PropertyProf Blog

Editor: Stephen Clowney
Univ. of Arkansas, Fayetteville

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Thursday, July 17, 2008

Affordable Housing in the News

From the Philadelphia Inquirer:

Saying new affordable-housing obligations would force suburban towns to build beyond their capacity, a coalition of nearly 200 mayors said yesterday they would challenge the regulations in court.

The dispute centers on state rules, unveiled in December, that roughly doubled the affordable-housing requirements first proposed in 2004.

Local leaders say they have neither the space to build the amount of new housing the state demands, nor the money to pay for the associated classrooms, roads and sewers.

"What these regulations will do is turn the state into one large urban area," Bridgewater Mayor Patricia Flannery said during a news conference in the Statehouse yesterday. "What these rules are saying is every piece of land in your town is going to be built to such density, and that's the key word here, density." . . .

The fight has become synonymous with Mount Laurel, named in the Supreme Court case that spawned the state's rules. Mayor John Drinkard said Mount Laurel would join the league's challenge and file its own suit against the latest regulations.

"We're not objecting to the [affordable-housing] obligation, what we're objecting to is the number and the way the state has gone about forcing this number down our throats," Drinkard said.

Mount Laurel could have to provide 1,400 affordable-housing units by 2018, according to the rules.

Affordable-housing advocates said the mayors were trying to avoid a constitutional obligation.

To me, the following was one of the more interesting passages in the article:

The league also argues that the latest requirements are based on faulty estimates of land available for new housing. For example, mayors said the projections include land marked for open-space preservation.

The conflict between legitimate concerns about open space and affordable housing is fascinating, and will increasingly feature in this kind of debate.  By "legitimate", I mean sincere concerns about open space, as opposed to pretextual concerns about open space that are really motivated by a desire to exclude certain people from a community.  It's really easy to tell the difference, right?

Ben Barros

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July 17, 2008 in Land Use | Permalink | Comments (0) | TrackBack (0)

Bogart on Good Faith in Commercial Leasing

Daniel B. Bogart (Chapman) has posted Good Faith and Fair Dealing in Commercial Leasing: The Right Doctrine in the Wrong Transaction on SSRN.  Here's the abstract:

Professor Bogart was keynote lecturer for the 2007 Kratovil Conference Real Estate Law and Practice sponsored by the John Marshall Law School Center for Real Estate Law. This article was solicited in connection with that lecture. In this article, Professor Daniel Bogart criticizes the unfortunate habit of many courts to import the doctrine of good faith and fair dealing, as it has been developed in residential real estate law, into commercial leasing. Commercial leasing practice is hugely important to real property lawyers and generates a significant portion of their legal fees. More importantly, commercial leasing is the driving force behind much of commercial real property development. In the first Part of his article, Professor Bogart examines the doctrine of good faith and fair dealing and questions its applicability to commercial lease transactions. He draws upon the thoughtful scholarship of Professor Emily M. S. Houh and other scholars. Two approaches to good faith have dominated scholarly discussion: the Restatement Second of Contracts Section 205 and an economic analysis of lost opportunities. Section 205 of the Restatement essentially defines as "good faith" everything that is not "bad faith." Courts adopting this approach create an open-ended laundry list of bad landlord behavior, and aim to "do justice" among the parties to a dispute. This is the dominant view and has been used successfully in residential leasing scenarios to prevent unscrupulous landlords from preying on tenants. This approach is also a basis for the Implied Warranty of Habitability. A second approach to good faith and fair dealing is grounded in economics and seeks only to prevent one party from opportunistically extracting after the fact some right that could have been negotiated into the initial contract document. Professor Bogart argues that this second approach more closely fits the commercial leasing context, in which parties are or could be represented by counsel and are typically more business savvy than their residential counterparts. Indeed, as Professor Bogart notes in the article, this is behavior that real estate lawyers see routinely, and call "taking a second bite at the apple." Professor Bogart also argues that a casual application of the doctrine of good faith releases parties to the commercial lease from the bitter fruits of their negotiated agreements and lessens the value of good lawyering. One primary goal of courts, especially in the commercial context, should be to encourage parties to transactions to find good attorneys and then heed their attorneys' advice. In the second Part of his article, Professor Bogart tests three increasingly complex hypothetical commercial lease disputes and asks whether, in any of them, the landlord or tenant violated the doctrine of good faith and fair dealing. Each hypothetical is based on an actual, litigated lease dispute that rose to the state appellate level. In one case, the court found a party to have violated the doctrine. Professor Bogart argues that none of the fact patterns should be deemed to be the basis for a breach of the doctrine of good faith.

I heard Danny present this paper at a workshop, and it is outstanding.  It captures a lot of what used to frustrate me as a litigator about the approach many courts take to fairness in commercial cases.  The courts' well-meaning injection of fairness considerations ends up undercutting the ability of parties to allocate risk by contract.  Highly recommended!

Ben Barros

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July 17, 2008 in Real Estate Transactions, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Two By Fee

John Fee (BYU) has posted two articles that have been published in the last couple of years on SSRN:

Eminent Domain and the Sanctity of Home

The Supreme Court's decision in Kelo v. New London has caused alarm over how easy it is for government to take private homes through eminent domain. The image of government officials ousting people from their homes for unnecessary projects has sparked movements to reform eminent domain in many states. Typically, such reform efforts are focused on the public use doctrine and what government agencies plan to do with property after taking it, rather than the unique nature of home property and its value to homeowners.

This article concludes that the root of the problem lies beyond the public use doctrine. Government takes too many homes from unwilling homeowners, and for too cheaply, even for traditional public use projects. The article explores potential methods of protecting homes against unjustified condemnation, including substantive and procedural methods. The article concludes that while various methods have advantages, adjusting the compensation structure of eminent domain to require significantly greater compensation in the case of home takings is most likely to produce optimal results. A system of compensation that recognizes more accurately what homes are typically worth to their owners would produce greater deterrence against government takings, and would improve the bargaining process between government officials and homeowners, while still allowing governments to overcome holdouts in cases of genuine public necessity.

The Takings Clause as a Comparative Right

The Fifth Amendment Takings Clause, like the Equal Protection Clause, is designed to protect the legal rights of individual citizens relative to others, not to protect the legal rights of individual expectations of wealth or to provide and insurance policy against unreasonable governmental burdens. The proper role of the regulatory takings doctrine is to require compensation in those circumstances where the government legitimately targets one or a few owners to bear a unique legal burden for the benefit of the general community. Only through a comparative theory of takings doctrine can we begin to solve many of the puzzles that appear in the law. This paper provides a defense of a comparative theory of takings law, a discussion of how a comparative theory should work, and shows how a comparative theory serves to explain many of the results of current takings law.

Ben Barros

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July 17, 2008 | Permalink | Comments (0) | TrackBack (0)

Townsend Gard and Goda on Virtual Property

Elizabeth Townsend Gard (Tulane) and Rachel Goda (Seattle) have posted The Fizzy Experiment: Second Life, Virtual Property and a 1L Property Course on SSRN.  Here's the abstract:

This work is an attempt to sort out the relationship between virtual property and common law property. How are we to understand the relationship between a virtual table and an actual table? What does property in this context mean exactly? While many have written about this topic from a myriad of perspectives, we took a slightly different approach. We wanted to see what property elements were being used inside one virtual space - Second Life. We sought to understand the relationship between common law property and virtual property by combining our knowledge as a property professor with a cultural history background with an avid gamer turned law student. We called it the Fizzy Experiment.

Ben Barros

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July 17, 2008 in Intellectual Property, Property Theory, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 16, 2008

Oil Refinery v. Farms

CNN.com has a story about a controversial oil refinery proposed in South Dakota, and the attendant land-use issues.  The story reminds me of the issues raised in Heller's book on the Gridlock Economy.  The United States needs new refineries, but no one wants one built near them.  It is hard to strike the right balance between giving neighbors the opportunity to voice legitimate concerns and avoiding gridlock.

Ben Barros

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July 16, 2008 in Land Use | Permalink | Comments (2) | TrackBack (0)

Monday, July 14, 2008

Michael Heller's The Gridlock Economy

This past weekend, I read Michael Heller's new book The Gridlock Economy:  How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives.  The "this past weekend" part of the previous sentence says a lot of good things about the book -- I have two young kids, and not a lot of free time on the weekends.  The Gridlock Economy is one of those rare books that makes important theoretical points while being an easy, enjoyable read.  Like Hernando de Soto's The Mystery of Capital, The Gridlock Economy is clearly written and illustrates its points with engaging examples.  You could assign the whole book for a week's reading in a class and not feel guilty about overwhelming your students.

The book's core points build on insights that Heller first developed in The Tragedy of the Anticommons: Property in the Transition from Marx to Markets.  The basic idea of the anticommons is that highly-divided ownership of property can lead to the underutilization of resources.  If too many people have control over a resource, decisionmaking gets gummed up, transaction costs multiply, and resources are underused.  Heller's iconic example of the anticommons is Moscow storefronts, where the right of many "owners" to veto various uses led to stores that remained vacant while kiosks thrived on the sidewalks just outside.  If the tragedy of the commons can be seen as being caused by an absence of property rights, the tragedy of the anticommons can be seen as being caused by an overabundance of property rights.  Heller argues that we should be seeking the sweetspot between too much and too little property:  "Well-functioning private property is a fragile balance poised between the extremes of overuse and underuse." (p. 19).

The Gridlock Economy explores this theme in a number of interesting settings, including biotech patents, broadcast spectrum, land use regulation, and land assembly.  My one quibble is that the book occasionally crams problems that don't seem to fit into the anticommons category.  One example is the fiasco of underutilized broadcast spectrum owned by television broadcasters. (p. 96)  If the broadcasters had stronger property rights in this spectrum, it probably would not be underutilized to such a degree.  This particular problem therefore seems to be more about too little property, rather than too much property.  Another example is the problem of highly-fractionated interests that results from multiple generations of a family passing property through intestacy.  After a few generations, a single plot of land can have scores of owners.  These multitude of owners can lead to real anticommons problems -- just imagine trying to get the consent of thirty cousins to do anything with a piece of property.  As a remedy for this sort of multiple-ownership problem, the law allows the property to be partitioned.  For property with many owners, partition is usually achieved through a judicial sale of the property, with the proceeds divided among the owners.  As Heller describes (p. 121)the partition process has a ton of flaws, and needs to be reformed.  But Heller's complaints about partition are about the flaws in a remedy for an anticommons problem, not the anticommons problem itself.

As noted, these are just quibbles.  This is a great book.

Ben Barros

Crossposted to PrawfsBlawg

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July 14, 2008 in Books, Property Theory, Recent Scholarship | Permalink | Comments (2) | TrackBack (0)