Washington Real Estate Fundamentals
Lesson 2:
Estates in Land and
Methods of Holding Title
© 2011 Rockwell Publishing
Introduction
This lesson will discuss:
 the different types of possessory
interests in real property (estates in land)
 the different ways title to real property
can be held
© 2011 Rockwell Publishing
Estates in Land
Interests in real property
Interest: An interest in real property is a right
concerning the property or a claim against it.
Interests may be:
 possessory (also called estates)
 nonpossessory (also called
encumbrances)
(Nonpossessory interests are covered in the
next lesson.)
© 2011 Rockwell Publishing
Estates in Land
Types of estates
Two basic categories:
 freehold estates (include title)
 leasehold estates (do not include title)
© 2011 Rockwell Publishing
Types of Estates
Freehold estates
Two main types of freehold estates:
 fee simple estates
 life estates
© 2011 Rockwell Publishing
Freehold Estates
Fee simple estates
Fee simple:
 Most common type of freehold estate.
 Highest and most complete form of land
ownership.
 Can potentially last forever.
 Perpetual, transferable, and inheritable.
 Also called a fee simple absolute.
© 2011 Rockwell Publishing
Fee Simple Estates
Fee simple absolute
Fee simple absolute is the default:
 If a fee simple owner transfers title,
grantee receives fee simple absolute
unless deed makes it clear that grantor
intended otherwise.
© 2011 Rockwell Publishing
Fee Simple Estates
Qualified fee
Qualified fee: Fee title with a condition or
qualification attached.
 Estate will end if condition no longer met
or if specified event occurs.
 Also called fee simple defeasible.
© 2011 Rockwell Publishing
Freehold Estates
Life estates
Other category of freehold estates (aside
from fee simple estates) is life estates.
Life estate:
 limited in time
 lasts only as long as a specified person
is alive
© 2011 Rockwell Publishing
Life Estates
Example
James donated his farm to the Children’s Aid
Society, but retained a life estate in the farm.

James has exclusive possession and use
of farm until he dies.

When James dies, farm will belong to the
Children’s Aid Society.

While James is alive, he is the life tenant.
© 2011 Rockwell Publishing
Life Estates
Duration
Measuring life: Life on which a life estate
depends.
 May be life tenant’s own life.
 “To Alice for life” - Alice’s life estate
ends when she dies.
 But someone else’s life can be used
instead (pur autre vie).
 “To Alice for the life of Beverly” Alice’s life estate ends when Beverly
dies.
© 2011 Rockwell Publishing
Life Estates
Future interests
Future interest: Ownership interest that will
become possessory when life estate ends.
 When life estate created, future interest
created at same time.
Future interest may be:
 estate in reversion
 estate in remainder
© 2011 Rockwell Publishing
Future Interests
Estate in reversion
Margarita grants a life estate to John.
If she stipulates that the property will come
back to her (or to her heirs) when John dies,
Margarita and her heirs have an estate in
reversion.
Margarita would be called a reversioner.
© 2011 Rockwell Publishing
Future Interests
Estate in remainder
But if Margarita stipulates that the property will
go to Sam (not back to her or her heirs) when
John dies, then Sam has an estate in
remainder.
 Sam would be called a remainderman.
If no remainderman named, future interest is
estate in reversion.
© 2011 Rockwell Publishing
Life Estates
Duties of a life tenant

Must pay taxes, assessments, other
liens.

Must not commit waste by permanently
damaging property or using up
resources.

Must allow holder of future interest to
inspect property periodically.
© 2011 Rockwell Publishing
Summary
Freehold Estates
•
•
•
•
•
•
•
•
•
Freehold estate
Fee simple absolute
Qualified fee
Life estate
Life tenant
Measuring life
Future interest
Estate in reversion
Estate in remainder
© 2011 Rockwell Publishing
Types of Estates
Leasehold estates
Leasehold estate: Limited, temporary estate
created by a lease contract.
 Parties = landlord and tenant
 Tenant gets right to exclusive possession
and use of property.
 Landlord retains title to property.
© 2011 Rockwell Publishing
Leasehold Estates
Types of leasehold estates
Estate for years
 Periodic estate
 Estate at will
 Tenancy at sufferance

© 2011 Rockwell Publishing
Types of Leasehold Estates
Estate for years
Estate for years: Leasehold estate that lasts
for any fixed term.
 Created only by express agreement.
 Ends automatically when term expires.
 Notice of termination not required.
 Also called tenancy for years or term
tenancy.
© 2011 Rockwell Publishing
Types of Leasehold Estates
Periodic estate
Periodic estate: Leasehold estate that is not
limited to a specific term.
 Continues from rental period to rental
period until landlord or tenant gives notice
of termination.
 Required notice period generally equals
rental period.
 Also called periodic tenancy.
© 2011 Rockwell Publishing
Types of Leasehold Estates
Estate at will
Estate at will: Tenant in possession with
landlord’s consent for indefinite period.
 Rent may be paid on irregular basis or
not at all.
 Can be terminated at any time with
proper notice.
 Also called tenancy at will.
© 2011 Rockwell Publishing
Types of Leasehold Estates
Estate at will
Differences between estate at will and other
leasehold estates:
 Estate at will cannot be assigned to
another person.
 Estate at will ends automatically upon
death of either party.
© 2011 Rockwell Publishing
Types of Leasehold Estates
Tenancy at sufferance
Tenancy at sufferance: Tenant took
possession under valid lease, but no longer
has right to possession.
 Tenant stays on after lease expires,
without landlord’s consent.
 Not a true estate; tenant does not have a
leasehold interest.
 Also called holdover tenancy.
© 2011 Rockwell Publishing
Summary
Leasehold Estates
•
•
•
•
•
Leasehold estate
Estate for years
Periodic estate
Estate at will
Tenancy at sufferance
© 2011 Rockwell Publishing
Methods of Holding Title
Real property may be owned by:
 one individual
 more than one individual
 a business, agency, or other organization
Depending on number and type of owners,
title can be held in different ways.
© 2011 Rockwell Publishing
Methods of Holding Title
Ownership in severalty
Ownership in severalty: Ownership by one
individual. Also called sole ownership.
Individual owner may be:
 natural person (human being)
 artificial person (legal entity such as
corporation)
© 2011 Rockwell Publishing
Methods of Holding Title
Co-ownership
Co-ownership: Ownership by two or more
persons at the same time. Also called
concurrent ownership.
Three types of co-ownership in Washington:
 tenancy in common
 joint tenancy
 community property
© 2011 Rockwell Publishing
Forms of Co-ownership
Tenancy in common
Tenancy in common: Most basic form of
co-ownership.
 Default form of co-ownership:
 If one of the other forms does not
apply or is not specified, it’s a tenancy
in common.
© 2011 Rockwell Publishing
Tenancy in Common
Undivided interests
Like other co-owners, tenants in common
have undivided interests.
 They share possession of the whole
property (unity of possession).
In a tenancy in common, shares don’t have
to be equal.
 Example: A and B own some land as
tenants in common. A has a 1/4 interest
and B has a 3/4 interest.
© 2011 Rockwell Publishing
Tenancy in Common
Transfer of interests
One tenant in common is free to sell, will, or
mortgage his interest without the consent of
the other(s).
© 2011 Rockwell Publishing
Tenancy in Common
Partition
Tenancy in common will end if:
 all co-tenants agree to sell the property,
 all agree to partition (divide) the property
into separate parcels, or
 one co-tenant files a partition suit to force
a division or sale.
© 2011 Rockwell Publishing
Forms of Co-ownership
Joint tenancy
In a joint tenancy, two or more persons are
joint and equal owners of a property.
How joint tenancy differs from tenancy in
common:
 Joint tenants must have equal shares.
 Joint tenants have right of survivorship.
© 2011 Rockwell Publishing
Joint Tenancy
Four unities
Requirements for creation or continuation of a
joint tenancy:
 unity of interest
 unity of title
 unity of time
 unity of possession
© 2011 Rockwell Publishing
Joint Tenancy
Right of survivorship
Right of survivorship: Key feature of joint
tenancy.
 When a joint tenant dies, her interest
automatically passes to the surviving
joint tenant(s).
 Joint tenancy interest cannot be willed
and is not part of estate.
© 2011 Rockwell Publishing
Joint Tenancy
Termination
Like tenancy in common, joint tenancy can be
terminated through partition suit.
Also, joint tenancy terminates automatically if
any of the four unities is destroyed.
 If one joint tenant conveys interest,
purchaser is tenant in common.
 But other co-tenants remain joint
tenants in respect to each other.
© 2011 Rockwell Publishing
Forms of Co-ownership
Community property
In Washington and certain other states,
property owned jointly and equally by two
spouses is community property.
© 2011 Rockwell Publishing
Community Property
Basic rules
In community property states:
 Everything owned by married couple that
isn’t separate property of one spouse is
community property of both spouses.
 Legal presumption that all property
acquired during marriage is community
property.
© 2011 Rockwell Publishing
Community Property
Definitions
Separate property:
 property owned before marriage
 gift or inheritance acquired during
marriage
 anything purchased with separate
property funds
 profits or proceeds from separate
property
© 2011 Rockwell Publishing
Community Property
Definitions
Community property: All property (including
money) acquired during marriage:
 through skill or labor, or
 using community funds or community
credit.
© 2011 Rockwell Publishing
Community Property
Joinder requirement
Signatures of both spouses necessary to:
 list, sell, or encumber community real
property
 purchase property that will be community
real property
(By contrast, spousal approval usually not
required for transfer of community personal
property.)
© 2011 Rockwell Publishing
Forms of Co-ownership
Marital property in other states
In non-community property states, property
ownership by a married couple may be:
 no different than co-ownership by
unmarried parties,
 tenancy by the entireties, or
 some other form of marital property.
© 2011 Rockwell Publishing
Summary
Co-ownership
•
•
•
•
•
•
•
•
•
Ownership in severalty
Co-ownership
Undivided interests
Tenancy in common
Joint tenancy
Four unities
Right of survivorship
Community property
Separate property
© 2011 Rockwell Publishing
Methods of Holding Title
Business organizations
How a business is organized affects how title
to property is held.
Syndicate: Group of individuals who pool
resources to form a business enterprise.
© 2011 Rockwell Publishing
Business Organizations
Forms of organization
Business may be organized as:
 general partnership
 limited partnership
 corporation
 limited liability company
 joint venture
 real estate investment trust
© 2011 Rockwell Publishing
Business Organizations
Partnerships
Partnership: Association of two or more
persons to conduct a business as co-owners
and divide profits.
Types of partnerships:
 general partnership
 limited partnership
© 2011 Rockwell Publishing
Partnerships
General partnerships
In a general partnership, each partner has:
 ownership interest
 voice in management decisions
 right to share in profits
 obligation to share in losses and liabilities
© 2011 Rockwell Publishing
General Partnerships
Unlimited liability
All partners have unlimited liability.
 Each may be held personally liable for
debts and obligations of general
partnership.
© 2011 Rockwell Publishing
General Partnerships
Property ownership
Partnership property:
 acquired in partnership’s name, or
 acquired in name of one or more
partners and deed refers to the
partnership
© 2011 Rockwell Publishing
General Partnerships
Property ownership
Partner:
 has right to use partnership property
 is not co-owner of the property and does
not have a transferable interest in it
But partner’s interest in partnership can be
transferred.
© 2011 Rockwell Publishing
Partnerships
Limited partnerships
Limited partnership: At least one general
partner, plus one or more limited partners.
 More structured and regulated than
general partnership.
 Must meet requirements of Uniform
Limited Partnership Act.
 Certificate of limited partnership filed with
secretary of state’s office.
© 2011 Rockwell Publishing
Partnerships
Limited partnerships
Limited partners have limited liability.
 Limited liability: Individual investor not
personally liable for business’s debts.
Originally, limited partners not allowed to
participate in management and control.
 Now full participation permitted without
jeopardizing limited liability.
© 2011 Rockwell Publishing
Business Organizations
Corporations
Corporation: Owned by shareholders, who
purchase shares as investment.
 Legal entity (“artificial person”).
 Enters into contracts, owns property,
incurs liabilities.
 Potentially perpetual existence (no joint
tenancy).
© 2011 Rockwell Publishing
Corporations
Securities
Shares in a corporation are securities.
 Securities: Investment instruments such as
stocks and bonds.
 Give investors financial interest in
enterprise without managerial control.
 Sale of securities regulated by federal
Securities & Exchange Commission (SEC);
may be subject to blue sky laws as well.
 Only licensed securities dealers may sell
securities.
© 2011 Rockwell Publishing
Corporations
Management
Shareholders have:
 limited liability
 no direct managerial control
Corporation is:
 governed by board of directors elected
by shareholders
 managed day-to-day by corporate
officers chosen by board
© 2011 Rockwell Publishing
Corporations
Double taxation
Problem with corporate form: double taxation
on all but smallest corporations.
 Corporation pays corporate income
taxes on profits.
 Profits distributed to shareholders as
dividends.
 Shareholders pay personal income taxes
on dividends.
© 2011 Rockwell Publishing
Business Organizations
Limited liability companies
Limited liability company: Combines
advantages of partnership with advantages
of corporation.

All LLC members have limited liability,
even managing members.

No double taxation.
© 2011 Rockwell Publishing
Business Organizations
Joint ventures
Joint venture: Two or more individuals or
organizations join together for specific project.

Not an ongoing business endeavor.

No formal requirements for creation.
© 2011 Rockwell Publishing
Business Organizations
Real estate investment trusts
REIT: Syndicate created by investors to finance
large real estate projects.
 No double taxation if:
 100+ investors
 75% of assets invested in real estate
 90% of income distributed to investors
 Investors have limited liability.
 Shares are securities, subject to federal
regulation.
© 2011 Rockwell Publishing
Summary
Business organizations
•
•
•
•
•
Syndicate
General partnership
Limited partnership
Corporation
Securities and Exchange
Commission (SEC)
• Limited liability company (LLC)
• Joint venture
• Real estate investment trust (REIT)
© 2011 Rockwell Publishing
Methods of Holding Title
Co-ownership properties
Three special types of properties involve
co-ownership:
 condominiums
 cooperatives
 timeshares
© 2011 Rockwell Publishing
Co-ownership Properties
Condominiums
Condominium owner:
 owns individual unit
 shares ownership of common elements
with other unit owners (tenancy in
common)
Condominium governed by homeowners
association (also called unit owners
association or condo association).
© 2011 Rockwell Publishing
Condominiums
Common elements
Common elements: Aspects of condo
property for use by all residents.
 Also called common areas.
 Examples: lobby, elevators, pool
© 2011 Rockwell Publishing
Condominiums
Limited common elements
Limited common elements: Common
elements reserved for exclusive use of
owners of specified units.
 Examples: parking spaces, balconies
© 2011 Rockwell Publishing
Condominiums
Units as separate properties
Buyer of condominium unit:
 receives deed for unit
 finances purchase with separate loan
 obtains separate title insurance policy
 pays separate property taxes
© 2011 Rockwell Publishing
Co-ownership Properties
Cooperatives
Cooperative may look just like condominium,
but has very different ownership structure.
 Title to cooperative property held by
single entity (usually corporation).
 Residents:
 own shares in the corporation
 have long-term proprietary lease
on unit
© 2011 Rockwell Publishing
Co-ownership Properties
Cooperatives
Cooperative project is:
 financed with single mortgage
 taxed as single property
Rent paid by shareholder-tenant is share of
co-op’s mortgage payment and operating
expenses.
 Default by one tenant could result in
foreclosure on entire building.
© 2011 Rockwell Publishing
Co-ownership Properties
Timeshares
Some condos are offered for sale under a
timeshare arrangement.
 Buyer purchases right to occupy unit
during a certain time slot each year.
© 2011 Rockwell Publishing
Co-ownership Properties
Timeshares
Washington Timeshare Act requires:
 disclosure statement
 registration of timeshare properties
 registration of timeshare salespersons
(real estate licensees exempt)
Buyers have right of rescission for 7 days
after signing purchase agreement or receiving
disclosure statement.
© 2011 Rockwell Publishing
Summary
Condos and Co-ops
•
•
•
•
•
•
•
•
Condominium
Homeowners association
Common elements
Limited common elements
Cooperative
Proprietary lease
Timeshare
Right of rescission
© 2011 Rockwell Publishing