- Terminology
- Assessment
- Co-Ownership
- Deed
- Deed Restrictions
- Encumbrance
- Easement
- Estate by the Entireties
- Joint Tenancy
- Lien
- Quitclaim Deed
- Recording
- Special Assessment
- Sublease
- Tenancy in Common
- Title
- Warranty Deed
A stumbling block for many persons entering the real estate market is the unfamiliar terminology frequently used by real estate professionals. Real estate law uses many old terms and concepts because many real estate laws have ancient roots. However, many rights and responsibilities regarding real estate have evolved and been updated over time as societal and business needs have changed. The following are some of the most frequently encountered real estate terms.
An assessment is a value placed on real property for purposes of levying local property taxes. Real estate taxes are calculated by multiplying the assessed value of a piece of property by the tax rate. Most properties are reassessed periodically, but a property’s assessed value may not be the same as its actual market value.
Co-ownership is ownership of property by more than one person. The two common ways in which two or more parties can co-own a piece of property are joint tenancy and tenancy in common. In Florida, spouses also can own property as an estate by the entireties, which is similar to joint tenancy. Each of these forms of co-ownership is discussed below.
Although there are advantages to co-owning property, there are drawbacks as well. If co-owners cannot agree on use, sale or possession of a piece of property, they may have to go to court to resolve the matter in a partition action. In a partition action, a joint tenant or tenant in common asks the court to split the property in a fair and just manner. Because real property may be difficult to divide and partial interests may be difficult to sell, a court will usually order that the property be sold and proceeds from the sale distributed to the co-owners in relation to their interests.
A deed is a written instrument that transfers the title of property from one person to another. The two most common types of deeds are general warranty deeds and quitclaim deeds, both of which are discussed below.
Deed restrictions, also known as covenants, conditions or restrictions, encumber an owner’s freedom to use the land. They may be imposed on a buyer when property is sold and are included in the deed to the property. Property developers seeking to retain a certain community atmosphere often use deed restrictions. Restrictions may limit the number or types of trees or the color, size and shape of a house, or may require general upkeep of the property.
There are ways restrictions may limit the use of property as well, such as zoning ordinances and building codes.
An encumbrance is an obligation that attaches to a piece of real property and is held by a party who is not the owner of the property. An encumbrance is not an ownership interest in real property. The property may be bought and sold even though there are encumbrances attached to the property. Encumbrances attach to property, not property owners, so a person who buys property with an encumbrance is bound by the encumbrance. One of the more common forms of an encumbrance is an easement.
An easement is a nonpossessory interest in real property which gives the holder of the easement the right to use another person’s land for a particular purpose. There are many forms of easements. Public utility companies frequently have utility easements that permit them to run gas, water or electrical lines through particular property they do not own. The owner of property on a lake shore might sell to the owner of an adjacent lot without lake access an easement to cross over to the shore. A person who owns property that is landlocked may receive an easement from an adjacent land owner to have access in and out of the property. This kind of easement is also called a right-of-way.
Under Florida law, any mortgage encumbering real property made to two persons who are husband and wife creates an estate by the entireties in such mortgage unless a contrary intention appears in the mortgage. The husband and wife have equal interest in an estate by the entireties, and enjoy a right of survivorship in the property.
Joint tenancy is a form of co-ownership. Although usually it is a common way for a husband and wife to own property, there is no requirement that joint tenants be married to one another or that there be only two joint tenants. Each individual owner in joint tenancy has a right to sell, encumber and possess the entire property. When one joint tenant dies, his or her interest in the property is automatically transferred to the remaining joint tenants. This transfer of ownership to the remaining owners is known as a right of survivorship.
Another type of encumbrance is a lien, which is a charge against property that provides security for a debt or obligation of the property owner. The lien holder does not own the property. The owner of property may voluntarily agree to a lien, such as by taking out a mortgage. Sometimes a mortgage provides the holder of the mortgage with additional rights if the property is sold or encumbered further. A lien can also be imposed, such as for nonpayment of taxes. One of the most common liens is a construction lien, often referred to as a mechanics lien. A construction lien may arise when someone furnishes labor or materials to improve a piece of property and is not paid. By giving proper written notice and filing and serving a claim of lien with the clerk of the circuit court within the required time, the construction lienor (the person holding the lien) may force the sale of the property and payment of the lien. A property owner must comply with the construction lien law in order to avoid paying for labor and materials in excess of the amount specified in the contract with the general contractor.
A quitclaim deed is a deed that relinquishes to the buyer whatever interest the seller may have in the property. A quitclaim deed gives the buyer the least amount of protection of any type of deed. If the seller is the sole owner of the property, the quitclaim deed is enough to transfer title, but the buyer takes a risk by accepting a quitclaim deed because it offers the buyer no guarantee that the title is valid. Quitclaim deeds are used frequently during the property settlement phase of a marriage dissolution.
In Florida, real estate records are kept in each county. It is important for new buyers of property to record their deeds at the public records office, located in every county courthouse. Recording a deed gives “notice to the world” that a particular piece of property has been sold and that subsequent purchasers should be on guard. Title passes even without such a recording of interest, but a good faith purchaser may later acquire title to the property if he or she has no notice of the actual owner’s interest because of a failure to record such interest. Titles in Florida are registered under the abstract system. Abstract records go back hundreds of years and an abstract of title is a record of all the interest entries for that property.
A special assessment is a tax levied on a piece of property to pay for improvements that benefit the property, such as streets, sidewalks and street lighting. Special assessments are liens on the property until they are paid.
Subleasing means having someone else take over a tenant’s rights and obligations under a lease before the original lease expires. The right of a tenant to sublet may be expressly restricted or prohibited by the terms of a lease or some other restriction against subletting. For example, the parties may agree that subletting is not permitted without the consent of the landlord. A landlord may, however, subsequently waive such a right to prior consent. However, if subletting is allowed, the relationship between the landlord and tenant does not change. All obligations under the original lease remain. If the new tenant does not pay rent, damages the unit, leaves before the lease expires or breaches any condition of the lease, the landlord holds the original tenant responsible. The original tenant has a right to sue the new tenant for those costs.
Tenancy in common is a form of co-ownership. Tenants in common, like joint tenants, share the right to possess, sell and encumber the property. Unlike joint tenants, tenants in common do not have a right of survivorship. Upon the death of a tenant in common, that person’s ownership interest passes to his or her heirs as part of his or her estate.
Title to real estate is the right to, or ownership of, property. Title may refer to the actual ownership or to the documentary evidence of that ownership. Typically, in order to sell a piece of property, all title matters must be cleared so that the seller can provide the buyer with a marketable title. A marketable title is a title generally free from encumbrances and title defects that may lead to litigation. An example of a title defect is a gap in the history of the property’s ownership. In such a case, after the buyer has purchased the property, someone conceivably could show up and claim to be the rightful owner. Discovering whether a piece of property has a marketable title usually is accomplished through a title search, in which a diligent search is made of all records relating to the property to determine whether the owner is authorized to sell the property and whether there are any claims against it. If any defects in title are discovered during the title search, the seller usually is given time to cure the defect. Title insurance is often obtained to protect against any hidden defects in the title. There are two types of title insurance: one that protects the lender’s interest in the property and one that protects the owner’s interest.
The most common type of deed is the warranty deed which provides the greatest protection to the purchaser. A warranty deed requires the seller to pledge or warrant that he or she is the legal owner of the property and that there are no outstanding liens, mortgages or other encumbrances against it. A warranty deed also guarantees that the seller may be held liable for damages if the buyer later discovers the title is defective. A warranty deed is no substitute for title insurance however. A seller may disappear, move out of the jurisdiction, die or declare bankruptcy.
Many real estate transactions are fairly complex. Because a purchaser may later be held liable for such things as environmental hazards or injuries due to the condition of the structure, it is imperative that a prospective buyer make a thorough investigation of the property before buying. A good purchase agreement should provide the buyer with ample opportunity to assess such risks and verify all terms of the lease. If the purchaser is acquiring rental property, it is his or her responsibility to verify the terms of the rental agreements and to explore any claims tenants may have against the seller, since such claims may later become the legal responsibility of the purchaser. An experienced real estate attorney should be able to advise on the many issues of concern to parties buying real estate.
Of increasing concern to businesses are environmental hazards that may come with acquiring real estate. Cleanup of leaking underground oil storage tanks or hazardous emissions, for example, may become the responsibility of a new owner under state and federal environmental laws. Even a new owner who neither contributed to nor knew of the contamination may be required to pay for the cost of cleanup.
When a tenant rents a residential space, the tenant and the landlord become parties to a contract known as a lease. The lease sets out the essential terms of the contract such as the involved parties, amount of rent, when rent is to be paid, duration of the lease and who pays for utilities. Leases for more than one year are said to fall within the statute of frauds and must be in writing to be enforceable.
Leases can be structured in a variety of ways. A lease with a specified termination date is known as a tenancy for years. Unless the parties agree otherwise, on the last day of the lease, the tenancy is terminated and there is no advance notice required since the termination date was already specified. A periodic tenancy continues for a specified period of time (e.g., year-to-year, month-to-month), but there is no definite termination date. Unless terminated according the requirements set by Florida law, a periodic tenancy is automatically renewed from period to period. A tenancy at sufferance describes the situation in which a tenant wrongfully stays beyond the termination of his or her lease. Landlords wanting to remove (that is, evict) a holdover tenant must follow a procedure set by Florida law. All tenants have the right to sublease their rental property, provided the lease or other binding restriction does not specifically prohibit it.
Many businesses will have specific needs that are not satisfied by a standardized lease agreement, such as the operating expenses provisions of the lease. It is in a property owner’s best interest to prepare a written rental agreement that addresses both parties’ rights and responsibilities in the event problems arise.
The following items should be addressed in any rental agreement:
* Amount of and conditions for returning the security deposit
* Who is responsible for maintenance of fixtures, appliances and common areas of the property, and what standards apply
* Renewal rights at the end of the lease
* Cancellation rights
* Circumstances under which the owner can enter leased premises
* Who is obligated to insure the property and which party is named beneficiary under any insurance policy
* Subleasing rights or prohibitions
* Any restrictions on rental of adjacent space
Landlords commonly require renters to pay a security deposit prior to taking possession of the premises. The security deposit normally is used to cover the costs of any damages (beyond ordinary wear and tear) or unpaid rent. Under Florida law, a landlord must hold the security deposit in either a non-interest bearing account, an interest-bearing account (with the tenant receiving either 5 percent interest annually or 75 percent of the interest the deposit actually earns), or post a surety bond in an amount equal to the security deposit. Within 30 days of receiving the security deposit, the landlord must notify the tenant of the manner in which he or she is holding the money. At the end of the lease, the landlord has 15 days to return the money (with interest, if applicable) or notify the tenant of a claim against the security deposit for damages. If the landlord makes a claim, the tenant has 15 days to object. If the tenant does not object, the landlord may deduct the amount of the claim from the security deposit and must return the remainder to the tenant within 30 days of the date of the notice of the claim. Any unsettled dispute the landlord and tenant may have as to damages can be resolved in court.
In the past, there were no controls over how a property owner could use his or her land. But as the population grew and cities became more crowded, the number of controls on land use became more and more extensive. Today, almost every city and town has some type of land use plan. A property owner has many land ownership rights, but these rights are also restricted by controls from the local, state and federal governments. In any real estate transaction, it is important to understand exactly what regulations apply to certain properties and to the rights of the property owners.
Construction contracts are a highly specialized subcategory of contract law. Most construction projects involve many parties, each with unique expectations, deadlines and responsibilities. Architects, engineers, contractors, subcontractors and lenders all have to understand their rights and responsibilities. Failure to have an experienced real estate attorney negotiate and draft documents can lead to numerous headaches and unplanned expenses. Good planning includes discussion of construction liens, periodic inspections, bonding, timetables and appropriate rewards or punishments for early or late completion.
Many attorneys practicing real estate law spend a substantial portion of their practices negotiating mortgages secured by real property. These negotiations are often quite complex. Mortgage financing for new real estate can be as difficult to obtain for an established business as for one that is starting up. To help move the process along, a business often has to give up a degree of control over business decisions that affect the property. A lender may want to impose liabilities for the property onto the borrower, while at the same time retaining a say in how the property is managed. It is important for a borrower to try and retain as much flexibility and control as is possible. For example, a borrower may want to retain control of insurance proceeds in the event of damage to the property so that the property can be restored, while a lender may want to require that such proceeds go toward debt owed.
Foreclosure is a legal action in which property that has been used as security for a debt is sold in order to pay off that debt. Mortgages provide for foreclosure in order to give lenders the right to recover the money they loaned. Foreclosure is initiated by the grantor of the mortgage, must occur in the county in which the property is located, and must follow a default by the debtor on the terms of the mortgage. In Florida, a mortgagee may redeem the foreclosed property at any time before the court approves the sale of the property by payment of all sums due as calculated in the judgment of foreclosure.
Zoning regulations are a particular type of land use control. Their purpose is to control and regulate development and growth of a community in a way that is best for the general public as determined by local government. This is accomplished by dividing a community into areas (zones) that can be used only for certain purposes.
Zones generally fall into four basic categories residential, commercial, industrial and agricultural. Most cities or counties further divide property into much more intricate specifications, such as a zone for single-family houses within a residential area, or areas zoned for light-industrial and heavy-industrial operations.
It is important to find out exactly how a property is zoned, for this could have serious consequences on how the property can be used both at the present time and in the future. Zoning ordinances are changed through amendments. Such changes can be sought by an individual property owner or by local governments. The changes must be determined to be in the best interest of the community, and the opinions of persons affected must be sought through public hearings after notice in compliance with the law.
Another way to seek relief from zoning laws is through a special use permit. Such permits make exceptions for uses of property that are not otherwise allowed under the zoning laws. Other ways around zoning laws include spot zoning, which rezones a small area or even one plot of land. Again, this is only allowed if it benefits the community.
In addition to zoning laws, there are other laws that may impose specific standards regarding how property can be used, such as how a building can be built, how big or small it can be, and where it may be placed on the property. These specifications may be laid out in local regulations or in building codes. Building codes are developed to protect public health and safety. To ensure compliance with building codes, many municipalities require that property owners obtain building permits before they begin any type of construction or development.
On shorelines, the state adds other rules regarding the size and shape of buildings as well as their locations on lots to these local regulations. The additional regulations are intended to avoid adverse environmental consequences resulting from building construction.
Other kinds of land-use regulations serve to protect the environment. Any development that may have an effect on the environment must conform to local, state and federal regulations. For example, the National Environmental Policy Act is a federal law that requires federal agencies to create environmental impact statements and give permission to developers planning projects that could adversely affect the environment. Such statements detail the effects of projects on areas such as air and water quality, safety and wildlife. More information about these rules is provided in the Land Use & Environmental Law Chapter.
With the purchase or sale of real estate comes certain air rights, mineral rights and water rights. Water rights include the use of underground water as well as water that touches the owner’s property. Landowners whose property touches flowing water are riparian owners, which means they have the right to use the bordering water for reasonable and beneficial use, such as boating, swimming and other recreational purposes. Riparian owners do not, however, have any actual ownership of the water itself, and may not legally divert the water to land that does not adjoin the stream or lake. An owner may not use the adjoining water in a way that affects the quality or availability of the water further upstream, downstream or down the coast, by polluting the water or changing its flow.
The Florida Bar, 650 Apalachee Parkway, Tallahassee, Florida 32399-2300, (904) 561-5834 has the following free pamphlets: Buying a Home and Buying a Condominium. Also, call Florida Call-A-Law to hear recorded information on real estate issues at (904) 561-1200.
Source: Commercial Real Estate Transactions, Stuart M. Saft, Shepard’s/McGraw Hill, Inc., Colorado Springs, CO, 2d ed., 1995.
