Property 10/6 and 10/13

Nelson v. Parker

Facts: After Russell Nelson executed a deed conveying property to his son Daniel "subject to a life estate" for his long-term companion, Irene Parker, Russell died and Daniel sued to eject Parker, claiming that reserving a property interest for a third party was legally void

Rule: a grantor can validly create or reserve a property interest, such as a life estate, for a third party through express language in a deed, thereby rejecting the traditional common law "stranger to the deed" rule in favor of effectuating the grantor's clear intent.

In Re Estate of Jackson

Facts: a life tenant maintained property insurance on a house that suffered substantial hailstorm damage, but she died before the insurance proceeds were paid, prompting a legal dispute over whether the payout belonged to her estate or to the remaindermen who inherited the damaged home

Rule: insurance proceeds paid for property damage belong to the life tenant's estate as a personal contract right rather than passing to the remaindermen, provided the life tenant was under no legal obligation to insure the property for the remaindermen's benefit.

Held: Her estate takes the proceeds, BUT owes the duty to repair!

Waste

The creator of a life estate is free to specify the rights and obligations of the life tenant. To the extent that he or she fails or chooses not to do so, the law of waste provides the default rules governing the life tenant’s responsibilities for care and conservation of the property.

Involuntary/Permissive Waste (Jackson)

Results from failure to make repairs or pay the ordinary carrying charges of the property (taxes, mortgage etc.).

Voluntary Waste

Results from intentional acts of the life tenant that cause substantial change to the value or character of the property. An affirmative act that injures the inheritance- the remainderman’s future interest.

Marbar Inc. V. Katz

Facts: After a long-term rent-stabilized tenant replaced a worn outdoor wooden deck and installed a new brick patio without permission, the landlord, Marbar, Inc., sued to evict her for breaching an express lease provision prohibiting unauthorized alterations.

Rule: The court held that a tenant cannot be evicted for making unauthorized, non-harmful alterations to a premises if the breach does not cause substantial harm to the landlord, and the tenant must be afforded an opportunity to cure the violation by removing the alterations or securing the cost of future restoration.

Indefeasibly Vested Remainder

A remainder that is subject to no conditions.

Contingent Remainder

A remainder subject to a condition precedent.

Vested in Interest

No unfulfilled condition precedent attached to the interest

Vested in Possession

Vested when Life estate terminates.

Condition Precedent

Something that has to happen before someone gets an interest.

Contingent Remainder

A remainder with a condition precedent.

Condition Subsequent

Something that, if it happens, will take away the remainder and the interest will either return to the grantor or pass to someone else.

Remainder subject to complete divestment

A remainder subject to a condition subsequent.

If the condition becomes impossible while the life tenant is still alive, the remainder becomes an indefeasibly vested remainder.

If the condition has not happened before the life tenant dies, the remainder vests in possession and, usually, the condition expires and the holder will have a present interest in fee simple absolute. (if the condition does not expire on the life tenant’s death, and can still happen, the holder has a present fee simple on condition subsequent).

Class Gift

Remainders are commonly given to children or issue (lineal descendants) of the grantor or other relatives. If the parent of the possible children, or parents of possible issue, are alive, this remainder is called a class gift.

As long as it is possible that more children or issue will be born before the remainder vests in possession, the remainder is described as SUBJECT TO OPEN or SUBJECT TO PARTIAL DIVESTMENT because, if additional children are born, they, too will be entitled to a share, which will decrease the shares of the previously born children.

Executory Interest

If a future interest divests a fee simple interest.

Rule in Shelley’s Case

Converted a remainder in the heirs of the grantee into a vested remainder in the grantee.

Thus, a conveyance to “A for life, remainder to A’s heirs,” gave A the fee simple absolute.

The Doctrine of Worthier Title

Operated similarly to Rule in Shelley’s Case on a remainder to the grantor’s heirs, converting it to a reversion in the grantor.

Thus a conveyance from O “to A for life, remainder to O’s heirs” resulted in a life estate in A and a reversion in O.

Destructibility of Contingent Remainders Doctrine

Destroyed remainders that were still subject to a condition precedent when the prior estate terminated.

Rule Against Perpetuities

Controls the dead hand by imposing a time limit on contingent interests and class gifts that are subject to open. Essentially, this rule prevents a property owner from controlling the ownership and transfer of their real estate from beyond the grave for an indefinite period of time.

Destroys all contingent interests and class gifts that will not vest within 21 years after the death of an identifiable person who is alive at the time the future interest is created.

Symphony Space Inc. v. Pergola Properties Inc

Facts: After purchasing a Manhattan theater building Symphony Space at a below-market price as part of a tax-saving sale-and-leaseback agreement, Symphony Space, Inc. filed a lawsuit against Pergola Properties, Inc., the successor-in-interest, to declare the contract's long-term commercial repurchase option void.

Rule: The New York Court of Appeals held that commercial option contracts are subject to the Rule Against Perpetuities, ruling that an option to purchase real property is void if it can be exercised beyond the statutory period of 21 years.

Trust

Device that allows one to split the title of property into 2 parallel and simultaneous titles called the “legal” title and the “equitable” title.

Commonly used as a will substitute to pass property on at death without having to go through probate. The owner of the property declares himself to be the trustee of the property for the benefit of himself for life, with remainder to another. The owner retains a power to amend or revoke the trust, thus retaining flexibility in disposing of the property during his life (this is called a REVOCABLE INTER VIVOS TRUST).

Legal Title (Trust)

Given to the trustee, who is charged with the responsibility of holding and managing the property for the sole benefit of the beneficiaries, who hold equitable title.

Equitable Title (Trust)

What the beneficiaries have

Ameliorative Waste (Marbar v Katz)

when a tenant or life tenant makes unauthorized physical changes or improvements to a property that increase its economic value but alter its fundamental character.