When you own property outright, did you know a set of rights comes along with it?
This set of rights is commonly referred to as a bundle of rights in real estate. This is one of the most important terms you will need to know for your real estate exam.
What is the Bundle of Rights Theory?
The bundle of rights in real estate theory is the common way to explain the concept of real estate property ownership. These bundle of rights are transferred along with the property when it is purchased. The person or people who holds the title of the real estate property owns these rights. The rights in the bundle include possession, control, right of exclusion, right of enjoyment and disposition.
The First Right: Right of Possession
The first bundle of rights in real estate is the right of possession. When you purchase a property and hold title to it you have the right to use the property. Also, you must pay for the property with cash or have a mortgage on the property to enjoy the right of possession. To continue the right to use the property you must pay taxes, pay homeowners association fees and abide by any rules and regulations of the association.
The Second Right: Right of Control
Your second bundle of rights, is the right to control.
As a real property owner you have the right to control or use the property how you desire. You can live in it, let other family members or friends live in it and have the right to sell. However, you must obey the law. If there are city occupancy standards you must adhere to them and not have too many people living in the home. You must also adhere to any covenants or restrictions placed by the homeowners association. For example, if having an above ground pool isn’t allowed, then you cannot have one. But overall, you have the right of control.
The Third Right: Right of Enjoyment
As a property owner, you have the right to enjoy your property as long as you are not doing anything illegal on the property. You must obey city, county, state, and federal laws. For example, you cannot run a drug dealership out of the property or have a methamphetamine lab on the property. This applies to inside the real property and on the land that is owned with the property.
The Fourth Right: Right of Exclusion
The fourth bundle of rights says, you don’t have to allow anyone in or on your property when you own it. This is known as the right of exclusion. No one has the right to be on your land or come inside your home without your permission. Of course, there are exceptions to this. If a law enforcement officer comes to the door with a warrant to search the property you have to let him or her in. If a utility company needs to repair a utility box that is on an easement of your property you have to allow this. This is the fourth bundle of rights.
The Fifth Right: Right of Disposition
Now, the last bundle of rights…
As a homeowner or real estate property owner, you have the right to dispose of the real estate at your will.
This is known as the right of disposition.
This means you can sell it or transfer the ownership to someone else. Or you can rent it out and let someone else live in it. However, you must do this legally. If you have a mortgage on the property it must be paid off first before the property can be sold or ownership transferred. If you have had any work done on the property that hasn’t been paid for in full or if there are liens on the property such as mechanics’ liens, these must be paid off first.
The bundle of rights in real estate are protected by title insurance. Title insurance protects against claims or disputes on your property that are not valid.
What are a Bundle of Rights or a Bundle of Sticks?
Each right that comes along with property ownership is a separate right that the owner can enjoy. When you put these property rights together, they are commonly referred to as a bundle of rights or a bundle of sticks. The owner can use one or all of these rights or sticks. So if you hold all of the sticks together the owner can pick one, two, three, four, or all of the sticks to use when it comes to property enjoyment.
What Is The Most Complete Bundle Of Ownership Rights?
Fee Simple— This is the biggest, most complete bundle of rights one can have, it is the most complete type of ownership.
For more sources regarding the bundle of rights, check out the links below.
