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Advanced Business Law (BPP433/85)

Advanced Business Law (BPP433/85). LAND. 2007 Winter Quarter Instructor: David Oliveiri. Learning Objectives. Just What is Land? What Legal Rules Apply to Land and Land Transfer? Managerial Implications – Constraints, Risks, Opportunities. Think About This!.

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Advanced Business Law (BPP433/85)

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  1. Advanced Business Law (BPP433/85) LAND 2007 Winter Quarter Instructor: David Oliveiri

  2. Learning Objectives • Just What is Land? • What Legal Rules Apply to Land and Land Transfer? • Managerial Implications – Constraints, Risks, Opportunities

  3. Think About This! • Is “The River Campus” Land? • What is “The River Campus”?

  4. Land • Land = Real Property • Real Property = “Bundle of Rights” • Why Land/Real Property? • Example from Hardin, Tragedy of the Commons (1968): Open pasture, many herdsmen, herdsmen are REMPs. How do they maximize?

  5. Tragedy of the Commons? #CattleWt. Gain/Cow/WeekTotal Wt. GainSocietal Gain 1 7 7 7 2 9 18 11 3 8 24 6 4 7 28 4 5 6 30 2 6 5 30 0 7 4 28 -2 8 3 24 -4 9 1 9 -15 10 -1 -10 -19 HOW MANY COWS WILL GRAZE IN THIS PASTURE?

  6. Tragedy of the Commons • Private Property = Rights Allocation [E.G. Single Owner of Pasture] • Result: Society and Individual Decisions Coordinated – [E.G. Single Owner Rents Grazing Rights ] • Managerial Implications

  7. Tragedy of the Commons • Clay, Uncertain Property Rights and Agricultural Production: Evidence from Post-Gold-Rush California (Carnegie Mellon University, Unpublished, 2/16/2006) • 1860 California, Uncertain Agricultural Land Rights • Significant Negative Effect on Farm Values, Crop Production • Squatters’ Farm Values 22-38% Lower • Low Investment in Land; Lower Production; Use of Short Season Crops • But Similar Amounts of Livestock

  8. Tragedy of the Commons Managerial Implications • What Business Am I In? • What Rights Maximize Revenue? – Grazing Rights, Above, Below, Sides, Support, Light, Entry, Quiet, Views, Resource Removal, …? • How Do I Get These Rights? KEY CONCEPT: REAL PROPERTY INTEREST

  9. Interests in Land/Real Property • Possessory Interests (Estates) • Ownership Interests (Freehold Estates) -- Infinite/Indefinite/Lifetime Duration • Non-Ownership Interests (Nonfreehold Estates) – Includes Commercial Leasing • Non-Possessory Interests (Non-Estates) • Easements • Profits • Covenants • Rents ST2-Q5, Q7 (S&R 50-P1), Q1 ST2-Q4

  10. Transfer – Only Of Interest/Rights One Owns! HOW? • Pre-Contract Stage • Contract Signed • Executory Contract Stage • Closing/Deed Delivered/Mortgage Executed • Post-Closing Stage ST-Q2

  11. Financing Transfers of Real Property Interests • Assume a sale from Seller (S) to Buyer (B) of a commercial office building. Purchase price is $100k. S had previously mortgaged the property to Bank (L), and the current balance is $75k. • All Cash Sale DEED RELEASE L S B $75 $100

  12. Financing Transfers of Real Property Interests • Assume a sale from Seller (S) to Buyer (B) of a commercial office building. Purchase price is $100k. S had previously mortgaged the property to Bank (L), and the current balance is $75k. • New Mortgage Loan DEED RELEASE MORT. L S B NL $75 $100 $100

  13. Financing Transfers of Real Property Interests • Assume a sale from Seller (S) to Buyer (B) of a commercial office building. Purchase price is $100k. S had previously mortgaged the property to Bank (L), and the current balance is $75k. • Buyer Assumes Existing Mortgage NOTE DEED L S B $25

  14. Financing Transfers of Real Property Interests • Assume a sale from Seller (S) to Buyer (B) of a commercial office building. Purchase price is $100k. S had previously mortgaged the property to Bank (L), and the current balance is $75k. • Seller Financing/Wraparound Mortgage DEED RELEASE L S B $75 $15 + $85 Mort.

  15. What Rights/Interests Traditionally Accompany Real Property Ownership • Right to Possess/Occupy • Possess Every Inch? Restrictive Covenants, Setbacks • Occupy Every Inch? Tenants • Right to Use as Owner Sees Fit • All Uses? Zoning, Nuisance, Environmental Regulations • Right to Exclude Others • Officials? Police With Warrant, Health Inspector, RGE • Public? Discrimination Laws • Neighbor? Easement by Necessity • Right to Transfer Freely • Subdivide? Ordinances on Lot Size • Eminent Domain

  16. Real Property Rights As Bargaining Starting Point • Coase, The Problem of Social Cost • Hypothetical: Sports Bar (S) and Doctor’s Office (D) located on adjacent properties. Dispute –Noise, Disruption, Loss of Business. Lawsuit. • Potential Lawsuit Outcomes : (1) No Nuisance (S “Enjoins” D); (2) Nuisance (D Enjoins S); (3) Nuisance (S Compensates D); (4) Nuisance (D Compensates S). Who Decides Outcome? Correct Social Outcome? What Next? • Hard (Specific) Rights v. Soft (Ambiguous) Rights

  17. Bryant v. Lefever • Coase, Problem of Social Cost • Traditional Approach = Allocate Blame = Who Causes? • BUT Incompatible Property Uses Resolved With Free Bargaining • …Regardless of Initial Assignment of Rights!! • So, Rights Allocations= Starting Point for Bargain With No Transactions Costs, Judges Cannot Affect Allocative Efficiency!! BUT….

  18. Negotiation A • Farmers A and B • Adjacent Fields • Plowing Requires Turnaround – 10% of Plot at Each End! • Can A and B Improve Yield? B

  19. Negotiation A B • Obtain/Disclose Useful Info • Master Facts • Understand/Satisfy Other Party • Support Position With Reasoning • Effectiveness – Explore Alternatives, Firm/Flexible, Avoid Argument

  20. Bottom Lines; Q&A • Effective Business Operation Requires Rights • Land/Real Property = “Bundle of Rights” • Uncertain Property Rights = Economic “Tragedy” • Allocated Property Rights = Starting Point for Bargaining • Incompatible Property Uses Will Be Resolved With Free Bargaining

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