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and the right mix of them raises many empirical and normative questions.

• Further Reading

Thomas F. Bergin & Paul G. Haskell, Preface to Estates in Land and Future Interests (2d ed. 1984) (standard reference work).

Jesse Dukeminer, A Modern Guide to Perpetuities, 74 Cal. L. Rev. 1867 (1986) (surveying various aspects of the Rule Against Perpetuities and related doctrines).

T.P. Gallanis, The Future of Future Interests, 60 Wash. & Lee L. Rev. (2003) (proposing reforms for the estate system).

Th omas W. Merrill & Henry E. Smith, Optimal Standardization in the Law of Property:The Numerus Clausus Principle, 110 Yale L.J. 1 (2000) (developing theory of the numerus clausus based on information costs).

Elizabeth S. Scott & Robert E. Scott, Marriage as Relational Contract, 84 Va. L. Rev. 1225 (1998) (analyzing marriage as in part an extralegal commitment that intersects with legal enforcement of property and other arrangements).

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regarded as creating a distinct form of ownership, and each of which plays an important role in modern economic systems.

Importantly, these are not the only legal devices for achieving a separation of management authority from other incidents of ownership. Perhaps the most important device, in terms of the total assets involved, is the business corporation. A corporation owns certain assets in its own name, such as factories, inventories, and intellectual property rights. The corporation is in turn owned by shareholders, who have a claim on the earnings of the corporation (through the payment of dividends), and on the assets of the corporation if it is dissolved. The shareholders, as the ultimate owners of the corporation, appoint directors who hire and oversee managers, who in turn run the corporation. (Directors and managers need not but typically do own shares of the corporation, but even where they do, their interest may be a tiny fraction of outstanding shares, as is typical in large publicly held corporations.) This arrangement allows management of the corporation’s assets to be separated from other incidents of the corporation’s property—namely, the profits and losses generated by those assets and the liquidation value of the assets.

The law of business organizations allows corporations (and related devices such as partnerships) to serve as pools of assets that creditors of the owners cannot reach: If Joe Shareholder misses a car payment, the corporation’s factory is not available to Joe’s creditors. And the creditors of the corporation cannot come after the shareholders personally. This “limited liability” means that if the corporation fails, Joe Shareholder’s stock might become worthless, but that is all he is on the hook for; his other assets are safe.

These business entities, however, are so important they are studied in separate courses. We will honor that convention here by largely ignoring them. It is important to remember, however, that the separation of management authority from other incidents of ownership can be achieved in multiple ways, including not merely the devices we consider in this chapter but also others, such as forming a corporation.

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•Why Separate Management Authority from Other Incidents of Ownership?

Property by its very nature tends to concentrate authority over the management of resources. The logic of property is to assign each thing of value to an identifiable owner, who has the right to manage the thing to the exclusion of everyone else. Why then would people ever want to separate managerial authority from other incidents of ownership, such as the rights to possess, consume, or enjoy the profits from some thing? There are several reasons, including those related to financing and avoiding taxes. The most general explanation, however, involves achieving a specialization of functions in the management of resources. This specialization often requires aggregating resources—on some dimensions at least—to achieve the scale needed to support the introduction of specialized management. This aggregation is difficult to achieve solely through contracts among individual owners of smaller scale resources, because of collective action problems such as holdouts and freeriders. Leasing, common-interest communities, and trusts are all forms of property that permit aggregation on some dimensions—which creates the conditions for the introduction of specialized management on those dimensions—while maintaining separation on other dimensions. This explanation is best fleshed out with some examples, which will also serve to introduce the three forms of property we will consider in this chapter.

Consider, first, a shopping center, consisting of a complex of retail stores arrayed in a single building, together with common facilities such as a heating plant, landscaping, a parking lot, and security guards. One way to organize such a shopping center would be to have one person (most likely a corporation) own and manage all the assets in the complex. This single owner-manager strategy has advantages and disadvantages. The principal advantages are that common facilities can be effectively managed and maintained by the single owner. The disadvantages are those characteristic of any large enterprise. It may be difficult to supervise employees,

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such as retail clerks, in many different shops, and the shopping center may take on a dull homogeneous aspect lacking appeal for many consumers. Another way to organize the shopping center would be to have each store owned and operated independently of the others, the way downtown shopping areas have traditionally been organized. This multiple owner-manager strategy also has advantages and disadvantages. The advantage is that the individual shops can better supervise employees and will exhibit greater variety and responsiveness to consumers. A principal disadvantage is that fragmentation of ownership creates a huge collective action problem. Who will be in charge of providing heat and maintaining the parking lot? Who will provide security services? Who will maintain the landscaping? It would be difficult if not impossible for the individual shop owners to agree on contracts in which they mutually agree to provide such services.

A better solution, which avoids many of the drawbacks of both the single-owner and the multiple-owner strategies, is to use leasing to overcome the collective action problem while retaining individual managerial authority over the individual shops. Under such an arrangement, one party—the owner of the complex as a whole—owns and controls the common facilities, such as the building, the landscaping, and the parking lot, and is responsible for providing security for the whole complex. This solves the collective action problems associated with multiple owners. The individual store spaces are then leased to different shopkeeper-tenants, each of whom is responsible for management of their own individual space. Thus, each individual shopkeeper-tenant decides, independently, how to design the interior space of each shop, what inventory to purchase, and how to compensate and supervise employees. This solves many of the problems of bureaucracy, employee supervision, and homogeneity associated with the single-owner strategy. Given the division of functions permitted by leasing, it is not surprising that this device is almost universally used in the organization of shopping centers.

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Our second example is a real estate development consisting of many freestanding single-family homes clustered around some common facility such as a boating marina, a ski resort, a golf course, or an ecological preserve. Here again, we can imagine both centralized and decentralized ways of organizing such a community. One could organize the common interest community under the auspices of a single owner, with the owner managing all the assets and assigning homes to individual families by contract. This would likely tend toward excessive rigidity and homogeneity and would not give individual families control over the design and maintenance of their assigned homes. Alternatively, one could organize the community as a collection of independent homes, relying on contracts among homeowners to support the common facilities. But this would generate potentially insuperable collective action problems if individual homeowners refused to contribute to the common undertaking or otherwise failed to cooperate with each other.

Today, the dominant way to organize such a common interest community is by creating a homeowners’ or community association to govern the common facilities, with the individual homes owned as condominiums or in fee simple subject to a package of servitudes running with the land. The homeowners’ or community association functions like a private government, with a constitution, laws, an elected governing board, and periodic meetings of unit owners to vote on actions of general interest. Most importantly, the homeowners’ or community association is given the power to collect monthly assessments from the homeowners to pay for the ongoing provision of the common facilities. Meanwhile, the individual homes are managed by each individual homeowner, subject to restrictions about exterior decoration and upkeep, and perhaps other matters such as keeping pets. As in the case of the shopping center, we can see that the common interest community is a device for overcoming collective action problems to provide for a specialization of functions.

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Our third example involves a problem in the transmission of family wealth from one generation to the next. Suppose the family breadwinner, B, is suffering from a fatal disease and does not expect to live much longer. B’s spouse, S, has limited ability to earn income, and has recently battled with cancer, which is in remission and may or may not return. B also has three children from a prior marriage. The eldest, E, is independent, has a well-paying job, and is in good health. The middle child, M, is still in college and is trying to decide between a low-paying but personally gratifying career and a much higher-paying career. The youngest child, Y, suffers from a variety of behavioral problems including drug abuse and has been in and out of group homes for years; it is unclear whether these problems will be resolved. B has accumulated substantial savings, and would like to leave the money in such a way as to provide the greatest benefit in the future to the four people B cares most about—S, E, M, and Y.

If the only options were those presented by the system of estates in land considered in Chapter 5, then none of the options is entirely satisfactory. B could leave a will that splits the property into four shares with each survivor owning his or her share in fee simple. But this might leave S with insufficient funds for future cancer treatments, or for M, if M elects the low-paying career option, or for Y, if continued treatment for behavioral problems is required. Moreover, B is likely to be concerned that some of the beneficiaries, such as Y, are not capable of managing the assets, and could fritter the money away or use it for undesirable purchases like drugs. Alternatively, B could leave a life estate to S, with remainders to E, M, and Y. But S might live a very long time, or might remarry, and in either event might not want to devote any of the money for the support of M and Y, if they need it before S dies.

What B needs is a faithful and competent manager for the assets, who can invest and dispose of the funds in the future in approximately the way B would have done if B were still alive. The principal method for doing this today is to create a trust. This allows legal title to the funds to be transferred from B to a trustee, T, either