “middle access of roads.” Thus connecting the perimeter road to roads leading to each lakeshore lot. HELD: Affirmed. No established right of homeowners to easements over Hollinger's’ land. Hollinger's’ land is all outside the Perimeter Road. Easements in documents limited to roads constructed by the Company after 1965. No evidence that Company constructed the Hollinger roads after 1965. Restrictive Covenants do not provide any clear description of any roads on the Hollinger's’ land. C ASE C ASE T HAYLER V. H OLLINGER

17. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. L ANDLORDS AND T ENANTS Landlords and tenants Rented property is called a leasehold Landlord has interest of some length Tenant possesses estate for a fixed period or at will as determined by landlord Leased property is assumed at law to have an implied warranty of habitability.

18. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Can be commercial or residential ID parties Describes premises being leased States how long in effect States how much rent is to be paid Does not have to state a specific end Can go month to month Usually also: Who pays utilities, taxes, insurance Where/when rent is paid Terms of damage deposit Who is responsible for repairs/maintenance Subleasing Termination provision L EASES

19. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. R IGHTS AND D UTIES OF A T ENANT R IGHTS AND D UTIES OF A T ENANT Right of possession during lease Can exclude other parties Landlord must make essential repairs or may have constructive eviction Tenant may not: Abuse property Commit waste Remove valuable property Be nuisance to neighbors Engage in illegal activities on property

20. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C OMMERCIAL L EASES C OMMERCIAL L EASES Commercial leases often drafted by the lessor’s legal department Based on state law requirements and experiences with previous tenants Tend to be long and detailed Cover many issues Description of leased space is often defined by terms used by the Building Owners and Mangers Association (BOMA) Recognized authority in setting standards for commercial leases

21. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE N IELSON V. G OLD ’ S G YM Peterson signed lease with Nielsen to lease “premises” in a strip mall for a gym for 3 years at $0.85 annually per square foot. Nielsen was still constructing the building at the time of the lease. Contractor told Peterson it would cost $168,000 to improve the building shell for the gym. Peterson discussed with Nielsen who would pay for the interior improvements. Couldn’t reach agreement. Peterson walked away. Nielsen leased to another party. Nielsen sued for $112,000 for breach of contract & loss for renting space for less than Peterson had agreed to. Trial court held lease was unenforceable for lack of agreement of the nature and extent of the property to be leased. (Continued)

22. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. HELD: Affirmed. Lease is unenforceable for lack of mutual assent of terms of who will pay for the improvement. Building was a shell when lease was signed. Not clear from the lease who would pay for modifications. No evidence of industry standards of who would be responsible for payment in this situation. Costs of improvements would have consumed more than half of the rents over the 3-year lease term. Payment for improvements is not essential to every commercial lease agreement. HOWEVER, here it was an essential part of the bargain to be reached. Missing term creates an ambiguous lease and no mutual assent by the parties. C ASE C ASE N IELSON V. G OLD ’ S G YM

23. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. P UBLIC C ONTROL OF R EAL P ROPERTY Eminent Domain Government can force sale of property or granting of easement without consent of owner Must prove need for a public purpose 5th Amendment requires “just compensation” Police Powers Zoning: Control land use with regulations Is there compensation? Yes, but when property loses value, compensation may not appear to be “just” to an owner. Sometimes negotiated & sometimes statutes provide method for valuation. See Saadala v. East Brunswick Zoning Board of Adjustment

24. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE S AADALA V. E AST B RUNSWICK Z ONING B OARD OF A DJUSTMENT 7-Eleven had a store with 6 parking spaces on ½ acre lot in East Brunswick, NJ. Part of the lot is zoned residential, but store existed before zoning. Store was “grandfathered in” as a preexisting nonconforming use. Next to 7-Eleven is vacant Shall gas station. It also was “grandfathered in”. 7-Eleven wanted to take over the gas station property and build retail gas operation. Requested the preexisting nonconforming use be extended. Saadala, area resident, opposed classification. Zoning Board approved it anyway. Decision affirmed by County Trial Court. Saadala appealed. (Continued)

25. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. HELD: Judgment reversed. 7-Eleven loses. Court looked at N.J. statute re: repair and restoration of structure existing at time of passage of new ordinance. Purpose of limited nonconforming uses is to prevent any increase or change in nonconformity. Under 7-Eleven’s redevelopment plan, new business operation would mean 3 new islands to dispense gas, a kiosk, and 11 new parking spaces. This is not simply an expansion of the convenience store or former Shell gas station. Is a substantial change in use of the property. 7-Eleven failed to show this property “peculiarly fitted” for a mini-mart Failed to show “special reasons” for approval of a use variance for its redevelopment plan 7-Eleven cannot use property as they proposed. C ASE C ASE S AADALA V. E AST B RUNSWICK Z ONING B OARD OF A DJUSTMENT

26. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. T ORTS AGAINST P ROPERTY Trespass to Land: Unauthorized intrusion that interferes with another’s peaceful enjoyment of their property Belief by trespasser that property belongs to him/her is not relevant -- still a trespass Property owner may not intentionally harm trespasser or set a trap – but usually no duty to warn of dangerous conditions on the property Private Nuisance: interference with use & enjoyment of land Destruction of crops, causing health risks from pollution, throwing objects on the land, using the neighboring house for drug deals Public Nuisance: Interference with a right held in common by general public Illegal gambling, bad odors, obstruction of a highway Trespass to Personal Property: Interference with the right of an owner to the exclusive use and enjoyment of property Conversion: Unlawful control of another’s personal property Misappropriation: Invasion of property rights such as trademarks or trade secrets (next chapter)

27. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE S MITH V. K ULIG Kulig owns building with apartments on second floor. Street door to apartments locked; only tenants and their guests can access. Back of building is a fire escape. Tenants are not to use fire escape unless an emergency. “No trespassing” signs posted on fire escape. Smith visited Wolf at his apartment in the building. Smith went to fire escape; some bolts detached from wall; Smith fell to his death. Estate sued Kulig. Trial Court: Dismissed, holding Smith was a trespasser. Appealed.

28. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE S MITH V. K ULIG Held: Affirmed. Wrongful death action dismissed with prejudice. Trespasser is a person who enters or remains on premises without privilege or consent. Building contained no trespass signs, as did door leading to and from fire escape. Ladder to the fire escape had no trespassing sign. Smith did not have the right to use fire escape as entry or exit to building – there was no emergency situation here. Landowner does not owe duty to trespasser other than not harming him in wanton or willful manner.

29. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE S OWERS V. F OREST H ILLS S UBDIVISION Sowers wanted to build a wind turbine to generate electricity on his residential property Neighbors not pleased. Turbine would generate noise Would cause shadow flicker Ruin their view Reduce property values Members of subdivision sued for permanent injunction from construction of turbine Said it was a nuisance. District Court granted injunction. Sowers appealed. (Continued)

30. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Several kinds of nuisances Nuisance per se: nuisance at all times under any circumstances, regardless of location/surroundings Nuisance in fact (nuisance per accidents): nuisance by reasons of circumstances/surroundings Test: Whether business or use of property constitutes a nuisance is the reasonableness of the operation particular to a locality and existing circumstances. Whether property use is a nuisance to neighbors? Balance competing interests. Was turbine so unreasonable and substantial to amount to nuisance versus the utility of the conduct (turbine use)? Activity is substantial if normal persons would regard it as “offensive, seriously annoying or intolerable.” Means “gravity of harm outweighs the social value of the activity” HELD: The turbine is a nuisance in fact. Permanent Injunction issued. Noise, diminution of property value, shadow flicker and aesthetics outweigh the utility of the wind turbine. C ASE C ASE S OWERS V. F OREST H ILLS S UBDIVISION

31. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. I SSUE S POTTER I SSUE S POTTER “PROTECTING COMPANY PROPERTY” Problems with theft of company property Pens Staplers Reams of paper More expensive items It all adds up Can a policy informs employees that taking supplies is theft of company property and makes them subject to dismissal? Do we have to notify employees of this policy at all?

32. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. T ORTS AGAINST P ROPERTY O WNERS Is a person harmed on the property a trespasser or an invitee? Customers are invitees, not trespassers. What duty of care must property owners take to insure safety on their property? In business, the big tort is premises liability.

33. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. P REMISES L IABILITY Accidents that result from negligence of the business Common are “slip-and-fall” cases Duty to keep premises reasonably safe under the circumstances Duty to inspect premises for dangers and correct problem or warn invitees However, if a danger is obvious, people have duty to protect themselves by acting reasonably. See DiPietro v. Farmington Sports Arena, LLC See Issue Spotter “Duties to Elderly Customers”

34. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE D I P IETRO V. F ARMINGTON S PORTS A RENA, LLC Michelle DiPietro (age 11) playing soccer at Farmington Indoor Sports Arena. Foot “stuck” on playing surface (Astroturf-like carpet). Fell. Suffered severe ankle injury. Mother brought lawsuit. Did fall result from “a “dangerous and defective condition with playing surface?” Inspection found surface was in good condition – No problems like tear or hole. No player ever complained of problem. Trial Court: Summary judgment for defendants. (Continued)

35. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Owner has duty to keep premises safe and warn of unexpected dangers. Notice to invitees of unsafe condition. HELD: Affirmed. No breach of business owner’s duty to invitees unless they had actual or constructive notice of that danger Plaintiff failed to establish issue of material fact that business had actual or constructive notice of dangerousness of carpet. C ASE C ASE D I P IETRO V. F ARMINGTON S PORTS A RENA, LLC

36. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE E RICHSEN V. N O -F RILLS S UPERMARKETS OF O MAHA Erichsen went grocery shopping at No-Frills one morning. Returned to her car, assaulted, beaten, robbed, dragged over one mile hanging from the car of assailant. Suffered serious injuries. Sued No-Frills and owner of shopping center for negligently failing to warn of criminal activity. Said defendants failed to protect her from foreseeable criminal activities (10 criminal events within 16-months). Trial court held defendants did not violate duty of care to Erichsen. She appealed.

37. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. C ASE C ASE E RICHSEN V. N O -F RILLS S UPERMARKETS OF O MAHA HELD: Remanded to trial court for further proceedings. Property owner is not an insurer of safety until he knows that acts of 3 rd persons are occurring or could occur. If owner has “reason to know, from past experience” that there is danger, he has a duty to take precautions, e.g. warnings, servants to offer protection. One incident does not constitute notice of criminal activities that were foreseeable. However, here there were prior criminal events in the area. Erichsen can go to trial with facts of the case against defendants.