Real Estate Exams

The common oil and gas lease under which the lessee is entitled to enter upon the land of the lessor and develop and remove oil or gas is a "profit a prendre".In addition, it would not be sufficient to define "possessory interests" for tax purposes by simply expanding the property law definition of a "possessory interest" to include additional specific categories in real estate exams such as profits, because the contours of those categories are themselves uncertain in many instances. The difference between an easement, a profit, and a license is often ambiguous. The Restatement of Property includes profits within the category of easements, on the grounds that "it has been found . . . that in no case was there a rule applicable to one of these interests which were not also applicable to the other."

These uncertainties greatly diminish the extent to which reliance upon property law categories can offer predictable tax consequences, or result in equivalent tax treatment of functionally equivalent interests. For example, a mineral lease may constitute either a conveyance of title to the minerals together with an implied easement for their removal, a lease with an exemption from liability for waste, or a profit with an implied easement. Similarly, a sharecropping agreement may be considered a tenancy in common, a lease, or an employment contract. It is undesirable to permit the taxation of economically equivalent rights in public property to vary according to formalities chosen by the parties.
Comment, Recognizing the Limits of California's Possessory Interest Tax, would define profits that accord exclusive possession of public land as "possessory" for tax purposes even though they are not within this category as a matter of property law.

An easement is a right of use, either positive or negative. A right of passage over neighboring land could take the form of a positive easement, while a negative easement might prevent the adjacent owner from erecting a building that blocked sunlight to the easement holder's property.

"The Restatement tried -- and failed -- to eliminate the verbal distinction between easements and profits." The differences between a license and an easement, especially one in gross, are often slight. The distinction between easements and licenses is often so metaphysical, subtle and shadowy as to elude analysis. Distinction between mineral lease and license has troubled courts for "a hundred years".

This classification served as the basis for a criminal proceeding in In re Okahara. A Japanese citizen had been arrested for conspiring to violate the state's Alien Land Law, passed by public initiative in 1920, which prohibited the transfer of "real property, or any interest therein, in this state" to aliens ineligible for citizenship. The agreement at issue was held to be a mere "cropping contract" that did not convey an interest in property, and therefore the defendant was acquitted. The careful drafting of the contract to achieve that result actually encouraged prosecution.