CHAPTER 32

Essentials of Business Law -- 4th Edition© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Quotes of the Day“It is a comfortable feeling to know that you stand on your own ground. Land is about the only thing

that can’t fly away.”Anthony Trollope,

English author

“The manner of giving is worth more than the gift.”Pierre Corneille,

French playwright


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Nature of Real Propertyp The grantor is the conveyor of property;

the grantee is the one receiving it.p Real property includes:

• Land• Buildings• Subsurface Rights• Air Rights• Plants• Fixtures --an object considered to be a

permanent part of the property.


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Estates in Real Propertyp Rights in real estate usage and

ownership vary from unrestricted use and right to sell, to a lesser right of usage, but not the right to transfer it.

p The rights that someone can hold are called estates, or interests.


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Freehold Estatesp The owner of a freehold estate has the

present right to possess the property and to use it in any lawful way.

p A fee simple absolute provides the owner with the greatest control.

p A fee simple defeasible may terminate upon the occurrence of some event.

p A life estate is an estate for the life of some named person.


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Concurrent Estatesp A concurrent estate is when two or more

own property at the same time.• Tenancy in Common – two or more people

own the property, each with the right to convey her interests or to pass it down to her heirs.

• A joint tenancy includes the right of survivorship

p Tenancy by the entirety and community property forms of ownership apply to married couples in some states.


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Nonpossessory Interestsp An easement gives one person the right

to enter land belonging to another and make a limited use of it, without taking anything away.• An easement can be created when the

landowner expressly grants it, when he implies it (such as in granting permission to access an area accessible only by crossing your land), or by reservation (when an owner sells land, but keeps the rights to enter a portion of the land.)


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Nonpossessory Interests (cont'd)

p A profit gives one person the right to enter land belonging to another and take something away.

p A license given the holder temporary permission to enter upon another’s property.

p A mortgage is a security interest in real property, given to the institution loaning a buyer the money to buy the real estate.


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Sale of Real Propertyp Seller’s Obligation Concerning Property

• Most states now impose an implied warranty of habitability on a builder who sells a new home.

• The seller of a home must disclose facts that a buyer does not know and cannot readily observe, if they materially affect the property’s value.


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Sale of Real Propertyp A contract for sale of real property must be in

writing and must include names, description of property, price and signatures.

p Before the sale is complete, someone must do a title search – to ensure there are no other claims on this property.

p When all arrangements are made, the parties are ready for closing – a meeting where the deed is signed over to the new owner.

p The deed must then be recorded – filed with the official state registry.


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Land Use Regulationp Zoning

• State laws that permit local communities to regulate building and land use.

• An owner or builder may seek a variance – permission to build something that does not fit the zoning laws.

p Eminent Domain• Eminent domain is the power of the

government to take (at a fair price) private property for public use.


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Landlord-Tenant Relationship p When an owner of a freehold estate

allows another person temporary, exclusive possession of the property, the parties have created a landlord-tenant relationship.

p Three legal areas are combined• An interest in real property is conveyed.• A lease is a contract.• Negligence law may be involved also.


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Leasep The statute of frauds generally requires

that a lease be in writing.p Some short-term oral contracts may be

enforceable, but a written contract is clearer and safer.

p A written contract usually includes covenants (promises) from the landlord and the tenant; these details are determined by the parties.


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Types of Tenancyp Any lease for a stated, fixed period is a

tenancy for years.p A periodic tenancy is created for a fixed

period and then automatically continues for additional periods until either party notifies the other of termination.

p A tenancy at will has no fixed duration and may be terminated by either party.

p A tenancy at sufferance occurs when a tenant remains on the premises, against the wishes of the landlord, after the expiration of a true tenancy.


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Landlord’s Dutiesp The landlord’s first important duty is to

deliver possession.• In most states the landlord must remove a

previous tenant if he does not leave willingly.

• Some states allow the new tenant to either evict the old tenant, or collect rent from her.


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Quiet Enjoymentp All tenants are entitled to the right to use

the property without the interference of the landlord.

p Actual Eviction• If a landlord prevents the tenant from

possessing the premises, he has actually evicted her.

p Constructive Eviction• If a landlord substantially interferes with the

tenant’s use and enjoyment of the premises, he has constructively evicted her.


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Duty to Maintain Premisesp A landlord has a duty to deliver the

premises in a habitable condition and to maintain a habitable condition.

p Building codes may require stricter than normal standards for rental property.

p Implied Warranty of Habitability• The implied warranty of habitability requires

that a landlord meet all standards set by the local building code, or that the premises be fit for human habitation.


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Tenant Remedies for Defective Conditions

p Different states allow various remedies for defective conditions.• Rent abatement – a court ordered reduction in

rent owed.• Rent Withholding – the tenant refuses to pay

part or all of the rent, in proportion to the defective conditions.

• Repair and Deduct – the tenant may, in some cases, have the repair made and deduct the cost from the rent.

• Suit for Damages – in some cases, the tenant may file suit against the landlord.


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Duty to Return Security Depositp The landlord must return a security

deposit within 30 days after a tenant vacates.

p If any of the deposit is withheld to pay for damage, a written accounting of the damage is required.

p If the landlord fails to comply, the tenant is entitled to double the deposit amount.


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Tenant’s Dutiesp Duty to Pay Rent – this is the tenant’s

foremost obligation.p Duty to Use Premises for Proper

Purposesp Landlord’s Remedies for Nonpayment

of Rent:• Apply security deposit to rent.• Sue tenant for non-payment.• Evict tenant.


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Injuriesp Tenant’s Liability

• A tenant is generally liable for injuries occurring within the leased premises.

p Landlord’s Liability• The landlord is generally liable for injuries

occurring in common areas (such as a sidewalk) where the tenant has no control.

• Common law holds the landlord liable for latent defects and negligent repairs.

• A landlord can sometimes be held liable for a crime committed on the property.


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Personal Property -- Giftsp A gift is a voluntary transfer of property

from one person to another without any consideration.

p A gift involves three elements:• The donor intends to transfer ownership of

the property to the donee immediately.• The donor delivers the property to the

donee.• The donee accepts the property.


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Deliveryp Physical Delivery – method usually

used to deliver the gift.p Constructive Delivery -- made by

transferring ownership without a physical delivery.


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Inter Vivos & Causa Mortis

p An inter vivos gift – is a gift given during life and with no expectation of death.• The gift is valid, if it meets the basic

conditions of a gift.p A gift causa mortis – is a gift given in

expectation of dying soon.• The gift is valid, if it meets the conditions of

a gift, and the giver dies as expected.• The giver may rescind the gift at any time,

and it is automatically rescinded if the giver does not die as expected.


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Bailmentp A bailment is the rightful possession of

goods by one who is not the owner.p The parties generally-but not always-

create a bailment by agreement.p A bailment without agreement is called

a constructive, or involuntary, bailment.p To create a bailment, the bailee must

assume physical control with intent to possess.


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Rights & Duties of the Baileep Anyone who interferes with the bailee’s

rightful possession is liable to her.p The bailee is typically, though not always,

permitted to use the property.p The bailee is strictly liable to redeliver the

goods on time to the bailor or to whomever the bailor designates.

p The bailee must exercise due care, which is determined by the type of bailment.


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Due carep The level of care required depends

upon who receives the benefits of the bailment.• Extraordinary care of the property is

required when the bailment is for the sole benefit of the bailee (as when a neighbor borrows your tractor.)

• Ordinary care is required in the case of mutual benefit (renting a car at a cost.)

• Slight care is all that is required when only the bailor benefits. The bailee is liable for loss only in gross negligence.


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Burden of Proofp Once the bailor has proven the

existence of a bailment and loss or harm to the goods, a presumptive of negligence arises, and the burden shifts to the bailee to prove adequate care.


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Rights and Duties of Bailorp Liability for Defects

• If the bailment is for the sole benefit of the bailee, the bailor must notify the bailee of any known defects.

• In a mutual-benefit bailment, the bailor is liable not only for known defects but also for unknown defects that the bailor could have discovered with reasonable diligence.


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“Real property is ancient in origin and terminology, but

every bit as potent as it was 1,000 years ago.”

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CHAPTER 32