Property Rights and Land Description Defined

 I came across this article, in my research regarding “Property Rights and Land Description” and thought I would share it:


Introduction
Many of us think that when we own a property, like a home for example, we own that property in an unfettered way. In many jurisdictions in the world today, individual ownership to a property is held in the form of a fee simple title to that property, which is the highest form of estate with the most rights associated with it. But it is not absolute ownership. In Canada, which follows the English common law system (everywhere except the Province of Québec which follows the Napoleonic Code), even a fee simple estate is subject to a lease to the Crown, which means it may be expropriated by an expropriating authority using their power of eminent domain.

An expropriating authority can be a Municipal government, Provincial, State or Federal governments, a crown corporation or a host of other bodies that have expropriating authority such as a utility or pipeline. In the US, there have been many cases where municipalities have used their powers of expropriation to take lands that are subsequently turned over to private, for-profit companies for redevelopment of ‘blighted’ urban areas. Needless to say, the use of this tool to take lands in this manner is controversial*. Municipalities often do so because they feel that re-development will decrease crime rates and increase realty taxes.

(*There is a wonderfully funny and quite touching 1997 Australian film that focuses on this called The Castle. It is well worth seeing.)

You may also think that you own the air rights above your property or the subterranean rights below. Obviously, aircraft fly over your property without asking your permission and, in Canada, the minerals under your property do not belong to you, they belong to the Provinces. When former Prime Minister Pierre Trudeau introduced the Canadian Charter of Rights and Freedoms, it did not include protection of property rights. This was opposed by some Canadian Provinces and many municipalities. The Provinces were concerned that they could lose control over natural resources and municipalities were concerned that zoning by-laws could be compromised by such protections.

It is my view that property rights and human rights are intrinsically linked and that the Charter should have included protection of property rights. In countries where there is no respect for property rights, there is usually no respect for civil rights either. History has shown that if you want to reduce a person to a non-person, first make them homeless. The reverse is also true. Hernando de Soto, a leading development economist, has shown that economic takeoff in developing nations is immeasurably aided by developing a system of property rights, increasing home ownership and giving people a permanent address.

In places like Arizona, where water is scarce the riparian rights may not go with title; so it is possible to buy beautiful ranch lands which without water rights are essentially valueless.
In Florida, two friends of mine invested in two lots in a well established, built-up neighborhood, to provide for their daughter’s university education, only to find out when they went to sell them, they had no value because an endangered species (the Scrub Jay) was found on their land. Hence, their development rights were removed.

So really, you can look at ownership of land as a bundle of rights and knowing which ones you actually own and which you don’t is important.

History of Property Rights
The Saxon empire fell to King William of Normandy in 1066. King William established a land holding system in England based on a tenant relationship between approximately 1,500 Lords and the King. The King retained all ownership of the lands and the Lords became, in effect, tenants of the King paying annual tribute to the King in the form of various services, crops or coin of the realm. The Lords were allowed to sublet their allotted lands to others who worked the lands as sub-tenants of the Lord. Thus, the Lord became a Landlord, a term still in use today to describe owners of property who rent out land or property to tenants.

Tenants had the right to tenure of the property so long as they, in their turn, paid their Landlords the called for rents. The Lords continued to hold the Lands in trust for the King and only for their own lifetime.
The idea that land could form an estate developed through the practice and application of common law applied by the Royal Courts and approved by the King*. An estate would eventually become the basis for the idea that Lords could develop an ownership interest in their lands and could will it in their estates to their heirs. Eventually, this concept was broadened and some of their sub-tenants also were able to develop ownership interests in their lands.

(* The Magna Carta of 1215 played a significant role on limiting the absolute right of English Kings to decide all matters and helped to develop further the idea that all of the people including the Kings of England, should be bound by the rule of law.)

The doctrine of estates dealt with real property (i.e., not personal property such as art works, chattels, etc.), which eventually became known as real estate. There are many types of estates and new ones are being created by innovative lawyers and clever developers. For example, a relative newcomer is the idea that one could develop land condominiums. For example, there are advantages to creating a land condo for a shared access rather than using the more traditional tenants-in-common approach. The land condo gives the owners more powers in the event, say, that the road access needs repairs…
Estates 




As discussed above, fee simple is the highest form of ownership that a private citizen or corporation can attain. This form of ownership has the most rights and the fewest obligations or restrictions on it. Fee simple ownership never ends. It has both possessory rights (the right to occupy the lands) and ownership bundled together. You can will it or sell or lease it.

One can also create a fee simple with conditions form of ownership. For example, a person may gift lands to a religious order to be used for a specific purpose such as a retreat for religious practioners. As long as the lands are used for such purposes, the ownership remains with the religious order. But if they decide to perhaps develop the lands for a shopping centre then the lands would revert back to the original owner or his or her heirs.

In most expropriations, the expropriating authority has to demonstrate that their planned use of these lands will meet some public purpose and presumably a higher (public) good. They must also compensate the owner for lands that are expropriated. In theory, if the expropriated lands are not used for the purposes intended, they should be returned to the original owners. Unfortunately, there are many examples where this is ignored. Thousands of acres of farmland were expropriated by the Federal Government of Canada around Mirabel for a major airport. The airport was built, it was a huge fiasco and much of the lands were never used or needed but did not find their way back into the hands of the families that lost them. In Ottawa, the National Capital Commission has been known to expropriate lands to add to the Greenbelt that surrounds Ottawa only to turn around years or decades later and rezone the lands for other purposes such as retail development. They might then offer to sell it back to the original owners but not at farmland prices; instead at prices that reflect the up-zoning and obviously way out of the price range of the original family.

There is another form of estate called the future estate. For example, I may will my lands to my daughter but I may also create at the same time (upon my death), a life estate for my spouse. In this case, my spouse has possessory rights for her lifetime and my daughter has the remainder. These two estates co-exist. When my spouse passes away, my daughter owns all the rights. But while my spouse is alive, my daughter can not sell the lands with vacant possession because my spouse has possessory rights. However, my daughter and my spouse could agree to sell both estates together and then they would come together again in fee simple.

One can also convey a leasehold estate; this is an interest in land for a known term. Today, we simply call it a lease. In Ontario, one can not create a lease longer than 21 years without applying to the Committee of Adjustment (or Land Division Committee) since longer leases are thought to create more than a leasehold interest and, in fact, are a form of ownership instead. It requires special permission to do so.

Limitations to Rights
There are many restrictions and limitations to rights. It is obviously in everyone’s best interests not to have, say, a fireworks factory in the middle of a residential area because these plants have a habit of blowing up and injuring or killing many people.

Zoning is an obvious restriction on rights. Zoning by-laws came about in New York City as a reaction to the very poor living conditions of the city circa 1900: high densities were combined with substandard housing, poor ventilation, high incidence of disease and the mixing together of animals and humans. (Horse power was the main source of muscle to move people and goods and around 100,000 horses were stabled in vertical buildings in Manhattan at that time.) Zoning and Official Plans (sometimes referred to as Master Plans) together control the direction, timing and type of growth and development the municipality will permit. Zoning by-laws must conform to the Official Plan.

Other restrictions on ownership include: the right of the municipality to impose realty (property) taxes, restrictive covenants, condominium by-laws, fractional ownership, the power of escheat, mineral rights, air rights, riparian rights and, of course, expropriation. There are other types of restrictions on property ownership which may apply in certain jurisdictions like: (residential) rent control, Ontario Residential Tenancy Act (formerly referred to as the Landlord tenant Act), search warrant, no change of water course(s), stop work orders, building permits, site plan approval, heritage committee, design committee, septic approval authority, development charges, power to distrain, Letters of Credit, etc.

Municipal by-laws can be enforced by the Police Power, which essentially means that Municipal by-laws have the full force of State power behind them.

Realty taxes are made up of two components: the assessment and the mill rate. The mill rate if the rate at which the municipality taxes real property. It can be and usually is different for different types of property. Commercial property usually has a higher mill rate or tax rate than residential property. Apartments are often taxed at the same rate as commercial property imposing a higher tax burden on apartment dwellers who are usually have lower incomes than single family homeowners but who typically don’t vote in municipal elections to the same degree as homeowners and, thus, may be disadvantaged. Politicians may feel that the extra tax burden gets passed bak to landlords but, in most cases and certainly where there is a shortage of apartment units, the higher tax burden gets passed forward to apartment dwellers who tend to have lower incomes than owners of single family homes. This is inherently unfair.

The mill rate or tax rate for single family dwellings in a city like Ottawa tends to be in the one cent per dollar so for a house with an assessed value of $350,000, they can expect to pay around $3,500 per year in property taxes. Commercial property pays more and requires fewer municipal services. Residents demand and get garbage collection, snow clearance, libraries, schools, recreational centres and many other municipal services. Commercial property owners get practically nothing: they must pay for their own garbage removal, snow removal, etc. Consequently, the fiscal impact on a city from commercial development is generally positive while the fiscal impact of residential development is either less positive or may be negative.

Most cities these days impose development charges on new projects both residential and commercial; these development charges, levied at the time of building permit issuance, are supposed to address the fiscal impact and pay for new municipal infrastructure such as expanding sewage treatment plants, water filtration systems, transit systems, new schools and other infrastructure that serves the city as a whole. Developers are expected to put in all the municipal services for new residential or industrial sub-divisions and then turn those works (water mains, sewers, local roads, parks, etc.) over to the municipality at no cost to the municipality. Developers usually have to put up Letter of Credit (LC) for the cost of these works so that if the developer does not complete them, the City can cash the LC and complete the required work.

Cities today view most new works as a cost and not an investment. Two generations ago, at the end of World War II, municipalities viewed, say, a new road as an investment; a lever for economic growth. One could think of a city as a network of infrastructure where once a new road is built, every property owner is required to hook into the infrastructure and then pay to the city realty taxes forever whether they get any city services or not. In my view, it is a mistake on the part of cities to relentlessly pursue the idea that everything is a cost and that the city should be developed at no cost to the municipality. The at no cost policy also means that the City is relinquishing any claim to leadership; it has no power to change the city for the better by taking positive actions. The at no cost rule is one of the reasons we see so little public art in the newly built portions of major cities in North America.

Rent control* has been shown to hurt the interests of the people it was designed to help. In city after city, rent control has reduced the number of new rental dwellings constructed and also caused the existing rental stock to decrease either through demolition or conversion to condominiums or owner occupied housing. A decrease in supply has allowed landlords to be more selective in choosing tenants tending to favour double income couples with no kids over single mothers, for example. When tenants leave, they tend to turn over favorable leases to their friends and may demand ‘key’ money. Key money is upfront money paid to the departing tenant by the new tenant for the privilege of taking over their lease. Unfortunately, the Law of Unintended Consequences tends to apply to many government programs and initiatives.

(* Minto Construction, a large Ottawa-based company, is living proof that rent control works against the interests of those it was intended to help. One of the Founders of the company, Irving Greenberg, once told me that the best day in his business life was when the Government of Ontario under (Conservative) Premier Bill Davis introduced rent control in Ontario circa the 1970s. After the introduction of rent control, Irving made more money than ever from his residential rental property. First, there was less competition as builders, developers and investors foolishly fled the market and, as a result, his vacancy rates fell. Second, he was able to buy his competitors cheaply and add substantially to his portfolio. Third, he was able to pass on rent increases every year since such increases were ‘government approved’ and tenants had nowhere else to go anyway. Fourthly, he could be picky about his tenants and damage to his units and maintenance costs went down. Fifthly, he could pass on the costs of upgrades, repairs and maintenance to his tenants again in additional government approved rent hikes every year. Rent control was a travesty in my view—it certainly didn’t help those who most needed help, aka the poor who are disproportionately single mothers. Minto ended up with tens of thousands of rental units in Ottawa, Toronto and Florida and tens of millions of dollars in free cashflow too.)

Here are some definitions for other terms used above:

Escheat- the power of the State to take a property when a person dies with no will and no heirs.
Restrictive covenants- restrictions placed on the deed of a property (and thus there forever) such as minimum house size, types of materials that may be used on the outside of the home, etc.
Condominium by-laws- the rules that govern the condominium corporation such as the monthly fee raised by the corporation for its maintenance, how the Board of Directors is elected, its reserves, etc.
Fractional ownership- can refer to time share corporations or the bundle of rights that make up all the rights of property ownership.

Stop Work Orders- orders posted by a municipality to stop work on a project where an offence has been committed such as construction without a building permit or work not in accordance with plans. Once, a stop work order is posted, it must be obeyed by all persons on site who must down tools and remove themselves immediately. Continuing to work on a site where a stop work order has been posted may result in criminal charges as well as civil penalties.

Distrain- the power of a commercial landlord to padlock a door of a tenant’s demised premises and to sell whatever assets are within to defray non payment of rent. This does not apply to residential tenancies. Commercial tenants are supposed to be sophisticated persons or organizations who engage in equal or near equal negotiations with landlords. Residential tenants, on the other hand, are afforded much greater protections in most jurisdictions. For example, removing a residential tenant in Ontario must be done in accordance with the Residential Tenancy Act. The Act states that the tenant may only be removed for non payment of rent or because they are unduly interfering with the quiet enjoyment of the premises by other tenants. There is a significant legal process involved in removing a residential tenant which must be followed exactly by a landlord and it requires significant notice periods and the ability exists for a tenant to redeem.

Land Description
Govenor Simcoe in 1792 divided Ontario into counties. Each county had to make some kind of physical sense; i.e., conform to river boundaries or follow a ridge line. Counties were in turn divided into townships and the townships were further described by a system of lots and concessions. Concessions were divided by unopened road allowances and this system was based on the concept that no parcels of land would exist without access to a public road.

The idea was to prevent pieces of land becoming landlocked; problems could then arise as one neighbour was forced to cross another’s land holdings to reach their own.

Concessions are numbered I, II, III, IV, … Lots used numbers 1, 2,3, 4, 5, … So a piece of land could then be legally described as Lot 3, Concession II, Township of ABC in the County of MNO, Ontario.
As long as people owned lots and concessions this system of describing land worked well. When land was divided into smaller parcels through application to local Land Division Committees, other means of describing lands were needed.

Legal Descriptions
Legal descriptions are one of the key building blocks for our entire economic system. Accurate legal descriptions allow us to trade real property with confidence. It allows Banks to place mortgages on lands with confidence. It gives us permanent addresses from which we communicate with the rest of the world. What is the number one source for new enterprise formation world wide? Home equity loans. Without accurate legal descriptions deposited permanently in the Land Registry Office (or Land Titles Office), none of this would be possible.

Lot Sizes
The single front township (typically fronting on a river) was divided into lots that were 20 chains wide by 100 chains deep (each chain is 66 feet) with an area of 200 acres.
For townships with a river and a road, double from townships could form and lots could then be 100 acres each with a depth of 50 chains per lot.

As the Province of Ontario attracted more settlers and land was divided into smaller parcels, legal descriptions were based on a metes and bounds description of land. That is, word descriptions were used; for example, starting at a known point, land would be described using linear measurements and compass bearings. These metes and bounds descriptions would always close on themselves so that if you followed the directions, you would end up where you started. If you followed the description and ended up somewhere else, an error had occurred.

Unfortunately, the Land Registry has many errors in it and every lawyer involved in the transfer of real property has to check for a good root of title (a minimum search of 40 years is required). This is time consuming, expensive and still may contain errors.

Building lots created in industrial or residential sub-divisions are described as Lot 16 on Plan 4M-799, City of Ottawa, Ontario, for example. The letter ‘M’ means that the plan has been deposited into the Land Titles system instead of the Land Registry and, thus, the accuracy of the title is guaranteed by the Government of Ontario.
Land Registration Reform

In 1985, the Land Registration Reform Act was put in place to create a unified system of legal descriptions in Ontario where all titles would eventually be deposited into Land Titles either because the owner of a parcel of land would have their land surveyed and would then apply to have their title deposited into Land Titles or, after 40 years, all legal descriptions in the older Land Registry system would be deemed to be in land titles and, hence, clear title would be guaranteed.
Each parcel of land in Ontario will eventually have its own unique PIN (Property Identification Number) and electronic completions of land transfers will be the only method of title transfer. In larger cities in Ontario, electronic closings and registrations is now the norm.
Conclusion

In a way, land descriptions are nearly as important as the invention of a common time and calendar. Before there was a common calendar and an accepted universal time (towns often set their own times), it was difficult to set up a meeting time to trade. We take it for granted when we ask: “Can you meet me for a coffee at Tim Hortons in Kanata on March Road near the Royal Bank Wednesday Nov. 15th, 2006 at 3:30 pm (eastern standard time) and let’s see if we can make a deal?” Or your Bank Manager asks you to come in to see her about a loan the next day at 10:00 am for the house you just bought at that Wednesday meeting.

When she approves your mortgage loan, your bank manager is not at all concerned that her bank may inadvertently put their charge on the wrong property and, hence, have difficulty getting their loan repaid. (Don’t forget that you probably signed personally for the loan so that even if their lawyers did make a horrible mistake, you would still have to cough up the dough.)

In Mexico, you will see many homes that are half completed or three quarters completed because their financial system was not able to produce mortgage loans even for people with very good credit ratings and excellent jobs or businesses. This is a huge handicap for that nation and now that US-based banks and others are moving into that market, you will see dramatic changes in home ownership in that nation.

Home ownership is an important parameter of economic growth and an indicator of social stability:
a) Home owners have a stake in their nation-states;
b) They tend to support civil law and respect for the sanctity of persons and property;
c) They tend to vote;
d) They develop home equity which then becomes a source of capital for new business formation either for themselves or their children or extended family;
e) They show concern for their community and work for its betterment;
f) They are concerned for the future of their children and the condition of the local schools;
g) They pay taxes which support public services and help for the less well off;
h) They tend not to become a burden on the state and their fellow citizens.
I ask my students every year, how many of them can save $700 or $1,000 or $1,400 a month and, obviously, few of them can do this while they are students but it turns out that few of them can do it even when they have good jobs later on. But almost all of them can pay that in rent or, better yet, in the form of a mortgage. If home ownership does one thing well, it forces people to ‘save’ by paying off their mortgages a bit at a time, every month.

Article credited to 
Dr. Bruce M. Firestone, Ottawa, Canada. Nov. 12, 2006
Reference: http://www.dramatispersonae.org/EnterpriseOfTheCity/HomePage/PropertyRights.htm