Экзамен зачет учебный год 2023 / Yun-chien Chang, A Comparative and Economic Analysis of Access to Landlocked Land. A Case for a Hybrid of Property and Liability Rules

Figure 3 A hypothetical landlocked parcel and its neighboring parcel

Table 2 Costs and Benefits of Four Passage Plans

† Costs in this table are measured in terms of fair market value

The problem with the two pro-neighbor methods is that they only take into account the costs of passage. Method (3), similarly, is problematic because it only cares about the benefits of passage. This leaves us with one final method, the subjective, pro-landlocked-land one, which is perhaps the most undesirable approach in a traditional lawyer’s view. Nevertheless, under some conditions, I will argue, method (4) could be the most efficient method.

Method (4) is the only method that aims to maximize net social welfare (social benefits subtracted by social costs; column 3 in Table 2), which is what law-and-economics really cares about. Indeed, the landlocked owner can pick whatever location she prefers, but she has to compensate her neighbor for the loss at the designated location. Thus, the landlocked owner internalizes the cost of passage to the extent that she is required to compensate. Consequently, the landlocked owner will not choose Plan A, where the benefit of passage is maximized but her net benefit is

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not; she will instead choose Plan B, which maximizes her personal welfare and the social welfare at the same time.

Method (4), however, is the incarnation of the liability rule. As I have argued above, the liability rule is not perfect because not all losses by the neighbor are compensated.39 Moreover, uncompensated losses under method (4) are by definition larger than or equal to those under method (1), so the value of the neighboring land under method (4) is lower than or equal to that under method (1).

Method (1), by contrast, is another dimension of the hybrid rule, as accessing public roads through passage that causes the least damage to neighbors usually gives landlocked owners a less than ideal easement. This gives landlocked owners incentives to bargain for a welfare-maximizing one with the neighbors. The agreed price in the voluntary transaction will fully compensate the neighbor for all her losses additionally incurred. If the passage at another location is really valuable for the landlocked owner, the neighbor may even be able to bargain for compensation for her loss of subjective value imposed by the statutory easement.40 In summary, the least damage rule, as part of the hybrid rule, appears to be the most efficient.

B. Length and Width

Given that the least damage doctrine is, overall speaking, the most efficient method to determine passage locations, we can further evaluate the statutes that prescribe the length and width of statutory easements. Length is certainly one of the factors that influence the damage caused to neighbors and it is probably the most objective factor. Prescribing the shortest passage can also save litigation costs. Nevertheless, using just length as a proxy for damage may do neighbors a disservice, as the shortest passage may cross a valuable part of the neighboring land. The several civil codes listed in footnote 19, however, use the shortest route rule and the least damage rule together. It is unclear how courts in those jurisdictions interpret these double rules. If they are interpreted to mean that the court has to choose a route of passage that causes the least damage from several possible shortest routes, the neighbors’ losses are not minimized and ligation costs may not be reduced by much

39Note that under method (4), the landlocked owner already chooses the most profitable passage location; thus, no bargaining in this regard will happen. If the necessity requirement is interpreted as I advocate above, landlocked owner may still want to bargain for an optimal extent of passage. Nevertheless, as a whole, there is less room for neighbors to receive compensation for their losses.

40Because the marginal social/private benefit of additional passage would be decreased greatly beyond the “necessity” point I identify, the incremented total social/private benefit of passage might not be large enough to cover all subjective losses by the neighbors. In other words, at the end of the day, under the hybrid rule, neighbors may still be undercompensated.

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because the court still has to assess the damage caused by each candidate route.

I do not have a good theory as to why some states in the U.S. choose to focus on the width of the passage. While width could certainly affect the loss to neighboring land and the benefit of passage for landlocked owners, it can be covered by the necessity requirement, as I argue above.41 Without specifications on other dimensions of the passage, the state courts in these jurisdictions may lack the statutory support to facilitate efficient transactions. Hence, emphasis on width alone does not seem to be a wise policy choice.

VII. EX ANTE VIEWPOINT AND EASEMENTS OF NECESSITY

The major differences in doctrines between easements of necessity and statutory easements are two-fold: First, in the case of statutory easements, the legal right-of-way could be imposed on any adjacent land parcel as long as the plot suffers the least damage among neighboring parcels (or the passage over the plot is the shortest). By contrast, pursuant to the easement of necessity doctrine, the landlocked owners can only gain access over land “held by the grantor at the time of the conveyance” (Restatement (Third) of Property: Servitudes § 2.15 comment a (2000)). Second, the easements of necessity are gratuitous. This part explains why these two differences make economic sense from an “ex ante perspective” (Bebchuk 2001: 603; Brooks and Schwartz 2005: 392; Smith 2009: 134).42 As for the necessity requirements for easements of necessity, they should be interpreted in the same way as those for statutory easements, elaborated above.

A. Restriction on the Choice of Servient Land

Land becomes landlocked for several possible reasons: voluntary acts of landowners (such as severance), abolishment of public roads by the government, and acts of God (such as an earthquake or tsunami). The statutory easement law deals with land becoming landlocked due to the last two reasons, while the easement of necessity law handles land that loses its usual access because of the first reason. More exactly, there are two types of voluntary acts: one is a landowner’s decision to block or ruin an existing passage; the other is (co-)owners’ decision to partition or partially transfer land and leave part of the land parcel landlocked. Several civil codes explicitly

41Kansas law stipulates a 100-feet maximum width and a 40-feet minimum width (see footnote 14). Forty feet seems to be pretty wide for a statutory easement, not to mention 100 feet.

42The traditional justifications are the inferred intent of the parties and public policy “favoring the full and productive use of land” (Bruce and Ely 2011: 4:5).

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stipulate that no easements will be prescribed following the first type of voluntary acts,43 because otherwise landowners have incentives to cut their existing routes through their own land and seek legal servitude of passage over their neighbors’ plots instead. This will externalize some of the costs of passage (due to undercompensation) and reduce the value of the neighboring land. Put differently, if voluntary landlocking is not prohibited, the easement of necessity doctrine essentially gives the landlocked owner an option to switch from property rule to the hybrid rule or the liability rule.

Easement of necessity doctrines around the world also put restrictions on landlocked owners’ choice of servient land, when the land becomes landlocked due to the second type of voluntary acts. Namely, landlocked owners can only pass through land parcels that are owned by a former co-owner (or her transferee) or land parcels that had been part of the same plots with the landlocked parcels. This rule bars externalization of passage costs and induces owners of potential landlocked land and servient land to arrange for passage before any land becomes landlocked. For land that becomes landlocked due to the second type of voluntary acts, co-tenants partitioning the co-owned land parcel or an owner transferring part of her land are able to avoid creating landlocked parcels by planning for the right of passage when partitioning or transferring. For example, co-tenants may keep a lengthy plot co-owned and use it as a passage, or the transferor can structure a voluntary right-of-way between the potentially landlocked parcel and the servient, neighboring parcel.

Without the easement of necessity doctrine, but with the statutory easement law, the (co-)owners, however, do not always have incentives to arrange for voluntary passage, because it reduces the value of their own land. Take Figure 4 as an example. Assume that plots A, B, and C are co-owned by Allen, Bob, and Carol (alternatively, Carol owns plots A, B, and C but is planning to transfer A to Allen and B to Bob). Plot P is owned by Peter. Plot A will become landlocked after partition or transfer. Allen, Bob, and Carol may agree to continue co-owning a lengthy plot along the boundary line between Plots B and C for Allen’s passage after partition. This plan, however, reduces the total size of the land parcel available for partition, thus decreasing the value of the properties that they each receive. Without the easement of necessity doctrine, Allen, Bob, and Carol will have incentives to do nothing about passage and

43 Portuguese Civil Code §1552 adopts a unique rule, under which such owners can still acquire statutory easements through paying heightened damages, which cannot surpass twice the amount of the ordinary damages, and are assessed according to the culpability of the landlocked owners. Subjective value, one would guess, usually is not as large as fair market value; thus, doubling the amount of compensation could presumably fully compensate neighbors. Nevertheless, scaling the damages according to the culpability of the landlocked owners is paying attention to the wrong factor. The critical criterion for determining the amount of damages should be the loss by neighbors. But, again, the court cannot accurately assess the subjective value of neighbors. I doubt that adopting this unique rule has made land use in Portugal more efficient.

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let Plot A become landlocked. Allen would then petition the court for a statutory easement over Plot P. This plan becomes particularly likely when Allen, Bob, and Carol think that they can persuade the court that passing through Plot P causes the least damage.

Failing to arrange for passage rights when partitioning or severing produces inefficient results. A statutory easement over Plot P will leave some losses by Peter uncompensated. That is, Allen, Bob, and Carol externalize some of the passage costs to Peter and, if the court follows the MR=MC formula and adopts the fair market value compensation standard, Allen will exploit Plot P too much. By contrast, if Allen, Bob, and Carol agree to establish a passage somewhere in Plots B or C, there will be no uncompensated loss, and their easement covenant will make sure that Allen and his successors will not be able to use the passage at an inefficient level. Therefore, the easement of necessity doctrine that restricts landlocked owners’ choice of servient land is efficient.

In jurisdictions that adopt the registration system (instead of the recording system),44 the registrar generally substantively review the content of the registration. One way to further ensure that easements of necessity will be pre-arranged is to authorize the registrar to deny registrations before the (co-)owners work out a voluntary easement. That is, (co-)owners have to file for registration of severance or partition of properties and registration of an easement at the same time.

P A

B C

Public road

Figure 4 Hypothetical scenario for easements of necessity.

B. Gratuity

A gratuitous right-of-way, as compared to a right-of-way with compensation requirement, reduces information cost and the number of litigations. A gratuitous right-of-way is a passage with a price tag of zero, while a right-of-way with

44 See Arruñada and Garoupa (2005: 711) for the comparison of recording and registration systems in land.

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compensation requirement is a passage with a price tag of fair market value, an objective but still uncertain amount of money, subject to judicial or administrative assessment ex post. Zero dollar is a clear price that landowners like Allen, Bob, and Carol can easily contract around (they can adjust the plot size or the amount of owelty to reflect the gratuitous nature of the passage), while fair market value is more uncertain and thus more costly to contract around. Hence, the gratuity requirement reduces the ex ante transaction costs among Allen, Bob, and Carol. If Allen, Bob, and Carol somehow ignore the passage issue when partitioning or severing, they will not litigate over the amount of compensation when the law adopts the clear gratuity requirement—but they may if the law prescribes any kind of positive compensation. Litigation costs are thus reduced by the gratuity requirement.

Moreover, the risk of enduring gratuitous passage after the severance will further induce Allen, Bob, and Carol to solve the passage issue ex ante. By contrast, if fair market value compensation is guaranteed, they might determine to leave the issue untouched and externalize the decision-making costs to the court.

Granted, a requirement to pay fair market value may better ensure that the passage of landlocked owners is efficient. Nevertheless, because the gratuitous passage still has to meet the requirement of necessity and least damage, it is highly likely that the court-adjudicated right-of-way will be efficient—in this case, compensation of fair market value would be merely a transfer of wealth. Ultimately, the above analysis suggests that the gratuity requirement in the context of easement of necessity is more efficient than the requirement to pay fair market value.

VIII. CONCLUSION

This article demonstrates that a hybrid rule of limited liability rules and residual property rules, applied in the problem of statutory easements, is more efficient than a pure property rule and a pure liability rule. Such a hybrid rule in this context requires that the passage be set at the place where it causes the least damage to the neighbors; the extent of the passage be set at the point when the social costs of passage are about to sharply decline; and of course the landlocked owners compensate the owners of servient land. The easement of necessity doctrine, on the other hand, induces Coasean bargaining by adopting a clear-cut no compensation rule and limiting the providers of passage to those who could have solved the access problem ex ante. In sum, the relevant doctrines, when properly interpreted, mostly make economic sense.

The overall finding of this article also has implication for the debate on the efficiency of common law versus statutory law. Judge Richard Posner (1973; 2010)

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famously argues that judge-made common law tends to be efficient, while statutory law does not. This is one of the most debated questions in law and economics (Parisi 2004; Zywicki and Stringham 2010; Garoupa and Ligüerre 2011). This article finds that the common-law doctrine of easements of necessity is indeed efficient. Part of the statutory easement law enacted by state legislature can be interpreted to be efficient, but some rules contained in the state statutes are indeed not the most efficiency-minded. Note, however, that civil codes in civil law jurisdictions are enacted by national legislature. These civil codes also contain the efficient rules that are called easements of necessity in the American common law, and their versions of the statutory easements generally make more economic sense than their American counterparts. Therefore, in one way, the findings of this article are consistent with Posner’s thesis—in the American context. Nevertheless, from a global perspective, statutory law, which is the predominant source of legal rules in civil-law jurisdictions, does not necessarily do worse than judge-made law on the same issue.

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