Rights of Ownership:
Freeholds (Ownership Estates)
LEARNING OBJECTIVES
Upon completion of this section, the student should be able to:
•
•
•
•
Describe the two types of estates in land.
Define and give examples of fee simple estates: fee simple absolute, fee simple
defeasible, fee simple with a special limitation (determinable fee), and fee simple subject
to a condition subsequent.
Define a life estate and differentiate between a conventional life estate and a legal life
estate, citing examples of each.
Define and differentiate between remainder and reversionary interests.
VOCABULARY
What is an estate?
• Identifies the amount, length, and restrictions of an owner’s
interest in real property.
Freehold Estate Major Types
1. Fee Simple
2. Life Estate
Freehold
Estate
Fee
Simple
Life
Estate
ABC Real Estate School
3st ed National Workbook August 2010 Page 38
Freehold Estate
A buyer is purchasing a property. What are his ownership limitations? How
long can he own the property? Is there a deeded use that is off limits (maybe
using the property for a tavern)? Is there a use that must continue (maybe
conservation…not buildable)? Can his heirs inherit the property or is there a predetermined ownership upon his death? These questions are all answered upon
inspection of the type of freehold estate. The type of estate identifies the
amount, length, and restrictions of an owner’s interest in real property.
There are 2 major types of freehold estates: (1) fee simple estate and (2) life
estate. There are multiple subtypes under these major types.
Fee Simple Freehold Estate
Fee Simple
Freehold
Estate
Fee Simple
Absolute
Determinable
Fee Simple
Defeasible
Limitation
Condition Subsequent
There are 2 types of fee simple freehold estates and they are very
different. Because a fee simple absolute is the most common type of fee simple
freehold estate and a fee simple defeasible is rare, sometimes people forget that
there is a defeasible or defeatable type of fee simple freehold estate and they
use the terms fee simple and fee simple absolute interchangeably; but on the real
estate exam, questions will distinguish between the 2 types.
Fee Simple Absolute
A fee simple absolute freehold estate is the most complete private
ownership interest that can be held in real property. Fee simple ownership
ABC Real Estate School
3st ed National Workbook August 2010 Page 39
represents absolute ownership of real property but as always is limited by basic
government powers of taxation, eminent domain, police power, escheat, and any
other recorded deed restrictions. The owner is entitled to all legal rights to the
property, including use of the property forever, and the right to will the property
to designated heirs.
Fee Simple Defeasible
A fee simple defeasible freehold estate is ‘defeatable’. In other words
ownership can be terminated if the owner fails to properly use the property.
Ownership has its limits.
“A defeasible estate is created when a grantor transfers land conditionally.
Upon the happening of the event or condition stated by the grantor, the transfer
may be void or at least subject to annulment. (An estate not subject to such
conditions is called an indefeasible estate.) Historically, the common law has
frowned on the use of defeasible estates as it interferes with the owners'
enjoyment of their property and as such has made it difficult to create a valid
future interest. Unless a defeasible estate is clearly intended, modern courts will
construe the language against this type of estate. Three types of defeasible
estates are the fee simple determinable, fee simple subject to an executory
limitation or interest, and the fee simple subject to a condition subsequent.
Because a defeasible estate always grants less than a full fee simple, a defeasible
estate will always create one or more future interests.
Fee simple determinable
A fee simple determinable is an estate that will end automatically if the
stated condition occurs. The interest will revert to the grantor or the heirs of the
grantor. A possibility of reverter follows a fees simple determinable. Durational
language such as "to A as long as the property is used for a park" creates a fee
simple determinable and a possibility of reverter.
Fee simple subject to a limitation
A fee simple subject to a limitation is an estate that ends when a specific
condition is met and then transfers to a third party. The interest will not revert to
the grantor. If the condition is met, the grantee loses the interest and the third
party gains it automatically.
ABC Real Estate School
3st ed National Workbook August 2010 Page 40
Example: O grants Blackacre to A and A's heir; but if A ever accepts a candy bar
from C, then to B and B's heirs.
Here, O is the original owner. She grants A a fee simple subject to the subsequent
condition that he doesn't accept a candy bar from C. But unlike a fee simple
subject to a condition subsequent, Blackacre goes to a third party (B) instead of
the grantor (O) if the condition is met. Also unlike a fee simple subject to a
condition subsequent, B then automatically gains the interest in Blackacre and does
not only have a mere right to sue for re-entry.
What would happen if the property were conveyed? Let's say A sold Blackacre to
D. If A afterwards accepted an offer for a candy bar from C, Blackacre
automatically goes to B. But if A died without ever accepting a candy bar from C,
the condition could not possibly be met. D would then have a fee simple absolute.
Fee simple subject to condition subsequent
A fee simple subject to a condition subsequent is created when the words of a
grant support the conclusion that the grantor intends to convey a fee simple
absolute but has attached a condition to the grant so that if a specified future
event happens the grantor will get its fee simple absolute back, provided that the
grantor exercises his right of entry(or power of termination). Thus, a fee simple
subject to condition subsequent does not end automatically upon the happening of
the condition. The future interest is called a "right of reentry" or "right of entry,"
and the property only reverts back to the original grantor if he exercises this
right.
The right of entry is not automatic, but rather must be exercised to terminate the
fee simple subject to condition subsequent. To exercise right of entry, the holder
must take substantial steps to recover possession and title, for example, by filing a
lawsuit. Physical entry is not required, but the holder must do more than just
proclaim an intent to take back.
One of the languages used to create a fee simple subject to condition subsequent
and a right of entry is "to A, but if A sells alcohol on the land, then grantor has the
right of entry(or power of termination). Common uses include language such as
"may", "but if", "however", or "provided that..."” 5
5
http://en.wikipedia.org/wiki/Defeasible_estate Accessed July 8, 2010.
ABC Real Estate School
3st ed National Workbook August 2010 Page 41
Fee Simple Freeholds Review
A.
Fee Simple Absolute
1.
the highest interest in real estate recognized by law
2.
holder is entitled to all legal rights to the property
B.
Fee simple Defeasible (Defeatable) Estate
1.
a qualified estate
2.
subject to the occurrence or non-occurrence of some specific event
3.
3 types:
a)
Determinable
(1)
As long as the property is used for….
b)
condition subsequent
(1)
As long as you don’t…
(2)
new owner may not perform some action or activity
(3)
former owner retains rights if condition is violated
c)
special limitation
(1)
As long as you do or don’t…..
(2)
former owner reacquires full ownership if the condition is
violated
(3)
also called a fee simple determinable
Fee Simple Life Estate
A life estate is a concept used to designate the ownership of land for the duration
of a person's life. It is an estate in real property that ends at death. The owner
of a life estate is called a "life tenant".
Although the ownership of a life estate is of limited duration because it ends at
the death of the person who is the "measuring life", the owner has the right to
enjoy the benefits of ownership of the property, including income derived from
rent or other uses of the property, during his or her possession. This life tenant
may farm, lease, mortgage or sell his interest, but cannot effect the remainder.
Because a life estate ceases to exist at the death of the measuring person's life,
this temporary ownership agreement cannot be willed by the life tenant.
At death, ownership of the property involved in a life estate either moves on to a
3rd party named by the original owner, or reverts back to the original owner. If
the property moves on to a 3rd party, named the remainderman ,the new ownership
is typically fee simple absolute.
ABC Real Estate School
3st ed National Workbook August 2010 Page 42
A life estate could also be named "pur autre vie", or the life of another. Such a life
estate can also be conveyed originally, such as "to A until B dies." For example,
because Grandma Wells has Alzheimer’s, the property will be given to Grandpa
Wells while he cares for Grandma until her death. Upon Grandma Wells’ death, the
property ownership will change either back to the original owner or a 3rd party
named in the deed.
II.
Life estate
A.
B.
C.
D.
E.
freehold estate limited in duration to the life of the owner
not inheritable
terminates upon death
passes to future owners according to its’ provisions
owner is called life tenant
a)
life tenant has full enjoyment of the ownership for the duration of
his/her life
b)
when the life tenant dies - his/her ownership ends and passes to
another designated individual or returns to the previous owner
c)
ownership can be based on anothers’ life (pur autre vie - for the
life of another)
d)
a life tenant is entitled to the rights of ownership
(1)
owns profits
(2)
may farm, lease, mortgage or sell his interest, but can not
effect the remainder
e)
pur autre vie tenancy is often created for physically or mentally
diminished persons
f)
a life tenant cannot injure the building for future use
2.
2 types of interest:
a)
remainder
(1)
receives a fee simple estate
(2)
remainderman receives remainder interest
(3)
Interest goes on to next, unique, named beneficiary.
b)
reversion
(1)
receives a fee simple estate
(2)
creator recaptures ownership when the life estate ends
(3)
Interest reverts back to original owner.
ABC Real Estate School
3st ed National Workbook August 2010 Page 43