REAL PROPERTY
I.
OWNERSHIP
A. PRESENT ESTATES: THE FEE SIMPLE
1.
The Fee Simple
The fee simple absolute is the most complete property interest known to the law. It is an estate of
infinite duration. At common law, in order to convey a fee simple inter vivos, the grantor had to
deed the property to the grantee “and his heirs.” Under the modern law of most states, that phrase
is no longer required; a simple conveyance “to B” will suffice.
2.
Defeasible Fees Simple
a. Types of qualified estates
1)
Determinable estates
Any estate that automatically terminates and reverts to the grantor on the happening of a
specified contingency is a determinable estate. (The grantor’s retained future interest is
called a possibility of reverter.)
A determinable estate is often created by the use of words such as “so long as,” “until,” or
“during.”
2)
Estates subject to a condition subsequent
If the grantor of an estate has the right to enter the property and take back the estate if a
contingency comes to pass, the estate is subject to a condition subsequent. (The grantor’s
retained interest is called a right of entry for condition broken or a power of termination.)
(a) Words of creation
Any grant retaining a right of entry on a certain condition creates an estate subject to
a condition subsequent. However, a court may find, even without such a clear expression
of the grantor’s interest, that an estate subject to a condition subsequent is created
when the condition is preceded by a phrase such as “but if,” “on condition that,” or
“provided that.”
(b) Action necessary to enter and re-take estate
At common law, an actual physical entry on the land was required. Today, most
jurisdictions hold that filing an action to recover the land is sufficient to re-vest title in
the grantor.
3)
Estates subject to an executory limitation
An estate is subject to an executory limitation if, on the happening of a contingency,
a third party takes (or may take) the grantee’s estate. Thus,
estates subject to an executory limitation differ from determinable estates and estates subject
to a condition subsequent only in that the future interest lies in another grantee, not the
grantor. (The future interest held by the third party is called an executory interest.)
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Executory limitations are distinguished from rights of entry and possibilities of reverter
primarily because the Rule Against Perpetuities applies only to future interests in third
parties, and thus does not apply to possibilities of reverter or rights of entry.
4)
The fee tail
The fee tail was an estate that passed automatically from generation to generation of the
grantee’s heirs. At the death of the grantee, the property passed automatically to the
appropriate heir (usually the grantee’s oldest child). When that heir died, the property
again passed automatically to the heir’s heir, and so on, indefinitely. If any of the successive
owners of the estate died without heirs, the property reverted to the grantor.
(a) Words of creation
At common law, a fee tail was created by a grant to the grantee “and the heirs of his
body” or to “A, but if A dies without issue, then to B and his heirs.” Such a grant was
called a “fee tail general.” A “fee tail special” was created if the grant restricted the
subsequent takers to the heirs of the grantee by a particular spouse. The subsequent
takers could also be limited to the male or female heirs of the grantee by use of the “fee
tail male” or “fee tail female.”
(b) Modern developments
The fee tail has been eliminated in most states, usually by either converting it into a
fee simple absolute, or by allowing the current holder to convey the estate as a fee
simple absolute.
b. Issues common to all qualified estates
1)
Possessory rights of owners of qualified estates
The owner of a qualified fee estate is not liable to the holder of the future interest for
waste.
2)
Grantee’s right of alienation
Qualified estates are transferable, but the conditions imposed on the estate pass with the
estate, even if not listed in the new deed.
3)
Impermissible conditions
The contingency which terminates the estate cannot be within the control of the grantor,
because such power would reduce the estate to an estate at will. The contingency cannot
be a prohibition against ownership or use of the land by members of a particular race.
Many states also void conditions that encourage divorce, discourage marriage, or
discourage legitimate will contests. Many states also refuse to enforce a condition that
would divest a fee owner of her estate on the basis of her alienation of the estate.
3.
Life Estates
A life estate is an estate the duration of which is measured by the lifetime of a person.
a. Words of creation and types of life estates
At common law, a life estate was created by the conveyance “to A.” This is no longer the rule
today; such a conveyance conveys the grantor’s entire estate.
A life estate pur autre vie (a life estate “for the life of another”) can be created in a grantee (A,
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in this example) by a conveyance “to A for the life of B.” A life estate pur autre vie is also
created when the holder of a life estate deeds his estate to another.
b. Rights and obligations of the life tenant
Unlike the holders of fees simple and fees tail, life tenants (and nonfreehold tenants) have
only limited rights in the property.
1)
Right of possession and related rights of enjoyment
The fundamental right of the life tenant is possession. Incident to that right is the right to
all rents and profits during the time she is entitled to possession. She is also entitled to
evict the grantor, trespassers, adverse possessors, and holders of future interests, and to
sue for damages to her present possessory interest in the property.
2)
Right of alienation
Absent a specific prohibition, a life tenant may lease, sell, or mortgage his
interest in the property.
3)
Rights in fixtures
When personal property affixed by a life tenant can be removed without lasting damage
to the real property, the personal representative of the deceased life tenant has a reasonable
time after the life tenant’s death to remove such property.
4)
Rights in division of proceeds
If the property is involuntarily converted by an eminent-domain taking, a mortgage
foreclosure, or a court order, the usual procedure is to value the life estate by use of
actuarial tables in relation to the remainder interest, and divide the proceeds accordingly.
5)
Obligation not to commit waste
The right of life (and nonfreehold) tenants to the use and enjoyment of property is limited
by the doctrine of waste. The modern law of waste makes a life tenant liable to the
holder of the future interest for any reduction in the value of the future estate for
which the life tenant is responsible.
6)
Obligation to pay taxes
The life tenant is obligated to pay the ordinary, annual real estate taxes assessed against
the property, to the extent that she receives actual or imputed income from the property.
The life tenant is also obligated to pay her share of extraordinary real estate taxes assessed
to pay for long-term public betterments.
7)
Obligation to pay interest on the mortgage
If the property was already mortgaged when the life tenant’s estate became possessory,
the life tenant is obligated to pay the interest due on the mortgage during his estate, to
the extent that the property produces or can produce income. The life tenant is not obligated
to pay any principal due under the mortgage.
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4.
Summary Of Basic Estates
Name of
Interest
FreeHold?
Example of Words
Necessary to Create
Interest
Fee Simple
Yes
“to A and his heirs”
(common law), “to
A” (modern law)
None
None
Fee Tail
Yes
“to A and the heirs of
his body”
Reversion
Remainder
Life Estate
Yes
“to A” (common
law), “to A for life”
(modern law)
Reversion
Remainder
Term for Years
No
“to A 10 years”
Reversion
Springing
Executory
Interest
Periodic
Tenancy
No
“to A from year to
year”
Reversion
Springing
Executory
Interest
Tenancy at
Will
No
(Implied by
consensual
possession)
Reversion
Springing
Executory
Interest
Determinable
Estate
Yes
“to A and his heirs so
long as . . .”
Possibility of
Reverter
Springing
Executory
Interest
Estate Subject
to a Condition
Subsequent
Yes
“to A and his heirs,
but if . . . then . . .”
Right of Entry
for Condition
Broken
Springing
Executory
Interest
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Subsequent
Future
Interest in
Grantor
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Subsequent
Future
Interest Held
by Third
Party
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B. CONTENACY
Concurrent estates exist when two or more persons have possessory rights (i.e., estates) in a single
parcel of land at the same time.
The joint tenancy and tenancy by the entirety are specialized forms of concurrent ownership, with
special requirements for their creation. All other concurrent estates are tenancies in common.
1.
Tenancy In Common
A tenancy in common exists when two or more owners have the right to possess property at the
same time, and their tenancy does not meet the criteria for a joint tenancy or tenancy by the
entirety.
There are no rights of survivorship. If one tenant dies, her interest passes to her heirs or devisees.
When the respective shares of tenants in common are not specified, they are presumed to hold
equal shares.
2.
Joint Tenancy
a. The right of survivorship
The right of survivorship is an incident to a joint tenancy. A right of survivorship signifies
that, at the death of a joint tenant, his interest passes to the surviving joint tenants. It
cannot be devised by will.
b. Requirements necessary to create a joint tenancy
1)
Common law
At common law, any conveyance that included “the four unities” was presumed to create
a joint tenancy.
(a) Unity of time
The interests of all the cotenants had to vest at the same time. This requirement meant
that a grantor could not create a joint tenancy between herself and other cotenants at
common law, since her interest would always predate the interests of her grantees.
(b) Unity of title
The interests of all the cotenants had to be acquired from the same instrument.
(c) Unity of interest
The cotenants had to have equal interests.
(d) Unity of possession
The cotenants had to have equal and concurrent rights to possess and enjoy the property.
2)
Modern law
(a) Intent to create must be explicit
Generally, under modern law, it must be clear that the grantor intended to create a joint
tenancy. Some states require that the grant specifically include a right of survivorship.
(b) Unity of interest
Most jurisdictions still require that joint tenants have equal interests.
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c. Destruction
1)
Conveyance
A joint tenant’s conveyance of an interest in the property will destroy the joint tenancy
between his interest and the interests of his fellow cotenants. Many jurisdictions also hold
that the signing of a contract to sell the joint tenant’s interest will destroy the joint tenancy,
at least for equitable purposes. A mortgage by a joint tenant will destroy the joint tenancy
in a title-theory state (where title is passed to the mortgagee as security). However, a joint
tenancy is not destroyed by an attempt to devise the joint tenant’s interest. Such a devise is
of no effect at all.
2)
Partition action
A judgment in a partition action will destroy a joint tenancy.
3)
Effect of destruction
The destruction of a joint tenancy terminates the right of survivorship only of the
share conveyed or partitioned. The joint tenancy (and right of survivorship) persists
between the other joint tenants.
3.
Tenancy By The Entirety
Tenancy by the entirety is a form of concurrent ownership that can be held only by a married
couple. There is a right of survivorship, but the owners cannot convey or unilaterally partition
their individual interests (unlike joint tenants).
a. Creation
A married couple is presumed to take as tenants by the entirety. If a conveyance to
unmarried persons purports to create a tenancy by the entirety, many courts will find that a
joint tenancy was created, since the grantor probably intended that the cotenants should have
a right of survivorship.
b. Destruction
A tenancy by the entirety can only be terminated by a divorce, an annulment, or an
agreement to partition. Mere separation will not suffice. Once the couple is divorced, the
property is held as tenants in common. A tenant by the entirety cannot unilaterally have her
interest partitioned, even by a court. The property can be partitioned (and the tenancy by the
entirety destroyed) only by agreement of the parties. A tenancy by the entirety cannot be
terminated by a conveyance or a devise.
4.
Rights And Liabilities Of Cotenants
a. Right to possession
A cotenant is entitled to possession of the entire property, subject to the same right as his
cotenants. Thus, if one of the cotenants actively excludes the others from possession or
enjoyment of the whole or any part of the property, his conduct amounts to an ouster, and an
action of ejectment will lie. However, permissive possession and use of the entire property by
one cotenant is not an ouster.
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b. Right to convey
Both the tenant in common and the joint tenant (but not the tenant by the entirety) may
convey their undivided interest in the property. The grantee succeeds to her grantor’s
concurrent ownership in the property as a tenant in common, even if the grantor held the
property as a joint tenant.
If one cotenant purports to convey full and exclusive ownership of the property, the conveyance
will be effective only to convey the grantee’s concurrent interest. Moreover, the conveyance
may be treated as an ouster of her cotenants. When one tenant seeks to convey her interest in
the property by separating and conveying a particular segment of the property, the conveyance
will not be given effect insofar as it interferes with the other cotenant’s right of partition.
c. Partition
A partition terminates concurrent ownership by assigning a physical share of commonly held
land corresponding to the interest of a cotenant to the cotenant in exclusive ownership. Property
held in tenancy by the entirety can only be voluntarily partitioned. Property held in joint
tenancy or tenancy in common can be partitioned by either of the following methods.
1)
Voluntary partition
Cotenants may validly agree on a division of the land. This agreement must be in writing
to be effective.
2)
Involuntary partition
Partition of property held in joint tenancy or tenancy in common may also be accomplished
by court action.
3)
Restraints on right of partition
Reasonable restraints on a cotenant’s right of partition are generally upheld, since the
cotenant always has the right to sell his undivided interest in the property.
4)
Obligation to account for rent
Since a cotenant has a right to occupy the entire premises, she is not generally liable to
account to her cotenants for the fair rental value of her own personal use of the
land.
5)
Obligation to pay for improvements and repairs
In cases of necessary repairs, the majority rule is that contribution from the other tenants
will be required. However, in the case of improvements, unnecessary repairs, or repairs
which only benefited the paying cotenant, contribution will usually be denied.
6)
Obligation to pay taxes and carrying charges
Where one tenant pays more than his share of carrying charges, such as interest on a
mortgage, mortgage principal, or taxes, he is generally entitled to contribution from the
other cotenants.
7)
Waste
Most jurisdictions have enacted statutes permitting one tenant to sue another for waste. A
cotenant commits waste when she exceeds the reasonable use and enjoyment of the
land.
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C. FUTURE INTEREST
A future interest is reversionary if it is retained by the grantor at the time he conveys the prior
estates. Reversions, possibilities of reverter, and rights of entry are reversionary future interests. A
future interest is nonreversionary if it is granted to someone other than the grantor at the time the
grantor conveys the prior estates. Remainders and executory interests are nonreversionary future
interests.
In general, a future interest is vested if the holder has a present (i.e., certain) right to later possess
the property. All reversionary future interests are also said to be vested. A future interest is
contingent if the grantee’s right to later possess the property is uncertain. That is, a future interest is
contingent until the grantee meets all necessary preconditions to having a right of possession.
1.
Reversions
Anytime a grantor conveys a qualified estate or an estate of lesser duration than she owns, without
expressly naming a subsequent taker, the grantor automatically retains a future interest. Future
interests held by the grantor are never subject to the Rule Against Perpetuities.
The grantor retains a reversion when she grants an absolute interest that is less than her own
interest.
2.
Remainders Vested And Contingent
Any interest in a third party that may become possessory immediately after a prior life estate, fee
tail, or freehold estate is a remainder.
a. Vested remainders
An individual’s remainder is vested if he has a present or certain right to take possession
of the property when the prior estates terminate. If the individual is not yet alive or has
not yet met a condition precedent to his taking an interest, then his interest is not yet vested,
but is contingent.
1)
Legal incidents of a vested remainder
The designation of a remainder as “vested” rather than “contingent” has the following
ramifications:
2)
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A vested remainder does not lapse if the holder dies prior to the time of
possession.
•
Vested remainders are not subject to the Rule Against Perpetuities.
•
Contingent remainders were “destructible” at common law, as discussed
infra.
Classification of vested remainders
8
•
The Absolutely Vested Remainder. The interest of the person holding an
absolutely vested remainder is subject neither to dilution nor to divestment.
•
The Vested Remainder Subject to Open. A vested remainder is “subject
to open” (or “subject to partial divestment”) if the remainderman’s interest
is vested but her share of the property is not certain because other persons
may be capable of sharing in the grant. The vested remainder subject to
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open most commonly occurs in class gift situations.
•
The Vested Remainder Subject to Complete Divestment. A vested
remainder subject to complete divestment is not subject to a condition
precedent, but a condition subsequent will completely divest the
remainder interest.
b. Contingent remainders
An individual holds a contingent remainder whenever he may someday have a right to take a
remainder interest, but has not yet met a condition precedent to taking such an interest.
1)
Words of creation
The condition precedent to vesting can be explicit or implied.
2)
Destructibility of contingent remainders
At common law, a contingent remainder was destroyed if it had not vested by the time the
preceding estate terminated. The destructibility of contingent remainders has been
abolished today.
3.
Executory Interests
Any nonreversionary future interest following a qualified fee or any interest held by the grantor is
an executory interest. Executory interests are classified into “shifting” and “springing” interests,
depending on the holder of the prior estate.
a. Shifting executory interests
A nonreversionary future interest following a qualified estate held by another grantee is a
shifting executory interest. A conveyance “to A, so long as the property is used for church
purposes, and if not so used, to B” creates a shifting executory interest in B.
b. Springing executory interests
A grantee holds a springing executory interest when his estate does not begin until a future
time and the immediately preceding estate is held by the grantor.
4.
Possibilities Of Reverter, Power Of Termination
a. Possibilities of reverter
The grantor retains a possibility of reverter when she conveys a determinable estate. A possibility
of reverter signifies that title and right to possession will automatically re-vest in the grantor
on the happening of the specified condition.
b. Right of entry
The right of entry for condition broken (or power of termination) is created when the grantor
conveys an estate subject to a condition subsequent. The right of entry signifies that the
grantor has the right to take back the granted estate from the grantee, at his discretion, when
and if the stated condition comes to pass.
The right of entry for condition broken is considered a personal right and thus not alienable,
unlike reversions and possibilities of reverter.
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5.
Summary Of Future Interests
Example of Words
Necessary to Create
Interest
Applicability
of Rule
Against
Perpetuities
(1) Reversion
(Created by law when
grantor transfers less
than he has)
No
Life Estate, Fee Tail,
Term for Years,
Periodic Tenancy,
Contingent Remainder, Executory
Interest
(2) Possibility of
Reverter
(Created by law after
Fee Simple
Determinable)
No
Fee Simple
Determinable
(3) Right of Entry
for Condition
Broken
(Created by law after a
Fee Simple subject to
a Condition Subsequent)
No
Fee Simple subject
to a Condition
Subsequent
(4) Absolutely
Vested
Remainder
“(to X for life) and
then to A and her
heirs”
No
Life Estate, Fee Tail,
or Estate for Years
(5) Vested Remainder Subject
to Open
“(to X for life) and
then to the children of
A and her heirs”
Yes (until
Class Closes)
Life Estate, Fee Tail,
or Estate for Years
(6) Vested Remainder Subject
to Complete
Divestment
“(to X for life) then to
A and her heirs, but if
A does not survive X,
then to B and her
heirs”
No
Life Estate, Fee Tail,
or Estate for Years
Name of Interest
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Interest Usually
Preceding It
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(7) Contingent
Remainder
“(to X for life), and
then to A and her heirs
if A survives X”
Yes
Life Estate, Fee Tail,
or Estate for Years
(8) Executory
Interest (Shifting
Use)
“(to X and her heirs),
but if the property is
not used for church
purposes then to A
and her heirs”
Yes
Fee Simple subject
to an Executory
Interest, Vested
Remainder subject to
Complete
(9) Executory
Interest (Springing Use)
“(to X for life), and
one year after X’s
death, to A and her
Yes
Reversion or Fee
Simple subject to an
Executory Interest
D. THE LAW OF LANDLORD AND TENANT
These estates are typified by the grantee’s finite possessory right, which is not measured by a human
life. The grantor (landlord) also has an implied right to collect rent from the grantee/tenant during the
tenant’s possession.
1.
Fitness And Suitability Of The Premises
a. Landlord’s obligations
1)
Common law rule
In general, at common law, the landlord made no implied warranties that the premises
were or would remain in any particular state of repair.
The following situations provided the only exceptions to this general rule. In these cases,
the landlord was (and is) liable for any negligence in maintaining the premises. In order to
qualify as negligence, the defects should be ones of which the landlord actually was or
should have been aware.
(a) Latent defects
The landlord had a duty to disclose (not repair) defects which the tenant would not
reasonably be able to discover.
(b) Short-term lease of a furnished dwelling
The landlord would be liable for any damages resulting from defects of which she
was or should have been aware.
(c) Short-term public-use lease
If the landlord knew the tenant was going to open the demised premises to the public
and the lease was only of a short duration, the landlord was liable for any defects on
the premises.
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(d) Common areas
The landlord was always liable for defects in the common areas of multi-unit dwellings.
(e) Undertaking to repair
If the landlord undertook to repair a defect on the premises, he was liable for any
negligence in the repair, even if he was under no duty to repair the defect in the first
place. Thus, if the landlord supposedly repaired a defect, but the defect still injured
someone, the landlord would be liable.
2)
Leases imposing duty on landlord
In the case of minor defects, the damages would be the cost of repair. In the case of major
defects, the damages would be the difference between the fair rental value of the premises
in good repair and in the state of repair in which they were actually leased. However, at
common law, the landlord was not liable in tort for any injuries sustained as a result of a
breach of a covenant to repair. The modern trend is to impose such tort liability.
3)
Modern rules of residential leases
(a) Implied covenant of habitability
The modern law of most states imposes an implied covenant of habitability on any
residential lease. These covenants generally not only warrant that the premises are in
compliance with local building health and safety codes at the commencement of the
lease, but also covenant that the landlord will keep the premises in compliance during
the lease term. This covenant cannot be waived by the tenant.
The landlord must repair any defects that rise to the level of a violation of the
local building codes, unless the defects were caused by the negligent or intentional
acts of the tenant.
(b) General duty of care
Many jurisdictions now impose a general duty of care on landlords in regard to
residential tenants. In these states, a landlord is liable for her negligence in failing to
discover or repair defects. The defects need not rise to the level of a violation of a
building code to create liability for damages or personal injuries.
b. Tenant’s common-law duty to avoid waste
The common-law rule is that the tenant is only under a duty to avoid waste. A tenant is
required to repair negligent or intentional damage done to the premises and to make ordinary
repairs to keep the property in the same condition as at the commencement of the lease, but he
is not obligated to repair the ordinary wear and tear to the property (unless such repair is
necessary to avoid more substantial waste). The tenant is also liable for any “ameliorating”
waste which changes the property (even if it increases the property’s value), unless he holds a
very long-term lease.
If the tenant covenants to repair in a nonresidential lease, the premises must be returned to
the landlord in the condition in which the tenant received it. This duty is absolute and arises
regardless of the cause of the damage. The tenant would also be liable to repair everyday wear
and tear to the property, unless the lease provided otherwise. However, in residential leases
where the tenant covenants to repair, the landlord is usually obligated to make repairs (except
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for damage caused by the tenant) under the implied warranty of habitability, regardless of the
covenant.
2.
Types Of Holdings, Creation, Termination
a. The estate for years
Any estate with a fixed and certain period of duration is an estate for years. An estate for
years terminates at the end of the stated period. No notice is required.
Most American jurisdictions now require that any lease for more than one year must be in
writing.
b. Tenancy at will
A tenancy at will is a tenancy which is terminable at the will of either the landlord or the
tenant, and has no specified period of duration.
c. Tenancy at sufferance
A tenancy at sufferance occurs when the tenant wrongfully remains in possession after her
tenancy has been validly terminated. No notice is required to terminate a tenancy at
sufferance.
d. Periodic estates An estate for successive periods of time with no fixed termination
date is a periodic estate.
1)
Periodic tenancy by implication
A periodic tenancy can be implied anytime a tenant pays and the landlord accepts rent for
an identifiable period of time.
2)
Termination of periodic tenancies
Periodic tenancies can be terminated by either party, but the terminating party usually
must give notice of termination equal to the length of the tenancy period.
3. Assignment And Subletting
Unless there is a lease provision to the contrary, the interests of landlords, tenants for years,
and periodic tenants are freely transferable. The transfer of a tenancy at will or at sufferance is
valid between the parties, but is not enforceable against the landlord.
If the tenant sells her leasehold, the rights of the parties will depend on whether the transfer is an
assignment or a sublease. If the tenant conveys the remainder of her entire (temporal and physical)
estate, there has been an assignment of her interest. If the tenant conveys less than her entire
estate, there has been a sublease of her interest.
An assignee of the tenant takes the tenant’s estate and thus is said to be in privity of estate with the
landlord. A subtenant is not in privity of estate with the landlord. In effect, the sublease creates
a second tenancy, between the tenant and her subtenant.
a. Running of lease covenants, generally
Since the landlord and tenant are in horizontal privity when they make any lease covenants,
those covenants may run with the land at law and be enforceable by and against successors.
Also, the fact that the landlord owns a reversionary estate in the leased premises will satisfy
the requirement that the party seeking to enforce an equitable servitude must hold an estate
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that will benefit from the covenant.
b. The rent obligation, specifically
1)
Obligation of the original tenant
The tenant cannot discharge his rent obligation by either a sublease or assignment.
His contractual obligation to pay rent continues even if he is no longer in possession of the
property. However, if the tenant assigns his interest, he is only secondarily liable (as a
surety); an assignee assumes the primary obligation to pay rent.
2)
Obligation of the tenant’s lessee
(a) Obligation of an assignee
When a lessee accepts an assignment of the tenant’s interest in leased land, the tenant’s
covenant to pay rent runs with the land and is enforceable against the assignee. Since
the assignee is liable only by virtue of her possession of the estate and is not held to
have assumed the contractual obligation per se, however, she is liable on the rent
obligation only for the period of her estate (i.e., her possession).
(b) Obligation of a subtenant
The rent covenant is not directly enforceable against a subtenant.
(c) Assumption of rent obligation by lessee
If the lessee expressly assumes the tenant’s rent obligation, the landlord can sue the
lessee directly as a third-party beneficiary of the contract between the lessee and the
tenant.
c. Covenants against assignment and subletting
Leases often contain a clause prohibiting assignment and/or subletting by the tenant. Since
such a clause restricts the tenant’s right of alienation, courts construe these provisions
narrowly and are quick to find a waiver of the landlord’s contractual right to prohibit a
sublease or assignment. Under the rule in Dumpor’s case, consent to one sublease or assignment
extinguishes the landlord’s right to object to any future assignments or subleases (unless the
right is specifically saved by agreement).
4.
Rent
The tenant’s obligation to pay rent is implied in the landlord-tenant relationship. If the amount is
not specified in the lease or by agreement, a reasonable rent will be implied.
a. Defenses to the rent obligation
1)
Eminent domain
If the entire premises have been taken by eminent domain, the lease and the rent obligation
are terminated. If less than all of the property is taken, modern law provides for a proportional
abatement in the rent for any lost value the tenant cannot recover from the taking authority.
2)
Destruction of the leasehold
At common law, if the premises consisted solely of space in a building and the building
was destroyed, the lease and the rent obligation were terminated. However, if the premises
consisted of land as well as buildings, the common law held that the lease and the rent
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obligation would be fully enforceable. Today, statutes in many jurisdictions or provisions
in the lease itself often provide for at least an abatement in rent if the buildings or part of
the premises are destroyed.
3)
Frustration of purpose/illegality
Common-law courts allowed the tenant to avoid the lease under the doctrine of frustration
of purpose only if the only use of the premises allowed by the lease was or later became
illegal (e.g., by new zoning regulations). Some states have extended the applicability of
the doctrine beyond supervening illegality, to encompass acts of God or third parties that
make the property unusable for its intended use.
4)
Surrender
A tenant cannot unilaterally abandon the property and avoid his contractual rent obligation.
The rent obligation is terminated only if the landlord agrees to “surrender” the
lease. The landlord’s surrender can be an express agreement to terminate the lease (which
must be in writing if more than one year remains on the lease), or it can be found in the
landlord’s actions.
If the landlord takes possession of the premises for his own use, or re-rents the premises
on his own account, such action will always be held to be a surrender. If the landlord rerents the premises on behalf of the tenant, the lease is not discharged.
5)
Eviction
An actual, physical eviction of the tenant by the landlord or anyone with superior title
violates the covenant of quiet enjoyment and discharges the tenant’s rent obligation.
6)
Constructive eviction
Constructive eviction occurs when the landlord breaches the covenant of quiet enjoyment
by significantly interfering with the use and enjoyment of the demised premises (e.g., by
failing to provide heat). The tenant must vacate the premises within a reasonable time
after the interference has commenced, in order to take advantage of this defense to the
lease.
7)
Breach of a covenant of habitability
The modern law of most states imposes an implied covenant of habitability into any lease
of residential premises. If the premises fail to meet the standards imposed by this covenant
(usually based on local safety and health ordinances) or if the landlord fails to meet the
obligations of an actual covenant to repair, the tenant has several options, often including
a right to abate rent. Unlike the defense of constructive eviction, the tenant need not
quit the premises to utilize the defense of breach of a covenant of habitability.
b. Landlord’s remedies for failure to pay rent
1)
Debt action
The landlord can sue the tenant for the rent due, as it becomes due.
2)
Eviction
The modern law of most states gives landlords the right to evict for failure to pay rent,
either by the terms of the lease or by the terms of a statute. The modern trend is to require
that the landlord regain possession only through judicial process.
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5.
Surrender, Mitigation Of Damages, Anticipatory Breach
a. Surrender
A tenant cannot unilaterally abandon the property and avoid her contractual rent obligation.
The rent obligation is terminated only if the landlord agrees to “surrender” the lease.
If the landlord takes possession of the premises for her own use, such action will always be
held to be a surrender. However, the landlord can enter the premises for more limited purposes
(e.g., inspection) without automatically surrendering the lease.
A re-renting of the premises by the landlord may or may not qualify as a surrender, depending
on the circumstances. Most courts presume that the re-renting of the premises operates as a
surrender, unless the landlord makes it very clear that she is doing so only on behalf of the
tenant.
b. Mitigation of damages
In most jurisdictions, the landlord will be required to mitigate his damages and will only
be able to collect the rent he could not obtain from another source. The common-law rule was
that a landlord was not required to mitigate his damages by re-letting the premises, unless he
evicted the tenant.
c. Anticipatory breach
The landlord can sue the tenant for the rent due, as it becomes due. The landlord generally
cannot sue for future rent due under the contract, because the doctrine of anticipatory breach
does not apply to leases. Even if the lease contains an acceleration clause, purportedly making
the tenant immediately liable for all the rent due for the life of the contract on any breach of the
tenant’s rent obligations, the landlord probably will not immediately be able to sue for that
amount. Many courts view such clauses as a penalty rather than a reasonable attempt to
establish liquidated damages, and refuse to enforce them.
E. OWNERSHIP INTERESTS IN TRUSTS
Through the use of a trust it is possible to vest the legal title in land in one individual (the trustee) and
the equitable or beneficial interest in that land in others (the beneficiaries of the trust).
1.
The Instrument
In most jurisdictions, the Statute of Frauds applies, requiring equitable interests in land to be
created by a written instrument.
2.
The Trustee
a. Power of sale
Unless the trust instrument gives the trustee the power to sell the trust property, she must
obtain court permission to sell.
b. Power of contract
The trustee has the inherent power to enter into contracts to manage the trust property, and is
not liable on such contracts personally, as long as the third party knew that the trustee was
acting in a fiduciary capacity.
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c. Right of compensation
A trustee is entitled to reimbursement for his reasonable expenses and liabilities incurred in
the execution of the trust, and reasonable compensation for his services.
d. Duty of loyalty and good faith
The trustee is a fiduciary. As such, she owes a duty of loyalty and utmost good faith in all
matters pertaining to the trust. She may not put herself in a position where her interests would
be contrary to the interests of the trust. Hence, she usually may not enter into any transactions
with the trust.
If a trustee uses trust funds for her own benefit or in any other improper fashion, she must
account to the trust for any profits made or losses incurred as a result of such improper conduct.
If the improper conduct leads to both gains and losses, she cannot offset the gains against the
losses.
e. Duty of reasonable care
The trustee is required to exercise reasonable care in managing the trust. However, he is not
expected to be infallible. Therefore, he is not strictly liable if his decision in a certain matter
turns out to be erroneous, provided that he exercised reasonable care.
3.
Rights Of Beneficiaries
The beneficiary of a trust has only the rights given to her in the trust instrument. If the trust
permits the trustee to pay income on a discretionary basis, the beneficiary has no right to the
income.
The beneficiaries have the right to sue the trustee (and, in some cases, cause the trustee to be
removed and another trustee appointed) if the trustee has breached her fiduciary duties.
4.
Termination Of A Trust
a. By the terms of the trust
A trust will usually establish its own date of termination or a condition that will terminate its
existence. A trust can also be terminated prior to its express termination date by the methods
described below.
b. By the settlor
A valid trust cannot be unilaterally terminated by the settlor prior to the time set out in the trust
instrument, unless the power to revoke was expressly retained.
c. By the beneficiaries
Where the settlor has fixed the period for the termination of a trust, the trust cannot be terminated
by agreement of all of the parties in interest. A probate court does, however, possess the
power to terminate a trust.
5.
Charitable Trusts
Charitable trusts are favored by the law because of their benefit to society. They are liberally
construed and are exempt from some of the restrictions that apply to private express trusts.
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a. Creation similar to private trusts
A charitable trust may be created by any of the methods for creating a private express trust.
The requirements of a settlor with capacity to convey, properly expressed intent, and a specific
trust res are the same.
b. Differences from private trusts
1)
Indefinite beneficiaries
In order to qualify as a valid charitable trust, the persons to be benefited must be uncertain
– that is, members of an indefinite class. The reason for this rule is that a charitable trust
is basically concerned with a public benefit. As long as the class is indefinite, it does not
affect the validity of the trust that only a small number of persons will actually benefit
from the trust or that the amount each will receive is small.
2)
Rules against perpetuities and accumulations
The Rule Against Perpetuities does not apply to charitable trusts; such trusts may be
perpetual. The Rule Against Accumulations also does not restrict charitable trusts, unless
the accumulation is found to be unreasonable.
3)
Trust purpose
(a) Must be charitable
The essence of a charitable trust is that it is established to accomplish one or more
charitable purposes. The purpose must be one recognized in the law as charitable,
including the furtherance of health, religion, education, governmental establishments
(such as parks or museums), and the relief of poverty or discrimination.
(b) Cy pres doctrine
Since a charitable trust may be perpetual, it is likely that at some point the charitable
purpose intended by the settlor will have been accomplished, can no longer be
accomplished, or some other change in circumstances renders it impracticable to
administer the trust in the precise manner provided by the settlor. In such cases, the
court under the cy pres doctrine may apply the gift as nearly as possible to the settlor’s
particular charitable intent, unless the instrument creating the trust provides to the
contrary.
4)
Power to enforce
Charitable trusts may be enforced only by an action of the attorney general of the state.
6.
Implied Trusts
Implied trusts are an equitable remedy used by courts to avoid the unjust enrichment of a titleholder.
Thus, they differ from express trusts in that they arise by operation of law, rather than by any
expressed intent of a settlor. They also differ from express trusts in that the trustee’s only power
and duty is to convey legal title to the property to the “beneficiary.”
a. Resulting trusts
Resulting trusts are found in situations where the court determines that the intent of the parties
was that the settlor-beneficiary should have title to the property.
1)
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consideration
If one party pays (or is responsible for) the full purchase price, but title is taken in the name
of another party, a court usually will decree that the titleholder holds the property in trust
for the person paying the purchase price. However, if the person paying the purchase
price is legally obligated to support the person taking title (e.g., the titleholder is the
purchaser’s minor child or spouse), no resulting trust will be found.
2)
Purchase by a fiduciary
If a fiduciary uses fiduciary funds to purchase property, but takes title in his own name, he
holds title to such property in trust.
3)
On termination of express trust
Where an express trust is properly created but fails for some reason, the trustee holds any
remaining trust funds on a resulting trust for the settlor, her heirs, devisees, or legatees.
b. Constructive trusts
A constructive trust may be imposed where property has been acquired as the result of fraud
or a violation of a fiduciary duty or confidential relationship.
F. SPECIAL PROBLEMS
1.
The Rule Against Perpetuities
The Rule Against Perpetuities states that all nonreversionary future interests must be certain either
to fail or vest within 21 years after some life in being at the creation of the interest, or they will be
invalid.
a. Interests to which the rule applies
The rule applies only to contingent remainders, executory interests, and options or rights of
first refusal.
b. The period of the rule
1)
The starting point of the rule period
The rule period begins with “the creation of the interest.” Generally, an interest is
created when the property is no longer freely alienable by any party.
If the property is transferred inter vivos, the period begins at the time of the transfer of
title to the grantee. If the property is transferred by will, the period does not begin until the
death of the testator.
If the property is placed in an irrevocable trust, the period begins at the time of the
creation of the trust. If the trust is revocable, the period does not begin until the power
of revocation is terminated (e.g., at the settlor’s death).
2)
The lives in being
Once the starting point of the rule is determined, we must determine whether there are any
lives in being at that time that can serve to extend the period of time allowed by the rule.
The lives in being may either be ones artificially or naturally connected with the conveyance.
If the lives are only artificially connected with the gift, they must be expressly set forth
in the grant.
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Lives naturally connected with the gift can be implied from the grant. Measuring lives
can only be usefully implied from a grant if every member of that class must, by
definition, be alive at the time of the creation of the interest.
A child conceived but not born at the time of the creation of an interest is a life in being.
If no measuring lives are identifiable, the period allowed by the rule for vesting is only 21
years from the creation of the interest.
c. Nonreversionary future interests must vest or fail
1)
When interests vest
A contingent remainder vests when it becomes either a vested remainder or a present
possessory interest. An executory interest vests only when it becomes a present possessory
interest.
2)
Certainty
These interests must be certain to vest (or fail) within the prescribed period, from the
moment of their creation. If, at the time of the creation of the interest, there is any
possibility that the interest will not vest within the rule period, the interest is void.
(a) The fertile octogenarian rule
For purposes of the Rule Against Perpetuities, every person is presumed to be capable
of having children as long as they are alive, even though that may be physically
impossible.
(b) The unborn widow rule
If an instrument gives an interest to a living person’s “widow,” there is no guarantee
that that living person will be married at his death to a person who was alive at the
time of the creation of the interest. Thus, the widow might not be a life in being at the
creation of the interest. If a subsequent interest does not vest until after the widow’s
interest, the subsequent interest will vest too remotely and is void.
(c) The administrative contingency
Anytime that a nonreversionary future interest does not vest until the end of some
procedure or event which is not necessarily limited in time to less than 21 years, the
interests are probably invalid.
3)
Interests must vest or fail
The rule does not require that interests actually vest within the period of the rule, only that
they be limited such that they either vest or fail within the period. Any nonreversionary
future interest that is not explicitly or implicitly limited to vesting within a limited period
of time will violate the rule and thus be void.
d. The rule’s effect on interests and conveyances
If the future interest violates the rule, the interest is void and is stricken from the granting
instrument.
The striking of a future interest from an instrument may also alter the estate of the prior holder.
If the condition that terminates the prior estate is part of the description of the prior estate (e.g.,
a life estate or a fee simple determinable), the prior estate will not be altered. If the condition
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which terminates the prior estate is part of the description of the future estate only (e.g., a fee
simple subject to a condition subsequent), then the prior estate will be converted from a
qualified estate into an absolute estate.
e. Special applications of the rule
1)
Class gifts
A class gift exists anytime a gift is to be shared equally among a group of unnamed
individuals who all bear the same relationship to the grantor (e.g., “my grandchildren”).
The Rule Against Perpetuities has a harsh effect on class gifts. If the rule could be
violated by any potential member of the class, then the entire class gift is void.
If the class closes, however, at such a time that it is certain that the interests of all the
members of the class (as constituted) will vest within the rule, then the class gift is saved
(for those members). As a general rule, courts employ the “rule of convenience” – a
class closes at the time that any member of the class has a right to distribution of her
share. If the gift is per capita, the class closes immediately on the testator’s death. If the
gift is immediate and there are members of the class alive at the testator’s death, then
the class closes immediately. If the class gift is an immediate lump sum and there are no
members of the class alive at the time of distribution, then the class stays open until all
potential members of the class are determined. If the class gift is, by its own terms,
postponed (e.g., it is to become possessory only after a prior estate ends or some
precondition is met), then the class does not close until a class member has a right to
receive her share.
2)
The charity-to-charity exception
The Rule Against Perpetuities does not apply when property is vested in one charity, with
a gift over to a different charity on the happening of a condition.
f. Modifications of the common-law rule
1) The “wait and see” doctrine
Some courts and statutes have adopted the view that unless a limitation does in fact fail to
vest within a life in being plus 21 years, it should be held valid.
2) The cy pres rule
Some courts and statutes in recent years have used the cy pres doctrine to reform private
trusts in such a manner as to effectuate the wishes of the settlor or grantor “as nearly as
possible” within the confines of the rule’s time limitation.
3) The Uniform Statutory Rule Against Perpetuities
The Uniform Statutory Rule Against Perpetuities, embodies a relatively liberal, modern
rule. Under the statute, a nonvested property interest is valid if it is certain to vest within
the common-law rule period or actually does vest within 90 years after its creation. The
statute embodies a wait-and-see rule allowing the nonvested property interest a grace
period of 90 years to vest. Moreover, the statute has a reformation provision allowing a
court on the petition of an “interested person” to modify a disposition which is invalid
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under the rule stated above so that it follows the grantor’s intent as nearly as possible, but
does in fact vest within 90 years.
The statutory rule (§5) also provides that the following rights or interests must be exercised
within 30 years of their creation:
• an option in gross or a preemptive right of first refusal in gross regarding an interest
in land or minerals;
•
a lease commencing at a certain time or upon the happening of a future event; and
•
a nonvested easement in gross.
Additionally, a fee simple determinable or a fee simple subject to right of entry for condition
broken shall become an absolute fee unless the specified contingency occurs within 30
years. If the contingency does occur within the 30year period, the succeeding interest
becomes possessory, or the right of entry exercisable, irrespective of whether the bequest
or devise would have violated the Rule Against Perpetuities. These provisions apply whether
the succeeding interest is a reversionary type of interest (possibility of reverter or right of
entry for condition broken) or an executory interest (shifting use).
2.
Alienability, Descendability, And Devisability
a. Right of alienation
All present estates (except tenancies at will or sufferance) are alienable. All future interests
(except rights of entry) are alienable.
1)
Restraints on alienation
A restraint on the right of alienation is called a disabling restraint if it purports to prohibit
alienation of the estate and to render void any conveyance by the grantee. Disabling
restraints are void (except, perhaps, when applied to nonfreehold estates).
A restraint is called a forfeiture restraint if the grantee loses his estate if he attempts to
convey it. A forfeiture restraint would take the form of a qualified estate. Forfeiture restraints
are generally effective against all estates, except fees simple.
A restraint is called a promissory restraint if the grantee covenants or contracts not to
convey the estate. Promissory restraints are generally effective against all estates, except
fees simple.
2)
Preemptive rights
A preemptive right is a right retained by a grantor to buy back the granted property when
the grantee chooses to sell it. Such a right is enforceable as long as it does not function as
a restraint on the grantee’s right of alienation. A preemptive right restrains a grantee’s right
of alienation if the grantor has a right to buy the property at a price below market value.
b. Descendability
Descendability is the right of the property owner’s heirs to inherit whatever interest she held in
the property by intestacy upon the death of the owner. Except for property rights that are
limited by the life of the possessor, such as a life estate, all property rights today are descendable
and will pass to the heirs of the previous owner if she dies intestate.
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c. Devisability
Devisability is the right of the possessor to dispose of his interest in land by will. Except for
property rights that are limited by the life of the possessor, such as a life estate, all property
rights today are devisable.
3.
Rules of Construction
a. Remainders in “heirs” or “next of kin”: The Rule in Shelley’s Case and the
Doctrine of Worthier Title
At common law, the Rule in Shelley’s Case operated as a rule of law to transform a remainder
in the “heirs” or “next of kin” of a life tenant into a remainder in the hands of the life tenant
herself.
The Doctrine of Worthier Title accomplished much the same function as the Rule in Shelley’s
Case when the grantor conveyed a limited estate inter vivos with a remainder in her own
“heirs.” The remainder in the grantor’s heirs was treated as a reversion in the grantor.
Under modern law, the vast majority of states have rejected the Rule in Shelley’s Case and the
Doctrine of Worthier Title as rules of law. However, they remain as rules of construction in
many states.
b. Conditions of survival
1)
General rule - survival not required
As a general principle, the holder of a future interest need not survive the holder of a prior
possessory estate in order to take the interest.
2)
4.
Exceptions - when survival is required
•
When the condition is expressed
•
When survival to a given age is required
•
When the grant is to “heirs” the individual’s family members must survive that
person in order to qualify as heirs
Gifts “To A And His Children”
A gift “to A and his children” is ambiguous, in that it could create a concurrent estate between A
and the children in existence at the time of the conveyance, or it could create a present interest in
the parent and a future interest in all of the parent’s children. As a rule of construction, if A did not
have children at the time of the gift, the conveyance would create a life estate in A and a remainder
in all of his children, whenever born. If A had children living at the time of the conveyance, then,
as a rule of construction, the conveyance would create a tenancy in common in A and any living
children.
II.
RIGHTS IN LAND
A. COVENANTS AT LAW AND IN EQUITY
A covenant is an enforceable contractual obligation between two parties. A covenant becomes a
covenant running with the land if it is enforceable not only between the actual parties to the covenant,
but also by or against persons who were not parties to the original agreement, but now hold the land
to which the agreement pertains. A covenant can run with the land either at law or as an equitable
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servitude.
1.
Requirements For A Covenant To Run
a. A binding covenant
In order for a covenant to be enforceable by or against successors, it must first have been
enforceable between the original parties.
b. A writing and signature
A covenant relating to land must be in writing. The only exception is common-scheme
restrictions, discussed infra.
In general, a covenant must also be signed by the promisor. A covenant in a deed need not be
signed by the promisor, if the promisor is the grantee; it will be binding if the promisor accepts
the deed.
c. Intent
The original parties must have intended that the rights and/or the duties of the covenant run
with the land.
d. Touch-and-concern requirement
A covenant must “touch and concern” the land in order to run; i.e., the promise must affect
the promisee and promisor as owners of land, and not merely as individuals. If a covenant
increases the value of the promisee’s land or decreases the value (or uses) of the promisor’s
land, then most jurisdictions hold that it touches and concerns the land affected. Covenants to
pay money touch and concern the land when there is a direct relationship between the payment
of the money and services to be rendered to the land.
The covenant must touch and concern both the land of the promisor and the land of the
promisee to be enforceable by and against the successors of both parties.
e. Special requirements for a covenant to run at law
1)
Horizontal privity
In order for a covenant to run at law, the promisor and promisee must have been in privity
of estate at the time the covenant was imposed. This means that the promisor must have
granted the promisee’s estate to the promisee (or vice versa) by the same instrument
that imposed the covenant.
2)
Vertical privity
The successor to property can only be held to the covenant if he has succeeded to
the original party’s estate (that is, his title can be traced back to the original party). If the
successor to the property acquired his title by adverse possession or at a foreclosure
sale, he is not in privity with the original party to the covenant, and the covenant is not
enforceable by or against him. Likewise, many jurisdictions hold that a successor who
owns a lesser estate than the promisor cannot have a covenant enforced against him, since
the successor did not acquire the promisor’s exact estate.
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f. Special requirements for equitable servitudes
1)
Privity
No horizontal privity is required for an equitable servitude to be enforceable. Neighboring
but unrelated landowners can enter into a covenant that may be enforceable against the
successors to the property as an equitable servitude.
Vertical privity is required only for the right to run. Therefore, the party seeking
enforcement of the covenant must be able to trace her estate back to the original promisee.
2)
Notice
A covenant is enforceable in equity against the subsequent possessor of the burdened
estate any time that possessor had notice, actual or constructive, of the existence of the
servitude. Only a bona fide purchaser can avoid an equitable servitude on a parcel of land.
3)
Dominant estate
An equitable servitude can be enforced only if the person seeking enforcement is the
owner of a parcel benefited by the covenant.
2.
The Common Scheme
If land is developed under a common scheme (e.g., a subdivision) and the common scheme
includes restrictions on some lots, the owners of those lots can force the same restrictions on the
owners of other lots which are part of the common scheme but were not expressly so burdened.
a. Finding a common scheme
In order to find a common scheme, there must at least be similar restrictions imposed by
a common grantor upon a significant number of lots in a given area,
such that a scheme of development can be inferred.
b. Effect of common scheme – negative reciprocal restrictions
Any owner burdened by the common-scheme restrictions can enforce those restrictions on
any land that is part of the common scheme, regardless of who owns it.
3.
Denial Of Relief In Equity
Equitable enforcement of a covenant running at law may be denied and an equitable servitude
may be extinguished entirely in a number of situations. For example, the equitable doctrine of
unclean hands will prevent any lot owner who is in violation of restrictions on his land from
enforcing those restrictions against others. Also, equitable enforcement of a restriction may be
denied if the neighborhood has changed such that the benefit secured by the restriction is
significantly reduced.
4.
Comparison Of Land-Use-Control Devices
A lease is an effective means to control the use of the land, as the lessor has an unqualified right
to control the use of the land via the lease. However, a lease is only appropriate where the person
who seeks to control the use of the land is and wants to remain the owner of the land.
A covenant is often an effective means to control the use of land. However, a covenant is binding
on successors to land only in the limited situations described in this chapter.
An easement is often a preferable device to a covenant, where it is appropriate. Easements are
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indefinite in duration and their enforcement is not subject to the requirements of contract law or
equitable considerations. However, easements usually cannot be used to limit the uses of land
directly or to require the burdened party to perform an affirmative act.
A zoning ordinance is rarely an effective form of land-use control. In the first place, it is difficult
to obtain and usually cannot be obtained in reference to a single parcel of land. Moreover, its
enforcement is uncertain, since it can be enforced only by public authorities and is subject to
administrative variances and legislative changes.
A qualified estate is also of limited effectiveness. It is only an option if the person who desires
to control the land owns it. Its enforceability is certain, but the severity of the penalty of forfeiture
usually destroys the marketability (and mortgageability) of the property.
B. EASEMENTS, PROFITS,AND LICENSES
Easements, profits, and licenses are all types of nonpossessory property rights, meaning that the
holders of such rights have the right to use or control the use of land which they do not own or
possess.
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5. Table Showing Requirements For Running Of Covenants
Duty to Run
at Law
Right to
Run at Law
Duty to Run
in Equity
Right to Run
in Equity
Writing
Yes
Yes
Yes, except in
commonscheme cases
Yes
Intent
Yes
Yes
Yes
Yes
Touch and
Concern
Yes
Yes
Yes
Yes
No
Dominant
Estate
Yes
Notice
No, except
where required by
recording
statutes
Horizontal
Privity
Yes
Yes, probably
No
No
Vertical
Privity
Yes
Yes, probably
No
Yes
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1.
Easements
The land that is subject to or burdened by the easement is called the servient estate. If there is a
parcel of land benefited by the easement, it is called the dominant estate.
a. Classification of easements
1)
Appurtenant easements v. easements in gross
If the owner of the easement holds it only by virtue of her status as the owner or
possessor of land that is benefited by the easement, then the easement is appurtenant.
An appurtenant easement is automatically transferred with the land benefited, and cannot
be transferred separately from the transfer of the dominant estate.
An easement in gross is one that benefits no particular parcel of land. The benefits of
the easement are held personally by the owner.
2)
Affirmative v. negative
If one has an affirmative easement, one has the right to physically enter upon and use the
land upon which the easement exists. Occurring less frequently is the negative easement,
which gives the owner of the easement the right to prevent the owner of the servient estate
from using the land in a particular manner.
b. Creation of easements
1)
By express grant
(a) Writing required
(b) Must be recorded to bind successors
2)
By express reservation
An easement by express reservation is created when the grantor, in the deed, reserves to
himself easement rights in the granted premises.
3)
By implication
In order to have an easement by implication, (1) the dominant and servient estates must
have been held in common ownership at the time the easement was allegedly created, (2)
the servient estate must have been used in an apparent and continuous way such that a
quasi easement could be said to exist, and (3) the continued use of the quasi easement
must be reasonably necessary to the enjoyment of the dominant estate.
It is possible to defeat an easement by implication by showing that the parties did not
intend to create an easement.
4)
By necessity
An easement by necessity is the same as an easement by implication except that there is
no requirement that a quasi easement exist on the land prior to the time of the division of
the land, but the easement sought must be “strictly” (not just reasonably) necessary to the
enjoyment of the dominant parcel. An easement is strictly necessary if the land is practically
incapable of use without the easement.
An easement by necessity is unique in that it is not presumed to be infinite; an easement
by necessity lasts only as long as the necessity which gave rise to it.
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5)
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Easement by prescription
An easement by prescription is based upon the same legal principles as title by adverse
possession. The elements required for an easement by prescription follow.
(a) Actual use
Use of the servient estate must be made. The use need not oust the owner from
possession.
(b) Open and notorious
The use must be such that the owner is put on notice that she has a cause of action. The
statutory period runs from the time that the owner has constructive notice or actual
knowledge of the use.
(c) Continuous
The prescriptive use must not be interrupted or even temporarily abandoned during
the statutory period. A use is continuous if it is only seasonal, provided that the customary
use of the easement would occur only seasonally. Successive owners of the dominant
estate are able to “tack” their periods of successive use in computing the statutory
period. Continuous use is interrupted and the period must start anew if the owner
physically bars the owner of the dominant estate from using the easement, or if the
owner initiates court action to prevent the use of his property.
(d) Adverse
All that is required for the use to be adverse is that it be without the permission of the
owner. A use that starts permissively can become hostile when the user communicates
the hostile nature of her use to the owner or when the permission is revoked. If the
owner grants permission to continue what once was a hostile use, then the prescriptive
period ends.
(e) Status of the easement at the end of the period
Once the requirements to obtain an easement by prescription are met, the easement
has the permanence of any other kind of easement. There is no longer a requirement
of continuous use.
c. Scope of easements
1)
Rights of easement holder
In the case of an easement by grant or reservation, the easement rights are determined
by the language of that grant. If the easement by grant or reservation fails to determine the
location and scope of the easement, or the easement is an easement by necessity, the
owner of the servient estate has the right to reasonably fix the location of and control the
use of the easement. In the case of easements by implication or prescription, the location
and scope of the easement will be determined by the prior (quasi easement or prescriptive)
use of the servient estate.
(a) Changed circumstances
Courts will generally permit reasonable change in the use of an easement when
circumstances have changed since the creation of the easement. If the original use
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becomes more intense because the dominant estate is more fully developed, there will
not be an overburdening of the easement unless the intensity of the use is beyond the
reasonable contemplation of the parties.
(b) Use for other than dominant estate
If the holder of the easement attempts to use the easement for the benefit of land other
than the dominant estate, he has automatically overburdened it and that use can be
enjoined.
2)
Repairs
The easement holder has the obligation to keep the easement in repair, and has the
right to enter onto the servient estate to meet that obligation. However, if both the holder
of the benefit and the servient owner are making use of the easement, the cost of the
easement’s repair will be apportioned between them.
3)
Right of holder of servient estate
The holder of a servient estate may make any use of her land that is not inconsistent with
the rights of the easement holder. If the easement is one of passage, she may use the road
herself and permit others to do so.
If the location and scope of the easement have not been defined by a grant or prior use,
she may reasonably control the location and scope of an easement.
d. Termination of easements
1)
By the terms of the grant
An easement is of infinite duration unless limited by conditions in the grant.
2)
A written release
The holder of an easement, whether in gross or appurtenant, can terminate it by delivering
a written release to the owner of the servient estate.
3)
By non-use and intent to abandon
Mere non-use of the easement, even for an extended period, does not result in its destruction.
Before the easement will be terminated, there must be an affirmative act that is a
manifestation of intent to abandon.
4)
Estoppel
If either an oral release or extended non-use is coupled with reliance on the termination by
the owner of the servient estate, then the easement will be terminated.
5)
By merger
If the servient and dominant estates come into identical ownership, then the easement
is extinguished. If the servient estate is later separately reconveyed, the easement does not
automatically come back into existence.
6)
By prescription
If the owner of the servient estate bars the easement holder from using the easement for
the statutory period, the easement will be extinguished.
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7)
31
Destruction of the servient estate
If the easement right is one of passage through a building, the easement is terminated if the
building is involuntarily destroyed by fire or other cause.
8)
Conveyance of servient estate to bona fide purchaser
If a granted easement is not recorded and a purchaser takes the servient estate without
knowledge of the easement, then the easement is unenforceable against the purchaser.
Easements by prescription, implication, and necessity, however, bind a bona fide purchaser,
even though not recorded.
9)
End of the necessity
An easement by necessity ends at the time the necessity ends.
10)
Death
In a jurisdiction that does not permit the alienation of easements in gross, they are terminated
by the death of the holder, or sometimes by an improper attempt to alienate the easement.
2.
Profits A Prendre
Profits a prendre are a specialized form of easement. They consist of an easement right to go on
the land of another coupled with an additional right to sever, remove, and own something
from the land, such as gravel, trees, or water.
Profits differ from easements in the following ways.
a. Creation
Profits can be created by express grant, by reservation, by implication (if there was a quasi
profit in existence at the time of the division of the common estate), and by prescription. A
profit cannot be created by necessity.
b. Gross profits vs. appurtenant profits
A profit in gross is freely assignable, unlike most easements in gross.
c. Exclusive vs. nonexclusive profits
If the profit is “exclusive,” then the holder of the profit has an unlimited and exclusive right to
take the subject matter of the profit from the land. Even the owner of the land is not permitted
to do so. If it is “nonexclusive,” then either the owner or others may also take the profit, or
the profit holder’s right to take the profit is limited by quantity, by a time period, or by a use
which may be made of the profit taken.
3.
Licenses
A license is a right given by the owner that permits a person to go onto and use the owner’s land.
A license differs from an easement in that it is usually revocable at will, whether given gratuitously
or in fulfillment of a contractual obligation. It is also valid if oral, because the Statute of Frauds
does not apply.
A license is irrevocable in two instances. If the licensor permits the licensee to maintain personal
property on his land, the licensee has an irrevocable right to enter onto the licensor’s land for
access to the property. If the licensee justifiably relies on a grant of a long-term license and spends
substantial sums of money because of that reliance, then the licensor will be estopped from revoking
the license.
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C. OTHER INTERESTS IN LAND
1.
Fixtures
a. Definition
A fixture is an item of personal property that becomes part of the real estate because of its
annexation to the real estate. Once an item becomes classified as a fixture, ownership of the
item passes to the owner of the real estate.
b. Rules for determining when personal property becomes a fixture
The intention of the parties at the time the property was attached controls whether or not that
personal property becomes a fixture. However, if there are no clear indications of the parties’
intent, the following factors will be important in determining their intent.
1)
The character of the attachment
Any personalty that is attached to realty in such a way that its removal would cause
substantial damage to the realty becomes a fixture.
2)
The character of the personalty
If the personalty was specially designed for the realty (e.g., doors or windows of unusual
size) then it follows that it was to become part of the realty and is treated as a fixture. Also,
if the personalty is necessary to the use of the realty, it is likely to be considered a fixture.
On the other hand, trade fixtures, or personalty of a tenant attached as a necessary part of
her business on the premises, are presumed not to be a fixture.
3)
The relationship between the competing parties
Disputes over fixtures occur between the following groups: (1) vendor and purchaser, (2)
mortgagor and mortgagee, (3) landlord and tenant or owner and licensee, and (4) life
tenant and remainderman. In the first two cases, the person who annexed the personal
property to the realty was the fee owner of the realty at the time it was annexed. Therefore,
it is probable that any property attached by a vendor or mortgagor was intended to
be part of the real estate and is therefore to be treated as a fixture. Conversely, any
property attached by a tenant or licensee is presumed to remain personal property.
c. Removal of personalty not considered a fixture
If the property is not a fixture, then it must be removed promptly at the end of the annexor’s
estate, or it will become part of the realty. Where there is a life estate, periodic tenancy, or
tenancy at will, there is a reasonable time after the end of the tenancy when fixtures can be
removed.
Removal is only permitted when it can be accomplished without seriously damaging the
real estate. Any damage caused by the removal must be repaired by the owner of the removed
personalty.
d. Third-party interest in fixtures
Since most mortgages are written to include later-added fixtures, the holder of a security
interest in a chattel which is later annexed to real estate, and a mortgagee who has a security
interest in the real estate, will likely have competing security interests in the fixture.
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1)
33
No security interest unless property is easily removable
If the personal property is not removable without substantial damage to the realty, the
holder of the chattel has no security interest in the property once it has been attached.
2)
Security interest must be recorded before mortgage
Generally, a security interest in a chattel prevails over a mortgage only if the security
interest in the chattel is recorded prior to the real-estate mortgage.
However, a purchase-money security interest in chattels will prevail over even a prior
mortgage, provided that the purchase-money security interest is promptly perfected by
recording.
2.
Scope And Extent Of Real Property
a. Rights in airspace
The possessor has a right to possession of the airspace above his land. Most often, such
intrusions are made by aircraft.
b. Right to support
A possessor of land has the right to both lateral and subjacent support for her land. The right
of lateral support means, generally, that neighbors cannot use their land in such a manner that
the surface of the possessor’s land subsides. The right of subjacent support means that if
someone else owns areas below the surface of the possessor’s land (e.g., mines), they have an
obligation to keep the surface of the possessor’s land from subsiding. There is no liability for
loss of support if the neighbor properly removes water from underneath the possessor’s land.
1)
Absolute liability
A possessor has an absolute right to lateral support of land in its natural condition.
The possessor has an absolute right to subjacent support of land in the condition it
was in at the time of the conveyance of the right to subjacent areas. These absolute
duties of support cannot be avoided by delegation of the job of excavation to an
independent contractor.
2)
Negligence
A possessor always has a cause of action in negligence for subsidence of her land. The
possessor may recover, if her neighbor was negligent, even if the land would not have
subsided in its natural state.
However, a landowner is not ordinarily liable for the negligence of her independent
contractor (unless the independent contractor was engaged in an ultrahazardous activity,
such as blasting). The owner can be held liable for her own negligence in choosing an
incompetent independent contractor, however, if that is the case.
c. Rights in party walls
Rights to support also exist in party walls (i.e., a wall which is part of two separate buildings
and is built along a common boundary line). Each abutting owner owns that part of the wall
on his side of the common boundary, and has an easement to use the entire wall for the
support of the remaining part of his building.
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Each party can extend the height or length of a wall. This must be done at his own expense,
and no contribution is allowed unless the other party undertakes to use the extended wall.
d. Rights in the subsurface
The possessor of land has the exclusive right to the area underneath the surface of her land,
and can prevent the mining of minerals even though she cannot reach them from the surface.
By the same token, the possessor has the right to sell, lease, or grant an easement in subsurface
areas. She does not, however, have the exclusive right to underground liquids and gases if
they flow from her land to the land of another.
e. Rights in common resources of light, air, streams, and bodies of water
1)
Rights in light and air
To be valid, rights to light and air must be specifically granted in deeds or other
conveyances.
A negative easement for light and air cannot be created by implication, because it is not
apparent (and also because it would create uncertainty in titles and hamper development).
Likewise, an easement for light and air cannot be obtained by prescription merely because
one landowner enjoyed, without permission, light or air that came across the property of
his neighbor for the statutory period.
2)
Water rights classification of bodies of water and rights therein
(a) Watercourses
Any water that follows a well-defined course or channel, whether aboveground or
belowground, is a watercourse. A watercourse need not have water in it year-round.
If a watercourse is navigable, the riparian owner’s rights are subservient to the public
rights in the watercourse. If the waterway is nonnavigable, the riparian owner owns
the land under the stream (and has full usufructuary rights in the water).
The riparian owner’s usufructuary rights vary depending on the theory adopted in the
jurisdiction. At common law, the riparian owner had the right to use as much water as
she needed for domestic purposes (e.g., irrigation of a family garden on riparian land,
bathing, etc.) and could use water for nondomestic (i.e., commercial purposes) only
insofar as the quality and quantity of the water she returned to the stream were not
affected. This standard was called the “natural flow doctrine,” meaning that a lower,
riparian landowner had a right to receive water in its natural state, unaffected by any
nondomestic uses. Many western states have adopted an appropriation system. Under
such a system, the priority of all users is determined by the time they began their use,
with the prior user always having a superior right to continue her use. Thus, if the
water supply becomes inadequate, later users will have to discontinue their use so that
the uses of prior users are protected.
(b) Aboveground ponds and lakes
If a landowner owns all the land around a lake or pond, he usually has a proprietary
right in the water, meaning that he owns the water itself and can sell it as he pleases.
If the land around a lake is held by several persons, the rights of such littoral landowners
are only usufructuary, and are generally identical to the usufructuary rights of riparian
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landowners. The usufructuary rights of littoral landowners may also be subject to the
public rights in a lake that is used for recreational or commercial purposes. Some of
the western states that have established appropriation systems have also applied it to
lakes and ponds. Thus, even a littoral landowner must acquire a permit to protect his
usufructuary rights.
(c) Underground ponds and lakes
Again, if a landowner owns all the land above an underground pool or lake, she has a
proprietary right in the water.
If a landowner owns only part of the land above a lake, her rights will depend on the
theory applicable in the jurisdiction. At common law, a rule of capture applied – in
effect, each landowner above a lake had an unqualified, absolute (but not exclusive)
right to appropriate the water below. Basically, a landowner was free to use or sell
whatever water she could pump out. Most jurisdictions have now gravitated to a
reasonable-use standard, whereby landowners have a right to use underground water
to a reasonable extent for domestic, riparian uses. Under such a standard, a landowner
will have a right to use underground water for nonriparian uses only if no other
riparian uses are effected. Some jurisdictions have adopted a correlative-rights standard
which gives a landowner a proprietary right to the proportion of water in an underground
lake which corresponds to her proportion of the land over the lake.
(d) Surface water
Surface water consists of bodies of water, which do not follow any regular course or
have any identifiable, regular boundaries. The most common forms of surface water
are runoff from rain or snow, and temporary tidal pools and marshlands.
The owner of land on which surface water is found has a proprietary right in it.
However, the more common issue is whether a landowner can freely rid himself of
such waters. In most jurisdictions today, a reasonable use standard applies (though it
may take a variety of forms or names); a landowner is permitted to repel or remove
surface water as long as it does not unduly damage the land of a neighbor.
f. Nuisance
A possessor of land has the right to quiet enjoyment of the land. In some situations, an action
in private nuisance will lie to prevent (or compensate for) violations of this right. Generally,
actions of nuisance will only lie for nonphysical invasions (noise, odors, etc.). Physical
violations (water, trespassers) are more properly the province of trespass actions, as discussed
immediately above.
1)
Interference with use and enjoyment
The action for nuisance protects the plaintiff from interference with the use and enjoyment
of her property. Traditionally, it involves such interferences as noise, excessive light,
odors, fumes, smoke, etc. The plaintiff may sustain the nuisance action by showing that
the defendant substantially interfered with the plaintiff’s use and enjoyment of her property,
and that such interference was unreasonable, even if the defendant’s conduct was not
negligent or intentional.
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2)
Reasonableness of conduct
Whether defendant’s conduct is reasonable or unreasonable involves the balancing of
three considerations: (1) the locality and character of the surrounding area; (2) the nature,
extent, and frequency of the interference; and (3) the utility and social value of the activity
involved.
3)
Relief
The court in a nuisance action may grant damages and/or injunctive relief. Where plaintiff’s
harm is insignificant when contrasted with the potential harm to defendant if injunctive
relief is granted, the court may treat the nuisance as permanent, and award plaintiff damages
for the diminution in the value of his property.
4)
Public nuisance
Public nuisance is an invasion of intangibles that unreasonably interferes with the health,
safety, or property rights of the public—i.e., a broad segment of the community rather
than one or a few individuals.
D. TAKINGS AND ASPECTS OF ZONING
1.
Takings
Both the federal government and state governments and instrumentalities of both have the power
to take private property by eminent domain. However, the Fifth Amendment to the Constitution
prohibits the United States from taking private property for public use without just compensation.
That amendment is applicable to the states through the Fourteenth Amendment.
a. Requirement of a public purpose
A purported taking is invalid if it is not for a public purpose. However, the court has construed
a public purpose broadly, as coterminous with the scope of the sovereign’s police power.
If the taking is held invalid because it did not serve a public purpose, the landowner is entitled
to damages for the temporary taking for the period when she was unable to use her property
because of the invalid taking.
b. What constitutes a taking
Not all actions by the government that regulate the use of land and in many instances substantially
diminish its value are takings for which the government must pay compensation. Zoning
ordinances, environmental protections laws, and landmark preservation are usually found to
be valid regulations under the police power instead of compensible takings. There are a
number of situations, however, where the regulations constitute a taking.
Any physical intrusion on private property by the government or the establishment of a nonpossessory property interest, such as an easement, constitutes a taking.
A land-use regulation, even if enacted for valid police-power purposes, will constitute a taking
if it deprives the owner of all economically viable use of the land. The only basis upon which
the state could justify a regulation depriving the land of all economic value under the police
power is to prove that the building on the land would constitute a common-law nuisance.
To be a valid regulation instead of a taking, the regulation must also substantially advance the
governmental objective being pursued and there must be a tight fit between the regulation and
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the governmental interest.
2.
Zoning
Zoning is the governmental control of the land-use by governmental action. Local government
(that of a county, city, or town) enacts the ordinance that actually controls the use of land. The
local ordinance is authorized when the state acting pursuant to the police power enacts a zoningenabling act. There are two levels on which the validity of a zoning act can be attacked: a
constitutional level, and that it violates the enabling act.
a. Constitutional attack on zoning ordinance
1)
The police-power justification
Over the years, the court has sanctioned the use of zoning control the density of dwelling
units to prevent overcrowding, to achieve aestheticism by imposing controls on the style
of buildings to prevent the intrusion of buildings that might depress neighboring property
values, to preserve the integrity of historical districts by prohibiting building which is out
of character in such districts, etc. As courts became less intrusive on legislative judgments
on economic matters, all of these types of zoning controls have been authorized under the
police power.
2)
Takings
A zoning ordinance can constitute a taking, however, when it deprives the landowner of
all economic use of her land, or when it imposes conditions upon the use of land which
are disproportionate to the benefits which are conferred by the government. The ordinance
is not unconstitutional because it constitutes a taking; however, the government must pay
just compensation for the value of land which the ordinance has taken away from the
landowner.
3)
Due process
Since the adoption of a zoning ordinance is a legislative act, owners of land affected are
not entitled to notice and hearing. If there is an amendment to the ordinance that will only
affect a few specific parcels of land, however, the governmental activity is more
administrative in nature, and affected owners will be entitled to procedural due process.
A zoning ordinance can violate substantive due process by infringing upon the associational
rights of families.
4)
Equal protection
Zoning ordinances are fundamentally economic regulations, which neither infringe
fundamental rights, nor discriminate by suspect classifications, and thus the ordinance
must only bear a rational relationship to a permissible state objective to be upheld.
If a zoning ordinance operates with respect to a suspect classification the strict-scrutiny
standard will apply only if the plaintiffs can show that the purpose of the ordinance was
to discriminate, not that it has a discriminatory effect.
5)
First Amendment issues
A zoning ordinance could be unconstitutional if it improperly limited the right of free
speech.
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b. The zoning-enabling act
The zoning-enabling act in force in a state sets forth the procedure which a municipality must
follow in enacting or amending a local zoning ordinance and contains such substantive
limitations on the power of a municipality as the state determines appropriate. Unless the state
enabling act runs afoul of one of the constitutional limitations described above, it is valid.
Actions of a municipality that violate the act’s procedural requirements or substantive limitations
are invalid. Because enabling acts vary widely, a question is impossible in this area without
specific reference to the text of the enabling act. The proper approach is to test the actions
taken under the zoning ordinance against the specific provisions of the enabling act.
c. Administration of zoning
1)
Passing and amending the zoning ordinance
The first step in subjecting property to zoning controls is the passage of the local zoning
ordinance. The procedure for passage must be in accordance with the state enabling act.
The local ordinance usually divides the municipality into zoning districts, prescribes the
uses which are allowed as of right (conditionally allowed and prohibited in each district),
and sets forth density regulations, and setback and height requirements for each district. It
then sets up an administration and enforcement structure that must be in accordance with
the enabling act.
2)
Protection of nonconforming uses
Property that is in existence at the time a zoning ordinance is enacted or amended and
which violates the ordinance either in use, density, or dimensional requirements is protected
as a nonconforming use. Such uses can usually be modified with permission of the
zoning administrative body, usually a zoning board of appeals. Some ordinances provide
that non-conforming uses must be amortized and can only continue for a specific period.
A majority of courts uphold such limitations as long as they are reasonable in length and
the property can be economically used after the nonconforming use is phased out.
3)
Conditional uses
Many zoning ordinances today permit specific uses only if certain conditions are met.
Many times these conditions are general, such as a requirement that the use be “compatible”
with the neighborhood. Normally, compliance with such conditions is determined by a
zoning board of appeals after a public hearing in which both proponents and neighbors
have an opportunity to be heard. Many commercial permits are granted only after some
local body reviews the site plan of the development.
4)
Variances
There are circumstances dealing with unique conditions on a particular lot of land where
compliance with the provisions of the zoning ordinance would create a substantial hardship
on the landowner. Variances permitting the property to be used for a purpose prohibited
by the zoning ordinance are rarely granted whereas dimensional variances are commonly
approved.
5)
Floating zones and planned unit developments
As the zoning process has matured over the past seventy years, ordinances have permitted
developers and administrators more flexibility in planning specific uses. Planned unit
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developments permit developers of large parcels to plan mixed uses of varying densities
on the property and gain approval of the entire plan by some planning authority in the
municipality. Floating zones set forth the requirements for a particular kind of use and
permit developers to petition the proper authorities to place specific land in those zones.
III.
REAL PROPERTY CONTRACTS
A. RELATIONSHIPS INCLUDED
The contract for the sale of land is used in two distinct situations. The most common situation is the
one in which its function is to bind the parties. Within a short period of time, usually less than 90 days,
the contract is performed by the seller conveying title to the buyer in exchange for the agreed-upon
consideration. The buyer does not ordinarily take possession until the contract is fully performed.
The second situation occurs when the contract is used as a financing device. The buyer takes possession
at the time the contract is executed, makes periodic payments on the purchase price, and receives a
conveyance only when all of the consideration has been paid.
B. CREATION AND CONSTRUCTION: THE STATUTE OF FRAUDS
The Statute of Frauds requires that any conveyance of an interest in land or promise to convey an
interest in land be in writing and signed to be enforceable in a court.
1.
Interests In Land Within The Statute Of Frauds
Interests in land include: (1) leaseholds, except those of short duration which are expressly excepted
by statute; (2) interests of mortgagor and mortgagee or vendor and purchaser under a specifically
enforceable contract; (3) present and future interests, both legal and equitable; (4) easements and
profits; (5) interests created by covenants; and (6) option contracts. Contracts by joint tenants or
tenants in common to partition land into separate tracts for each tenant are generally also held to
be within the Statute of Frauds.
2.
Contracts Associated With Land Not Within The Statute Of Frauds
Agreements which create a license as opposed to an easement or covenant, boundary agreements
and brokers contracts, and a promise not to make a will so that an heir will inherit the real estate,
although connected with land are not within the Statute of Frauds.
C. THE PURCHASE-AND-SALE AGREEMENT
1.
The Enforceability Of A Purchase-And-Sale Agreement
In order to be enforceable, an agreement to convey land must meet the following requirements:
the agreement must be a valid contract, and the agreement must satisfy the Statute of Frauds (or
the Part Performance Doctrine).
In general, it can be said that an agreement to convey land is enforceable only if it is evidenced in
a writing or writings that will satisfy the Statute of Frauds. However, a court will order a conveyance
of land, without any evidentiary writing at all, if the requirements of the doctrine of part performance
(discussed, infra) are met.
a. Required contents of the writing(s)
Any writing or collection of writings that evidences the agreement will suffice, even if they
were not intended to embody the contract. For the contract to be enforceable, the parties and
the land must be identified, there must be language indicating a sale was intended, and the
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purchase price must be included if it has been agreed upon. The document must then be
signed by the party to be charged.
b. The part-performance doctrine
If a court finds sufficient evidence in the parties’ actions of an agreement to convey property,
it will order a conveyance of the land, despite the lack of a writing. Generally, part performance
is not grounds for an action at law for damages; specific performance is the only remedy
available.
In general, jurisdictions require the purchaser to perform varying combinations of the following
acts: (1) payment of the purchase price, (2) possession of the land with the permission of the
seller, and (3) improvements to the land. A majority of jurisdictions require all three. Payment
of the purchase price alone is not sufficient.
2.
Implied Conditions Or Terms
a. Time of performance (“closing”)
When a purchase-and-sale agreement fixes no date for performance, a court will presume
that the parties intended it to be performed within a reasonable time.
If a specific date is fixed, strict compliance with that date is required only in an action at law
(for damages). Strict adherence to the date for performance is not required in equity, unless
the contract specifies that time is of the essence, or that fact can be implied from the
circumstances of the contract. Thus, failure to perform on the specified date is usually not
grounds for an action for rescission or specific performance.
b. Title required
If the purchase-and-sale agreement is silent on the matter, the seller is required to deliver
marketable title at the closing to all of the property specified in the purchase-and-sale agreement.
The requirements of marketable title are discussed below. The agreement can provide for a
lesser quality of title.
c. Burdens related to title defects
1)
Seller’s right to notice of defects
When the purchaser finds a defect in the title, he must notify the vendor, who will then
have a reasonable time to clear the defect. A purchaser cannot assert a defect that was not
brought to the vendor’s attention as a justification for the purchaser’s failure to perform.
2)
Seller’s burden to clear liens
If there is a defect in marketable title created by a lien on the property, the seller has the
obligation to clear that lien at the time of the closing. The most common lien is a mortgage
lien that can be cured by use of a portion of the proceeds at the closing. If the defect is not
curable by the payment of a specified amount of money because another person has some
title claim, then the obligations of the parties is governed by the agreement.
3)
Variance between area owned by seller and area specified in agreement
Minor variances between the land promised in the contract to convey and the land
conveyable by the seller will not put the seller in breach of contract, unless there was fraud
involved. A variance between the area agreed to and actually conveyable also will not
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usually result in an adjustment of the purchase price, unless the price was established on a
per-acre basis.
4)
Buyer’s options when defect incurable
The buyer has a right to terminate the agreement and recover his deposit. Some agreements
give the seller a period of time to cure a title defect and keep the agreement in force during
that time. Some agreements will require the seller to use good-faith efforts to cure a title
defect. In any event, the buyer can waive the requirement of marketable title and take any
title that the seller possesses. Ordinarily, if the buyer elects to take the seller’s unmarketable
title, he must pay the full purchase price.
D. PERFORMANCE
1.
Fitness And Suitability Of The Premises
Since the Uniform Commercial Code does not apply to sales of realty, there are generally no
implied warranties, except for the covenants of title discussed below incident to a deed. The
purchaser must rely on express warranties of material fact made by the seller. The one exception
is that a warranty of habitability is implied in every deed from a vendor who is also the builder of
the improvements on the land.
Except for the implied warranty on a new home, obligations of the seller concerning the physical
status of the premises conveyed depends upon the language set forth in the purchase-and-sale
agreement. If nothing is said about condition and there is no misrepresentation about the condition
of the premises, the obligation of the seller is only to convey the premises in their existing condition.
Most purchase-and-sale agreements provide that the buyer has a period of time to inspect the
condition of the premises and terminate the agreement if it has environmental defects or has
physical defects, and terminate the agreement if the defects are not cured. If the buyer does not
terminate within the specified period, she is cannot use the defects as a reason to back out of the
agreement.
2.
Marketable Title Required
Unless the contract provides otherwise, the seller must provide “marketable” title at the closing,
even if he is only obligated to give a quitclaim deed. If the seller cannot produce marketable title,
he is in breach of the contract to convey; the purchaser need not go through with the conveyance
and may sue for damages.
A marketable title is one reasonably free from doubt both in fact and in law. It is the type of title
that a reasonable, prudent, and knowledgeable businessperson desiring to purchase the property
would accept. If there is a factual problem with the title, the facts supporting its marketability must
(1) be so conclusive that a judge would not permit a contrary verdict to stand, and (2) be capable
of proof whenever challenged. If the challenge is one of law, the law in favor of good title must be
clear and not debatable.
An adverse possessor must obtain a judicial decree supporting his title before he has marketable
title. Defects that render title unmarketable are as follows:
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a. Gaps or defects in the chain of title
b. Inadequate estate
c. Encumbrances
The purchase-and-sale agreement can specifically provide that the conveyance is to be made
subject to certain enumerated encumbrances. Absent an agreement to the contrary,
encumbrances have the following effects.
Mortgages and liens destroy marketable title.
Dower rights destroy marketable title.
Restrictions and equitable servitudes destroy marketable title only if they are more
burdensome than the zoning ordinances applicable to the land.
Leasehold interests destroy marketable title.
Easements destroy marketable title only if they actually or potentially interfere with the
reasonable use of the land.
Zoning ordinances do not destroy marketable title. However, if the zoning is changed between
the time of the purchase-and-sale agreement and the time of the closing, some courts would
permit the purchaser to rescind the agreement. Also, an existing violation of a zoning ordinance
likely renders title unmarketable.
3.
Risk Of Loss
The parties are always free to determine in their agreement who will bear the risk of loss. However,
if they fail to do so, most jurisdictions hold that the doctrine of equitable conversion governs the
risk of loss. The minority view is that risk of loss is on the vendor until legal title passes. The
Uniform Vendor and Purchaser Act puts the risk of loss on the party in possession.
Where the risk of loss is on the purchaser, but only the seller is insured for the loss, then either the
seller must deduct the insurance proceeds from the sale price or he must pay those proceeds to the
purchaser.
4.
Remedies For Breach Of Purchase-And-Sale Agreement
a. Damages
Either party is entitled to expectancy damages (the difference between the market value of
the property at the time of the closing and the purchase price) if the other party breaches. If the
seller breaches, the purchaser is also entitled to the return of any deposit she has paid.
b. Specific performance
Either side can also elect to obtain specific performance, meaning that the court will force the
breaching party to pay the purchase price or convey the property, whichever is appropriate. A
court may also award incidental damages as part of a judgment for specific performance.
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c. Rescission
E. INTEREST BEFORE CONVEYANCE
1.
The Effect Of An Enforceable Purchase And Sale Agreement – The Doctrine Of
Equitable Conversion
The doctrine of equitable conversion provides that a purchaser who has a valid and binding
agreement to convey should be treated as the owner of the property. The doctrine does not apply
to options to purchase, unenforceable (e.g., oral) agreements to convey, or agreements to convey
in which a condition precedent to enforceability (e.g., attainment of a mortgage) has not been met.
a. Right of possession and enjoyment
Equitable conversion does not give the purchaser a right to possession prior to the time of
performance. If the contract gives the right to possession to the purchaser before the closing,
he has the full use of the property and may commit waste on it as long as the value of the
property does not fall below the balance due on the purchase price.
b. Risk of loss
The parties are always free to determine in their agreement who will bear the risk of loss.
However, if they fail to do so, most jurisdictions hold that once there is a binding purchaseand-sale agreement, the purchaser bears the risk of loss if the property is destroyed, even if
she does not have possession.
c. Third-party damage
The purchaser can bring a tort action against third parties for any damage to the property
committed after the execution of the contract to convey.
2.
Earnest Money Deposits
A purchase and sale agreement typically requires that the buyer deposit a portion of the purchase
price in escrow, and usually provides that the deposit will be liquidated damages if the buyer
defaults. Courts will permit the seller to keep the deposit in the event of a buyer default, providing
it bears a reasonable relationship to the seller’s actual damages.
3.
The Closing
a. Seller must sign deed
The purchaser is entitled to a deed from and actually signed by the seller if the deed is to
contain any warranties of title.
b. Purchaser’s obligation to produce purchase money
The purchaser is expected to produce the full purchase price at the time of the closing, unless
other arrangements are made.
F. RELATIONSHIPS AFTER CONVEYANCE
1.
Effect Of Closing On Purchase-And-Sale Agreement
In general, a conveyance discharges the obligations arising from the contract to convey,
except those obligations expressly made to survive the closing. After accepting a deed, the
purchaser may sue only on the covenants (e.g., the warranties of title) contained in the deed.
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2.
Title Problems
Once the deed is delivered and accepted, the grantee can only sue for defects in the title based on
the covenants of title in the deed. Any promises made by the grantor in the purchase-and-sale
agreement are superseded and extinguished by the deed, unless those provisions of the purchaseand-sale agreement are made to survive the deed.
IV.
REAL PROPERTY MORTGAGES
A. TYPES OF SECURITY DEVICE
1.
Mortgages (Including Deeds Of Trust)
a. Mortgage
A mortgage is a conveyance of an interest in land for the purpose of securing some obligation
that the owner of the land (“the mortgagor”) owes to a creditor (the “mortgagee”).
b. Deeds of trust
A trust deed is a conveyance from the owner of property to a third person in trust. The trustee
is to hold the property as security for a debt owed by the owner to a lender. The trust instrument
will require the trustee to deed the property to the debtor when the obligation is satisfied, or to
the creditor in the event of default. The principal difference between the deed of trust and a
mortgage is in the method of enforcement; the trustee may be able to sell the property without
all of the safeguards required for a foreclosure sale.
2.
Land Contracts As A Security Device
A purchaser who buys property under an installment contract is in much the same position as a
mortgagor. The purchaser will take immediate possession of the property, but will not be the legal
owner of the property until she pays the seller the full purchase price in installments and receives
a deed.
There are two principal problems with this device from the buyer’s viewpoint.
First, the seller may be unable to deliver clear title when the payments have been completed.
Second, if the purchaser under an installment contract breaches by making a late payment or by
failing to make a payment at all, she may lose the right to enforce the contract and obtain a deed
and also forfeit the payments she has already made.
3.
Absolute Deeds As Security, Equitable Mortgages
Where a deed, absolute on its face, was delivered solely as security for a debt, the deed is treated
as an equitable mortgage.
a. Procedure to establish an equitable mortgage
To establish that a deed is in fact an equitable mortgage, the grantor (mortgagor) may introduce
parol evidence in an equity proceeding to show that the deed was intended only to serve as a
mortgage and that he is entitled to a reconveyance when the debt is paid.
b. Rights of bona fide purchasers from the equitable mortgagee
If the deed that is in fact an equitable mortgage has been recorded in the registry of deeds,
however, a bona fide purchaser from the grantee (mortgagee) can cut off the rights of the
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grantor (mortgagor).
4.
Sale Leaseback Arrangements
A sale of property accompanied by a lease back to the seller may function as a financing device.
In effect, the purchase money given to the seller of the land is a loan, the purchaser merely holds
title as security for the repayment of the money loaned, and the seller-lessee’s rent payments are
mortgage payments. At the end of the lease, the seller-lessee can usually repurchase the property
and recover legal title for the amount of the loan still outstanding.
B. SOME SECURITY RELATIONSHIPS
1.
The Underlying Obligation
A mortgage must serve as security for an underlying obligation. The obligation is often a
debt owed by the mortgagor to the mortgagee. However, a landowner can grant a mortgage to
secure any sort of obligation – including a duty to perform services.
A mortgage is enforceable only as long as there is an underlying, enforceable obligation. If
the underlying debt is unenforceable (e.g., for lack of consideration, fraud, duress, etc.) the mortgage
is likewise unenforceable and the mortgagor has a right to have the mortgage discharged. There
are, however, two exceptions – if the debt becomes unenforceable due to a discharge in bankruptcy
or due to the running of the statute of limitations, the mortgage will continue to be enforceable.
Requirements for a mortgage are as follows:
a. Formalities of execution
b. Consideration not required
2.
Title And Lien Theories Of Mortgages
In a so-called title-theory state, the mortgagor will deed legal title to the mortgagee, but will
retain an “equity of redemption” – the right to have legal title revested in him when he discharges
his obligation. In a so-called lien-theory state, the mortgagor conveys only a lien on the property
to the mortgagee.
3.
Rights Between Mortgagor And Mortgagee Prior To Default
The mortgagor has the full right of possession (including the corollary right to the rents and
profits from the land) until default. The mortgagor also has a possessory right to use the property,
as long as her use does not constitute waste that would prejudice the security interest of the
mortgagee.
4.
Right To Redeem And Clogging The Equity Of Redemption
In some states, even after the mortgagee has foreclosed the equity of redemption and in effect
vested title in himself or a purchaser from the mortgagee, some states permit the mortgagor to
redeem the property for a period of time, usually two years after the foreclosure sale. If the mortgagor
pays the lesser of the amount bid at the foreclosure sale or the amount due on the mortgage note
and foreclosure costs within the prescribed time, the mortgagee or the person buying from him
must deed the property back to the mortgagor.
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C. TRANSFERS BY THE MORTGAGOR
1.
Conveyance Free And Clear Of The Mortgage
The grantor-mortgagor can convey the property free and clear of the mortgage if she discharges
her obligation to the mortgagee at the time of or prior to the closing.
2.
Conveyance Subject To The Mortgage
The grantor can convey the property without making any special arrangements in regard to the
mortgage. In this situation, only the grantor is personally liable on the note. The purchaser
will lose his land, however, if the mortgage obligation is not discharged, and so will be informally
expected to pay the mortgage debt. The grantor-mortgagor can force the mortgagee to foreclose
on the land before pursuing the grantor-mortgagor personally. If the grantor-mortgagor does pay
on the mortgage obligation, however, he is subrogated to the rights of the mortgagee, and may
foreclose on the property if the grantee does not pay him back.
3.
Conveyance Subject To The Mortgage With The Grantee Assuming The Debt
The grantee may expressly promise the grantor-mortgagor that she will pay the mortgage
obligation as it becomes due. By assuming the mortgage obligation, the grantee becomes the
principal debtor and the grantor-mortgagor becomes a surety. The grantee’s express promise to
pay the mortgage obligation gives the grantor-mortgagor a direct cause of action against the grantee
if the grantee fails to pay. The mortgagee is a third-party beneficiary of the grantee’s promise to
pay, and so the mortgagee can sue the grantee directly if the grantee fails to pay.
4.
Novation
In a few cases, the mortgagee may agree to substitute the grantee as the obligor and release the
grantor-mortgagor from any liability. In order to accomplish this, the grantee and mortgagee
would have to enter into a new contract (or “novation”).
5.
Due-On-Sale Clauses
In theory, the mortgagee need not approve of the conveyance of the property to the grantee or the
financial arrangements made between the grantor-mortgagor and grantee. However, most
mortgages now contain a “due-on-sale” clause that makes the entire mortgage debt due immediately
if the grantor-mortgagor conveys the property. If the entire debt is not paid when the mortgagee
exercises his right to call the entire debt, the mortgage can foreclose. So, unless the grantormortgagor and grantee can arrange to pay off the mortgagee at the time of the sale, they must
obtain the mortgagee’s approval of the sale. Courts have upheld the validity of due-on-sale clauses.
D. TRANSFERS BY MORTGAGEE
Mortgagees may transfer both the underlying obligation and the mortgage itself. Normally, the two
will be transferred together.
A conveyance of a mortgage is a conveyance of an interest in property and so must meet the necessary
formalities. Words of conveyance, however, are not necessary to transfer the mortgagee’s interest in a
mortgage; the term “assign” is sufficient.
If the obligation is in the form of a negotiable note, it will be endorsed and negotiated to the transferee.
Any other obligation must be conveyed by a contract between the mortgagee and the transferee (or a
novation between the mortgagor and the new obligee).
The first purchaser has the presumed right to both instruments, except that a holder in due course of
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the note always has a superior right to the mortgage.
E. DISCHARGE AND DEFENSES
When the mortgagor has satisfied his obligations to the mortgagee, he is promptly entitled to receive
from the mortgagee a discharge of the mortgage in recordable form so that he can clear his title of the
mortgage encumbrance. Most states impose severe penalties on mortgagees who fail to provide a
discharge when they are obligated to do so. In addition the mortgagor can sue for any actual damages
suffered by failure to provide a discharge.
A mortgagee, however, is not required to accept satisfaction of the underlying obligation if the mortgage
note does not permit prepayment of the mortgage. If the note only permits the mortgagor to pay the
note with interest in installments over a fixed period of time, the mortgagee can refuse to accept any
payment except the installment due and not discharge the mortgage. Many states have provisions that
in consumer mortgages require the mortgagee to accept prepayment and discharge the mortgage.
The mortgage note frequently provides for a prepayment penalty if the mortgagor wants to pay the
mortgage off ahead of time. Such clauses are lawful. The mortgagee does not have to discharge the
mortgage until he receives both the amount due on the note and the prepayment penalty.
F. FORECLOSURE
If the mortgagor defaults on the underlying obligation, the mortgagee has the power to foreclose on
the mortgage. Foreclosure is the process that extinguishes the mortgagor’s equity of redemption and
allows the mortgagee to use the mortgaged property to satisfy the underlying debt.
1.
Types Of Foreclosure
a. Bill in equity to foreclose
This is also called “strict foreclosure.” In an equitable proceeding, the mortgagee asks the
court to set a date for performance of the obligation and to order that, if there is no performance
by that date, the mortgagor’s equity of redemption be cut off.
b. Foreclosure by entry of action
This method is used if the mortgage contains no power-of-sale provision. The mortgagee
must enter the land and continue in possession for three years. At the end of the statutory
period, the mortgagor’s equity of redemption is automatically cut off.
c. Foreclosure under a power of sale
Most commonly, a mortgage is foreclosed pursuant to a power of sale contained in the mortgage.
1)
Mortgagee must comply with contractual and statutory provisions
In order to foreclose on and sell mortgaged property validly, the mortgagee must adhere
strictly to the contractual and statutory requirements for a foreclosure sale. For example,
statutes generally require that the foreclosure sale be by public auction after proper notice
to the mortgagor and advertisement of the sale.
2)
Mortgagee must act in good faith
The mortgagee must act in good faith and use reasonable diligence to protect the interests
of the mortgagor. However, the mortgagee is allowed both to bid on the property at the
foreclosure sale and to act as the auctioneer.
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2.
Rights Of Omitted Parties
The mortgagee prior to foreclosure must run the title to determine all persons having an interest in
the mortgage premises. These parties include the original mortgagor, any subsequent owner of
the property who has received her interest through the mortgagor, and junior mortgage holders;
any attaching creditors; and any other persons whose interest in the land is shown in the record
title. These parties must be notified of the foreclosure proceeding so that they can object to it if
they think the proceeding is improper and so that they can attend the foreclosure sale to protect
their interests.
3.
Deficiency And Surplus
The proceeds of a foreclosure sale are distributed as follows: (1) to the foreclosing mortgagee
goes the sum of the unpaid balance of the obligation, the interest up to the time of foreclosure (but
not thereafter), and the costs of foreclosure; (2) then, junior mortgagees and attaching creditors
have access to the proceeds, in the order of their seniority under the recording statute; and (3) any
surplus goes to the mortgagor.
a. Deficiency judgment
In many states, the mortgagee has a right to a deficiency judgment if the property does not
bring enough to satisfy his claim.
b. Relationships between competing mortgagees at foreclosure
The priorities of mortgagees are determined by the recording statute of the jurisdiction. Thus,
the first mortgage granted is not necessarily the first in priority.
The purchaser at the sale will take the property free of all encumbrances except those senior to
the mortgage being foreclosed. The junior mortgagees will have to bid on the property to
protect their interests in it.
c. Relationship between mortgagees and holders of security interests
Mortgages are usually written so that they cover any fixtures, whether attached to the realty at
the time of the mortgage or later added. Since fixtures may be the separate subject of security
interests, there may be competing security interests in the same fixture.
1)
Fixtures that can be subject to security interests
Goods irretrievably incorporated into realty (e.g., bricks) cannot properly be the objects
of security interests other than mortgages.
2)
Priorities of mortgages and security interests
Generally, only a security interest in a fixture that is recorded prior to the mortgage
takes priority over the mortgage. There is one exception, however, a purchase-money
security interest prevails over even a prior mortgage, if it is perfected within a reasonable
time after annexation of the fixture to realty.
3)
Rights of the superior holder of a security interest
If the holder of a security interest prevails over the mortgagees, she may remove the fixtures.
She will be liable to the mortgagees for any damage done to the property by removal.
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Statutory Right Of Redemption
Many states allow a mortgagor to recover the property for a reasonable amount of time after the
foreclosure sale by paying the amount of the winning bid at the foreclosure sale to the mortgagee
or the purchaser at the foreclosure sale. While this procedure makes the property unmarketable
for a period of time, it does make it prudent for the mortgagee to bid a fair price at the foreclosure
sale. If he bids a nominal price, the property can be redeemed for that nominal price.
5.
Deed In Lieu Of Foreclosure
When a mortgage is in default, the mortgagor and mortgagee can agree that the mortgagor will
deed the property to the mortgagee in satisfaction of the mortgage debt. Such a procedure is valid,
and if done properly will transfer the ownership of the property to the mortgagee.
The deed in lieu of foreclosure is not a viable option if there are subsequent encumbrances on the
property, because the deed will not wipe them out as a mortgage foreclosure will. Therefore the
mortgagee taking a deed in lieu of foreclosure must make sure that the deed will give her clear title
to the property.
V.
TITLES
A. ADVERSE POSSESSION
Adverse possession is a doctrine that vests title to property in a person solely by reason of his longstanding possession of the land. To acquire title by adverse possession, the possessor must show (1)
an actual entry giving exclusive possession that is (2) open and notorious, (3) adverse and under a
claim of right (hostile), and (4) continuous throughout the statutory period. At common law, the
period was 20 years.
1.
Time When Statute Begins To Run
The statute begins to run when the owner becomes or should become aware of the possession.
a. Possession must be hostile
In general, the possession must be without the owner’s permission, but need not be hostile in
the sense of ill will.
1)
Cotenant cases
Possession by a cotenant becomes hostile only when the cotenant either physically
ousts the other cotenants or effects a constructive ouster of nonpossessory cotenants
by expressly informing them that she is asserting exclusive dominion over the property.
2)
Permissive commencement cases
If possession commenced under a lease or in some other permissive manner, then it does
not become adverse until there is explicit notification that possession is henceforth adverse,
or there is activity known to the owner which is inconsistent with the lessee’s permissive
use of the premises.
b. Possession must notify owner; open-and-notorious possession
The statute of limitations does not begin to run until the owner actually knows or should know
of the possessor’s possession. The legal standard has developed that the owner is put on notice
of the possession when the possessor takes open and notorious possession of the property.
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The possession required will be the type of possession that the average owner of such land
would exercise. Physical presence on the land is indispensable.
c. Effect of owner’s disabilities
If the owner is disabled at the time his cause of action accrues, the common-law rule is that the
statute of limitations does not run against him until the disability is removed. However, the
running of the statute is not affected by disabilities later incurred.
2.
Requirement Of Continuous Possession
The possessor acquires title by adverse possession only if she has been in continuous possession
for the statutory period. Seasonal use qualifies as “continuous,” as long as the possessor uses the
property during the appropriate season for each and every year of the statutory period.
a. “Tacking” between successive possessors
An adverse possessor is entitled to count the period of possession of a prior possessor
towards the statutory period, if he is in privity with the prior possessor. Any sort of
consensual transfer of possession will put two adverse possessors into privity. Two possessors
are not in privity when the second possessor’s possession is adverse to the first possessor.
b. Interruption of possession
If the possessor’s continuous possession is interrupted by the owner, the statutory period
must start all over again. The possession can be interrupted by any of the following methods.
1)
Possession by the owner
The possessor’s possession must be exclusive of the owner. Thus, if the owner goes into
possession, the statutory period is terminated.
2)
Ouster
3)
Judicial action
Filing an action for ejectment will terminate the possessor’s possession, as long as the
owner obtains a decree of ejectment.
3.
Title Obtained By Adverse Possession
The possessor takes a new title. Thus, his title is not subject to the defects found in the record
owner’s title.
The possessor only takes the estate of the owners who no longer have a cause of action to
eject him. If the possessor first took possession during a life estate or estate for years, a bare 20
years of possession will only give him title to those estates.
a. Possession no longer required
After obtaining title by adverse possession, the possessor need not remain in possession.
b. Property acquired by possession and constructive adverse possession
Generally, the possessor acquires title only to the property she has actually possessed.
However, under the doctrine of constructive adverse possession, if a possessor enters onto
land and takes possession of a part of it under “color of title,” she will obtain title to the entire
tract, even though she didn’t possess all of it.
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B. CONVEYANCE BY DEED
1.
Requirements Of A Valid Conveyance
A deed must meet the requirements of the Statute of Frauds, and often the additional requirements
of the deeds statute of the jurisdiction, to be valid.
a. Requirements of a valid deed
1)
Signature of the grantor
2)
Name of the grantee
3)
Words of conveyance
4)
Description of the property conveyed
b. Elements not generally required
2.
1)
Witnesses or acknowledgment
2)
Recording
3)
Consideration
Necessity Of A Grantee
The grantee need only be identifiable from the deed. The grantee need not sign the deed. Also,
the grantor need not be the one to place the grantee’s name on the deed. The grantor may hand
over a deed without a grantee’s name and the conveyance will be valid for whomever’s name later
appears as the grantee (assuming that the grantor had the requisite intent to convey at the time he
handed over the deed).
3.
Delivery
There must be a “delivery” of the deed for title to be conveyed. The grantor “delivers” the deed
at the time that she intends to confer an immediate, irrevocable interest on the grantee. A physical
transfer of the deed to the grantee most likely indicates that the grantor intended to create an
immediate interest in the grantee. However, it is possible to have delivery without physical transfer,
and vice versa.
a. Delivery without physical transfer
A grantor can “deliver” the deed without physically giving it to the grantee. All he need do is
execute the deed and somehow manifest intent to make it effective immediately.
b. Physical transfer without delivery
By the same token, the grantor can physically transfer the deed to the grantee without affecting
delivery. If the grantor hands over the deed without intent to immediately and irrevocably
create an interest in the grantee, the deed will not pass title.
However, in cases where the grantee has physical possession of the deed, the grantor will have
to overcome a presumption that the deed was delivered.
c. Physical transfer to third parties
In line with the general rule above, physical transfer to a third party only qualifies as a delivery
if the grantor thereby intends to create an irrevocable and immediate interest in the grantee.
Thus, an unconditional transfer of the deed to the grantee’s agent will likely qualify as a
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delivery.
4.
Land Description And Boundaries
Aside from the basic requirement that the property be described in a manner sufficient to identify
it in order for the deed to be valid, any description of the property in the deed will be important in
any subsequent disputes regarding the boundaries of the property.
Where different descriptions of land in the same deed are inconsistent, the following rules of
construction will be applied. Natural monuments prevail over artificial ones. Natural and artificial
monuments both prevail over distances. Specific descriptions prevail over general ones.
If a deed refers to a plan, the plan is incorporated into the deed, and the courses and distances on
the plan are to be regarded in determining the true construction of the deed.
If the grantor conveys property bounded by a road and the grantor owns the fee under the road,
the deed conveys property to the middle of the road, unless that does not appear to be the grantor’s
intent and there is a reason she might want to keep an exclusive interest in the road (e.g., she owns
the land on the other side or at the end of the road and needs it for access).
The same rules as above apply to waterways – the deed is presumed to convey to the middle (“the
thread”) of a waterway (if the grantor owned the land under the waterway) and any distances are
measured from the banks of the waterway.
5.
Covenants Of Title
Covenants of title are promises by a grantor in a deed in regard to the title the grantor is conveying.
Once the deed is delivered and accepted, the grantee can only sue for defects in the title based on
the covenants of title in the deed.
a. Types of covenants
1)
Present covenants
(a) Covenant of seisin
Here, the grantor warrants that he has title to and possession of the property or the
interest in property conveyed.
(b) Covenant of the right to convey
Here, the grantor warrants that she has the right to convey the property to the grantee.
(c) Covenant against encumbrances
Here, the grantor warrants that there are no liens, mortgages, easements, or other
interests in third parties which will diminish the ownership rights of the grantee, except
those listed in the deed.
2)
Future covenants
(a) Covenant of quiet enjoyment
By the covenant of quiet enjoyment, the grantor warrants that the grantee and his
successors will not be disturbed in their possession of the property by the grantor or
someone with a claim of title superior to that of the grantor.
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(b) Covenant of warranty
By the covenant of warranty, the grantor guarantees that her title is good, and that she
will assist in defending that title against claims by third parties.
(c) Covenant for further assurances
This covenant is not common, but where it is given, the grantor promises that he will
take whatever steps are necessary to perfect any defects in title.
b. Types of deeds
There are, generally, three types of deeds with respect to covenants.
1)
Quitclaim deed
The quitclaim (or “release”) deed contains no covenants. It conveys to the grantee whatever
the grantor had, without making any representations or promises as to the grantor’s title.
2)
General warranty deed
The general warranty deed contains all of the covenants discussed above, except the
covenant for further assurances. Such a deed makes the grantor liable for any encumbrances
or defects in title that existed at the time of the conveyance, whether attributable to her or
her predecessors.
3)
Special warranty deed
The special warranty deed contains the same covenants as the general warranty deed, but
the grantor is liable only for defects or encumbrances incurred during his ownership. In
effect, the grantor warrants only that the property was not encumbered and the title did not
become defective during his ownership.
c. Actions for breach of covenants
1)
Time of breach
Present covenants are breached at the time of conveyance, if at all. Thus, the statute of
limitations starts to run at the time of the conveyance, even if the title defect or encumbrance
is not discovered until later.
Future covenants are not breached until the grantee’s title to the property is seriously and
validly disputed. The mere existence of an undisclosed mortgage will not breach a future
covenant; the grantee must be threatened with eviction.
2)
Who can sue
A grantee has a cause of action only against her immediate grantor for a breach of a
present covenant. Future covenants run with the land. Therefore, once a grantor has made
a future covenant, she is liable to any subsequent grantee in her chain of title for any
defects or encumbrances that existed at the time she conveyed the property.
C. CONVEYANCING BY WILL
If an individual dies leaving a valid will, and owns real estate in his individual capacity as opposed to
owning it as a joint tenant, the will acts as an instrument of conveyance, and transfers ownership of the
property to the persons to whom the property was devised. If the property is not specifically devised
by the will, the residuary clause of the will serves as the instrument of conveyance. If the will does
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not effectively dispose of property, then the laws of intestacy of the state in which the property lies
govern the devolution of the property to the decedent’s heirs. For the disposition in any of these cases
to be effective, there must be a probate of the decedent’s estate so that the will is allowed and their
heirs determined and there is a record of the distribution of the estate.
There are three circumstances where the devise of the real estate made in the will is ineffective:
1.
Ademption
The will only operates on property that is owned by the decedent at the time of death. If the
decedent sold or otherwise disposed of the property during her lifetime, the devise is adeemed by
extinction, and the devisee does not receive other property to compensate her.
2.
Exoneration
The devise of the real estate is effective only if all of the debts and taxes of the estate can be paid
without selling the real estate to satisfy them. If the real estate is specifically devised, all of the
property not specifically bequeathed or devised that is in the residuary estate will be sold before
specifically devised real estate to satisfy debts and taxes. If the real estate is part of the residuary,
then it will be sold to satisfy specific and general legacies, and will abate if there are not sufficient
unallocated funds to satisfy both the expenses of the estate and the prior legacies. If the executor
must sell to pay the debts or prior legacies, the devise of real estate in the will is ineffective.
3.
Lapse
A devise is only effective if the devisee survives the testator. It will lapse if the testator survives
the devisee and will be disposed of by the residuary clause of the will, or if the devise is to a sole
residuary legatee, by intestacy. All jurisdictions have anti-lapse statutes that provide that a devise
to a relative survived by issue will go to the issue if the named relative predeceases the testator.
Statutes vary with respect to the degree of kindred required between the decedent and the deceased
devisee.
D. PRIORITIES AND RECORDING
1.
Types Of Priority
a. Recording acts
A deed need not be recorded to be valid and convey good title. An unrecorded deed is always
valid to give good title to the grantee, at least in regard to the grantor. However, if a grantee
does not properly and promptly record his deed, he may lose his title if his grantor later grants
the land again to someone else (“the subsequent grantee”).
Recording systems give stability to titles by providing a method of verifying a grantor’s title
and protecting the title of a purchaser who has bought land without knowledge of any prior
grantee. A grantee must promptly and properly record the deed he receives from the grantor,
or a subsequent purchaser without knowledge of his deed may be able to take good title from
the grantor. The public-recording system provides a method for a purchaser of land to give
notice to the rest of the world that he is now the record owner of land, so that no subsequent
purchaser from the grantor can rob him of title. In essence, although an unrecorded deed is
valid as between a grantor and a grantee, only a properly recorded deed is good against the
rest of the world.
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b. Judgment liens
The priority given to a judgment lien over other instruments depends on the statute in the
jurisdiction. Some states require that a judgment be recorded in the registry of deeds before it
is a lien on property and it is then governed by the priorities in the recording system. In some
states a judgment is a lien as soon as it is rendered by a court, even if it is not recorded in the
registry of deeds. The priority of that lien would be governed by the date of the judgment.
Some states make a judgment a lien against property acquired subsequent to the judgment
where it would take priority over other liens filed at that time except for purchase-money
mortgages. If a state gives automatic lien status to a judgment, it is necessary to check for
judgment liens in an title search.
c. Fraudulent conveyances
Almost all states have enacted the Uniform Fraudulent Conveyance Act. When the owner of
property makes a fraudulent conveyance, a transfer, or when the conveyance is made to defraud
creditors, designated creditors, set forth in the act, have rights in the property superior to the
rights of the transferee. They can treat the property as if it were still owned by the transferor
and can use it to satisfy their claims against the transferor. However, if the property is transferred
for some value to an innocent purchaser who does not know that the transaction is a fraudulent
conveyance, that purchaser has superior rights to the extent of the consideration she furnished.
d. Protection of bona fide purchasers other than under statutes
Since most of the remedies for creditors to set aside conveyances and for holders of unrecorded
instruments to try to obtain property from bona fide purchasers are equitable in nature, the
bona fide purchaser may have the equitable defenses of laches, or unclean hands, in a suit
which tries to take the property away from him.
2.
Scope Of Coverage
a. Recorded documents
An individual records an instrument affecting land by filing it in the registry of deeds for the
jurisdiction where the land lies. Usually the instrument must be notarized and a fee paid. The
recorder’s office then photocopies the instrument, binds it in a chronological volume, and
indexes it according to the system employed in the jurisdiction (as explained below).
b. Mechanics of title searches
The only way a purchaser can verify the validity and quality of the grantor’s title is by using
indexes to find all of the documents making up the grantor’s chain of title. How these indexes
are used depends on the type of index utilized in the jurisdiction.
1)
The tract index
The tract index is used in some highly developed urban areas. All of the land in the
jurisdiction is subdivided into small parcels known as “tracts.” Each instrument is then
indexed under the tract designation. The title examiner looks in the tract index under that
particular tract, and finds references to the book and page numbers of all documents
affecting that tract. She will then go to the record books to examine those documents.
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2)
The grantor-grantee index
The most common type of indexing system is the grantor-grantee index, which is actually
two separate indexes – one arranged by the grantor’s name and one arranged by the
grantee’s name. When an instrument is brought to the registrar’s office, it is indexed under
the name of the grantor in the grantor index, and under the name of the grantee in the
grantee index.
c. When a subsequent purchaser gets superior title
1)
Subsequent purchaser must receive a valid deed
A subsequent purchaser’s deed cannot defeat a prior deed if the subsequent deed is forged
or obtained from an incapacitated grantor.
2)
Subsequent deed must have been purchased
In order to qualify as a purchaser, the subsequent grantee must give “value.” Value means
more than nominal consideration, but does not necessarily mean a fair price. A deed given
in exchange for cancellation of a debt is purchased. A deed given as security for a loan
(i.e., a mortgage) is purchased, as long as the loan and the deed are simultaneous.
3)
Subsequent purchaser usually must have purchased without notice
In the overwhelming majority of jurisdictions (i.e., all jurisdictions but those which have a
pure “race” system of recording, discussed below), a subsequent purchaser must be a
bona fide purchaser to prevail – that is, she must have purchased without notice of the
prior, unrecorded conveyance. A subsequent purchaser can be notified of a prior purchase
by the following three types of notice.
(a) Constructive notice
A promptly and properly recorded and indexed deed is constructive notice to all. An
improperly recorded or indexed deed is usually held not to be constructive notice,
unless it is actually discovered by a title examiner.
(b) Actual notice
(c) Inquiry notice
A prospective purchaser is expected to inspect the land before buying. If the land is in
the possession of a stranger, then the grantee has the duty to investigate further or he
will not be a bona fide purchaser.
4)
Subsequent purchaser may have to record first
Whether the subsequent purchaser must record her deed to prevail over the prior deed
depends on the type of recording system employed in the jurisdiction.
(a) Notice system
A subsequent bona fide purchaser need not record to prevail over a prior deed, in a
notice system of recording. Under a notice system, a subsequent purchaser takes good
title by merely purchasing without notice of the prior conveyance.
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(b) Race-notice system
Under a race-notice system, the subsequent bona fide purchaser must record first, in
order to prevail over a prior grantee.
(c) Race system
A race system gives good title to whomever records first, regardless of whether
that person had notice of prior conveyances.
d. Interests affected by recording system
Title obtained by adverse possession; easements obtained by implication, necessity, or
prescription; and short-term leases need not be recorded. All other interests must be recorded.
e. Doctrine of shelter
Once a subsequent bona fide purchaser has achieved superior title as against a prior grantee,
he can convey that priority to almost anyone, including someone who had notice of the prior
conveyance. However, a purchaser who is not a bona fide purchaser cannot convey to a bona
fide purchaser and then buy the property back to obtain the status of a bona fide purchaser.
3.
Special Problems
a. Instruments recorded out of chain of title
1)
The deed recorded early – estoppel by deed
Estoppel by deed operates in the situation where an individual has conveyed an interest in
land by a warranty deed, but does not actually own the land until after that conveyance. In
such a situation, the title is transferred automatically to the grantee when the grantor acquires
it. The question then becomes whether a subsequent purchaser can get good title from
that same grantor. Because a person examining title will not find the conveyance from the
grantor to the prior grantee in the chain of title, the majority rule is that a subsequent
bona fide purchaser can get good title, despite the doctrine of estoppel by deed.
2)
The instrument recorded late
Since the registry of deeds records and indexes instruments by the date they are received
at the registry, rather than by the date of the conveyance, it is possible that a valid conveyance
might not be recorded until after the grantor has conveyed the property a second time.
The majority of jurisdictions hold that a purchaser does not have constructive notice
of a late-recorded instrument
that is out of the chain of title.
b. Constructive notice
A promptly and properly recorded and indexed deed is constructive notice to all. A properly
recorded and indexed deed defeats all subsequent grantees.
However, a subsequent purchaser need not actually check the registry of deeds to attain the
status of a bona fide purchaser. If the prior deed is not recorded, the subsequent purchaser can
be a bona fide purchaser, even if she did not check the record.
c. Forged instruments
Forged documents, even if properly recorded and notarized and relied upon by bona fide
purchasers, are ineffective to affect title. Even if the forged document was back in the chain
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of title, so that the seller received an unforged deed when he took title, the doctrine of shelter
is inapplicable, and the buyer who takes through a forged instrument will lose to the true
owner.
d. Transfers from corporations and by agents
A deed signed by an officer of a corporation on its behalf or by an agent for a principal only
conveys the interest of the principal if the agent is authorized to sign the document or if the
purchaser is protected under some theory of apparent authority or estoppel. The common
practice when a corporation conveys property is to place on record a corporate vote authorizing
the officer to execute the deed on behalf of the corporation. Likewise, an agent executing a
deed for an individual should place on record a power of attorney authorizing the action.
Without these documents on record, there is a flaw in the title.
e. Purchase-money mortgages
In some jurisdictions, the seller who takes back a purchase-money mortgage may be entitled
to additional protection, so that her mortgage is valid against a trustee in bankruptcy even
though she did not immediately protect her security interest by recording the purchase-money
mortgage. Likewise, if there is a statute in the jurisdiction which gives judgments or government
liens an automatic attachment against after-acquired property, those statutes would not apply
so as to give priority over purchase-money mortgages.
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