Principles of California Real Estate
Lesson 2:
Estates in Land and
Methods of Holding Title
© 2010 Rockwell Publishing
Introduction
This lesson will discuss:
 types of estates in land
 ways of holding title to property
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Estates in Land
Interests in real property
Interest: Interest in real property is a right to
the property or a claim against it.
Interests may be:
 possessory (also called estates)
 nonpossessory
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Estates in Land
Interests in real property
Estate: Absolute and exclusive right to
possess property now or in the future.
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Categories of Estates
Two basic categories:
 freehold estates (include title)
 leasehold estates (don’t include title)
Both freehold and leasehold estate may exist
at same time in same property; this
relationship is known as privity.
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Types of Estates
Freehold estates
Two main kinds of freehold estates:
 fee simple estates
 life estates
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Freehold Estates
Fee simple estates
Fee simple:
 most common type of estate
 highest and most complete form of land
ownership
 can potentially last forever
Fee simple estate is perpetual, transferable,
and inheritable.
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Fee Simple Estates
Two types of fee simple estates:
 absolute
 defeasible
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Fee Simple Estates
Fee simple absolute
Estate transferred is fee simple absolute
unless grantor makes clear some other estate
intended.
Fee simple absolute owner is not subject to
any special limitations or conditions.
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Fee Simple Estates
Fee simple defeasible
Fee simple defeasible: Fee title with condition
or qualification attached.
 Interest will end if specified act or event
occurs at some later date.
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Freehold Estates
Life estates
Life estate:
 limited in time
 lasts only as long as a particular person
is alive
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Life Estates
Duration
Life tenant: Person who owns property for
duration of measuring life.
Measuring life: Person whose life is used to
measure length of life estate; usually same
person as the tenant.
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Life Estates
Future interests
When measuring life ends, title will pass to
holder of:
 estate in reversion, or
 estate in remainder.
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Life Estates
Estate in reversion
Estate in reversion: If deed giving title to life
tenant states that title shall revert to grantor
on death of measuring life, grantor has estate
in reversion.
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Life Estates
Estate in remainder
Estate in remainder: If deed giving title to life
tenant states that title shall pass to third party
on death of measuring life, third party has
estate in remainder.
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Life Estates
Sale or lease
Life tenant may sell or lease only interest she
has in property.
Life tenant must maintain property in good
condition.
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Summary
Freehold Estates
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Freehold estate
Fee simple absolute
Fee simple defeasible
Life estate
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Categories of Estates
Leasehold Estates
Leasehold estate: Limited, temporary estate
created by lease contract.
 Parties: landlord and tenant.
 Tenant gets right to exclusive use and
possession of property.
 Landlord retains title and holds
reversionary interest in property.
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Leasehold Estates
Chattel Real
Because lease is considered personal
property (even though it represents interest
in real property), it may also be called
chattel real.
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Leasehold Estates
Types of estates
Types of estates:
 term tenancy
 periodic tenancy
 tenancy at will
 tenancy at sufferance
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Types of Leasehold Estates
Term tenancy
Term tenancy: A leasehold estate that lasts
for any fixed term; also called estate for
years.
 One-week lease is estate for years.
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Types of Leasehold Estates
Periodic tenancy
Periodic tenancy: Leasehold that is not
limited to specific term; also called periodic
estate.
 Automatic renewal: continues from rental
period to rental period until terminated by
landlord or tenant, with proper notice.
 Required notice period = rental period.
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Types of Leasehold Estates
Tenancy at will
Tenancy at will: Often arises when lease has
expired and parties are negotiating new
lease; also called estate at will.
 No agreement exists.
 Tenant in possession with landlord’s
consent.
 California requires 30 days’ notice of
termination.
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Types of Leasehold Estates
Tenancy at sufferance
Tenancy at sufferance: Not true estate; tenant
does not have leasehold interest.
 Tenant keeps possession after valid
lease expires, without landlord’s consent.
 Commonly called holdover tenancy.
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Summary
Leasehold Estates
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Leasehold estate
Term tenancy
Periodic tenancy
Tenancy at will
Tenancy at sufferance
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Ways of Holding Title
Title to real property may be held by one
person, known as ownership in severalty; or
it may be held by two or more persons,
known as concurrent ownership.
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Ways of Holding Title
Ownership in severalty
Ownership in severalty: Ownership by one
individual (often called “sole” ownership).
Individual owner may be:
 natural person (human being)
 artificial person (corporation, LLC, etc.)
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Ways of Holding Title
Concurrent ownership
Concurrent ownership: Ownership by two or
more persons at same time.
In California, there are three types of
concurrent ownership:
 tenancy in common
 joint tenancy
 community property
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Concurrent Ownership
Tenancy in common
Tenancy in common is most basic form of
concurrent ownership. It’s default form if:
 arrangement doesn’t fit into one of other
categories
 deed did not specify another type
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Concurrent Ownership
Tenancy in common
Tenants in common have undivided interest
in property as a whole. This is called unity of
possession.
 Interests don’t have to be equal.
 No matter how small tenant’s interest,
he may share possession of entire
property.
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Concurrent Ownership
Death of tenant in common
Tenant in common may will interest to
someone other than remaining tenant(s) in
common.
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Concurrent Ownership
Terminating a tenancy in common
Tenancy in common may be terminated by a
partition suit.
 Court will either divide property into
separate parcels or order sale of
property with proceeds to be divided
among co-tenants.
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Concurrent Ownership
Joint tenancy
In joint tenancy, two or more persons are
joint and equal owners of property.
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Joint Tenancy
Four unities
Requirements for joint tenancy:
 unity of interest
 unity of title
 unity of time
 unity of possession
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Joint Tenancy
Right of survivorship
Right of survivorship is key feature of joint
tenancy.
When joint tenant dies, her interest:
 automatically passes to surviving joint
tenants
 is not part of her estate and cannot be
willed
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Joint Tenancy
Termination
Joint tenancy can be terminated by partition
suit.
Also terminates if any of four unities is
destroyed.
 Example: If joint tenant transfers her
interest to another, new owner is not joint
tenant.
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Concurrent Ownership
Community property
Community property is property owned jointly
and equally by husband and wife.
 System is used in California and 8 other
states.
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Concurrent Ownership
Community property
In community property states:
 everything owned by married couple that
isn’t separate property of one spouse is
community property of both spouses
 each spouse has an undivided ½ interest
in community property
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Community Property
Separate property
Separate property:
 property owned before marriage
 gift or inheritance acquired during
marriage
 anything purchased with separate
property funds
 profits or proceeds from separate
property
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Summary
Individual and Concurrent ownership
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Ownership in Severalty
Concurrent ownership
Tenancy in Common
Joint tenancy
Community property
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Ways of Holding Title
Business organizations
Real property may also be owned by business
entity:
 general partnerships and limited
partnerships
 corporations
 limited liability companies
 real estate investment trusts
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Business Organizations
Partnership
Partnership: Association of two or more
persons to conduct business as co-owners
and share profits. Partnerships are formed by
contract.
Types of partnerships:
 general partnership
 limited partnership
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Partnerships
General partnership
General partnership: Each partner has:
 ownership interest
 voice in management
 right to share in profits
 obligation to share in losses
The partnership is not taxed, but each
partner’s earnings are taxed individually.
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General Partnership
Property ownership
Partner has right to use partnership property
but is not co-owner of property and has no
transferable interest in it.
 But partner’s interest in partnership itself
may be transferred.
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General Partnership
Liability
Each partner may be held personally liable
for debts and obligations of general
partnership.
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Partnerships
Limited partnership
Limited partnership is more regulated than
general partnership.
 Agreement must be in writing.
 Only general partners have liability for
partnership debt and obligations, and
right to manage business.
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Partnerships
Limited partnership
A limited partnership has at least one general
partner, plus one or more limited partners.
Most California real estate syndicates are
limited partnerships.
Limited partners have:
 limited liability
 no control over partnership property
 passive role in management
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Business Organizations
Corporation
Corporation: Artificial person with perpetual
existence. Made up of:
 shareholders
 board of directors
 corporate officers
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Business Organizations
Corporation
Corporations:
 can own property
 can incur debts
 are subject to double taxation (profits are
taxed before distribution to shareholders,
then taxed again as ordinary income to
the stockholders)
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Business Organizations
Corporation
Shareholders:
 own shares in corporation
 have no managerial control
 are liable only up to value of their stock
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Business Organizations
Limited liability company
LLC may be organized like partnership or like
corporation.
 Owners are called “members.”
 Income not taxed at entity level, so no
double taxation.
 Owners have limited liability.
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Business Organizations
Real estate investment trust
REIT: One or more trustees manage real
property for benefit of investors (the
beneficiaries). Investor liability is limited to
amount of investment.
An REIT:
 qualifies for special tax treatment
 must have at least 100 investors
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Summary
Business Organizations
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General partnership
Limited partnership
Corporation
Limited liability company
Real Estate Investment Trust (REIT)
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Ways of Holding Title
Condominiums and cooperatives
There are two types of properties that
combine elements of individual ownership
and concurrent ownership:
 condominiums
 cooperatives
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Condos and Co-ops
Condominiums
Condominiums are usually residential and
resemble an apartment complex.
Residents:
 own individual units in severalty
 share ownership of common elements
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Condominiums
Common elements
Common elements: Parts of a
condominium property that are usable by
all residents.
Examples:
 grounds
 elevator
 hallways
 swimming pool
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Condominiums
Separate properties
Buyer of condominium unit:
 receives deed for unit
 finances purchase with separate loan
 obtains separate title insurance policy
 pays separate taxes
If lien against one unit is foreclosed, other
units are not affected.
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Condominiums
Governing board
Elected governing board usually manages
condominium and enforces rules.
Condominium seller must give prospective
buyer:
 copy of bylaws
 latest financial statements
 CC&Rs for the project
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Condominiums
Uses
Condominium can be designed for
residential, commercial, or industrial use.
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Condos and Co-ops
Cooperatives
Residential co-op might look like
condominium, but ownership structure is
very different.
 Title is held by corporation.
Residents:
 own shares in corporation
 have long-term lease on unit
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Condos and Co-ops
Cooperatives
Cooperative project is:
 financed with single mortgage
 taxed as single property
Rent paid to corporation is proportionate
share of co-op’s expenses; if one tenant
fails to pay rent, other tenants must cover to
avoid foreclosure.
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Summary
Condos & Co-ops
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Condominium
Common elements
Governing board
Cooperative
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