The Right to Include

• Publication year: 2014

The Right to Include

Daniel B. Kelly

THE RIGHT TO INCLUDE

Daniel B. Kelly^*

Abstract

Recent scholarship has created renewed interest in the "right to exclude." Many contend that, because owners have a right to exclude, private property has a tendency to promote individualism and exclusion. But, as I will argue, property can promote sociability and inclusion by providing owners with various ways of including others. Owners can assert their "right to include" by waiving exclusion rights, dividing existing rights by contracts or property forms, and creating new co-ownership arrangements. Inclusion is socially beneficial insofar as it enables sharing and exchange, facilitates financing and risk-spreading, and promotes specialization. Yet inclusion may entail costs, including coordination difficulties, strategic behavior, and conflicts over use. To mitigate such costs, the law authorizes not only informal and contractual inclusion but also inclusion through various forms of property like easements, leases, and trusts. By providing owners with a range of options by which to include others, these forms help to ensure that an owner's private incentive to include converges with the socially optimal level of inclusion. Each form not only binds third parties but also provides owners and those they may include with a unique mixture of anti-opportunism devices, such as mandatory rules, fiduciary duties, and supracompensatory remedies. Understanding how the law promotes the social use of property provides insights into debates over the property/contract interface, numerus clausus, and the right to exclude itself.

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Introduction..............................................................................................859

I. Exclusion and Inclusion...............................................................862

A. Excluding Others from Property................................................862
B. Including Others in Property......................................................866

1. Involuntary Inclusion ...........................................................866
2. Voluntary Inclusion..............................................................868

II. On the Social Desirability of Inclusion....................................870

A. Social Benefits of Inclusion........................................................871

1. Sharing.................................................................................871
2. Exchange .............................................................................. 873
3. Financing.............................................................................874
4. Risk-Spreading.....................................................................875
5. Specialization .......................................................................876

B. Social Costs of Inclusion............................................................878

1. Coordination Difficulties......................................................879
2. Strategic Behavior ................................................................ 879
3. Conflicts over Use................................................................881

III. Competing Modes of Inclusion....................................................882

A. Informal Inclusion ...................................................................... 882
B. Contractual Inclusion ................................................................. 885
C. Proprietary Inclusion ................................................................. 889

1. Justifications.........................................................................890

a. Third-Party Effects ........................................................ 890
b. Mandatory Rules ........................................................... 891
c. Fiduciary Duties............................................................892
d. Supracompensatory Remedies ....................................... 893

2. Applications .......................................................................... 895

a. Easements ...................................................................... 896
b. Leases............................................................................898
c. Bailments ....................................................................... 901
d. Condos and Co-ops ....................................................... 903
e. Trusts ............................................................................. 906

3. Extensions ............................................................................. 908

a. Partnerships and Corporations ..................................... 908
b. Franchises .....................................................................911
c. Co-ownership ................................................................ 913

IV. The Implications of Inclusion......................................................918

A. The Property/Contract Interface................................................918
B. The Numerus clausus Principle ................................................. 919

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C. The Right to Exclude Revisited...................................................922

Conclusion..................................................................................................923

Introduction

This Article contends that the ability of owners to "include" others in their property is a central attribute of ownership and fundamental to any system of private property. Too easily overlooked in debates about the right to exclude, or the rights of others to be included, is that owners frequently include others in the use, possession, and enjoyment of their property. The ability to include others—by waiving the right to exclude, dividing existing rights by contract or recognized forms of property, or creating new rights and forms—is critical for coordinating economic activities and organizing social relationships.

Owners include others in different ways, with different legal implications. Much inclusion is informal, e.g., a dinner invitation or a gratuitous license, in which an owner decides not to enforce or to waive the right to exclude. With informal inclusion, social norms, rather than law, usually govern the parties' interactions. Inclusion also may be contractual, e.g., an agreement not to withdraw a waiver or license. With contractual inclusion, the parties have legal remedies, typically damages, if the owner breaches by revoking a waiver or if the nonowner breaches by exceeding the scope of a license. In addition to waiving exclusion informally or contractually, owners may rely on property forms that facilitate inclusion. With proprietary inclusion, each form not only binds third parties to a particular division of property but also provides the original parties with a unique mixture of anti-opportunism devices, such as mandatory rules, fiduciary duties, and supracompensatory remedies.

In the absence of contracts or property forms, an owner's private incentive to include others might be socially suboptimal. Although some types of inclusion might still occur, parties would include others too little, fearful of opportunism and conflicts over use. To combat such fears and increase cooperation, the law authorizes formal devices like contracts and recognized forms of property by which owners may include others. As a result, both contracts and property forms can function as assurance mechanisms, minimizing the risk of strategic behavior and conflicts over use.

This Article contends that, due to the risk of opportunistic behavior, a proliferation of forms helps to ensure that the private incentive to include others converges with the socially optimal level of inclusion. The law facilitates cooperation because each form of inclusion entails different costs

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and benefits, and owners may choose among these various forms in deciding whether, and under what circumstances, to include others in their property.

Generally, informal inclusion (e.g., gratuitous licenses or nonenforcement) is less costly than formal inclusion because it relies on social norms rather than law. However, if there is a danger of "high-value opportunism,"¹ informal inclusion may provide parties with too little certainty. If an owner decides to withdraw a license or to enforce her rights, the nonowner may have no legal remedy. Therefore, while including others via waiver or nonenforcement is, as Robert Merges contends, an important "flip side" of exclusion,² informal inclusion, by itself, is inadequate to maximize the social use of property.

Contractual inclusion (e.g., formal waivers of exclusion or intellectual property licenses) can be more costly than informal inclusion, but contracts provide more certainty and deter many kinds of opportunism.³ If an owner withdraws a contractual waiver or terminates a license, the licensee may sue for breach. conversely, if a licensee exceeds the scope of an inclusion, the owner may sue the licensee to vindicate the owner's rights. Knowing that legal remedies are available, both parties may be less inclined to act strategically, both at the outset and during performance of the contract.

Owners also may include others using various property forms, what this Article calls "proprietary inclusion." These property forms, from easements and leases to trusts and corporations, are often similar to contracts in many ways. But the forms may provide even more certainty and protection against opportunism. Specifically, because property rights are in rem and "run with the land," property forms can provide greater certainty than informal or contractual inclusion for successive owners and users. Moreover, while contracts deter certain types of opportunism, property forms can provide additional protection through a greater reliance on mandatory rules and fiduciary duties. Finally, unlike contracts, which rely primarily on compensatory...