Rights II. ESTATES IN LAND An estate in land refers to the quality, quantity, nature and extent of the ownership interest that a person holds in real property, not to the physical quantity of land one may own. Not all interests in property are estates. In order for an interest to be an estate, there must be a present or future right to possess (occupy) the property. An easement, for example, is an interest in the land but not an estate because it is simply a right to use but not possess. A mortgage lien is an interest but not an estate. If a person has the present right to occupy the property, he/she is said to have a possessory estate. A non-possessory estate is one in which the right to occupy is a future right. It will become possessory when a preceding possessory estate, such as a life estate, is terminated. Therefore, one estate may exist simultaneously with another estate. Estates In Land Possessory NonPossessory Absolute Remainder Fee Simple Determinable Reversionary Condition Freehold Subsequent Legal Life Estate Conventional Ordinary Life Estate Life Estate Dower Life Estate Pur Autre Vie Leasehold Estate for Years Curtesy Estate from Homestead Period-Period Protection Estate at Will Estate at Sufferance Figure 2-3 • Estates In Land A. FREEHOLD ESTATES. Freehold estates are estates that will last for an indefinite period of time. These include fee estates that have the potential of lasting indefinitely (and therefore are inheritable) and life estates that will last for a lifetime. Fee estates are distinguished by the fact that they can be inherited. The fee estates include: Georgia Institute of Real Estate ©2011 Chapter 2 - 3 Rights 1. FEE SIMPLE ABSOLUTE (ALSO CALLED FEE SIMPLE, OR FEE). A fee simple absolute estate is one in which the owner possesses the entire bundle of rights. It is the most complete ownership of rights in land that one can hold. The owner’s rights to possess, control, enjoy and dispose of the property are limited only by the inherent powers of government and by the rights of other individuals who might have a legal interest in the land. There are no conditions to satisfy in order to retain ownership. This estate is freely inheritable. It can be passed on to the heirs named in a will, or if there is no will, passed on by state law of descent. 2. CONDITIONAL FEE. There are other types of fee estates that do not represent complete rights of ownership because they have “strings attached.” Ownership is conditioned on the occurrence or on the non-occurrence of a certain event. These conditional fees (also called qualified or defeasible fees) are classified as either fee simple determinable or fee simple on condition subsequent. a. Fee simple determinable. The ownership of a fee simple determinable is subject to a certain limitation based on time. Conditional words and phrases such as “for so long as,” “during” or “until” are used in a deed to create this type of estate. For example, Johnson (the grantor) conveys ten acres of land to the city of Atlanta “so long as” the land is used as a park. Should the city use the land for anything else, its ownership is terminated. The estate would automatically go back (revert) to Johnson or to Johnson’s heirs or would go to someone else (the remainderman) if one has been named. This provision in the deed is called a reverter clause and, while the city owns the land, Johnson has a future right called a reversionary interest. Note that Johnson would have had no control over how the land was used if he had conveyed it in fee simple. b. Fee simple on condition subsequent. Ownership of a fee simple on condition subsequent is also subject to a condition but there is no automatic reversion when the condition is no longer being met. The estate can only be recovered through legal action. The deed creating a fee simple on condition subsequent might contain conditional phrases such as “provided that” or “on the express condition.” There is no time fuse on these phrases. For example, Smith conveys ten acres to the New Way Church “on the express condition” that the land be used only for church-related purposes. In the event the church uses the land for some other purpose, Smith or his heirs might have a right to terminate the estate by going to court and suing for possession within a reasonable time after the condition is violated or the right might be lost. Chapter 2 - 4 Georgia Institute of Real Estate ©2011 Rights 3. LIFE ESTATES. Life estates are also freehold estates because the duration of a life estate is going to be measured by a person’s lifetime and no one knows exactly how long that might be. We do know, however, that it is not going to last forever and, since it ends when the life ends, the life estate cannot be passed to heirs. a. Ordinary life estates. A conventional life estate is one created by a conveyance, usually through the use of a deed, a will or a trust. The person who receives this estate is called the life tenant. The life tenant, as owner of the estate, is entitled to possess and use the land for the duration of the lifetime. During that possession, the tenant is entitled to all profits, rent and other income that might be derived from the property and may sell, mortgage, lease or give away the estate. What the life tenant can dispose of, however, is not a fee estate. Anyone acquiring an interest from a life tenant should understand that their interest ends when that life ends. Most people would not choose to lend to or buy from a life tenant who might be hit by a truck tomorrow. When a life estate is created, a future (non-possessory) estate is created at the same time. It must be specified whether, at the end of the lifetime, the estate will go back (revert) to the original grantor or whether it will go to someone else (a remainderman). EXAMPLE: Aging Sarah Jenkins wants to give her home to her son, Kevin, but would like to remain in the home until she passes away. Sarah (grantor) conveys her home to her son, Kevin (grantee), but reserves a life estate for herself. Sarah, as the life tenant, has a life estate and Kevin has the reversionary interest in the property. When Sarah dies, Kevin receives the property with fee simple interest. b. Life estate pur autre vie. When the “lifetime” of a life estate is measured by the life of an individual other than the grantee, the estate is called a life estate pur autre vie. EXAMPLE: Shane Jackson has a nephew, Bill, who has many problems finding and keeping housing. Shane’s brother asks, as a favor, that Bill be allowed to occupy one of Shane’s many houses. Shane is skeptical, but grants Bill a life estate pur autre vie based on Bill’s father’s life. Bill is able to live in the home until his father passes away. Shane figures that he’s doing his brother a favor, and at the end of the life estate, Bill will have to make his own way. Georgia Institute of Real Estate ©2011 Chapter 2 - 5 Rights 4. REMAINDER ESTATES. A remainder estate is created when the owner of a fee simple estate grants a lesser estate to someone and, at the same time, names a person other than himself/herself (the remainderman) who will receive the fee simple estate when the lesser estate ends. Lesser estates include life estates, fee simple determinable, fee simple on condition subsequent, and leaseholds. In effect the grantor divides the fee simple estate into two parts; the lesser estate, that is possessory, and the remainder estate, that is a future right. EXAMPLE: Frank has a sister, Jane, who is several years his elder. Frank grants his sister a life estate. Jane is able to live in the home until she passes away. Frank’s wife, Carol, will be the remainderman. If Carol passes away before Jane, the remainderman will become Carol’s heirs. A contingent remainder estate is created when the grantor makes the “future rights” dependent on both the termination of a lesser estate and on the fulfillment of a condition. The deed might read “To my sister, Jane, for her life, and the remainder to the children of my sister, Jennifer.” If Jennifer has no children when Jane dies, the estate will revert to the grantor or the grantor’s heirs. This estate is also inheritable. EXAMPLE: Jack (grantor) conveys a property to his sister, Samantha, for her life. The remainder estate is to go to Samantha’s children. If Samantha has no children, the estate reverts back to Jack or his heirs. 5. REVERSIONARY ESTATES. A reversionary estate is created when a lesser estate is conveyed but the future rights are reserved for the grantor or heirs of the grantor. For example, a landlord or his/her heirs will typically regain possession of a leased property when the lease term ends. All leasehold estates and any freehold estate, except for a fee simple absolute, may be created with either a remainder or a reversionary interest. When a fee simple determinable ends because the condition is no longer being met, the reversion is automatic. However, with a fee simple on condition subsequent, the grantor will have to take legal action to regain the fee, if the condition is not being met.