Common Real Estate Terminology

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. 

Assessment - 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 - Co-ownership is ownership of property by more than one person. The common ways in which two or more parties can co-own a piece of property in California are joint tenancy, tenancy in common, and community property, all of which are 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.

Community Property - In California, a husband and wife can hold property together as joint tenants or tenants in common, or the property may be "community property." No two of these forms of ownership can exist at the same time. A husband and wife also can own property separately. In general, all real property acquired during a marriage and situated in California is community property. A leasehold interest is not considered community property, nor is property owned by either spouse before marriage, or property acquired by either spouse during marriage by gift or inheritance. Subject to certain exceptions and restrictions, either spouse has the power to manage and control their community property, and each spouse can devise their one half share in the community property by will. Income and profits on separately owned property remain with the separate property.

Construction Contracts - 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 should include discussion of mechanics liens, periodic inspections, bonding, timetables, and appropriate rewards or punishments for early or late completion.

Deed - A deed is a written instrument that transfers the title of property from one person to another.  The California Code authorizes a simple form for use as a deed. A deed must indicate who is granting the property, to whom it is granted, and what the property is, along with words signifying conveyance. In California, when a grant of real property is made usually it is assumed that the complete property passes unless it appears from the grant that there are restrictions on the estate.

Deed Restriction - Deed restrictions are usually imposed on a buyer of land when the property is sold. The restrictions are included in the seller's deed to the buyer. Restrictions generally are imposed by a property developer to maintain certain standards. Restrictions may include limits on the color a building may be painted, what kind of trees may be planted, or the size of structures that may be built on the property. Deed restrictions may also be known as covenants or conditions.

Due Diligence – The prospective buyer should make a thorough investigation of the property before buying.

Easement - An easement is 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 another owner's property. 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.

Encumbrance - An encumbrance is an obligation attached to a piece of real property. It is not an ownership interest, but is a right or interest held by a party who is not the owner of the property. Property may be bought and sold even though there are encumbrances attached to the property. Because encumbrances attach to property, not to property owners, a person who buys property with an encumbrance is bound by the encumbrance. Easements and deed restrictions are examples of encumbrances.

Foreclosure - 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.

Joint Tenancy - Joint tenancy is a form of co-ownership. Although 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. Regardless of the number of joint tenants, when one joint tenant dies, the remaining joint tenants automatically take the deceased joint tenant's share of the property by right of survivorship. A principal advantage of joint tenancy is that it allows the surviving joint tenant to avoid probate and death taxes.

Land Use Law - In addition to zoning laws, there are other laws that mandate 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. This way the city can ensure that the proposed building meets the applicable codes before construction begins. Another way communities enforce codes is by issuing a certificate of occupancy that allows legal occupancy in buildings that pass code requirements.

On shorelines, the state adds other rules regarding the size and shape of buildings as well as their location 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 environmental impact statements and State approval for 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.

Lien - A lien 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, or a lien can be imposed, such as for nonpayment of taxes. One of the most common liens is the mechanics lien, which may arise when someone furnishes labor or materials to improve a piece of property. If the worker or supplier is not paid by the property owner, he or she files a notice of lien with the county recorder and the property owner and collects the amount owed from a subsequent sale of the property.

Mortgage Financing – Mortgages are commonly secured by real property. These negotiations often are 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.

Permits – Please see Zoning below.

Quitclaim Deed - A quitclaim deed is a special type of deed that relinquishes to the buyer whatever interest the seller may have in the property. 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. A quitclaim deed does not give rise to the presumption that complete estate or property is intended to be passed. Quitclaim deeds are used frequently during the property settlement phase of a marriage dissolution.

Real Estate Development - 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 also are restricted by controls from the local, state and federal government. 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.

Recording - In California, real estate records are kept in each county. Owners and other parties with real estate interests file all documents affecting their interest in property in order to give public notice of the interest. Documents are filed in the county in which the property is located. Titles in California are registered under the abstract system. An abstract of title is a record of all the interest entries for that property.

Security Deposit - Landlords have a right to insist that renters pay a security deposit before moving in. The security deposit is used by the landlord to pay for any damage beyond ordinary wear and tear that the tenant might cause to the rental property. California law puts a limit on the amount of a deposit that a landlord can collect. The total deposit may not be more than the cost of two months' rent for an unfurnished apartment or three months' rent for a furnished apartment.

At the end of the tenancy, the landlord must return the deposit to the renter within two weeks. The landlord is allowed to keep the amount necessary to repair damages, or to pay off debts owed to the landlord as part of the lease. If the landlord fails to return all or part of the security deposit, he or she must give the tenant, within two weeks after the tenancy ends and the tenant has given the landlord a forwarding address, a written explanation as to why money is being withheld. The deposit may not be used by the renter to pay rent.

Special Assessment - A special assessment is a tax levied on a piece of property to pay for improvements that benefit the particular property, such as streets, sidewalks, and street lighting. Special assessments are liens on the property until they are paid.

Sublease - Subleasing means having someone else take over a tenant's rights and obligations under a lease before the original lease expires. A tenant has a right to sublet a unit if the lease does not prohibit doing so. 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 - 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 - 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. In order to sell a piece of property, all title matters must be cleared. Usually, this 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 often is taken out 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.

Variance – Please see Zoning below.

Water Law - With the purchase or sale of real estate comes 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 may not, however, legally divert the water to land that does not adjoin the stream or lake. An owner also 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. Thus, an owner may not pollute the water or change its flow. California has extensive laws relating to water rights, and this should be kept in mind before taking any action that will have a significant impact on any water source.

Zoning - 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 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.

Another way to seek relief from zoning laws is through a variance permit. Such permits make exceptions for uses of property that are not otherwise allowed under the zoning laws. Other ways around zoning laws include conditional use permits that allow special permission for an inconsistent use that benefits the community, and spot zoning, which re-zones a small area or even one plot of land. Again, this is only allowed if it benefits the community.

Credits / resources

Stuart M. Saft, Commercial Real Estate Transactions (Shepard's/McGraw Hill, Inc., Colorado Springs, CO, 2d ed. 1995).
State Bar of California, 555 Franklin Street, San Francisco, CA 94102-4498, (415) 561-8200.