For this milestone, you will review Case Study Two and compose a short report, applying your legal knowledge and understanding of the types of business organizations. Case Study Two concentrates on contracts and landlord-tenant law.

Real Property Law

The term real property refers to the actual physical land and any structures permanently situated on it, such as buildings, houses, and warehouses. Anything that can be moved and is not permanently affixed (such as vehicles, furniture, and equipment) is called personal property and does not constitute real property. Real property is, for all practical purposes, immovable and includes some of the airspace above the property, the ground and minerals underneath, and the trees and vegetation on the land.

In order to legally transfer real property, there are several steps that must be followed: execution of the deed, delivery of the deed, acceptance of the deed, and recording the deed at the appropriate governmental office.

Co-Ownership

An interest in real property may be owned by a single individual, two or more persons, or a corporation. When parties share ownership, they are said to have concurrent ownership. There are two principal types of concurrent ownership: tenancy in common and joint tenancy.

A tenancy in common means that each party owns own an undivided interest in the whole property. This means that upon the death of a tenant in common, that tenant’s interest in the property passes to his or her heirs. Unless the co-tenants have agreed otherwise, a tenant in common can transfer his or her interest in the property to another without the consent of the remaining co-owners.

While a joint tenancy is similar, it is different in that a deceased joint tenant’s interest passes to the surviving joint tenants. Most married couples purchase property as joint tenants and thus receive ownership of the entire property via the right of survivorship, upon the death of one of the spouses.

Restriction on Ownership

Ownership of property does not mean that one can use that land in any manner one chooses. Government regulations, such as zoning laws, limit how property can be utilized. Zoning laws are what prevent a strip club from being built in the middle of a residential area, or an asphalt plant operating next to an elementary school.

While zoning laws were touted as a means to protect the health and welfare of citizens, they were often used to protect property value and to exclude certain groups and activities from employment as well as geographical areas. For example, zoning laws were first used in the United Sates to isolate Chinese laundries in California and thus limit opportunities for Chinese residents (Talen, 2012). The increased congestion of urban areas and competing interests—residential, commercial, and industrial—spawned the growth of local land-use regulations. The source of government’s power to regulate land use is rooted in the U.S. Supreme Court’s 1926 decision of Village of Euclid v. Ambler Realty Company, which held that zoning is a constitutional exercise of a municipality’s police powers. This decision established the authority of a municipal body to create zoning laws and regulations that are rationally related to the health, safety, or welfare of the community.

Involuntary Transfer of Property

Property may also be involuntarily transferred. Someone may take possession of real property by treating it as his or her own, without interference or objection from the true owner. This is known as adverse possession. In order for this occur, several factors must be present. The possession must be actual, meaning the adverse possessor lives on or uses the land. The use must be open and visible, rather than secretive or hidden. The use must also be done without the owner’s consent—or “notorious.” Different states have various laws regarding the amount of time and what activity constitutes adverse possession. The usual term is 20 years.

Property may also be involuntarily taken from its owner through the authority of the government via the doctrine of eminent domain or condemnation. The U.S. Constitution, in the Fifth Amendment, allows the government to take private land for public use. Under the takings clause of the Fifth Amendment, the government must pay “just compensation” to the owner.

Landlord-Tenant Law

The property involved in a landlord-tenant relationship is called a leasehold estate. A landlord-tenant relationship is created by a lease contract. Lease agreements may be oral or written, but if the lease term is greater than one year, generally the contract must be in writing.

Each state varies in regard to its application of landlord-tenant law based on the type of tenant. A residential tenant rents property to be used as a home. A commercial tenant typically utilizes the property in order to conduct some type of business activity. The legal rights and obligations of parties to a commercial lease may be somewhat different from a residential lease, and thus it is important to consult one’s state laws on this point. For example, most commercial leases are not subject to an implied right of habitability, while this is an important right of residential tenancies.

That said, because many businesses rent space from another party or rent out their own property for use by others, it is important to understand your rights and obligations as either a property owner or a tenant. What if your business needs to rent office space or storage space? What rights does the property owner retain, and which rights are transferred to the renter? What rights does the owner have to enter the premises or to modify the floor plan? What happens if someone is injured on the premises? Is that the owner’s fault or the tenant’s fault, or might both be at fault? What happens if you sign a one-year lease and you need to leave after six months?

Liability for injuries on the premises of a business is of great concern to owners and tenants of commercial space. Businesses often experience much activity on their premises with many customers, employees, and delivery people coming and going. For example, a customer may get hit by falling merchandise, may trip on a poorly lighted stairway, or may be criminally assaulted while on the premises.

The courts use the standard of reasonable care in deciding whether the controlling party is at fault. For example, a tenant restaurant would likely be liable to a customer who slipped and fell on a wet floor in the dining room. On the other hand, the landlord might be liable if a lighting fixture he negligently installed fell on a customer.