2. Text for reading. The Nature and Classification of Business Property

Business property takes many forms, both tangible and intangible, and is important for a firm in safeguarding its business and increasing its borrowing capacity. Tangible (or corporeal) property includes land and goods which are capable of physical possession and are called ‘choses (or things) in possession’ and, in the case of goods, physical transfer; whereas intangible (or incorporeal) property rights are enjoyed through the enforcement of the rights of the owner. Intangible property, or ‘choses (or things) in action’, can be assignable or negotiable. Shares are choses in action and the shareholder derives no benefit from the share certificate itself, but from the rights it represents.

Other examples are insurance policies, debts and all types of intellectual property: copyrights, patents and trade marks, which confer exclusive rights to commercial exploitation of intellectual property for a determined period of time. A company which develops a new product involving an inventive step protects that invention by registering a patent, and, in respect of books, music, artistic works and designs, the company can protect these by the laws protecting copyright and product design. A particularly valuable asset in relation to products and services is the identifying characteristics by which the consumers identify the product or service and select it in preference to another. These are protected through the law of trade marks.

The classification of property in England and Wales is shown in the following diagram:

Introduction into English Law of Real Property

Absolute ownership of land is vested in the Crown. Below that level, the law distinguishes between ‘freeholders’ and ‘leaseholders’. Freehold owners own an estate in the land from the Crown. Leaseholders hold an estate under a contract called a lease. The word ‘estate’ describes the nature and duration of the rights owned by freeholder or leaseholder. The estate will vary according to whether it is freehold or leasehold, legal or equitable.

Freehold estates

The principal freehold estate is the fee simple estate. The word ‘fee’ means that the estate is heritable and ‘simple’ that the rights of inheritance are unrestricted. Estates can be absolute or conditional. The effect of a condition is precedent or subsequent. In the former case, compliance with the condition is necessary before the estate can exist, for example: ‘To AB in fee simple when or if he attains the age of 21 years’. In the latter case, the estate can be terminated by the happening of the conditional event, for example ‘To AB in fee simple provided he never sells out of the family.’ The fee absolute estate is subject to no condition.

Estates can be in expectancy or ‘in possession’. The former is where a right to possession only arises on the termination of an earlier estate in a succession of estates called a settlement. Where land is settled ‘To AB for life and thereafter to CD in fee simple’, AB has an estate in possession and CD, during the life of AB, has an estate in expectancy. Future estates are ‘remainders’ or ‘reversions’. CD’s estate is a remainder because, on the termination of AB’s life, the estate remains away from the grantor. If there was no gift over to CD, the estate would revert back to the grantor or his heirs who have a reversionary interest.

The most perfect and most normal form of the fee simple estate is the fee simple absolute in possession. Other freehold estates of minor importance are the ‘fee tail’ estate where inheritance is restricted to the descendants of the original tenant in tail and the estate would terminate if the line of descendants came to an end. There also is the ‘life estate’ which generally terminates on the death of the person to whom the estate is granted.