Public Restrictions on Ownership

  • Four Basic Powers of Government Over Real Estate
  • Taxation
  • Escheat
  • Eminent domain
  • Police power


  • Property Tax
  • “Ad valorem” tax
  • Millage rate ($1 tax per each $1,000 of value)
  • Assessment ratio
  • Exemptions
  • The tax bill for a property with a market value of $120,000 in a jurisdiction that assesses a millage rate of 25 mills on 40% of a property’s market value and permits a exemption of $2,500 for this type of property is calculated as follows:
  • Tax Bill Calculation

Market Value                                   $120,000

multiplied by Assessment Ratio              x .40

equals Assessed Value                       $48,000

minus Exemptions (if any)                  -$2,500

equals Taxable Value                         $45,500

divided by 1000                                     ¸1000

times Millage Rate                                   x 25

equals Property Tax                        $1,137.50


  • Administering the Property Tax
  • Identify all properties and estimate their values
  • Develop a budget and tax rate.
    • The budget is determined by the appropriate government officials based on the costs of providing government services to the community (police and fire protection, schools, libraries, street, etc.)
    • Dividing the budget amount by the tax digest (total value of properties in the jurisdiction) yields the tax rate necessary to generate the budget amount.
  • Bill the property owners and collect the taxes.
    • Unpaid property taxes create a lien on the property that takes priority over most other liens, even existing mortgages


  • Power of Eminent Domain
    • Per the 5th and 14th Amendments to the S. Constitution
    • Right of the government to take private property for public use upon the payment of just compensation
    • Use must be a valid public use
      • See Legal Highlight “What Constitutes ‘Public Use’”?
    • Property owner must be justly compensated


  • Inverse Condemnation
    • Sometimes a property owner may feel that a governmental restriction has effectively “taken” the property from the owner.
    • In such situations, the owner can file a lawsuit for inverse condemnation to force the government to purchase the property under the concept of eminent domain.
    • See Legal Highlight “Inverse Condemnation”


  • Police Power
    • Power to regulate use of private property to protect public health, safety, morals, and general welfare
    • Land uses are interdependent, meaning that the way one property is used affects other nearby properties, therefore government regulates how properties can be used to protect other property owners.
    • Preventing one land owner from using land in a way that interferes with another land owner’s rights
    • Comprehensive General Plan
      • Many jurisdictions enact laws to create a plan for the orderly development of the community
      • These plans typically include:
        • Projected economic development
        • Transportation plan to provide for necessary circulation
        • Public-facilities plan that identifies such needed facilities as schools, parks, civic centers, water, and sewage disposal plants
        • Land-use plan
        • Official map
      • These plans are primarily implemented through zoning laws.
    • Zoning – division of a community’s land into districts to regulate the use of land and buildings and the intensity of various uses
      • Type of use – residential, commercial, industrial, and other categories
      • Intensity of use – developmental density limits
        • Height and bulk limitations
        • Floor-area ratio (See Figure 4.1 Example of Floor-Area Ratios)
        • Minimum lot size and setback regulations
      • Some Innovative Zoning Issues
        • Planned unit development
        • Performance zoning
        • Incentive zoning
        • Transferable development rights
      • More on Zoning
        • See:
          • Close-Up “The Smart Growth Controversy”
          • Legal Highlight “The Strange Case of the Incredible Shrinking Building”
          • Legal Highlight “The Case of the Costly Permit”
        • Zoning Laws May Be Challenged
          • Legislative relief
          • Administrative relief
            • Variances
            • Special use permits
          • Judicial relief
          • Note that uses that were in place before a new zoning ordinance made them illegal are often allowed to continue (legal non-comforming uses)
        • Building Codes
          • Standards for construction
            • Protect public health and safety
            • Promote energy conservation
          • Subdivision Regulations
            • Preapplication conference
            • Approval of preliminary plat
              • See Figure 4.2 for a preliminary plat
            • Approval of final plat
              • See Figure 4.3 for a final plat
            • Mandatory dedication
            • Impact fees


  • Takings: Police Power or Eminent Domain
    • As mentioned earlier, property owners can pursue inverse condemnation suits against the government when they feel their properties have been “taken” without compensation.
    • How far is too far before the owner is entitled to compensation?
    • See Legal Highlight “The Takings Issue”


  • Escheat
    • Government’s right to acquire ownership of land when the landowner dies without a will and without heirs

This power prevents real estate from becoming “unowned” should the owner die without a valid will or heirs.