Property

Real Property

Consists of land and includes the surface, subjacent and superjacent space, and fixtures attached to or things growing on this surface or this space. Also includes easements, profits, and other incorporeal rights and interests associated with the land.

Present estates

To be categorized as a freehold estate, the estate must be:

• Immobile (either land or some interest derived from or affixed to the land); and

• For an indeterminate duration (as opposed to a leasehold which has a limited duration).

Types of Pre-possessory estates (Interests)

• Fee Simple (Absolute)

• Life Estate

• Fee Simple Determinable

• Fee Simple Subject to Condition Subsequent

• Fee Simple Subject to Executory Interest.

What are the 3 Defeasible Fees?

• Fee Simple Determinable

• Fee Simple Subject to Condition Subsequent

• Fee Simple Subject to Executory Interest

Future Interest

An ownership interest in property that does not currently entitle the owner to possession or enjoyment of the property. The owner’s right to possession or enjoyment is postponed until some time in the future and may be contingent or vested.

Fee Simple Absolute and its future interest

Absolute ownership of potentially infinite duration and freely alienable, devisable, and descendible.

“O conveys to B and their heirs”

Future interest: None

Alienable

Property interest can be transferred without restriction during life (i.e. inter vivos), by will, or by intestacy (without a will).

Defeasible fees

May be terminated by the occurrence of an event. Created by imposing some condition on the ownership of the property in the conveyance.

Statement in the conveyance that simply indicates the grantor’s desire, intent, or purpose for how the property will be used and doesn’t impose a condition is a fee simple absolute.

Life estate and its future interests

Present possessory estate that is limited in duration by life. Alienable but not devisable or descendible. Subject to the doctrine of waste.

“O conveys to B for life”

Future interest: Reversion (in the transferor) or Remainder (in the transferee)

Rights of the life tenant

Generally can lease, sell, or mortgage their interest in the property

• Collect rent generated from leasing the property

• Profit (right to take natural resources from the land. express or implied, when not express or implied then waste.

• Sell (when the future interest holders agree).

Duties of life tentant

• Duty to prevent permissive waste by making reasonable repairs when they receive a financial benefit from the property

  • Obligated to pay up to the amount of income generated by the property or the fair rental value of the property if the life tenant uses the property.

• Duty to not change the premises if the future interest holders have a reasonable objection unless:

  • a substantial and permanent change in the neighborhood makes the change necessary to continue reasonable use of the property AND

  • the proposed change is one that the owner in a fee simple estate would typically make.

Doctrine of Waste

A life tenant must generally deliver the property to the future interest holder in substantially the same condition that it was in when they took possession, with allowance for normal wear and tear.

Holder of a vested future interest may bring suit for damages. Holder of any future estate may bring suit for an injunction

Types of Waste

• Permissive Waste (failure to take care of property, e.g. not cutting the grass or failing to pay taxes)

• Voluntary Waste (any voluntary act, e.g. dumping trash)

• Ameliorative Waste (increases the property value, e.g. adding a pool).

Allocation of burdens

• Property taxes = Life tenant (to the extent of fair rental value

• Repairs = Life tenant

• Preexisting mortgage obligation = Life tenant and future interest holder

  • Periodic payment of interest only = Life tenant

  • Periodic payment of interest and principal = Life tenant and future interest holder

• Assessment for public improvement = Life estate and future interest holder

  • Periodic payment of interest only = Life tenant

  • Periodic payment of interest and principal = Life tenant and future interest holder

Fee simple determinable and its future interest

Present fee simple estate that is limited by specific duration language and terminates automatically upon the occurrence of the stated event.

Future interest: Possibility of Reverter.

Language for Fee Simple Determinable

• So long as

• Until

• While

• During

Fee Simple Subject to Condition Subsequent and its future interest

Present fee simple that is limited in duration by specific conditional language. Upon the occurrence of the condition, the grantor (or their successor in interest) has the right to terminate the estate if they affirmatively demonstrate intent to terminate. NOT automatic termination.

Future interest: Right of re-entry

Language for Fee Simple Subject to Condition Subsequent

• But if

• Provided that

• Unless

Fee Simple Subject to Executory Interest

Fee simple created in a transferee that is followed by a future interest in another transferee. Automatically passes to the third person and uses either language conditional or durational language.

Future interest: Always held by a third-party transferee

Remainder and its requirements

A future interest created in a grantee that can become an estate presently possessory upon the natural expiration of a prior estate (e.g., a life estate) and is created in the same conveyance in which the remainder was created.

(Cannot follow a defeasible fee interest).

Vested remainder

An interest that is:

• NOT subject to any conditions precedent; AND

• created in an ascertainable grantee.

Vested remainder subject to open (partial divestment)

Exists when:

• A remainder interest is transferred to a group rather than named individuals; AND

• at least one member of the group is individually ascertainable and entitled to the remainder interest; BUT

• That person might be required to share the interest with other members of the group.

Vested remainder subject to complete divestment

Exists when:

• A remainder interest is transferred to a group rather than named individuals; AND

• at least one member of the group is individually ascertainable and entitled to the remainder interest; BUT

• the person may be completely divested with the occurrence of a condition subsequent.

Contingent remainder

Occurs when:

• It is created in a grantee that is unascertainable; OR

• It is subject to an express condition precedent to a grantee’s taking.

Property can’t vest because the beneficiary is unknown or the condition precedent has not occurred yet.

Shelley’s Case

Prevented a contingent remainder in the grantee’s heirs. When a life estate in the grantee is immediately followed by a remainder in the grantee’s heirs, both the future and present interests are merged and the grantee takes the estate in fee simple absolute.

Most jurisdictions have abolished.

Example: (Shelley’s Case) Party A conveys Blackacre “to B for life, remainder to B’s heirs.” B’s present interest and the future interest held by B’s heirs are merged, and B owns Blackacre in fee simple absolute.

Example: (Abolished Shelley’s Case) Party A conveys Blackacre “to B for life, remainder to B’s heirs.” B has a life estate, and B’s heirs have a contingent remainder in Blackacre

Doctrine of Worthier Title

Prevents a grantor from creating a remainder in the grantor’s own heirs. Presumption of a reversion to the grantor absent intent to the contrary.

Example: Party A conveys Blackacre “to B for life, remainder to A’s heirs.” If the Doctrine of Worthier Title applies, then B has a life estate, and A has a reversion, unless a contrary intent is established.

If the doctrine is abolished, then B has a life estate, and A’s heirs have a contingent remainder.

Executory Interest

A future interest in a third party that is not a remainder and that generally cuts the prior estate short upon the occurrence of a specified condition.

• Shifting: Divests the interest of the grantee by cutting short a prior estate created in the same conveyance. The estate shifts from one grantee to another on the happening of the condition.

• Springing: Divests the interest of the grantor or fills a gap in the possession in which the estate reverts back to the grantor.

Class gift

A donative transfer during life or at death by will to persons as members of a group (e.g., children, heirs)

Types of class gifts

• Single generation class gifts = children, grandchildren, siblings, etc.

  • Gifts to children: Includes natural and adopted children and children born within 280 days of a spouse’s death, NOT stepchildren not adopted

• Multi-generational class gifts = children of designated individuals

• Class gifts to heirs = Individuals who can would succeed to the designated individual’s intestate estate if the designated individual died intestate on the distribution date owning only the subject matter of the gift.

Survival Contingency of Gifts

• Express = when a gift is expressly conditioned on survival, the donee must satisfy the condition (i.e. survive) to take the gift.

• Implied = When a gift is to an individual’s heirs, descendants, or issue, it is implied that the donee must survive the individual to take the gift.

• Ambiguous = When a conveyance is ambiguous the majority view is that the contingency applies at the termination of the interest that immediately precedes distribution of the remainder.

  • Example: Party A conveys Blackacre “to my spouse for life and then to my children who survive.” When A dies, A has two surviving children, C and D. When A’s spouse dies, A has only one surviving child, C.

    Under the majority view, only C takes Blackacre, as only C has survived for the distribution of the remainder. Under the minority rule, both C and D are entitled to Blackacre because both survived A, the grantor.

Rule Against Perpetuities

No interest is good unless it must vest or forever fail no later than 21 years after some life in being at the creation of the interest.

Future Interests Subject to the Rule Against Perpetuities

• Contigent remainder

• Vested remainder subject to open

• Executory interest

• Power of appointment (Power to dictate who will receive a testator’s property)

• Right of first refusal (Preemptive right to acquire property before transfer to another)

• Option (Right to purchase property in exchange for consideration.

Does NOT apply when property passes from one charity to another.

Special rule for transfer to class (class gifts) for RAP

If the transfer of a future interest is made to a class and the Rule voids a transfer to any member of a class, then the transfer is void as to all class members even those whose interests are already vested.

Exceptions:

• transfers of a specific dollar amount to each class member

• transfers to a specific subclass that vests at a specific time

Rule of convenience

Membership in a class closes whenever any member of the class is entitle to immediate possession of a share of the class gift. (rule of interpretation)

Common violations of RAP

• Class transfers—survival beyond age 21 condition = if a transfer to a class is conditioned on the class members surviving to an age beyond 21 and the class is open, the the transfer to the class violates RAP.

• Fertile octogenarian = Anyone regardless of age or physical condition is deemed capable of having children for the purposes of RAP.

• Unborn spouse = If an interest following a widow’s life estate cannot vest until the widow dies, then it violates RAP.

• Defeasible fee followed by an executory interest = An executory interest that follows a defeasible fee violates RAP unless there is a time limit on the vesting executory interest that satisfies RAP.

• Conditional passage of interest = If there is a condition imposed on the passing of a future interest subject to RAP that is not confined to a specific time limit that meets RAP’s testing period, such as probating the will or termination of a current military conflict, then the future interest violates RAP.

Modifications on RAP

• “Wait and see” stance = Majority of jurisdictions. An otherwise invalid interest is valid if it vests within 90 years after its creation.

• Perpetual trusts — dynasty trusts = Equitable interests in property held in trust won’t violate RAP (essentially abolishes the RAP)

• Cy pres doctrine = A court can reform a conveyance to prevent it from violating RAP. Reform could be reducing a time limit for a future interest to take effect to 21 years after the last measuring life expires, to come as near as possible to the transferor’s intent while staying within the bounds of RAP.

• Complete repeal

Concurrent Estates

When two or more persons own real property simultaneously.

• Tenancy in common

• Joint tenancy

• Tenancy by the entirety.

Tenancy in common

Exists when two or more co-owners have an equal right to possess property (unity of possession) but do not have a right of survivorship regarding the property interest held by a co-owner.

Default concurrent estate.

Joint Tenancy

Exists when two or more persons own property with the right of survivorship. On the death of a joint tenant, that person’s interest terminates, and the surviving joint tenants’ interests are accordingly increased.

Four Unities required for Joint Tenancy

• Possession (each tenant has an equal right to possess or use the property)

• Interest (the interests are equal)

• Time (the interests were created at the same time)

• Title (the interests were created by the same instrument)

Severance of Joint Tenancy

Severance converts a joint tenancy into a tenancy in common.

• Conveyance

  • Joint tenant cannot pass down their share by devise, intestate, or inter vivos. The share will automatically go to the other joint tenant.

• Mortgage

  • Lien theory: does not sever the joint tenancy and severance only occurs upon a foreclosure following a default.

  • Mortgage theory: Granting of a mortgage constitutes transfer of title and severs the joint tenancy.

• Judicial lien

  • Consequence of an adverse judgement. Only severs the joint tenancy when there is a levy and sale of the property interest

• Leases

  • Some jurisdictions it severs the tenancy, in others it pauses the tenancy and resumes when the lease expires.

• Intentional killings

  • When one tenant kills another either the property goes in trust or the tenancy is severed.

Tenancy by the entirety

Joint tenancy between married persons with the right of survivorship. Adds a fifth unity (unity of person). Neither spouse can alienate or encumber the property without the other’s consent.

Rights and obligations of cotenants

• Possession: Each cotenant has the right to possess all of the property (unless there is an agreement otherwise). Minority rule - a cotenant who is in exclusive property must provide an accounting to the other cotenants for the reasonable rental value of the property less any necessary expenses.

• Property-related expenditures and income: A cotenant who makes property related expenditures is, in some cases, entitled to contribution from the other cotenants based on each cotenants ownership interest.

  • A cotenant who pays more than their share of necessary property-related expenses generally CAN compel the other cotenants to contribute. A cotenant in sole possession can collect only to the extent that those expenses exceed the rental value of the property.

  • A cotenant CANNOT compel other cotenants to share in the expenses for repairs made to the property though an action for contribution.

  • A cotenant does NOT have a right to contribution from other cotenants for improvements made to the property.

  • A cotenant must account to other cotenants for rent received from third parties but can deduct expenses including necessary repairs, when calculating net proceeds. Net proceeds are divided evenly based on ownership interest.

• Fiduciary obligation: Cotenants who a duty of fair dealing to each other but generally do bot owe fiduciary duties to each other.

• Partition: A tenant in common or a joint tenant generally has the right to unilaterally partition the property, but a tenant by the entirety does not have this right.

  • Partition-in-kind: Preferred by the court. Court divides the jointly owned property into distinct physical portions. If partition-in-kind is not practicable or fair, the court may order partition by sale and distribute the assets.

• Easements: Cotenants may agree to create an easement jointly. If a cotenant attempts to create an easement unilaterally, the easement is only enforceable against that cotenants interest.

• Alteration of rights and obligations by agreement: Cotenants may agree to alter their rights and obligations as discussed above.

Ouster

When a cotenant refuses to allow another cotenant access to the property. The ousted cotenant may bring a court action to gain access to the property and to recover the value of the use of property for the time during which the cotenant was denied access to the property.

Majority rule = Cotenant must refuse a demand by the other cotenant to use the property. Cotenant in exclusive possession of the property who only rejects a demand to pay rent or vacate a portion of the premises has not committed ouster.

When can an agreement bind third-party transferees of the contracting cotenants?

Agreements by cotenants not to seek partition is enforceable. Agreement must be clear, and the time limitation must be reasonable.

Third-parties are bound when:

• Agreement was intended to run with the concurrently owned property; and

• Transferees have actual or constructive notice of the agreement at the time of transfer.

Fair Housing and Discrimination

Prohibits discrimination in the sale, rental, and financing of homes and in other housing-related transactions (advertising, homeowner’s insurance, and zoning).

Which buildings are generally exempted from the FHA?

• Owner-occupied buildings with no more than four living units (including the owner’s unit).

• Single-family housing sold or rented without the use of a broker

• Housing operated by religious organizations

• Private clubs that limit occupancy to members

What are the protected classes under the FHA?

• Race

• Color

• Religion

• National origin

• Sex (sexual orientation and gender identity)

• Disability

• Familial status (having children under 18 or being pregnant)

Prohibited practices under the the FHA

• Refusing to rent or selling housing

• Making housing unavailable

• Providing different housing services or facilities

• Setting different terms for sale or rental of a dwelling

• Falsely denying that housing is available

• Refusing to make a mortgage loan or imposing different terms or conditions on a loan

• Refusing to allow a tenant with a disability to make reasonable modifications ot the dwelling or common-use areas at his own expense

• Refusing to make reasonable accommodations in rules, policies, practices, or services if necessary for the person with a disability to use the housing

• Threatening, coercing, intimidating, or interfering with anyone exercising a fair housing right

• Advertising or making any statement that indicates a limitation or preference based on protected characteristics (exemptions for owner-occupied buildings and single-family housing do not apply, unless there are shared living areas and the restriction is sex-based). Also applies to newspaper where the advertisement was placed.

FHA Complaint process

1. Complaint filed with Housing and Urban Development (HUD)

2. Investigation by the Office of Fair Housing and Equal Opportunity (FHEO)

3. If the FHEO finds reasonable cause to believe that discrimination occurred, then the case goes to an administrative hearing within 120 days, unless either party elects for the case to be heard in federal court.

4. Before an administrative hearing is ordered, HUD attempts to reach an agreement among the parties, and any conciliation agreement will cease action on the complaint.

Proof of racial discrimination

Plaintiff need only show a disparate racial impact, not a racial intent or purpose. Plaintiff must establish that the defendant’s policy caused the disparate impact; statistical evidence of disparate impact is not in itself sufficient.

Occupancy restrictions under the FHA

Prohibits discrimination based on familial status but allows reasonable zoning restrictions based on maximum occupancy (strict number).

Conflicts of Laws regarding property

When significant aspects of a legal action are divided between two or more states, the decision about which state’s law should govern is determined under conflict-of-law principles.

General rule: Law of situs - the state in which the property is located governs the law.

Property issues governed by the general rule:

• Validity of and rights created by a contract for the transfer of an interest in land by sale or lease;

• Whether a conveyance transfers an interest in land and the nature of the interest transferred;

• Whether an interest in land has been transferred by operation of law and the nature of the interest transferred;

• Whether a lien creates an interest in land and the nature of the interest created;

• The method for foreclosure of a mortgage on land and the resulting interests;

• Whether an interest in land has been transferred by the exercise of a power created by operation of law or a power of attorney and the nature of the interest transferred;

• The existence and extent of an equitable interest in land;

• The passage of an interest in land upon the owner’s death by intestate succession; and

• Whether an interest in land escheats to the state.

Exceptions to the law of situs

• Documents specifying the applicable law: Instruments or wills conveying an interest in land can usually designate the application of a specific jurisdiction’s laws.

• Effect of marriage: If property is acquired during marriage, the law of the spouse’s domicile determines if it is marital or separate property and the rights of third parties

• Collateral issues: When there is a collateral issue, the state with the most significant interest may have its law used.

• Mortgage note: Issues regarding the promissory note are determined by the local law of the state where the contract requires that payment be made, unless some other state has a more significant relationship to the transaction and the parties.

• Foreclosure-related rights: Issues related to a foreclosure but do not affect an interest in land are determined by the law that governs the debt for which the mortgage was given.

Types of Landlord-Tenant Tenancies

• Tenancy for years

• Periodic tenancy

• Tenancy at will

• Tenancy at sufferance

Tenancy for Years

Estate measured by a fixed and ascertainable amount of time.

Created by agreement between the landlord and tenant. Statute of Frauds applies to leases longer than one year.

Statute of Frauds writing requirement:

• Identifies the parties;

• Identifies the premises;

• Specifies the duration of the lease;

• States the rent to be paid; and

• Is signed by the party to be charged.

If the lease does not comply with the Statute of Frauds it invalid unless the tenant takes possession of the premises with the permission of the landlord, in which case it is a tenancy-at-will.

Automatically expires at the end of the term. NO notice required. Any right to renew must be explicitly in the lease.

Periodic tenancy

A repetitive, ongoing estate measured by a set period but without a predetermined date. Automatically renews at the end of each period until one party gives a valid termination notice.

Created by express agreement, implication, or operation of law. Statute of Frauds applies if the initial term of the tenancy exceeds one year.

Notice IS required. Must generally be given before the beginning of the intended last period of the periodic tenancy. For a year-to-year tenancy, notice must be given at least six months in advance. Notice that is given late will terminate the tenancy as of the end of the following period. Terminates at the end of the month.

Oral notice is sufficient.

Tenancy at Will

Leasehold estate that does NOT have a specific term and continues so long as the landlord and tenant desire.

Created by express agreement or by implication if the owner permits the tenant to occupy the premises. Unless expressly created, payment of rent (and acceptance) wil convert this to a periodic tenancy.

Can be terminated by either party WITHOUT notice or operation of law (death of either party).

Tenant must be given reasonable time to vacate if lease is terminated. (Majority states requires 30-day notice).

When the parties agree that only one party has the right to terminate, some courts do not treat this as a tenancy-at-will.

Tenancy at sufferance

Exists for the period after the expiration of a lease during which the tenant remains on the premises without the landlord’s permission.

Terminated when the tenant vacates or the landlord evicts.

Tenant is liable for reasonable value and use of premises, also liable for reasonably foreseeable special damages that result from holding over the premises. Landlord can terminate tenancy at sufferance by binding the tenant to a new tenancy.

Tenant Duties to Landlord

• Pay rent;

• Avoid waste;

• Duty to Repair (Nonresidential lease)

• Duties imposed by the lease

When can a tenant not pay rent?

• Destruction of premises: Premises are destroyed and the tenant is not at fault.

• Material breach of lease by landlord: Breach of quiet enjoyment or (potentially) breach of warranty of habitability.

Duty to Repair (Nonresidential Leases)

When a nonresidential lease specifies that the tenant must repair and maintain the property, the the tenant is generally liable for all damages unless the landlord caused the damage.

If the damage is significant and the tenant did not cause the damage, the modern trend is that the landlord is liable.

Landlord’s Remedies for Tenant’s Breach

• Failure to pay rent: Landlord can sue for damages, remove tenant, and terminate the lease.

  • Anticipatory repudiation does not apply to leases for future rents. States that do apply it measure damages as the difference between future rent that would be owed under the unexpired term and either (1) the reasonable rental value of the premises for such a term or (2) the actual rent collected on a re-letting the premisses for such term.

• Late payment of rent: Landlord entitled to damages. Acceptance of rent waives right to regain premises and terminate the lease.

• Abandonment:

  • Landlord can accept surrender. Lease is terminated, and tenant is not liable for future rent.

  • Landlord who does not accept can continue to enforce the lease and tenant is obligated to keep paying rent.

    • Landlord must mitigate damages by making reasonable effort to re-rent the premises.

• Holdover tenant: Tenant continues to occupy the premises without the landlord’s agreement after the original lease expires.

  • Landlord may evict through legal process only.

  • Landlord may bind tenant to a new periodic tenancy.

    • Landlord can modify terms of the new tenancy (e.g., increase rent) if the landlord informs the tenant of the new terms before the prior lease expires.

    • Tenant is not considered a holdover tenant if the tenant leaves a few articles of personal property behind, occupancy goes for a couple hours beyond termination time, or circumstances outside of the tenant’s control prevents them from leaving.

Landord’s Duties to Tenant

• Give possession

• Repair

• Warranty of Habitability

• Covenant of quiet enjoyment

Landlord’s Duty to Give Possession and Remedy for Breach

• English (majority) rule: Deliver actual physical possession

• American (minority) rule: Deliver the legal right of possession

Remedies:

• Refuse to pay rent to acquire possession

• Terminate the lease

• Seek damages for time without the lease

Landlord’s Duty to Repair and Remedy for Breach

• Majority rule: implied in residential leases not commercial leases, even when the lease attempts to place the burden on the tenant

• Common law: No implied duty

Remedy:

• Treat as constructive eviction or a violation of the warranty of habitability

Warranty of Habitability

• Implied in most residential (not commercial) leases

• Maintain the property so that it is reasonably suited for residential use

• Prevent or correct conditions that substantially threaten tenant’s health or safety

Remedies:

• Notify the landlord and give a reasonable opportunity to cure before:

  • Withholding rent

  • Remedying the defect and deducting the cost from rent OR

  • Defending against eviction

Covenant of Quiet Enjoyment

• Implied in all (residential and commercial) leases

• Prevent interference (by the landlord or someone with superior title) with the tenant’s right to possession

• Take action against another tenant’s nuisance-like behavior and control common areas

Remedies:

• Treat as an actual eviction if landlord removes tenant from the entire premises (terminates lease and duty to pay rent)

• Treat as a partial eviction if tenant is removed from a portion of the premises:

  • By landlord - all rent is excused

  • By third party with superior claim - reasonable rent still owed for the remaining premises

• Treat a substantial interference as a constructive eviction

Constructive Eviction

A constructive eviction occurs when a landlord breaches a duty to the tenant (e.g., failing to make a repair that substantially interferes with the tenant’s use and enjoyment of the leasehold (e.g., fails to provide heat or water). This excuses the tenant’s duty to pay rent only if:

• The tenant gives notice and adequate time to permit the landlord to fulfill his duty

• The landlord fails to do so AND

• The tenant vacates the property within a reasonable amount of time.

Retaliatory Eviction Doctrine

A landlord may not evict a residential tenant in retaliation for the tenant’s complaining, in good faith and with reasonable cause, about a housing code violation or for refusing to pay rent after the landlord breached the duty of habitability.

Security Deposit

A landlord may require a security deposit, the amount and terms of which are generally set by state statute. The landlord is generally required to promptly return the security deposit at the end of the lease or or notify the tenant of the amount retained and why.

General rules about assigning and subletting

A lease can be freely assigned or sublet absent language to the contrary. If the lease requires the landlord’s permission to transfer but is silent as to the applicable standard, then the landlord may:

• Deny permission only for a commercially reasonable reason (majority rule) OR

• Deny permission at their discretion (minority rule)

The landlord’s right to object may be waived if the landlord knows of the assignment or sublease and does not object

Assignment

An assignment transfers the tenant’s lease for the entire remaining duration to an assignee-tenant who then:

• Has privity of estate with the landlord AND

• Is liable to the landlord for rent and any other covenants in the lease that run with the lease that run with the lease.

Assignment terminates the original tenant’s privity of estate, but the original tenant remains liable for all lease covenants for the duration of the lease (absent a release from the landlord).

Sublease

A sublease transfers the tenant’s lease for less than the entire remaining duration to a sublessee-tenant who then:

• Has no privity of estate or contract with the landlord AND

• Is liable to the sublessor—but not to the landlord unless the sublessee expressly assumes the lease covenants

The original tenant remains liable for all covenants in the lease for duration of the lease.

Landlord Assignments

A landlord may assign lease rights and obligations to an assignee-landlord without the tenant’s consent. The tenant then owes rent and other burdens imposed by covenant that runs with the land. However, the original landlord remains liable to the tenant for all covenants in the lease.

Real Estate Broker

The sale of real property involves a real estate broker, who acts as an agent of the seller (or less often, the buyer). A real estate broker owes the same duties to the principal as other agents, including fiduciary duties of loyalty, care, competence, diligence, disclosure, and confidentiality. The listing broker and the selling broker generally share the commission from the sale:

• Listing broker - sets the asking price and advertises the property

• Selling broker - serves as a subagent of the listing broker and finds a buyer

A dual agent represents both the buyer and the seller, but such agents are prohibited un many jurisdictions due to conflict of interest.

A transactional broker does not represent the buyer or seller - it facilitates the sale (e.g., finds the lender). A transactional broker owes each party a duty to perform with skill, care, diligence, and fairness—but does not owe a duty of loyalty.

Statute of Frauds for Property

Real estate contract must:

• Be in writing (physical or electronic)

• Be signed by the party to be charged (e.g., handwritten or electronic signature, letterhead) AND

• Contain all the essential terms (property description and price)

Exceptions to Statute of Frauds for Property

• Part performance: Either party may seek specific performance when the acts of performance constitute persuasive evidence that a contract exists. Most jurisdictions require proof of at least two of the following:

  • Payment of all or part of the purchase price

  • Possession by the purchaser

  • Substantial improvement of the property by the purchaser

• Full performance: When the seller actually conveys the real property interest, the seller can enforce the other party’s oral promise to pay money for the property.

• Detrimental Reliance: Specific performance may be permitted when the party seeking enforcement has reasonably relied on the contract and would suffer hardship without its enforcement.

• Admission of the contract’s existence: A party may be able to enforce an oral land-sale contract when the other party admits that the contract exists.

Marketable Title

Land-sale contracts included an implied covenant of marketable title that guarantees that the title is free of undisclosed defects that create an unreasonable risk of litigation. This covenant requires that the seller deliver marketable title on the day of closing. If the seller fails to do so (and the buyer does not waive the defect) the buyer may:

• rescind the contract and recover out-of-pocket costs

• sue for breach and seek damages

• bring an action for specific performance

“Red flags” for maketable title include covenants, easements, leases, liens, gaps in the chain of title, boundary disputes, existing zoning violations, and adverse possession

Time is of the Essence

Time is of the essence—and strict adherence to the closing date is required—ONLY when it is expressly stated in the land-sale contract or implied by the circumstance. But even when time is not of the essence, a party that fails to render performance on the date of closing is in breach and may be liable for incidental losses (e.g., taxes, interest).

Implied Warranty of Fitness or Suitability

A warranty of fitness or suitability is implied in the sale of newly constructed homes. It generally covers latent construction defects (i.e., defects that cannot be discovered by reasonable observation or inspection). Breach-of-warranty suits may be brought within a reasonable time after discovering a defect.

This warranty may be disclaimed by the builder or waived by the buyer if done so with language that is clear and unambiguous. However, a general disclaimer (e.g., “property is sold as is”) is typically not sufficient.

Duty to Disclose Defects

The seller of a residence must disclose all known material physical defects to the buyer if they are not readily observable. A defect is material if it substantially affects the value or desirability of the home or the health and safety of its occupants.

Merger (Property)

The merger doctrine refers to the shift in the transaction from performance of a contract to performance obligations under the deed. At closing, the land-sale contract is completely performed and no longer governs the transaction. This means that ongoing warranties or promises made by the seller MUST be in the deed to be enforceable after closing, and the buyer must sue under the deed after the closing has occurred.

Exception: The parties intended that the obligation survive past the closing, or the obligation is collateral to and independent of the conveyance.

Remedies for Breach of the Land-Sale Contract

• Damages

  • Non-breaching party can recover expectation damages (i.e., difference between the contract price and the market value on the date of performance)

  • In half the jurisdictions, if the seller breached because of a good-faith inability to deliver marketable title, then the buyer is limited to out-of-pocket expenses

  • A buyer typically must deposit some portion of the purchase price (i.e., earnest money), which the seller may retain if the buyer breached the contract

  • A liquidated-damages clause is generally enforceable if the amount is reasonable. Typically, no more than 10% of the purchase price is reasonable, but other factors may be considered. A court may refuse to enforce a liquidated-damages clause if the seller suffered no actual loss.

• Specific performance: Either party may generally seek specific performance of the contract. However, some courts do not allow a seller to seek specific performance because the seller typically receives the money rather than real property.

Equitable Conversion

During the pendency of the sales contract the seller continues to hold legal title in the property and has a contractual interest in the proceeds of the sale, while equitable title passes to the buyer.

The buyer is responsible for the risk of loss or damage to the property between signing the contract and the closing (except for losses attributable to the seller’s actions).

Options and Rights of First Refusal

In an option contract, a party pays consideration for the right to purchase the property during a specific time period. In contrast, a right of first refusal gives the holder the opportunity to acquire property before it would otherwise be transferred to another party. Both interests are subject to the Statute of Frauds.

Adverse Possession

Ownership of real property is transferred to a person who exercises exclusive physical possession of the property for a certain amount of time. Requires proof of:

• Exclusive: Possession cannot be shared with the true owner, but two or more people may become cotenants through adverse possession.

• Continuous: Possession must be continuous and uninterrupted for the statutory period

  • Seasonal or infrequent use may be sufficient if that use is consistent with the type of property

  • An adverse possessor may tack onto the previous possessor’s time if they are in privity (i.e., transfer by non-hostile means)

  • The statutory period will not run against a true owner who has a disability (e.g., infancy, insanity, imprisonment) at the time the adverse possession begins

• Hostile: The adverse possessor must possess the land without the owner’s permission and objectively demonstrate an intent to claim land as their own.

• Open, Notorious, and Actual: Actual possession requires physical presence by the adverse possessor. Possession must be open and notorious such that a reasonable true owner would become aware of the claim.

Adverse possession generally traces the legal boundaries of the property, except in cases of constructive adverse possession. An adverse possessor who enters under color of title from an invalid instrument and occupies party of the property described in the instrument is in actual possession of the occupied land and constructive possession of the rest of the land described in the instrument.

Delivery of Deeds

At the time of transfer, the grantor must intend to make a present transfer of a property interest to the grantee. Such intent is typically shown by delivery of the deed (i.e., the leal instrument that transfers ownership of real property) to the grantee, because this creates a presumption that the grantor intended to make a present transfer.

Conversely, when the grantor keeps the deed, there is a presumption that the grantor did NOT intend to make a present transfer. But parol evidence is admissible to overcome this presumption and establish the grantor’s intent .

When the grantor transfers the deed to a third party, the result depends on the identity of the third party:

• Grantor’s agent = treated as a deed retained by the grantor

• Grantee’s agent = treated as a deed delivered to the grantee

• Independent agent with a condition on delivery = depends on the grantor’s language

Acceptance of the deed is required for the transfer to be complete. The grantee is generally presumed ot have accepted any beneficial conveyance.

Deed Requirements

• Written and signed by grantor: Any written instrument signed by the grantor.

  • INVALID: oral (except by a permissible gift) or signed ONLY by the grantee

• Identifies the grantor and grantee: Separate grantor and grantee (except concurrent estates) AND parties are identifiable by name or description

  • INVALID: Ambiguous or unidentifiable grantee or non-existent grantee

• Identifies land: Identifiable with reasonable certainty (e.g., government survey, metes and bounds, street, lot, house number)

  • INVALID: Ambiguous description (extrinsic evidence is admissible) or undefined part of a larger parcel

• Includes words of transfer: “Convey” “Grant” “Transfer” “Sell”

  • INVALID: “lease” “rent” “license”

Recording Acts

Recording acts establish priority between conflicting claims to real property. If the recording act does not govern the transaction, then the common-law “first in time, first in right” establishes priority.

Race Recording Statute

Grantee who recorded before prior interest was recorded has priority.

Language:

• “first to record” OR “first duly recorded”

Race-Notice Recording Statute

Grantee who takes without notice AND records first before prior interest is granted priority over other interests

Language:

• “in good faith, without notice” AND

• “first to record” OR “first duly recorded”

Notice Recording Statute

Grantee who takes interest without notice of the prior interest gets priority

Language:

• “in good faith, without notice”

Bona Fide Purchaser

One who purchases an estate or property interest (1) for value and (2) without notice of a claim or encumbrance.

Shelter Rule

Typically, only purchasers of real property are entitled to protection under recording acts, so a donee is generally not entitle to priority in their own right. However, a bona fide purchaser is allowed to transfer their protection to a later donee or grantee (by gift or by sale), whether or not donee or grantee knows about prior transfer.

What is considered “notice” under the recording statutes?

Whether a subsequent purchaser had notice of a prior conflicting interest is tested at the time of conveyance to the purchaser. Three types of notice:

• Actual: A grantee with actual, personal knowledge of a prior conflicting interest has notice.

• Inquiry: A grantee has notice if a reasonable investigation would have disclosed the existence of prior conflicting claims.

  • Someone else is living on or using the land

  • There is another interest mentioned in the deed or some other document

• Record: A grantee has constructive notice if a prior conflicting interest is properly recorded in the grantor’s chain of title.

Estoppel by Deed

If a grantor conveys land that the grantor does not own and the grantor subsequently acquires title to the land, then the grantor is estopped from trying to repossess the land from the grantee on the ground that the grantor did not have title when the original conveyance was made.

Basically cannot try and work around the system by “selling” land you don’t own and then try and buy it back from the person you sold it to.

Types of Deeds

• General Warranty Deed: The grantor guarantees that the grantor holds all six covenants of title.

• Special Warranty Deed: The grantor guarantees all six covenants of title but only against defects arising during the time the grantor had title.

• Quitclaim Deed: The grantor promises NO covenants of title.

Covenants of Title

Present covenants: Breached at the time of conveyance and do not run with the land

• Seisin: Grantor owns the interest being conveyed

• Right to Convey: Grantor has the legal right to convey the interest

• Against encumbrances: There are no encumbrances (e.g., easements, mortgages) against the interest conveyed

Future covenants: Breached upon interference with possession and run with the land

• Warranty: Grantor will defend and compensate grantee for lawful claims made against grantee’s title

• Quiet Enjoyment: Grantee’s possession and enjoyment will not be disturbed by another’s lawful claim of title

• Further assurances: Grantor will take any actions reasonably necessary to perfect grantee’s title

Conveyance by Will

Transfer of ownership can occur at death through a will by a specific devise (e.g., “I leave my home to my daughter”) or a residual clause (“e.g., I leave all other property to my brother).

A devise of real property may fail by ademption if the testator no longer owns the devised property at death because the property was previously sold, destroyed, or given away.

A devise of real property may also fail by lapse if the intended beneficiary dies before the testator and there is no alternative beneficiary. However, an anti-lapse statute prevents a gift from lapsing if the gift is made to qualifying individuals specified by statute (typically immediate relatives of the testator) with issue who survive the testator.