The Bundle of Rights is the first thing you should learn when studying for your real estate exam. Most textbooks start with a definition of the bundle of rights, but what does it really mean?
Let’s start with some basics: Ownership of land is holding title to it. The evidence of the transfer of title is the deed. So a seller executes a deed to transfer title to real property and the bundle of rights that go with it. The bundle of rights is a common way to explain the complexities of property ownership.
It helps to consider the bundle of rights as something that can be separated and reassembled. Imagine that, in your hand, you hold a number of straws. Each straw represents a distinct and separate right of the owner- such as the right to use the property, to sell it, to lease it, or to give it away.
For example, if the owner doesn’t pay a contractor who worked on the property, a mechanic’s lien would be filed. That would take some, but not all, of the rights out of the bundle held by the owner- one of those straws that represents a right is now gone. Taking care of the mechanic's lien returns those rights, or straws, to the bundle held by the owner.
Now, let’s look at the rights. The bundle of rights include:
- The right of enjoyment
- The right of disposition
- The right of possession
- The right of control
- The right of exclusion
How a Bundle of Rights Works
Once a home purchase is completed, a typical home buyer can expect to have the whole bundle of rights for their new property- the rights of possession, control, exclusion, enjoyment, and disposition.
However, these rights can be broken up and distributed to multiple parties. This usually applies to the purchase of commercial and investment properties. For example, the buyer of a rental property may have rights that are restricted by the local landlord-tenant laws and regulations. Or the owner of a storefront property may share certain rights with the tenant who runs a business there.
In any case, a real estate owner can only exercise their bundle of rights within the limits of other laws. For example, a homeowner's right of enjoyment doesn’t allow them to ignore local noise control laws.
Let’s look at each of the rights a little closer:
Right of Enjoyment
The right of enjoyment gives the title holder the right to participate in any lawful activities they find enjoyable on the property. For example, they have the right to put their feet up on the couch and watch TV.
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Right of Disposition / Transfer
The right of disposition protects the title holder’s right to transfer ownership, permanently or temporarily, to another party. Basically, it means you can sell, rent, or will the property. You only get this right when the property is owned outright and money is not owed to another party, such as a lender.
Remember that when a property is sold, any existing loans are paid off before the seller has the right to sell the property. An exclusion can also apply if the property is subject to a lien, which is when money is owed.
Right of Possession
The right of possession simply states that the title holder is the legal owner of the property.
Right of Control / Use
The right of control means the owner can use the property in any manner that is legal. Note that when there is a homeowners' association, the association can place additional restrictions on uses, like patio decoration or pet ownership.
Right of Exclusion
The right of exclusion allows the owner to limit who may enter the property. However, easements may be in place which override this right, such as a utility company’s right to access power lines. And, not that you’ll have to worry about this, but a search warrant authorizing entrance to a property can also override the right of exclusion.
And that’s what you need to know about the bundle of rights - a buyer who purchases a property gets a bundle of rights when the title is transferred, and these rights generally give the buyer the freedom to use the property for legal uses.