What is “Property”?
Property is any tangible or intangible physical item, design, creative work, or concept that is owned.
• Tangible and Intangible Property – Tangible refers to physical property. That is, tangible property is anything that can be physically touched. Intangible property refers to non-physical property. That is, intangible property is any property that cannot be physically touched.
⁃ Example: Intangible property includes patents, trademarks, trade secrets, copyrights, debts, and company good will.
⁃ Discussion: Do you think that there should be a distinction between tangible and intangible property? Why or why not? Should they be afforded the exact same protections? For example, is theft of a copyrighted song the same as stealing someone’s wallet? Why or why not?
⁃ Practice Question: Austin purchases a book of photography. Has he purchased tangible or intangible property?
Real and Personal Property
Property is further broken down into personal property and real property. Real property is land and anything permanently attached to it. Personal property is anything other than real property.
⁃ Discussion: Can you think of any reason why the law would differentiate real from personal property? What characteristics make real property unique from personal property?
Fixtures and Real Property
• Fixtures – A fixture is personal property that is converted into real property by physical annexation to (attachment to or close association with) the land or its buildings.
⁃ Example: A piece of equipment that is physically installed into the floor of a factory building would become a fixture and is one with the property. It is no longer personal property and cannot be removed from the real property without the consent of the real property’s owner.
⁃ Discussion: Should personal property that is permanently attached to real property become part of the real property? Would this have any effect on businesses that sell or rent personal property?
⁃ Practice Question: Megan owns a warehousing business. She purchased a $1 million storage facility and financed it with a bank mortgage. She purchased heavy steel shelves to stack heavy pallets of goods and installed them in the factory. The shelves cost approximately $200,000 and are financed by the seller. The steel shelves are anchored to the floor of the building with a heavy steel bolts that are driven into the concrete floor. Has the steel shelving become a fixture of the warehouse building?
What is “Ownership of Property”?
Property is any tangible or intangible physical item, design, creative work, or concept that is owned.
Ownership of property refers to the legal right to exclude others from the specific thing owned. So property is a bundle of rights associated with all physical and non-physical things. Aside from the right to exclude others from using property, ownership rights often include the right to possess, to use, to transfer, and to commercialize the property. Any of these rights, however, are subject to modification by the owner of the property.
• Discussion: Do you associate property with physical possession or with the rights in something? Do you think the right to exclude others should be the defining characteristic of property?
• Practice Question: Suzie develops a new method for synthesizing radioactive material from common elements. She patents the process and develops a machine to extract the radioactive particles. The Federal Government notifies Suzie that the production of radioactive material is illegal and prohibited. In this situation, what are Suzie’s recognizable rights of ownership? Are those rights tangible or intangible? How are those rights limited?
What is the role of government with regard to individual ownership of property?
The government establishes laws concerning property. More specifically, ownership of property depends upon legal recognition of ownership rights. The government establishes and enforces property ownership rights through a formalized system for recording and disclosure that puts others on notice of those rights. Without government recognition and enforcement of property rights, ownership rights would be synonymous with possession or control of the property. Those capable of obtaining and maintaining possession or control through any means (such as force or coercion) would own all available property.
• Discussion: Do you agree that an individual only has ownership in something to the extent that the government (the law) recognizes that individual’s rights? Are you concerned by any requirements that the government puts in place to establish ownership?
• Practice Question: Gordon enters into a verbal agreement to purchase land from Wynona. He pays for the land and takes possession of it. Gordon and Wynona never execute a deed or otherwise title the land with Gordon. When Wynona passes away, her children claim ownership of the land. Who likely has legal ownership of the land and what is the role of government in establishing and recognizing ownership?
How are property rights linked to economic activity?
Property as an Incentive
The ability to possess property for one’s benefit and to exclude others is understood as a desire or want of many individuals. Research has shown that individuals will expend effort to acquire resources that meet a need or want. Providing a system whereby individuals may acquire property incentivizes those individuals to work toward that end. That is, people will expend effort to acquire property if they have the knowledge that they will be able to retain the property for their personal use and without the threat of forfeiting the property to others. They will undertake work that they were not otherwise willing to undertake in the absence of acquiring new property. Some individuals are willing to work longer and harder incentivized by the amount of property they are able to acquire as a result of their efforts. This tendency often results in greater efficiency in effort and overall economic productivity. Increased productivity of individuals is linked to increases in total economic output in an economy.
• Discussion: Do you believe that ownership rights in property have a positive or negative effect on individual productivity? Why or why not? If yes, are there any negative effects of the incentives created by property rights? Are there any disincentives associated with property rights?
• Practice Question: Jonathan works in a 9 to 5 job. His performance objectives and career path is very clear. He is promoted based upon meeting minimum performance standards over a specified period of time. If he meets these standards each year, he will gradually receive higher benefits and increasing responsibility. If he fails to meet those standards, he will likely remain in his current position. While superior performance may bring praise from his colleagues and superiors, it will not increase the rate at which he is promoted or bring any additional, tangible reward. In this system, how is property used (or not used) as an incentive to induce greater economic output?
Property ownership rights allow individuals to possess and demonstrate the results of their own efforts. Individuals are then able to employ that property toward creating additional property. That is, individuals can use their acquired property (or provide it to others) with the intention of generating or acquiring ownership rights in more property. In furtherance of capital formation, the nature of property allows ownership rights in any resource to be divided among individuals. As such, individuals can employ their resources collectively in the creation or acquisition of new property.
• Example: Abe’s ownership of property allows him employ the services of Bob in exchange for providing Bob with a form of property. Bob’s effort generates additional property for Abe, which Abe can use for the creation of additional property.
• Discussion: Can you think of any other examples of how ownership rights allow individuals to accumulate or grow economic value or wealth?
• Practice Question: Jane is renting an apartment in New York for $2,000 per month. She decides to purchase a home because it will be financially advantageous. She buys a very small apartment for $350,000. Her mortgage each month is $1,650 and her property taxes are $600. Of her mortgage payment, $1000 goes to principal, while $650 goes to interest. In this scenario, how does owning property allow for capital formation where renting an apartment does not?
How are property ownership rights limited?
The US Constitution protects individual ownership rights in property. The concept of property allows the owner to exclude others from possessing or using that property. Nonetheless, laws may limit property by regulating when and how a person can use her property. In general, owners are prohibited from using their resources in ways that harm or injure others. The Federal Government limits the use of property through its power to regulate interstate commerce. State and local governments regulate the use of property pursuant to their police power to protect the health, safety, morals, and general welfare of its citizens.
• Discussion: How do you feel about the ability of the federal, state, and local governments to infringe upon a property owner’s rights? Does it matter to you that the ability to infringe upon property rights is derivative power, where the constitutional protections of property rights are express? Why or why not?
What is “Nuisance”?
Nuisance is the use of one’s property in a manner that creates a substantial, unreasonable interference with the use or enjoyment of another person’s property.
• Public Nuisance – Public nuisance arises from use of land that causes a substantial interference with the use and enjoyment of the property by the public at large.
⁃ Example: Pollution from a factory that affects an entire neighborhood or town may constitute a public nuisance.
• Private Nuisance – Private nuisance arises when a person uses her property to substantially interfere with the use and enjoyment of another person’s property.
⁃ Example: Allowing your dog to bark and disturb your neighbor could constitute a private nuisance.
• Discussion: How do you feel about a nuisance action as a method of enforcing one’s property rights? How should the court balance the rights of one landowner versus those of another? Should there be public laws broadly targeting nuisance, such as criminal actions for general nuisance? Why or why not?
• Practice Question: Evelyn buys a home in a small neighborhood. Since moving in, her neighbor Derek has been extremely rude to her. Specifically, Derek sent her an email asking that she avoiding allowing her home to become a gaudy, eye sore in the neighborhood. Evelyn, ever the feisty one, is very angry about the email. She decides to paint a largely smiley face sticking out its tongue on the side of her house facing Derek’s house. Derek is outraged by Evelyn’s actions. What are Derek’s options in this situation?
What is “Zoning”?
Zoning refers to local (city or county) ordinances controlling how property within specific areas can be used. Zoning ordinances generally divide areas of counties or municipalities into districts designated for residential, commercial, or industrial use. The local government will charge anyone using her property in violation of the ordinance with an infraction.
• Note: If the land is being used in a certain manner prior to the passage of an ordinance, the user may receive a “non-conforming use” exemption from the ordinance. Landowners who desire to use their land in a manner disallowed by the ordinance may seek an exemption or “variance”. This generally requires petitioning the local zoning board or council and submitting the proposal for public comment.
• Discussion: How do you feel about allowing local governments to choose the manner in which land can be used? How should this power be weighed against the rights of the landowner?
• Practice Question: Beth owns a home in a small neighborhood. She has the idea to begin printing t-shirts and selling them over the Internet. She researches all of the applicable requirements for starting a business. One of the requirements is to register for a business license. What will she have to know about zoning in order to apply for a license?
What is “Eminent Domain”?
Eminent domain is the power granted local, state, and federal governments under the Takings Clause of the 5th Amendment. This clause allows the various levels of government to take away property from private owners under certain conditions. Generally, the taking must be for a “public purpose” and the government must provide “just compensation” to the landowner for the taking. A taking refers to a physical seizure of the land as well as unduly burdening an individual’s use and enjoyment of her property.
• Note: An owner whose land is being taken may challenge the action in civil court. Generally, the landowner must show that the taking is not for a public purpose or that she was not given just compensation.
• Example: If the state builds a highway that brings traffic into someone’s front yard, this would likely be a taking. The individual’s ability to use and enjoy her property is diminished by proximity of the traffic.
• Discussion: How do you feel about the ability of the government to take a person’s land? Does it affect your opinion that this right is expressly included in the Constitution? Why or why not? Does your opinion about this authority vary depending on whether the governmental authority is the federal, state, or local government? What standard should apply when determining what constitutes a public purpose?
• Practice Question: Melinda owns a small farm on the edge of town. The local township is in negotiations with Save-Mart, Inc., to build a new store in the town. Save-Mart has identified Melinda’s farm as the perfect location. Melinda is unwilling to sell the land. What are the options for the township with regard to Melinda’s property?
What is “taxation” of personal and real property?
Property taxes are a form of direct tax on the real and personal property owned by individuals or businesses. Property taxes (primarily on real estate) often fund local schools, police, and county administration. A common tax on personal property is a tax on the value of one’s personal vehicle, commonly known as “ad valorem” taxes or business equipment and inventory.
• Discussion: The US Constitution includes the ability of the government to tax individuals. Do you feel that this power is overly broad? Why or why not? Should this power extend equally to the state and local governments? Why or why not? Should there be any specific limits on this power? Local property taxes are often linked to funding for schools, police, and fire departments. How does income level and property values relate to quality of public services? How do you feel about this method of funding for these public services?
• Practice Question: The town of Pleasantville is considering building a new high school building. To raise funds for the project, what are some of the town’s options?