A title encumbrance can limit potential commercial property uses

At first glance, under or undeveloped property zoned for commercial use can appear as an attractive opportunity to prospective sellers or buyers. However, an encumbrance on the title, such as an easement, can severely limit development and land use options.

Easement basics

In its most basic form, an easement grants a person or entity permission to use land owned by another. The easement holder does not possess the property defined in the easement, and only the landowner can make decisions to exclude others from accessing, using or occupying the property. Generally, the easement holder has a duty to maintain the property by making small repairs or improvements so long as these do not interfere with the property owner’s rights or wishes.

Appurtenant or in gross?

The classification of an easement can affect transferability when the land burdened by the easement is sold. Easements typically fall into two categories: appurtenant and in gross.

  • Appurtenant: A type of easement that benefits the land and is part of any sale, meaning the easement is transferrable upon new ownership.
  • In gross: A type of easement the benefits an entity or individual, rather than the parcel of land. Easements in gross generally are nontransferable when the land falls under new ownership.

Performing due diligence on a property

Since easements can limit what a property owner can do around the defined easement area, easements pose challenges for commercial construction and development projects, including limiting available funding options.

Not all easements are formally recorded, making performing due diligence an essential step before agreeing to buy or sell real property. Careful research of the title and a formal survey can reveal a previously undiscovered easement, allowing prospective buyers and sellers to adjust plans if needed.