Landlocked property may seem like a major problem to a novice real estate investor, but it's actually a rather common issue that in many cases can be resolved. Landlocked property definitely comes with its own set of challenges, but it's not necessarily a deal breaker when it comes to buying, selling, or developing real estate.
If you're looking at purchasing a landlocked parcel or you're a landlocked owner, get a better understanding of what landlocked property is, common challenges associated with this type of real estate, and ways to overcome those challenges.
What is landlocked property?
Landlocked property is a piece of land or real estate property that does not have public access to it. The property -- only accessible by passing through the neighboring property -- can be found in rural or urban areas and in both commercial and residential properties.
Landlocked property is most commonly created when a prior owner subdivides a large parcel of land into several smaller parcels, selling each parcel individually. If the subdivisions are created without careful forethought, a parcel can become landlocked without a public right of way.
Challenges of landlocked property
The challenge of owning landlocked property or being a neighboring landowner to a landlocked property is pretty clear: Public access to the property is nonexistent, meaning the landlocked owner needs to be granted legal access by a neighbor through an easement. This can also include not having access rights for public utilities like water, sewer, or electricity without these passing through a neighbor's property.
Getting a property easement can be a difficult process because it depends on the willingness and cooperation of the adjacent landowner. If the neighboring owner is stubborn or uninterested in granting access rights, the process to gain an easement can quickly become long and costly, leaving the investor with a property they can't do much with.
Benefits of landlocked property
The benefits of landlocked property are a bit more difficult to discern at first glance, but there are opportunities for more experienced investors to benefit. Most landlocked property owners realize not having a legal right of way to access the property is a problem and thus discount the price of the land to reflect its challenges.
This means investors can buy landlocked property cheaply, especially if an easement hasn't been granted on the property yet. This discount creates an opportunity for the purchasing investor to add value by going through the legal process to gain reasonable access to the property.
Gaining access to landlocked property
Landlocked property owners can gain access to their property through an easement, which is legal permission to access the property by passing through the neighbor's property. Easements are fairly common in real estate. For example, a utility easement is the legal right of a utility company to run or access certain public utilities like sewer lines, water pipes, or electrical lines through private property.
But when it comes to landlocked property between two property owners, the manner in which an easement is gained and the type of easement granted can vary depending on the situation.
Most landlocked property owners first attempt to speak with the neighbor to see whether they're willing to provide an access easement. This may require negotiations and compensation to the neighbor, but that's not always the case. If a mutual agreement is made, both parties enter into an easement agreement, which adds the access rights to the deeds of both properties.
Any access permissions must be done legally -- a handshake agreement won't cut it. If there's ever a dispute between neighbors or the neighbor granting access rights dies or sells, the landlocked property owner doesn't have any legal rights to access the property. A legal easement agreement will attach to both properties, meaning the rights will transfer when either parcel or property is sold, keeping the property owner protected.
If the neighbor is unwilling to provide an easement or is requesting unreasonable compensation, the landlocked owner can file a lawsuit against the neighbor in hopes of gaining a necessity easement. Necessity easements will be issued or granted by the court, meaning the filing party may not be granted the easement as hoped.
If the easement is granted, the filing party will have to pay just compensation to the neighbor for legal access. The neighbor can also appeal, causing more legal expenses and drawn-out timelines.
Other ways to gain access
There are other ways to gain an easement, but they are less common than a general easement agreement or easement by necessity. If the selling party of the landlocked property is also the owner of the adjoining parcel that would grant legal access, an easement is automatically provided, which is called an implied easement.
If the landlocked owner continuously and openly accesses the landlocked parcel passing through private property for a substantial period of time, it may be possible to gain a prescriptive easement. A prescriptive easement is comparable to adverse possession in real estate, but for an access road.
The timeline required for a prescriptive easement varies by state. For example, in Michigan, the property owner must openly use the same access way for 15 years without explicitly being denied or granted that right to access, but in Florida, it's a period of 20 years. If the private property owner explicitly denies or grants access at any point during that required time period, a prescriptive easement cannot be issued.
Why invest in landlocked property?
Most investors who invest in landlocked property do so with an end goal in mind, knowing an easement may not be possible. For example, if you own landlocked property adjacent to a business that's likely to expand, it's possible to wait for a buyout, selling the parcel to the adjoining owner.
It may also be possible to use the land for alternative uses, like timber or agriculture if allowed by local laws, assuming there's some sort of access to the property. If it's apparently known that the neighbor is unwilling to grant an easement, it's typically not a deal. And while it's not set in stone, it will be a difficult and expensive battle.
The bottom line
Investing in landlocked property isn't always a nightmare. There are times when it makes sense to buy a piece of property that doesn't have public access. But investors should be aware of the risks and potential challenges and always look into local laws that may prohibit or allow land use for properties without public or legal access.
Try to speak with the neighbors before buying the property to assess the likelihood of being able to get an easement if there isn't one granted already. This will be the biggest indicator as to whether the opportunity is there. Don't discredit personal grudges or stubborn neighbors. It can be extremely difficult, if not impossible, to sway their opinion, putting you in a very costly and likely unprofitable deal.