Real Property Ownership: The Estate System and Future Interests (2024)

The Estate System

“This is myland. I currently own it and my family has owned it for a long time. So, I cando whatever I want on it…right?” This is a question many clients quickly ask when meeting withtheir real estate lawyers. Like many other aspects in law, real propertyownership is not black and white. Understanding the estate system, realproperty ownership interests, and how certain interests are created are allnecessary to answering that question.

The real property system under the common law is known as “theestate system.” An estate is defined as an interest in real property.[1] Realproperty ownership and an owner’s abilities to transfer or use the land canvary depending on the interests that the owner possesses.

The metaphor of “possession of a bundle of sticks” is commonlyused to describe the different estates and interests. On one end of thisspectrum, an individual can possess and control the full bundle of sticks,giving that individual owner the highest degree of control and possession. Asyou move away from this end of the spectrum, an individual owner can havecontrol of a fewer number of sticks in the bundle and as a result can berestricted in his abilities.

The purpose of this presentation is to provide an overview of theprimary estates and interests in real property as well as examples of each.Additionally, this presentation shall delve into issues with transferring interestsin real property.

Fee SimpleAbsolute Estate

The first type of estate or interest is the fee simple absolute. Fee simple absolute, also referred to as feesimple, is as close to the idea of absolute ownership of a piece of realproperty as possible.[2]

Simply put, an owner with a fee simple absolute has control of theENTIRE bundle of sticks. It is the strongest form of ownership and nobody can possessmore than a fee simple absolute interest in the land.[3] Itis the most extensive interest an individual can possess. If a grantor wants tocreate a fee simple absolute interest, the grantor must use some form of thefollowing language: “To A,” or “To A and his heirs.”

A fee simple absolute interest has unique attributes. The first isthe heritability characteristic. This means that a landowner with a fee simpleabsolute interest can pass the land to his heirs at death. The second is thealienability characteristic. While alive, a landowner with a fee simpleabsolute interest can sell, control, give, or exclude others from the land. Again,they have absolute control and ownership and are only restricted by laws suchas zoning ordinances or private restrictions such as covenants.

DefeasibleEstates

Not every interest in real property provides as full of control asthe fee simple absolute. The other two primary types of interests in real propertyprovide an owner with less control than the fee simple absolute interest. Bothinterests fall under the category of defeasibleestates. Using the metaphor mentioned earlier, a defeasible estate providesan owner with fewer sticks in the bundle.[4]

Fee Simple Subjectto A Condition Subsequent

The first sub-category of defeasible estates is a “fee simplesubject to a condition subsequent.”[5] Thenecessary language to create a fee simple subject to a condition subsequent is“To A, upon condition that…,” or “To A, butif a certain condition is breached, then the grantor reserves the right toreenter and retake.”

This type of defeasible fee could be of infinite duration. What iskey, however, is that the fee simple subject to a condition subsequent does notautomatically terminate. The grantor has the option to exercise right of entryand the grantor MUST exercise theirright of reentry in a timely manner after the condition’s breach.

An example of a fee subject to a condition subsequent estate isthe following: To A, but if A does notuse the property for a car wash, then the grantor reserves the right of reentry.A has a fee simple estate subject to a condition subsequent and if the propertyis not used for a car wash, then the grantor MUST take steps to recover theproperty.

Fee SimpleDeterminable

The second sub-category of defeasible estates is a “fee simpledeterminable.”[6]The necessary language to create a fee simple determinable is “To A, so long as…,” “To A until…,” or “To A while…” Clear durational languagemust be used and an owner’s interest could potentially be infinite, so long as acertain event occurs. The fee simple determinable estate automatically terminatesif the certain event does not occur. What distinguishes this defeasible feefrom the one above is that the grantor has a reversion interest. This meansthat the land will AUTOMATICALLYrevert to the grantor if the certain event does not occur.[7] Thegrantor does not have to exercise the right of reentry in a timely manner becauseof this automatic reversion.

An example of a fee simple determinable estate is the following: To A for as long as the property is used fora car wash. A has a fee simple determinable and will hold the land for aslong as it is used as a car wash. If the car wash is never built, or if itcloses, the property automatically is transferred to the grantor.

Life Estate

The owner of a fee simple interest has complete control of all thesticks in the bundle. Another stick that this fee simple owner can grant is a life estate in real property. A lifeestate is an ownership interest that is limited to the duration of someperson’s lifetime.[8]The lifetime can be measured by the life of the individual who is holding thelife estate, known as the life tenant, or another designated person. When thelife estate is measured by the life span of another designated person, it iscalled a life estate pur autrie vie, whichin French means for “another’s life.”[9]

A life estate is very simple to create. The grantor is simplyrequired to specify in the deed that the grantee is receiving a life estate inthe property and can use the language of “ToA for life.” When the life tenant dies, the grantor will get the land back.

The life tenant has many ownership rights and can benefit from theproperty. The life tenant is not only able to possess the real property, butcan also mortgage and utilize the real property. Despite these abilities, thelife tenant is limited because he or she cannot alienate the property. Additionally,the life tenant cannot cause waste. This means that the life tenant cannotallow the real property to fall into deterioration or be destroyed. If he or she does,the holder of the remainder interest can potentially sue the life tenant fordamages caused to the property in much the same way that a landlord can sue atenant for damage to rented property.

Over hundreds of years, the common law has evolved to provide realproperty owners with the estates system. This system provides guidance on anowner’s rights, abilities and interests. Upon initial glance, the terminologycan be complicated and confusing. Despite this, further analysis reveals asystem that is easily comprehensible and navigable.

Footnotes