An encumbrance is a third party's right to, interest in, or
legal liability
In law, liable means "responsible or answerable in law; legally obligated". Legal liability concerns both civil law and criminal law and can arise from various areas of law, such as contracts, torts, taxes, or fines given by government a ...
on
property
Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
that does not prohibit the property's owner from transferring
title (but may diminish its value). Encumbrances can be classified in several ways. They may be financial (for example,
liens) or non-financial (for example,
easement
An easement is a nonpossessory right to use and/or enter onto the real property of another without possessing it. It is "best typified in the right of way which one landowner, A, may enjoy over the land of another, B". An easement is a propert ...
s, private restrictions). Alternatively, they may be divided into those that affect title (for example, lien, legal or equitable charge) or those that affect the use or physical condition of the encumbered property (for example, restrictions, easements, encroachments).
[Fillmore E. Galay et al., '' Modern Real Estate Practice in Illinois'', 4th edn. (Chicago: Dearborn Real Estate Education, 2001), 107.] Encumbrances include
security interests, liens,
servitudes (for example, easements,
wayleave
An easement is a nonpossessory right to use and/or enter onto the real property of another without possessing it. It is "best typified in the right of way which one landowner, A, may enjoy over the land of another, B". An easement is a propert ...
s,
real covenants,
profits a prendre),
leases, restrictions, encroachments, and air and subsurface rights.
Jurisdictions
Hong Kong
In
Hong Kong
Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a List of cities in China, city and Special administrative regions of China, special ...
, there is statutory definition of "encumbrance". In Conveyancing and Property Ordinance (Cap. 219) it reads: "''"encumbrance" (產權負擔) includes a legal and equitable mortgage, a trust for securing money, a lien, a charge of a portion, annuity, or other capital or annual sum; and "encumbrancer" (產權負擔人) has a meaning corresponding with that of "encumbrance" and includes every person entitled to the benefit of an encumbrance, or to require payment and discharge thereof''".
Other uses
Colleges
It is also a term used by
college
A college (Latin: ''collegium'') is an educational institution or a constituent part of one. A college may be a degree-awarding tertiary educational institution, a part of a collegiate or federal university, an institution offerin ...
s and universities to describe limitations placed on a
student
A student is a person enrolled in a school or other educational institution.
In the United Kingdom and most commonwealth countries, a "student" attends a secondary school or higher (e.g., college or university); those in primary or elementa ...
's account due to late payment, late registration, or other reasons stated by the institution. An encumbrance can prohibit students from registering for
classes, affect the release of their transcripts, or delay the reception of their
diplomas.
Accounting
In
management accounting, ''encumbrance'' is a management tool used to reflect commitments in the accounting system and attempt to prevent overspending. Encumbrances allow organizations to recognize future commitments of resources prior to an actual
expenditure
An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition i ...
.
;Pre-encumbrance: Amount expected to spend, but for which there is no legal obligation to spend. A requisition is a typical pre-encumbrance transaction.
;Encumbrance: Amount for which there is a legal obligation to spend in the future. A purchase order is a typical encumbrance transaction.
;Expenditure: Amount for which there has been an expenditure of funds. An expenditure is recorded in Commitment Control for both vouchers payable and journal entries.
Intellectual property
An example of
Intellectual property
Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, co ...
encumbrance is "encumbered code", software that cannot be freely distributed due to intellectual property rights.
References
Common law legal terminology
Property law legal terminology
Intellectual property law
Accounting terminology
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