Easements

An Easement is a legal right that allows someone to use a portion of another person’s property for a specific purpose, even though they do not own it. Think of it as a legal permission slip to cross or use someone else's land. This right is a non-possessory interest, meaning the holder of the easement can use the property but can't take possession of it or kick the owner out. For example, a utility company might have an easement to run power lines across your backyard, or a neighbor might have an easement to use your driveway to reach their landlocked property. These rights are attached to the property's deed and are legally binding, typically surviving the sale of the property to a new owner. Understanding easements is crucial in Real Estate Investment, as they can significantly impact a property's use, development potential, and, ultimately, its value.

At its core, an easement is an Encumbrance—a claim or liability against a piece of real estate. While the word “encumbrance” sounds scary, not all easements are bad. Some are neutral, and some can even be beneficial. The key for an investor is to know they exist and understand their implications before buying a property. Imagine you're buying a scenic plot of land. During your Due Diligence, you discover a “right-of-way” easement allowing the public to cross a corner of your property to access a public trail. This might slightly reduce your privacy but could also be a minor issue you can live with. However, if you discover an easement allowing a major pipeline company to dig up a large swathe of your land for maintenance at any time, that could derail your plans to build a dream home and severely impact the property's value. Ignoring easements is like buying a car without checking under the hood—you might be in for a nasty surprise.

Easements generally come in a few common flavors, and knowing the difference is key.

This type of easement benefits a specific person or entity, regardless of what property they own. It's a personal right that doesn't transfer to another property.

• Who it benefits: A company or an individual.
• Classic Example: A utility company holding an easement to maintain water pipes, power lines, or internet cables across hundreds of properties. The right belongs to the utility company itself, not to an adjacent property it owns.
• Investor takeaway: These are very common. Usually, they have a minor impact on value, but you need to know their exact location and any restrictions they impose (e.g., you can't build a structure over a sewer line).

This easement benefits another piece of land. It involves two properties, often adjacent to one another:

• The Dominant Estate: The property that benefits from the easement.
• The Servient Estate: The property that is burdened by the easement (the one being used).
• Classic Example: Property A is landlocked and the owner needs to drive across a path on Property B to reach a public road. Property A is the dominant estate, and Property B is the servient estate. This easement “runs with the land,” meaning if either property is sold, the easement remains in effect for the new owners.

This is an easement acquired through long-term, hostile use, similar to the concept of 'squatter's rights'. It’s created not by agreement but by the actions of a non-owner. For it to be legally recognized, the use must generally be:

• Open and Notorious: Clearly visible, not hidden.
• Continuous: Used regularly for a legally specified period (e.g., 10-20 years, depending on the state).
• Hostile: Used without the owner's permission.
• Example: For 25 years, neighbors have been cutting across a corner of an abandoned lot to get to the beach. A court might grant them a prescriptive easement, preventing a future owner of the lot from fencing it off.

For a value investor, details matter. Easements are a critical detail in real estate that can either hide risks or unlock value.

The primary concern is how an easement affects your investment's Valuation. A negative easement, like one that allows heavy truck traffic across a residential lot, will almost certainly lower its market price. An investor must factor this into their purchase price calculation. Conversely, a property that benefits from an easement (the dominant estate) might be worth more. For instance, an exclusive easement granting a property access to a private lake could be a significant value-add. The only way to know for sure what easements exist is to conduct a professional Title Search, a non-negotiable step in any property purchase.

A savvy value investor uses easement knowledge to their advantage.

• Avoiding Pitfalls: The biggest win is often avoiding a bad deal. By uncovering a restrictive easement during due diligence, you can walk away from a property that would have been a financial disaster, saving yourself capital and headaches.
• Spotting Opportunity: Sometimes, the market overreacts to an easement. A property might be steeply discounted due to an old, unused easement that could be legally terminated, instantly increasing the property's value post-purchase. In other cases, a landowner can generate income by selling an easement. For example, granting a Conservation Easement to a trust to preserve a natural habitat on your land could provide a significant tax benefit or a direct payment, creating value where none existed before.

Before you buy any property, run through this simple checklist:

• Get a Title Report: Always commission a professional title search to identify all recorded easements.
• Walk the Property: Look for physical signs of use that might suggest an unrecorded or prescriptive easement, like a worn path, a neighbor's fence encroaching on the land, or overhead utility lines.
• Read the Fine Print: If an easement exists, get the document and understand its exact terms. Who can use it? For what purpose? Are there any restrictions on the property owner?
• Factor it in Your Math: Adjust your offer price to reflect the easement's true impact—positive or negative—on the property's long-term value and utility.