Government powers within the world of real estate can be complex. In short, government powers enforce laws to promote the general welfare of the United States and its people.
What is Government Power?
Definition: Government power is the constitutional authority and inherent power of a state to adopt and enforce laws and regulations to promote and support public health, safety, morals, and general welfare. This is established in the tenth amendment of the constitution.
Example: Government powers range from small to large. The most common example of government power is zoning.
What is Real Estate Government Power?
There are many acronyms to remember government powers within real estate. I think the best word or acronym to use is PETE, which stands for:
P for Police Power
E for Eminent Domain
T for Taxation
E for Escheat
What is Police Power?
Police power is how the government regulates real estate. Examples of police power include zoning laws, building codes, fire codes, rent control, safety hazards, and tenant rights.
Unlike eminent domain, no compensation needs to be paid for the implementation of police power.
What is Eminent Domain?
Eminent domain is described as the right of the government to take over privately owned real estate, usually despite the owners’ wishes. This often happens for land that is required for infrastructure like highways, major pipelines, railroads, etc. The fifth and fourteenth amendments of the U.S. Constitution permit the government to exercise its power of eminent domain.
Let’s say Ms. Jackson lives on property one acre next to a highway. The state wants to widen the road due to the higher amounts of traffic reported. The state needs the space on either side of the road to widen the road. The government then seizes Ms. Jackson’s property and gives her $100,000 for it. Sorry, Ms. Jackson. Ms. Jackson does not have the opportunity to say no, though she can challenge whether the $100,000 is fair market value.
What is Taxation?
We all know what taxes are. Real estate taxes vary a lot. State to state, city to city, it all changes. A real estate tax is a charge on real estate used to pay for services provided by the government. For example, some towns may tax property more because they have a better school system. Larger cities may tax more for numerous reasons like their infrastructure, police force, etc.
What is Escheat?
Escheat occurs when a property owner dies and leaves no proper documented inheritance plan; the property ownership then reverts to the government. Escheat ensures that property always has ownership. Escheat is part of the reason it’s critical to have a will, or when you are purchasing a property you establish a clear right to survivorship.