Real estate owners have a traditional "bundle of legal rights" that transfers to them along with the property when they purchase it. This bundle include the rights to possess the property, to control it, to exclude others from it, and to dispose of it.
Learn more about what these rights entail and the history behind their depiction as a bundle of sticks.
What Is the Bundle of Legal Rights of Property Owners?
The bundle of rights of property ownership is bestowed upon the holder of the title to the real estate. This notion of property ownership as a collection of rights in relation to other people, rather than just rights to a tangible thing, is the dominant way of looking at property rights in the U.S. legal system.
Various sources offer different versions of the bundle of rights, but the most important rights are:
- The right of possession
- The right of control
- The right of exclusion
- The right to derive income
- The right of disposition
The owner also has the right to exercise none of those rights.
During the 1960s, British legal scholar A.M. Honoré created a list of incidents of property ownership that included items other than rights. For example, the prohibition of harmful use means an owner could not harm others through their use and enjoyment of the property. And the absence of term means there is no set time period of ownership.
In his 1893 book "The Distribution of Wealth," American economist John Rogers Commons referred to property as "not a single absolute right, but a bundle of rights" that "are distributed among owners and society."
How Does the Bundle of Legal Rights of Property Owners Work?
Because, like sticks, the rights are in a bundle that can be separated from the others, one or more rights may be lost or given away for a certain amount of time and then regained. For example, a property owner may give up their right to exclude others if they choose to rent out a cottage on the property to a tenant or allow a farmer to plants crops on some of the acreage.
There are exceptions to the rights. For example, the owner of a property may not operate an auto body repair shop there if it lies within a zoning district that permits only residences. And a landowner may not build a skyscraper on their parcel if the municipality in which it lies has an ordinance forbidding buildings over a certain height.
Property owners are also faced with obligations, such as paying taxes and maintaining liability insurance. If they fail to meet those obligations, they may lose one or more of their ownership rights.
Rights to property may also be broken down into surface rights, subsurface rights, riparian rights, and air rights. They include the right to build on the ground (surface), extract minerals (subsurface), collect water from a stream (riparian), and prevent neighboring buildings from overhanging your own (air).
The Right of Possession
A property is owned, or possessed, by whoever holds title to it. If the buyer pays cash for a property, they immediately have title because there's no mortgage note or other type of lien—financial claim—against it.
If the purchaser takes out a mortgage, the lender has a lien against the property and effectively holds title. Depending on the state in which a property is located, a mortgage lienholder may be able to foreclose on take possession of it relatively quickly if the purchaser defaults on the loan or they might have to go through the court system to do so.
Not paying property taxes or fees for a homeowners association can result in losing possession as well, because these obligations can also form liens.
The Right of Control
Owners generally control the use of their properties, but they must adhere to any subdivision or homeowner association covenants and restrictions that apply as well as local and state laws. For example, an owner can't throw loud parties in their condo every weekend if their building's association forbids playing high-volume music after 10 p.m.
The right to control may also be described as the right to manage—in Honoré's words, the right “to decide how and by whom a thing shall be used."
The Right of Exclusion
Other people can be excluded from trespassing onto your property or entering your home, and this right is generally very well protected. However, exceptions to this right extend beyond the expected law enforcement officers with a warrant. Utility companies are routinely granted easements on properties they don't own in order to maintain rights of way and utility equipment. And a property owner who sells a piece of land behind their own might need to allow for a driveway to be created on their property to enable access to the new parcel.
The Right to Derive Income
Owners can generate income from their property by renting it out to a person or business. They could also use it to raise and train Thoroughbred horses or operate a welding business if zoning permits.
The Right of Disposition
"Disposition" means the property holder can transfer ownership to someone else, including after their death in a will. They can sell it or give it away if they choose.
If a property owner still owes money to a lender, they must pay off the remaining balance of the mortgage with proceeds from the sale of the property.
- Real estate owners have a "bundle of legal rights" that transfers to them when they purchase a property.
- The idea of property ownership as a collection of rights in relation to other people is the dominant way of looking at property rights under the U.S. legal system.
- The main legal property rights are the right of possession, the right of control, the right of exclusion, the right to derive income, and the right of disposition.
- There are exceptions to these rights, and property owners have obligations as well as rights.