Presentation Transcript

1. FIN3600Real Estate Finance & Investments

   Chapter 1 Basic Legal Concepts
2. Foundations Realty – land and all things permanently attached; more commonly referred to as “real estate” Personalty – all intangibles and movable things Historically, real estate disputes were settled based on verbal agreements. As the number of disagreements increased, contracts were required to be written and signed to make settlement easier and more fair
3. Foundations Property rights – investors in real estate not only acquire land and buildings but many rights along with them, including rights to: control  lease  develop occupy improve  sell pledge  encumber “For example, real estate may be leased or pledged to others in exchange for rent or other consideration” – WHAT DOES THAT MEAN?
4. Definitions Property rights – The right of a person to the possession, use, enjoyment and disposal of his/her property. A person’s property right is referred to as his/her interest in a property A person may buy or sell this interest or use it as collateral for a loan, thus giving the lender an interest A property may have several interested parties
5. Definitions For example: Mr. A owns a house and rents it to Student B C is the Bank of CANADA and is the lender and holds a mortgage on the house Mr. A wants to invest in a business owned by Mr. D but does not have enough cash so plans to pledge the future rentals from the house, to Mr. D
6. A owns the house but still needs permission from B to enter and inspect the house. In Ontario, 24 hours notice is normal, unless there is an emergency. The owner gives up certain rights when the property is rented. C A B
7. A The bank needs permission from the owner to enter and inspect the house because the bank has NO rights UNLESS a default has occurred C Default occurs when a borrower fails to honor their obligation to the lender. B
8. D C A CONSENT! CASHFLOW? A needs permission from C to pledge the cash flows from the lease because C has a security interest in future cash flows B
9. C A B cannot pledge the house as collateral because he has rights of use and possession but NOT ownership $ B
10. Definitions Secured Interest – A lender’s right (the bank) that may only be exercised on default of the borrower Lessee – A person who leases land, acquiring rights to possession and exclusive use for a period of time Freehold estate – Rights that do not have a known expiry date (I own the house and have no intention of selling it) Leasehold estate – Rights that expire on a fixed date
11. Definitions Easement – A non-possessory interest in land which entails only limited user privileges This occurs commonly with residential property Title Assurance – The means by which buyers can determine if the seller really has un-encumbered ownership of a property Buyers may receive compensation if they purchased a property that was not as represented Deed – A written instrument that conveys title (ownership)
12. HOUSE BUILT IN 1877 133 years ago PROPERTY WAS DOCUMENTED IN 1911 100 years ago EASEMENT