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Freehold Estate

DEFINITION

Right to use a parcel of land for an undetermined period of time.

EXPLANATION

A freehold estate grants a property owner the exclusive right to possess and enjoy the use of the property without public interruption for an undisclosed period of time. There are three types of freehold estates:

fee simple absolute

fee simple defeasible

life estate

Fee Simple Absolute

A fee simple absolute grants a property owner exclusive rights to a property. It is the highest level of ownership and is the most typical form of ownership. To possess exclusive rights means that a property owner can:

Inhabit the property indefinitely

Transfer the property’s title at his or her discretion

Sell the property without limitations

Although a property may be under the exclusive ownership of one person or group of people, standard real estate laws — such as eminent domain and police power — still apply. The government also has the ability to impose taxation and warrants on the property.

Fee simple absolute cannot be overturned or removed by previous owners, heirs, or assignees.

Fee Simple Defeasible

Fee simple defeasible is a fee simple absolute with certain conditions imposed upon the property owner. The agreement transfers property from a seller to a buyer, but with the stipulation that the buyer must uphold certain conditions laid forth in the deed. If all conditions are met, the buyer possesses full ownership over the property. If the buyer violates the conditions, his or her ownership may be terminated.

A condition precedent is a provision that prevents something from occurring on the property.

A condition subsequent is an event that terminates an estate.

For example, a property owner may agree to sell his property on the condition that the buyer does not convert the property into a strip club (a condition precedent). If the buyer agrees, and signs a deed explicitly stating this condition, a fee simple defeasible is formed. If the buyer were to later violate that provision by building a strip club (condition subsequent), the property may be transferred back to the seller.

A fee simple defeasible estate is common when individuals or a group donate or sell a property for a specific purpose, such as the construction of a school or a hospital. If the property is not used for that specific purpose, the grantor of the property is entitled to the return of that property.

If a property owner fails to meet the imposed conditions, the original estate grantor may bring legal action against them. The statute of limitations is five years after the violation occurs. Although a buyer’s failure to uphold the conditions may result in the property’s forfeiture, courts typically will not require the violating party to forfeit the property. Rather, the courts will determine which party will be liable to the original estate grantor.

Case Examinations

Case Review: Alamo School District v. Jones (1960)

The case, Alamo School District v. Jones (1960) 182 Cal.2d 180., involved a grantor who conveyed land by quit claim to the government for the purpose of developing a school.

The grantor (Jones) conveyed land to the Alamo School District for the purpose of developing a school. The transaction contained a provision that granted Jones the right to repurchase the property at the same price, should the Alamo School District choose not to develop a school. When Jones died, his heir (also Jones) claimed interest in the property. The heir filed a declaratory judgment to determine the property rights regarding the land.

The Superior Court ruled in favor of the Alamo School District, stating that the deed created a fee simple estate, which meant the presence of a reversion was not possible. The court further concluded that the language in the deed was personal in nature and therefore, could not be assigned by the deceased Jones to his heir. This meant that even if the Alamo School District did not choose to develop a school, Jones’ successor was not entitled to repurchase the land.

Case Review: Springmeyer v. City of South Lake Tahoe (1982)

The case, Springmeyer v. City of South Lake Tahoe (1982) 132 Cal.3d 375., involved a grantor who brought action against the city for attempting to quiet title of real property.

The property in question had a deed to the city by Springmeyer. The deed included a virtue of reversion provision, which stated that the land would be used for government purposes. The two conditions of reversion were: the city’s failure to build and occupy the buildings for city purposes and second was if the property failed to occupy one or more buildings. The plaintiff brought action to quiet title claiming the defendant had failed to use the property for city purposes.

The court ruled the plaintiff did not state a valid cause of action. The court concluded that claiming reversion was a drastic remedy and that if the plaintiff did not want to claim reversion it had to be stated clearly in the contract, which the court believed was not clear. Ultimately, the defendant’s objection was granted by the court and the plaintiff’s lawsuit was thrown out of court.

Life Estates

A life estate grants a property owner the exclusive right to possess a lifetime financial interest in real property. This means that the owner has the right to use and enjoy the property for the duration of his or her lifetime.

The rights of a life estate holder include:

The right to occupy, possess, and use the property

The right to renovate the property

The right to initiate and manage a rental property and collect rental income

The right to sell, transfer, or rent interest in the life estate

The ability to use the estate as a charitable tax deduction

A life estate holder also has the right to use the property as collateral in order to obtain a mortgage. A lender’s primary loan approval guidelines typically require that a borrower have equity, something almost all life estate holders have. Consequently, using a life estate as collateral increases a life estate holder’s chances of being approved for the loan.

However, life estate ownership also comes with responsibilities. Life estate holders have a duty to maintain the property, pay taxes, and keep current with H.O.A fees.

A life estate holder may not be negligent, or alter a property in a manner that damages the environment or health of the property. For example, an estate holder may not prevent the natural flow of water. An estate holder may also not be wasteful with the property and its resources. For example, a property owner may not remove or burn valuable fruit, vegetable trees, and/or bushes.

Failure to adhere to basic ownership responsibilities may result in court action.

Life Estate Agreements

Life estates are also used as a tool to protect a family’s financial future. Life estate agreements may dictate the terms of an estate’s transfer and/or division in the event of a life estate holder’s death. It may also provide alternate scenarios for transfer or division based on whether certain conditions occur.

There is no such thing as a standard life estate agreement. The life estate creator has the ability to create any condition, provision, or requirement he or she chooses. Consequently, each life estate is unique.

If a life estate has multiple owners, the duties of each party must be indicated in the estate agreement. The absence of clear provisions in this regard will likely result in a court dividing a life estate’s material expenses between parties. Divisions may be made based on the proportionality of an estate holder’s stake, the age of an estate holder, and an estate holder’s ability to afford such expenses.

Nonfreehold Estates

A leasehold estate — also known as a “nonfreehold estate” — is an interest held in property that does not give the owner full ownership rights. Such an estate makes an individual the leasehold owner of a property for a temporary period of time. This ownership is held in an uninheritable lease agreement. Following the termination of the lease, the individual may no longer use the property.

A tenant who signs a lease agreement with a landlord to live in an apartment unit is an example of a leasehold estate.

Freehold Estates History ***Directions*** go to page p.66 to place images also found on p. 67 on Principles book

The term freehold estate traces back its origins to the United Kingdom and is defined as the maximum ownership of a landowner. As the highest form of real property ownership, a freehold estate is freely held property by the owner that cannot be controlled in any capacity by the government. For English citizens, this meant that their property was free from government intervention, that is, from the lords or others of the Crown.

A property’s freehold estate status ensures that the owner could make use of the property in any manner deemed. Although freehold estates guarantee maximum ownership rights including the entire bundle of rights, freehold estate owners must follow local and federal laws that dictate land use. A freehold estate does not have a definitive ownership period. Ownership could last for an unlimited amount of time or can terminate upon the death of the owner. The overwhelming majority of real estate purchases today are freehold estates.

2 types of freehold estates

Fee simple estate

Life estate

Fee Simple Estate

A fee simple estate holds all the bundle of rights. It grants the owner maximum ownership, granting the owner the right to perform any action on the property, unless restricted by the law or private restrictions of an HOA or previous owner. Restrictions may include zoning ordinances or covenants which prevent certain activities. Fee simple estate ownership allows the owner to use the property for an indefinite period of time without restriction.

Example

Charles gives Mary the home on Coldwater Avenue. If Mary received the property through a fee simple estate, Mary would hold the property for as long as she wishes without the possibility of being transferred to someone else. Upon Mary’s death the property is transferred to Mary’s son Tim who is Mary’s heir on her will.

There are varying degrees of a fee simple estate. They include:

Fee simple absolute

Fee simple determinable

Fee simple subject to condition subsequent

Fee simple subject to executor limitation

A fee simple absolute is much like other fee simples in that the owner retains maximum property rights. There is very little to no restriction to the use of the property under this form of estate. A landowner of a fee simple absolute has the right to do anything on the property that relates to building, adding, dividing, selling or transferring the property. Should the right of possession have a restriction, the fee simple may be subject to a power of termination.

A fee simple determinable is when the fee simple has a timing duration placed on the ownership rights which may reduce the value of the fee simple to the detriment of the grantor. Under this scenario, a fee simple may go back to the grantor automatically if a condition is not met.

Another way to imagine it is the receiving party’s interest is dependent on fulfilling or not fulfilling a condition. Depending on the nature of the condition, if the condition is not met, the property would revert back to the original owner.

Phrases or Words that Would Indicate a fee simple determinable:

While

During

So long as

On the condition that

Until

A condition subsequent is a type of fee simple with a condition connected to the property. The condition allows the grantor the right to retake the property if the limited owner does not perform the required condition(s).

Example

John gives the Rochester Avenue property to his son Jerry, conditioned that Jerry will continue to go to school and graduate. Jerry joins a rock band and decides to postpone his studies. Dismayed at the situation John files a notice of intent to retake the house. Does John have the right to retake the property?

Yes, because Jerry’s ownership rights were conditioned on graduating. If he does not graduate and ends his studies, John has the right to once again take over the Rochester property.

Unlike the fee simple determinable, which automatically gets transferred back to the grantor for the grantee’s failure to meet a condition, a fee simple subject to a condition subsequent allows the grantor to take over the house at his or her will upon the limited owner’s failure to perform a condition. For a grantor to retake possession of the property, the grantor must file a notice of intention or file a lawsuit against the limited owner. Lawsuits or notice of intentions must be filed by the grantor within five years of the limited owner’s violation.

A fee simple subject to executor limitation is a condition on a fee simple that grants the property to another limited owner if the original limited owner does not meet a condition.

Example

John gives the Rochester Avenue property to his son Jerry, conditioned that Jerry will continue to go to school and graduate. The condition on the fee simple is that if Jerry does not go to school and graduate, the property would be transferred to Jerry’s brother James. Jerry forgoes his plans to go to college and graduate because he hopes to become a member in a band. Under these circumstances what would happen?

The property would be transferred to James because of Jerry’s violation of the agreement.

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