Real Property and Landlord-Tenant Relationshipsmissionparalegal.pbworks.com/f/landlord.pdf · · 2010-03-28Real Property and Landlord-Tenant Relationships! ... This chapter also

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Chapter 48

Real Property andLandlord-Tenant Relationships

! See Separate Lecture Outline System

INTRODUCTION

This chapter examines the ways in which ownership rights in property can be held; the nature ofownership rights in real property; the legal requirements for the transfer of real property, including thetypes of rights that are transferred by various deeds; and adverse possession. Other topics include eminentdomain and the government’s responsibility to pay compensation when condemning private land for publicuse.

This chapter also examines the landlord-tenant relationship, briefly discussing the rights and responsi-bilities of the landlord and tenant in negotiating a lease, in using and maintaining the leased property, inpaying and collecting rent, and in transferring interests in the property.

ADDITIONAL RESOURCES—

"#" AUDIO & VIDEO SUPPLEMENTS "#"The following audio and video supplements relate to topics discussed in this chapter—

948 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, ELEVENTH EDITION

PowerPoint SlidesTo highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint

slides compiled for Chapter 48.

South-Western’s Business Law Video SeriesThe situational video Real Property illustrates the topics covered in this chapter.

CHAPTER OUTLINE

I. The Nature of Real PropertyReal property usually refers to land, but it also includes subsurface rights, air rights, and fixtures.

A. LAND AND STRUCTURESLand includes the soil on the surface of the earth, the natural products or artificial structures at-tached to it, water on or under its surface, and the air space above it.

B. AIRSPACE AND SUBSURFACE RIGHTSSignificant limitations on air or subsurface rights normally have to be indicated on the deed.

1. Airspace RightsThe text mentions the different fact situations in early and recent air rights cases. Gener-ally, plane flights do not violate owners’ rights, but strung wires, leaning buildings, and pro-jecting roofs do.

2. Subsurface RightsOwnership of land’s surface and subsurface can be separate. Rights to the subsurface canbe valuable when minerals, oil, or natural gas is there. Conflicts may arise between surfaceand subsurface owners when attempts are made to excavate. Generally, the owners of sub-surface rights are absolutely liable if their excavation causes the surface to subside.

C. PLANT LIFE AND VEGETATIONWhen land with growing crops is sold, the sale includes the crops, unless otherwise specified.Crops sold by themselves are goods (and the sale is covered by the UCC [UCC 2–107(2)]).

II. Ownership and Other Interests in Real Property

A. OWNERSHIP IN FEE SIMPLEAn owner in fee simple has the greatest aggregation of rights, privileges, and power. A fee sim-ple absolute is limited absolutely to a person and his or her heirs and is assigned forever withoutlimitation or condition. The rights that accompany a fee simple absolute include the right to usethe land for whatever purpose the owner sees fit (but not to unreasonably interfere with others’use of their land).

CASE SYNOPSIS—

Case 48.1: Biglane v. Under the Hill Corp.

Nancy and James Biglane owned a building in Natchez, Mississippi, in which they operated a giftshop and in which they lived. Andre Farish and Paul O'Malley owned the building next door, in which

CHAPTER 48: REAL PROPERTY AND LANDLORD-TENANT RELATIONSHIPS 949

they operated the Natchez Under the Hill Saloon. Despite precautions on the Biglanes’ part andaccommodations on the Saloon’s part, the noise kept the Biglanes awake at night. They filed a suit ina Mississippi state court against the Saloon. The court enjoined the defendant from opening doors orwindows when music was playing and ordered it to prevent its patrons from loitering in the street.Both parties appealed.

The Mississippi Supreme Court affirmed. “One landowner may not use his land so as tounreasonably annoy, inconvenience, or harm others.” Reasonable use of property does not include“obnoxious noises, which in turn result in a material injury to owners of property in the vicinity,causing them to suffer substantial annoyance, inconvenience, and discomfort.”

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Notes and Questions

Should the history of a location have any bearing on a determination of the owners’rights with respect to the use of their property? In this case, the state supreme court sketched thehistory of the section of Natchez that was closest to the Mississippi River, which is where thedisputants were located. From its earliest settlement, the area had been described as “a gambler'sparadise, a sink-hole of iniquity and a resort of the damned,” populated with “gambling dens, saloons,houses of ill repute, ... pirates and slave-traders.” The use of Natchez as a port “gave way tosteam-powered locomotives, which in turn gave way under the advent of automobiles and airplanes,”but the area's “infamous past ... saved it and secured its future. ... Tourists began to flock toSilver Street—the only remaining portion of [Natchez] Under-the-Hill,” as it was called. In whosefavor might this history have weighed in this case?

What factors might complicate a case that involves similar facts but arises betweenneighbors across international borders? Some countries do not recognize the private ownership ofproperty and may not be willing to curtail activities within their borders based on such a concept.Some jurisdictions may have different standards with respect to what constitutes unreasonableinterference with a property owner’s enjoyment. Besides these and other legal questions, there arepolitical and economic circumstances that could influence the outcome in a particular case.

ANSWER TO “THE ETHICAL DIMENSION” QUESTION IN CASE 48.1At one point in their dispute, the Biglanes blocked off two parking lots that served the

Saloon. Was this an unreasonable interference with the Saloon’s rights? Explain. The Saloonclaimed that the Biglanes’ act was “a tortious interference with a business relationship.” Thisrequires an act that is intended to, and does, damage a business, “without right or justifiable cause”(i.e., with malice). The trial court ruled in favor of the Saloon on this claim, despite finding no actualdamage (in fact, the Saloon’s business had increased), and awarded nominal damages because of theintentional nature of the act. The state supreme court reversed the award. Although the ownership ofone of the lots was in dispute (the Biglanes owned the other one), actual damage was an importantelement of this claim, and in this case none was shown.

ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”QUESTION IN CASE 48.1

Could repulsive odors emanating from a neighbor’s property constitute unreasonableinterference with a property owner’s rights? Why or why not? Yes (for example, a property


owner might be overwhelmed by the repulsive odors of a rendering plant). The general rule is thesame—“a business, although in itself lawful, which impregnates the atmosphere with disagreeableand offensive odors and stenches, may [unlawfully interfere with the right of] those occupyingproperty in the vicinity, where such obnoxious smells result in a material injury to suchowners”—according to the court in the Biglane case. An injunction would likely be the proper remedy.

B. LIFE ESTATESA life estate lasts for the life of some specified individual. The text describes the rights of the ten-ant of a life estate, and limits on those rights—use without waste, extraction of resources by ex-isting facilities only, mortgage for periods shorter than the life term. A life tenant’s duties in-clude maintaining the value of the property.

ADDITIONAL BACKGROUND—

Real Property Terminology

The distinction between real property and personal property is usually fairly easy to make. Realproperty consists of land and any vegetation and artificial structures such as houses and barns onthe land. Personal property, by contrast, is property other than land which may be moved by theholder such as jewelry or stocks or clothes or automobiles. Many contracts involving the lease orsale of land use the terms “property,” “land,” and “premises” interchangeably but these terms aredistinguishable. “Property” refers to both the land and the premises. “Land,” by contrast, is gener-ally used to refer to the land itself as well as any mineral deposits or vegetation on the land.“Premises,” however, is typically used to refer to the artificial structures on the land regardless ofwhether they are buildings or houses or sheds. A lease or sale of developed property (land with per-manent improvements such as a farmhouse) should use the term “property” to refer to the land andbuilding together because the use of the term “land” may suggest that the parties intended to excludethe farmhouse while the use of the term “premises” may be regarded as a reference merely to thefarmhouse itself.

C. CONCURRENT OWNERSHIPConcurrent owners include tenants in common, joint tenants, tenants by the entirety, and com-munity property owners.

1. Tenancy in CommonTenants in common each own an undivided fractional interest in the property. On one ten-ant’s death, that interest passes to his or her heirs.

2. Joint TenancyJoint tenants each own an undivided interest in the whole, and a deceased joint tenant’s in-terest passes to the surviving joint tenant or tenants. That the surviving joint tenant ortenants acquires a deceased tenant’s interest—instead of the interest passing to the de-ceased tenant’s heirs—distinguishes a joint tenancy from a tenancy in common.

3. Tenancy by the EntiretyA tenancy by the entirety is ownership by a husband and wife. Neither spouse may trans-fer separately his or her interest during his or her life.

4. Community PropertyOnly some states allow property to be owned as community property. If property is held ascommunity property, each spouse technically owns an undivided one-half interest in it.



The Four Unities—Time, Title, Interest, and Possession

Both the joint tenancy and tenancy by the entirety require that certain preconditions exist beforea valid tenancy can be said to exist. First, the owners of the estate must have both received their in-terests at the same time (unity of time). Second, the owners of the estate must both draw their titlefrom the same deed or document (unity of title). Third, the owners of the estate must have equal in-terests in the land (unity of interest). Fourth, the owners must have an unrestricted right to use theentire property (unity of possession). A tenancy in common may exist without any of these unities ex-cept that relating to the unity of possession because tenants in common, despite the unevenness oftheir respective interests in the property, still have the right to use the entire property.

D. LEASEHOLD ESTATES

1. Fixed-Term Tenancy or Tenancy for YearsA tenancy for years is created by an express contract (which can sometimes be oral) bywhich property is leased for a specified period of time, such as a month, a year, or a periodof years. Some of the incidents of a tenancy for years are mentioned—that, at the end of theperiod, the lease ends without notice, and so on.

2. Periodic TenancyA periodic tenancy is created by a lease that does not specify how long it is to last but doesspecify that rent is to be paid at certain intervals. Some of the incidents of a periodic ten-ancy are discussed—that, at the end of a period, the tenancy is automatically renewed,termination requires notice, and so on.

3. Tenancy at WillThe text defines a tenancy at will by example, and discusses the most notable of this tenan-cy’s incidents—that it is terminable without notice.

4. Tenancy at SufferanceA tenancy at sufferance is the possession of land without right, created when another ten-ancy ends and the tenant remains in possession without the owner’s consent.

E. NONPOSSESSORY INTERESTSAn easement allows a person to use land without taking anything from it. A profit allows aperson to take something from the land.

1. Easement or Profit AppurtenantAn easement or profit appurtenant attaches to adjacent property.

2. Easement or Profit in GrossAn easement or profit in gross does not depend on the proximity of property—it requires theexistence of only one parcel of land, which must be owned by someone other than the ownerof the easement or profit in gross.

3. Creation of an Easement or ProfitProfits and easements are created by deed, will, implication, necessity, or prescription.Creation by deed or will involves the delivery of a deed or a disposition in a will by theowner. Creation by implication and necessity are alike (the latter does not require a


division of property). Creation by prescription is akin to acquiring title by adversepossession.

4. Termination of an Easement or ProfitThe text states three methods of termination: (1) deed an easement or profit to the owner ofthe land burdened by it; (2) abandon it and evidence an intent to relinquish the right to it; or(3) deed the burdened land to the owner of the easement or profit. Nonuse is not enoughunless it is accompanied by an overt act showing intent to abandon,

5. LicenseA license is the revocable right of a person to come onto another person’s land. The textprovides the example of a ticket to a movie.

6. LicensesA license is the revocable right of a person to come onto another person’s land. The textprovides the example of a ticket to a movie.

III. Transfer of OwnershipThe text outlines the details of a real estate transaction and explains transfers of real property bydeed, will, adverse possession, and eminent domain.

A. LISTING AGREEMENTSUnder a listing agreement, a real estate seller may employ a real estate agent to find a buyer.This agreement can specify its duration and other terms, including the agent’s commission. Theagreement may be exclusive (only the designated agent can sell) or open (any agent can sell).

B. REAL ESTATE SALES CONTRACTS

1. Steps Involved in the Sale of Real EstateThe text sets out the steps in a sale of real estate, including the formation of a contract, atitle search, financing (which may include a mortgage), a property inspection, and a closing.The buyer may deposit funds with, and the seller may give a deed to, an escrow agent totransfer when the conditions of sale are met.

2. Implied Warranties in the Sales of New HomesIn a few states, a seller makes no warranties (unless the deed or contract specifiesotherwise)—a buyer takes the property “as is.” In most states, a seller of a new houseimpliedly warrants that it is fit for human habitation (in reasonable working order and ofreasonably sound construction). In a few states, a later buyer can recover from the originalbuilder under this warranty.

3. Seller’s Duty to Disclose Hidden DefectsIn most states, sellers must disclose any known defect that materially affects the value ofthe property and that the buyer could not reasonably discover.

CASE SYNOPSIS—

Case 48.2: Whitehead v. Humphrey

Matthew Humphrey paid $44,000 for a home in Louisiana and partially renovated it. Hereplaced rotten wood beneath a window, leveled the porch, painted the interior, replaced sheetrock,tore out a wall, replaced a window, dug up eighty feet of field line for the septic system, and pumpedout the septic tank. Terry and Tabitha Whitehead bought the house for $67,000. Problems developed


with the air-conditioning, the fireplace, the bathrooms’ plumbing, and rotten wood in the bathroomand porch. They filed a suit in a Louisiana state court against Humphrey, seeking to rescind the sale.The court awarded the plaintiffs costs relating to the fireplace ($1,675) and the bad wood ($7,695).They appealed.

A state intermediate appellate court affirmed. Rescission was not warranted for the sewerproblems because the Whiteheads waited too long after their discovery to file a claim againstHumphrey. The other defects “could be repaired with relative ease” and the “costs of those repairswere a small fraction of the sale price.” The court pointed out that “prior to the sale, the vendor andvendee were alerted to an issue regarding the sewer system. Corrective actions were taken, and noproblems *** prevented the Whiteheads from completing their purchase.” It appeared “that neitherside understood that a latent defect remained unresolved.”

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Notes and Questions

With respect to the sewer problem, should the court have crafted an intermediateremedy—something between complete rescission and absolving the seller of all liability? Itseems equitable, considering the estimated price to fix the damage and prevent its recurrence, thatboth parties might split the cost. The court fairly applied the law that governed this case, however(the limitations period), and it seems unfair to come to the seller outside that law and order him topay when he would not otherwise be liable.

ANSWER TO “THE ETHICAL DIMENSION” QUESTION IN CASE 48.2Should the court have rescinded the sale despite the running of the limitations period on

the Whiteheads’ sewer claim? Why or why not? Yes, it seems only fair, considering the cost to fixthe problem, the amount of the seller’s profit, and the fact that the septic tank was in the same placeas when the sale occurred. No, because a seller (non-owner) should not be subject to potential liabilitybeyond a reasonable period of time—at some point any problem, particularly one of which neitherparty was aware at the time that the property changed hands, must become the responsibility of thebuyer (owner).

ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”QUESTION IN CASE 48.2

In Louisiana, a seller who knows of a defect and does not inform a buyer can be liablefor the buyer’s attorney’s fees in a suit based on that defect. Did Humphrey qualify as such a“bad faith” seller in this case? Explain. Yes. The Whiteheads argued that “Humphrey was aseller who knew of the existence of the defect, plac[ing] him in the category of the so-called bad faithseller entitling them to attorney's fees.” The court agreed. “[T]he trial court expressly addressed anddecided the factual issue of Humphrey's knowledge of the rotten sills upon which hinge ... theenhanced remedies against the bad faith seller. Once that factual determination was made, theremedy of the award of attorney's fees against the so-called bad faith seller ... was the just, legaland proper remedy .... [W]e will award the minimum for attorney's fees for the trial of this case inthe amount of $2,500.”


ENHANCING YOUR LECTURE—

!! " POTENTIAL PROBLEMS

WHEN REAL ESTATE IS ADVERTISED ONLINE ## !!The Internet has transformed the real estate business, just as it has transformed other indus-

tries. Today’s real estate professionals market properties—and themselves—online. Given that theInternet knows no physical borders, what happens when an online advertisement reaches people out-side the state in which the real estate professional is licensed? Is this illegal? Can the agent be suedfor fraud if the ad contains misrepresentations? Such questions are likely to arise in the future asmore and more people use the Internet to search for properties.

STATE LICENSING STATUTES AND ADVERTISING

Every state requires anyone who sells or offers to sell real property in that state to obtain a li-cense. To be licensed, a person normally must pass a state examination and pay a fee and then musttake a minimum number of continuing education courses periodically (every year or two) to maintainthe license. The purpose of requiring real estate licenses is to protect the public and to maintain qual-ity standards for real property transactions in that state. Usually, a person must also be licensed tolist real property for sale, or to negotiate the purchase, sale, lease, or exchange of real property or abusiness opportunity involving real property.a Often, a state agency, such as a real estate commis-sion, is in charge of granting licenses and enforcing the laws and regulations governing real estateprofessionals.

Although some states have rules regarding the advertising of real property, these regulationsusually do not specifically address Internet advertising, which necessarily reaches consumers beyondthe state’s borders. At least one state, California, flatly prohibits Internet advertising of real estateby individuals not licensed in the state.b But how can a state enforce such a law or check credentialsof the Web advertisers? California’s Department of Real Estate suggests that anyone who advertisesreal property online and is not licensed in California should include a disclaimer on the ad—but this isnot required.

ACTIONS FOR MISREPRESENTATIONS (FRAUD)

Suppose that a real estate agent, either inadvertently or intentionally, makes a misstatement on-line about some important aspect of real property that is for sale. Someone, relying on the state-ments, responds to the ad and eventually contracts to buy the property, only to discover later thatthe ad misrepresented it. What remedies does the buyer have? In this situation, the buyer can com-plain to the state authority that granted the agent’s license, and the state may even revoke thelicense for such conduct. If the buyer wants to obtain damages or cancel the contract, however, he orshe will have to sue the agent for fraud. At this point, jurisdiction problems may arise.

If the real estate agent and the buyer are located in different states and the Internet ad was theagents only contact with the buyer’s state, the buyer may have to travel to the agent’s state to filethe suit. Courts have reached different conclusions on the type of Internet advertising that permits acourt to have jurisdiction over and out-of-state advertiser. In many states, a court will not have ju-risdiction unless the Web site advertisement is interactive. In other states, the courts have held thata passive Web site that solicited business in the state,c or a passive Web site coupled with a toll-freephone number or downloadable forms,d provided the minimum contacts necessary for jurisdiction.Thus, people who are deceived when buying real property from an online ad and wish to sue the per-petrator of the fraud may be in a precarious position depending on the state where they live.


FOR CRITICAL ANALYSIS

Do your students think that the federal government should regulate the advertising ofreal property on the Internet to protect consumers from potential fraud? If so, what kind ofregulations would be appropriate, and how might they be enforced? a. See, for example, Section 10131 of the Cal. Bus. & Prof. Code and Vermont’s 26 V.S.A. Sections 2211-2212.b. 9 Cal. Code of Regs. Section 2770.c. Telco Communications v. An Apple A Day, 977 F.Supp. 404 (E.D.Va. 1997); Inset Systems, Inc. v. Instruction Set, Inc., 937F.Supp. 161 (D.Conn. 1996).d. State by Humphrey v. Granite Gate Resorts, Inc., 1996 WL 767431 (Minn.Dist. 1996), aff’d, 568 N.W.2d 715 (Minn.App. 1997),aff’d again, 576 N.W.2d 747 (Minn. 1998); Hasbro, Inc. v. Clue Computing, Inc., 994 F.Supp. 34 (D.Mass. 1997).

C. DEEDSPossession and title to land can be passed by deed without consideration. A deed requires—• The names of the grantor and grantee.• Words evidencing an intent to convey.• A legally sufficient description of the land.• The grantor’s (and spouse’s) signature.• Delivery.


Legal Descriptions

A deed must contain a legal description of the property being conveyed in order to transfer titleto the buyer. A metes and bounds legal description involves the use of compass directions and dis-tances from a specific point of beginning around the boundaries of the property. In earlier times,metes and bounds descriptions often used references to natural and artificial monuments such asboulders, the side of a road, etc., to describe the boundaries of a parcel of property. The disadvan-tage of describing a property line by reference to a stream, for example, became obvious when thestream dried up and the boundary line could no longer be ascertained. Modern metes and boundsdescriptions typically avoid references to monuments but instead use a succession of courses and dis-tances that eventually return (if properly done) to the starting point. Other types of legal descrip-tions of property may be used instead of metes and bounds descriptions. If a subdivision plat, for ex-ample, has been filed in the public records, then it is not necessary for the deed to include a metesand bound description because it can make a reference to a specified lot and block in that plat whichwill suffice for purposes of identifying the property being conveyed.

1. Warranty DeedsThis provides the most protection against defects of title—covenants that the grantor has titleto, and the power to convey, the property; that the buyer will not be disturbed in possession ofthe land; and that transfer is made without unknown adverse claims of third parties.

2. Special Warranty DeedThis warrants only that the grantor held good title during his or her ownership of the prop-erty, not that there were no title defects when others owned it. If all liens and encumbrancesare disclosed, the seller is not liable if a third person interferes with the buyer’s ownership.

3. Quitclaim DeedThis warrants less than other deeds, conveying only whatever interest the grantor has.



!! " A SHED IS ONE THING, A GARAGE QUITE ANOTHER ## !!Shortly after Richard and Laura Dufrane purchased a home with an attached garage in a subdi-

vision in Greenfield, Wisconsin, they began constructing a detached garage on the edge of their prop-erty. Their neighbor, Mary Pietrowski, told the Dufranes “multiple times” that the garage violated arestrictive covenant that prevented property owners in the subdivision from erecting any buildingsother than one house and one garage on their land. After the garage had been built, Pietrowskiasked a court to issue an order that the garage be razed (destroyed).

The Dufranes argued that Pietrowski herself had violated the covenant because she had built ashed on her property. Thus, by violating the covenant herself, she had waived her equitable right toenforce it. After all, a fundamental principle of equity is that a person seeking equitable relief mustcome to the court with clean hands. Further, claimed the Dufranes, enforcing the covenant wouldlead to unjust results because Pietrowski would be allowed to maintain a violation of the restrictionson her property while enforcing the restrictions on her neighbors. The Dufranes’ arguments were invain, however. The court interpreted the letter of the law in this case to mean that building a shedconstituted only a “minor violation” of the covenant, whereas building a garage was a “major viola-tion” that materially breached the covenant. According to the court, “enforcement against a majorviolation of the restrictive covenant by a party who committed a minor violation does not result in aninjustice.” The court ordered that the garage be razed.a

THE BOTTOM LINE

Those who purchase real estate should check carefully to determine what restrictive covenants, ifany, apply to the property.

a. Pietrowski v. Dufrane, 634 N.W.2d 109 (Wis.App. 2001).

4. Grant DeedBy statute, this deed may impliedly warrant that the grantor owns the property and hasnot encumbered it or conveyed it to another.

5. Sheriff’s DeedThis gives ownership rights to a buyer at a sheriff’s sale.

D. RECORDING STATUTESThese statutes require transfers to be recorded in public records (generally in the county inwhich the property is located) to prevent fraud. Many states require the grantor’s and twowitnesses’ signatures.


Basic Types of Recording Statutes

Recording statutes are in force in every jurisdiction. Their purpose is to provide prospectivebuyers with a way to check whether there has been an earlier transaction. Hence, recording a deedgives constructive notice to the world that a certain person is now the owner of a particular parcel ofreal estate.


There are three basic types of recording statutes: (1) race statutes, which provide that thefirst purchaser to record a deed has superior rights to the property, regardless of whether he or sheknew that someone else had already bought it but had failed to record the deed; (2) pure noticestatutes, which provide that, regardless of who files first, a person who knows that someone else hasalready bought the property cannot claim priority; and (3) race-notice statutes, which provide that apurchaser who does not know that someone else has already bought the property and who records hisor her deed first can claim priority. Irrespective of the particular type of recording statute adoptedby a state, recording a deed involves a fee. The grantee typically pays this fee, because he or she isthe one who will be protected by recording the deed.

1. Marketable TitleA grantor must transfer title that is free from undisclosed encumbrances and defects.

2. Title SearchAn examination of the title records for all transactions concerning a specific parcel of realproperty can reveal its true owner and other interested parties.

3. Methods of Ensuring Good TitleThe text discusses hiring an attorney to provide an opinion based on a reading of anabstract of title; holding a court hearing in those states that use the Torrens system of titleregistration; and (most commonly) obtaining title insurance, which insures the granteeagainst losses due to title defects.

E. ADVERSE POSSESSIONAdverse possession is a means of obtaining title to land without delivery of a deed. The elementsare listed in the text, and the public-policy reasons are briefly stated: adverse possession stat-utes aid in the resolution of boundary disputes and in quieting title when it is in dispute, adversepossession statutes encourage the use of property by assuring that it remains in the stream ofcommerce, by depriving owners who sit on their rights too long of their property, and by reward-ing possessors who put land to productive use.

CASE SYNOPSIS—

Case 48.3: Otwell v. Diversified Timber Services, Inc.

In 1807, the eastern boundary of “Charles McBride Riquet No. 39” was described as “the watersof Hemphill’s Creek” in Louisiana. In the 1930s, a curve in the creek was straightened, moving thebed to the west. In the 1960s, Terry Brown and Margaret Otwell granted Bessie and WilliamSanders title to a portion of 24 acres known as the “Terry Brown Estate.” This included 3.12 acresbetween Hemphill’s Creek and the “old slough,” which appeared to be the creek’s original bed. In2001, Moffett sold the timber on the 3.12 acres to B & S Timber, Inc. The Sanderses filed a suit in aLouisiana state court against Moffett and others, seeking damages for “timber trespass.” The courtheld that the plaintiffs proved title through adverse possession, and awarded more than $68,000. Thedefendants appealed.

A state intermediate appellate court affirmed. “Ownership of immovable property may be ac-quired by the prescription of thirty years without the need of just title or possession in good faith.Corporeal possession sufficient to confer prescriptive title must be continuous, uninterrupted, peace-able, public, and unequivocal.” Here, the Sanderses assertedly acquired title from Bessie’s grandfa-ther, managed and marked the timber, ran off trespassers, cut a fence to make a trail, shot hogs,hunted ducks, harvested berries, and placed the property in a hunting club that posted signs anderected deer stands.


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Notes and Questions

In Louisiana before 1974, as the court explained, “the measure of damages owed by a timbertrespasser depended upon his moral culpability: a trespasser guilty of ‘moral bad faith’ was liable forthe ‘converted value’ of the timber without deductions for costs and expenses; one guilty of ‘legal badfaith’ was allowed to deduct his actual expenses in converting timber to lumber in assessing dam-ages; and a trespasser in ‘good faith’ was only liable for ‘stumpage value.’“ A statute in 1974 “re-tained the degrees of culpability, but fixed a single measure of damages for one in moral or legal badfaith as three times the ‘fair market value’ of the of the trees cut, felled, destroyed, removed, ordiverted.”

How would—and how did—these different measures of damages apply in this case? Thecourt noted, “Under the jurisprudence before 1974, Mr. Moffett would have been in legal bad faith,i.e., one who believed himself to be the owner of the timber but who should have known otherwise.Under those circumstances, his liability would have been reduced by the actual expenses ofconverting the timber. Given the figures that he introduced as to mill payments and expenses, hisliability under the prior law would have been limited to $5,340.32. Under our interpretation of thepresent statute, as one who is in good faith but who should have been aware of certain circumstances,Mr. Moffett is liable for over three times that amount for the same conduct.” The court explained that“the costs of logging and hauling” consisted of “the difference between what the mills paid B & STimber and what Mr. Moffett received, or $5,677.25. Deducting this amount from the mill value ofthe timber as fixed by the trial court, $13,477.05, we find the fair market value of the timber cut tobe $7,799.80. Accordingly, Mr. Moffett is liable to Mrs. Sanders for three times $7,799.80, or$23,399.40,” plus “general damages of $1,800.00” to Mrs. Sanders, “general damages of $4,200.00[to Mr. Sanders] for interference with his right of use,” “expert witness fees of $20,321.50 forPlaintiffs' surveyor, $800.00 for Plaintiffs' forester, and $900.00 for Defendants' surveyor.”

ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 48.3

Suppose that the Sanderses had done nothing on the disputed land except to claim title.Would the result have been different? Explain. Probably. Without an exercise of use over theproperty, it would have been difficult to successfully assert possession. This use must be actual, open,visible, continuous, and hostile to the interests of others to constitute possession sufficient to acquiretitle by adverse possession. Of course, the plaintiffs could have asserted the grant of title by TerryBrown, but the boundaries of the land were apparently hard to establish.

ANSWER TO “THE E-COMMERCE DIMENSION”QUESTION IN CASE 48.3

How might the Internet have facilitated either party’s claim to the disputed property?Depending on the public records available online, the parties might have found it easier to checkdocuments—old maps, deeds and documents of transfer, etc.—online than it may have been possibleto do in person in local paper files. Also, either party might have set up a camera that could beviewed online to alert themselves to potential trespassers and other unwanted activity.


ADDITIONAL CASES ADDRESSING THIS ISSUE —

Recent cases applying the principles of adverse possession include the following.

• Dickson v. Young, 79 Ark.App. 241, 85 S.W.3d 924 (2002) (landowners’ maintaining four gardenareas on a disputed parcel, as well as mowing the grass and building a shed on the property, estab-lished the owner’s intent to adversely possess the parcel, even though the owner said that he did notintend to possess the land of another).

• Amrhein v. Eden, 779 N.E.2d 1197 (Ind.App. 2002) (the parties did not attain ownership of a cer-tain disputed boundary parcel on their side of their neighbors’ fence, based on a theory of adversepossession, when the disputed property was a public way until recently vacated during a suit to ejectthe neighbors from their use of the parcel).

IV. Limitations on the Rights of Property OwnersLimitations not discussed below include tax and environmental laws.

A. EMINENT DOMAINEminent domain is mentioned as a power of the government to take land for public use. Ofcourse, exercise of the power of eminent domain is subject to the Constitution and whatever otherlaw applies. For example, as the text explains, under the taking s clause of the Fifth Amend-ment, the government may not take private property for public use without just compensation.Separate proceedings are used to determine that particular land is necessary for public use, toobtain title, and to determine the land’s fair value.

CASE SYNOPSIS—

Case 48.4: Kelo v. City of New London, Connecticut

A Connecticut state agency designated the city of New London a “distressed municipality,” and in1996, the federal government closed a naval facility in the Fort Trumbull area of the city. In 1998,Pfizer Inc. announced that it would build a $300 million facility on a site next to Fort Trumbull.Hoping to attract businesses, the city council approved a plan to redevelop the area that once housedthe federal facility. When negotiations with some of the owners fell through, the city began condemna-tion proceedings. Susette Kelo and others filed a suit in a Connecticut state court against the city andothers. The plaintiffs claimed, among other things, that taking their property would violate the “pub-lic use” restriction in the U.S. Constitution’s Fifth Amendment. The court ruled in favor of both sides.On appeal, the Connecticut Supreme Court held that the proposed takings were valid. The ownersappealed.

The United States Supreme Court affirmed. Economic development can constitute “public use”within the meaning of the Fifth Amendment’s takings clause to justify a local government’s exercise ofits power of eminent domain to take private property. The development “unquestionably serves apublic purpose,” even though it would also benefit private parties. “Viewed as a whole, our jurispru-dence has recognized that the needs of society have varied between different parts of the Nation, justas they have evolved over time in response to changed circumstances. Our earliest cases in particu-lar embodied a strong theme of federalism, emphasizing the great respect that we owe to statelegislatures and state courts in discerning local public needs. For more than a century, our public usejurisprudence has wisely eschewed rigid formulas and intrusive scrutiny in favor of affording legisla-tures broad latitude in determining what public needs justify the use of the takings power.”

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Notes and Questions

The plaintiffs urged the courts to “adopt a new bright-line rule that economic development doesnot qualify as a public use,” but the Court chose not to do this. Why? “Promoting economic develop-ment is a traditional and long accepted function of government. There is, moreover, no principled wayof distinguishing economic development from the other public purposes that we have recognized. Inour cases upholding takings that facilitated agriculture and mining, for example, we emphasized theimportance of those industries to the welfare of the States in question ; [and in a third case] we en-dorsed the purpose of transforming a blighted area into a well-balanced community through redevel-opment .... It would be incongruous to hold that the City's interest in the economic benefits to bederived from the development of the Fort Trumbull area has less of a public character than any ofthose other interests. Clearly, there is no basis for exempting economic development from our tradi-tionally broad understanding of public purpose.”

ANSWERS TO QUESTIONS AT THE END OF CASE 48.41. Why did the United States Supreme Court grant certiorari in this case, and what did theCourt hold with respect to the principal issue? The Court “granted certiorari to determinewhether a city’s decision to take property for the purpose of economic development satisfies the‘public use’ requirement of the Fifth Amendment.” The United States Supreme Court agreed with theresult in the lower courts. The Supreme Court held that economic development can constitute “publicuse” within the meaning of the Fifth Amendment’s takings clause to justify a local government’sexercise of its power of eminent domain to take private property. In this case, the condemnationswere part of a comprehensive plan to provide a “distressed municipality” with increased tax revenue,new jobs, and other benefits. The Court reasoned that the plan “unquestionably serves a publicpurpose,” even though this result would also benefit private parties.

2. Considering the impact of the ruling in this case, what are some arguments against thedecision? There was a dissent in this case, and in the dissent’s view, under the majority’s holding,“[n]othing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with ashopping mall, or any farm with a factory.” The “beneficiaries” of these circumstances “are likely tobe those citizens with disproportionate influence and power in the political process, including largecorporations and development firms. As for the victims, the government now has license to [take]property from those with fewer resources.”

B. RESTRICTIVE COVENANTSA restrictive covenant is a private restriction on the use of land. It runs with the land if theoriginal parties and their successors are entitled to its benefit or burdened with its obligation. Itmust be in writing and subsequent owners of the property must know of it.


The Fair Housing Act

The Fair Housing Act of 1968 (42 U.S.C. Sections 3601–3631) is part of the Civil Rights Act of1968, one of the three comprehensive civil rights laws that were enacted by Congress in the 1960s.The Civil Rights Act of 1968 was signed by President Lyndon Johnson seven days after the death ofthe Reverend Martin Luther King, Jr., who was assassinated on April 4, 1968.

The act condemns discrimination on the basis of race, color, religion, national origin, or gender inthe sale and rental of most housing in the United States, whether or not the seller or landlord has an


express policy of excluding certain persons. In 1988, the act was amended to prohibit discriminationon the basis of a mental or physical handicap and on the basis of “family status” (marital status,pregnancy, children).

The act covers all housing built with federal financial assistance, multiple dwellings having morethan four units, single-family homes sold in real estate developments that are not owned by privateparties, and any private housing sold or rented by a real estate agent. The proscription extends toinstitutions providing financing and to brokers, as well as agents and property owners.

Federal fair housing laws are administered by the Department of Housing and UrbanDevelopment (HUD). To obtain relief under the Fair Housing Act, first a complaint must be filed withthe secretary of HUD for conciliation or referral to a state agency when local housing laws provide“substantially equivalent rights and remedies.”

If the issue is not satisfactorily resolved, a public agency or the injured party can sue in federalcourt and obtain damages, plus attorney’s fees, from any individual who illegally infringed on the in-jured party’s civil rights, conspired to deprive the injured party of his or her civil rights, or abusedgovernment authority or public office to do so. (This is an exception to the usual requirement that acontroversy must involve at least $50,000 for a federal court to hear the case.) Thus, government of-ficials must be fair in the rental of public housing or low-income apartments. For example, HUD can-not approve federal funds for public housing unless there is a clear showing that there will be no dis-crimination. There are also federal criminal penalties for the willful use of force or threats to inter-fere with federally protected activities, such as participation in a government-administered program(e.g., a HUD program).

V. Landlord-Tenant RelationshipsThe temporary nature of possession distinguishes a tenant from a purchaser. The exclusivity of pos-session distinguishes a tenant from a licensee.

A. CREATION OF THE LANDLORD-TENANT RELATIONSHIPLeases may be oral or written. In most states, leases must be in writing for some tenancies(such as those exceeding one year). The text lists what a lease should do to ensure validity.State or local law often dictates permissible lease terms. The text provides examples, mostnotably that a tenant cannot legally promise to do something counter to the law.


!! " HOW TO NEGOTIATE

A FAVORABLE BUSINESS LEASE ## !!Generally, an entrepreneur starting a business is well advised to lease rather than buy property

because the future success of the business is uncertain. By leasing instead of purchasing property,persons just starting out in business allow themselves some time to determine whether business prof-its will warrant the outright purchase of property.

FACTORS TO CONSIDER

One thing to keep in mind when leasing property is that lease contracts are usually form con-tracts that favor the landlord. Thus, as a prospective tenant, you need to think about negotiatingterms more favorable to you. Before negotiating the terms of the lease, do some comparison shoppingto find out the rent for other similar properties in the area. Usually, rental prices for business prop-erty are stated as so many dollars per square foot (per month or per year). In commercial leases to


retail stores, part or all of the rent commonly consists of a percentage of the tenant’s sales made onthe premises during the term of the lease. Bear in mind, too, that the nature of your business shoulddetermine, to a great extent, the location of the leased premises. If you are involved in a mail-orderbusiness, for example, you need not pay the extra price for a prime location that might be requiredfor a restaurant business.

NEGOTIATING LEASE TERMS

When negotiating a lease, you must also determine who will pay the property taxes, insurancepremiums, and utility bills and who will be responsible for repairs to the property. These terms aregenerally negotiable, and depending on who takes responsibility, the rent payment may be adjustedaccordingly. Generally, your success in negotiating favorable lease terms will depend on the market.If the rental market is “good” (that is, if you have numerous other rental options at favorable rates),you may be able to convince the landlord to be responsible for taxes, insurance, maintenance, and thelike, and possibly for improvements to the property necessary for your business. Therefore, it is im-portant to investigate the status of the market before you begin negotiations with a potentiallandlord.

CHECKLIST FOR THE LESSEE OF BUSINESS PROPERTY

1. When you are starting a business, leasing can be beneficial because it reduces your liability inthe event that your business is unsuccessful.

2. Realize that although lease contracts normally favor the landlord, you usually can negotiate ad-vantageous terms for your lease of the premises.

3. Make sure that the lease clearly indicates whether the landlord or the tenant is to be responsiblefor taxes on the property, expenses relating to necessary maintenance and repairs, and utility costs.By comparison shopping, you should be able to judge which lease terms are favorable and which arenot.

4. To protect yourself in the event your business is unsuccessful, start with a short-term initiallease, perhaps with an option to renew the lease in the future.

B. PARTIES’ RIGHTS AND DUTIES

1. PossessionA landlord is obligated to give a tenant possession of the property at the beginning of thelease term, and the tenant has the right to retain possession until the lease expires.

• The covenant of quiet enjoyment is the essence of the landlord-tenant relationship, asthe text points out. A breach creates liability for damages.

• An eviction occurs when a landlord deprives a tenant of possession of the leased prop-erty or interferes with his or her use or enjoyment of it before the end of the term.

• Constructive eviction occurs when the landlord wrongfully performs, or fails to per-form, any of the undertakings the lease requires, thereby making the tenant’s furtheruse and enjoyment of the property difficult or impossible.

2. Use and Maintenance of the PremisesGenerally, a tenant may use leased property in any manner within the terms of the lease(which impliedly includes uses that are legal, that reasonably relate to the ordinary use ofthe property, and that do not harm the landlord’s interest). The tenant is responsible fordamages, but not ordinary wear and tear. The landlord must comply with local buildingcodes, which sometimes require that property be maintained in good repair.



Statutes for Maintaining Lease Property

The French civil law in effect in Louisiana at the beginning of the nineteenth century required alandlord to keep premises in a condition suitable for a tenant’s intended use. Early in theirhistory, California, Georgia, Montana, and the Dakotas also imposed on landlords a similar duty.

In the late nineteenth and early twentieth centuries, some jurisdictions, including New York andMassachusetts, enacted housing codes to provide minimum standards for such features as plumbing.Local governments were notably unsuccessful in enforcing housing codes. Many of the agenciescharged with enforcement were understaffed and underfunded, and received little support from politi-cians. Inspectors’ salaries were often low, giving rise to corruption. Landlords found it easy to ob-tain variances on the basis of political considerations, and public prosecutors did not enforce thecodes vigorously.

In the first decades of the twentieth century, Iowa, Connecticut, and New York adopted legislationauthorizing tenants to withhold rent if their landlords failed to correct housing code violations thatmade the property uninhabitable. In the 1960s, during an increasing awareness of social problemsand political attempts to solve them, other states adopted rent-withholding statutes. In the lasttwenty years, Oregon has enacted a statutory warranty of habitability and recognized the remedy ofrent-withholding.


Uniform Residential Landlord and Tenant Act

In an effort to create more uniformity in the law governing landlord-tenant relationships, theNational Conference of Commissioners on Uniform State Laws published the Uniform ResidentialLandlord and Tenant Act (URLTA) in final form in 1972. Of particular interest are the URLTAprovisions dealing with the duties of landlords to maintain premises leased for residential use.URLTA Section 2.104, for example, requires landlords to comply with local building and housingcodes relating to issues of health and safety and to make any necessary repairs so as to maintain thehabitability of the premises. Landlords are also required to maintain the appliances and common ar-eas and to provide adequate utilities. The URLTA makes no distinction between obvious and hiddendefects that exist at the time the tenancy begins so that the existence of either type of defect will con-stitute a breach of the lease. In any event, the URLTA provides a standard of habitability that gov-erns in the absence of any applicable or comparable local building and housing codes.

Although an increasing minority of states has adopted the URLTA, many of those states modifiedsome of its terms to meet local concerns.

3. Implied Warranty of HabitabilityGenerally, a landlord must furnish premises in a habitable condition at the beginning of theterm and maintain them in that condition for the duration.

• This applies to substantial, physical defects that the landlord knows or should knowabout and has had a reasonable time to repair.

• In deciding whether a defect is sufficiently substantial, courts may consider (1) whetherthe tenant caused the defect or is otherwise responsible for it; (2) how long the defecthas existed; (3) the age of the building; (4) the defect’s impact—potential and real—on


the tenant’s health, safety, and activities; and (5) whether the defect contravenes appli-cable housing, building, or sanitation statutes.

4. RentGenerally, a tenant must pay the rent even if he or she refuses to occupy the property ormoves out, as long as the refusal or the move is unjustifiable and the lease is in force. Thisresponsibility ends if, for example, the building burns down. The text points out that a ten-ant may withhold rent if the warranty of habitability is violated and explains how this isdone and how much may be withheld.

ADDITIONAL BACKGROUND

Rent Default and Notice Provisions

The rights and obligations of landlords and tenants concerning the payment of rent are discussedin the text. In Rockstad v. Global Finance & Investment Co., 41 P.3d 583 (Alaska 2002), the AlaskaSupreme Court interpreted rent-payment default and notice provisions in a commercial lease.

Ronald Rockstad operates a dry cleaning and laundry business, Plaza Laundry and Cleaners, inthe Washington Plaza Mall in Fairbanks, Alaska. Rockstad leases space in Washington Plaza fromGlobal Finance and Investment Co., which owns the mall. Under the lease, Rockstad paid the rentmonthly to Global’s attorney, James DeWitt, whose business hours ended at 5:00 P.M. DeWitt com-monly accepted Rockstad’s rent payments up to ten days after the first of the month.

In August 1999, Rockstad failed to make a timely payment. Global sent him notice of the defi-ciency, but it was more than ten days before he paid the overdue amount. The next month, Rockstadwent to DeWitt’s office to pay the rent on September 10, a Friday, at approximately 5:10 P.M. Overthe weekend, Rockstad left a message for DeWitt, explaining that he had tried to pay the rent. OnMonday, DeWitt told Rockstad that Global refused the late payment and sent him a notice to vacate.

He refused. Global filed a suit in an Alaska state court against Rockstad to evict him and to col-lect the unpaid rent. The court concluded that Rockstad was in default under the lease but that thebreach was not material, and declined to evict him if he paid the back rent, with interest and costs.Rockstad appealed to the Alaska Supreme Court.

The state supreme court, in a majority opinion, said, “[T]he lease’s rent provision—subsection4.1—makes rent payable ‘without notice or demand.’ But the lease provision governing default foroverdue rent—subsection 15.2—makes failure to pay timely rent a default only upon written noticeand only if the tenant thereafter fails to cure the deficiency within ten days. By tying a default’s exis-tence to the issuance of prior written notice, subsection 15.2 arguably treats written notice as an es-sential attribute of default. *** When read in this way, then, subsection 15.2 would provide that adefault arises upon notice but remains open to cure for ten days thereafter.

“In contrast to subsection 15.2, the renewed-default provision of subsection 15.4 treats a secondfailure of payment somewhat more harshly. In describing a renewed default as the commission of ‘anydefault described above a second time’ without mentioning a second opportunity for cure, subsec-tion15.4 seems to announce an intent not to leave the second default open to cure after it has arisen.Thus, the renewed-default provision can plausibly be read as empowering the landlord to declare adefault without having to afford the tenant the luxury of a subsequent right to cure.

“Far less clear, however, is whether subsection 15.4’s language also means to dispense with sub-section 15.2’s requirement that the landlord serve written notice on the tenant. Subsection 15.4expressly requires commission of a ‘default described above.’ In the context of Rockstad’s case, thiswould require a default described in subsection 15.2. *** [W]ritten notice is an explicit element of adefault as described in that section—indeed, notice arguably is the very element that gives rise to adefault under subsection 15.2. Literally speaking, then, subsection 15.4’s reference to a ‘default de-


scribed above’ encompasses subsection 15.2’s notice provision. And it is not illogical to construe sub-section 15.4’s definition of renewed default to incorporate subsection 15.2’s requirement of written no-tice. The central purpose of subsection 15.4’s renewed-default provision is to cut off the tenant’s rightto a ten-day grace period after a second default. Requiring the landlord to give written notice of thesecond default has no obvious effect on that purpose.

“In summary, interpreting subsection 15.4 to require that a second default be preceded by writ-ten notice is textually plausible; it arguably effectuates the reasonable expectations of the contractingparties; and it renders none of the disputed lease provisions superfluous. This interpretation also re-solves subsection 15.4’s ambiguity in a way that favors continuing the lease and that disfavors thelessor and drafting party, Global. Accordingly, we conclude that this interpretation of subsection15.4 should apply to Rockstad’s situation. See Wessells v. State of Alaska, Department of Highways,562 P.2d 1042 (Alaska 1977).

“So construed, subsection 15.4 gave Global the right to declare a second default at any time afterRockstad’s September rent became due without being paid; to declare the default, Global had only toissue written notice of the deficiency; and upon issuance of the notice, Rockstad would have had noright to cure the default by tendering late payment. But as long as Global did not serve Rockstadwith written notice, he was not in default ***.

“It is undisputed that Rockstad tendered late payment before Global issued its September 13 no-tice to quit. It follows, then, that he was not in default at the time of the notice. Accordingly, we mustreverse the [lower] court’s decision that a second default occurred.”

The dissent argued, “The majority concludes that ‘default’ as used in subsection 15.4 contains twoof the three elements of a subsection 15.2 default, failure to pay on time and written notice of suchfailure. There are [two] interrelated problems with so defining a renewed default under subsection15.4.

“The first is that it is not related to either the actual or the objectively measured expectations ofthe parties. Neither party contends that it intended or expected that ‘default’ in subsection 15.4would mean ‘failure to pay on time combined with written notice of such failure.’ Nor do the rules andstandards in aid of interpretation of agreements point to such a meaning. They require that words ei-ther should be taken to mean what the agreement defines them to mean, or that they be interpretedin accordance with their generally prevailing meaning. ‘Failure to pay on time combined with writtennotice of such failure’ is neither the special meaning of default ‘described above’ in subsection 15.2,nor is it the meaning of ‘default’ in general usage. Instead it is a special meaning which is not definedin the lease.

“The second problem with the failure-to-timely-pay-plus-notice definition is that it does not worktextually in subsection 15.4. *** The proposed definition duplicates and thus renders superfluousthe ‘has been given notice’ language subsection 15.4 contains. The parties could not have intended‘default’ as used in subsection 15.4 to include the concept of notice, for they refer to notice as a sepa-rate event.”

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Notes and Questions

1. The majority cites, in its opinion, Wessells v. State of Alaska, Department of Highways, 562 P.2d1042 (Alaska 1977). Have students find and read the Wessells case and explain how the legal princi-ples expressed in that case apply to the facts and issues of the Rockstad case.

2. Ask students, what is the basis for the disagreement between the majority and the dissentin the Rockstad case? What are the conclusions and supporting arguments for eachposition?


3. An ethics-based question for students is whether the relative sizes of the businesses in a casesuch as Rockstad should affect a court’s interpretation of a lease’s terms.

4. How is the holding in this case of interest to landlords who want their tenants to maketimely payments of rent?

5. Transferring Rights to Leased Property

• A landlord can sell, give away, or otherwise transfer his or her real property just likeany other real property owner. The lease remains in effect, and the tenant pays rent tothe new owner.

• The tenant’s transfer of his or her entire interest in the leased property to a third per-son is an assignment of the lease. The landlord’s consent may be required, and thetenant remains liable for the rent.

• Restrictions that apply to assignments also apply to subleases. The text notesexamples.

6. Termination of the Lease

• A lease terminates if its term ends (notice is not normally required).• A tenant may be given the opportunity to buy the leased property. The transfer is a re-

lease, and the tenant’s interest in the property merges into the title to the property. Arelease is subject to the Statute of Frauds and must be in writing.

• The parties may agree to end a tenancy before it would otherwise terminate. The sur-render may have to be in writing, unless it is by operation of law, which may occur if atenant abandons the property.

• A landlord may treat a tenant’s moving off the premises completely with no intention ofreturning before the end of term as an offer of surrender, and retake possession. Actingto mitigate the damages may be interpreted as accepting an offer of surrender.

• Failing to fulfill a condition of the lease is a breach and a forfeiture. Generally, courtsdo not favor forfeiture but damages, unless a statute or the lease provides otherwise.

• Destruction of the leased property brought about by a fire, flood, or other cause beyondthe landlord’s control terminates a residential lease. Under a commercial lease, the re-sponsibility for restoring the property may rest on the tenant.

TEACHING SUGGESTIONS

1. Obtain copies of a standard real-estate sales contract and ask students to discuss whether theapportionment of rights and duties between buyer and seller is fair and appropriate. Ask them forsuggestions as to how these contracts could be improved and whether the buyer or seller should bebetter protected. The same activity could be repeated with a lease.

2. Bring in an actual survey of a parcel of land and show the class how the drawing itself is sup-posed to track the courses and distances given in the legal description.

3. Show students a set of the documents used in a local real estate closing. Discuss what each of thedocuments is and what its legal importance and effects are.

4. Ask students who rent apartments to bring in copies of their leases and discuss the extent towhich these leases make reference to the significant rights, duties and liabilities of the landlord andtenant discussed in this chapter. Discuss the extent to which the leases can be considered overreach-ing or unconscionable. How might these leases be modified so as to correct this problem?


5. Probably few students are landlords or are even familiar with a landlord’s situation. To roundout and fill in the discussion of the topics in this chapter, have students view the principles from thepoint of view of a landlord by explaining those principles with examples from that perspective.

6. Ask students whether they own any property as joint tenants, tenants in common, etc., andwhether they have found any particular advantages or disadvantages to be associated with suchproperty ownership.

7. In relation to concurrent ownership, you might explain to students that at common law, unless aclear intention to create a tenancy in common was shown, there was a presumption that any co-ten-ancy was a joint tenancy. Modern statutes, however, reverse this presumption. Most statutes nowpresume that a co-tenancy is a tenancy in common unless there is a clear intention to establish a jointtenancy. Thus, language such as “to Adam and Eva as joint tenants with right of survivorship, andnot as tenants in common” is often necessary to create a joint tenancy.

Cyberlaw Link

If the filing of documents under recording statutes is done online, rather than by takingpapers to a government office, what effects might this have in contests over title to property?How might the Internet affect the principles of landlord-tenant law? Will it make it easierfor a landlord to mitigate his or her damages when a tenant abandons rental property? Willleases become more uniform because basic forms will be available? Will leases tend to favortenants as the availability of rental property is more widely publicized?

DISCUSSION QUESTIONS

1. What is a fee simple absolute? The holder of a fee simple absolute possesses the greatest possible ag-gregation of rights in land. The fee simple estate is of potentially infinite duration and may be used for what-ever purpose the owner deems fit, subject to any laws or regulations. The fee simple estate may be devised(transferred by will), sold or given away by the owner. The fee simple estate represents the sum total ofrights that may be held in land.

2. To what extent may a life tenant use the land in which he or she has a life estate? A life tenanthas the right to use the land in a manner that will not impair the value of any future interests in the land.The life tenant can use the land to harvest crops or—if mines and oil wells are on the land—can extract min-erals and oil from it. But the life tenant cannot further exploit the land by creating new wells or mines. Thelife tenant has the right to mortgage the life estate and create liens, easements, and leases; but none can ex-tend beyond the life of the tenant. Moreover, the life tenant has the right to exclusive possession of the landsubject to the rights of future interest holders to come onto the land to protect their future interests.

3. What is the difference between an easement and a profit? An easement is the right of a person tomake limited use of another person’s real property without taking anything from the property. Easementsare most typically created to permit one party to cross over the land of another. A profit, by contrast, is theright to go onto the land of another and take away some part of the land itself (sand, gravel) or some productof the land (crops).

4. How does a license differ from an easement? A license is the right of a person to come onto anotherperson’s land. It is a personal privilege that arises from the consent of the owner of the land and can be re-voked by the owner. Unlike an easement, a license is not a conveyance of an interest in land.

5. What conditions must be satisfied before a person can acquire property by adverse possession?For property to be acquired by adverse possession, (1) possession of the property must be actual and exclu-sive; (2) the possession must be open, visible, and notorious—not secret or clandestine; (3) possession must be


continuous for the required period of time; and (4) possession must be hostile and adverse as against the restof the world.

6. How might the doctrine of unconscionability affect the validity of leases? A court may de-clare an entire lease or any of its clauses to be unconscionable and thus illegal, depending on the circum-stances surrounding the transaction and the parties’ relative bargaining positions. A clause which absolvesthe landlord from any responsibility for failing to provide heat in the middle of the winter, for example, wouldnot be enforceable because it would breach the warranty of habitability. Such a provision would be uncon-scionable and, hence, illegal.

7. What is a retaliatory eviction? A retaliatory eviction occurs when a landlord evicts a tenant forcomplaining to a government agency about the condition of the leased premises. Under some statutes, a re-taliatory motive will be presumed if eviction proceedings are begun within a certain time after a tenant hascomplained. If a tenant can prove that a landlord’s primary purpose in evicting or attempting to evict thetenant is retaliation for reporting violations regardless of the time elapsed, then the tenant may be entitled tostop the eviction proceedings or collect damages.

8. When may a tenant withhold the payment of rent? The withholding of rental payments is a rem-edy that is generally associated with the landlord’s breach of the warranty of habitability. When rent with-holding is authorized under a statute (known as a “rent-strike” statute), the tenant must usually put theamount withheld into an escrow account. This account is held in the name of the tenant and an escrow agentand the funds are returnable to the depositor if the landlord fails to fulfill the escrow condition (such as pro-viding adequate heat in the winter).

9. What is a landlord’s lien and how may it be exercised? Under the common law, the landlordcould take and keep or sell whatever of the defaulting tenant’s personal property was on the leased premises.Today, the landlord does not have this alternative unless the parties have contracted for it or it is permittedunder a statute. Some states grant the landlord a lien on all of the tenant’s personal property in the leasedpremises but require the landlord to initiate court proceedings to exercise the lien. The court will typicallyauthorize a sheriff to seize the tenant’s property. Other states allow the landlord to seize specific items of thetenant’s property and hold them as security for unpaid rent (that is, as protection or assurance that thelandlord will recoup something on the tenant’s obligation), but the landlord must obtain a court order to sellthe property.

10. What is the difference between an assignment of a lease and a sublease? The tenant’s transferof his or her entire interest in the leased property to a third person is an assignment of the lease. The ten-ant’s transfer of all or part of the premises for a period shorter than the lease term is a sublease.

11. What is the difference between a tenancy in common and a joint tenancy? A tenancy in com-mon is a form of co-ownership in which each of two or more persons owns an undivided fractional interest inthe property. Because there is no right of survivorship, the death of one of the tenants will not cause his orher interest to pass to the other tenant but instead to his or her heirs. In a joint tenancy, by contrast, thedeceased joint tenant’s interest passes to the surviving joint tenant or tenants.

ACTIVITY AND RESEARCH ASSIGNMENTS

1. Ask students to call local banks and find out all the costs that are involved in closing a residential realestate transaction as well as those costs necessary for obtaining a home loan. How much money in excessof the amount of the loan and down payment is actually required to buy a home?

2. Ask each student to draft a short lease providing for the rental of commercial or residential property.


EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT

Footnote 6: Walter Peeters owned two buildings at 26 and 32 Main Street in Oneonta, New York.Gerard Webster leased 26 Main. Giacinto and Antoinette Ragona leased 32 Main. They used a commondriveway to a parking lot behind the buildings. In 1994, the Ragonas bought 32 Main from Peeters, withwhom they signed an agreement to transfer an easement in the driveway, which they agreed to maintain. In1995, Webster bought 26 Main, which included the driveway. The deed did not mention the Ragonas’easement. Webster filed a suit in a New York state court against the Ragonas, arguing that their easementwas extinguished on his purchase of 26 Main. The court issued a summary judgment in the defendants’favor. Webster appealed. In Webster v. Ragona, a state intermediate appellate court affirmed. Theagreement between Peeters and the Ragonas met all of the requirements for an easement appurtenant.Webster argued that the agreement did not use the word “permanent” or expressly bind Peeters’ “heirs andassigns.” The court responded that the grant of an easement appurtenant does need not such language“because an easement appurtenant, once created, necessarily runs with the land.”

The “easement agreement” was not recorded until July 1995, after the sale of 26 Main Street toWebster. Doesn’t’ this fact make Webster a “good faith purchaser for value” and thus “not bound byan easement which is not properly recorded prior to a purchase of the encumbered property”? No.The court acknowledged, “Here, while it is undisputed that the easement agreement was not recorded priorto the time that plaintiffs took title to 26 Main Street, the question remains whether plaintiffs can claim goodfaith purchaser status, i.e., whether they had actual knowledge and notice of any facts which would lead areasonably prudent purchaser to make inquiries.” As the text explains, the court concluded that Websterhad such notice.

If Webster had claimed that the Ragonas could not enforce their purported easement be-cause they were not in compliance with the agreement that created it (by not repairing thedriveway, for example), how might the court have ruled? Webster did make this argument, but thecourt ruled that this was an entirely separate matter, with no bearing on the question of the existence of theeasement in the first place. The lower court’s judgment “merely established the validity and nature of theeasement.”

What might the result in this case have been if Peeters had told Webster when he bought 26Main Street that the Ragonas did not have a “permanent” easement in the driveway? The resultwould likely not have been different. Webster did argue this point, but the court concluded that Webstercould not rely on this “alleged misrepresentation,” because he knew that the Ragonas “were enjoying use ofthe property” and should have inquired further if he doubted the permanency of an easement. The courtemphasized that Webster did not deny “any of the specific allegations which would have put [him] on noticethat the Ragonas were using the property.”

Footnote 8: Frenchtown Square Partnership owns Frenchtown Square Shopping Center. In June1989, Frenchtown leased space in the mall for a period of ten years to Lemstone, Inc. Frenchtown leasedother space to Alpha Gifts, which, in 1998, began to sell similar or identical items. Complaining about thecompetition, Lemstone abandoned its store six months before the lease expired. Frenchtown filed a suit in anOhio state court against Lemstone for the unpaid rent. Lemstone argued that Frenchtown failed to mitigateits damages. The court granted a summary judgment to Frenchtown. A state intermediate appellate courtreversed. Frenchtown appealed. In Frenchtown Square Partnership v. Lemstone, Inc., the OhioSupreme Court affirmed. “[L]andlords have a duty, as all parties to contracts do, to mitigate their damagescaused by a breach. Landlords mitigate by attempting to rerent the property. *** The duty to mitigatearises in all commercial leases of real property, just as it exists in all other contracts.” But “[t]he duty tomitigate requires only reasonable efforts. Thus, the tenant mix may reasonably factor into a lessor’sdecisions to relet.” Also, “[i]f the breaching tenant caused harm such that the lessor’s profitability is affected,then that harm is compensable to the extent it is proved.


What other jurisdictions have held that a commercial landlord has a duty to mitigate? Thecourt cited cases or statutes from Arkansas, Colorado, Connecticut, Delaware, Idaho, Iowa, Kansas,Nebraska, New Jersey, Oregon, Texas, Vermont, and Wisconsin. Which jurisdictions have held that acommercial landlord does not have a duty to mitigate? The court noted that these states includeAlabama, Minnesota, New York, and Pennsylvania.

Why, if a lease is viewed as a transfer of a property interest rather than a contract, could itbe held that a landlord does not have a duty to mitigate damages? As the court explains, at commonlaw a lessor had no obligation to mitigate damages when a lessee abandoned leased premises. The lessorcould “stand by and do nothing, arbitrarily refusing to accept any new tenant.” The reasoning was that “[t]helessor did not simply permit the lessee to occupy the lessor’s property; rather, the lessee owned an abstractportion of the land, albeit for a limited duration, and rent was a fixed obligation. Thus, when a tenantabandoned the leasehold, he was viewed as having vacated his estate, not that of the lessor.”

Under the principles of contract law, what is the rationale for a duty to mitigate damages?The court in the Frenchtown case says that under contract law, “mitigation is a fundamental tenet of adamage calculus. Contracts are the mutual exchange of promises, with each party holding an expectation ofcertain obligations and benefits. Thus, contract law acknowledges that mitigation, otherwise known as thedoctrine of avoidable consequences, may justly place an injured party in as good a position had the contractnot been breached at the least cost to the defaulting party.”

ANSWERS TO ESSAY QUESTIONS INSTUDY GUIDE TO ACCOMPANY BUSINESS LAW, ELEVENTH EDITIONBY HOLLOWELL & MILLER

1. Describe the nature of the power of eminent domain and the process by which private propertyis condemned for a public purpose. The state has the power to take property for public use or purposewithout the consent of the owner. This is the power of eminent domain and it is a very important attributefor the public control of land-use. Every property owner holds his or her interest in land subject to a supe-rior interest. In the United States, the government retains an ultimate ownership right in all land. Thisright, known as eminent domain, is sometimes referred to as the condemnation power of the government totake land for public use. It gives a right to the government to acquire possession of real property in themanner directed by the Constitution and the laws of the state whenever the public interest requires it. Prop-erty may not be taken for private benefit, but only for public use. For example, when a new public highwayis to be built, the government must decide where to build it and how much land to condemn. The power ofeminent domain is generally invoked through condemnation proceedings. After the government determinesthat a particular parcel of land is necessary for public use, it brings a judicial proceeding to obtain title tothe land. Then, in another proceeding, the court determines the fair value of the land, which is usually ap-proximately equal to its market value.

2. What does the implied warranty of habitability require, and when does it apply? The impliedwarranty of habitability requires that a landlord who leases residential property furnish premises in a hab-itable condition—that is, in a condition that is safe and suitable for people to live in—at the beginning of alease term and to maintain them in that condition for the lease’s duration. Some state legislatures have en-acted this warranty into law. In other jurisdictions, courts have based this warranty on the existence of alandlord’s statutory duty to repair or have simply applied it as a matter of public policy. Generally, thiswarranty applies to major—or substantial—physical defects that the landlord knows or should know aboutand has had a reasonable time to repair—for example, a big hole in the roof. In deciding whether a defect issufficiently substantial to be in violation of the warranty, courts may consider (1) whether the tenant causedthe defect or is otherwise responsible for it; (2) how long the defect has existed; (3) the age of the building; (4)the defect’s impact—potential and real—on the tenant’s health, safety, and activities; and (5) whether the de-fect contravenes applicable housing, building, or sanitation statutes. An unattractive or annoying feature,


such as a crack in the wall, may be unpleasant, but unless the crack is a structural defect or affects theresidence’s heating capabilities, it is probably not sufficiently substantial to make the place uninhabitable.

REVIEWING—

!"! REAL PROPERTY AND LANDLORD-TENANT LAW!"!Vern Shoepke purchased a two-story home from Walter and Eliza Bruster on in the town of

Roche, Maine. The warranty deed did not specify what covenants would be included in theconveyance. The property was adjacent to a public park that included a popular Frisbee golf course.(Frisbee golf is a sport similar to golf but using Frisbees.) Wayakichi Creek ran along the north end ofthe park and along Shoepke’s property as part of a two-mile public trail system. The deed allowedRoche citizens the right to walk across a five-foot-wide section of the lot beside Wayakichi Creek.Teenagers regularly threw Frisbee golf discs from the walking path behind Shoepke’s property overhis yard to the adjacent park. Shoepke habitually shouted and cursed at the teenagers, demandingthat they not throw objects over his yard. Two months after moving into his Roche home, Shoepkeleased the second floor out to Lauren Slater for nine months. (The lease agreement did not specifythat Shoepke’s consent would be required to sublease the second floor.) After three months of tenancy,Slater sublet the second floor to a local artist, Javier Indalecio. Over the remaining six months,Indalecio’s use of oil paints damaged the carpeting in Shoepke’s home. Ask your students to answerthe following questions, using the information presented in the chapter.

1. What is the term for the right of Roche citizens to walk across Shoepke’s land on thetrail? Here, the right conveyed by the deed is nonpossessory and gives citizens a limited right totravel on a trail over Shoepke’s land. Therefore, it is an easement.

2. In the warranty deed that was used in the property transfer from the Brusters to Shoepke,what covenants would be inferred by most courts? A warranty deed conveys the most covenants,or promises of any other deed. The seller promises that he or she has title to the property, the powerto convey it, that there are no encumbrances against the property, and that the buyer will not bedisturbed in her or his possession (i.e. quiet enjoyment).

3. Suppose that Shoepke wants to file a trespass lawsuit against some teenagers whocontinually throw Frisbees over his land. Shoepke discovers, however, that when the city putin the Frisbee golf course, the neighborhood homeowners signed an agreement that limitedtheir right to complain about errant Frisbees. What is this type of promise or agreementcalled in real property law? A promise between a group of landowners protecting the interests ofindividuals who come onto the land and the interests of the owners of nearby land is called arestrictive covenant. The agreement may “run with the land” even if Shoepke was not a party to it.

4. Can Shoepke hold Slater financially responsible for the damage to the carpeting causedby Indalecio? When Slater sublet the apartment, she remained liable under the lease agreement. Ifa subtenant fails to pay the rent or causes damage to the premises, the landlord can still hold theoriginal tenant financially responsible for the rent payments or cost of repairing the damage. Hence,Slater can be held liable for the damage Indalecio caused (beyond ordinary wear and tear).

!"!


ANSWERS TO QUESTIONS—

!"! SPECIAL CASE ANALYSIS !"!Case No. 48.3

Kelo v. City of New London, ConnecticutSupreme Court of the United States, 2005.

545 U.S. 469,125 S.Ct. 2655,162 L.Ed.2d 439.

(a) Issue: On what issue did the Court focus in this case? The main issue in this case was whetherthe power of eminent domain can be used to further economic development. Property owners whosehomes a city was attempting to take by eminent domain for a redevelopment project challenged thecondemnation of their property for a private economic development. The state courts to which theseparties appealed upheld this use of the power of eminent domain.

(b) Rule of Law: What does the Fifth Amendment to the U.S. Constitution, which the Court applied,require with respect to the legal issue in this case? The Fifth Amendment to the U.S. Constitutionrequires that condemned property serve a public purpose. In this case, the owners claimed that thetaking of their properties would violate the “public use” restriction in the Fifth Amendment. TheUnited States Supreme Court agreed to determine whether the city's decision to take property for thepurpose of economic development satisfies this requirement.

(c) Applying the Rule of Law: How did the Court apply the rule of law to the facts of this case? TheCourt explained the governing rule, discussed how it had been applied in previous cases, reviewedthe circumstances of this case, and set out the reasons for its conclusion. The Court reviewed theprinciple underlying the plaintiffs’ challenge to the city’s action and briefly explained how and whythe rule had changed from “long ago.” The Court also noted that the condemnations were part of acomprehensive plan to help a “distressed municipality” economically.

(d) Conclusion: What was the Court’s conclusion concerning the issue in this case? The Courtconcluded that the power of eminent domain can be used to further economic development. In thiscase, the condemnations were part of a comprehensive plan to provide a “distressed municipality”with increased tax revenue, new jobs, and other benefits. The Court reasoned that the plan“unquestionably serves a public purpose,” even though this result would also benefit private parties.

!"!

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Real Property and Landlord-Tenant Relationshipsmissionparalegal.pbworks.com/f/landlord.pdf · · 2010-03-28Real Property and Landlord-Tenant Relationships! ... This chapter also