Of Property and Federalism
Americans move a lot. According to the Census Bureau nearly one in six moves in a given year, roughly 20% of whom cross state lines. Americans on the move need not start completely anew. They can maintain old cellular numbers and sports team allegiances. Thanks to the Internet, they can also continue to read the same local newspapers and listen to the same local radio. But they can’t maintain all of their old property rights.
Like many other fields of law in the United States, property law is generally the domain of individual states, rather than the federal government. Can a co-owner of a house in joint tenancy with the right of survivorship unilaterally change the property form to tenancy in common by self-conveyance? Will your planned testamentary gift of a remainder interest in your home to a cousin’s “youngest grandchild” fall on the wrong side of the rule against perpetuities? Consult your local attorney—this is a matter of state, not federal, law.
Unlike contract law, property law doesn’t leave complete freedom of choice to the governed. Many contracts today have choice-of-law provisions, permitting contracting parties in Utah, for example, to be governed by the law of New Jersey. And businesses headquartered in California can incorporate in Delaware. Not so with property: The house you buy in Utah will be governed by the property law of Utah, even if both you and the seller prefer New Jersey law.
Property scholars maintain that this is part of the traditional rigidity of property law embodied in the rule of numerus clausus—an ancient Roman principle establishing that there is a limited set of permissible property rights. Any other right sounds in contract only. Thomas Merrill and Henry Smith have explained the desirability of the principle with an informational theory in an article they published in The Yale Law Journal. To Merrill and Smith, property rights need special treatment because they apply to everyone, even if they were not part of the bargain creating the rights. The rule of numerus clausus ensures that buyers of property rights and third parties will know exactly what their rights are, without the need to invest too much in gathering information.
We believe that the traditional approach is incomplete. Property owners may already take advantage of differences in property rules by moving their residence and assets from state to state. A married California couple, for example, can bring a car owned in community property to their new home in New York and utilize California community-property rules, even though New York does not recognize that form of ownership. As a general rule, personalty, or movable personal property, is controlled by the law of the owner domicile. Hence, as long as California remains the couple's domicile, disputes involving the car will be governed by California law even though the car is in New York. Realty, by definition, cannot be moved. So disputes involving realty will be governed by the law of the situs, i.e., the law of the state in which the realty is situated.
We suggest expanding owners’ flexibility by using a registry system similar to that used in corporate law. Property owners should be allowed to choose the state property law that will apply to any given asset, but will be required to register the fact in a publicly available registry. A California couple—or a couple from any other state for that matter—should be able to buy a car in New York and register that car as community property under California law, even if they never plan on returning west.
Under our proposed regime, whenever a new property right is created or acquired, the parties may choose to define the property right according to the full menu of property laws available throughout the country. Thus, for example, when a landowner in Massachusetts transfers realty to her children in anticipation of her death, she may select not only from the available real property estate forms in Massachusetts, but also from those of New York, California, and all the other states of the Union. First, she would register the estate in the state whose property form was used. Then, in order to ensure full information about the property on the market, she would explicitly indicate her choice of estate law in the registry where the property is located. This would put third parties on notice of the law governing the property in the estate.
To prevent abuse of this system, we recognize that it is necessary to distinguish between offensive and defensive uses of property rights. Offensive uses involve the erosion of the property rights of other owners, without agreement between the parties. Offensive uses include doctrines such as nuisance and adverse possession. Defensive uses, by contrast, involve consensual agreements between property owners. Examples of defensive uses include the creation of a conservation easement and the governance of marital property. In our proposed system, owners would be able to import only defensive uses such as forms of consensual tenancies, trusts, and leaseholds. They would not be permitted to import out-of-state offensive forms such as rights to commit nuisances, or more favorable rules for adverse possession or implied easement.
Federalism is an engine of legal innovation in the United States. As Justice Brandeis commented, “[i]t is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” Through these experiments, citizens are able to get better laws. Charles Tiebout famously observed that while political mechanisms for local government services and taxes may be clumsy and inefficient, citizens can always vote with their feet by immigrating to jurisdictions that provide better services for their tax money. The Tiebout hypothesis shows that even without direct markets for government services, federal competition can lead to efficient outcomes.
Legal scholars have for many years examined the positive effects of federalism in fields such as contract law, local government and tax law, and corporate law. As scholars such as Larry Ribstein have shown, individuals’ ability to choose the best law for their needs leads to competition that improves the quality of law and the efficiency of transactions. Corporate law has been the scene of a particularly vigorous discussion about the benefits of federalism. See, for example, this article by Roberta Romano.)
Given how often Americans move, and the beneficial effect of mobility on competition, it is time to remove the constraints imposed by traditional property doctrines on mobility. It’s time to bring the benefits of federalism to property law.
Abraham Bell is a Visiting Professor of Law at Fordham University Law School and Lecturer at Bar-Ilan University’s Faculty of Law. Gideon Parchomovsky is a Professor of Law at University of Pennsylvania Law School. The authors are currently working on a book about the law of takings to be published by Yale University Press.
Preferred Citation: Abraham Bell & Gideon Parchomovsky, Of Property and Federalism, Yale L.J. (The Pocket Part), Oct. 2005, http://yalelawjournal.org/forum/of-property-and-federalism.
Read the full-length print version of Of Property and Federalism as published in The Yale Law Journal here.