© 2010 Rockwell Publishing Lesson 2: Estates in Land and Methods of Holding Title Principles of...

Lesson 2:

Estates in Land and Methods of Holding Title

Principles of California Real Estate

Introduction

This lesson will discuss: types of estates in landways of holding title to property

Estates in LandInterests in real property

Interest: Interest in real property is a right to the property or a claim against it.

Interests may be:possessory (also called estates)nonpossessory

Estates in LandInterests in real property

Estate: Absolute and exclusive right to possess property now or in the future.

Categories of Estates

Two basic categories: freehold estates (include title)leasehold estates (don’t include title)

Both freehold and leasehold estate may exist at same time in same property; this relationship is known as privity.

Two main kinds of freehold estates: fee simple estateslife estates

Types of EstatesFreehold estates

Fee simple:most common type of estate highest and most complete form of land

ownershipcan potentially last forever

Fee simple estate is perpetual, transferable, and inheritable.

Freehold EstatesFee simple estates

Two types of fee simple estates: absolutedefeasible

Fee Simple Estates

Fee Simple EstatesFee simple absolute

Estate transferred is fee simple absolute unless grantor makes clear some other estate intended.

Fee simple absolute owner is not subject to any special limitations or conditions.

Fee Simple EstatesFee simple defeasible

Fee simple defeasible: Fee title with condition or qualification attached.

Interest will end if specified act or event occurs at some later date.

Freehold EstatesLife estates

Life estate:limited in timelasts only as long as a particular person

is alive

Life EstatesDuration

Life tenant: Person who owns property for duration of measuring life.

Measuring life: Person whose life is used to measure length of life estate; usually same person as the tenant.

Life EstatesFuture interests

When measuring life ends, title will pass to holder of:

estate in reversion, orestate in remainder.

Life EstatesEstate in reversion

Estate in reversion: If deed giving title to life tenant states that title shall revert to grantor on death of measuring life, grantor has estate in reversion.

Life EstatesEstate in remainder

Estate in remainder: If deed giving title to life tenant states that title shall pass to third party on death of measuring life, third party has estate in remainder.

Life EstatesSale or lease

Life tenant may sell or lease only interest she has in property.

Life tenant must maintain property in good condition.

SummaryFreehold Estates

• Freehold estate

• Fee simple absolute

• Fee simple defeasible

• Life estate

Leasehold estate: Limited, temporary estate created by lease contract.

Parties: landlord and tenant.Tenant gets right to exclusive use and

possession of property.Landlord retains title and holds

reversionary interest in property.

Categories of EstatesLeasehold Estates

Because lease is considered personal property (even though it represents interest in real property), it may also be called chattel real.

Leasehold EstatesChattel Real

Leasehold EstatesTypes of estates

Types of estates:term tenancyperiodic tenancytenancy at willtenancy at sufferance

Types of Leasehold EstatesTerm tenancy

Term tenancy: A leasehold estate that lasts for any fixed term; also called estate for years.

One-week lease is estate for years.

Periodic tenancy: Leasehold that is not limited to specific term; also called periodic estate.

Automatic renewal: continues from rental period to rental period until terminated by landlord or tenant, with proper notice.

Required notice period = rental period.

Types of Leasehold EstatesPeriodic tenancy

Types of Leasehold EstatesTenancy at will

Tenancy at will: Often arises when lease has expired and parties are negotiating new lease; also called estate at will.

No agreement exists.Tenant in possession with landlord’s

consent.California requires 30 days’ notice of

termination.

Types of Leasehold EstatesTenancy at sufferance

Tenancy at sufferance: Not true estate; tenant does not have leasehold interest.

Tenant keeps possession after valid lease expires, without landlord’s consent.

Commonly called holdover tenancy.

SummaryLeasehold Estates

• Leasehold estate

• Term tenancy

• Periodic tenancy

• Tenancy at will

• Tenancy at sufferance

Ways of Holding Title

Title to real property may be held by one person, known as ownership in severalty; or it may be held by two or more persons, known as concurrent ownership.

Ways of Holding TitleOwnership in severalty

Ownership in severalty: Ownership by one individual (often called “sole” ownership).

Individual owner may be:natural person (human being)artificial person (corporation, LLC, etc.)

Ways of Holding TitleConcurrent ownership

Concurrent ownership: Ownership by two or more persons at same time.

In California, there are three types of concurrent ownership:

tenancy in common joint tenancy community property

Tenancy in common is most basic form of concurrent ownership. It’s default form if:

arrangement doesn’t fit into one of other categories

deed did not specify another type

Concurrent OwnershipTenancy in common

Tenants in common have undivided interest in property as a whole. This is called unity of possession.

Interests don’t have to be equal.No matter how small tenant’s interest,

he may share possession of entire property.

Concurrent OwnershipTenancy in common

Tenant in common may will interest to someone other than remaining tenant(s) in common.

Concurrent OwnershipDeath of tenant in common

Tenancy in common may be terminated by a partition suit.

Court will either divide property into separate parcels or order sale of property with proceeds to be divided among co-tenants.

Concurrent OwnershipTerminating a tenancy in common

Concurrent OwnershipJoint tenancy

In joint tenancy, two or more persons are joint and equal owners of property.

Joint TenancyFour unities

Requirements for joint tenancy:unity of interestunity of titleunity of timeunity of possession

Joint TenancyRight of survivorship

Right of survivorship is key feature of joint tenancy.

When joint tenant dies, her interest:automatically passes to surviving joint

tenantsis not part of her estate and cannot be

willed

Joint TenancyTermination

Joint tenancy can be terminated by partition suit.

Also terminates if any of four unities is destroyed.

Example: If joint tenant transfers her interest to another, new owner is not joint tenant.

Concurrent OwnershipCommunity property

Community property is property owned jointly and equally by husband and wife.

System is used in California and 8 other states.

Concurrent OwnershipCommunity property

In community property states:everything owned by married couple that

isn’t separate property of one spouse is community property of both spouses

each spouse has an undivided ½ interest in community property

Community PropertySeparate property

Separate property:property owned before marriagegift or inheritance acquired during

marriageanything purchased with separate

property fundsprofits or proceeds from separate

property

Summary Individual and Concurrent ownership

• Ownership in Severalty• Concurrent ownership• Tenancy in Common• Joint tenancy• Community property

Ways of Holding TitleBusiness organizations

Real property may also be owned by business entity:

general partnerships and limited partnerships

corporationslimited liability companiesreal estate investment trusts

Business OrganizationsPartnership

Partnership: Association of two or more persons to conduct business as co-owners and share profits. Partnerships are formed by contract.

Types of partnerships:general partnershiplimited partnership

PartnershipsGeneral partnership

General partnership: Each partner has:ownership interest voice in management right to share in profitsobligation to share in losses

The partnership is not taxed, but each partner’s earnings are taxed individually.

Partner has right to use partnership property but is not co-owner of property and has no transferable interest in it.

But partner’s interest in partnership itself may be transferred.

General PartnershipProperty ownership

General PartnershipLiability

Each partner may be held personally liable for debts and obligations of general partnership.

PartnershipsLimited partnership

Limited partnership is more regulated than general partnership.

Agreement must be in writing.Only general partners have liability for

partnership debt and obligations, and right to manage business.

PartnershipsLimited partnership

A limited partnership has at least one general partner, plus one or more limited partners. Most California real estate syndicates are limited partnerships.

Limited partners have:limited liabilityno control over partnership propertypassive role in management

Business OrganizationsCorporation

Corporation: Artificial person with perpetual existence. Made up of:

shareholdersboard of directorscorporate officers

Corporations:can own propertycan incur debtsare subject to double taxation (profits are

taxed before distribution to shareholders, then taxed again as ordinary income to the stockholders)

Shareholders:own shares in corporationhave no managerial control are liable only up to value of their stock

LLC may be organized like partnership or like corporation.

Owners are called “members.”Income not taxed at entity level, so no

double taxation.Owners have limited liability.

Business OrganizationsLimited liability company

Business OrganizationsReal estate investment trust

REIT: One or more trustees manage real property for benefit of investors (the beneficiaries). Investor liability is limited to amount of investment.

An REIT:qualifies for special tax treatmentmust have at least 100 investors

SummaryBusiness Organizations

• General partnership

• Limited partnership

• Corporation

• Limited liability company

• Real Estate Investment Trust (REIT)

Ways of Holding TitleCondominiums and cooperatives

There are two types of properties that combine elements of individual ownership and concurrent ownership:

condominiumscooperatives

Condos and Co-opsCondominiums

Condominiums are usually residential and resemble an apartment complex.

Residents:own individual units in severaltyshare ownership of common elements

CondominiumsCommon elements

Common elements: Parts of a condominium property that are usable by all residents.

Examples:grounds elevator hallways swimming pool

CondominiumsSeparate properties

Buyer of condominium unit:receives deed for unitfinances purchase with separate loan obtains separate title insurance policypays separate taxes

If lien against one unit is foreclosed, other units are not affected.

CondominiumsGoverning board

Elected governing board usually manages condominium and enforces rules.

Condominium seller must give prospective buyer:

copy of bylawslatest financial statementsCC&Rs for the project

CondominiumsUses

Condominium can be designed for residential, commercial, or industrial use.

Condos and Co-opsCooperatives

Residential co-op might look like condominium, but ownership structure is very different.

Title is held by corporation.

Residents:own shares in corporationhave long-term lease on unit

Condos and Co-opsCooperatives

Cooperative project is:financed with single mortgagetaxed as single property

Rent paid to corporation is proportionate share of co-op’s expenses; if one tenant fails to pay rent, other tenants must cover to avoid foreclosure.

SummaryCondos & Co-ops

• Condominium

• Common elements

• Governing board

• Cooperative

© 2010 Rockwell Publishing Lesson 2: Estates in Land and Methods of Holding Title Principles of...

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