OUTLINE

PROPERTY OUTLINE - Bosselman I. BUNDLE OF STICKS THAT MAKE UP PROPERTY A. PROPERTY RIGHTS: (Subject to laws of land, not absolute.) 1. Possession: Right to possess land. i.e. lease = temporary possession. 2. Exclusion: You can exclude people from your property. i.e. build a fence. 3. Sell: You can sell your property. Only owner has right to sell. 4. Use: Right to use your property because it‟s yours. * Real v. Personal Property Real: Land, buildings attached to land, real estate. Personal: Moveable, tangible things. I.e. books, cars, computers, pop cans. B. CONQUEST OF THE NEW WORLD 1. Land was the only property that had value. Entailment: All property was owned by the Lord and passed on from Father to son. Land, thus, was not for sale. Tool of stability from the Royalty. No hope for advancement. Europeans though New World would bring new land that could be owned. 2. Property Rights Derived from Competing Sovereigns Johnson v. M’Intosh:   Chiefs had rightful possession of the land they sold. Forced Seizures of Property from American Indian NationsTee-Hit-Ton Indians v. U.S. :  Facts: The Tee-Hit-Tons claimed that the US gov‟t‟s K to sell Alaskan timber constituted taking of their property, which they had possessed communally since before the Russians came to Alaska.  Rule: Mere possession does not constitute ownership for the purposes of the 5th amendment the Indians‟ use of land was mere sovereignty, not ownership. C. DISTRIBUTION OF PUBLIC LANDS 1. Homestead Act 2. Squatters - one who takes possession of property without title or legal right to use it. 3. Freed Slaves/Emancipation Proclamation - slaves freed after civil war, no longer considered property. D. SOURCES 1. Wild Animals Pierson v. Post: 3. Rule: 2 people claim title to the same title. 1) Examine the chain of title; 2) Decide who had superior claim.     Rule: You don‟t get property in a wild animal unless you have captured it or are very close to catching it, i.e. having it in the net, or mortally wounding it. There is no such thing as unpossessed land now (in 1803 there was unclaimed land). State govt. owns the wildlife. Neither Pierson nor Post would have gotten title to the fox if it were on possessed land. You have to discover property and settle it Pierson just discovered it. 2 points of view: 1. Property is a question of possession. 2. Labor theory of property: Property belongs to person who mixes their labor into it and give its value. 2. Oil and Gas 1  Elliff v. Texon:   Rule: If you own the land, you own everything from that land to the center of the earth. 3. 4. Law of Capture: Whoever captures it, owns it. Oil here is like the fox, it goes from place to place where humans can‟t control. If someone else gets it before you get it, it‟s their property. It may technically be Elliff‟s oil, but it flows into Driscoll‟s well, Driscoll has possession of it and it becomes his oil. Water Law: Whoever gets there first, divide it up. News, Copyright, and Human Genes (Intellectual Property)  International News: When you give your property to the public, it is no longer your property. News can‟t be property because the Creator of it has abandoned property rights. News is like the fox. News is your property only if you have it in your possession. Once it is no longer in your possession, it is no longer your property. (Brandeis). Sony Corp: Universal Studios sued Sony VCR for copyright infringement. Supreme Ct. decided that the manufacturers of VCRs were not responsible for copyright infringement. (Different from news because news can‟t be copyrighted, it can‟t be owned as property by someone). Judges in Pierson would have favored Sony. Labor theory in dissent of Pierson would have favored Movie makers. Moore case: Issue of conversion They were taking Moores property rights and using the cells, Moore gave up his right to his tissues. Majority agreed with dissenting judge that Moore should have been informed. Moore was told that his cells were being used to treat his leukemia.   E. POSSESSION 1. Relativity of Title: You may be considered owner of title by one person but not by the other. Title is not absolute, it is relative.     Rule: When neither party is the true owner, the person in prior peaceable possession prevails over someone who later obtains possession. i.e. Moore case: Moore had title to his cells, but he did not have title to them relative to a medical researcher once they are outside his body. i.e. Intl. News case: AP had title to the news relative to INS. Public had title to the News once AP released it. 2. Tapscott case: Cobbs brings ejectment suit to get Tapscott off land (he tried to get patent). If someone was in peaceable possession of the property and someone ousted them, the peaceable first owner gets it. Cobbs could claim that Lewis was in prior peaceable possession. The court presumes that the heir of the peaceable possessor continues to possess the land. Improving Trespasser a. Removal of Encroaching Structure - Relative Hardship Approach - majority of states adopt the relative hardship approach: if the encroachment is innocent (result of mistake) and the harm minimal, the interference in the true owner‟s property interests small, and the costs of removal substantial, courts often refuse to grant an injunction ordering removal of the structure - the just order the trespasser to pay owner the FMV of what was lost.  Williams v. South & South Rentals, Inc. held that mere inconvenience and expense are not sufficient to withhold injunctive relief. The relative hardship must be disproportionate.  Warsaw v. Chicago Metallic held that “relief by way of a mandatory injunction will not be denied on the found that the loss caused by it will be disproportionate to the good accomplished, where it appears that the D acted w/ a full knowledge of the complainant‟s rights and with an understanding of the consequences which might ensue.” b. Removal of Encroaching Structure when it improves property owner’s land - When the trespasser built upon the owner‟s land in good faith, by sheer mistake of which lot he was 2 building on, the doctrine of unjust enrichment is applied and, like in Somerville v. Jacobs, the court of equity can award $$ to the trespasser in the amount of the improvements made to the owner‟s land, or can require the land to be conveyed to the trespasser at the FMV of the lot the value of the improvements. If, however, the trespasser improves the land in bad faith, he will not be granted a right to compensation and will ordinarily be required to remove the encroaching structure. Goulding v. Cook.  Sommerville v. Jacobs - Issue: is an improver who mistakenly improves the land of another entitled to the value of the improvement which the landowner has benefited from? Holding: Judgment for , he can recover the cost of the warehouse. Sometimes, equity will replace the common law rule w/ the duty to reimburse the innocent person due to the encroachment on the landowner‟s land. It would be inequitable to allow one to be unjustly enriched by the labor of another who acted in good faith. If the landowner made the argument that the land was really unique, there may have been a different result but in this situation, the only uniqueness of the land seems to be for investment purposes, so the common law rule overrides the uniqueness argument. Dissent: strongly disagreed - more concerned w/ the property owner‟s rights - he didn‟t do anything wrong, and shouldn‟t have to take any of the options. 3. Adverse Possession  When one possesses another‟s property by meeting the 4 part test for a period defined by state statute, the rules in force transfer title from the title holder to the adverse possessor. If possession lasts for more than the period defined by the SOL, the owner is barred from bringing an action in ejectment against the possessor. This doctrine transforms trespassers into owners. How adverse possession claims can be brought:    Quiet Title - asks the court to grant a declaratory judgment that the adverse possessor has become the owner of the disputed property through adverse possession. Defenses to ejectment claims: record owner claims that the adverse possessor is wrongfully occupying her property and seeks a court order ejecting the adverse possessor from the property - adverse possessor defends by asserting that she has acquired title by adverse possession and that  has no right to eject her. Defenses to trespass claims:  alleges an intentional intrusion on her property while adverse possessor defends by alleging that she is not trespassing since she has acquired ownership of property by AD.  a. Vacant Land Nome 2000 V. Fagerstrom - the Court held that the Ds established continuous, notorious, and exclusive possession of the land for 10 years before bringing suit. Case was remanded though to decide if the southern portion where they just placed 2 rectangular posts met the requirements of adverse possession also. Court said the intent of the occupants is what counts in determining occupancy (intent = hostility requirement). Border Disputes  b.  Brown v. Gobble - Ds purchased property in 1985 and at that time there was a fence along their property. Their R.E. agent told them that their property included in the fence. In 1989, s purchased the adjoining parcel and a survey told them that the tract of land that the fence was on was theirs - they showed no ownership of this property until 1994 though. Trial court held that Ds failed to show ownership by way of adverse possession in a clear and convincing way. Judgment for Ds was reversed by appellate court, which said that the Ds could use the doctrine of tacking to add the 3 c. period of 1937-1985 to their 9 years, during which period Ds predecessors in interest met all the necessary req.‟s of adverse possession. Elements of Adverse Possession  Smith v. Krebs 1. Continuous - the court held the continuity requirement to mean that the adverse possessor must exercise control over the property in the ways customarily pursued by owners of that type of property. If someone adversely possesses property for less than the time period required by the relevant statute and sells the property to another owner, the general rule is that the succeeding periods of possession by different persons may be added together (tacking). Most states require that the successors can add the original adverse possessor‟s holding period only if they are in privity with one another, meaning that the original adverse possessor transferred title to the property to the successor. If the successor dispossessed the prior adverse possessor, he will generally not be given the benefit of the tacking doctrine. 2. Open and notorious - Possessory acts must be sufficiently visible and obvious to put a reasonable owner on notice that her property is being occupied by a nonowner w/ the intent of claiming possessory rights. The true owner is charged w/ seeing what reasonable inspection would disclose. Examples: enclosing land by a fence or a wall, enclosing a strip of property by a wall, garage located on neighboring property, clearing the land, laying down a driveway, mowing grass, using the strip for parking, storage, garbage removal, picknicking, planting and harvesting crops. 3. Exclusive - generally means that the use is of a type that would be expected of a true owner of the land in question and that the adverse claimant‟s possession cannot be shared w/ the true owner. The exclusivity requirement may also mean that the adverse possessor‟s use was personal rather than shared generally by the public. 4. Hostile - the adverseness requirement has given rise to the most confused and varied treatment. It is generally agreed that the adverseness requirement means that the use be nonpermissive.  Three approached exist to the adverse possessor‟s state of mind: (1) lack of permission - the state of mind of the adverse possessor is irrelevant, this notion is similar to use of the property as one‟s own; (2) intentional dispossession - the adverse possessor must be aware that she is occupying the property owned by someone else and must intend to oust or dispossess the true owner (a mistaken occupation of land can‟t give rise to adverse possession), the vast majority of scholars and courts reject this test on the grounds that it rewards wrongdoers and fails to protect innocent persons who have mistakenly occupied land belonging to another; (3) good faith - only innocent possessors can acquire ownership by adverse possession. 4. Prescriptive Easements  If the scope of the nonowner‟s actions is limited rather than general, he may be granted a prescriptive easement rather than adverse possession. An affirmative easement would be a “right of way” to cross neighboring property. Negative easements are rights to limit or control the use of neighboring property. If granted only an easement, he cannot use the strip for any other purpose; if granted adverse possession of the strip, then he can change the use by, for example, taking out the driveway and putting in grass or shrubs or building a structure on it. 4 5. Community Feed Store, Inc. -  used a parcel of land between his building and D‟s building as a turning/backing up area for trucks delivering to his store. Survey showed that D owned most of the area. D then erected a wall to discontinue ‟s use.  brought suit, claiming a prescriptive easement. Trial court found for D on basis that there wasn‟t enough specificity to establish a prescriptive easement and use was consensual. This court held that a general outline of consistent use is sufficient to establish a prescriptive easement. A prescriptive easement acquires a non-fee interest in land by adverse possession. Other Informal Ways to Transfer Title to Real Property  Dedication - transfer of real property from a private owner to a gov‟t entity such as a city. It requires an offer by the owner of the property and an acceptance by the public. Can be a written or oral statement from the owner. Courts may find an implied offer by one who invites or merely permits the public to use her land for a long period of time. Acceptance may be made formally by passing a city council resolution or informally by taking over maintenance of the area or ceasing to collect property taxes on the parcel.  Estoppel - A boundary by estoppel arises when one owner erroneously represents to the other that the boundary between them is located along a certain line; the second, in reliance on the representations, builds improvements which encroach on the true boundary or takes other detrimental actions. The party who made the representations is then estopped to deny them, and the boundary is in effect shifted accordingly.  Oral Agreement - these may be upheld between neighbors if (1) both parties are uncertain where the true boundary lay or a genuine dispute exists over the location of the boundary, (2) the parties can prove the existence of an agreement setting the boundary, and (3) the parties take (and/or relinquish) possession to the agreed line.  Acquiescence - Even without oral agreement, courts may recognize an agreement by neighbors in a common boundary: (1) adjoining owners (2) who occupy their respective tracts up to a clear and certain line (such as a fence), (3) which they mutually recognize and accept as the dividing line between their properties (4) for a long period of time, cannot thereafter claim that the boundary thus recognized is not the true boundary. Adverse Possession of Personal Property  O’Keefe v. Snyder - a thief can never acquire good title and no one can acquire good title from a thief; even a bona fide purchaser who is unaware that property was stolen will not ordinarily be able to retain ownership n a contest w/ the true owner. Exception: UCC gives the merchant power to transfer all the rights of the entruster to a buyer in the ordinary course of business, thereby vesting good title in the buyer as against the original owner (HDC).  6. II. LAND USE REGULATION A. TRESPASS 1. Public Policy Limits on the Right to Exclude  State v. Shack - Gov‟t lawyers came onto a farmer‟s property to speak with his migrant workers. The farmer insisted that the meeting be in his presence. The lawyers refused. Farmer filed a criminal trespass complaint against the lawyers. The court held that ownership of property does not bar access to gov‟t services, so reps of gov‟t can enter upon private premises , and there was no trespass. Migrant workers are a disadvantaged group. Gov‟t groups like the ones the lawyers belong to exist to help the people. The ends of the group would not be gained if the workers could not be reached. There needs to be access and communication and property rights should not stand as a barrier to this. 2. Right of Reasonable Access to Property Open to the Public  Uston v. Resorts Int’l Hotel, Inc. - this case changed the rule of exclusion without cause by extending the right of reasonable access to all businesses open to the public. Uston counted cards at the blackjack table. When people open their premises to the public, they have no right to exclude people unreasonably. The court held that since 5 Uston didn‟t threaten the security of the casino or disrupt operation, he possessed the usual right of reasonable access to the casino.  Patricia Williams, “Spirit-Murdering the Messenger” - white guy in a little boutique with a doorbell for access would not let her into store because she was black. The owners want complete discretion of whether someone should be allowed into the store. What‟s the distinction between this and a shopping center.  Walter Williams, “The Intelligent Bayesian” B. PUBIC ACCOMODATIONS STATUTES AND ANTIDISCRIMINATION POLICY 1. Race and Sex Discrimination a. Federal Law - Civil Rights Act of 1964, Title II, 42 U.S.C. §2000 et seq.  §2000a - “all persons shall be entitled to the full and equal enjoyment of the goods, services, facilities, privileges, advantages, and accommodations of any place of public accommodation, as defined in this section, without discrimination or segregation on the ground of race, color, religion, or national origin.”  §2000b - “each of the following establishments which serves the public is a place of public accommodation w/in the meaning of this subchapter if its operations affect commerce, or if discrimination or segregation by it is supported by State action:  (1) any inn, hotel, motel, or other establishment which provides lodging to transient guests, other than an establishment located w/in a building which contains not more than 5 rooms for rent or hire and which is actually occupied by the proprietor of such establishment as his residence;  (2) any restaurant, cafeteria, lunchroom, lunch counter, soda fountain, or other facility principally engaged in selling food for consumption on the premises, including, but not limited to, any such facility located on the premises of any retail establishment; or any gasoline station;  (3) any motion picture house, theater, concert hall, sports arena, stadium, or other place of exhibition or entertainment; and  (4) any establishment which is physically located w/in the premises of any establishment otherwise covered by this subsection, w/in the premises of which is physically located any such covered establishment, and which holds itself out as serving patrons of such covered establishments.  To state a claim under the Civil Rights Act, the  must show (1) a denial of access, (2) based on race or sex, (3) to a public place. b. State Laws - Minnesota Human Rights Act  “Public Accommodations” - “place of public accommodation means a business, accommodation, refreshment, entertainment, recreation, or transportation facility of any kid, whether licensed or not, whose goods, services, facilities, privileges, advantages or accommodations are extended, offered, sold, or otherwise made available to the public.” “It is unfair discriminatory practice to deny any person the full and equal enjoyment of the previously mentioned facilities based on race, color, creed, religion, disability, national origin, sexual orientation, or sex.”  The federal civil rights act says that states may adopt stricter legislation than the federal act. They can‟t permit discrimination that the federal act prohibits, but can permit things that aren‟t talked about.  US Jaycees v. McClure - Minneapolis and St. Paul chapters of the Jaycees club were allowing women to be “individual” members, which the national Jaycees club prohibited. National club allowed women to be “associate” members only, which did not allow privileges such as voting, being recipients of awards. The Minnesota chapters brought suit against National chapter based on sex discrimination. The court held that Jaycees club was a place of public accommodation w/in the meaning of the Minn. Statute because it sells memberships unselectively and vigorously. 6   Frank v. Ivy Club -  filed suit on the basis that a club at Princeton would not allow her to join. The club claimed that they were a bona fide private club so they were exempt from the NJ statute. The court disagreed, saying the club was not distinctly private. Jurisdiction over the club is based on jurisdiction over Princeton. Since Princeton is a place of public accommodation, disallowing  to join the club was sex discrimination. Karl Llewellyn - Canons of Construction: page 225. III. RULES GOVERNING RELATIONS AMONG NEIGHBORS IN THE ABSENCE OF AGMT. A. SUPPORT EASEMENTS 1. Lateral Support a. Common Law - the scope of the duty to supply lateral support - the duty is absolute as to the land in its natural state, but to recover for damages to a building, negligence must be shown. A negligent w/d of support is actionable even if the land would not have slipped but for the presence of the added weight of a building. In determining whether negligence exists, the type of w/d, the nature of the soil, and whether notice of the proposed w/d was given are all relevant.  Noone v. Price - In 1912, a house was built at the base of a hill, along w/ a stone and cement wall located at the base of the hillside. In 1928, Noone built a house on the hillside, and after several years, the wall fell into disrepair. In 1955, Price purchased the house at the base of the hill. Noone discovered that his house was slipping down the hillside, and sued Price, contending that the wall was constructed to supply lateral support to his property, and that its disrepair caused the slippage. The court held that an adjacent landowner is strictly liable for acts of omission and commission which w/d lateral support from his neighbor‟s land sufficient to support it in its natural state. However, if as a result of the additional weight of a building so much strain is placed on the lateral support that it will not hold, then in the absence of negligence, the adjacent landowner is not liable for any resulting damages. At the time the retaining wall was built, there were no structures on Noone‟s land. Therefore, the wall only needed to supply support sufficient to withstand the erection of any building on the land. Price, as the successor in interest, was not obligated to strengthen the wall to support Noone‟s house. No strict liability arose and Noone must prove the slippage was directly caused by the deterioration of the wall.  Easements for lateral support of land - this is a negative easement since it gives property owners the right to prevent their neighbors from excavating on their property in a way that removes lateral support for neighboring land. The easement for lateral support of land is created by common law, not by agreement of the parties.  Land v. Structures - courts have often distinguished lateral support of land from lateral support of buildings/structures built on the land. The majority rule is that one who excavates on her property so as to harm the lateral support for adjoining property is strictly liable for any resulting damage to the land. There is no need for the  to prove that D‟s actions were unreasonable - they are deemed unreasonable per se. On the other hand, the majority common law rule with respect to structures s a version of the reasonableness standard. Ds have a duty not to excavate in a negligent manner either by using unreasonably dangerous engineering methods or by excavating in a way that unnecessarily poses a risk to adjoining property. The question is whether the D‟s construction methods are unreasonable or whether D acted in a way that unnecessarily harmed adjoining structures.  Defining negligence - conduct is labeled unreasonable (and therefore negligent) when: 7 2. an unnecessary excavation is made by one who foresees that it will cause a neighbor‟s land to subside; 2. the excavation serves a useful purpose, but is made without giving notice to the adjoining possessors in sufficient time to permit them notice to the adjoining possessors in sufficient time to permit them to take the steps necessary to prevent subsidence; 3. the excavator assumes responsibility for safeguarding his neighbor‟s land but is negligent in executing the task; 4. the excavator informs his neighbor of the precautions which he plans to take but thereafter changes his procedure without informing his neighbor of the facts of these changes; or 5. the excavator fails to ascertain in advance whether the proposed excavation is likely to endanger the adjoining land and buildings.  Liability of Subsequent Owners  Damage to lateral support of land - duty to provide lateral support is a continuing obligation that runs w/ the land such that a subsequent owner of adjoining real property has a duty to maintain an existing retaining wall on the property.  Damage to lateral support of structures - the court determined that a subsequent owner is not liable for the loss of an adjoining owner‟s lateral support of structures when the loss was caused by the acts of a previous owner. A subsequent owner could be found liable only if he independently committed negligence by failing to repair a dangerously decrepit wall.  Measurement of Damages - courts have used many approaches in measuring damages for injury to lateral support: (a) the cost of restoration or the diminution in value, whichever is smaller; (b) the cost of restoration; (c) decrease in market value; and (d) value of the lost use of the building + an amount representing permanent depreciation in the building‟s value.  Common law v. statutes - to the extent a common law doctrine is inconsistent w/ a statute, the statute prevails. b. Building Codes and Private Rights of Action  Mass. Gen. Laws  Mass. Bldg. Code  Private Rights of Action Subjacent Support a. Right to Dig v. Right to Support  Friendswood Development Co. - the company pumped water from their land for sale to industrial users. They did it even though an engineer report stated that such w/d would cause subsidence in the area around the pumping. The s filed suit, claiming that the D negligently w/d excessive quantities of ground water was the cause in fact of severe subsidence on their lands. The court held that a person is liable for damages caused by drawing water from his own land only to the extent that his activity was negligent. Under the common law, a landowner had absolute right to w/d the water lying beneath his land. Under this rule, a landowner couldn‟t be held liable for any damage to neighboring property which resulted from activity on his own land. However, modern cases say that a landowner will be liable for damage to the extent his activity was negligent. But since the case law up to date has upheld the common law, this case followed it - they didn‟t want to apply a new standard. The court held that from this case on, landowners would be held liable for damages caused by the negligent, willfully wasteful, or malicious w/d of subterranean waters.  Standard of Care - the right of subjacent support implies that other property owners have legal duties not to infringe on that right. One possibility is a SL standard, in which the D is liable to the P whenever the D has caused harm to the P‟s property interest, regardless of unreasonableness or balancing of interests. In contrast to SL 1. 8 standard is a requirement of reasonableness. This factor may involve balancing the interests of the parties, determining whether one of the parties acted wrongfully, assessing the relative social costs and benefits of the competing activities of the  and D, and adopting appropriate incentives to encourage desirable land development and discourage undesirable or socially destructive land uses. There are variations on the reasonableness standard though: (a) negligence - the courts will impose liability if the D engaged in conduct that created an unreasonably great risk of causing harm –> liability here will only be found where the ‟s property interests are foreseeable at the time D acted: focus is on the reasonableness/unreasonableness of D‟s conduct. (b) nuisance - court determines whether the D‟s activity is both unreasonable and causes substantial harm to the use and enjoyment of the P‟s property: focus is on the consequences of the D‟s conduct rather than the conduct itself  consider whether the D‟s activity causes more harm than good, compare the gravity oft he harm w/ the social utility of the harmful conduct. B. NUISANCE 1. Protection of Use and Enjoyment of Land - Nuisance law requires decisionmakers to determine whether the D‟s harmful activity is unreasonable.  Test for unreasonableness: (a) Rights argument - harm to  is substantial, such that the conduct violates the ‟s security in her property either because the ‟s activity is disfavored or because, in all fairness, property owners should not have to bear this kind or amount of harm from their neighbors‟ land use without good reason (should ‟s right to security prevail over the ‟s right to freedom of action); (b) Social utility argument - the conduct is unreasonable from the social welfare standpoint because the gravity of the harm outweighs the social utility of the harmful conduct (focus on society as a whole, asking whether society in general is better off if the activity goes forward despite harm - cost/benefit determination)  Some activities will be nuisances no matter what; others are only nuisances if they are a right thing in the wrong place (pig in a parlor instead of a barn).  Remedies: Which party has the basic entitlement? Does the  have a right to be secure from this kind of harm, or does the  have the right to engage in the activity? 3 types of remedies: Property, Liability, Inalienability. Remedies Property Rule ENTITLEMENTS ’s Entitlement  can get an injunction ordering  to stop the harmful conduct; if  wants to commit the harm,  must offer  enough $$ to induce  to agree to give up her right to be free from harm (injunction)  can get damages from  for committing the harm, but no injunction;  is free to commit the harm if he is willing to pay a damage judgment (damages)  has no right to commit the harm; ’s Entitlement  has legal liberty to commit the harm without liability; if  wants to prevent the harm,  must offer  enough $$ to induce him to agree to stop the harmful conduct (dismiss complaint)  can stop ‟s conduct if  is willing to pay damages as determined by a court to compensate  for his loss of profits (purchased injunction) Liability Rule Inalienability Rule  has the right to engage in the protected activity; 9 any agreement by  to allow  to commit the harm is unenforceable any agreement whereby  gives up the right to engage in the conduct is unenforceable  Outline of nuisance law in the courts: a. ‟s conduct is unreasonable (causes more social harm than good) and  causes substantial harm to . b.  may obtain damages but no injunction if ‟s conduct is reasonable (it causes more social good than harm and therefore should be allowed to go forward), but the harm to  is substantial so that it is unfair to burden  with the costs of ‟s socially useful conduct. c.  is entitled to no remedy if : 1. the harm to  is not substantial; or 2. ‟s conduct causes more social good than harm, and it is not unfair to impose the costs of ‟s activity on ; or 3. the imposition of damages would put  out of business and avoiding this result (because of the social value of ‟s conduct) is more important than preventing the harm to . d.  is entitled to a purchased injunction if ‟s conduct causes more harm than good; but it is fair to impose the cost of shutting down ‟s activity on  (when  comes to the nuisance). Public nuisance = unreasonable interference w/ a right common to the general public. This is a crime. The elements of a public nuisance are established by statute or more commonly by a local ordinance. C/l public nuisance has become obsolete though due to land use regulation and environmental laws. Example: Obstruction of public highways. Traditional rule is that public nuisances can be enjoined only by public officials. The only persons who may obtain a remedy for damages or an injunction against a public nuisance are landowners who have suffered some special damage different from that generally suffered by the public as a whole. Think about drug dealing as a public nuisance. In CA, the court enforced a state statute providing that landlords could be held liable for nuisance when the landlords‟ apartment complex had become a hub of drug activity and landlords didn‟t act reasonably in dealing w/ the problem. The D argued that such liability for criminal acts of third parties should not be imposed on the landlord in the absence of a state statute.  2. 3. Radiation: Defining Unreasonable Land Use  Page County Appliance Center, Inc. - P sold electrical appliances, including TVs in a store located next to a travel agency. D placed a computer in the travel agency and from that time forward, P had reception problems w/ his TVs. The problem was traced to a radiation leak in the computer. It took D over 2 years to resolve the problem. P brought suit for nuisance and tortious interference. Trial court awarded P compensatory and punitive damages. The court held that lawful activity constitutes a nuisance if it unreasonably interferes w/ another‟s enjoyment of his/her property. A  doesn‟t need to show negligence in an action for nuisance, just that the activity was unreasonable in the context in which it took place. Light and Air  Fontainebleau Hotel Corp. - P owned the Eden Roc Hotel, which was built next to the Fontainebleau (D). D commenced construction on an addition which would be 14 stories high when finished and would completely block all light from P‟s swimming pool area. P sought an injunction to halt construction on the tower, claiming interference w/ pre-existing light and air easement. Lower court issued an injunction. The court held that there is no legal right to the free flow of light or air from an adjoining parcel of land. P claims the right to an injunction based on the law of nuisance. However, nuisance law states that one property holder can‟t use his property right to harm the lawful rights of an adjacent landholder. No court has ever found that a property owner has a legal right to air or sunlight. The order granting an injunction was reversed.  Law and Economics - page 338. 10 IV. PUBLIC REGULATION OF PRIVATE ARRANGEMENTS RESTRICTING USE/OWNERSHIP OF LAND A. CONTRACTS OR GRANTS RESTRICTING USE OR OWNERSHIP 1. Servitudes and Future Interests - the law of servitudes regulates use restrictions such as promises to use the land for a specific purpose. The law of estates and future interests regulates restrictions on ownership such as provisions forfeiting ownership if the use restriction is violated, as well as provisions limiting ownership to life. 2. The Law of Servitudes - servitudes can be affirmative or negative agreements. Affirmative agreements authorize a nonowner to enter property owned by someone else for specific purposes (usually affirmative easements), or they require an owner to perform some act on her own land (affirmative covenants). Negative agreements allow some property owners to restrict the use of property owned by someone else (negative easements or restrictive covenants). The term servitudes includes licenses, easements, profits (right to remove resources from someone else‟s land), real covenants, and equitable servitudes.  Rest. Definition: “device creating an interest that runs w/ possession or ownership of an estate in land.” Running w/ the land is crucial - this means that it passes from landowner to landowner, as the land is sold or given away. Rights/obligations of both pass automatically w/ the land. B. LICENSES 1. Revocable Licenses - revocable permission to enter real property possessed by another; most common form of property interest. This includes people you invite to your house, students attending class, customers at shopping center. Licenses are usually revocable at will by the grantor. No writing is required to create a license, and many are implied by circumstances. Public accommodations law limits the owner‟s right to exclude, effectively granting members of protected groups the same licenses proffered to members of groups who are not the victims of discrimination . A store owner who revokes a license to a customer solely on the basis of that customer‟s race may well be violating a state civil rights law and maybe the Civil Rights Act. This is an affirmative servitude. 2. Easements by Estoppel (Irrevocable Licenses) - permanent rights to enter/control property possessed by another. They are a grant of a limited interest in someone else‟s property. Courts may prevent a real property owner from revoking a license if the owner grants the licensee the right to invest in improving the property or otherwise induces the licensee to act in reasonable reliance on the license. The owner is estopped from denying continued access to his land for whatever period is deemed just under the circumstances. The doctrine of easement by estoppel effectively converts a revocable license into an irrevocable easement. Easements by estoppel can be by oral easements (enforces the presumed intent of the parties despite their failure to comply w/ formal requirements) OR irrevocable licenses (grantor may have intended to grant only a revocable license so the recognition of an easement by estoppel is likely to contradict the original intent of the grantor. The Holbrook court grants a permanent easement even though the grantor clearly intended to grant a revocable license. The large majority of courts have adopted the doctrine of easement by estoppel.  Holbrook v. Taylor - Holbrook (D) gave permission for a haul road to be constructed on his property. Road was used by a nearby mine, by D and his tenant. Taylors (P) purchased the adjacent property and used the road for access during the construction of their home. After house was completed, P continued to use the road for access to their home, making improvements and generally maintaining it. Dispute arose after D attempted to have P acknowledge his ownership of the land. D blocked the roadway, leaving P without access to their land. P brought suit, claiming easement by estoppel. Trial court ruled in favor of P. The court held that where use of a roadway, improvements to, and maintenance of a roadway have all occurred w/ the tacit approval of the landowner, landowner is estopped from barring access to the 11 3. improved property. Whether or not P‟s use was w/ D‟s permission, they expended a lot of $$ on improvement w/ his knowledge and in reliance that they would continue to be allowed to use the road. D is estopped from preventing their use of the road. A person may obtain a license to use land by expending money and effort in connection w/ a roadway or its use w/ the knowledge of the owner. Unconscionable to allow owner to revoke such a license on the existence of it. Constructive Trusts - a trust is a property arrangement in which an owner, called the settlor, transfers property to another person, called the trustee, w/ instructions to manage property for the benefit of a 3rd party, called the beneficiary. The trustee is said to have legal title to the property, while beneficiary has equitable or beneficial title. Most trusts are created expressly by a trust document or will. Constructive trusts are not real trusts - the court takes something that wasn‟t intended to be a trust and by judicial determination, say they will treat it as one. Court recognizes that the parties did not intend to create a trust, but it imposes the trust for equity purposes. There‟s little difference between an easement by estoppel and constructive trusts. The difference is that constructive trust allows the court to employ equitable remedies, whereas in estoppel cases, the court says “win or lose” - no in between.  Rase v. Castle Mountain Ranch, Inc. - A guy held a piece of land for over 50 years. During that time he invited P and other friends to build cabins on the property and use it. The guy had the cabin owners sign a standard license agreement that provided for a nominal license fee and a termination provision. For 50 years, the cabins were bought, sold, improved. The guy never terminated the license agreement. Guy sold the property to D. Before sale, D asked guy to terminate all license agreements. Guy refused and made the continued validity of these agreements a condition of sale. Upon closing, D terminated all license agreements. Cabin owners brought suit to quiet title. Trial court imposed constructive trust on land in favor of the cabin owners. The court held that where a buyer takes title w/ knowledge of occupant‟s expectation of L-T occupancy. C. EASEMENTS  a writing is generally required to create an easement (except for easements by estoppel). 1. 2. Prescriptive Easements - See I.E.4. Implied Easements a. Easements Implied from Prior Use - arises when an owner of an entire tract of land or of two or more adjoining parcels, after employing a part thereof so that one part of the tract or one parcel derives from another a benefit or advantage of an apparent, continuous, and permanent nature, conveys or transfers part of the property without mention being made of these incidental uses. If no express agreement, the conveyance or transfer imparts a grant of property w/ all the benefits and burdens which existed at the time of the conveyance of the transfer, even though such grant is not reserved or specified in the deed. If the grantor intends to retain an easement over the property conveyed to the buyer, the property burdened by the easement is subject to an easement by reservation (because the seller reserved for herself an easement across the property being conveyed). If the grantor intends to grant the buyer an easement over the property retained by the grantor, then the property benefited by the easement is attached to an easement by grant (because the buyer has been granted an easement benefiting the land he has purchased). Needs proof of 3 elements: (a) 2 parcels were previously owned by a common grantor; (b) one parcel was previously used for the benefit of the other parcel in a manner that was visible and continuous; (c) the use is “reasonably necessary” for the enjoyment of the dominant estate.  Granite Properties Limited v. Manns - Manns (D) held the entire parcel of land that housed an apartment building and supermarket. He then transferred part of it to Granite (P). D continued to use a small strip of land as a driveway for trucks to turn around; the apartment building also continued to use the parking lot which was now 12 b. 3. P‟s property. P sued to enjoin the D‟s further use of their property. Trial court granted the injunction but allowed the continued use of the parking lot by the apartment building. Court of appeals found that both parcels had acquired prescriptive easements over the dominant estate. The court held that a grant of land is subject to servitude for prior use if the property was originally joined, used jointly and the servitude is beneficial to the use of the servient estate. Although the D‟s trucks could have backed out of the space on D‟s land or they could make deliveries to the front of the store, both alternatives would be impracticable and probably expensive. Implied easements are often implied in contradiction to the expressed intent of the party to effectuate the fair and efficient allocation of property rights. Bosselman: it‟s unusual for the seller to successfully claim an implied easement in land the seller sold to the buyer since the seller writes the deed and could have put the implied easement in there. When the rule says that use must be reasonably necessary, it does not really mean necessary - you can get along without the easement, but it would be reasonably advantageous for the one party to do this without serious harm to the other party. Easements by Necessity - arises when an owner of land conveys to another an inner portion thereof, which is entirely surrounded by lands owned either by the grantor or the grantor plus strangers. Unless a contrary intent is manifested, the grantee is found to have a right-of-way across the retained land of the grantor for ingress/egress from the land. The policies underlying the doctrine of easement by necessity are (a) to effectuate the intent of the parties and (b) to promote the efficient utilization of property. Courts are split on what to do when these policies conflict (when the intent of the grantor does not promote the efficient utilization of property). Finn v. Williams suggests that the ultimate goal is promoting the development of property by preventing property from becoming landlocked and taken out of the market, therefore taking the emphasis off of the grantor‟s intent. Absolute necessity is not required for an easement implied from pre-existing use, while absolute necessity is required for an easement by necessity.  Finn v. Williams - C owned 140 acres of land. In 1985, he conveyed 40 acres of his holdings to B and P acquired title to those 40 acres. D inherited the remaining 100 acres from C, who was her husband. The 40 acres of P‟s were entirely landlocked but for many years access was gained over private roads of strangers and a road over the D land. D refused to P any access over her land - all other private roads leading out had been closed. Court said that if at one time there had been unity of title, the easement by necessity will pass w/ each transfer as appurtenant to the dominant estate and may be exercised at any time by the holder. It makes no difference that the easement was not used earlier. The easement came into existence when the unity of title was split. Bosselman: the court found tat this dormant easement by necessity had been sitting there for 25 years and has not reawakened. Express Easements a. Formal Requirements to Create:  Writing - must be in writing to be enforceable under the SOF. It is in writing by a deed which is then recorded. It can either say “this is an easement” OR it can be language that doesn‟t say “easement” but shows intent of parties to have a right of way. Drawing an easement on a map which is filed (plat) is also a way of filing an easement.  Rule Against Reserving an Easement in 3rd Party - many states hold that a grantor, O, may not sell a parcel of property to A while reserving an easement over A‟s property in B. Some courts have used the doctrine of estoppel to prevent the grantee from interfering in the easement reserved to the 3rd party. Ther courts have changed the traditional rule, allowing reservation of an easement in a third party. The traditional rule was based on the formalistic assertion that the grantor could only reserve a preexisting 13 c. interest; since one can have no easement in one‟s own land, the grantor could not reserve an easement on retained land. b. Substantive Limitations on the Kinds of Easements That Can be Created  Limits on Negative Easements - Courts traditionally limited the # of negative easements to (1) the right to lateral support of land, (2) rights to prevent both light and air from being blocked by construction on neighboring land, and (3) the right to prevent interference w/ the flow of an artificial stream like an aqueduct. The reasons for limiting: buyers would not be put on inquiry notice of negative easements since they were restrictions on use and therefore not observable. Limiting the # and type of negative easements thus served to promote the alienability of land and protect the interests of buyers in relying on their ability to use the land they were purchasing. The doctrine of “ancient lights” allowed an owner of land who had long enjoyed unobstructed light and air to prevent construction on neighboring land that harmed those interests. The limits on negative easements were abandoned by statute, primarily for the creation of conservation easements (which are negative easements). Conservation easements make you guarantee that you will never use the land for anything besides it historic value - you‟re promising not to do something on your own land.  No Affirmative Easements to Act on One’s Own Land - the traditional law of easements did not allow creation of an affirmative duty to do something on someone‟s own land, such as a duty to build a structure or pay a monthly fee to a condo association. You can only make affirmative easements to act on someone else‟s land. Running with the Land 1. Requirements for Burden to Run w/ the Land - when do easements run with the land? Easements run w/ the land to burden future owners of the servient estate if (1) the easement is in writing, (2) the original grantor who created the easement intended the easement to run with the land, and (3) the subsequent owners of the servient estate had notice of the easement at the time of purchase of the servient estate. a. Writing - the required writing is the original writing creating the easement. The easement doesn‟t have to be included in subsequent deeds as long as the intent and notice requirements are met through a written deed. b. Intent - easements bind future owners of the servient estate only if the grantor intends them to be bound. Intent can be implied. The intent is discerned by the words of the easement. You can clearly avoid having the burden run w/ the land by saying that the easement is valid “only as long as I run the land.” That doesn‟t necessarily mean that the benefit can‟t run. c. Notice - the easement has to be subject to notice by the buyer. (1) actual notice - if the subsequent owners in fact know about the existence; (2) inquiry notice - there are visible signs of use by nonowners, such as telephone poles, utility lines, path across the property  a reasonable buyer would do further investigation to discover whether an easement exists; (3) constructive notice - the deed conveying the easement is recorded in the proper registry of deeds in the proper place and the deed is in the chain of title. 2. Requirements for the Benefit to Run w/ the Land a. Appurtenant v. In Gross - if the benefit runs w/ the land, it is treated as if it were attached to that particular parcel of land and is called an appurtenant easement. If it does not run w/ the land, it is not attached to a particular parcel of land and there is no dominant estate and it is called an easement in gross. The test for distinguishing between the 2: intent of the grantor. This 14 is easy when the intent if recitated in the deed, but when it‟s not, it‟s harder to determine. b. Green v. Lupo - P originally owned an entire parcel of land. He transferred part to D. D asked P for a deed release he needed to obtain financing to build a home. P granted the release on the condition that D grant him an easement for ingress/egress when he acquired title. D agreed. P turned his parcel into a mobile home park and occupants used part of the easement land as a runway for motorcycles. D refused to transfer the easement as promised when he acquired title. P brought suit to enforce the grant of easement. Trial court found the easement was personal and enjoined the motorcycles‟ use of it. The court held that an easement is not personal if there is anything in the grant to suggest that it was intended to be tied to the land retained or conveyed. The written instrument granting D his easement states the easement would be granted to P for ingress/egress to property. The easement was therefore granted to gain access to a particular piece of land so it is appurtenant, not personal. Reversed and remanded. There is no evidence that P and D had something personal between them which would show intent to grant an easement for personal reasons, therefore it was appurtenant.  Example: X has land and sells some of it to Y. X built a statue of his wife on Y‟s part so he wants to be able to visit it. He writes in the agreement: “subject to an easement to cross Y‟s land to visit the memorial of Mrs. X.” The grantor probably did not intend that the benefit run w/ the land, so it would be easement in gross (unless his children were to inherit his land and would also want to visit the statue). d. Interpretation of Ambiguous Easements: Scope and Apportionment - Is the owner of an easement misusing it by going beyond the scope of activities contemplated by the grantor: (a) whether the use is of a kind contemplated by the grantor, (b) whether the use is so heavy that it constitutes an unreasonable burden on the servient estate not contemplate by the grantor, and (c) whether the easement can be subdivided.  Unreasonable Burden - Defining whether an activity constitutes an unreasonable addl. burden on the servient estate beyond that contemplated at the time the easement was created depends on the grantor‟s intent. When the grantor‟s intent is ambiguous, courts must balance the interests of the easement owner in freedom to develop his property against the interests of the servient estate owners in security from having their property overly burdened in a way they could not anticipate or should not have had to anticipate.  Apportionability - When dealing with easements in gross, the question of divisibility of the easement is referred to as the issue of apportionability. Nonexclusive grantor, owner of servient estate, has reserved for herself the right to use the easement in conjunction with the grantee - held to be nonapportionable. Exclusive the grantor has no right to use the easement in conjunction with the grantee apportionable. 1. Appurtenant Easements  Cox v. Glenbrook - Property was surrounded on 4 sides by land owned by others. An easement was granted through D‟s property to provide ingress/egress to the property. The property changed hands many times before ending up in P‟s hands. P planned to develop the land as a resort area and wanted to expand the existing easement from a one land dirt road to a paved, two-way road. Both parties sued for declaratory judgment as to the extent of the easement. Trial court found the easement was limited to the uses necessary for access by a single family. The court held that where the grant was unclear, the extent of the easement must be construed 15 as broad as necessary to carry out the purposes for which it is granted. The grant was intended to give ingress/egress to the land. The intent does not, however, support doubling the size of the road and paving it. The easement is limited to the size and nature at the time of the grant. Bosselman: the court said they could subdivide, but only if they left it a one-way road. Easements in Gross  Henley v. Continental Cablevision - P granted the phone company an easement in gross to install and maintain electrical and telephone systems on the back five feet of all the properties in their subdivision. The easement was transferable to other parties to create such system. D acquired licenses from the phone company to install a cable system in the area. P filed suit for injunction to prevent and compel removal of D‟s cables, and for damages. The court held that easements in gross are transferable. Easement granted by P was not tied to a dominant estate and was thus in gross. The easement granted was exclusive to the phone company, and thus the owners of the servient estate could not affect how the rights are exercised. B/c the rights are exclusive they are also alienable, consistent w/ the use for which the easement is granted. The addition of cable wire falls into the same electrical and telephone wiring and is no more burdensome on the servient estate. The easement should be broadly construed to allow the addition of cable wire. This means that the utility company, in usual utility easements, will always have the power to add additional cables or uses to that property. e. Termination of Easements 1. by agreement in writing (called a release of easement by holder) 2. by their own terms (deed expressly says how long it will last - when time up, it‟s over) 3. by merger (holder of servient becomes owner of dominant) 4. by abandonment (if it can be shown that the owner of the easement, by her conduct, indicated an intent to abandon the easement) 5. by adverse possession or prescription by the owner of the servient estate or a 3rd party (in the same way that you would have a new prescriptive easement, you can have one eliminating one). D. COVENANTS RUNNING WITH THE LAND 1. Real Covenants and Equitable Servitudes  Real Covenants -restrictions run w/ the land when:  the covenant is in writing;  the party to be bound (owner of the burdened parcel) had notice of the restriction when she purchased the property;  the grantor intended the restriction to run with the land, binding future owners of the servient estate and benefiting future owners of the dominant estate;  the restriction touches and concerns both the dominant and servient estates;  privity of estate exists between the original covenanting parties (horizontal privity) and between those parties and their successor owners (vertical privity). 2. 16 * If each of these elements can be shown, such as both the benefit and the burden run w/ the land, then successor owners of the benefited parcel can enforce the restriction against successor owners of the burdened parcel.  Equitable Servitudes - restrictions are enforceable if:  the covenant is in writing;  the party to be bound (owner of the burdened parcel) had notice of the restriction when she purchased the property;  the grantor intended the restriction to run with the land, binding future owners of the servient estate and benefiting future owners of the dominant estate;  the restriction touches and concerns both the dominant and servient estates. General Explanation of these points:  Writing - part of a lease or deed transferring property rights. Writing must be sufficient for both the benefit side and the burden side. The developer of a large subdivision may similarly include a covenant in the deed to each parcel of land it sells restricting the use of each parcel. Alternatively, the developer of a large subdivision may record a declaration f restrictions applicable to the entire subdivision and/or a plat (a detailed map showing the restrictions) before any lot is sold. Representations made in sales literature does not qualify as a writing.  Notice - whether the owner of the burdened estate knew or should have known the parcel was restricted when she purchased the land. 1. Actual notice - if he was actually told about it or otherwise made aware of it. 2. Inquiry notice - if any condition of the premises indicated tat the property was burdened by a covenant. Usually only important in the context of affirmative easements, in which buyer can observe and which suggest that another party may have interests in the land. The observable condition may put a reasonable buyer or lessee on notice of a restrictive/negative covenant. Some courts say you‟re on inquiry notice when property is located in a neighborhood that has a uniform pattern of use. 3. Constructive notice - if the covenant was recorded in the registry of deeds along w/ the deed or lease creating the covenant or if a declaration containing the restriction was recorded prior to sale. A reasonable purchaser is expected to search the title to find out whether the property is burdened by any land use restrictions, and the buyer is deemed to know what she would have discovered had she performed a search of her chain of title. Intent to Run with the land - a deed or lease that includes a restrictive covenant will be deemed to shoe the grantor‟s intent for the covenant to be binding on future possessors it if says that (1) the covenant is made to the grantor or grantee and “their heirs or assigns” and/or (2) it is “intended to bind future owners” of the parcel described in the deed or explicitly states that the covenant is “intended to run w/ the land. In some cases, the parties intend the burden to run with the land but not the benefit. If this is the case, the owner of the benefited parcel can enforce the covenant while it owns the land but enforcement will cease once the land is sold. (this would be a situation where an owner may wish to ensure that no competing gas station is built on the servient estate in competition with dominant estate but have no wish to pass on this benefit to future owners of dominant estate.) Privity of Estate - all states requires both types of privity for the burden of a covenant to run w/ the land for the purpose of obtaining damages as a real covenant; very few states require horizontal privity in order to obtain injunctive relief as an equitable    17  servitude, as long as the covenant is unreasonable; many states allow the benefit to run with the land as a real covenant even though strict vertical privity is not present. Although the law of equitable servitudes doesn‟t include privity as a requirement, privity remains an important doctrine because (1) it‟s still probably essential to obtain damages; (2) the law of equitable servitudes substitutes other doctrines, including common scheme and 3rd party beneficiary doctrines, to replace the privity requirement. 1. Horizontal privity - relationship between the original covenanting parties. Established in relationships such as grantor/grantee and landlord/tenant. A covenant in a lease (transferring leasehold), a deed (transferring ownership or an easement), or a mortgage (transferring a lien or right to foreclose) will satisfy the horizontal privity requirement. There has to be instantaneous privity or mutual privity for horizontal privity to exist. Mutual privity is a landlord-tent relationship. Horizontal privity excludes 2 types of relationships: (1) agreements between neighbors that are not part of a simultaneous conveyance of another property right and (2) agreements between grantors/grantees that are not made at the same time as the conveyance of the property interest burdened or benefited by the covenant. Bosselman: parties to transaction were selling/leasing land to each other. Covenants are contained in the sale/lease document; they‟re created as part of the transaction. There‟s no horizontal privity when parties sit down and say they‟ll reach an agreement on how the land will be used and then record it  that lacks horizontal because not associated w/ the sale/lease of land. This old common law rule is probably obsolete in most cases. 2. Vertical privity - relation between those original covenanting parties and their successors in interest. It imposes the burden of the covenant only on future owners of the parcel to which the restriction has been attached while limiting the benefit to the future owners of the dominant estate. Exclusions from vertical privity: (1) successors in interest who have an estate of lesser duration than the prior owner (landlord-tenant: vertical privity absent when owner retains future rights to the land)and (2) neighbors who are intended beneficiaries of the covenant but are not successor owners or possessors of the parcels owned by the covenanting parties. Bosselman: burden of a covenant extends to successor only if successor obtains same exact interest against the person it succeeds. Example: if A sells B his whole interest in his land, there is vertical privity between the 2 because A gave him everything. If A keeps any of the land or leases it to B, or conveys it to someone else, A and B do not have the same interest, and B is therefore not bound by the covenant, because there isn‟t vertical privity. Vertical privity rules don‟t apply in equity. They can still get an injunction (just no damages). New restatement says that all these rules are obsolete. Not everyone thinks it‟s right. Touch and concern: for a covenant to run with the land, it must “touch and concern” the land. What would satisfy this test? Restrictions on use of land, such as a promise to use the land only for residential purposes or a promise not to sell liquor on the land clearly satisfies the test. Traditionally, rather than strike down such covenant directly as a matter of public policy, courts resorted to the touch and concern doctrine, holding that such covenants didn‟t relate to the use of land but represented merely economic benefits. Bosselman: this is the most mysterious rule re covenants. Touches and concerns land if (1) has something to do w/ the use or enjoyment of land; (2) to effect the market value of the land (value of benefited land is increased or value of servient estate decreased). The thing that brought down this rule was the creation of the homeowners association. Common to set up developments and community associations which would have the power to make covenants which said you can‟t do certain things w/ the land. Although lot owners would have privity w/ 18 2. each other if they sold their lot, the community association was not in privity w/ the developer. Originally, the developer owned the whole lot. He then transfers it to the association. Common examples that clearly meet the test of touch and concern: (1) agreement to or not to build a structure - “I covenant not to build anything but a single family house”; (2) “I‟m going to sell you a house and add into K something that says I‟ll give you flute lessons for 2 years” - this does not touch and concern; (3) “I sell you my property and you agree to pay me money to keep the property in repair and to buy my horse” - the money is a touch and concern but buying the horse may depend on what the property is used for. a. Neighboring Parcels  Whitinsville Plaza v. Kotseas - D sold land to P‟s predecessor in interest and the deed contained a covenant not to use the adjacent land retained in competition w/ the discount store to be built and to use it only for enumerated business purposes. P, the successor to the original covenantee, brought an action against D (Kotseas) and D (CVS, the party to whom Kotseas had subsequently leased his retained land to). The action was for declaratory, injunctive, and monetary relief, based on violation of the covenant and breach of K. P‟s allegation was that D had, w/ full knowledge of CVS, leased his property to CVS for purposes of carrying on a competitive business in violation of the mentioned covenant. Superior court dismissed complaint for failure to state a claim. The court held that reasonable covenants against competition may run w/ the land when they serve a purpose of facilitating orderly and harmonious development for commercial use. Bosselman: the court here is overruling a long line of cases that say you can‟t validly have a covenant against competition, which the court says are wrong. Any covenant entered after 1967 would be interpreted under the new rules. You can restrain competition, but it must be to a reasonable area. Land Use Restrictions in residential Subdivisions a. Doctrinal and Practical Problems - residential subdivisions pose special problems for the law of covenants. The writing requirement must be relaxed to allow restrictions to be enforceable if present in a declaration recorded before any lots are sold when the deeds nowhere mention the restrictions. Touch and concern problems have arisen when homeowners associations try to enforce covenants to pay dues. The biggest problems are those of notice and privity. To find a buyer of one lot to be on constructive notice of a deed purporting to restrict that lot when the covenant is contained in a deed to neighboring land, the courts must require purchasers to search the deeds granted by the seller of their parcel relating to neighboring land. The notice and privity problems are solved by the doctrine of implied reciprocal negative servitudes. This doctrine is based on the concepts of the common scheme and 3rd party beneficiary. Promises are enforceable not only by and against the parties who contracted, or even their successors in interest, but by and against persons totally outside the contractual network - persons who have made no promises and may not be aware of the promises made by their neighbors. Both privity and notice requirements are substantially relaxes in the neighborhood scheme. b. Policy Concerns  the inevitable role of regulation: adjudicating conflicting interests in free use and security.  consumer protection and reliance  the dead hand problem - if the developer tries to retain control of the area after the units are sold, and orally assures the buyers that this power will be used to protect the interests of the buyers and not interfere w/ their rights; or on the converse, he tries to control the use of the property from the outside after all the units are sold, against the wishes of the community. Can the buyers be protected against this?  equal access v. community control  efficiency c. Equitable Servitudes and Common Plan 19 3. Reciprocal negative easements (servitude): run w/ the land and abides w/ the land retained until loosened by expiration of its period of service or by events working its destruction. It is not personal to owners, but operative upon use of land by owner having notice of it. It passes benefits and carries its obligations to all purchasers of land. It must start w/ a common owner. It is never retroactive. They arise out of a benefit accorded land retained by restrictions upon neighboring land sold by a common owner. Scheme of restrictions must start w/ common owner. Restricts the use of property for mutual benefit. Presumed that each of landowners benefits because of mutual restrictions on each other. They each get added value because everyone else has to comply. It is implied though, because not explicit.  Evans v. Pollock - P‟s predecessors bought the subdivision in question, platted it, and further subdivided the plats. The majority of the plats contained a restriction against commercial use and limited construction to single family homes. Many of these lots were sold. D sought to buy some of the unrestricted lots for use as a marina, a private, club, and condos. Psought to enjoin the sale of the land without imposition of the restrictions and a declaration that the restrictive covenants on his property were implied on the other properties by reciprocity. Trial court found that the restrictions were intended to apply to all lots in the subdivision. Court of appeals reversed. The court held that general plan of subdivision restriction need not apply to all tracts in a subdivision for a general plan of subdivision restriction to apply. P is asking for a reciprocal negative easement on the land D seeks to buy. Court may imply such an easement on a showing that the subdivider had a general development scheme for the subdivision. Here, the restricted lots need not encompass the whole subdivision, as long as the restrictions apply to well-defined lots. Since this is the case here, reciprocal negative easements may be implied. Reversed.  Sanborn v. McLean - D derived title from her husband and began building a gas station.  is enjoining D from doing so, claiming that the gas station will be a nuisance and is in violation of the general plan fixed for use of all lots on the street for residential purposes only. D‟s argument is that no restrictions appear in their chain of title and they purchased the land w/ no notice of a reciprocal negative easement; also deny that gas station is a nuisance. Appellate court rules in favor of . The court held that D‟s lot is subject to a reciprocal negative easement. The subdivision was planned for strict residential purposes; D couldn‟t avoid noticing the strictly uniform residence character of the lots. Therefore, the court directed that the work on the station be torn down. Nuisance question not decided. Extreme case.  Riley v. Bear Creek Planning Committee - extreme in the direction opposite Sanborn. Alpine co. conveyed Lot 101 to Rileys. The deed contained no restrictions on ‟s property. 9 months later, Alpine recorded a document: “declaration of covenants, conditions, restrictions, and reservations.” This declaration said that Alpine was the owner of Lots 72-116. s constructed a now tunnel on their lot and the committee gave them notice of violation. The district court held for the  and the appellate court affirmed. The  knew that Riley intend to record a plat of subdivision, showing the lots would be restricted. The court held that since the restrictions weren‟t recorded at the time of purchase,  isn‟t bound by the restriction (it‟s as if he didn‟t know). Dissent: even where there was no actual notice, he should have been bound. Interpretation of Ambiguous Covenants a. Group Homes as “Single-family Dwellings”  Blevins v. Barry-Lawrence County - Barry was enjoined from using its property as a group home for retarded individuals. Barry owns Lot 23 and wanted to establish a group home for 8 unrelated mentally retarded persons. Blevins owns Lot 24 which is across the street. The subdivision has a restrictive covenant saying that the property shall only be used for residential purposes. Blevins argues that the use of that property in that way will contravene the covenant. The court held that Barry‟s  20 4. intended use of the property doesn‟t violate the terms of the restrictive covenant. The restriction on residential property applies to the structure of the residence, not the use of the property. The property was not being used for a business purpose, because it was a non-profit use of the home. This restrictive covenant in this case was ambiguous and the court held that it should be read narrowly to allow the least restrictive use of the land (the question was how to define “family.”) Public policy opposes restrictions on the land so when a covenant is unclear, it should be read in the least restrictive manner possible. b. Homeowners Associations and Architectural Review Committees - the association is empowered to administer and enforce the restrictive covenants imposed on the property in the subdivision. The deeds to the individual parcels may also include affirmative covenants requiring owners to pay fees to the homeowners association to maintain the common areas. The covenants generally provide for a lien on the property if an owner does not pay her fees. Some developers impose covenants requiring owners to obtain approval of an architectural review committee chosen by the homeowners association when they seek to make structural changes to their homes. One case held that an architectural review committee acted unreasonably when it refused to allow an owner to build an above-ground swimming pool. The restrictive covenant prohibited certain types of construction, such as TV antennas and clotheslines, but didn‟t specifically prohibit swimming pools. The court held that the committee could impose reasonable restrictions on the design and construction of the pool to minimize the auditory and visual impact on the neighboring properties but it couldn‟t absolutely prohibit construction of the pool. Unreasonable Burden on a Fundamental Right - Handout on Prelim. Draft of Rest. of Law, Property (Servitudes): A servitude that imposes an unreasonable burden on the exercise of a fundamental right is invalid. a. Rationale - with the lifting of the old limitations on creating covenants that run w/ land, the potential for ever more intrusive servitudes exists. Courts must retain their traditional role as guardians against unreasonable burdens on land. b. Fundamental rights - those protected by state and federal constitutions. As used in this section the term encompasses freedom of speech, press, religion, privacy, freedom from unreasonable searches and seizures, cruel and unusual punishments, and protection against expropriation of property for non-public use. It also includes rights of due process and equal protection. It is not limited to constitutionally protected rights and is not a closed category. c. Determining that a burden is reasonable - outside of the cases involving group homes and racial restrictions, most of the cases that have addressed the question whether a servitude unreasonably burdens a fundamental right have involved sign restrictions, antenna restrictions, design controls, and denial of access to non-residents seeking to distribute news or political material. The servitudes play a role in maintaining the property values and quality of life in the residential development. d. Presumption of validity and application - the burden rests on the party who challenges the servitude to establish that it is invalid. The challenging party must establish that the interest burdened is important enough to be characterized as a fundamental right, and that harm of enforcing it is greater than the benefit to the individual seeking enforcement and the benefit to the other property owners subject to the same general plan of development. The other owners and occupants are not entitled to control what goes on w/in the home unless it has external effects, and they are not entitled to control what he neighbors associate w/ wither socially or intimately. Rights of association and privacy are fundamental rights that normally outweigh the benefits to other property owners of enforcing restrictions against conduct that has little physical impact outside the individually owned property. e. A servitude is invalid if it is unconscionable. f. Examples: 1. A covenant prohibits keeping any pets other than fish on the premises. Owner claimed the restriction was invalid as applied to her cats because they remained indoors and caused no annoyance to other residents. The presence of cats is annoying to many people, and use of a blanket rule avoids problems of case-by-case 21 5. inquiry into the characteristics of particular cats, of treating property owners differently, and the problems of policing the behavior of particular cats. The restriction would be understood by any purchaser as a prohibition of keeping any cats in the complex. Would the covenant here violate the touch and concern rule? Does it affect the value of the benefited/burdened property? 2. A covenant, a 200 lot single family residential subdivision w/ large lots and houses restricts lots to single family residential use and defines single family as a group of people related by blood and marriage who operate as a single housekeeping unit. Handicapped Services purchased a house in this subdivision for some disabled persons to live there. the covenant would be invalid if interpreted to prohibit the use for a group home of this scale because the benefit to the other lots in the subdivision would be outweighed by the harm to potential residents from denial of particular housing opportunity and stigmatization effect of this covenant. Courts have consistently held that from a constitutional standpoint, the right to housing is not a constitutional right. Would this touch and concern the land? 3. Same facts as in #2, but the purchaser is a single person who becomes involved w/ a person who eventually moves into the house. They live together as a single housekeeping unit but don‟t marry. If the covenant is interpreted to prohibit occupancy by an unmarried couple, it is invalid. The covenant substantially burdens the privacy interests of the couple and has little benefit to the other property in the subdivision. 4. Bella Vista is a gated community of 5000 homes. Access is restricted to residents and their invitees. Application of the covenant to bar door-to-door political communications is invalid. Burden on the exercise of political speech rights of the group outweighs the benefit to the residents of freedom from intrusion. Terminating Covenants and Equitable Servitudes a. Common Law: changed conditions  El Di, Inc. v. Town of Betany Beach - El Di (D) purchased Holiday House. D filed an application w/ Alcoholic Beverage Commission to get a license to sell liquor and was granted one.  sued to enjoin D from selling liquor. The chain of title of Holiday House included a restrictive covenant prohibiting the sale of liquor on the property (and nonresidential construction).  was a religious community and when D purchased it, Holiday House patrons were allowed to BYOB. D says it applied for a license after a # of people were brown bagging their liquor. The chancery court granted ‟s motion for injunction and rejected D‟s argument that changed conditions at Bethany Beeach rendered the covenant unreasonable and unenforceable. Trial court affirmed for . Appellate court reversed for D, holding that the change of conditions of Bethany Beach was sufficient to negate the restrictive covenant. A court will not enforce a restrictive covenant where the fundamental change has occurred in the intended character of the neighborhood. Courts will not enforce a restrictive covenant to no purpose. The purpose of the covenant here was to ensure that the beach remained a quiet, residential community but this has not occurred what has occurred is commercial development, making the beach a seaside resort. Therefore, the community is no longer that envisioned by its founders and the covenant has outlived its purpose. b. Equitable Defenses and Other Ways to Terminate Servitudes  General equitable doctrines that may result in non-enforcement of a servitude: 1. Acquiescence, abandonment, unclean hands - complaining party may be barred from enforcing the covenant if he has tolerated or failed to object to other violations of the covenant. Toleration may indicate intent to abandon the covenant, and D may reasonably rely on failure to enforce covenant in investing in her property. This may occur if the : (a) has violated the covenant himself (unclean hands) or (b) has tolerated previous violations of the covenant by the owner of the servient estate (acquiescence) or (c) has 22  tolerated violations of the covenants by owners of other restricted parcels in the neighborhood covered by the covenant (abandonment). 2. Estoppel - owner of a dominant estate who orally represents to the owner of a servient estate that she will not enforce the covenant may be estopped from asserting her interests in enforcing the covenant if the owner of the servient estate changes his position in reliance on the oral statement. 3. Laches - if the covenant has been ignored or breached for a substantial period of time (but less than the time necessary to establish prescriptive rights) the court may find that unexcused delay in enforcing the covenant prompted investment in reliance on the failure to object to the violation and that enforcement of the covenant would be unconscionable. 4. Marketable Title Acts - as w/ easements, many states have marketable title statutes that terminate restrictive covenants if they are not re-recorded after a specified period of time. 5. Other ways to terminate  language in instruments - condos are subject to covenants that terminate w/in states # of years unless periodically renewed by condo owners association.  merger - as w/ easements, if burdened and benefited estates come under ownership of same person, covenants will terminate.  release - all parties affected by the covenant - both burdened and benefited estates - may agree in writing to terminate the covenant or release the property from it.  prescription - open and notorious violation of the covenant without permission for the statutory period may terminate the covenant by operation of the SOL. Relationship between land use regulation and covenants: you must comply w/ both; if they conflict, you still have to comply w/ the most restrictive part of both. If covenant says “only for residential purposes” and the city regulation says “only for business purposes,” you must do both - make some attempt to get one or the other changed. E. THE ESTATES SYSTEM   See attachment of CHARTS DEFINITIONS:  Servitudes = easements and covenants  legal system protects beneficiary of the servitude by imposing sanctions. These rules allow owners to limit what is done with property and who will own it in the future. Legal system allows people to do this by defining ways to divide property interests over time. Owners can transfer possession/ownership of property by designating some person as the present owner/possessor and another person as the future owner/possessor. Examples of Future Interests:  grantor of land may convey property to A so long as she is alive and then provide that at A‟s death, the property will transfer to B. By deciding who will own the property at A‟s death, the grantor often hopes to control indirectly what is done with the property.  grantor may covey property to A so long as the property is used for residential purposes, but if it is ever used for nonresidential purposes, ownership will revert to the grantor. In this case, the loss of title to the property acts as a sanction against the present owner for violating the conditions under which he obtained title.  Present and future interests may be created by sale, lease, will, or trust. A seller may create a future interest in a deed. A landlord or lessor makes a future interest because the property will 23   revert to him after the lease expires. A testator (who leaves a valid will) may create a future interest by bequething property in a will. A settlor (one who establishes a trust) may create a future interest in a trust document. Future interests may be subject to contingencies, like in the case of a lease or a covenant that says the property will revert to the grantor where grantee begins to use the property for commercial purposes, not just residential. Future interests exist the moment they are created even though the future owner has no right to possess the property until the happening of the triggering event. The grantor owns a future interest from the time the property is conveyed, although he has no present right to occupy the property only if and when the condition is violated. The future interest will not “become possessory,” unless and until the condition occurs. Problems with Future interests:  The power to have some degree of control over someone who owns their property in the future is an awesome power. There are policy concerns in allowing this law. 1. The dead hand problem: liberty and efficiency - creating future interests, unless it is regulated by the legal system, could clog up the market for R.E. by attaching numerous and multiple conditions to property, restricting both what it can be used for and whether it can be bought and sold. The problem of dead hand control of land by prior owners who are long gone is handled in the law of covenants and equitable servitudes by the doctrines of changed conditions and undue hardship, while allow covenants to lapse when times have changed such that the costs of enforcement far outweigh the benefits. Dead hand control also interferes w/ liberty by allowing prior generations to impose restrictions on current owners, inhibiting their ability to use their property as they wish. 2. Heirarchy & Equality - this problem talks about the possibility that by imposing restraints on alienation and use, owners will have the wanted or unwanted effect of concentrating ownership in the hands of certain groups and excluding others. For example, racial discrimination could run rampantly because the grantors could give future interests only to white families. Also, if future interests weren‟t regulated, owners would be able to prevent property from being transferred outside of the family by restrictions on inheritability and transfer. Regulation of future interests is also necessary to maintain the dispersal of access to property so that a decentralized market system can function properly. 3. Alienability - ability to transfer an interest in land; the fee interest in A became inheritable and alienable, meaning that A‟s heir could inherit the property only if A had not sold it or given it away before A‟s death.1 4. Conflict between generations: Dead Hand Control and Alienability - the statute Quia Emptores intended to protect feudalism, but also enshrined the principle of promoting the alienability of property. Alienability is promoted by giving grantors the freedom to determine to whom and under what conditions they will part with their property. Grantors should therefore be able to impose restrictions on the future use of their property; their ability to do this encourages them to part w/ their property. However, at the same time, no one can use property that is burdened w/ restrictions no one wants purchase it, and it is therefore inalienable. This dilemma creates a tension between these property interests. Alienability, unlike a regular future interest, allows the grantor to transfer land to A, and A the right to transfer the property during his lifetime. 5. Fee simple absolute - if A took advantage of the principle of alienability, A‟s heir would have nothing to inherit when A died. Thus, the heirs had a chance of inheriting land only if A died before selling it. 6. Fee simple conditional - 24 7. Fee tail - land would descend to the lineal heirs of the grantee until the line ran out, at which point it would revert to the grantor or his heirs. An owner of a fee tail could transfer his interest during his lifetime, but when he died the land would immediately pass to his heir. Such an arrangement interferes significantly with the alienability of the property since the grantee gets the property only for the life of the grantor. Freehold and Nonfreehold Interests - the most basic division in types of present interests.  Nonfreehold interests: those associated w/ the landlord-tenant relationship  Freehold interests: all other ownership interests.  Trusts - a property arrangement in which a grantor (settlor) conveys property to one person (the trustee) for the benefit of a third party (beneficiary). The document creating the trust arrangement, called the declaration of trust when the grantor appoints herself as trustee and a deed of trust when legal title is transferred to another as trustee, often has explicit instructions about how the property is to be used by the trustee and may be created in an inter vivos document as well as a will. The trustee is said to hold legal title to the property and be the fee owner of the property. The beneficiary is said to hold equitable or beneficial title to the property - the trustee must use the property for the benefit of the beneficiary. Fee simple absolute - property ownership without an associated future interest. An owner of a fee simple interest in real property has the present right to possess and use the property, the right to sell it or give it away, and the right to devise it by will or leave it to her heirs. B/c no one owns the future interest in the property, no one has any presently identifiable legal right to obtain ownership of the property in the future. The language “A and her heirs” is technical in nature; it indicates a fee simple interest in A. The words “and her heirs” do not give A‟s heirs any interests in the property.  Defeasible fees:  present interests that terminate at the happening of a specified event, other than the death of the current owner. Categories of defeasible fees relate to two crucial distinctions: (1) whether the future interest is in the grantor or in a third party, and (2) whether the future interest becomes possessory automatically when the stated event occurs or becomes possessory only if the future interest holder chooses to assert his property rights.  Automatic transfer - when the future interest reverts automatically to the grantor on the happening of the stated event, the present interest is called a fee simple determinable and the future interest is called a possibility of reverter.  Transfer upon grantor‟s assertion of property rights - instead of providing for automatic transfer of the property rights upon violation of the condition, the grantor may choose to retain for herself or her heirs the right to decide, at the time the condition is violated, whether to retake the property. The current interest is called a fee simple subject to a condition subsequent and the future interest is called a right of entry. A major difference between possibilities of reverter and rights of entry involves the SOL for adverse possession. When a condition in a fee simple determinable is violated or occurs, the possibility of reverter kicks in automatically, giving the holder an immediate right of possession. A right of entry does not become possessory until the holder asserts a right of possession; if the holder of the right of entry never asserts the right, the title will remain w/ the present owner. There is a huge difference between rights of entry and possibilities of reverter. The modern approach is to treat the 2 types of future interest the same under one of two theories. The court may apply the doctrine of laches to prevent the holder of a right of entry from waiting too long to assert her right of entry; laches prevents recovery when an unreasonable delay in asserting legal rights unfairly prejudices another. As a policy matter, it seems inappropriate for the one who violates a condition to face the perpetual possibility of a claim by the current holder of the right of entry.  Fee simple subject to an executory limitation - any conveyance that transfers ownership to a 3rd party on the happening of an event other than the current owner‟s death. The executory interest in B automatically becomes possessory if the property is used for nonresidential purposes. 25 Life Estates  Reversions and Remainders - A conveyance from O to A for life creates a life estate interest in A. This means that A owns the property during his lifetime. The future interest following a life estate can be either in the grantor or in a third party.  Reversion: the property reverts to the grantor when A dies.  Remainder: the grantor designates a third party to obtain ownership when A dies.  Life Estate v. Fee Simple - owner of a fee simple can choose who will own the property after her death by writing a will or availing herself of the state intestacy statute. A life estate owner has no right to determine who owns the property on her death since ownership automatically shifts to the reversioner or remainder holder.  Contingent and Vested Remainders - remainders are further divided into two kinds.  Contingent - remainders are contingent if one or both of two conditions are met; (1) if the remainder will take effect only upon the happening of an event that is not certain to happen, and (2) if the remainder will go to a person who cannot be ascertained at the time of the initial conveyance. Example: “O to A for life, then to B if B has graduated from law school.” OR “O to A for life, then to the children of B” creates a contingent remainder in the children of B if B has no children at the time of the conveyance. OR “O to A for life, then to the heirs of B” - it is impossible to tell who B‟s heirs will be until B dies. Example: “O to A for life, then to B if she survives A, otherwise to C.” (B‟s ownership rights are conditioned on her surviving A).  How to destroy contingent remainders: (1) if they did not vest before the preceding life estate ended - “O to A for life, then to B if she has been elected president of the US” - the contingent remainder in B would be destroyed if B had not been elected president before the death of A; (2) destroyed by merger (WHAT IS THIS?). The modern view is that contingent remainders are indestructible. Thus, if B had not become president before A died, the property would revert to O as a fee simple subject to executory limitation w/ an executory interest in B that would vest and become possessory if B ever were elected president during her lifetime.  Vested - include any remainders that are not contingent remainders. They are remainders identifiable at the time of the initial conveyance and for whom there are no conditions precedent other than the natural termination of the prior life estate when the life estate owner dies. Three kinds of vested remainders: (1) absolutely vested remainders (not subject to change); (2) vested remainders subject to open (may be divided among persons who will be born in the future - “O to A for life, then to the children of B” is a vested remainder if B has any living children at the time of the conveyance. It is subject to open because any children of B born after the conveyance from O to A may share in the property rights - they will own the property jointly; (3) vested remainders subject to divestment (may be destroyed by an event that occurs after the original conveyance - “O to A for life, then to B, but if B has flunked out of law school, the property shall then revert to O” - this is subject to divestment because if the condition is met at any time, B will lose his right to obtain the property on the death of A. Example: “O to A for life, then to B, but if B does not survive A, then to C” (B will lose her interest if a subsequent event happens).  Doctrine of Worthier Title - common law doctrine providing that where a testator‟s devise (something being given away in the will) to an heir was the same as the heir would have taken by descent in the event of the decedent‟s intestacy, the heir would have been deemed to have taken by the worthier means of dissent rather by devise. (by dad signing the property as a future interest to me, I don‟t have to pay an inheritance tax)(better to be descendant of the property rather than the devisee).  Fee Tails - an estate whose purpose is to keep the property in a family dynasty. “O to A and the heirs of his body.” Every fee tail is followed by either a reversion or a remainder to take effect when the blood is followed by either a reversion or a remainder to take effect when the blood line runs out. B/c of its effect on marketability, the fee tail has been substantially abolished in the US. The way that states deal with fee interests that come up: interpret a fee 26 tail as a fee simple absolute. Others permit the fee tail but allow the fee tail owner to convert it to a fee simple by conveying the property in fee simple to another. Some states have interpreted fee tails as life estates in the present owner w/ a remainder in fee simple in her issue.  Regulation of Future Interests - future interests generate conflicts between the interests of prior owners in controlling future use and disposition of their property and the interests of current owners in asserting control over the property. 3 kinds of legal rules regulate future interests: (1) give guidance on how to interpret ambiguous conveyances (most important doctrine of these is presumption against forfeitures); (2) property law limits the ways in which owners divide property interests (ownership interests must be in the form of one of the established estates); the legal rules regulate the substance of future interests by preventing owners from creating certain kinds of future interests (some of these rules like the rule against perpetuities and against restraints on alienation, are intended to promote the relatively free transfer in the marketplace, other doctrines intended to protect equality and liberty). F. INTERPRETATION OF AMBIGUOUS CONVEYANCES 1. Presumption against Forfeitures and Grantor’s Intent - if the grantor doesn‟t use traditional language to create one of the estates, or uses conflicting language, courts must interpret the conveyance to determine what types of current and future interests were created and who owns the property. 2 rules of interpretation: a. look to the grantor‟s intent to the extent it can be discerned from the ambiguous language in the deed or will or surrounding circumstances. b. when the grantor‟s intent is ambiguous, the court should presume that the grantor gave away whatever interests he had in the property and did not retain any future interests.  “forfeitures are not favored in the law.” This rule of interpretation creates a presumption against forfeitures. The presumption is against loss of the property by the current owner.  enforceable covenant v. mere precatory language? Presumption against the covenant.  covenant v. future interest? Presumption against the future interest.  fee simple determinable v. fee simple subject to condition subsequent? Presumption against fee simple because it is automatically forfeited.  life estate v. fee simple? Presumption against life estate.  Wood v. Board of Fremont County - Woods conveyed land to Fremont for the construction of a county hospital. The transfer stated the purpose of the grant was to be used for a hospital, but it didn‟t express what would happen if the estate wasn‟t so used. County (D) operated a hospital on the land for 40 years before putting it up for sale. P brought suit, claiming a right to a reversion in the grant which became effective when the land ceased to be used for the intended purpose. Trial court granted summary judgment to the D. This court affirmed. It held that a grant of fee simple determinable must clearly state that the estate will terminate if not used in accordance w/ the grant. The grant would not continue to be valid if the condition were not met. P did not grant a fee simple subject to a condition subsequent, because the grant made no clear provision for termination. P retained no interest in the property. No fee simple determinable created. Forsgren v. Sollie - Forsgren granted adjacent property to Sollie on the condition that Sollie build a fence, survey the property, and use the property for church or residence purposes only. Sollie did not meet these conditions (built no fence, didn‟t complete the survey, didn‟t build anything on property) and paid no taxes. Property sold to Lefleur for taxes owed. Lefleur located Solllie in another state and received a quitclaim deed for title. After Lefleur destroyed improvements that Forsgren had made, Forsgren sue to quiet title. Trial court found in favor of Forsgren. The court held that where the language of a deed clearly evinces the intent to  27 create a fee simple subject toa condition subsequent, the absence of a provision for re0eentry will not be fatal to the grantor‟s claim. A condition subsequent will be inferred when the condition has particular importance to the grantor and the condition is meant to benefit adjacent land. IN this case the transfer was apparently caused by the desire to achieve the conditions that would clearly benefit the adjoining land. Forsgren‟s re-entry feed the land of restriction. Affirmed. 2. Trusts and the Cy Pres Doctrine - when a settlor establishes a charitable trust and has a general intent to contribute to some form of charity, and the particular charitable purpose identified by the settlor becomes impracticable or impossible to achieve, courts may apply the cy pres doctrine to carry out the settlor‟s charitable intent so far as possible by authorizing that the trust income be used for some other charity. This doctrine requires determination of whether the settlor‟s intent was general or particular. Did the grantor intend to aid only the particular charity or would he have intended the trust income to benefit some other charity? There is a strong public policy to encourage people to contribute to charities; therefore, people are allowed to attach conditions to charitable gifts of land much more freely than to regular land.  In re Certain Scholarship Funds - school was operating under restriction of state law that forbade it from discriminating under gender/religion. Court had to interpret Cy Pres doctrine. The doctrine said that the original purpose of the scholarship is no longer feasible. If there was a charitable purpose that the grantor intended, then the court must find a reasonable substitute. If the court finds that the grantor was explicit in saying that only this exact purpose is what he wants for scholarship, then the court must figure out where the money goes (usually back to heirs of grantor or to whoever is in the will).  In the matter of estate of Wilson - NY court substituted private trustees for public trustees and allowed the trust to continue to be paid out only to men. Since the trust would, in the future, be administered privately, no state action was involved; nor did the use of the court‟s powers to replace the school district as trustee w/ a private trustee constitute state action in the eyes of the court since the discriminatory intent was purely on the part of the private donor. The trust constituted a private gift, which could be conditioned in a discriminatory manner without violating federal or state guarantees of equal protection of the laws. G. RULES REGULATING RESTRICTIONS ON USE/OWNERSHIP TO PROMOTE MARKETABILITY - both servitudes and future interests are unenforceable under common law if they violate public policy. Statutes may also regulate or prohibit the enforceability of certain restrictions. Future interests are regulated by structural rules, including (1) the rule prohibiting the creation of new estates, (2) the rule against perpetuities. Both servitudes and future interests are regulated by rules of law that invalidate covenants or conditions that (1) unreasonably restrain alienation, (2) unreasonably restrain competition, (3) impose racial restrictions on use or ownership, and (4) unreasonably restrain marriage. 1. Rule against creation of new estates - the rules underlying the creation of future interests are intended to discourage the social heirarchy characteristic of feudalism and to promote a market system involving wide dispersal of property rights to prevent local monopolies. In light of this problem, courts follow a general rule against the creation of new estates. 2. Rule against unreasonable restraints on alienation - there is a strong presumption that property owners can transfer their interests, and restrictions on the ability to transfer are strictly regulated and often invalid. The rules promoting alienability serve policy goals: promote efficiency by allowing property to shift easily to a more valued use; promote liberty by freeing current owners from undue restrictions imposed by past owners; promote equality both by promoting dispersal of ownership and preventing racial restrictions.  Total restraints on alienation of fee simple interests - covenants or conditions that restrict the ability of the owner of real property to sell or give away the property. a. Disabling restraints - directly forbids the owner from transferring her interest in the property. b. Promissory restraints - covenant by which the grantee promises not to alienate his interest in the property. 28 c. Forfeiture restraints - provides for a future interest that will vest if the owner attempts  to transfer her interest in the property. The policies underlying the rule against total restraints on alienation of fee simple interests include (1) promoting dispersal of ownership of property and preventing concentration of land in passive family dynasties, (2) encouraging individual autonomy by vesting control of resources in current owners, and (3) promoting social utility and efficiency by allowing property to be transferred to its most valued customers. The term “repugnant” to the “nature” of a fee simple interest appeals to the sense of contradiction between the “absoluteness” of the fee simple interest and the restriction imposed by the restraint. No property rights are in fact absolute - even fee interests. Fee interests may be encumbered by easements, covenants, and mortgages. Partial restraints on alienation of fee simple interests - these are sometimes upheld by courts. Partial restraints on alienation: (1) last for a limited period of time, (2) limit transfer of property to certain persons or prohibit transfer to certain persons, (3) require approval of sale by the grantor or by neighbors, or (4) grant a right of first refusal, or preemptive right, to a particular group or person, giving that person the right to purchase the property in preference to anyone else if she offers fair market value for the property or if she matches any offers made by third persons. *partial restraints on alienation may actually increase, rather than decrease, marketability. If an owner is able to control what is done w/ property in the future, she may have a greater incentive to part w/ it; this is one theory underlying the law of servitudes. a. Repugnant to the Fee 1. Direct Restraints on Alienation  Riste v. Eastern Washington Bible Camp - The Bible Camp sold land in a subdivision w/ the restriction that the grantee could only sell the property to members of the Assembly of God Church. The deed Riste held clearly stated the restriction. Riste attempted to sell the land to someone who was not a member of the Assembly. Bible Camp refused to remove the restriction, so Riste sued to reform the deed and for a declaration that the restrictions were invalid. The court held that a restrictive restraint on the sale of fee simple title is a violation of public policy. Here, the restriction in the deed clearly prevented Riste from selling land he received in fee simple. Under state law, any restriction on the transfer of property based on race, creed, color, or national origin violates public policy. The restriction in question bars alienation based on creed. 2 restrictions: (1) restriction on activities that can take place on the land; (2) restraint on alienation: blanket term that covers all conveyances of property by gift, sale, will. Court points out that they‟re not opposed to religious colonies, but the way to do it is to own the land and give people leases instead of making it a freehold interest in the land as in this case.  Johnson v. Whiton (page 561) - conveyance to “Sarah Whiton, and her heirs on her father‟s side.” Since he said “on her father‟s side,” we can assume that what he intended was that if her only heirs were on her mother‟s side, they wouldn‟t get the property if Sarah died.  Hankins v. Mathews - Hankins died testate, leaving a will w/ provisions that his property by given to his wife and when his wife died, to his nephew. The husband and wife had joint ownership in the land - then each had an undivided ½ interest (when one dies, the half of dead person goes to whoever is specified in the will). The wife had a fee simple interest in the land. The nephew was to keep the property for    29 2. b. c. 10 years before he can even sell it or do anything w/ it. After the wife died (leaving her ½ to the nephew too), the nephew executed certain deeds and leases, in which it transferred property to Ds, b4 the 10 years were up. Hankins‟ heirs filed in chancery court, alleging they were sole heirs of Hankins and because the nephew transferred property to Ds b4 the 10 years was up, the property reverted to them (by Hankins‟ will). The court held that where land is granted or devised in fee, a provision of any sort that the taker shall not alienate, or shall not have power to alienate, is void. Even though the restriction at issue here is only for 10 years, it is still a total restriction upon the right of alienation. The restraint is repugnant to the fee and is void even though it is meant to last for 10 years. Note: Hankins could have accomplished what he wanted by creating a trust, w/ rules upon the death of his wife, that would have forced the nephew from selling w/in 10 years. Fee simple is supposed to mean fee simple - diminishing rights by a total restraints on alienation is seen too much like a feudal restriction on property. Grantor Consent Clauses  Northwest R.E. Co. v. Serio - Northwest included a covenant in a deed preventing its grantees from selling properties before a certain date without its consent. Grantees tried to sell the property to Serio b4 the required date and Northwest refused to consent. Serios sued Northwest for specific performance of the K for sale. The court held that the covenant restraining a grantee‟s ability to sell property is inconsistent and repugnant to the fee simple title which the deed conveyed. The restriction imposed on the deed was designed to temporarily deprive grantees of unrestrained power of alienation. Void Only if Unreasonable  Horse Pond Fish & Game Club v. Cormier - The club acquired unrestricted title to land that it used for activities, on which it built a clubhouse. The club transferred title to 2 members who transferred title back w/ a restriction preventing alienation of the property without 100% approval of all members. The neighborhood around the club was becoming more residential, so the club set up a deal where they could swap the restricted property for other property better suited for the club‟s activities. Cormier was the only member to vote against the proposal, preventing the transaction from occurring. Club filed suit to declare the restriction void. The trial court held the restraint void. This court reverses in favor of Cormier and remands to determine if the club is a charitable entity (because it says that determining this is material in determining the validity of the deed restriction). The court held that a restraint on alienation is valid only if it is reasonable in light of the justifiable interests of the parties. Unreasonable restraints are valid. However, the rule of reasonable restraints doesn‟t apply to charitable entities  a condition or restriction may constitute valid restraint. Equitable Reformation and Constructive Trust  Roper v. Edwards - ‟s grandma dies. B4 her death, she had a dispute w/ Ds over entitlement to 136 acres of land. 1 acre of land was not to be sold or encumbered by Ds prior to grandma‟s death. Ds were to make such conveyances of the 1 acre as grandma would specify in her will by express reference. If no specification, tract was to remain in Ds property in fee simple absolute. D refused to convey the land to P free of encumbrances. P sought the remedy of constructive trust. The court held that although the Ds had no legal duty to convey the property to P, the undisputed facts here present a compelling case for applying the constructive trust remedy. Complete justice can‟t be obtained if D is permitted, to P‟s detriment, to retain title to the 1 acre tract. Note: A constructive trust is a duty imposed 30 3. by courts of equity to prevent the unjust enrichment of the holder of title to the property that the holder acquired through fraud, breach of duty or some other circumstance making it inequitable for him to retain it. Anticompetitive Covenants  Dunafon v. Delaware McDonald’s Corp. - Dunafon (a TB franchisee) wanted to lease space in a mall. McD‟s had a lease in the mall that contained a covenant not to compete. If not for the covenant, TB could have had the space there. There were other fast food restaurants in the general area of the mall. Dunafon thought the other locations were unacceptable. The court held that a restrictive covenant preventing a landlord from leasing space to a competitor won‟t be deemed to violate the Antitrust At without a showing of substantial anticompetitve effect. However, the covenant was held to be anti-competitive since McD‟s expended a greater investment to enter an underdeveloped market. Dunafon hasn‟t shown that McD‟s gained any market advantage through the restrictive covenant. There are other substitute sites available in the geographic area. H. ELECTRICITY AND PROPERTY  The law has required electric utilities to provide service to everyone w/in their territory at nondiscriminatory rates set by a state regulatory agency.  In 1990s, 2 developments have caused people to question whether the existing laws governing distribution of electricity are working efficiently: 1. Services formerly operated as regulated monopolies, like air transpo and long distance telephone, have been converted to competitive businesses. Rates are now set by market rather than by a regulatory agency, and the result is lower rates. 2. New technologies for generating electricity by burning natural gas have made it possible to generate electricity at rates substantially lower than was anticipated 10 - 20 years before. Therefore, big nuclear and coal-burning power plants are technologically obsolete.  Edison is disadvantaged by these developments because it invested heavily in nuclear and coal-fired power plants in the 70s.  2 ways by which a large user of electricity might get lower rates: a. on-site generating facilities on its own land (most of these customers still want Edison to provide backup service in case of mechanical failure, which cost is fairly high). b. company could buy electricity from a different supplier and have the electricity delivered through Edison‟s wires, through a process called wheeling.  Edison says that it invested in all of these power plants w/ state‟s approval in order to avoid power shortages and blackouts. Edison says there was an implicit K between it and state (regulatory compact) which guarantees that Edison is able to make enough money to pay off the cost of the power plants + a reasonable profit.  Competitors are anxious to serve big and wealthy users of electricity but less eager to serve smaller users, particularly in rural areas or poor districts where costs are higher and risks are greater. This process of suppliers picking off biggest customers = “cherry picking.”  If large share of big customers leave Edison system, and if Edison continues to charge high enough rates to pay off the old power plants, the rates to smaller customers will have to go up. Law could make Edison more competitive if all potential suppliers of electricity were required to provide service to every customer in the region at nondiscriminatory rates, but this might mean that fewer industrial users could benefit from lower rates because fewer suppliers would enter the market. Alternatively, Edison could be freed from obligation to provide service to all customers.  Bill dealing w/ electricity deregulation is pending in Illinois Senate as Senate Bill 55.  Questions relevant to property law: 31   Is there a duty to service - is electricity a basic right? Should suppliers of electricity have the same right to exclude people from their property as other private businesses, or should they be governed by standards that have applied to common carriers? 2. The regulatory compact - was there an implied K between Edison and state? If so, is Edison‟s right to this return on its investment protected by the “taking clause” or the “obligation of Ks” clause of the Constitution? Or did Edison assume the risk when it chose to invest so heavily in nuclear power? Fessler: There is a basic constitutional right to electricity. This is a common law duty which can be overriden by statute. C/l decisions in IL enforce the duty to serve. ASK BOSSELMAN HOW MUCH OF THE LECTURE WE SHOULD STUDY. 1. I. RULES REGULATING CURRENT OWNERS TO PROMOTE SOCIAL WELFARE, EQUALITY, AND LIBERTY 1. Social Welfare and Intergenerational Equity: Waste - what happens when someone has a temporary interest in land and someone else has a future interest in land? Try to determine what to do with it. Waste was a common law term used when one w/ a remainder interest claimed that the one w/ the current interest took too much of the property. The general rule in R.E. is that if you get a life tenancy in property, you must maintain the property in the same condition that it was when you got it. Waste may take on a variety of forms: permissive, voluntary, ameliorating. Permissive waste is discussed in Moore - it is the failure of the possessory tenant to perform an affirmative duty imposed upon him for the benefit of the owners of future interests in land. Voluntary waste occurs during commission of some deliberate or voluntary destructive act. Ameliorating waste occurs when there has been any material change in the nature of the property even though the change enhances the value of the property. Ameliorating waste example is Melms v. Pabst Brewing Co. - given the low value of the house as a residence in Milwaukee and the fact that preparing the land for commercial development would greatly increase its market value, as well as allow it to be utilized, the court held that destruction of the house did not constitute waste. The court held that although the reversioner or remainder holder ordinarily is entitled to receive the property in substantially the same condition in which the life tenant received it, the life tenant is entitled to make fundamental changes to the property if a complete and permanent change of surrounding conditions has deprived the property of its value and usefulness as previously used.  Moore v. Phillips - LB died and by will left his wife AB, a life estate in farmland containing a farmhouse, w/ remainder interests to DM (P) and KR. AB resided in farmhouse for a while and then rented it out for awhile, after which the house became unoccupied. For 3 years, the house was leased to the people w/ remainders, but they didn‟t live there. However, from time to time they would inspect the property. AD died, leaving her property to others because she and her daughter, , had been estranged. After AB‟s death,  sued her mom‟s executor, D, on theory of waste to recover damages for deterioration of the farmhouse. D raised laches and estoppel as affirmative defenses. D executor says that if she was going to file suit against the mother, she should have done so while she was alive. Trial court sustained them. Reversed on appeal. Court held that laches will not be a bar to recovery in an action for permissive waste when there is a reasonable excuse for not bringing the action earlier. Permissive waste is the failure of the tenant exercise ordinary care of a prudent man for the preservation and protection of the estate. Here, the evidence shows that the life tenant didn‟t keep the property in reasonable repair, as was her responsibility. Waste is designed to prevent people from taking advantage and waiting until a party dies to contest something. The solution would have been to create a trust, in which the trustee could determine how much maintenance this property deserved. 2. Protection of Equality: Racially Discriminatory - a racially restrictive covenant limits the sale, lease, occupancy of real property to members of a particular race or excludes members of 32 a particular race. Such covenants are now unenforceable under constitutional, statutory, and common law and may even subject those who enter into them to monetary liability under civil rights statutes. Shelley v. Kraemer was the case that stopped the practice of including covenants in deeds restricting ownership, possession, and occupancy of the land to white persons.  Shelley v. Kraemer -The Shelleys (D), Negroes, purchased property which, unknown to them in the deed, was subject to a racially restrictive covenant signed in 1911 for a 50 year period by the majority of property owners, excluding anyone not of the white race. The Kraemers (P), owners of property subject to this covenant, sued in state court to restrain Ds from taking possession and to revest the title in others. The trial court denied Ps this relief on the ground that the restrictive covenant had never become final because not signed by all property owners. Supreme Court of Missouri reversed and directed the trial court to grant relief for which respondents had prayed. US Supreme Court granted cert and Ds argue that the equal protection clause of the 14th amendment prevented the judicial enforcement by state courts of racially restrictive covenants. The court held that the equal protection clause of 14th does prohibit racially restrictive covenants. The courts have always interpreted the 14th as attributable to state actions only - you must prove that there was a state action that deprived you of your rights. It doesn‟t apply to private actions, like battery by a citizen, unless the citizen is also a government official. In Kraemer, these were private covenants, agreed to by individuals, so until this case, it was commonly believed that these racially restrictive covenants were valid. Court here explained these as invalid because there was a court action required to enforce the covenant and the enforcement action by the court constituted state action. Private discrimination can become state action if must be enforced by the government.  Evans v. Abney - J. BLACK: US Senator Bacon of Georgia conveyed property in trust to his home town of Macon (D) for the creation of a public park for the exlusive use of the white people of Macon. City initially kept the park segregated, but then let the whites-only policy lapse. Board of Managers (P) who supervised the operation of the park sued the City to remove the city as trustee. Evans (D) and other black citizens of Macon intervened, and the suit eventually reached Supreme Court, which held that the park must be treated as a public institution subject the 14th. Since racial separation was found to be an inseparable part of Bacon‟s intent, on remand the GA courts held that the cy pres doctrine could not be used to alter Bacon‟s will to permit racial integration in the park. The trust was held to have failed, and the park reverted to Bacon‟s heirs. Supreme Court granted cert on the issue of whether termination of the trust violated Ds rights to equal protection and due process under 14th. The court held that the cy pres doctrine is N/A when the testator would presumably have preferred to have the whole trust fail if the particular purpose of the trust became impossible to accomplish. Cy pres allows the court to carry out the general charitable intent of the testator where this intent might otherwise be thwarted by the impossibility of the plan or scheme provided by the testator. In this case though, the language in Bacon‟s will indicates that his charitable intent was not general but extended only to the establishment of a segregated park for the benefit of white people only. Apparently, he would rather have the whole trust fail than have the park integrated. Therefore, GA had no choice but to end the trust and return the property to Bacon‟s heirs. All discrimination here has been ended by ending the park itself - it is a loss shared equally by all citizens, regardless of race, and thus is not unconstitutional. Dissent - J. DOUGLAS: “this decision can ony be regarded as a gesture toward a state-sanctioned segregated way of life that is passe.” Dissent - J. BRENNAN: said that closing the park down is a discriminatory state action; enforcement of the reverter is unconstitutional.  Distinction between Evans and Shelley: key issue in these cases is state court action. In Shelley, it said the action was a state action. In Evans, the court didn‟t say 33 3. that action was a state action  this is a textual distinction between the cases. In Shelley, if no one went to court, the covenant would have been violated and Shelleys would have moved into the house. In Evans, if no one went to court, the property would have automatically reverted to the heirs - all the court in Evans was doing was confirming something that had already taken place. This is a legitimate argument based on property law that there is a distinction between the 2 cases. Protection of Equality and Liberty: Restraints on Marriage  Lewis v. Searles - LL died and left a will which devised all her real and personal property to HL () so long as HL remained unmarried. In the event that  were to marry,  would receive 1/3 of the property and 1/3 would go to each of 2 other heirs. Both of these heirs died leaving children, one of which is Searles (D).  remained unmarried and when she turned 95, she had the court declare that the will left her a fee simple determinable which could only end if she married. D and other heirs argued that the will gave  and each of the other 2 heirs title in fee simple to an undivided 1/3 of the estate subject to ‟s life estate. The court held that, if in a will, there is no expressed intent to create a life estate, and no further devise is made to take effect after the death of the devisee, the law will presume that the testatrix manifested an intent to create a fee simple. In this case, no intention appears to indicate the conveyance of only a life estate. Also, no further devise is made to take effect after the death of . Plus, if  were to marry, she would be immediately given an undivided 1/3 of the property in fee. It is not stated whether the heirs had to survive  in order to receive 1/3 if  was to marry. If it were only a life estate, there could be a partial intestacy if she married because there was no gift or limitation upon ‟s death. The words of the will, when looked at as a whole evidenced an intent to pass the max estate possible consistent w/ the limitation on marriage. There are no express words to the contrary present in the will. The fact that the gift to the heirs would come about only by a marriage indicates that this was not meant to be a gift on ‟s death so  had a fee simple determinable, not a life estate.  Note: Shapira v. Union Nat‟l Bank - “if don‟t marry a Jewish woman w/in 7 years, estate goes to state of Israel.” The cases are mixed as to whether a case such as this or Lewis v. Searles is legitimate. It‟s not discriminatory, but it may be an unreasonable restraint on alienation. Also, it‟s deadhand control over generations long dead.  Note: Restatement - (1) restraints on 1st marriage invalid, but if only supporting until marriage, the restraint is valid; (2) restraints on some first marriages valid, if and only if the restraint doesn‟t unreasonably limit the transferee‟s right to marry (Shapira‟s will would be valid under this); (3) restraints on remarriage - if make a gift to your spouse and condition it on not remarrying, that condition usually is upheld by the court.  Mary Joe Frug: A Feminist Analysis of a K Casebook V. GOVERNMENTAL LAND USE PLANNING A. THE PLANNING POCESS 1. The Role of Nuisance Doctrine and Land Use Agreements 2. Legislative Process: Enacting the Zoning Ordinance a. Zoning Enabling Acts  land use planning also takes place by state and local gov‟t agencies. States delegate zoning power to individual municipalities through general legislation called zoning enabling acts. The acts define the scope of the 34 3. 4. powers delegated and the procedures by which the zoning process operates. These enabling acts usually authorize municipalities to engage in 2 kinds of regulation: use and area zoning.  Use zoning - dividing the municipality into district and regulating the kinds of uses allowed w/in each district.  Area zoning - regulates the size of lots, the height of building, and requirements to set back structures a certain distance from the property borders.  zoning enabling act required a comprehensive plan for the municipality as a whole. The idea is to avoid nuisances before they arise. The zoning process is also intended to allow flexibility. Local law governing land use in the municipality is called the zoning ordinance or by-law. the zoning ordinance is just like a local statute and is enforceable until it is changed by the governing body. A change in the zoning ordinance is called rezoning or a zoning amendment. This can be accomplished only by the legislative body. Once course of action for a property owner who would like to develop her property in ways prohibited by the zoning ordinance is to seek a rezoning form the city council. b. The Comprehensive Plan & Zoning Ordinance c. Planned Unit Development - Municipalities have established planned unit developments in which the zoning board or its planning staff work to establish overall density requirements and then work directly with developers of a particular area to construct a rational scheme that mixes uses in a desirable way. Statutory and Constitutional Limits on the Zoning Power  The most important constitutional doctrines limiting local zoning power include the takings clause and the first amendment.  Takings clause - prohibits state and local governments from enforcing land use restrictions that go too far in restricting land use without adequate justification unless property owners are provided „just compensation‟ for loss of their property rights.  First amendment - prohibits certain land use regulations that interfere with freedom of speech (banning all signs on residential property). Administrative Procedures: The Zoning Board Adjustment  the zoning enabling act authorizes the municipality to delegate power to a local agency, often called the zoning board or board of adjustment, to administer the zoning laws. The zoning ordinance ordinarily gives the zoning board the power to grant variances or special exceptions from the restrictions imposed by the zoning ordinance.  Variance - permit to develop a parcel in a way that otherwise violates the zoning ordinance (granted in cases of special hardship)  Special exceptions - permits to develop in ways that are conditionally authorized by the zoning ordinance.  Cases:  Pennsylvania Coal v. Mahon - Supreme Court held that the statute exceeded the legitimate scope of the police power by wrongfully infringing on constitutionally protected property rights.  Village of Euclid v. Ambler Realty Co. - Supreme Court held that the ordinance served a legitimate public interest and thus did not unconstitutionally deprive the plaintiff of protected property rights under the 14th amendment even though the decrease in market value of the land was very substantial. 35  Nectow v. City of Cambridge - vacant lot was bisected by a newly enacted zoning ordinance. The bulk of the parcel was zoned for industrial uses, but one vacant part of the parcel was limited to residential use. The Supreme court held that the statute, as applied to this portion of the land, impermissibly infringed on constitutionally protected property rights. B. ZONING: POLICE POWER AND PROPERTY RIGHTS 1. Limits to Zoning Laws Designed to Protect Preexisting Property Rights - The 3 doctrines in this section all involve legal protections for property owners from retroactive application of zoning laws when those laws unfairly surprise owners who invested in reliance on preexisting laws by denying them the ability to use the property in a manner that was permitted before the zoning law was instituted or changed. The source and status of these doctrines (prior nonconforming uses, variances, and vested rights) is unclear. a. Prior Nonconforming Uses  Town of Belleville v. Parrillo’s, Inc. - Parrillo‟s operated as a restaurant before 1955, when a zoning ordinance was enacted in the town. In 1978 the owners changed it into a disco. The owners applied for disco license but it wasn‟t approved. They continued to operated it as a disco anyway. Defendant was fined $250.00 in municipal court. Found guilty in trial court. The appellate court reversed. The supreme court agrees with the trial court‟s holding that there had been a prohibited change in the use of the premises. The N.J. Statutes say that property that existed before the effective date of a zoning ordinance is deemed to have acquired a vested right to continue in such form, irrespective of the zoning provisions. However, there are limits on this statutory guarantee. They prevent any increase or change in the nonconformity. Under that restrictive view our courts have held that an existing nonconforming use will be permitted to continue only if it is a continuance of substantially the same kind of use as that to which the premises were devoted at the time of the passage of the zoning ordinance. Where there is doubt as to whether an enlargement or change is substantial rather than insubstantial, the courts have consistently declared that it is to be resolved against the enlargement or change. The issue in this case is whether the conversion from a restaurant to a disco represented a substantial change and was thus improper. Look at the basic character of the use, before and after the change. The court decides that the defendant‟s conversion of the premises from a restaurant to a disco resulted in a substantial, and therefore impermissible, change. Case is reversed and remanded to trial court for entry of a judgment of conviction. b. Variances - allows zoning board to allow owner to do something specific that isn‟t allowed by ordinance. Use variance - tells someone they can use the property for a different use than is permitted through ordinance. Non-use variance - simply allows them to change other restrictions, such as height, setback, lot size. Courts don‟t automatically allow a variance to be granted - they try to work out a reasonable compromise first.  Commons v. Westwook Zoning Board - board of adjustment which denied a zoning variance for construction of a single-family residence on an undersized lot. Plaintiffs filed a complaint to review the denial of the variance by the board of adjustment. The property in question is a vacant lot located in an established residential area. It is the only undeveloped property in the neighborhood. The s have owned this lot since 1927. The  wanted to construct a single family home on this lot. A 1947 amendment to the zoning ordinance said that single family houses had to be located on lots with a frontage of at least 75 feet an an area of no less than 7500 square feet. There were 32 homes in the area, only 7 of which satisfied the 36 c. minimum frontage requirement. The  sought (unsuccessfully) to purchase from his neighbor to the south a 10 foot strip of land adjacent to his.  Neighbors‟ complaints: the house on a 30 foot lot would be aesthetically displeasing; concern about privacy (noise and trespassing).  The board denied the variance, finding that the applicant failed to demonstrate any evidence to establish hardship and that the granting of the variance would substantially impair the intent and purpose of the Zone Plan. The trial court affirmed because if felt that to permit the variance would be detrimental to the entire area where the property in question was situated.  N.J. Statutes said that the board of adjustment shall have power to grant a variance where there‟s...exceptional and undue hardship upon the developer of the property. Negative criteria must be satisfied too: public good and can‟t substantially impair the intent and purpose of the zone plan and ordinance.  The court looks at undue hardship and the efforts which the property owner has made to bring the property into compliance with the ordinance‟s specifications.  The board of adjustment said that there was no evidence of hardship in this case, but this court says that there was: (1) tried to get the 10 foot strip, (2) ownership commenced in 1927, before the zoning ordinance, (3) if the variance wasn‟t granted, the land would be zoned into inutility.  The court remands it back to the board of adjustment so that the record may be supplemented and reconsidered. (Many cities require the posting of a sign on the property). Vested Rights - owners start to build something that is permitted at the time but b4 finished, law enforces an ordinance which says it‟s not permitted. Someone who starts the work on reasonable reliance and there is then a change in law, should be able to keep his right in building it.  Stone v. City of Wilton - s appeal from dismissal of their petition for declaratory judgment, injunctive relief and damages regarding City‟s rezoning from multi-family to single-family residences. The s say that the rezoning ordinance is invalid. This court affirms.  s purchased the land in 1979 w/ the intent of developing a low income, federally subsidized housing project. The feasibility of the project depended upon a multi-family zoning of the tract. After land purchased, s incurred expenses for architectural fees, engineering services, secured a loan for construction. In Dec. 1979, s filed a preliminary plat for the project. In March of 1980, following a public meeting, the planning and zoning commission recommended to city council that land in northern part of city be rezoned to single family residences due to inadequacy of sewer, water, and electrical services. ‟s application for a building permit in May to construct multi-family swellings was denied due to the pending rezoning recommendation.  s filed petition against city seeking a declaratory judgment invalidating any rezoning of their property, temporary and permanent injunctions to prohibit ordinance passage, and $570,000 in damages for money spent on the project. In June, the proposal to rezone the land was approved.  Was the rezoning ordinance valid? Land use restrictions reasonably related to the promotion of the health, safety, morals or general welfare repeatedly have been upheld even though the challenged regulations destroyed or adversely affected recognized real property interests or flatly prohibited the most beneficial use of the property. The validity of the police power enactment, such as zoning depends on its reasonableness. 37 2. 3. 4. The s try to say that the rezoning was racial discrimination. The court find that discriminatory purpose was not a motivating factor in the council‟s decision to rezone. They find that the council rationally decided to rezone this section of the city to further the public welfare in accordance with a comprehensive plan.  s say that the restriction on their land was a taking because they had a vested right to develop their property as multi-family residences. They say that the zoning ordinance should be inapplicable to their project. This court disagrees. Standard for whether a property owner has vested rights is set for in Board of Supervisors v. Paaske - it says to look at the type of project, its location, ultimate cost, and the amount accomplished under conformity. The court in this case held that the s efforts were not substantial prior to rezoning so that he had no vested rights. However, this court found that ‟s rights were not that substantial.  The test is one of reasonableness and the court did not believe that rezoning a portion of ‟s property exceeded the bounds of reasonableness. At most, the decision of the council took from the s a sizeable tax shelter. They hold that the ordinance which rezoned a portion of ‟s land was valid and applicable to ‟s land.  Note from Fred: This is a close case, similar cases have gone the other way, sometimes because modifications weren‟t as plausible as this. Limits on Preferential Zoning a. Special Exceptions - Unlike a variance, which grants the property owner the right to something ordinarily prohibited by the zoning law to avoid undue hardship, a special exception describes a conditional use permitted by the zoning law. Unlike variances there‟s a presumption that the owner can engage in the permitted use so long as the established conditions are met. Special exceptions generally require sufficient direction to the zoning board - vague conditions that grant the zoning board too much power may be struck down as improper delegations of legislative power. b. Spot Zoning - selective rezoning by the municipal legislative body of a single parcel or small group of parcels of land. This gives the owners a discriminatory benefit that is inconsistent w/ the zoning of the surrounding area, is detrimental to the community, and is not justified as a police power measure designed to promote the public welfare. Ethical Issues in R.E. Development - SLAPP Suits: “strategic lawsuits against public participation” - a suit filed by developers, unhappy w/ public protest over a proposed development, filed against leading critics (special interest groups - Greenpeace/Homeowner‟s Association - that attack the companies) in order to silence criticism of the proposed development. The D‟s in SLAPP suits can bring a counter-suit for the tort of malicious prosecution, claiming that the lawsuit against them is frivolous. Environmental Regulations: liability of Property Owners for Cleanup of Hazardous Waste - land use regs are imposed not only by local zoning laws but by state and federal environmental protection laws. If you ever owner the land or own it now, you are liable for contamination that occurs on the land. There is joint and several liability here, regardless of how much you had to do w/ the environmental damage that occurred. Anyone who buys/sells R.E. must get environmental assessment to determine the conditions of the land.  Acme Laundry Co., Inc. v. Secretary of Environmental Affairs - ACME Laundry (P) files an action protesting the placing of a lien on contaminated property owned by ACME pursuant to the Massachusetts Oil and Hazardous Material Release Prevention Act. ACME II divided the property containing the contaminated soil into four parcels. Once parcel contained the contaminated soil and the other 3 were free of it. ACME II conveyed the contaminated lot to ACME III, which was just a property holding company. The lien was placed on all the property and ACME II and III want a declaration that the lien is invalid and the 3 other parcels can‟t be  38 subjected to the lien. The court held that once the state has incurred assessment costs related to the contaminated site, it may place a lien securing both the costs already incurred and those that will be incurred in monitoring and supervision. Placing a lien on all the property provides a powerful incentive to a responsible party to conclude the cleanup process as quickly and efficiently as possible. The trial court‟s granting of D‟s motion for SJ is affirmed. VI. COMMON OWNERSHIP OF RESIDENTIAL PROPERTY A. VARIEITIES OF COMMON OWNERSHIP B. CO-OWNERSHIP 1. Rights and Obligations of Co-Owners a. Tenancy In Common - each tenant in common, no matter how small his interest, has the right to possess the entire parcel, unless the co-tenants agree otherwise by contract. When a tenant in common dies, his interest goes to his devisees under his will or to his heirs under the state intestacy statute if he has not left a will or otherwise disposed of the property. Tenants in Common can‟t exclude the others from using it. Any tenant in common can go into court and say that he wants to partition the property and by doing this, split up the parcels and have his individual share. If one of the co-tenants lives on the property and uses it but the other person doesn‟t, the question arises if the person living there gets adverse possession. The answer is no, unless the co-tenant has done something very clear to indicate you don‟t believe your co-tenant has done anything to have a right to the property. b. Joint Tenancy - each joint tenant has the right to possess the entire parcel, but unlike tenants in common, joint tenants have traditionally been required to possess equal fractional interests in the property. Can‟t leave this in your will because if you die, it‟s gone because the other people who own the land will get it.  Right of survivorship - this is the main difference between joint tenancy and tenancy in common. When a joint tenant dies, her property interest is immediately transferred to the remaining joint tenants in equal shares.  Formalities of creation - the unity to time, title, interest, and possession.  time - the interest of each joint tenant must be created at the same moment in time.  title - all joint tenants must acquire title by the same instrument.  interest - all joint tenants must possess equal fractional undivided interests in the property and their interest must last the same amount of time.  possession - all joint tenants must have the right to possess the entire parcel.  Severance - a joint tenant who transfers her property interest can destroy the right of survivorship of her fellow owners. If A and B own property as joint tenants, each owner has the right to obtain full ownership oft he property when the other co-tenant dies. If A sells her ½ undivided interest to C, thought, the joint tenancy is severed, and B‟s right of survivorship is destroyed. Then, B and C will own the property as tenants in common. Severance occurs only between the selling owner and the remaining owners. If A, B, and C own property as joint tenants, and A conveys his interest to D, the result is that D owns a 1/3 interest as a tenant in common w/ B and C, who each own a 1/3 interest as joint tenants w/ each of the When B dies, his interest goes to C as a surviving joint tenant, who will then own a 2/3 interest as a tenant in common w/ D.  Joint tenancy v. dual life estates w/ alternative contingent remainders - it is possible to create an indestructible right of survivorship if one uses the form of life estates and remainders: O to A and B as life tenants, with a remainder in A if A survives B, and a remainder in B if B survives A. 39 c. If the conveyance is ambiguous as to whether the grantor intended to create a tenancy in common or joint tenancy, interpret the conveyance as a tenancy in common.  Concurrent owners are legally obligated to share certain benefits and burdens of ownership, although free to vary these arrangements by K.  Sharing benefits: each co-owner has the right to possess the entire parcel. Joint tenants and tenants in common have a duty to pay rent to their co-owners if they have ousted them. Co-owners have the right to share any rents paid by third parties who are possessing the property.  Sharing burdens: co-owners must share basic expenses needed to keep the property, including mortgage payments, property taxes and other assessments, and property insurance, in accordance w/ their respective shares. Duty to share basic maintenance and necessary repairs.  Accounting: in many states, co-owners can bring a judicial proceeding for an accounting to require their co-owners to pay their portion of maintenance expenses or to force co-owners to hand over the requisite portion of rents earned from third parties who possessed the commonly held property.  Partition - joint tenants or tenants in common have the power to file a lawsuit for judicial partition of commonly held property. Court may order the property physically divided among the co-owners or it may order that the property be sold and the profits split up.  Adverse possession and ouster - one co-tenant can‟t obtain adverse possession against another unless the possessing tenant makes clear to the nonpossessory tenant that he is asserting full ownership rights in the property to the exclusion of the other co-tenants. Tenancy in the Entirety - a form of joint tenancy available only to married couples. Its current form is similar to joint tenancy, except that (a) the co-owners must be legally married, (b) the property can‟t be partitioned except through a divorce proceeding, (c) inmost states, the individual interest of each spouse cannot be sold, transferred, or encumbered by a mortgage without the consent of the other spouse, with the result that the right of survivorship can‟t be destroyed by transfer of the interest of one party, (d) in most states, creditors can‟t attach property held through tenancy by the entirety to satisfy debts of one of the spouses. This form of joint ownership gives the husband the sole power to manage and control the disposition of the property. These arrangements have been held to violate the equal protection clause by defining state property law in a way that discriminates on the basis of sex; therefore, this form of ownership has been abolished now.  2. Tenancy in Common and Joint Tenancy a. Conflicts over Rent and Ouster in the Context of Divorce  Olivas v. Olivas - Husband (D) and wife (P) divorced by partial decree. District court didn‟t enter the final order until 3 years after the partial decree. Husband moved out of family home to live w/ another woman. District court didn‟t find that he had been constructively ousted from the family home. Husband wanted court to find constructive ouster by P entitled him to ½ of reasonable rental value of the home from the time of initial separation. The court held that if one of the parties to the divorce remains in possession of the community residence between the date of the divorce and date of the final judgment diving the community assets, then there may be a form of constructive ouster which may render the divorced 40 b. spouse in possession of the residence liable to the one not in possession for the use and occupation of the residence. However, where there is substantial evidence that the husband‟s reason for leaving the house was to live w/ a girlfriend, then he was not pushed but pulled. Trial court affirmed holding for P.  Note: the law on this varies from state to state. If one party in a marriage ousts the other from the house, the person that keeps the house has to pay the other person the equivalent of ½ the rental value of the house. Some states don‟t require this at all. Conflicts over Transfers by One Co-Owner 1. Family Conflicts over use of common property  Carr v. Deking- George Carr, owner of a parcel of land w/ his son, Joel (P), as tenants in common, executed a written lease agreement w/ Deking (D) without P‟s consent. P commences this action to declare that the lease is invalid and that D had no right to farm the land. The court held that where a co-tenant lawfully leases his own interest in common property to another without consent of the other tenant and without his joining in the lease, the nonjoining tenant may not demand exclusive possession as against the lessee, but may only demand to be let into co-possession. P is not entitled to eject D from his property. The property remedy is a partition and until that occurs, D is entitled to farm the land under the lease. 2. Death  Tenhet v. Boswell - Johnson and Tenhet (P) owned property as joint tenants. W/o P‟s knowledge and consent, Johnson leased the property to Boswell (D) for a period of 10 years. Johnson died 3 months after execution of the lease and P sought to establish her sole right to possession of the property as the surviving joint tenant. After Johnson wouldn‟t vacate the premises when asked to do so, P brought an action to have the lease declared invalid. The court held that a lease expires upon the death of the lessor joint tenant. Even if they couldn‟t agree to act together, either P or Johnson might have severed the joint tenancy, w/ or without the consent of the other, by an act that was clearly indicative of an intent to terminate, like a conveyance of her entire interest. B/c a joint tenancy can be created only by express intent and because there are alternative and unambiguous means of altering the nature of the estate, the lease here did not operate to sever the joint tenancy. However, when Johnson died, the lease died w/ him, and so it is no longer enforceable against P. 3. Divorce  Kresha v. Kresha - Husband and wife (P) were co-owners of 2 tracts of land. Husband, by written instrument and no consent or authority by wife, leased the land to their son Joseph (D) for 6 years. Within those 6 years, the couple divorced and a dissolution decree awarded the lands in question to P. She told D that she was terminating the lease. D refused to vacate the premises and P brought a forcible entry and detainer action in the county court to obtain possession of the lands. Trial court ruled for D and P appealed. The court held that pursuant to a divorce proceeding where one party is awarded the entire ownership of certain lands, those lands are taken subject to leasehold interests in the exspouse‟s former ownership interest. This situation is similar to acquiring property from a fee owner which the purchaser knows to 41 be encumbered by an existing lease. In such a situation, the purchaser acquired the property subject to the lease. D‟s lease survives the divorce. Trial court affirmed. Tenancy by the Entirety  Savada v. Endo - the Ps were injured when struck by a car driven by D (Endo). They weren‟t able to obtain satisfaction of their judgments from D‟s personal property so they wanted to set aside a conveyance by D and his wife of some land which had been held by them as tenants by the entirety. The issue was whether the interest of one spouse in real property, held in tenancy by the entirety, was subject to levy and execution by his or her individual creditors absent consent of both spouses. The court held that it wasn‟t. The tenancy by entirety is an estate held by husband and wife in single ownership - both hold the whole estate. Since the passage of the Married Women‟s Property Acts, this estate is indivisible except by joint action of the spouses. The purpose of this estate is to protect a spouse from the other spouse‟s improvident debts. Since the land was held in this form, it was immune from claims by Endo‟s creditor. C. CONDOMINIUMS AND COOPERATIVES 1. Ownership Structure and Management a. Condominiums - each unit in a condo is owned in fee simple by a particular person or entity. The common areas of the condo - the exterior walls, roof, stairwells, hallways, and basement - are owned by all the unit owners collectively as tenants in common. Each owner finances the acquisition of his individual unit, ordinarily by getting a mortgage from a bank. Each unit owner is responsible for property tax payments on his unit. Every owner in the condo is a member of the condo association. Condo association picks a board of trustees to manage the common areas of the condo, sign Ks on behalf of the condo association for maintenance and rehabilitation, and buy insurance for common areas. The condo is set up by filing a declaration w/ the local recording office or registry of deeds. It functions like a constitution for the condo association. It defines the mgmt. structure of the condo, explains how the board of trustees is to be chosen, and defines the powers of both of these. It enables the condo association to pass by-laws (rules) governing use of the units. The declaration may also have covenants restricting the use of the condo as a whole and use of the individual units. Unit owners pay monthly fees to condo association for maintenance of common areas, insurance, etc. 2 common conflicts in condos: (1) conflicts between unit owners and developer of the condo, often over management Ks. (2) conflicts among the unit owners themselves. b. Cooperatives - in a cooperative arrangement, the entire building is owned by a single nonprofit cooperative corp. Individual owners buy shares in the corp and then lease their individual units from the corp. The entire cooperative will be financed by a single mortgage loan obtained by the corp itself. Monthly payment by each owner covers that owner‟s share of mortgage payment and fees for upkeep. Defaulting tenants can be evicted by the corp and lose their stock. This is much less common than the condo. 2. Reasonableness Limits on Condominium Rules  O’Buck v. Cottonwood Village - Cottonwood (D) found that roof leakage was caused partly because of badly mounted TV antenna. There was foot traffic on the roof and the D adopted a rule prohibiting mounting of TV antennas anywhere on the building. Purpose of this rule was to protectthe roof and enhance marketability of the condo units. D decided to make a cable system available as alternative to antenna. W/o antenna, O‟Buck (P)lost reception in 3 of 4 TV sets. It would cost P $10/month to have the cable. P‟s want damages and injunction against the rule against antennas. The court held that condo declarations and bylaws granting a board the authority to enact rules banning TV antennas will w/stand judicial scrutiny if they are reasonable. To evaluate unreasonableness of the rule, it‟s necessary to balance the importance of the rule‟s objective against the importance of the interest infringed upon. The 3. 42 antenna ban curtails no significant interests (of civil liberty). The only loss suffered by Ps was that they have to pay a small fee to receive TV. Ps injunction denied. VII. LANDLORD-TENANT RELATIONS A. LEASEHOLD ESTATES 1. Types of Tenancies a. Commercial and Residential Tenancies 1. residential tenancies - courts are more inclined to adopt common law rules regulating the terms of residential leases than of commercial leases, on the assumption that commercial tenants are more likely to have sufficient bargaining power and expertise to shape the contractual arrangement in their best interests. Landlord gives up possession of the land to the tenant. He may retain some rights in certain leases. No common law right on part of landlord to enter the property as long as possession is in the tenant. Landlord has reversion right - it‟s just like the basic future interest - if you give someone a life estate w/ the condition that it could revert. Every lease has a term (a length). 2. commercial tenancies b. Categories of Tenancies 1. Term of years  specified period of time determined by the parties.  the term ends automatically at the agreed-upon time but may be terminated before the end of the fixed period on the happening of some event or condition stated in the lease agreement.  future interest retained in the property - a reversion.  if, at time lease is signed, the owner provides that the property will shift to a third party at the end of the leasehold, the future interest = remainder.  death of either party does not terminate tenancy. 2. Periodic Tenancy renew automatically at specified periods unless landlord or tenant chooses to end the relationship.  some of these tenancies are month-to-month tenancies, where there is no written lease or specified end to tenancy but tenant pays monthly rent renews every month until one of the parties says that he intends to end the relationship.  Notice required b4 termination.  Death of either party does not terminate the relationship.  Heirs/devisees of deceased landlord may choose to end the tenancy, unless some statute/common law rule prevents it.  landlord under this relationship may not be able to terminate the tenancy if the tenant has a defense to eviction, such as a violation of the implied warranty of habitability.  oral lease will be presumed to be month to month.  farm leases are usually yearly.  ground leases - owner of building doesn‟t own the building but just has a lease on the land (usually for 50-99 years). Tenancy at will  similar to periodic tenancy except that it can be ended with no notice by either party.  death of either party terminates the relationship.  although landlord has to give statutorily required notice to evict, landlord may have absolute right to do so since the tenancy is at an end.  3. 43 4. Tenancy at sufferance this is a tenant who was rightfully in possession of the property and who wrongly stayed after the leasehold has terminated.  called a tenant at sufferance or holdover tenant. A landlord who accepts rent checks from a holdover tenant may be held to have agreed to a new tenancy Statute of Frauds - interests in real property must be in writing to be enforceable. Exceptions to this are adverse possession, prescriptive easements, easements by estoppel, and necessity. Most states require that leases over a year must be in writing, but a year and under can be oral. Month to month tenancies can be oral because they are terminable in a month if a party likes. Tenancies at will can also be oral. Regulation of Landlord-Tenant Relationships - notice, eviction proceeding (a court judgment to evict the tenant from the property), summary process (expedited court proceedings to allow for quick evictions).  Substantive Regulations: define the parties‟ obligations to each other. Examples: housing codes established by legislation may pass housing codes specifying the minimum requirements for conditions in an apartment (rent, heat, toilet, kitchen facilities, pest control). Common law rules govern the mutual obligations of parties too, such as implied covenant of quiet enjoyment (landlord promises not to disturb the tenant‟s use and enjoyment of property).  Implied Terms: some implied terms are waivable by the parties, who may contract around them by agreeing to different arrangements. Other implied terms are compulsory/nonwaivable. Any contractual term purporting to waive or alter the implied term is void and unenforceable.  c. d. 2. Identifying Landlord-Tenant Relationships  Vasquez v. Glassboro - Facts: Glassboro contracted to bring migrant farmworkers from Puerto Rico to NJ and supply them with living quarters while they work on his labor camp. Vasquez was employed by Glassboro in this way and was later discharged because his work was unsatisfactory. Vasquez not allowed to remain in the camp overnight. Farmworkers Rights Project filed a complaint, seeking an order permitting  to reenter his living quarters and enjoin Glassboro from depriving  of the use of the quarters except through judicial process. Issue: When a migrant farmworker‟s employment is terminated, may he be removed from employer-provided housing without a judicial proceeding? Holding: No, he may not be removed from employer-provided housing without a judicial proceeding. As long as he was abiding by the terms of the lease, he couldn‟t be evicted. Court said that a person who worked and got housing was only a licensee and so an anti-eviction statute didn‟t apply here. The K entered into is one of adhesion - The K is unconscionable because it fails to provide a worker w/ a reasonable opportunity to find alternative housing and it disregards his welfare after termination of employment. Public policy required implication of a provision for a reasonable time to find alternative housing.  Justice & the Law of K: a case for the traditional approach - Alan Schwartz Utilitarianism & Fair Distribution - just outcomes result when people are allowed to do the best they can. Traditionally, K law followed this theory and let people enter into any K they wanted to. Now, the view is that the traditional theory allows the strong to exploit the weak. Doctrines of unconscionability basically prevent people from doing what they agreed to do. He is arguing that the old theory was better. He thinks that not enforcing K clauses makes people poorer, not richer (it makes the person have less options to improve his lot in life).  Bargaining, Duress, and Economic Liberty - Robert Hale - Those who own property have sufficient liberty to consume. Their property rights enable them to exert pressure of great effectiveness to induce people to enter into bargains to pay them money. Law gives them the power to call on the governmental authorities to keep others from using what they own. For not exercising their power, they can obtain money rewards, by leasing or selling it to someone who will use it. Bargaining power would be different if the law did not endow some people 44 with rights that are more advantageous than those which it gives to others. These unequal rights are what people use to bargain and exert pressure on each other. By judicious legal limitation on the bargaining power of the economically and legally stronger, it is conceivable that the economically weak would acquire greater freedom of K than they not have - freedom to resist more effectively the bargaining power of the strong, and to obtain better terms. B. CONFLICTS ABOUT RENT 1. Landlord’s Right to Receive Rent - Main rights of landlord against a tenant: (a) to receive the agreed-upon rent, (2) to have the premises intact and not damaged, subject to normal wear and tear, (3) landlord‟s reversion (right to regain possession at end of lease term). Most suits are for failure to pay rent. Landlord sues both for back rent owed and to regain possession (evict the tenant). a. Landlord’s Remedies when Tenant Breaches and Refuses to Leave  Possession and back rent - if tenant wrongfully stops paying rent or breaches other material terms of lease and stays on premises, landlord may sue for back rent and for possession. Tenants may assert defenses such as rights based on implied warranty of habitability or retaliatory eviction; tenant may also claim that the landlord is attempting to evict the tenant based on unlawful discrimination for family status, disability, race, gender.  Holdover tenant and renewal of tenancy - If the tenant wrongfully holds over the end of lease term but continues to pay the rent, the landlord may choose to accept the new tenancy relationship. Most states say that this is a periodic tenancy based on rent payment - if the landlord accepts a monthly rent check, a new month-to-month tenancy is established. Conversely, the landlord can treat the tenant as a tenant at sufferance or a holdover tenant and sue for possession. Some states say that if he accepts rent during this time period, the landlord necessarily creates a new tenancy, regardless of his intentions. The landlord should either refuse the checks or write on the back of each check that he is not agreeing to renew the tenancy, just using it to recover the rental value of the property from the tenant at sufferance.  Self-help - a majority of states say that the landlord may not use self-help, but must evict the tenant through court proceedings. The courts argue that self-help is likely to become violent. Also, the landlord could be mistaken about his right of possession and should not be the judge of his own rights.  Summary process - summary process proceedings allow relatively fast judicial determination of the landlord‟s claim of a right to regain possession of her property. Names of the statutes that provide this: forcible entry and detainer, unlawful detainer, summary proceedings, summary ejectment. These proceedings have become less “summary” in recent years and have allowed tenants to raise an increasingly diverse number of defenses, like implied warranty of habitability. b. Landlord’s Remedies when Tenant Breaches and Leaves 1. Landlord’s Duty to mitigate  Accept the tenant’s surrender: by moving out before the end of the lease term and ceasing rent payments, the tenant makes an implied offer to the landlord to end the term of years. Landlord can just accept this surrender of the lease if he wants and the tenant will not be legally obligated to pay the future rent. The landlord may still choose to sue the tenant for back rent owed but not paid before the tenant moved out. In addition, landlord may sue immediately for damages for breach of lease (different than future rent). Damages would be an estimate of the amount the landlord lost because of the tenant‟s failure to perform his obligations under the K: the agreedupon rental price - FMV price. If the rental price is the same as or less than the market price, damages are 0 (plus cost of locating a new tenant).  Re-let on the tenant’s account: landlord may refuse to accept surrender and actively look for a new tenant to re-let the apartment to. If new tenant is found, the landlord 45 2. may sue the former tenant for the old rental price - new rent received (if the new rent is lower than the original rent). The new rent must be reasonable!! In some states the act of re-letting the apartment will be evidence that landlord has accepted surrender. In others, the landlord must notify the tenant that he is re-letting on the tenant‟s account and that he refuses to the surrender in order to hold the tenant to the rent later. Why is it good to not accept the tenant‟s surrender? B/c if new tenant moves in, on a month-to-month basis, and stays for only 4 months and the rest of the first tenant‟s lease term is 6 months, then if the landlord didn‟t surrender, the old tenant must pay for the remaining 2 months‟ rent.  Wait and sue for the rent at the end of the lease term v. mitigate damages: to sue the tenant immediately for monetary compensation in the middle of the lease term, the landlord must ask for damages (rental price - FMV); to sue for the entire rent itself, the landlord must wait until the lease term expires. Many states have rejected this option, and have started to apply the K doctrine that requires the aggreived party to mitigate damages - by sitting around and waiting for lease term to end, the landlord is accumulating damages that could have been avoided if someone moved in. The landlord must act reasonably in finding another tenant. If landlord mitigates, he can still recover the reasonable costs of finding a new tenant, rent for the premises while they are vacant, and difference between rental price and new rent paid by replacement tenant (if lower than original rent).  Sommer v. Kridel - Facts: Sommer leased to Kridel, who was forced to attempt a surrender. Sommer received a letter from Kridel about the desire to surrender. Sommer didn‟t attempt to re-let the vacant unit, even though a party expressed interest in renting from Sommer. Sommer brought suit to recover damages from the “defaulting” tenant. Court found that Kridel‟s tenancy had been terminated along w/ his obligation to pay rent. Issue: Must a landlord make a reasonable effort to mitigate damages by attempting to relet the premises when a lessee surrenders the premises? Holding: Yes. If a lessee has effected a “surrender” of the premises, the landlord has an obligation to make a reasonable effort to mitigate damages by attempting to re-let premises. Such mitigation of damages is his duty when he seeks to recover rents due from a defaulting tenant. A contractual ingredient has been reintroduced into the law of estates - contracts create a duty to mitigate damages, and in the case of a residential lease, this is accomplished upon “surrender” by the lessee, by an attempt to re-let the premises. Sommer was not diligent in trying to re-let the premises. Regulation of Security Deposits - this is done by state statute and may (1) limit the amount that can be required as a security deposit, (2) require the landlord to place the deposit in a separate account, (3) require the landlord to repay the security deposit to the tenant w/ interest at termination of leasehold - repairs for damages caused by tenant. Rent Control Statutory Interpretation: Braschi v. Stahl Associates - Braschi (P) and Blanchard were 2 men living together as lifetime partners for 10 years. Apartment where they lived was rent controlled and owned by Stahl (D). Blanchard was only tenant of record. B&B were known as a couple and considered by their families as spouses. P considered his apartment his home, received mail there. B&B shared all financial obligation, maintaining a joint household budget. Blanch died and D served notice to cure on P to recover the apartment. P instituted an action for a permanent injunction and a declaration of entitlement to stay in the apartment. He sought a preliminary injunction to enjoin P from evicting him until a court determined whether he was a member of Blanch‟s family w/in the meaning of the rent control non-eviction provisions. Lower court issued the prelim injunction but appellate court reversed. The court held that the term “family” as utilized in relation to rent control non-eviction provisions encompasses 2 adult lifetime partners whose relationship is long-term and characterized by an 3.  46 emotional and financial commitment and interdependence. Since “family” is undefined in the rent-control provisions, one must look to the legislative intent behind rent control provisions in general, and in particular noneviction provisions. Everything about B&B‟s relationship demonstrated that commitment and interdependence between them. P has shown the likelihood of success on the merits necessary for the prelim injunction to issue. Reversed. C. CONFLICTS ABOUT OCCUPANCY 1. Landlord’s Duty to Deliver Possession landlord must give tenant possession of rented premises at beginning of the lease term. If prior tenant wrongfully holds over, landlord has obligation in most jurisdictions to remove prior tenant w/in a reasonable time by eviction proceedings or persuasion to leave. Failure to deliver actual possession = breach. Tenant may either terminate the lease and recover damages as compensation for having to find another place to live or affirm the lease, withhold rent for period during which she couldn‟t occupy the premises, and recover damages for cost of temporarily renting alternative housing while the landlord undertakes eviction proceedings to remove prior tenant. Minority of jurisdictions follow the rule that the landlord only has the duty to deliver the right of possession, but not actual possession. If is the new tenant‟s responsibility to evict the holdover tenant by bringing ejectment proceedings. Since the landlord is not in default under minority rule, new tenant is legally obligated to pay the rent even though is not in possession. 2. Tenant’s Right to Leave and Transfer the Leasehold v. Landlord’s Right to Control Occupancy a. Transfer of the Landlord’s Reversion - landlord has the right of reversion (to obtain possession when the lease term ends) and the bargained-for right to collect rent from the tenant. Either party may transfer her property interest. If the landlord sells his property, the new owner receives the landlord‟s reversion and right to collect rent and enforce other terms of lease. The buyer takes the building subject to letting you keep the lease. New owner does not obtain an immediate right to possess the property; tenant’s leasehold interest survives. If the new landlord fails to notify tenant that there‟s been a sale and tenant keeps paying old landlord, tenant isn‟t liable to new landlord until he gets actual/constructive notice of the sale to another. b. Tenant’s Right to Assign or Sublet - assign = transfer the entire interest; sublease = transfer of anything less than entire lease. (1) when the lease is silent - Tenant can transfer her leasehold unless the lease restricts it. Restraints on alienation of property interests other than fee interests are often upheld. If the lease agreement says nothing about assignment or sublease, general rule is that the tenant is entitled to transfer her possessory interests in the premises by either assignment or sublease. Assignment - conveys all the tenant‟s remaining property interests without retaining any future rights to enter the property. Sublease - tenant retains some future interest or right to control the property in the future; sublease can also exist if the tenant retains a right of entry that can be exercised if the subtenant violates one or more of the terms of the sublease agreement. Why is it important to know if assignment or sublease? The landlord-assignee are thought to share interests in property - they are in privity of estate (but not privity of K, since did not reach an agreement w/ each other). The landlord may sue the original tenant for unpaid rent because he remains in a contractual relationship w/ landlord. Under a landlord-sublease situation, the landlord has no right to sue the subtenant to enforce any of the covenants to original lease, including that to pay rent. The only exception: if subtenant expressly promises the tenant to pay rent to the landlord. The landlord can then sue the subtenant as a third-party beneficiary of the K made between the tenant and subtenant (the landlord is the third-party beneficiary of the K 47 c. made between the tenant and subtenant). Courts are split on whether the landlord can sue the subtenant for an injunction ordering the subtenant to comply w/ the covenant to pay rent: some courts grant it since payment of rent resembles payment of damages. If neither the tenant nor subtenant pays the rent, the landlord can evict the tenant and end the leasehold terminating the subtenant‟s right of possession since the subtenant can possess only what the tenant has a right to possess in the absence of a separate agreement w/ the landlord. (2) when the lease requires the landlord’s consent - these clauses are in the positive or negative: “no subletting without the landlord‟s consent” or “subletting allowed subject to landlord‟s consent.” This may mean sublet and assign. Modern trend is to focus on the intent of the parties to decide if meant both or just subletting. Should subletting without the landlord‟s consent be held to a reasonableness standard? Courts are unsettled.  Kendall v. Ernest Pestana - Facts: Pestana assigned a lease interest as a 25 year sublease to Bixler. Bixler then sold the business and the lease to Kendall. Pestana refused to consent to the assignment, saying he had an absolute right arbitrarily to refuse any such request. Kendall brought suit, saying that the refusal was unreasonable and an unlawful restraint on the freedom of alienation. Issue: Where a lease provides for assignment only w/ the prior consent of the lessor, may such consent by withheld only where the lessor has a commercially reasonable objection to the assignment? Holding: Yes, such consent can only be withheld if the landlord has a commercially reasonable objection to the assignment. The court looked at factors that trier of fact can consider in applying the standards of good faith and commercial reasonableness: (1) financial responsibility of the proposed assignee, (2) suitability of the use for the particular property, (3) legality of the proposed use, (4) need for alteration of the premises, and (5) nature of the occupancy.  Slavin v. Rent Control Board - Facts: Slavin wanted to evict a tenant, Myers, and applied to Rent Control Board, on the ground that Myers violated an obligation of his tenancy by allowing an unauthorized person to occupy his apartment without first obtaining Slavin‟s written consent, as the lease said. Board refused to issue it, saying that Myers could not be said to have violated the lease. Slavin appealed. Issue: Does a lease provision requiring the landlord‟s consent to an assignment or sublease permit the landlord to refuse arbitrarily or unreasonably? Holding: Yes. Several cases say that its holding is limited to commercial leases. Another court ruled that commercial lease provision requiring a landlord‟s consent prior to an assignment, w/ no limitation on landlord‟s ability to refuse, is not an unreasonable restraint on alienation. The court follows this holding and says that there is no need to impose on residential landlords a reasonableness requirement. The question is one of public policy which the legislature is free to address.  Notes: in commercial leases, the trend seems to be toward adopting an implied reasonableness term in lease clauses that give the landlord the right to consent to sublet or assignment. Today, all commercial leases have a consumer price index (CPI) clause. The rents go up automatically according to the changes in inflation. Tenant’s Good Faith Duty to Operate  The College Block v. Atlantic Richfield Co. - Facts: College owned a piece of undeveloped property. It signed a 20 year lease with ARCO, which provided that ARCO would build and operate a service station on the property. Rent would be determined by a % of the gasoline delivered to the station but College would receive at least $1000 regardless of amount delivered. ARCO built and operated a station on the property for 17 years, but closed it. ARCO paid College the $1000/mo. for the months remaining on the lease, on the basis that they were not responsible for anything other than minimum because the lease didn‟t contain an express provision requiring continuing operation of the station. College sued ARCO for addl. sums 48 College would have received had the station remained open until the end of the lease term. College said that a covenant of continued operations was implied into the lease. Court ruled there was such an implied covenant. Issue: Should a covenant of continued operations be implied into commercial leases containing a guaranteed minimum plus a %, where the covenant was contemplated by the parties and the guaranteed minimum is not substantial or adequate? Holding: Yes, the lease between College and ARCO to build and operate a service station on College‟s underdeveloped property. The rent was tied to the operation of the station. The court remanded to determine if $1000/mo. was substantial and gave College a fair return on its $$$, but thinks that there is an implied warranty to keep the service station going.  Notes: Anchor stores - Does an anchor store have an implied obligation to continue operating? Columbia East Associates v. Bi-Lo, Inc. - court held that it did not have such an obligation despite the absence of any affirmative obligation to that effect in the lease. A supermarket chain leased space in the center for a term of 20 years. The lease provided that the premises “shall be used only for the operation of a supermarket.” When another supermarket in adjacent shopping center closed, BiLo took the space over to eliminate the competitor and prevent other competitors from coming in. Bi-Lo had the right to sublet, but didn‟t do so. Bi-Lo said that it could vacate the premises and just continue to pay rent (but not at the % rent). Landlord argued that Bi-Lo had to either operate a supermarket or sublease to another for operation of retail store. The court said that Bi-LO was a anchor tenant, whose presence in mall intended to bring customers to smaller shops. Court held the lease contained an implied obligation of good faith and it encompassed a requirement of continuous operation on an anchor store even in the absence of a % rent agreement.  Note: Percentage lease - obligates tenant that‟s leasing a business to pay a % of profit to the landlord. It‟s a way of keeping rent low when starting out, but from landlord‟s perspective, if it becomes a booming business, landlord gets part of the $$. % lease provides for specific amount of sales + minimum that tenant must pay to cover expenses and interest.  Note: Franchise Lease - lots of restaurants are franchises. 3. Tenant’s Right to Stay v. Landlord’s Right to Recover Possession - the landlord is entitled to evict the tenant if the tenant breaches material terms of the lease. Can the landlord evict if the tenant has not breached any terms of the lease? A tenant w/ a term of years can‟t be evicted before end of term unless tenant has breached. Landlord has no obligation, however, to renew a leasehold (the landlord can refuse to renew a 1 year lease for any reason). Landlords can also end periodic tenancies, such as month to month by giving notice. However, statutes apply to eviction. Federal and state antidiscrimination statutes prohibit landlords from failing to renew leaseholds if the motive is discriminatory. Also, tenants in units that are subject to statutory or local rent control ordinarily are protected from eviction unless landlord can show just cause. Some states also regulate eviction for purpose of converting apartments into condos. Federal law protects occupants of public housing from eviction without just cause. Retaliatory eviction: Tenants are protected from eviction if landlord‟s motivation is to retaliate against them for asserting right to habitable premises by calling the housing inspector to report housing code violations. Limitations on landlord‟s right to evict at end of lease term: statute or ordinance prohibiting it. a. Just Cause Eviction  Private Housing Market - NJ and DC are the only jurisdictions that have adopted statutes granting tenants a right to continue in possession unless the landlord has just cause to end the tenancy or refuse to renew the leasehold.  Publicly Subsidized Housing - the federal gov‟t subsidizes homeowners by allowing them to deduct the portion of their home mortgage payments attributable to interest from income subject to federal income taxation. §8 housing provides a remedy to low-income families, by which federal gov‟t pays a significant portion of tenants‟ rent owed to private landlords. 49 Public housing owned and operated by public authorities or governmental agencies is similarly prohibited from evicting tenants in the absence of serious or repeated violation of terms/conditions of the lease or other good cause. b. Regulation of Condominium Conversion - many cities have adopted condo conversion ordinances. If the landlord tries to make an apartment a condo, tenants have certain rights - they must have the preference to buy the condo. D. TENANT’S RIGHTS TO HABITABLE PREMISES 1. The Covenant of Quiet Enjoyment and Constructive Eviction - this is one implied term of a lease that can‟t be overruled. If the landlord rents you space, you won‟t be prevented by landlord from using the space in a manner that both parties expect it to be used. If landlord breaches this covenant, it‟s a constructive eviction because if the landlord makes it impossible for you to live there, you have same rights as if the landlord evicted you: can sue for damages, cancel lease.  Minjak Co. v. Randolph - Facts: Randolph leased a loft in a building owned by Minjak, in an area that was booming at the time. 2/3 of the loft space was used as a music studio and the rest as a residence. Water poured into the bedroom and closet from the tenant‟s loft above them. Minjak started construction on the building, and dust came pouring in the loft, settling everywhere. Randolph‟s music equipment had to be covered at all times to protect it from the dust. Randolph withheld his rent payments. Minjak commenced a summary nonpayment proceeding against him. Randolph counter-claimed for breach of warranty of habitability. The jury awarded Randolph a rent abatement (reduction in rent) as compensatory damages on theory of constructive eviction, plus punitive damages. Issue: May a tenant assert the defense of constructive eviction for the nonpayment of rent, even if he or she has abandoned only a portion of the demised premises due to the landlord‟s acts? Holding: Yes. Randolph had to abandon the music studio portion of his apartment due to Minjak‟s wrongful acts. Award of punitive damages is sustained because of the dangerous and offensive manner in which the landlord permitted the construction work to be performed. Note: the appellate division found that compelling considerations of social policy and fairness dictate the rule applied here. Punitive damages can be awarded in breach of warranty of habitability cases where landlord‟s actions were intentional and malicious. Before this case, you couldn‟t claim constructive eviction unless you moved out.  Blackett v. Olanoff - Facts: Olanoff and others vacated an apartment owned by Blackett because they alleged their right to quiet enjoyment of property had been substantially impaired by their landlord because the landlord rented nearby property as a bar - the noise disturbed them. When the tenants vacated, Blackett sued for rent. Trial court found that right to quiet enjoyment had been substantially interfered with, and this was a constructive eviction which was a defense to an action for rent. Blackett appealed, alleging that there could be no constructive eviction where the landlord had not, by his actions, caused the breach of the covenant. Issue: Can a constructive eviction be found where the landlord permits a 3rd party to substantially impair the rights of other tenants? Holding: Yes. Normally, there must be some action by landlord himself which causes the constructive eviction. Intent to deprive tenants of rights is not required. Where the landlord lets the activity continue, where he can control it, which causes significant impairment of the rights of other tenants, this constitutes a breach of the landlord‟s covenants. Blackett knew the noise from bar was disturbing and could have corrected the matter, but didn‟t. Therefore, there was a constructive eviction. Fred says there was no constructive eviction here - another tenant caused the problem and landlord tried to get operator of bar to make less noise. Notes: if a landlord files a lawsuit against a tenant, the tenant may make counterclaims against the landlord. Counterclaims may include claims for damages resulting from the landlord‟s breach of the lease. Some courts measure those damages by reduced value of the leasehold caused by the breach of the implied warranty: they will order a rent abatement (reduction in rent) owed for period during the violation. Other courts measure damages independent of rental value, allowing compensation for any significant harm that can be proven (which may exceed rental value). Tenant may petition for injunctive relief (like ordering landlord to fix apartment to 50 2. comply with housing code). Tenant can also initiate a lawsuit against the landlord for damages or injunction resulting from the landlord‟s failure to keep the premises in tact.  Actual eviction - if the landlord breaches the lease by physically barring the tenant from the property, the tenant‟s obligations to pay rent cease entirely. The tenant may also sue landlord for damages for trespass and seek an injunction ordering landlord to reconvey possession of premises to the tenant. If a tenant is partially evicted, the rule seems to say to abate the rent (reduce it) to the FMV of property that remains.  Constructive eviction - occurs when the landlord substantially interferes w/ tenant‟s quiet enjoyment of premises. Defense of constructive eviction lets the tenant stop rent payments and move out b4 the end of the lease term. The traditional rule is that the tenant can raise the defense of constructive eviction only if he moves out w/in a reasonable period of time. If the tenant stays, then if could be evidence that the interference is not sufficiently serious to justify allowing tenant to stop paying rent or ending the leasehold.  Landlord‟s Liability for acts of other tenants - traditional rule says that constructive eviction may be shown only if the landlord has acted in a way that interfered with the tenant‟s interest in quiet enjoyment - the landlord is not responsible for the acts of other tenants unless lease specifically obliges the landlord to control the conduct of other tenants. Implied Warranty of Habitability - Before the 1970s, most courts held that there was no implied duty to repair the rented premises and leaseholds included no implied representations that apartment was in habitable condition. They just had a duty to fix latent defects. Contractual obligations of the landlord and tenant were independent rather than dependent. In recent years, most states have repudiated both the lack of duty to repair or maintain and the independent covenants rule.  Javins v. First National Realty Corp. - Facts: Javins refused to pay rent due to numerous housing code violations. Issue: Are defects in leased property which make it unfit for habitation grounds for withholding rent? Holding: Leases of real property contain an implied warranty of habitability for the breach of which the payment of rent may be suspended. Notes: Implied warranty of habitability has been adopted in the overwhelming majority of states by statute or common law. Javins is the basis for the modern law of implied warranty of habitability.  Remedies for breach of implied warranty of habitability: (a) rescission (right to move out before the end of the lease term) - Landlord‟s violation of contractual obligation to provide habitable apartment entitles tenant to stop performance of her contractual obligations. Tenant may repudiate K and move out before the of the lease. If tenant can show that the landlord violated the implied warranty of habitability, he has a defense to the landlord‟s claim for remaining rent. (b) rent withholding - if landlord breaches in this way, tenant can stop paying rent and continue to live on premises. If landlord sues tenant for back rent, tenant says that the landlord breached the warranty of habitability, and that is a defense to not paying - tenant has a legal right to stop paying rent under the circumstances. (This is different than constructive eviction doctrine, which requires tenant to move out to be entitled to stop paying rent before end of lease term). Statutes may apply to this - they may require the tenant to give the landlord notice of the defect b4 stopping paying; or may limit the rent withholding by to cases in which the complaint is called into housing inspector. Tenants who stop paying rent to landlord should deposit the money into an escrow account because if tenant was not entitled to withhold rent, the court will order the tenant to pay back rent to the landlord. If doesn‟t pay in reasonable time, tenant can be evicted. (c) rent abatement - tenant is ordinarily entitled to a reduction of rent due to the violation of IWH. Tenant can sue landlord for declaratory judgment and ask court to order landlord to reimburse tenant for all or a portion of the rent previously paid to landlord during the violation period. (d) repair and deduct - tenant may be able to pay for needed repairs herself and deduct cost of them from the rent paid to the landlord. Local statutes may regulate this practice by limiting amount deducted or kinds of repairs allowed. 51 (e) injunctive relief/specific performance - some states allow tenant to bring lawsuit against landlord for injunction ordering the landlord to comply w/ the housing code by making needed repairs. (f) administrative remedies - these would be procedures for enforcement by local housing inspectors. (g) criminal penalties - state building code statutes may provide for criminal penalties, including fines and imprisonment, for landlords who fail to fix dangerous and unlawful conditions in apartment buildings. (h) compensatory damages - in most cases, tenants raise the implied warranty of habitability as a defense to claims by landlords for back rent or possession. But tenants can also bring claims for compensatory damages as independent lawsuits or counterclaims to landlords‟ suits. Retaliatory Eviction  Hillview v. Bloomquist - Facts: Following a physical altercation between a tenant and a manager at a tenant‟s meeting, a number of tenants (the Ds) received eviction notices from Hillview (). Issue: May tenants organize and join a tenant‟s association and participate in activities designed to legitimately coerce a landlord into taking action to improve living conditions without fear of eviction? Holding: Tenants may organize and join tenants‟ association and participate in activities designed to coerce landlord into taking action to improve living conditions without fear of retaliation, but engaging in physical threats or violence is not legitimate method of coercion.  Imperial Colliery v. Fout - Facts: Imperial () instituted an eviction proceeding against Fout (D), who claimed the eviction was in retaliation for his participation in a labor strike. Issue: Are 1st amendment rights of speech and association unrelated to a tenant‟s property interest protected under a retaliatory eviction defense? Holding: No, 1st amendment rights of speech unrelated to the tenant‟s property interest do not arise from tenancy relationship and therefore are not protected under a retaliatory eviction defense. Landlord’s Liability to Tenants (Consumer Protection Legislation)  Billings v. Wilson - Facts: Billings commenced an eviction proceeding against Wilson, who rented the first floor of Billings‟ home. Issue: In a situation involving the rental of a dwelling unit in an owner-occupied 2 family house where the landlord owns no other real property, is the relationship between the landlord and tenant of a private natures that in now way concerns a trade or business? Holding: Yes, the commercial activity of Billings is at a low level and motivation is of a personal, not business nature.  Haddad v. Gonzalez - Facts: Haddad commenced a summary process action against tenant Gonzalez, and Gonzalez counterclaimed alleging that Haddad‟s actions were retaliatory in nature and violated Mass. General Laws which pertains to entities engaging in “trade or commerce.” Issue: (1) is a landlord‟s attempt to evict a tenant based solely on her efforts to convince him to repair her apartment considered a retaliatory eviction? (2) Where a landlord is in violation of Mass. General Law, can treble damages be awarded for IIED and violation of warranty of habitability? Holding: (1) Yes, it is a retaliatory eviction. (2) Yes, treble damages awarded for IIED and violation of IWH. 3. 4. VIII. REAL ESTATE TRANSACTIONS A. Structure of the Transaction 1. Listing agreement between seller and broker  Seller normally signs K w/ broker by which the broker agrees to look for prospective buyers and show the property to them, for a set period of time, in exchange for a commission (usually 5-7% of sale price). The agreement may also set the asking price (amount seller wants for property).  4 types of broker listing agreements: 52 2. 3. 4. 5. Exclusive Right to Sell - gives broker right to collect commission if property is sold to anyone during the period of K, even if sale is to a buyer that the owner found without broker‟s help.  Exclusive Agency - entitles broker to commission, or share of it, if property is sold by her efforts or efforts of any other broker, but not if property sold by owner.  Open (nonexclusive) - broker is entitled to commission only if she is the first person to procure a buyer who is ready, willing, and able to buy. If anyone else, including seller, finds buyer first, broker gets no commission.  Net listing - seller agrees to accept a set price for property, and broker keeps any amount over that price. a. broker’s duties to buyer - no formal contractual arrangement w/ broker, but courts may impose certain fiduciary obligations toward buyer. If broker fails to reveal relevant info to the buyer, buyer may sue broker for fraud. b. buyer’s duties to broker - when a prospective buyer solicits a broker to find or to show property satisfactory to him which the owner agrees to sell at the price offered, and the buyer knows the broker will earn a commission for the sale from the owner, the law will imply a promise on the part of the buyer to complete the transaction with the owner. c. buyer’s brokers - common for buyers to hire brokers to advise them in purchasing a house. It is possible for one broker to assist a buyer and a seller in the same transaction. Negotiation Between Buyer and Seller - unlike sellers, buyers aren‟t limited to one broker. There is no oral or written agreement between buyer and broker; broker is officially working for the seller. When a buyer finds a place she likes, she makes an offer to buy it, orally or in writing. The offer will probably be less than the asking price. Then, the seller may accept the offer or make a counteroffer for an amount above the buyer‟s suggestion. The parties negotiate about the price and other terms. Purchase and Sale of Agreement - written K. Seller agrees convey title at a specific date in the future when the closing will take place. Buyer makes immediate down payment or deposit (earnest money deposit), usually 10% of asking price. Buyer promises to pay the rest of the purchase price at the closing. Date of closing is negotiated. Buyer‟s obligations are contingent on: (1) seller‟s ability to convey marketable title; (2) buyer‟s ability to get adequate financing for rest of the purchase price; (3) inspections of premises for structural defects, termites, environmental hazards. Seller‟s performance is conditioned only on: the buyer‟s paying the purchase price at closing, but it may also be conditioned on seller‟s finding a new place to live. The Executory Period a. Inspections - done by hiring professionals who will examine the property and provide opinions on the condition of the property. b. Mortgage Financing - get a mortgage loan from bank or lending institution. If buyer intends to sell the old house to pay for the new one, she may only need bridge financing (period between closing and sale of old house). To get the loan, the bank will insist on a mortgage to accompany the loan. A mortgage is an agreement by the buyer that if the buyer defaults on such loan payments or other material terms of the agreement (like maintaining insurance on the property and keeping it in good repair), the bank will be able to foreclose on the property by arranging for it to be sold, w/ the proceeds of sale being used to satisfy the buyer‟s debt to the bank. The loan agreement between the buyer and bank sets the amount and times at which payments are due by the borrower to bank. The mortgage identifies the circumstances under which defaults by borrower will allow the lender to begin foreclosure proceedings. The bank will make arrangements to make sure that the seller has clear title to the house by (1) searching the title itself in the registry of deeds, (2) requiring the buyer to hire a lawyer to do this and provide evidence of result, (3) require buyer to buy title insurance that will research title and agree to guarantee in return for a fee from the buyer. Closing -buyer pays rest of purchase price to seller in return for deed to the property delivered by seller to buyer. Seller will deliver deed to buyer The deed will recite that the grantor (seller) conveys the property to the grantee (buyer). It describes the property and is signed by the grantor. May contain reference to easements and covenants restricting the use of the property. May also contain various  53 6. warranties by which seller covenants that he has good title to property. Bank or lawyer will immediately arrange to record the deed. Many closings take place at registry of deeds. After Closing - Deed must provide explicitly that the purchase and sale agreement will survive the deed. Otherwise, buyer will be limited to remedies associated with or contained in the deed; specifically, buyer may sue seller for breach of warranties contained in the deed but not for breach of the purchase and sale agreement. Some obligations survive the deed even if not explicitly stated  if seller lies to buyer about condition of building, buyer may be able to sue seller for fraud even after closing has taken place. B. Purchase and Sale Agreement 1. What constitutes an agreement: SOF v. Part Performance/Estoppel  Part Performance - what acts are sufficient to constitute part performance such that an oral K to convey land will be enforced despite the failure to comply w/ the SOF? Many states hold that part performance can be established only if the buyer pays the purchase price and takes possession of the property. Many states, however, will apply estoppel doctrine to bar the seller from denying the oral promise to sell, despite the absent writing, if the buyer has taken other steps in reasonable reliance on the seller‟s promise and enforcement of the promise is necessary to obtain justice.  What constitutes a writing - In general, (1) identify the parties to the K and show that a K has been made by them or offered by the signatory to the other, (2) indicate the nature of the K and its subject matter, (3) state the essential terms of the promises to be performed under the K, (4) must be signed by the party against whom the enforcement is sought - the party to be charged. Exception: If a R.E. transaction is performed and consideration is paid, a court of equity may enforce the K as an exception to SOF.  Burns v. McCormick - Facts: Burns agreed to take care of Halsey (now deceased) for life in exchange for Halsey‟s house and furnishings after his death (oral agreement). Halsey died without a will, deed, or memorandum of transfer. Burnses sue for specific performance of oral K, and the other parties in interest raise the SOF. Issue: Is performance which is susceptible to several different interpretations sufficient to remove an oral K from the SOF? Holding: To establish the doctrine of part performance, the performance must unequivocally refer to the agreement, and must not be reasonably susceptible of other possible meanings. In this case, the Burnses‟ board and care of Halsey could have been in exchange for the partial use of his house (rent). Since their actions could be otherwise explained, their performance won‟t satisfy SOF. Court found no specific performance.  Hickey v. Green - Facts: Green orally agreed to sell parcel of land to Hickey and accepted a check as deposit. In reliance on the K, Hickey accepted a deposit on his home from a purchaser, intending to build a new home on the land he purchased from Green. Green, w/ knowledge of Hickey selling his house, refused to sell the land to Hickey. Hickey sued for specific performance, and Green said the K was unenforceable under SOF. Issue: Can an oral K fort the sale of R.E. be specifically enforced if the party seeking enforcement changed his position in reasonable reliance upon the K? Holding: Yes, an oral K for transfer of an interest in land may be specifically enforced despite the SOF requirement of writing, if the party seeking enforcement changed his position in reasonable reliance on the K and injustice can be avoided only through allowing specific performance.  Gardner v. Gardner - Facts: Mark and James Gardner (s) agreed to convey land to their brother Harry (D) to be used for security for a loan, and Harry (D) agreed to reconvey the land back to them if the loan was not granted. The federal government denied Harry‟s loan and he refused to reconvey the land. The s filed an action to compel the reconveyance. At trial, court refused to allow evidence re the oral agreement pursuant to SOF. Issue: May a party who partially performs under a R.E. agreement avoid the SOF and introduce evidence of the oral K? Holding: Yes. The s here performed their part of the alleged oral agreement by conveying their remainder interests in the land. This was sufficient performance to take the alleged oral agreement form the operation of the SOF. Case reversed in favor of s. 2. What constitutes a breach of the purchase and sale agreement 54 a. b. Misrepresentation and Fraudulent Nondisclosure  Johnson v. Davis - Facts: The Davises agreed to purchase the Johnsons‟ home after the johnsons assured them that buckling around a family room window and stains on the ceiling resulted from a minor problem that had been fixed. Several days later, a heavy rain came and water came gushing into the house. The Davises‟ roofers determined that the roof was inherently defective and repairs would be temporary because roof was slipping. Davises filed a complaint alleging breach of K, fraud, and misrepresentation and sought recession of the K and return of the deposit. Issue: Where the seller of the home knows of facts materially affecting e value of the property which are not readily observable and are not known to the buyer, is he under a duty to disclose them to the buyer? Holding: Yes, he is under a duty to disclose. The duty is equally applicable to all forms of real property, new and used. Evidence shows that the Johnsons knew of and failed to disclose that there had been problems w/ the roof of the house. Davises detrimentally relied on this concealment. Trial court‟s holding which ruled for the Davises is affirmed.  Notes: Misrepresentation: an affirmative statement by the seller or broker to the buyer (a) that is known to be false, (b) concerns a material fact, (c) is reasonably relied on by the buyer in deciding to purchase, (d) causes damage as a proximate result. A recurring issue in representation cases is whether a statement constitutes fact or opinion.  Fraudulent suppression: active concealment of a material fact that the seller is under an obligation to reveal so as to prevent the other party from discovering the fact. Traditionally, no duty to share such info unless the parties are in a confidential relationship, but the recent trend is toward finding such obligations in the seller-buyer relationship and rejecting the traditional notion of caveat emptor, under which a seller of real property is under no duty to revel any info about latent defects.  Fraudulent nondisclosure: failure to reveal a material fact, which causes the buyer to rely reasonably on a misimpression about the property to the buyer‟s detriment. The trend is to follow the rule in Johnson v. Daivs, requiring sellers and borkers of used residential real estate to reveal material facts about the condition of the property to prospective buyers or fact either a tort claim for damages or a K claim for rescission of the sale.  What info must be disclosed: in general, states that impose liability for nondisclosure require disclosure of nonobvious info that a reasonable buyer would want to know about and that might affect the terms of the transaction (especially the market value of the property) or induce the buyer to back out of the deal. Many cases imposing liability require disclosure of info about defective conditions that pose a risk of harm and that would not be apparent to a reasonable observer. One way to demonstrate that a fact is material is to show that knowledge of the fact would affect the market value of the property. Many states have passed legislation requiring sellers to disclose defects in real property to prospective buyers. IL has a statute which says that for residential property, you must disclose material defects (one that would significantly affect value of the property or health/safety of occupant). If selling residential premises, can‟t sell “as is.”  Waiver: Danann Realty corp. v. Harris is the law in most jurisdictions. A merger clause stating that the written agreement embodies the whole agreement does not protect the D from a claim of fraud. “The purchaser expressly acknowledges that no such representations have been made, and the purchaser further acknowledges that it has inspected the premises and agrees to take the premises as is.” Seller’s Failure to Provide Marketable Title - The purchase and sale agreement ordinarily requires the seller to be able to deliver “marketable title” at the date set for the closing. Seller‟s inability to do this will excuse the buyer from the deal. Marketable title is one “free from reasonable doubt, but not from every doubt.” Title based on adverse possession is marketable if the adverse possession can be “clearly established.” Some agreements require 55 the title to be “valid of record” rather than marketable. The main defects that make the title unmarketable are encumbrances and chain of title defects. Encumbrances are property interests in persons other than the grantor that seriously affect the value or usability of the property  possessory interests, such as conflicting titles and leases, nonpossessory interests (easements, covenants, mortgages and liens). Chain of title defects are mistakes or irregularities in the documents or procedures by which tite has been transferred or encumbered over time (a prior deed may turn out to have been forged, or present deed may misdescribe the property). c. Seller’s Breach of Warranty of Habitability - An implied warranty of habitability exists in the builder‟s initial sale of new homes but not in the sale of older homes. d. Buyer’s Failure to Make Good Faith Efforts to Obtain Financing - Buyer must undertake reasonable efforts to obtain financing and buyer is not contractually justified in simply changing her mind about the house. 3. Remedies for Breach of the Purchase and Sale Agreement a. Buyer’s Remedies (when Seller breaches) 1. Specific performance - obtain an injunction ordering seller to convey property to the buyer by transferring title in exchange for the agreed-upon K price. 2. Damages - of parcel‟s market value at the time of breach and K price (expectation or benefit of the bargain damages), return of the deposit, and any additional expenses occasioned by breach. Buyer gets expectation damages only if seller didn‟t in good faith believe he had good title, refused to complete the sale, or failed to perfect title when it was easy to do so. 3. Rescission - buyer may seek to rescind the deal and recover the down payment or deposit. 4. Vendee‟s Lien - seller‟s breach creates a debt owed by seller to buyer (the amount of the deposit, which is secured by a lien on the property). The property can be sold to raise funds to pay back the deposit. a. Seller’s Remedies (for buyer‟s breach): 1. Specific performance - sue buyer for purchase price in exchange for seller‟s handing over to buyer the deed to property, thus forcing the buyer to comply with the terms of his K. 2. Damages - contract price minus market price of pacel at time of breach. 3. Rescission/Forfeiture of Down Payment - keeping the down payment or “earnest money” deposit paid by the buyer. 4. Vendor‟s Lien - Presumes seller has a lien on buyer‟s equitable title and that property can be sold to satisfy buyer‟s obligation to pay the rest of the purchase price to seller. 5. Risk of Loss During the Executory Period: Equitable Conversion - who bears the risk of loss if the K doesn‟t answer the question of what happens if the house burns down during the executory period after the sale and agreement has been signed but before the closing. Many courts hold that the risk of loss is on the buyer, under the doctrine of equitable conversion. But other courts treat the buyer as the equitable owner during the executory period (because the buyer has a right to have the K specially enforced, for certain purposes it‟s appropriate to treat buyer as if the transaction had already been completed.) The seller is much more likely to have insurance than the buyer. In practice, most purchase and sale agreements explicitly place the risk of loss on the vendor and most vendors have homeowner‟s insurance. In IL, we adopted a statute in which the risk remains w/ the seller until he transfers either title or possession. C. Deeds and Title Protection 1. Delivery - deed must be delivered to the grantee to effectuate a transfer of ownership. Purpose of delivery is to insure that the grantor intends to party w/ the property and to clarify who owns it. When people give real property as a gift (usually family members), problems of delivery are common. Possession of the deed or recording it may give rise to a presumption that the grantor intended to transfer ownership of the land. However, some courts say that there is no delivery unless the deed has been physically handed over to the donee or to a third party who has instructions to deliver the deed. Most courts adopt the doctrine of constructive delivery though (writing a deed and engaging in conduct that demonstrates an intent to transfer ownership is sufficient to constitute delivery). Intent to transfer ownership more likely to be established if deed is physically deposited in safety deposit box or a 3rd party. 56 2. b. Title Covenants a. Warranties of Title - 6 covenants have developed as additional assurance that ther is title in the deed: 1. covenant of seisin - grantor‟s promise that he owns the property interest he is purporting to convey to grantee (ownership) 2. covenant of right to convey - grantor‟s promise that he has power to transfer the interest conveyed to grantee. Life estates burdened by an enforceable restraint on alienation would violate this covenant if the owner claimed to convey it to grantee. (power to transfer) 3. covenant against encumbrances - grantor‟s promise that no mortgages, leases, liens, unpaid property taxes, easements encumber the property other than those acknowledged in the deed. 4. covenant of warranty - grantor‟s promise to compensate grantee for any monetary losses because of grantor‟s failure to convey the title promised in the deed. a. general warranty deed - covenants against defects in title. b. special warranty deed - covenant to defects in title caused by grantor‟s own acts but not acts of prior owners. c. quitclaim deed - contains no warranty of title - it purports to convey whatever property interests are owned by grantor but doesn‟t promise that grantor in fact owns property interest. Does not provide the buyer w/ real assurance that grantor has the right to convey interest. Given in number of situations: dealing w/ fiduciary, trustee of bank. Given by people who don‟t pretend to own the property but might be an heir to the property. 5. covenant of quiet enjoyment - grantee‟s possession won‟t be disturbed by any other claimant w/ a superior lawful title. 6. covenant for further assurances - requires seller to take further steps to cure defects in grantor‟s title, like paying adverse possessor to leave property or paying owner of an encumbrance to release the encumbrance. Remedies for Breach of Warranty of Title - this is the most widely used warranty. This covenant runs w/ the land and can be enforced by subsequent grantees as well. Damages for breach of all the above covenants are usually measured by the price paid for the property that has been lost. This price is generally near the FMV of the property at the time of closing. 3. Recording Acts a. The Recording System - a recording act provides for a central registry at each locality, where holders of real property interests can submit copies of deeds, mortgages, leases, easements, general plans, condo declarations, judgment liens, etc. Submitting a deed to the registry = recording the deed. Recording acts define the circumstances under which a buyer who has recorded his interest in the proper registry of deeds will prevail over a buyer who didn‟t properly protect his interest by recording his deed. A subsequent purchaser who has no nice of a prior conveyance and who records his interest will prevail over any prior unrecorded interest. A purchaser who has no notice of a prior conveyance and records his deed is protected against any conflicting claimants who record their interests later. The function of recording is to adjudicate disputes between multiple claimants to the same property by defining priorities. These priorities define whose interest will prevail in different kinds of disputes. These disputes usually involve multiple grantees who have been granted the same interests by a common grantor. If the grantor purports to convey interest that the grantor does not own and the grantor later obtains a deed to the property, the doctrine of estoppel by deed operates to vest the grantor‟s interest immediately in the grantee. Recording system won‟t protect a buyer against a claim of adverse possession. Recording systems generally protect only buyers, not donees. If the donor gives the same property as a gift to 2 different people, the first donee wins under the common law rule. b. How to Do a Title Search - Easiest way to index and research the title is to file information by tract. Use a grantor-grantee index. Grantor index - instruments listed alphabetically and chronologically by grantor‟s last name. Grantee index - instruments are listed alphabetically 57 and chronologically by grantee‟s last name. The index describes the bare outlines of each transaction, including the grantor and grantee, a description of the land, type of interest conveyed, date recorded, and book and page numbers where a copy of the document can be found. If planning to buy a house, you start at the grantee index to find who his grantor was. Start in the present in the grantee index and go backward until you find a deed to the grantee conveying the property in question. You continue this process until you‟ve gone back far enough to assure yourself that title will be good. Note: search in the grantor index starts at the date of execution rather than at the date of recording because the grantor may have mortgaged the property or encumbered it after acquiring it but before recording her deed. c. Types of Recording Acts - each state has its own recording statute. About ½ the states have notice statutes and ½ have race-notice statutes. 3 types: 1. race - person who records first prevails, even if the person who records first knows about an earlier conveyance to someone else. 2. notice - a subsequent purchaser prevails over an earlier purchaser only if the subsequent purchaser didn’t have notice of the earlier conveyance. The notice statute protects any purchaser without notice against prior unrecorded interests even if the purchaser doesn‟t record first. 3. race-notice - a subsequent purchaser prevails over prior unrecorded interests only if she (1) had notice of the prior conveyance at the time she acquired her interest and (2) records before the prior instrument is recorded. d. Problems on race/notice/race-notice - Page 953; see answers on handout a. Chain of Title Problems  Sabo v. Horvath - L filed for federal land patent on real property he was homesteading in Alaska. Prior to issuance of the patent, L conveyed his interest in the land to H (P) by quitclaim deed (cleans out chain of title). P did not re-record the deed (but was supposed to because it was a wild deed, recorded too early). P got title, L didn‟t have title. L got patent title. L sold to Sabo (D). D recorded the deed and had no notice of the earlier conveyance. P brought a quiet title action. D alleged that the deed recorded out of chain of title was not constructive notice and under state‟s notice recording law he had no notice of the earlier sale and should be given preference. Issue: is a deed recorded outside the chain of title given preference to a subsequent bona fide purchaser without actual notice? No. The purpose of the recording statute is to protect innocent purchasers without notice of an earlier unrecorded sale. Normally, recording gives the subsequent purchaser constructive notice of the earlier conveyance. However, the court held that a deed recorded outside the chain of title isn‟t constructive notice to an innocent purchaser for value without actual notice. While P originally received L‟s equitable interest in the land, his failure to re-record after the paten was granted requires us to find for D. Reversed. Note: the Sabo case would be useful only where the jurisdiction doesn‟t use a tract index system.  Note: In notice and race-notice jurisdictions, only subsequent purchasers without notice of earlier conveyance can prevail over the earlier grantee. Actual notice obviously violates this condition. Constructive notice will also deprive a subsequent purchaser of protection - this exists when the grantee, by conducting a reasonable title search, would have discovered the earlier conveyance. Inquiry notice will be imputed if the subsequent purchaser would have discovered the conveyance had she acted reasonably to investigate facts at her disposal.  Note: The doctrine of estoppel by deed would enable the grantees to prevail. If a grantor purports to convey a property interest she doesn‟t own to a grantee, and the grantor later comes to own the property interest by receiving the deed, ownership is automatically vested in the grantee. If O purports to convey property to A, but O doesn‟t own the property, A gets nothing because one can only convey what one owns. However, if O later obtains title the property from OO, the doctrine of 58 b. estoppel by deed vests title immediately in A. O is estopped from asserting ownership rights as against A.  Note: Wild deeds - Sabo deals w/ a version of the general problem of deeds outside the chain of title. Customary practice limits the search to the period between the date the grantor obtained his deed and the date a deed out from that grantor was recorded. Some deeds are recorded too early to appear in the chain of title. Others are recorded too late (before a grantor obtained title to the property) to be discovered (after deed from grantor was recorded).  Note: Shelter doctrine - allows a bona fide purchaser to convey property to a 3rd party even if the 3rd party is on notice of an earlier conveyance. X would prevail over A in either a notice jurisdiction or a race-notice jurisdiction. X then wants to convey to C, but C has notice of the earlier conveyance from O to A. The shelter doctrine allows X to convey the property to C, despite C‟s knowledge of the earlier conveyance. Fraud and Forgery - Recording acts are intended to protect bona fide purchasers from fraud by assuring them that they will obtain good title to the property even if the seller has previously sold to someone else. TO protect such buyers from fraud, these statutes authorize the seller to convey an interest they no longer own, thereby defrauding the first buyer. They therefore create a new property interest - a power in the grantor to transfer ownership from the first grantee, who didn‟t record, to a 2nd grantee. They fight fraud on the 2nd buyer by affirmatively empowering the seller to commit a fraud on the 1st buyer, a power that was nonexistent before recording acts were in place.  Martin v. Carter - Martin (P) and Fletcher owned property as joint tenants. Fletcher forged P‟s signature on the sales K and the deed and sold the land to Spicer R. E. Inc., without notifying P. When P learned of the forgery she immediately told Spicer that she was a joint owner of the property and had never signed a conveyance. Spicer denied knowledge of her name and denied any interest in the property. P did not sue at that time. Four months later, Spicer conveyed the property to the Carters (D). D had no knowledge of P‟s interest in the property. 2 years later, P filed an action seeking to have the property returned to her. Trial court ruled for Ds. The court held that absent a duty to act, a delay in filing suit is not unreasonable and is not grounds for laches. Laches comes into play when 2 prerequisites are met: (a) D has been prejudiced by P‟s delay, and (b) P‟s delay must have been unreasonable. Here, P did give prompt notice to Spicer, the only claimant of whom she had specific knowledge. Absent a showing that she had specific knowledge of the Ds, her duty went no further and her delay in filing suit was not unreasonable. Reversed.  McCoy v. Love - Russel drew up a fraudulent sales K, in which Elliott (P) unknowingly conveyed all her interest in mineral rights to Russell. Russell notified P that a mistake had been made but in the meantime sold part of P‟s mineral rights to other parties, including Love (D). P found out about these subsequent transactions when she did a title search. She sued for cancellation of the deed. Trial court concluded that the deed was void and granted SJ to P. On appeal, district court held the deed voidable, not void. P appealed. The court held that fraud the inducement renders a legally effective deed merely voidable and not void. P knew she was executing and delivering a deed of mineral rights. District court right in finding the deed voidable.  Note: void or voidable - the difficult issue in determining if the deed as void or voidable is when the property is conveyed to a bona fide purchaser, who paid value and had no notice of the fraud/forgery. If the deed is void, then it conveys no title to the grantee and the grantee has no power to convey title to another; the bona fide purchaser is therefore not protected. If the deed is only voidable though, the subsequent bona fide purchaser will be able to obtain good title.  Note: forgery - forged deeds are absolutely void and therefore transfer no interest to the grantee; they can‟t be the basis of a transfer from the grantee to a subsequent 59 bona fide purchaser even though that purchaser has no knowledge of the forgery. This universally recognized rule appears to conflict w/ the policies underlying the recording system, which is intended to give a bona fide purchaser assurance that she receives what she pays for and that the seller has a right to convey the property.  Note: fraud - deeds obtained through fraud are generally voidable rather than void, by the defrauded victim (one who was fraudulently induced to transfer the property). Once the property passes to the bona fide purchaser without notice of the fraud, however, the conveyance can‟t be rescinded any longer. 4. Marketable Title Acts - attempt to solve the problem of defining how far back one must search in the grantor/grantee index by limiting searches to a reasonable period, often 30-40 years. To preserve prior claims, owners must re-record their interest or file a notice of claim every 30 years after recording their initial deed. 5. Title Insurance - title insurance companies have emerged to fulfill the function of conducting title searches required to determine the validity of the seller‟s title. 6. Title Registration - Some jurisdictions have partially adopted a title registration system (Torrens system). An owner who wishes to register his land must file a petition for a judicial or quasijudicial proceeding that is similar to a quiet title action. Notice must be given to all persons having any interest in the land. Official certificate of title state the identity of the property owner and includes descriptions of all encumbrances affecting title. D. Real Estate Finance 1. Mortgages a. Debtor Protection Legislation - borrowing $$ from a bank to finance a R.E. purchase entails 2 separate Ks: (1) note - borrower‟s promise to repay the principal amount of the loan w/ interest, in the amounts and at the times specified in the note; (2) mortgage - series of promises by buyer, including promise to pay off the note in accordance w/ its terms, to maintain insurance on the property, to pay property taxes when due, and to maintain the property so it isn‟t dilapidates and loses its market value. It is also an agreement to pledge the property as collateral to secure payment of the note. If purchaser defaults on his loan payments or violates any other material terms of the mortgage, the lender has the ability to force the property to be sold and use the proceeds of the sale to pay off the rest of the note. Forced sale of the property is called foreclosure. The mortgagor‟s interest in the property is called the equity of redemption or equity. The equity courts put a time limit on the mortgagor‟s right to redeem the property because allowing the borrower some extra time to get the property back by paying off the debt protected the mortgagor‟s interest but left the mortgagee without any clear remedy. Equity courts began a procedure called foreclosure, by which the lender could cut off the borrower‟s equity of redemption forever. B/c of the perceived unfairness of strict foreclosure, courts began to order foreclosure sales. After default by the mortgagor, the mortgagee brings a lawsuit to foreclose on the property. The mortgagor may prevent loss of his property by paying off the rest of the debt before foreclosure. If the mortgagee proves the existence of the mortgage and that the mortgagor defaulted in the mortgage, the court will order a foreclosure decree. Some states add a statutory right of redemption. This right allows the mortgagor to buy back the property for the price bid at the foreclosure sale for a designated period after foreclosure. There statutes generally allow the mortgagor to remain in possession of the property in the meantime. The mortgagee must give the mortgagor notice of foreclosure proceedings it has commenced, whither through judicially supervised sale or private sale by mortgagee. The mortgagor has the right to bid for the house at the foreclosure sale; this gives mortgagor chance to buy back the property and increases the likelihood that the mortgagee will bid the FMV of the property. b. Regulating the Foreclosure Process 60  2. Central Financial Services, Inc. v. Spears - Spears (P) borrowed $1200 from D to purchase real property. However, he fell in arrears on payment of the loan. D bought the property back through a foreclosure sale for $1400 (amount of debt due + costs of foreclosure). 2 days later, upon notice of sale, P offered to pay the amount of the delinquency but was told he was too late. D sold the property then to S for $4000. S sold to H for $6500. P filed a bill of complaint praying that the foreclosure sale be set aside alleging inadequate sales price. Trial court found that the FMV of the property was $7000 and the consideration to P was so grossly inadequate as to shock the conscience. Trial court ordered D to pay P the difference between FMV and price paid at foreclosure sale. The court held that mere inadequacy of price isn‟t sufficient to set aside a foreclosure sale unless the price is so inadequate as to shock the conscience of the court. Such was the case here. However, the court thinks the decree s/b modified to reduce the amount of recovery against D to the initial amount bid - $4000 received at private sale. In the majority of jurisdictions, after the foreclosure proceedings have begun but prior to sale of the property, the debtor may redeem the mortgage or trust deed by paying all sums due on the debt. If debtor can pay all o/s debts, foreclosure proceedings will be stopped. Installment Land Ks - like a mortgage, except that you don‟t get title to property until payments on K are completed. No equity of redemption unless legislature of state has determined that the installment K will be treated like a mortgage. a. Forfeiture  Stonebraker v. Zinn - Zinns (D) contracted to sell P real property for $25,000. P paid $1500 as a down payment and agreed to pay $189 a month, representing the balance at 9% annual interest. K said if P abandoned the property, Ds liquidated damages would be amount of money paid to that point. P abandoned property after making payments for 1 year. They then sought to avoid the forfeiture by asserting that the liquidated damages provision was unconscionable. The court held that the liquidated damages provisions in land sale Ks are enforceable if the amount is a fair estimate of the seller‟s actual damages. Liquidated damages clauses are appropriate where damages are uncertain and not easily ascertainable due to the nature of the subject or case. Liquidates damages provision is an unconscionable penalty only where the amount is grossly disproportionate to the actual damages suffered by the nonbreaching party. D collected $3850 from P before abandonment. Taking into a/c the fair rental value of the property for 1 year and the D‟s various expenses in selling the home a second time, this was not an excessive retention. Thus, the liquidated damages provision will be enforced. b. Making Mortgage Protection Nondisclaimable  Sebastian v. Floyd - D contracted to buy property from P for $3800 down and a balance of $10,900 in monthly installments at 8 ½% interest. Agreement contained a forfeiture clause providing that if D defaulted on any payments, P could terminate the K and retain all previous payments as liquidated damages. D defaulted after paying $5480 ($4300 principal). P sued to enforce the forfeiture. Trial court ruled for P, D appealed. The court held that the seller‟s interest in an installment land sale K s/b treated as a lien in order to protect the buyer from unfair forfeiture. In a typical land installment K, legal title to property remains w/ the seller until buyer has paid entire K price, but equitable title is transferred at the outset of the agreement. No difference between this and mortgage except that under a mortgage, the buyer‟s interest in the property is not forfeited at default; instead, the buyer is entitled to any remaining equity in the property after seller has been paid the K amount and any expenses. 61 IX. LAWS REGULATING DISCRIMINATORY PRACTICES A. INTENTIONAL DISCRIMINATION OR DISCRIMINATORY TREATMENT 1. Race Discrimination a. Fair Housing Act - Pages 981 - 987 (COPY) b. Discrimination by Housing Providers  Asbury v. Brougham - P, a black woman, went to look at a home to buy at Brougham Estates, a housing complex. P was told that there were no vacancies. Next day, a white woman inquired about same housing and was told there were immediately available openings. D said that there just wasn‟t any housing at the time she inquired. Jury awarded damages (including punitive) against D to P, and D appealed. The court held that the FHA is violated where the  proves a PF case of intent to discriminate based on race and the D is unable to demonstrate legit nondiscriminatory reasons. Under FHA §1982, persons can‟t use race as a factor to discriminate against minority applicants for rental housing.  has burden of proving her PF case. D has burden of showing that the refusal to rent or provide info was motivated by legit non-racial reasons. Burden then shifts back to  to show the reasons claimed by D were not true consideration. ‟s damage award was affirmed because she met her burdens. Fred: this case spells out the process by which person brings action under Civil Rights Act. All procedures discussed are still relevant.  US v. Starrett City Associates - LANDMARK CASE. Starett (D) owned and operated Starett City, largest public housing complex in nation. To prevent “white flight” and maintain a racial balance of 64% white, 22% black, and 8% hispanic, he adopted a selection process whereby as vacancies arose, applicants of similar race to those tenants departing were selected. This practice restricted minority access to the complex (this is uncontested). Gov‟t (P) sued D alleging that the selection process discriminated based on race, and thus violated FHA. Both parties moved for SJ. P‟s motion was granted and court permanently enjoined the selection process. D appealed. This court held that the FHA may prevent the use of rigid racial quotas of indefinite duration to maintain a fixed level of integration in public housing when such practices restrict minority access to public housing. Quotas bring the goals of the FHA (anti-discrimination and integration) into conflict. A racial classification is discriminating, but a race-conscious affirmative action plan doesn‟t necessarily violate a federal constitutional or statutory law. Such plans must be temporary and must terminate when a defined goal is reached. Access quotas which increase or ensure minority participation are generally upheld, while integration maintenance plans which restrict minority participation are of doubtful validity. D‟s selection process has as its only goal integration maintenance. It acts as a ceiling on minority access to the complex. The fear of white flight can‟t justify the use of racial quotas in the present case. Affirmed. The dissent said that the FHA shouldn‟t apply to a case such as this, because D‟s actions didn‟t promote segregated housing, but rather maintain integrated housing.  Note: Remedies - FHA amendment of 1988 beefed up the FHA act by extending the SOL from 6 months to 2 years and by eliminating a $1000 limit on punitive damages. It also granted HUD the power to enforce the statute; under prior law it was limited to attempting to resolve disputes by persuading housing provider to comply w/ the statute. Under the current act, aggrieved persons may file a lawsuit in federal court for injunctive relief and for compensatory and punitive damages. They may instead choose to file a complaint w/ HUD, which has the power to investigate and mediate 62 2. the dispute as well as hear and adjudicate the complaint. When the complaint is filed the complainant/respondent may elect to have the complaint heard in federal court rather than a HUD administrative proceeding. HUD will then authorize the suit in federal district court.  Note: Standard of Liability - Although some courts hold that the  must prove discriminatory intent, most courts hold that the  may show either discriminatory treatment (intent) or disparate impact.  Note: Racial Steering - involves showing black customers housing in certain areas and white customers housing in other areas; and, not telling blacks about the availability of housing in certain areas. Proving that the realtor has engaged in racial steering often involves the use of testers (people who pose as renters or purchasers for the purpose of collecting evidence of unlawful practices).  Note: Standing - who is entitled to bring a lawsuit under FHA? 1. Those who are directly injured by discriminatory acts 2. Those who have sufficient incentive to litigate the case. 3. Whites who are denied housing because of their association w/ blacks. 4. Whites can bring an action against a realtor who engaged in racial steering on the ground that they have been denied the right to important social, professional, business, and economic, etc. that arise from living in integrated communities free from discriminatory housing practices. 5. Organization devoted to promoting equal access to housing could bring a lawsuit against a realtor who engaged in racial steering if it could demonstrate that the D‟s steering practices caused it to devote extra resources to identify available housing and counteract the D‟s steering practices.  Note: Advertising - ads that limit housing to whites clearly violate the provision of FHA that makes it unlawful to “make, print, or publish...any notice, statement, or ad, with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, sex, national origin.” In Ragin v. NY Times, the court held that a newspaper which almost always showed white models in a city w/ a significant population of blacks and other minorities might violate the FHA by showing a discriminatory preference.  Note: Tipping - Starrett City presents the conflict between integration and non-discrimination. Dissent supports the idea of allowing the use of racial quotas to prevent tipping and thereby to promote the development of integrated communities. c. Civil Rights Act of 1866 - “all citizens of the US shall have the same right, in every state and territory, as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property.  City of Memphis v. Greene - Stevens: the city (D) closed one end of a street crossing a white neighborhood, preventing traffic from a predominantly black community from obtaining access to the street. Black residents (P) filed suit, claiming that the closing violated §1982 since D ha acted w/ discriminatory intent. The court held that §1982 is not violated unless a municipal action signficantly impairs property interests. Convenience is not the type of property interest that the Court has identified as being w/in §1982. Only injury claimed by the Ps is inconvenience. No violation of §1982. Dissent, Marshall: majority ignores the significant symbolic and psychological harm to which the street closure subjects the Ps. Sex Discrimination: Sexual Harassment 63 3. Grieger v. Sheets - Ps, a married couple w/ 2 kids rented a house owned and managed by D. D demanded sexual favors from P wife, as a condition to performing repairs on the house. When she refused, D failed to make repairs and threatened her and her husband and forced them to get rid of their dog. Ps sued D for sexual harassment, under FHA, §3617 and 3612. D moved to dismiss, saying that §3617 doesn‟t apply to direct discrimination by landlord against a tenant. The court held that the FHA bars threats pursuant to sexual harassment by a landlord - it prohibits coercion, intimidation, or interference w/ a person‟s exercise of rights granted under FHA. Both Ps alleged that they were harassed and threatened by D in addition to the allegations of quid pro quo sexual harassment. Therefore, both Ps have alleged valid §3617 violations. D‟s motion to dismiss denied.  Notes: Meritor v. Vinson - court held that female employees were sexually harassed and that fell within Title VII of Civil Rights Act, on the basis of sex discrimination. Then, the court said since Title VII and VIII are so similar, that sexual harassment violated the FHA‟s prohibition against sex discrimination in housing. However, to succeed, s must establish severe and pervasive sexual harassment, not isolated or trivial instances of harassment, and a relationship between the harassment and the housing.  Note: Same sex sexual harassment - a male landlord makes a sexually suggestive comments to a male tenant. Has the landlord committed unlawful sex discrimination? Courts are unsettled; some say same sex sexual harassment constitutes discriminatory treatment because of victim‟s gender. Others courts have held that same sex harassment constitutes sex discrimination only if the harasser or victim or both are homosexual or bisexual. A 4th circuit court held that same sex sexual harassment claims are not actionable where the alleged victim and harassers are heterosexuals of the same sex. A claim can only be brought where both parties are gay. Fredette v. BVP held that federal anti-discrimination laws prohibit discrimination based on sex but not discrimination based on sexual orientation. When harassment occurs because employee doesn‟t share the same sexual orientation as the manager, no sex discrimination claim can be brought. Some courts have held that same sex sexual harassment can never constitute sex discrimination because the laws were intended to protect vulnerable groups (like blacks and women) from powerful groups (like white and men) and not to protect members of the dominant group from someone of the dominant group. Discrimination Based on Family Status a. Families with Children  Park Place Home Brokers v. P-K Mobile Home - P, a housing broker, wanted to arrange sale of mobile homes in the Mobile Home Park (D) but was prevented by D‟s policy of not admitting families w/ children. D responded that it was exempt from FHA‟s prohibition against discrimination based on family status because D was housing for seniors, which provided facilities specially designed for the needs of older persons by the park‟s proximity to off-site facilities for seniors. The court held that no exception against familial status discrimination for senior housing does not apply unless there are significant facilities specially designed for older persons at the site. 42 USC §607 says that housing is exempt from familial status discrimination prohibition if 80% of the units are occupied by at least one resident 55 or older and significant facilities and services specially designed to meet the needs of seniors are provided (there, not off-site). D doesn‟t qualify for the exemption so the permanent injunction is granted for Ps. b. Unmarried Couples  Smith v. Fair Employment and Housing Commission - Smith (D) owns and leases 4 rental units in 2 duplexes. They‟re operated for business  64 4. 5. purposes only. Income generated is business income. She doesn‟t live in any of these units. When prospective tenants come to look at the units, she tells them that she prefers married couple because she‟s a Christian, and won‟t rent to an unmarried cohabiting couple because it would violate her religious beliefs. Smith argues that the statutory ban on marital status discrimination doesn‟t include unmarried cohabiting couples. Fair Employment and Housing Act [FEHA] says it is “unlawful for the owner of any housing accommodation to discriminate against any person because of the marital status of the person.” 1st amendment doesn‟t support Smith‟s claim; it says that the marital status statute is neutral towards religion and generally applicable. The court adopts the following analysis of the Religious Freedom Restoration Act: (1) the burden must fall on a religious belief rather on a philosophy or a way of life, (2) the burdened religious belief must be sincerely held, (3)  must prove the burden is substantial or, legally significant, (4) if all the foregoing are true, the gov‟t must demonstrate that application of the burden to the person is in furtherance of a compelling gov‟tal interest and is the least restrictive means of furthering that compelling interest. The court held that the set of facts presented here do not, under the relevant case law, support Smith‟s argument that requiring her to comply w/ FEHA‟s anti-discrimination provisions substantially burdens her religious exercise. The anti-discrimination law doesn‟t violate the 1st amendment. RFRA was designed to overturn Smith - this act says not to burden religion because of generally applicable rules. Dissent: FEHA doesn‟t burden religious beliefs.  Note: several courts have held that state statutes that prohibit discrimination in housing on the basis of marital status don‟t prevent landlords from refusing to rent to unmarried couples. The reason is that the discrimination is based on the conduct of cohabitation outside of marriage, rather than the mere status of being unmarried. Other courts that have addressed the issue agree w/ Smith that refusal to deal w/ an unmarried couple constitutes discrimination on the basis of martial status. Discrimination Based on Sexual Orientation - sexual orientation is “having a preference for heterosexuality, homosexuality, bisexuality, having a history of such a preference or being identified w/ such a preference.” More than 100 cities have passed local ordinances prohibiting discrimination in the real estate market based on sexual orientation. The issue is not what the actual orientation is, but what people think it is - if you discriminate against someone because of their orientation or what you think their orientation is.  Braschi v. Stahl Associates - see VII.B.3. Discrimination Against Persons w/ Disabilities a. People w/ AIDS  Poff v. Caro - the issue is whether a property owner violates the NJ Law Against Discrimination by refusing to rent to homosexuals because the owner fears that homosexuals may later acquire AIDS. The D questions whether a person suffering from AIDS is a handicapped person w/in the meaning of that law. An exam of this disease shows that such a person is clearly handicapped. The court held that they don‟t have AIDS and therefore don‟t have a “handicap.” However, discrimination based on a perception of a handicap is w/in the protection of the Law against Discrimination. The fact that a homo is more likely to get AIDS doesn‟t afford a valid basis for a belief that these men will become infected w/ AIDS. Landlord‟s conduct would constitute a violation of the laws prohibiting discrimination because of sex or marital status. The landlord‟s conduct here, is proscribed by provisions of the law prohibiting discrimination against persons w/ handicaps. 65 b. Note: Federal Rehabilitation Act of 1973 - prohibits discrimination on the basis of handicap in federally funded programs. “No otherwise qualified individual w/ a disability...shall, solely by reason of her/his disability, by excluded from participation in, bee denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.” Although disagreements and uncertainties may arise about what constitutes federal financial assistance, it clearly includes any direct transfer payments made by the gov‟t, such as those made to public housing programs and to individual tenants for use in paying for private housing. Many cases have addressed whether handicapped tenants are “otherwise qualified” to remain in publicly subsidized housing. A paranoid schizo tenant wasn‟t otherwise qualified to remain because he interfered w/ the quiet enjoyment of other tenants by making loud noises. However, a woman who suffered a mental disability in which she heard voices was otherwise qualified even though she struck the walls of the apartment, causing some small damage, the tenant hadn‟t disturbed quiet enjoyment of neighboring tenants and promised to get counseling. Reasonable accommodation of persons w/ disabilities - (1) Schuett - a physically handicapped tenant w/ a back problem faced eviction after failing to remove boxes that were a fire hazard. Court disallowed the eviction, noting that tenant had made arrangements to have the boxes removed before the time of the court hearing and the Fed. Rehab. Act placed an obligation on the landlord to make reasonable accommodations for the tenant‟s handicap. (2) Whittier - landlord couldn‟t evict tenant who violated the rules of the project by keeping a cat in the apartment. Tenant had a psychiatric disability and had an emotional attachment to. The cat didn‟t bother any of the neighbors. In another case, the court held that a deaf tenant‟s roommate had a claim for refusal to rent because of the deaf person‟s signal dog, even though the  roommate was not deaf.  HUD enforced regs to implement FHA. The landlord has obligation to permit reasonable modifications (1) landlord‟s refuse to permit tenant from making modifications necessary to add grab bars is unlawful. However, tenant may condition permiion for modification on tenant agreeing to restor the bathroom to condition that existed before modification, reasonable war and tear excepted. (2)bathroom door in dwelling unit is too narrow to permit wheelchair to pass. It‟s unlawful for landlord to refuse to permit the applicant to make a modification. (3) violation for owner or manager of apartment complex to refuse to permit applicant to live in the apartment w/ a seeing eye dog because the blind person won‟t have an equal opportunity to use and enjoy the dwelling. (4) tenant is unable to walk more than a short distance so he requests a parking space in front of doors. If an owner refuses to accommodate him, it‟s a violation because the guy won‟t have an equal opportunity to use and enjoy a dwelling.  6. Economic Discrimination a. Welfare Recipients  Attorney General v. Brown - Brown (D), a landlord in Boston, refused to rent apartments to holders of §8 certificates. These entitled those w/ low incomes to public housing assistance. D asserted that he refused their applications because of his policy of renting only to those who make an advance payment of the last month‟s rent and those who sign his standard leases. §8 regs do not allow for advance payment of rent and do not allow certain of the provisions in D‟s leases. Attorney General (P) filed suit against D, claiming he violated Mass. Law prohibiting housing discrimination against recipients of public assistance “solely because the 66 individual is a recipient.” Trial court granted SJ to P. D appealed. The court held that landlords aren‟t automatically guilty of illegal discrimination because they refuse to rent §8 certificate holders. Landlord is entitled to discriminate against recipients of public assistance if there are legit business reasons for doing so apart from their status as recipients. D claimed that he lost cash flow from collecting rent payments in advance. §8 regs provide security to landlords if a tenant breaches the lease. SJ is inappropriate. Reversed. b. Discrimination Based on Income - (1) Harris v. Capital Growth - landlord refused to rent to 2 women who were female heads of low income families whose income consisted solely of public assistance benefits because the landlord had a policy of renting only to tenants who have a gross monthly incomes of at least 3x rent charged per month.  sued, claiming (a) the income req wasn‟t necessary to protect landlord‟s legit business interests and (b) under CA‟s Civil Rights Act, the income req constituted discriminatory treatment on basis of income and created an unjustified disparate impact on women. Court rejected both claims. (2) In re Cox - court held that a shopping center didn‟t have a right to exclude the customer based only on his association w/ a man who “wore long hair and dressed in an unconventional manner.” In a dissent to another case, the justice said that “poverty is no less a personal characteristic than long hair or unconventional dress. Both personal appearance and poverty are likely to inspire in us certain stereotypical vies that will likely color our perceptions.” B. DISPARATE IMPACT CLAIMS 1. Sex Discrimination: Shelters for Battered Women  Doe v. City of Butler - City (D) had zoning ordinances that provided that transitional dwellings (residential facilities providing temp special care) were limited to 6 unrelated persons. Volunteers Against Abuse Center (VAAC) (P) wanted to use a building in the city as temp shelter for abused women and children. D denied the application. 3 battered women using the fictitious name of Doe brought suit, asserting that the city ordinance violated the FHA‟s prohibition against sex discrimination. Doe (P) appealed. At the same time, Congress amended FHA to prohibit discrimination based on familial status, which P added to their claims. The court held that FHA prohibits discrimination based on familial status, which may include single-parent families living communally. To show disparate impact discrimination under FHA, must demonstrate that the challenged law has a different effect on a protected group. In this case, P didn‟t present any evidence that the city ordinance had a different effect on women than men. Therefore, there was no discrimination based on sex. The familial status amendment to FHA which said it was discrimination makes it possible for Ps to argue that a 6 person limit will adversely effect the ability of women w/ kids to take advantage of shelters. X. THE STATE, THE FAMILY, AND THE MARKET A. Children’s Claims on Family Assets 1. Welfare Benefits a. Defining the Family Unit  Deficit Reduction Act (1984) required that a family‟s eligibility benefits must take into a/c the income of all parents, brothers, sisters living in the same home. Bowen v. Gilliard (1987 Supreme Court case) held that no constitutional right to welfare exists. B/c families have no protected property rights to continued benefits at the same level, Congress has the right to add any child‟s income to the family‟s income in setting public assistance levels, reasonably attributing a child‟s income to the family unit. J. Brennan and Marshall dissented, saying that this is telling the child who lives w/ his mother who is receiving public assistance that it can‟t live w/ mother and be supported by father - it must either leave the care of its mother or forgo the support of its father. 67 Welfare Policy - In 1996, Clinton and Congress passed a statute whose goal was to end welfare. The law requires most recipients of welfare to work w/in 2 years and imposes a lifetime limit of 5 years on welfare. Mothers receiving welfare have no right ot have checks increased if they have another child. Some scholars argue that the private job market has not adequately provided employment for all persons and that minority communities have been worst hit by changes in the job market. 2. Child Support: Higher Education  Bayliss v. Bayliss - A couple was divorces when son Patrick was 12 years old. Six years later, the mom filed a petition to modify the divorce judgment to require that dad pay for Patrick‟s college costs. Mom says that dad refused to pay although has the money to do so. The court held that Alabama trial courts may order divorcing parents to provide for the college educations of their children. Since 1920‟s, courts have increasingly said that college education is a legally necessary support for children who have reached 18 years old (majority). (States are split on this issue - some courts have rules that when children reach the age of majority, all support duties are ended). B. Marital Property 1. Historical Background  Coverture, Dower, and Curtesy - under common law of England, single women had same rights to hold and manage property and enter into enforceable Ks as men did. Once married, though, the husband retained sole power to possess and control profits of land owned by himself. The law treated husband/wife as one entity. He had power to convey wife‟s property without her consent and to control all the profits of the land. He consent was required by her for her to sell the land. Equity courts created ways in which wives could exercise property rights during marriage. They could enforce antenuptial agreements by which some husbands voluntarily gave control over property to their wives. Also, trusts could be created for the benefit of the wife, which she could enforce as the beneficiary without her husband‟s consent. C/l did give wife property interests which took effect at the death of her husband. The surviving wife got a life estate in all or some of the land owned by the deceased spouse at the time of his death. The wife‟s dower interest consisted of 1/3 of the freehold lands of which the husband was seised at any time during the marriage and which could be inherited by the couple‟s children. The wife‟s dower interest could not be alienated by her husband without her consent nor could it be used to satisfy the husband‟s debts. The husband‟s curtesy interest sprang into being only if the couple had a child capable of inheriting the property - this interest consisted of a life estate in all the lands in which his wife owned a present freehold estate during the marriage and which was inheritable by issue of the couple.  Married Women’s Property Acts - these statutes abolished coverture and removed the economic disabilities previously imposed on married women. After these acts were passed, married women had the same rights as single women. Wife‟s earnings were her separate property and couldn‟t be taken without her consent or seized by her husband‟s creditors. Most states also abolished dower and curtesy and amended intestacy laws to make surviving spouses heirs, allowing them to inherit the real and personal property owned by the deceased spouse at the time of death. 2. Community Property and Separate Property a. Separate Property 1. During Marriage - each spouse owns whatever property he or she possessed b4 the marriage (house, car, stock, bank a/c) and is individually liable for prior debts. Property earned after marriage (wages, dividends) is also owned separately. 2. On Divorce - separate property states have statutes that provide for “equitable distribution” of property owned by each of the parties on divorce, subject to factors such as need (support for necessities, including child support), status (Maintaining the lifestyle shared during the marriage), rehabilitation (support sufficient to allow one spouse to attain marketable skills such that support will no longer be needed), contribution (treating the marriage as a p‟ship and dividing the assets jointly earned b. 68 4. from the enterprise), and sometimes, fault. Separate property states also have provisions for alimony (periodic payments from one spouse to another for support). 3. On Death - a spouse may dispose of her property by will. Separate property states, may however, limit her ability to determine who gets her property on death. Many states provide for a statutory forced share of the decedent‟s estate, allowing the widow to override the will and receive a stated portion (like 1/3) of the estate. The rules do protect the interests of a surviving spouse to the extent of defining an indefeasible right to receive a portion of the testator‟s estate. When no will is written, a spouse‟s separate property is inherited according to the state intestacy statute. b. Community Property 1. During Marriage - property owned prior to marriage as well as acquired after marriage by gift, devise, bequest, or inheritance is separate property. All other property acquired during marriage, including earnings, is community property and owned equally by both spouses. While community property is somewhat similar to joint tenancy since it‟s a form of common ownership, community property is really like a partnership. Community property states have widely divergent rules on whether community property can be reached by creditors of individual spouses - some states protect it while others say it can be used to satisfy debts incurred by one spouse. 2. On divorce - some community property states allocate property on divorce relatively mechanically by giving each spouse his/her separate property and ½ of the community property. Others adopt the theory of “equitable distribution” that exists in separate property states. 3. On death - spouse may dispose of her separate property and ½ of the community property by will. Statutory forced share statutes don‟t generally exist in community property states, given the spouse‟s vested ownership of ½ of the community property. Rights in the Family Home a. Domestic Violence and Protective Orders (Sample - Wisconsin Statute)  Domestic Abuse = intentional infliction of physical pain, physical injury or illness; intentional impairment of physical condition; criminalizing sexual assault or rape; a threat to engage in 1,2,3.  Temporary Restraining Order = (a) A judge or family court commissioner shall issue a temporary restraining order ordering the respondent to avoid the petitioner‟s residence or any premises temporarily occupied by the petitioner or both, and to avoid contacting or causing any person other than a party‟s attorney to contact the petitioner unless the petitioner consents in writing, if the judge finds reasonable grounds to believe that the respondent has engaged in, or based on prior conduct of the petitioner and the respondent may engage in, domestic abuse of the petitioner. The temporary restraining order is in effect until a hearing is held on issuance of an injunction. This hearing will be held w/in 7 days after the order is issued, unless the time is extended by written consent of the parties.  Injunction = orders the respondent to avoid the petitioner‟s residence, or any premises temporarily occupied by the petitioner or both, and to avoid contacting/causing any person other than a party‟s attorney to contact the petitioner.  If any of these are violated, a law enforcement officer shall arrest and take into custody the person who the order is against.  Cote v. Cote - a couple got into a physical fight Husband filed for divorce and wife filed a petition for a restraining order. Trial court issued a restraining order, barring husband from the family home. Husband said this was an illegal taking of property without just compensation and appealed the injunction. The court held that an order barring a spouse from the marital home is not a taking of property requiring just compensation. 3 elements must be present to establish a government taking: (1) a state action (2) that affects a property interest, and (3) deprives owner of all beneficial use of property. Where an owner obtains some tangible benefits, there is 69 no taking. In this case, husband got benefits from not having to provide wife w/ an alternative residence. b. Rights in the Family Home on Death: Homestead Laws - Homestead Laws protect the family home from being attached by creditors of one spouse and sold to satisfy unpaid debts. Most homestead laws prohibit a co-owner from conveying that owner‟s separate interest in the property without obtaining the consent of the spouse. They may also provide that a surviving spouse has the right to occupy the family home until she dies and the children reach majority. Homestead provisions function pretty much like tenancy by the entirety. C. Marital Breakup 1. Equitable Distribution of Property Acquired During Marriage  O’Brien v. O’Brien - while the couple was married, the husband attended med school full-time. The wife worked and contributed most of the money to maintain the house and the husband‟s studies. Not long after the husband became a practicing doctor, he filed for divorce. The trial court held that husband‟s license was marital property and awarded the wife 40% of the present value of the doctor‟s expected lifetime earnings. Appellate court reversed, holding that professional license was not marital property. The court held that a professional license may constitute marital property. NY‟s equitable distribution law provides that spouses have an equitable claim to things of value arising out of the marital relationship, whether or not they fit into the common law notion of property. The doctor‟s license constitutes the most valuable marital asset, and an equitable division of its value was proper.  Notes: Almost all states reject NY‟s approach, holding that graduate degrees are NOT property whose value is divisible on divorce under statutes providing for equitable distribution of property acquired during marriage. 2. Community Property: Problem of Migratory Couple  Pacific Gamble Robinson Co. v. Lapp - Before the Lapps were married, the husband acquired a Colorado corp. The Lapps, Colorado residents, were then married. In Colorado, a noncommunity property state, the company remained Mr. Lapp‟s sole property. Lapp signed a promissory note which made him personally liable on it, along w/ the company. Mr. Lapp‟s earnings and property alone were subject to that debt. After the company and Lapp defaulted on the note, the Lapps moved to Washington, a community property state. Pacific Gamble brought an action against Lapp individually and against the Lapp marital community property to recover the balance due on the note. The court held that in Colorado, all the property of the Lapps would be subject to Mr. Lapp‟s debt, except Mrs. Lapp‟s earnings and separate property. The same property subject to payment in Colorado is also subject to payment in Washington, even though such property is characterized as community property under Washington law. Therefore, Mr. Lapp‟s noncommunity debt may be satisfied from the marital community‟s property. Majority said they couldn‟t get the property if they moved to a community property state. Dissent disagrees, saying that marriage laws, which were made to protect married couples, s/b applied. Rules of separate property s/b applied. If you‟re in a situation in which people are moving from 1 state to another, you may not know in advance how the courts will apply the rules of conflicts of laws. XII. PROPERTY AND SOVEREIGNTY A. Property as a Mediator between Citizens and the State: Defining v. Defending Property  The state must have the power to define property rights so as to establish the basic framework of legal relationships in the market and to insure that property rights are not exercised in ways that infringe on the legitimate interests of others - the state must have the power to pass laws regulating and limiting the use of property to protect public health, safety, and welfare. However, granting the state the power to define property rights leaves individuals vulnerable to state infringement of those rights. To protect individual interests, property rights must be defended from illegitimate encroachment by the state. 70 B. Regulatory Takings 1. Police Powers v. Eminent Domain Power a. Public Power and Private Property Rights  The 14th amendment prohibits states from depriving citizens of property (without just compensation) without due process.  Police power of states is seen when the state gov‟t passes legislation regulating private conduct to protect the public health, welfare, and safety (limiting speed limits on highways or environmental protection).  Eminent Domain power of the states is the power to take (condemn) private property, pay just compensation to the owner, and transfer the property to some use designed to further the public welfare. Example: state taking private property to build a highway  the state gets a court judgment transferring ownership of the property from the private owner to the state in return for just compensation. 5th amendment says that property shall not be taken for public use without just compensation. 14th applies to the states and has been interpreted same way.  The problem of regulatory takings arises because state actions intended to regulate private conduct to promote the public welfare sometimes have disproportionately negative effects on property holders. Example: a law intended to protect the environment by regulating air pollution may unintentionally render a particular factory obsolete and unlawful to operate. The takings clause mediates between the police power and the eminent domain power. It defines when an exercise of police power has gone too far in infringing on property rights without adequate public justification (thus making it eminent domain, which requires just compensation).  3 elements of the takings clause: (a) a taking (b)for public use (c) without just compensation. The gov‟t is free to take private property for public use, as long as it compensates the owner. 2. Physical Invasions  Prune Yard Shopping Center v. Robins (Rehnquist) - Robins handed out political literature at the Shopping Center. The Center removed them so Robins filed suit, saying that he had a constitutional right to distribute his literature there. CA Supreme Court said that he had that right under the CA constitution. The Shopping Center said that the ruling deprived it of its property rights, and 5th and 14th amend. Court held that a state may mandate that a private property owner allow political activity on his property without violating 5th and 14th amendments. The right to exclude others is one of the inherent elements of property rights, so long as the property‟s value is not so diminished that the owner has suffered a taking. Here, no evidence of diminution of property has occurred. Justices Blackmun, Powell & Marshall concurred.  Yee v. City of Escondido - Yees owned 2 mobile home parks in Escondido, CA. CA enacted a Mobilehome Residency Law, limiting the bases upon which a park owner may terminate a mobile owner‟s tenancy. The park owner generally couldn‟t require the removal of a mobile home when it was sold (rule enacted to protect mobile home owners). The state enacted a mobile home rent control ordinance also. Yees brought suit, claiming that the 2 laws basically deprive them of the use and occupancy of all their real property (amounting to physical occupation of that property). They want damages, a declaration of the ordinance‟s unconstitutionality, and an injunction barring its enforcement. The court held that the states have power to regulate housing conditions in general and the landlord-tenant relationship without paying compensation for all economic injuries that such regulation entails. On their face, the state and local laws here just regulate the relationship between landlord/tenant. Mere regulation of an owner‟s use of his or her property doesn‟t 71        amount to a per se taking (so there was no physical occupation of the Yees‟ land, as they suggest). Note 1: physical v. permanent invasions - In Loretto,  landlord objected to a law requiring that landlords permit cable television companies to install cables and equipment on their buildings. The Supreme Court held that a permanent, forced physical invasion of property is a taking of property per se, no matter how minimal the invasion and no matter how small its effect on the market value of the property. The forced invasion could be accomplished only by using the eminent domain power and paying just compensation, even though the cable box was smaller than 2 square feet, and arguable increased the value of the property. The court distinguished Prune Yard on the ground that the invasion there was temporary and limited in nature. J. Blackmun dissented, saying that the majority‟s approach was indistinguishable from the landlord-tenant relationship. Note: Nollan v. CA Coastal Commission - a couple sought a building permit to increase the size of their house. A state agency granted them a special permit on the condition that they grant a public easement to the state to allow people to walk along their beachfront. The court held that the state‟s action constituted a taking of property because it coerced the owners to grant an easement to the public, effectuating a permanent, physical invasion of their property. Unlike Prunyard, the owners had not opened their property to the public and thus had greater privacy interests - also, the easement would have been permanent. Note: Kaiser Aetna v. US - this is in the middle of the spectrum on landlord-tenant cases. The owners of a lagoon invested lots of money in developing the property, connecting it to a laguna, etc. Federal gov‟t tried to force the owners to open the marina to the public rather than keeping it as an exclusive private club, on the grounds that there could be no private ownership of navigable waters and that the public had a right of access to the waters under the navigational servitude doctrine. Although the Supreme Court upheld the navigational servitude doctrine, it found that a forced physical invasion is a taking of property without just compensation in this case because the owners had invested in developing the marina expecting that they would continue to be able to control access to it. Kaiser differed from Prune Yard in that the issue concerned a private club rather than a business open to the general public. Note: Block v. Hirsch - Court upheld against a takings challenge a statute that permitted tenants to remain in physical possession of their apartments after the termination of their leases at rents set by a rent control commission but allowed the owner to regain possession for occupancy be herself or her family. Holmes said that the statue guaranteed the owner a reasonable rent and that the statutory eviction controls were justified by the emergency conditions of a housing shortage in D.C. Note 2: Does the landlord have the right to leave the rental housing business residential housing regulations have encountered particularly strong opposition from landlords: (a) laws prohibiting landlords from evicting tenants either to occupy the premises themselves or to convert the property to a non-rental housing use, and (b) anti-warehousing laws requiring landlords to rent vacant apartments rather than keep them vacant or change to a non-rental housing use. Note: Troy v. Renna - (severe restriction of landlord‟s ability to evict current tenants) - court upheld against a takings challenge a statute prohibiting eviction of senior citizens and persons w/ disabilities in apartments that had been converted to condominiums and granting them a protected tenancy for up to 40 years. Note: Sabato v. Sabato - (what happens if the landlord wants to occupy the apartment herself) - the court found a taking of property when an anti-eviction statute prevented a landlord from occupying an apartment for himself and his family. This case was overruled by Puttrich v. Smith, which upheld the statutory prohibition against conversion to personal use on the ground that the legislature could constitutionally 72 3. decide that an owner‟s right to utilize his property must yield to a tenant‟s interest in keeping his home.  Note: Flynn v. City of Cambridge - the court upheld against takings challenge a rent control and condominium conversion ordinance requiring that certain apartments remain available as rental housing, thereby preventing an owner from occupying her own unit.  Note: Antiwarehousing Laws - Seawall Associates - NY imposed a moratorium on conversion of structures containing single room occupancy hotels and passed an ordinance requiring owners of these properties to rehabilitate all vacant units and offer them for rent (this is an antiwarehousing law). The ordinance imposed heavy penalties for violations, but allowed owners to purchase exemptions if they were able to (a) pay a certain amount per vacant unit, (b) replace the units taken off the market w/ other units, (c) demonstrate hardship, (d) show that there was no reasonable possibility that the owner could make a reasonable rate of return. The court of appeals down the ordinance as a taking of property under both the federal and state constitutions. “A statute regulating the use that can be made of property effects a taking if it denies an owner economically viable use of his land.”  Recap:  Police power cases - (1) Pruneyard, (2) City of Escondido (kind of in the middle), (3) Rent Control cases.  Eminent Domain - (1) Loretto (per se taking - permanent physical invasion), (2) Nollan (permanent invasion), (3) Kaiser Aetna (borderline case that could have gone either way; reasonable investment-backed expectations), (4) Seawall (rent control case that didn‟t fall on police side). Expropriation - this is an instance of gov‟t action that can sometimes be held to be per se unconstitutional . (a) when is expropriation of a single strand in the bundle of rights that make up property ownership an impermissible taking on the ground that it is a core interest? (b) when is expropriation permissible because the owner has misused the property so as to forfeit his rights in it? (c) do innocent co-owners have any constitutionally based protection against forfeiture of jointly held interests? Example of expropriation - if there was a war and the gov‟t knocked on door and army troop showed up, saying that army would have to use your house. a. Conceptual Severance: Seizures of Central Strands in Bundle of Property Rights Prof. Margaret Radin said the term “conceptual severance” means the practice of identifying particular strands or sets of strands in the bundle of rights that may characterize property holding as severable and identifiable property interests for the purpose of takings analysis... delineating a property interest consisting of just what the government action has removed from the owner, and then asserting that the particular whole thing has been permanently taken. This strategy hypothetically “severs” from the whole the bundle of rights just those strands that are interfered w/ by the regulation, and then construes those strands in the aggregate as a separate whole thing. In conceptual severance, the gov‟t seems to appropriate a property interest. Must look at the entire parcel of land to determine if there‟s a taking, not just the specific property interest.  Hodel v. Irving - J. O’Connor: At the end of the 19th century, Congress enacted land acts dividing the communal reservation of Indian tribes into allotments for Indians and unalloted lands for non-Indians. The alloted lands were to be held trust by the U.S. In 1934, Congress acknowledged the failure of its policy and ended further allotment of lands. Congress took action to ameliorate the problem of fractional land ownership of Indian lands through the Indian Land Consolidation Act of 1983. §207 of the Act provides that “no undivided fractional interest in any tract of trust or restricted land w/in a tribe‟s reservation...shall descedent by intestacy and devise but shall escheat to that tribe...his ownership of the land.” The 4 people bringing this action are heirs of people in the tribe who died. But for §207, this property would have passed, in the ordinary course, to appellees or those they represent. Appellees say that §207 is a taking of property without just compensation 73 b. 4. in violation of the 5th amendment. The court said that the whole appellees‟ interests were not taken by §207. Their decedents retained full beneficial use of the property during their lifetimes as well as the right to convey it inter vivos. However, the court also recognizes the right to pass on valuable property to one‟s heirs as a valuable right in itself since most of the value of a parcel may inhere in its remainder interest. The court makes the argument that the whole benefit gained is greater than the sum of the burdens imposed since consolidate lands are more productive than fractionated lands. The court cites Kaiser Aetna, which held that “one of the most essential sticks in the bundle of property rights is the right to exclude others.” Allowing inter vivos transactions like revocable trusts is not an adequate substitute for the rights taken given the nature of the property. Even the US concedes that total abrogation of the rights to pass property is unprecedented and likely unconstitutional. IT is inappropriate to abolish both the descent and devise of these property interests, en when the passing of the property to the heir might result in consolidation of property. Concurring - Brennan: thinks that unique negotiations giving rise to the property rights and expectations at issue here make this case the unusual one. Concurring Scalia: finding that there was a taking in this case effectively limits the decision in Andrus v. Allard to its facts. Concurring - Stevens: believes that §207 violates due process because it fails to provide an adequate grace period in which to arrange for consolidation of fractional interests in order to avoid abandonment.  Note: Andrus v. Allard - the court held that the statute did not effect a taking of property without just compensation despite the total ban on sale. The denial of one traditional property right does not always amount to a taking. Regulations that bar trade in certain goods have been upheld against claims of unconstitutional taking.  Note: Trustees of Schools v. Batdorf - marketable title act provided that possibilities of reverter and rights of entry would be valid for only 50 years; the act explicitly applied retroactively to bar any such interests created more than 50 years b4 the effective date of the statute if they were not re-recorded w/in 1 year after state was passed. Court upheld the statute against a takings challenge on the ground that the future interests in question were no more than an expectation than an interest might accrue in the future Forfeiture and Innocent Owner Burdens of Citizenship v. Unfair Sacrifices for the Public Good  Miller v. Schoene - J. Fiske Stone: The state entomologist order the s (in error) to cut down a large number of ornamental red cedar trees growing on their property, pursuant to the Cedar Rust Act of VA, as a means of preventing communication of a rust or plant disease w/ which he thought the cedar trees were infecting the apple orchards of the vicinity. The apple orchards were very important to the state because apple growing was one of the principal agricultural pursuits of VA. The red cedar, on the other hand, had occasional use as lumber in addition to its ornamental use, but that‟s it. The court held that “where the public interest is involved, preferment of that interest over the property rights of the individual, to the extent even of its destruction, is one of the distinguishing characteristics of every exercise of the police power which affects property.” The court was just exercising its police power because if didn‟t destroy it, it would destroy apple trees, which were more important than cedar trees.  Lucas v. S.C. Coastal Council - J. Scalia: Lucas paid $975,000 for 2 residential lots on the which, with which he intended to build single family homes. In 1988, S.C. Legislature enacted the Beachfront Mgmt. Act which barred Lucas from erecting any permanent habitable structures on his 2 parcels. The original form of the Act required owners of coastal zone land that was in the “critical area” to obtain a permit to build there. Lucas‟ land wasn‟t in the critical area. However, under the 1988 amendment, Lucas‟ land was w/in the baseline for property in critical area. 74    Lucas aims that this is a taking without just compensation because the Act extinguished all value of his property. The trial court said it was a taking. Supreme Court of S.C. reversed, saying no taking. US Supreme Court granted cert. The 2 types of regulatory action that qualify as being compensable are (1) regulations that cause property owner to suffer physical invasion and (2) where a regulation denies all economically beneficial or productive use of the land (like in this case). The court here thinks that sacrificing all economic benefit of land for the common good, as Lucas is being forced to do in this case for the benefit of the people who will come to the beach, is a taking and should be compensated just as physical invasion is. The gov‟t may only restrict uses that are already unlawful under existing nuisance and property laws: if legal principles inherent in the title to the property would have prevented you from doing the same thing the reg prevented, you wouldn‟t have been deprived of anything because your title didn‟t give you that right anyway - no taking. Lucas suffered an unconstitutional taking of his land. Supreme Court of S.C. reversed and remanded. Concurrence, Kennedy: questions trial court‟s finding that Lucas‟ land had been deprived of all beneficial use and says nuisance exception shouldn‟t be the sole justification for severe restrictions. Dissent, Blackmun: says that Lucas retains the right to use his land for recreation and camping and the right to alienation, so he has not suffered a taking. Dissent, Stevens: says that the majority‟s formula for deciding this doesn‟t take into a/c problems of environmental questions. Thinks that the decision should be made by balancing private and public interests. Note: when is a regulatory taking an exercise of police power and when is it a taking that requires compensation? If you prove that something is on the just compensation side of the line, it doesn‟t mean the gov‟t can‟t take your property, just that it must compensate. Note: Facial v. “As Applied” challenges to regulations: a facial challenge to a reg is a claim that enforcement of the reg would necessarily constitute a taking of private property in every case - application of the statute would not be constitutional under any circumstances - it is invalid on its face. A challenge to a reg “as applied” argues that the effect of the reg on that particular parcel of property owned by  constitutes a taking of the ‟s property. Facial challenges seem more likely to succeed in Supreme Court when the statute imposes a permanent physical invasion of property or completely extinguishes a core property right (such as the right to pass on fee simple property at death) or does not substantially advance legit state interests. J. Scalia seems intent on revitalizing the substantial advancement requirement. Note: Per Se takings - Supreme Court usually uses the test in Hodel to analyze the effect of a statue or reg on particular parcels of property. Certain types of gov‟t actions are identified as per se violations of the takings clause - none of these is absolute though, each is limited by exceptions. a. Permanent physical invasions - this constitutes a taking of property without regard to the public interest involved or the extent of diminution in value (Cable TV example)(However, look at Pruneyard in which owner had to allow public to enter shopping center to hand out literature and Escondido in which anti0eviction legislation wasn‟t a taking). b. Extinguishing core property right - the only Supreme Court case in this category is Hodel v. Irving, which held that completely abolishing the right to pass on fee simple property at death is a per se taking of property. It‟s not clear whether the court will recognize any other “core” property rights - Andrus v. Allard. c. Denial of economically viable use - Lucas is the case in this category. Compensation required if reg denies an owner any economically viable 75      use of his land. However, comp is not required if the prohibited activity would constitute a nuisance under state property law. 3 Factor Test: (a) character of the gov‟t action, (b) diminution in value, and (c) extent of interference in reasonable, investment-backed options. Hodel v. Irving. Penn Central Transpo helped to establish modern law of takings. NY declared the Penn Central train station a historic monument - the owner was then obliged to maintain the outside appearance of the building and obtain approval from a city agency it if intended to alter the external structure. When owner submitted plans to put a 55 story building on top of the station, the historic preservation commission rejected the plans. The station owner sued the city, claiming that the historical preservation law took its his property without just compensation, basing his allegation on the Hodel 3 factor test. The Supreme Court rejected Penn‟s arguments by saying that (a) zoning laws had been upheld as constitutional even though they put height limits on buildings; (b) loss of economic value was merely an opportunity loss (of developing the property in the future), not an interference w/ an existing profitable use - court also said that it wasn‟t a total loss because the owner could continue to operate its current business on the premises. However, a Penn. Supreme Court in United Artists held that a similar statute constituted a taking of property under its state constitution, citing the unfairness of singling out particular owners who are prevented from changing the use of their property. Harm/benefit distinction: if the gov‟t regulatory program “substantially advances” legit gov‟t interests, the main question is whether the burden on the individual property owner is one that the owner should rightly bear as a member of society or whether the obligation is one that, in fairness and justice, should be shared by the taxpayers as a whole. The distinction between preventing owners from causing unreasonable harm to others and attempting to extract a benefit from owners to redistribute to others or to the public at large is central to the reasoning in many takings cases. Some of the distinction lies in Lucas‟ nuisance exception (a reg preventing them from doing so takes nothing to which they were legally entitled). Inverse Condemnation - lawsuit for damages by a property owner against a public body whose regs are alleged to have taken the owner‟s property without just compensation. In the usual eminent domain case, the public body brings condemnation proceedings against the property and the court sets the amount of just comp required. Lawsuits by property owners for damages are the inverse of this procedure. First English held that owners could obtain damages for a temporary taking if they were prevented from using their property for any period. A court judgment that a reg constitutes a taking of property leaves the reg body w/ the choice of enforcing the reg or rescinding the reg. Environmental Protection Laws - many owners have brought inverse condemnation cases challenging the application of environmental protection statutes to their property. The courts have traditionally upheld these regs, even when they have severely limited land development, by analogy to nuisance laws, which prevent owners from using their land in a way that will injure the community. Recently, the federal Claims Court has required comp when wetlands regs have prevented all development of land. Character of the gov’t action 1. The reg is more likely to be held a taking if the gov‟t action can be characterized as: (a) a forced physical invasion of private property; or (b) an extraction of a benefit for the good of the community rather than prevention of harm by the property owner; or (c) a forced redistribution of bargained-for contractual rights from one party to the other rather than a general regulatory program designed to respond to externalities caused by the property use. 76    The reg is more likely to be held an exercise of police power not requiring compensation if the gov‟t action can be characterized as: (a) a reg of property use rather than a forced physical invasion; or (b) a limitation on property use designed to protect the community from harm, or to respond to externalities caused by the property owner‟s use of the property, rather than an extraction of a benefit (the nuisance exception); or (c) designed to achieve an average reciprocity of advantae, meaning that those whose property interests are adversely affected by the reg also benefit from it by the concomitant reg of other people‟s property rights (truckers lose out by the 55mph speed limit law but benefit by having safer highways); or (d) a choice between incompatible property interests (Miller v. Schoene); or (e) an enforcement of implied obligations of good faith in the contractual relationship rather than a forced transfer of property interests from one contractual party to the other. Diminution in Value - the greater the diminution in value, the more likely the reg will be characterized as a taking. 1. the reg is more likely to be held a taking if the diminution in value is substantial, w/ the extent of the diminution measure in the following ways: (a) looking at what is taken - if the reg destroys a large % of the market value of the property, it‟s more likely to be a taking; or (b) looking at what is left after the reg is in place - if reg denies the owner any economically viable use of the land, it‟s very likely to be held a taking. 2. the reg is less likely to be held a taking if: (a) the diminution in value is minimal according to: (1) what is taken - if reg diminishes market value slightly or not at all; or (2) what is left - if reg leaves the owner w/ an economically viable use of the land or “reasonable return on the owner‟s investment.” (b) the diminution in value is substantial but the reg is justified bya sufficiently strong public interest ( a destruction of 80% of the market value of property may be justified if the reg is intended to prevent a “noxious use” and thereby to protect the public from harm. Interference w/ Reasonable Investment-Backed Expectations - reg is more likely to be held a taking if a citizen has already invested substantially in reasonable reliance on an existing statutory or regulatory scheme. For example, if a developer spends substantial amounts of $$ on architectural and construction work for a particular project in reliance on existing zoning regs and issuance of a building permit, courts are likely to hold retroactive applications of changes in the zoning law invalid. The reg is more likely to be a taking if it (a) interferes with vested rights, such as the revocation of a previously approved building permit after the developer has invested substantially in beginning construction or (b) otherwise interferes w/ an existing present use of the property. The reg is less likely to be a taking if (a) it imposes a mere opportunity loss instead of an actual loss or (b) the change in the law is one that could have been anticipated such that the owner‟s reliance on the continuation of prior law was unreasonable. Theories to Solve the dilemmas underlying the relation between police power and takings clause are (1) tradition, (2) efficiency, (3) distributive arguments. (1) traditional doctrine may identify both the type of activity that constitutes a nuisance and the strands of rights htat constitute severable property interests. Problem with this approach: it is indeterminate. Also, the common law definition of property was developed by unelected judges, so why should their decision be more legit than elected legislators from the present. (2) efficiency - from a utilitarian perspective, comp should be awarded when the demoralization costs of failing to compensate are greater than the settlement cost of arranging for comp. 2. 77   (3) distributive arguments suggest that the main question should be whether the reg causes a loss that the individual property owner should, in all fairness and justice, bear as a member of society for the good of the community as a whole. Judicial Takings - can a judicial interpretation of the common law or a change in the common law rule constitute a taking of property? On the one hand, the courts generally define the rights that go along w/ property ownership through the common law process; if changes in common law rules represented takings of property, the courts could never modernize the law, they might even be disempowered from holding that a prior case was distinguishable. On the other hand, a state Supreme Court‟s interpretation of common law could unfairly divest owners of rights they had assumed belonged to them, thereby unjustly interfering w/ investment-backed expectations. Keystone - a coal mine could take all the coal out and let the ground subside into the empty space. The original case prohibited this. Holmes said these people on the surface had already bargained for that - they knew, when they sold the mineral right, that they were giving up the maintenance of the level of their land, so they had nothing to complain about. A statute in this case required coal mining companies to leave undisturbed 50% of coal beneath the surface of land supporting public buildings, noncommercial buildings used by the public, dwellings, and cemeteries. Dissent said that they could carve out the coal and treat that as a separate piece of property -identify it as a separate property interest. This would change the result of the case. Court though that the public purpose preventing subsidence to the public areas is more important than individual right to do what causes subsidence. 5. Exactions and Linkage Requirements  Dolan v. City of Tigard - READ!!!!!  Notes - Linkage Ordinances - recently, many municipalities have enacted amendments to their zoning ordinances which require developers engaging in new construction to directly provide low income housing or child care facilities or to pay a fee that is devoted to a fund for these purposes. Theory behind this: new construction gets rid of local shortages in low-income housing by increasing employment and the demand for housing in the locality. Since the increased demand is not entirely met by new construction, competition for existing housing both raises rents and pushes out lower-income tenants. Childcare linkage packages are intended to address the market‟s inadequate response to the increase in women in the workforce and the shortage of affordable child care. Linkage programs are intended to internalize these costs by requiring developers to a/c to the community for those externalities by helping to alleviate the pressure on housing and child care caused by the development programs. XIII. MISCELLANEOUS TOPICS A. DERIVATIVES     A new form of property. One common form of a derivative is based on a pool of underlying mortgages called a Collateralized Mortgage Obligation (CMO) or Mortgage-backed Security (MBS). Derivatives are future interests. Mortgages have always been available for sale. The purchaser of a mortgage is entitled to receive the steady stream of payments representing the interest and principal from the mortgagor over a specific period of years (mostly interest in the early years). 78            How to buy a mortgage: the originator of a residential mortgage is likely to sell the mortgage to an assembler of mortgage pools such as the Federal National Mortgage Assoc. (FNMA or Fannie Mae). The assembler then sells people fractional interests in a large pool of mortgages. First securitizations = mortgage-backed securities: Government National Mortgage Association, Fannie Mae, and the Federal Home Loan Mortgage Corp. created a “secondary market” for mortgage loans by developing the financial structure that became the prototype for all securitizations. The initial building block was a pool of quality receivables (1st mortgages on 1-4 family homes). These 3 associations purchased large volumes of residential 1st mortgages from originating institutions, combined the mortgages into large pools and then issued debt securities to investors backed by the mortgages. These securities were simple. The loans were limited to fixed rate loans, and investors purchased “pass-through certificates” (PCs) that gave investors a direct ownership interest in a pool of loans. As the underlying loans were paid off, the investors received a share of the principal and interest payments made by the borrowers, and the mortgages served as collateral for payments due to investors. CMOs and Real Estate Mortgage Investment Conduits (REMICs) were newer mortgage-backed securities, which are more complex structures, developed by pooling larger groups of mortgages and PCs, creating an even wider investor market for mortgage-based securities. Today, amounts of o/s mortgage-backed securities is more than $1 trillion - residential mortgage loans are the most widely securitized financial asset (larger than the corporate bond market). Growth in residential mortgage securitization because:  The use and development of uniform and simply underwriting criteria;  The use of standardized loan documentation;  The development of broad and reliable historical date on default frequency and loss severity. Effect of CMOs on Residential Real Estate Law: almost all such transactions are now structured so that the mortgage meets the nation-wide criteria used by the major assemblers of mortgages (local peculiarities of practice are being abolished in favor of uniform national rules). Also, the R.E. investor has the opportunity to purchase a wide variety of interests in the future income from R.E. Derivatives derive their cash flow from underlying mortgage collateral (pasthroughs or pool of whole loans), which is the reason for their name “derivatives.” All of these trade in the over-the-counter market w/ different degrees of liquidity. A CMO reduces the uncertainty concerning the maturity of a mortgage-backed security, thereby providing a risk/return pattern unavailable w/ pass throughs or whole loans. A CMO is a security backed by a pool of pass throughs, whole loans, or stripped mortgage-backed securities. CMOs are structured so that there are several classes of bondholders w/ varying stated maturities. Principal payments from the underlying collateral are used to retire the bonds on a priority basis as specified in the prospectus. The first generation of CMOs were structured so that each class of bond would be retired sequentially, so these structures are referred to as sequential-pay CMOs. In a plain CMO structure, there could be 4 classes of bonds: A, B, C, Z. Class A represents the shortest maturity bond, which receives periodic interest payments from the underlying collateral; Class Z is an accrual bond that receives no periodic interest until the other 3 classes are retired. When principal payments are received by the trustee for the CMO, they are applied to retire the Class A bonds. After all A bonds are retired, all principal payments received are applied to retire the Class B bonds, and then the C bonds. Finally, the cash flow payments are used to satisfy obligations of the Z bonds (Accrual bonds). Securitizing Commercial Mortgages: Commercial loan documentation for underwriting as well as documenting loans has been slow to develop. Also, there is not a significant market in commercial mortgages as there is in residential mortgages. 2 Recent Developments with respect to Commercial Mortgages: (1) saving and loan crisis, which resulted in the transfer to the RTC of the portfolios of hundreds of thrifts - these portfolios contained significant #s of commercial mortgages - the RTC began combining commercial mortgage loans into large pools and issuing PCs to investors that represent an interest in the cash flow due under the mortgages. The RTC has securitized over $13 billion in commercial mortgages using this method. (2) as a result of the savings and loan crisis, regulatory agencies began imposing risk-based capital guidelines on banks and insurance co.‟s that made the continued holding of those loans unattractive. At 79    a time when regulators were forcing lenders to increase their overall capital, banks and insurance co.‟s needed a way to dispose quickly of large volumes of commercial mortgages, which securitization was the answer for. Securitization makes the public capital markets available to R.E. developers, which is beneficial because of the current “credit crunch.” Securitization makes funds available at rates significantly more attractive than traditional commercial lending (which could replace banks and insurance companies as the lender of first resort for commercial R.E. projects). The expansion of commercial R.E. securitization will cause significant changes in the practice of commercial R.E. lending. This type of lending could be dominated by a small number of national/international financial institutions instead of local commercial banks. Derivatives have value beyond property: used increasingly as the basis of the value of a country‟s currency in relation to others‟. Derivatives are traded on email. B. RULE AGAINST PERPETUITIES  idea that people should be able to control the use of property forever became very unpopular. Courts gradually perfected this highly complex rule, designed to prevent people from tying up use of property for too long of a period of time. They said you can tie up property for the life of any living person + 21 years after that. What it‟s really regulating is future interests. Present interests aren‟t affected by the rule. This is good only if it vests no later than 21 years after the person who created it died. most states have long since adopted modifications of the rule by statute that eliminated much of the ancient complexity of this rule which caused a problem in its interpretation. IL has abolished it for docs written after the Jan. 1, 1997. Rule will still be at issue for docs prior to this date but as of this date, if you want to avoid the rule, all you have to do is say that you want to avoid it and the rule won‟t apply.  80