Module 3 - Estates in Land Flashcards
Freehold Estates
When you hold a freehold estate in a property, you are the outright owner of that property. There is no time limit or condition attached to your ownership. The freehold owner has title to the property. An individual can be missing one of the sticks in the bundle of rights as in the case of a life estate or a defeasible estate and yet be called the owner of the property. Also, remember that possession is a required characteristic in order to qualify as a freehold estate, but that possession can be present or in the future. Freeholds divide into two major categories: fee simple estates and life estates
Fee Simple Estate
(Complete Ownership) | The owner has full rights to use, sell, or pass down the property without conditions, subject only to government regulations (e.g., zoning laws, taxes). A type of freehold estate, which means ownership of the property is for an indefinite period. You can inherit it.
There are three types of fee simple estates: Fee simple absolute, Fee simple determinable, Leased Fee Interest
Fee Simple Absolute
Fee simple absolute is a type of Fee Simple Estate, the most complete form of ownership with unlimited duration and subject only to governmental powers
You own the whole pizza, crust and all. You can eat it, share it, or keep it forever.
Fee Simple Defeasible
Fee simple defeasible is a form of Fee Simple Estate: Ownership with conditions. If a specific condition is violated, ownership may revert to the original owner or a designated party. (Example: A land grant requiring the owner to build a house within a year—failure to do so could result in loss of ownership.)
You own the whole pizza, but only if you eat the veggies first. If you don’t, someone else gets the pizza.
Leased Fee Interest
Leased fee interest is a type of Fee Simple Estate: Even though you’ve rented out the apartments, you still own the building. This ownership, when it’s tied to a lease, is called a “leased fee interest.” You’re the landlord. You have the right to receive rent, and you’ll have full use of the building again eventually, when the leases end. as the owner with the leased fee interest, still hold the title (ownership document). You just don’t have possession (the ability to live there) right now. Your right to possession is in the future, after the leases expire. That’s why it’s called a future interest. You’re the owner, but your full use of the property is on hold until the leases are up.
You own the whole pizza, but you let someone else eat slices for a while (lease term). You still get the pizza back when they’re done.
Life Estate
Life Estate (Lifetime Ownership)
The right to use and occupy a property for life, but ownership reverts to the original owner or a designated party upon the life tenant’s death. (Example: A parent grants a life estate to a child, but after the child’s death, the property goes to another heir.)
A life estate grants ownership of a property to someone (the life tenant) for the duration of their life. When the life tenant dies, ownership of the property automatically transfers to another person (the remainderman) or reverts back to the original grantor (reversioner).
Since the life tenant’s ownership is tied to their lifespan, they cannot pass it on through a will or inheritance. The property’s future ownership is already determined by the terms of the life estate.
If I grant a life estate to you, then you are considered the owner of the property because I have conveyed the title to you. What I retain is a future interest in the property; namely that when you die, the property title reverts back to me or a remainder interest.
The life tenant can improve the property, give a mortgage, and even sell the property. However, when the life tenant dies, the property reverts back to the grantor. A life tenant can sell their life estate, meaning they can sell their right to use and possess the property for the remainder of their life. However, the buyer only acquires ownership for the duration of the life tenant’s life. Once the life tenant dies, the property automatically transfers to the remainderman (or reversioner).
There are two primary parties involved:
- Grantor - The grantor is said to have a reversionary interest. Again the life tenant is the owner of the property while he or she is alive and the grantor has the reversionary interest—or what we have referred to as a future interest.
- Grantee - known as the life tenant. The life tenant has title to the property; however, that ownership is based on the life of the tenant.
Leasehold Estates
Leasehold Estates (Temporary Use)
A leasehold estate grants the right to use property for a fixed period but does not confer ownership.
- Leasehold Interest (Tenant’s Rights)
- Leased Fee Interest (Landlord’s Rights)
There are three main characteristics:
1. Leasehold estates are possessory—meaning the tenant has possession of the property.
2. Leasehold estates have a defined duration.
3. Leasehold estates include the reversion of possessory rights when the lease terminates.
A leasehold estate begins with an agreement called a lease. There are two primary participants to a lease: The lessor (landlord) and the lessee (tenant).
Leasehold Interest
Leasehold Interest (Tenant’s Rights)
The tenant (lessee) has the right to use the property for the lease term but must return possession to the landlord at lease expiration. (Example: Renting an apartment—you can live there for the lease term but don’t own it.)
Leased Fee Interest
Leased Fee Interest (Landlord’s Rights)
The landlord (lessor) retains ownership of the property while granting usage rights to the tenant. The landlord’s interest is known as the leased fee interest, meaning they own the property but have leased out possession. (Example: An apartment building owner rents units to tenants while still owning the building.)
Encumbrances
Limitations on Property Ownership. Its a deed restriction.
Encumbrances are essentially claims or liabilities that are attached to real property and may affect its title or use. They can be financial (liens) or non-financial (easements, restrictions, etc.).
Deed restrictions. A provision written into a deed that limits the use of land. Deed restrictions usually remain in effect when title passes to subsequent owners. commonly referred to as restrictive covenants. Sometimes a developer of platted land will include covenants in the land conveyance that restricts how the subdivided properties may be developed.
Deed restrictions include restrictive covenants, subdivision restrictions, and condominium bylaws. These are private agreements that affect the use of land and therefore have the potential to affect value.
Created when a property owner includes the restrictions in the deed upon conveyance of the property and thus becomes binding on all grantees.
What are some types of restrictive covenants a developer might include for a new subdivision?
Type of use (residential, multifamily, etc.)
Type of construction (brick exterior, wood shake roofs, etc.)
Size of buildings (minimum or maximum)
Prohibited practices (parking RVs, building fences, etc.)
These restrictions affect the owner’s right to use the property, and not their right to sell. These covenants cannot restrict issues that would be discriminatory, illegal or contrary to public policy.
- Deed restrictions often have a specified time limit in which they are in effect. The restrictions can be extended or removed with the majority consent of the property owners whose properties are affected by the deed restrictions.
- Conflicts in deed restrictions
Conflicts between a public restriction (such as a zoning ordinance) and a private deed restriction are often resolved with the more protective restriction prevailing, unless it is contrary to higher laws (for example, federal laws). When rules clash, the stricter one usually wins.
Public rules are laws made by the government for everyone in an area (like zoning laws saying what you can build on your property).
Private rules are agreements made by a group of people about how to use their property (like rules in a homeowners association about what color you can paint your house).
If a public rule and a private rule disagree, usually the one with the stricter limits will be followed.
However, if the private rule breaks a bigger, more important law (like a federal law), then the private rule can’t be enforced.
A violation of the recorded restrictions might force a neighboring landowner to file an injunction through the court to stop the prohibited practice. Meaning, If someone breaks the rules about how a property can be used (like building something they’re not supposed to), their neighbor can go to court to make them stop.
Failure to enforce restrictions over a long period of time might void or diminish current or future attempts by owners seeking compliance.
- CC&Rs
In some parts of the country, deed restrictions are referred to as CC&R, and that stands for conditions, covenants, and restrictions.
Liens
Financial Claims (Liens): These are essentially debts tied to your property. If you don’t pay the debt, the person you owe (the lienholder) can sometimes force the sale of your property through a legal process called foreclosure to get their money back. There are many types of liens, like Mechanics liens, Property Tax liens, etc.
Mechanic’s Lien
Mechanic’s Lien: If you don’t pay a contractor for work they did on your house (like a new roof or renovations), they can put a lien on your house.
Mortgage
Mortgage: This is a loan where your property is used as collateral. If you don’t pay your mortgage, the bank can foreclose on your house. This is the most common type of lien.
Property Tax Lien
Property Tax Lien: If you don’t pay your property taxes, the government can put a lien on your property. They can eventually seize and sell your property to recover the unpaid taxes.
Easements
Easements: This gives someone else the legal right to use part of your property for a specific purpose. Easements “run with the land,” meaning they usually stay in place even if you sell the property.
Example: Your neighbor has an easement to drive across a corner of your property to get to their house because their property is landlocked.
Example: The utility company has an easement to run power lines or bury cables across your land.
Encroachments
Encroachments: This is when something on your neighbor’s property is actually on your property.
Trespassing on the domain of another
Example: Their fence is built a foot over your property line. Encroachments can lead to legal disputes.
Why it Matters for Selling:
If you’re selling your house and you have an encroachment (or your neighbor’s property encroaches on yours), it can scare off buyers. They might worry about legal battles or having to move a fence. It makes the property less marketable.
Not a Right, But a Problem:
An encroachment is not an encumbrance in the truest sense of the term because it is not a right or interest held by the encroachment party. An encroachment isn’t a legal right your neighbor has to use your land. They don’t own that extra bit. However, it is a problem because it creates a messy situation.
**Turning into a Right (Easement by Prescription/Adverse Possession):
**This is the tricky part. If an encroachment exists for a long time (the exact length of time varies by state, often many years), and the encroaching neighbor uses the land openly and without your permission, they might actually be able to claim a legal right to keep it there. This can happen through something called “easement by prescription” or “adverse possession”. It’s like if they used that extra foot of your land for so long, openly and without you stopping them, they could eventually argue they have the right to keep using it. This is a big deal and can affect your property lines permanently.
**Hidden Problems: **
Encroachments are often hard to spot unless you have a professional survey done. Your deed might not show them. That’s why it’s important to be observant and get a survey if you suspect anything.
What a Court Can Do: If there’s an encroachment, a court can order it to be removed. So, if your shed is on your neighbor’s land, the court could make you move it. However, if moving it is extremely expensive or causes a major problem, the court might instead make you pay your neighbor money as compensation for using their land.
Covenants
Deed Restrictions (Covenants): These are rules in your deed (the legal document that transfers property ownership) that say what you can and can’t do with your property. They “run with the land,” meaning they apply to future owners too.
Example: You can’t build a house taller than two stories. Or you have to paint your house a certain color. These are often created by developers and enforced by HOAs (Homeowners Associations) to maintain property values and neighborhood aesthetics.
Reservations
Reservations: This is when someone sells land but keeps certain rights for themselves.
Example: They sell the surface of the land but keep the right to dig for oil or minerals underneath it.
Leases vs. Licenses
Leases are NOT Licenses: Leases are considered encumbrances because they affect who can use the land. Licenses, on the other hand, are more like temporary permissions, like letting your neighbor park on your driveway while they build their garage. They don’t affect ownership and end when you or the other person agrees.
Lease: Considered an encumbrance because it grants exclusive possession and use of the property for a specific term. Affects ownership rights.
License: Temporary permission to use property for a specific purpose. Does not affect ownership rights. Example: Allowing a neighbor to park on your driveway.
Life tenant
Life tenant - One who owns an estate in real estate for his or her lifetime, the lifetime of another person, or an indefinite period limited by a lifetime.
Grantee - known as the life tenant. The life tenant has title to the property; however, that ownership is based on the life of the tenant. So when the life tenant dies the estate reverts back to the grantor. The life estate can be based on the life of the grantee (life tenant) or someone else. In the latter case, it is referred to as an estate pur autre vie (based on the life of someone other than the grantee).
Grantor in a Life Estate
Grantor - The grantor is said to have a reversionary interest. Again the life tenant is the owner of the property while he or she is alive and the grantor has the reversionary interest—or what we have referred to as a future interest. The life tenant can improve the property, give a mortgage, and even sell the property. However, when the life tenant dies, the property reverts back to the grantor. So, what happens if the grantor is already dead? The property would then go to a remainder interest designated by the grantor. This person is known as the remainderman
Grantee in a Life Estate
Grantee - known as the life tenant. The life tenant has title to the property; however, that ownership is based on the life of the tenant. So when the life tenant dies the estate reverts back to the grantor. The life estate can be based on the life of the grantee (life tenant) or someone else. In the latter case, it is referred to as an estate pur autre vie (based on the life of someone other than the grantee).
Legal Life Estate
Legal Life Estate: This type of life estate isn’t created by a property owner’s wishes but is established by state law. It arises automatically upon certain events, primarily related to marriage and family. The three traditional types of legal life estates are:
- Dower
- Curtesy
- Homestead
Dower
Dower: A wife’s right to a portion (often one-third) of her husband’s property, which she is entitled to for her lifetime, even if he tries to leave it to someone else in his will. Dower rights have been abolished or significantly modified in many states.
Curtesy
Curtesy: A husband’s right to a portion of his wife’s property, similar to dower. Curtesy rights have also been widely abolished or modified.
Homestead
Homestead: This is a crucial one. Homestead laws are designed to protect a family’s primary residence from creditors. It essentially grants a life estate in the homestead property to the homeowner. This means that, in many states with homestead exemptions, if you fall into debt, creditors generally cannot force you to sell your primary residence to pay off those debts (up to certain limits on the property’s value or size). However, homestead exemptions typically do not protect against foreclosure for unpaid mortgages on the property or unpaid property taxes.
Leasehold Estates
A.K.A Tenancies - A leasehold estate is a temporary right to possess and use a property, granted by the property owner (landlord or lessor) to another party (tenant or lessee) through a lease agreement.
There are three main characteristics:
1. Leasehold estates are possessory—meaning the tenant has possession of the property.
- Leasehold estates have a defined duration.
- Leasehold estates include the reversion of possessory rights when the lease terminates.
A leasehold estate begins with an agreement called a lease. There are two primary participants to a lease: The lessor (landlord) and the lessee (tenant).
Estate (tenancy) for years
Estate (tenancy) for years - Tenancy is for a definite or fixed period of time, not necessarily in years.
Lease automatically terminates on the expiration of the rental period. No notice by either party is required; it simply ends at the specific time.
Consent is required if either party to the lease wants to terminate before the end of the contracted term. Termination of a lease by mutual consent is called surrender.
Unless prohibited in the lease agreement, an estate for years is assignable by the tenant. The tenant can sublease or assign to another party. When you hear about an assignment in a lease, that simply means that the original tenant transferred all their rights to someone else. If they transfer less than all of their rights in the lease, that’s called a sublease and that establishes a subleasehold estate.
Sublease is known as a sandwich lease. That’s when the leaseholder is the tenant of one party and the landlord of another. This is common in commercial endeavors where a business has too much space for their current operation.
An estate for years does not terminate upon the death of the landlord.
An extension of the lease requires a new contract.
Estate (tenancy) from period to period
Estate (tenancy) from period to period
Tenancy is for an indefinite period of time with no specific expiration date. Notice must be given to terminate the lease.
Residential properties are the most common use of an estate from period to period, and this estate often begins as an estate for years.
This type of tenancy typically comes about as an extension or holdover from a tenancy for years. The original lease term was likely set as month-to-month or some other period of time.
For this type of extended tenancy, the periodic renewals are automatic.
Estate (tenancy) at will
Estate (tenancy) at will
Tenancy is for an unspecified period of time and similar to a tenancy from period to period except that it never originated with any specific term.
The estate automatically renews itself unless a notice of termination is given by one of the parties. For example, a tenant agrees to pay a stated amount of rent each month to a property owner, but no time period was ever specified in the agreement. As long as the tenant pays the rent each month, the lease continues indefinitely.
Estate at will terminates upon the death of the landlord or tenant.
An estate at will is rarely used and the courts certainly don’t like them and that’s because it automatically renews itself.
Leasehold Interest
Leasehold Interest (Tenant’s Rights)
The tenant (lessee) has the right to use the property for the lease term but must return possession to the landlord at lease expiration. (Example: Renting an apartment—you can live there for the lease term but don’t own it.)
Leased Fee Interest
Leased Fee Interest (Landlord’s Rights)
The landlord (lessor) retains ownership of the property while granting usage rights to the tenant. The landlord’s interest is known as the leased fee interest, meaning they own the property but have leased out possession. (Example: An apartment building owner rents units to tenants while still owning the building.)
Estate (tenancy) at sufferance
The estate is created when a tenant lawfully takes possession but stays after the lease expires without the consent of the property owner.
It is used to distinguish between a tenant who lawfully entered into possession but holds over without consent and a trespasser who never had permission to enter the land.
The tenant has no current rights to possess the property, but the property owner must follow legal procedures for eviction.
The primary use of an estate at sufferance is that it distinguishes the lessee from a trespasser. In other words, the tenant obviously had the right to possess the property at one time, whereas a trespasser never had that right.
Easement appurtenant
Easement appurtenant - An easement that is attached to, benefits, and passes with the transfer of the dominant estate; runs with the land for the benefit of the dominant estate and continues to burden the servient estate. This type of easement attaches to the land so that when the property is sold it is transferred to the new owner. An easement appurtenant burdens one property while benefiting another property.
In this case we have an easement that provides access to the public street—otherwise, the property would be landlocked. The property that benefits from the easement is called the dominant estate, while the property that is burdened by the presence of the easement is called the servient estate.
When either property sells, the easement passes with the title transfer because it is permanently attached to the property’s ownership. It can’t be treated as personal property or a personal right.
For example, if a property owner had an easement that gave him or her access to a body of water, he might like to keep that access even after he sells the property. But an easement appurtenant doesn’t work that way. It passes with the transfer of title to the new owner. The seller must relinquish any rights to access the easement. In fact, if the prior owner used the access to the waterfront after the sale closed, the individual would be trespassing.
Here are three things an appraiser should keep in mind when dealing with an easement appurtenant.
The dominant estate is the “owner” of the easement
The dominant estate is the land parcel to which the easement is attached
It is not attached to the servient estate, but instead burdens the servient estate
Easement in Gross
Easements In Gross
Easement in gross is personal in nature and does not have a dominant estate, but it does burden the servient estate. Easements in gross are generally retained by a governmental entity at the federal, state or local level.
If the street in front of the properties in our illustration were a county road, then the county will typically have a right-of-way easement on either side of the roadway.
Although the easement in gross is not attached to the land and does affect multiple properties that are servient to the easement. The purpose of the right-of-way easement is to prevent property owners from placing trees too close to the road and it also allows the county to maintain the area on either side of the road to repair utilities and other public services. The easement does burden the properties it affects, but it does not attach to the land like an easement appurtenant. Rather it is like a personal right that the government entity retains for the benefit of the public.
Drainage and utility easements affect most platted sites and those would be a good example of easements in gross.
Here are three things an appraiser should keep in mind when dealing with an easement in gross.
There is no dominant estate.
The “owner” of an easement in gross is a person or entity – often a public body or governmental agency.
It is not attached to any land but burdens the parcels subject to the easement in gross.
Reservations
Reservations are encumbrances that are used by the grantor (or the government) to set aside certain rights that do not transfer with an ownership change of the property. For example, the government will typically reserve the mineral rights in the original land grant, so that would be a reservation.While title passes to the grantee, some use or income is reserved for the grantor, may include rental income, or easements.
Imagine you’re selling a house, but you want to keep the right to store some boxes in the attic (rental income) and use a shortcut across the backyard to get to the park (easement). A reservation is like writing those conditions into the sale.
The buyer (grantee) gets the house (title), but you (grantor) keep certain rights. Reservations are common with land:
Government keeps mineral rights: You buy land, but the government reserves the right to mine any minerals there.
Developer keeps a scenic view: A developer sells plots of land but keeps a reservation to ensure nothing blocks the view from those plots.
Reservations are basically a way to limit what gets transferred when you sell something, so both buyer and seller know what they’re getting (or not getting) from the start.
Licenses
Licenses are not encumbrances because they involve a personal agreement that is not attached to the land. However, because they involve property issues, they are sometimes mistaken as an encumbrance. For example, let’s say my neighbor is building a new garage to house his motor home. While he is building the garage, I give him a license to park his motor home on my property. This license involves real estate, but it is personal in nature. It doesn’t burden my property because the license does not transfer or attach to my property when I sell it. In fact, if I die or my neighbor dies, the license is terminated.
Sometimes we see licenses used in the agreement to erect a billboard or sign on a property. If the owner of the land sells or dies, the license terminates.
An encumbrance is like a sticker on a property that says “hold on, there’s something else to consider here.” It limits what you can do with the property or might give someone else a claim to it.
A license, on the other hand, is more like a verbal agreement between neighbors. It allows someone to do something specific on your property, but it’s not permanent and doesn’t affect who owns the land.
Here’s the difference:
Encumbrance:
Sticks with the property, even if it’s sold.
Examples: mortgage, easement (right to use someone’s land for a specific purpose)
License:
Temporary permission, like borrowing something.
Ends when you or the other person involved dies, sells the property, or decides to stop.
Example: Letting your neighbor park on your driveway while they build their garage.
So, even though both can involve land, encumbrances are serious limitations that affect ownership, while licenses are temporary agreements between people.
