QUIMBEE PROPERTY QUICK STUDY

1

ESTATES:I. Definitions

A. Estate: An estate is a legal interest in real property.

B. Types: Estates are either present possessory estates or future interests.1. Present possessory estates: Present

possessory estates confer a current right of possession. These are either freehold or non-freehold estates.a. Freehold: Freehold estates confer

possession indefinitely. The freehold estates are:(1) fee simple, (2) life estate, and (3) fee tail

b. Non-freehold: Non-freehold estates (leaseholds) confer possession for a limited time or at will. The four types are: (1) estate for years, also called estate

for a fixed term;(2) tenancy at will; (3) periodic tenancy; and(4) tenancy at sufferance.These estates will be discussed under Landlord and tenant, infra.

2. Future interests: Future interests exist in the present, but confer a right or possibility of future possession. They include: (1) possibilities of reverter; (2) rights of entry, or powers of

termination;(3) reversions; (4) remainders; and (5) executory interests.

3. Possession: Possession includes: (1) the right to use the property lawfully; (2) the right to transfer possession to

another; and (3) the right to exclude others from the

property.

These rights are subject to law and to any interests held by others.

C. Transferability: A property interest is transferable if it can move from one person to another. A transferable interest might be:(1) devisable if it can transfer by will;(2) descendible if it can transfer by intestate

succession; or(3) alienable inter vivos if it can be conveyed

during the grantor’s lifetime. II. Fee simple:

A. Types: The fee simple estates are: (1) fee simple absolute, (2) fee simple subject to a condition

subsequent, (3) fee simple determinable, and(4) fee simple subject to an executory

limitation. B. Fee simple absolute: This estate is

indefeasible: it cannot be cut short by another estate. 1. Duration: This estate has no definite

ending date. 2. Creation: This estate is created when a

grantor who holds this estate transfers the entire estate to another. Simple language, e.g., “to X,” will suffice.

3. Transferability: This estate is devisable, descendible, and alienable inter vivos.

C. Fee simple determinable: This estate is defeasible: it can be cut short by a possibility of reverter. 1. Duration: This estate has no definite

ending date. However, it will automatically end if a specified condition occurs.

2. Future interest: The interest that follows a fee simple determinable is a possibility of reverter.

3. Creation: This estate is created with language of time or duration, such as until, while, so long as, or during.

4. Operation: If the condition occurs, then the fee simple determinable automatically

2

terminates, and the property reverts to the grantor.

5. Transferability: This estate is devisable, descendible, and alienable inter vivos. In most states, a possibility of reverter is devisable, descendible, and alienable inter vivos.

D. Fee simple subject to condition subsequent (FSSCS): This estate is defeasible: it can be cut short by a right of entry. 1. Duration: A FSSCS has no definite

ending date. However, it will end if the grantor elects to retake possession when a specified condition occurs.

2. Future interest: The estate that follows a FSSCS is a right of entry, also called a power of termination.

3. Creation: This estate is usually created with conditional language, such as but if, on condition that, unless, or provided that

4. Operation: If the condition occurs, then the grantor has the right to enter the land and retake possession, terminating the grantee’s estate. It is the grantor’s option whether to do so.

5. Fee simple determinable distinguished: A FSSCS does not automatically terminate when the condition occurs. The exercise of the right of entry is optional with the grantor.

6. Transferability: This estate is devisable, descendible, and alienable inter vivos. In most states, a right of entry is devisable, descendible, and alienable inter vivos. In a few states, attempting to transfer the right of entry will destroy it.

E. Fee simple subject to executory limitation: This is a defeasible fee simple that passes to someone other than the grantor when the condition occurs. Y’s future interest is an executory interest. [See Executory interests, infra.]

F. Limitations: Some states limit the duration of possibilities of reverter and rights of entry.. Some states require the future interest holders to re-record their interests periodically. A few states refuse to enforce conditions discouraging marriage or encouraging divorce. Finally, some states impose a statute of limitations on rights of entry.

G. Ambiguous conveyances: To avoid forfeitures, courts interpreting ambiguous conveyances often prefer an indefeasible fee over a defeasible fee, or a FSSCS over a fee simple determinable.

H. Fee tail: A fee tail keeps land within a family line by conveying “to X and the heirs of his body.” The fee tail has been abolished in most states. An attempt to create a fee tail normally conveys a fee simple instead.

III. Life estate: A life estate is a present possessory estate that lasts until the end of a specified person’s life. The estate holder is called the life tenant. A. Duration: A life estate is usually measured by

the life of the life tenant. An estate measured by someone else’s life is a life estate pur autre vie.

B. Future interests: If the land returns to the grantor after the life estate, the grantor holds a reversion. If the land passes to someone else, that person holds a remainder.

C. Creation: A typical conveyance is, “to X for life.” If the grant does not specify who takes the remainder or the reversion, courts presume a reversion in the grantor.

D. Operation: When the relevant life ends, a life estate automatically terminates.

E. Transferability: A life estate measured by the life tenant’s own life is neither devisable nor descendible, because it ends at death. A life estate is alienable inter vivos; the grantee takes a life estate pur autre vie. In most states, reversions and remainders are fully transferable. [See Remainders, infra.]

3

F. Termination: There are several methods of termination other than the end of a life:1. Defeasance: A grantor can create a

defeasible life estate by imposing conditions of defeasance, or by carving a life estate from the grantor’s own defeasible estate.

2. Merger: If a life tenant acquires all remainders and reversions, the estates merge into a fee simple absolute.

3. Forfeiture: In some states, a life tenant forfeits the estate if she commits waste.

4. Surrender and renunciation: A life tenant can surrender the life estate in writing. Someone who stands to acquire a life estate by will can refuse to accept it (renunciation).

G. Rights and duties: 1. Waste: The life tenant may not commit

waste, unless the grant provides otherwise, or the remaindermen consent. Waste can be permissive, voluntary, or ameliorative.

2. Permissive waste: The life tenant must reasonably maintain the property. Some states limit this duty to the extent of income, profits, or rental value of the property.

3. Voluntary waste: The life tenant may not make alterations that materially decrease the property’s value.

4. Ameliorative waste: The life tenant may not significantly alter the character of the property, even if this increases its value. a. Exception—local conditions: Many

courts allow ameliorative waste if changed local conditions make the current use unproductive.

5. Remedies: A remainderman can obtain damages, an injunction, or forfeiture of the life estate to remedy waste.

IV. Reversions: A reversion arises when a grantor conveys only part of his possessory estate. When

the grantee’s estate ends, the property reverts, or returns, to the grantor.

V. Remainders: A. Definition: A remainder:

(1) arises contemporaneously with a prior possessory estate;

(2) immediately becomes possessory upon the natural termination of the prior estate;

(3) is never held by a grantor; and(4) only follows a fee tail, a term of years, or

a life estate. B. Contemporaneous: A remainder and its prior

estate must be created at the same time, by the same instrument.

C. Natural termination of prior estate: A remainder immediately becomes possessory when the prior estate reaches its natural end (ex., life tenant dies). A remainder never cuts short a prior estate. There must be no gap in time between the end of the prior estate and the remainderman’s right to possession.

D. Vested vs. contingent remainders: 1. Vested: A remainder is vested if: (1)

it is held by an identifiable living person, and (2) it unconditionally becomes possessory upon the natural termination of the prior estate.

2. Contingent: A remainder is contingent if: (1) it is held by some unknown or non-living person, or (2) it requires some condition precedent to become possessory, in addition to the natural termination of the prior estate.

E. Types of vested remainders: 1. Indefeasibly vested: This remainder

cannot be terminated by a future condition, nor diluted by new additions to a class of grantees.

2. Subject to complete divestment: This remainder will terminate if a future condition occurs.

3. Vested remainder subject to open: This remainder is shared equally by a class of

4

people, but each class member’s share will decrease if new members are added. This is sometimes called a vested remainder subject to partial divestment.

F. Survivorship: Conveyance of a remainder does not depend on the remainderman’s survivorship, unless the grant so provides.

G. Estates: A remainder can convey a fee simple, a life estate, or an estate for years. A remainder that does not specify the estate is construed as a remainder in fee simple.

H. Transferability: Vested remainders are devisable, descendible, and alienable inter vivos. Contingent remainders were devisable and descendible at common law, but usually not alienable inter vivos. Most states now allow inter vivos transfers, as well.

VI. Limitations on contingent future interests: A. Destructibility: At common law, a contingent

remainder was destroyed if it failed to vest by the termination of the preceding estate. Under modern law, the property reverts to the grantor until the condition is fulfilled.

B. Rule in Shelley’s Case: If a single instrument creates a life estate in a grantee, plus a remainder in the grantee’s heirs, then the grantee is deemed to hold both the life estate and the remainder. Most states no longer follow this rule.

C. Doctrine of worthier title: If a single instrument conveys to a grantee and creates a future interest in the grantor’s heirs, then the future interest is void. Most states no longer follow this rule.

VII. Executory interests: An executory interest is a future interest that (1) is held by a grantee, and (2) is not a remainder. A. Remainders distinguished: The differences

between executory interests and remainders are: 1. Always contingent: Executory interests are

contingent, because they only become possessory upon some future condition.

2. Terminates prior estate: An executory interest terminates the prior estate.

3. Fee simple: An executory interest can follow a fee simple estate.

4. Gap in time: An executory interest can become possessory after a gap in time from the termination of the prior estate.

B. Types: A springing executory interest divests a prior estate held by the grantor. A shifting executory interest divests a prior estate held by someone other than the grantor.

VIII. Class gifts: A grantor can create a future interest in a class of individuals.A. Closing: A class closes when it is impossible

to add new members. 1. Rule of convenience: In some courts, a

class closes when the first class member becomes eligible to take.

IX. Rule Against Perpetuities (RAP): A. Statement: No interest in property is valid

unless it must vest, or forever fail to vest, within 21 years after the end of some life in being when the interest is created. 1. Alternative statement: A future interest is

void if there is any possibility that the interest could vest more than 21 years after the end of all relevant lives in being when the interest is created.

B. Interests affected: The RAP only applies to contingent or uncertain future interests, including: (1) contingent remainders, (2) executory interests, (3) options to buy and rights of first refusal,

and(4) open class gifts, including vested

remainders subject to open.1. Exception—lease option: An option to

buy contained in a lease is usually exempt.2. Exception—charity-to-charity: A future

interest that divests one charity in favor of another is exempt.

5

C. Interests exempted: The RAP exempts present possessory estates and most vested future interests.

D. Life in being (measuring life): A measuring life validates an interest under the RAP if: (1) that life exists when the interest is created, and (2) the interest must either vest or fail within 21 years of the end of that life. 1. Who qualifies: Measuring lives are usually

individuals who (1) are named in the conveyance, and (2) have some connection to the vesting of the interest.

2. One life is enough: Only a single measuring life is needed to validate an interest under the RAP.

3. Natural persons: A measuring life must be a natural person.

4. Not numerous or hard to ascertain: The measuring lives should be not be unreasonably numerous, and their deaths should be readily ascertainable.

5. Gestation: A life in being includes someone in utero when the interest is created.

E. Time of creation: 1. Will: A will creates an interest upon the

testator’s death.2. Deed: A deed creates an interest when

executed and delivered. 3. Revocable trust: A revocable trust creates

an interest when the trust becomes irrevocable.

F. Strict Application: An interest violates the RAP if there is any possibility of late vesting. The law presumes:(1) anyone can die at any moment, (2) no one knows when anyone will die, and (3) all people can have children regardless of

age or health. G. Effect: A noncomplying interest is deleted

from the conveyance. H. Class gifts—all-or-nothing: A class gift must

satisfy the RAP as to every possible member of

the class. If even one potential class member fails the RAP, the entire gift is void.

I. Special problems: 1. Fertile octogenarian: The RAP presumes

that a person of any age can have children. This can trigger the RAP when a conveyance creates a contingent interest that vests in a class after age 21. Look especially for late-vesting scenarios involving children born after the conveyance.

2. Unborn widow: A person’s widow (or widower) cannot be identified until that person dies. This can trigger the RAP when a grantor creates a remainder in favor of a grantee’s widow, followed by an interest in the grantee’s descendants. If the widow is unborn at the time of conveyance, vesting might depend on lives that did not exist when the interest was created.

3. Slothful executor: An interest conditioned on the settling of the grantor’s estate is usually void. It is conceivable that the estate might not be administered within the perpetuities period.

J. Perpetuities reforms: The RAP has been abolished or reformed in many states. Common reforms include:1. Wait and see: Instead of voiding an

interest immediately, the courts will wait to see what actually happens. An interest is only void if it does not actually vest or disappear in time.

2. Uniform Statutory RAP: An interest is void if it does not actually vest or disappear within the earlier of (1) the common-law perpetuities period or (2) 90 years from creation of the interest.

3. Cy pres: The courts will rewrite a conveyance to comply with the RAP while effectuating the grantor’s intent as closely as possible.

6

IX. Restraints on alienation: A grantor might attempt to restrict the grantee’s ability to transfer the property. Such restraints have limited effect. A. Encumbrances: Restraints on alienation

include restraints on mortgages and other encumbrances.

B. Legal v. equitable interests: The rules discussed here apply mainly to legal estates, including those discussed in this outline. Restraints on equitable interests, such as trusts, are more widely accepted.

C. Types of restraints: 1. Disabling: Any attempt to alienate the

property has no legal effect.2. Forfeiture: The grantee’s interest

terminates if the grantee tries to alienate the property.

3. Promissory: The grantee promises not to alienate the property. The grantor can obtain damages or an injunction for breach.

D. Scope: A total restraint prohibits alienation under any circumstances. A partial restraint prohibits alienation only of certain kinds, to certain grantees, or for a certain time.

E. Enforceability: 1. Fee simple estates: Restraints on

alienating fee simple estates are highly disfavored.

2. Life estates: Life estates are inherently less marketable than fee simple estates, and restraints are more acceptable.

3. Future interests: Restraints on vested future interests are usually treated like restraints on the corresponding present interests. Restraints on contingent future interests are an uncertain area.

F. Special issues: 1. Race-based restraints: These are

unenforceable. 2. Alienation subject to veto: Restraints that

allow someone to veto alienation are generally unenforceable. One exception is a reasonable approval requirement for the

sale of a co-op or condominium unit. [See Common interest communities, infra.]

3. Right of first refusal: A right of first refusal allows one buyer to prevent the sale of property to another by offering to buy at the same price. These are often upheld if (1) they do not violate the Rule Against Perpetuities, and (2) they provide a reasonable method for determining the sale price.

CONCURRENT OWNERSHIP: Property can be held concurrently by multiple owners, called cotenants. I. Types: There are three types of concurrent

ownership: (1) tenancy in common, (2) joint tenancy with right of survivorship,

and(3) tenancy by the entirety.

A. Tenancy in common: Each cotenant owns a share of the property, with no right of survivorship.1. Equal or unequal: The tenants’ shares can

be equal or unequal. 2. Undivided interest and right of

possession: Regardless of the size of each share, each cotenant has an undivided interest in the property. Each cotenant is simultaneously entitled to possess the entire property.

3. Presumptive form: Cotenants are presumed to take as tenants in common, unless the conveyance clearly provides otherwise.

4. Transferability: Each cotenant holds a separate estate, and may independently transfer or encumber her interest. A transferee becomes a new tenant in common.

5. Creation: A tenancy in common is created by: (1) the terms of a conveyance,

7

(2) an error in creating another form of concurrent ownership, such as a joint tenancy, or

(3) severance of a joint tenancy, infra.B. Joint tenancy with right of survivorship:

Each cotenant has an equal share of the property, with a right of survivorship. 1. Undivided interest and right of

possession: Each cotenant has an undivided interest in the property. Each cotenant is simultaneously entitled to possess the entire property.

2. Creation: Courts require unambiguous language to create a joint tenancy.

3. Right of survivorship: Upon a joint tenant’s death, that joint tenant’s interest disappears, and the shares of the remaining joint tenants increase proportionately.

4. Not devisable or descendible: A joint tenant’s interest is not devisable or descendible, because it vanishes at death. Inter vivos transfers bring about severance, infra.

5. The four unities: At common law, and in many states today, a joint tenancy requires the four unities of time, title, interest, and possession. If any unity is broken, the noncomplying interest is severed from the joint tenancy and becomes a tenancy in common. a. Time: The cotenants’ interests must

vest simultaneously.b. Title: The cotenants must derive their

title from the same instrument. c. Interest: Each cotenant’s share must be

equal. Each cotenant must also hold the same legal estate in the land; e.g., fee simple absolute.

d. Possession: Each cotenant must have the same right to possess the entire property.

e. Strawman conveyances: The four unities can incentivize inefficient

strawman conveyances; e.g., conveying to oneself and someone else through a third party to create unity of title. Some states today relax the four unities, or permit formation and severance without strawman techniques.

6. Severance: Severance occurs when one cotenant’s interest ceases to be part of a joint tenancy. a. Effect: The severed interest is held as a

tenancy in common with the remaining cotenants. It is no longer subject to the right of survivorship. The other joint tenants remain in a joint tenancy with one another.

b. By conveyance: Severance occurs when a joint tenant conveys his interest to someone else, whether to an outsider or a cotenant. The transferor may convey without the knowledge or consent of the other cotenants.

c. By mortgage: In title theory states, a mortgage conveys title to the mortgagee; thus, the mortgage of one cotenant’s interest severs that interest. In lien theory states, the mortgage merely conveys a lien, and thus severance does not result. [See Mortgages, infra.]

d. Judgement liens: A judgment lien on one joint tenant’s interest does not sever the joint tenancy, because the lien does not transfer title. Severance will result when the lien is executed, thereby transferring title to the creditor.

e. Leases: A joint tenant is free to lease her interest without knowledge or consent of the other cotenants. The courts take differing views regarding severance under a lease.

f. Murder: One joint tenant who murders another may not take by survivorship.

8

g. Agreement: The joint tenants may agree to sever the joint tenancy and become tenants in common.

C. Tenancy by the entirety (TBE): A marital estate in which each spouse holds the entire property, with a right of survivorship. 1. Status: The TBE is not recognized in most

states. 2. Survivorship: When one spouse dies, his

or her interest instantly passes to the surviving spouse.

3. Five unities: The TBE requires the four unities of a joint tenancy, supra, plus the fifth unity of a legal marriage.

4. Divorce: Divorce terminates a TBE. 5. Transferability: A TBE cannot be

transferred or encumbered without both spouses’ consent.

6. Creditors: Creditors can reach the property to satisfy the spouses’ joint debt. The courts are split as to whether an individual spouse’s creditors can reach the property.

II. Rights and obligations: A. Possession: Each cotenant has the right to

possess the entire property, regardless of ownership share.1. Ouster: The wrongful exclusion of any

cotenant by another cotenant. Ouster can occur by affirmative exclusion or clear notice of intent to exclude.

B. Rent: A cotenant in possession has no duty to pay rent. Note: several exceptions to this rule are addressed in your full outline.

C. Business profits: A cotenant who runs a business on the property usually has no obligation to share the profits.

D. Taxes and mortgages: Each cotenant is proportionately responsible for property taxes, mortgage interest, and other obligations that could result in a lien. These are called carrying charges. A cotenant who mortgages only his own interest is solely responsible for that debt.

E. Repairs and maintenance: At common law, a cotenant was not entitled to contribution for repairs and maintenance. In most states today, each co-tenant is proportionately responsible for these costs.

F. Improvements: An improvement is a change, other than maintenance, that enhances the utility, value, or appearance of the property. Each co-tenant may unilaterally make improvements. A cotenant is not entitled to reimbursement for unilateral improvements. In a partition action, the cotenant can recover the increase in property value from the improvements.

G. Encumbrances: Cotenants are proportionately responsible for the principal amount of an encumbrance that attaches to the entire property (ex., tax lien). If one cotenant pays a shared debt, she succeeds to the original lienholder as against the other cotenants. If the others do not contribute their shares, the paying cotenant may foreclose.

H. Accounting and contribution: 1. Accounting: An accounting requires one

party to produce money owed to another. Accounting among cotenants can occur through a direct action or in a partition action.

2. Contribution: Contribution reimburses a cotenant for paying an excessive share of a collective obligation. Contribution can occur through a direct action or in a partition action.

I. Partition: Partition ends the cotenancy and distributes the property. 1. Initiation: The cotenants can agree to

partition, or one cotenant can sue for judicial partition.

2. Right to partition: Any cotenant has the right to seek partition for any reason, without the consent of the others. Several exceptions to this rule are addressed in your full outline.

9

3. Judicial procedure: In a judicial partition, the court will determine each party’s net share and divide the property accordingly.

4. Types of partition: a. In kind: The property is subdivided

into parcels that correspond to each party’s share. Each party will have sole ownership of his parcel. This is the preferred method of partition, when feasible.

b. In kind with owelty: If the parcels have disproportionate value, the differences are settled by monetary payments among the parties.

c. By sale: The property is sold, and the proceeds distributed to the parties.

LANDLORD AND TENANT: The lessor (landlord) transfers a leasehold estate to a lessee (tenant), who pays rent. The landlord holds a reversion, effective when the leasehold ends. The parties usually have a written lease.I. Hybrid nature of leases: A lease blends property

law and contract law. Property law provides default rules, but the parties often can bargain for a different arrangement.

II. Statute of frauds: A lease for more than one year must be in a signed writing.

III.Dependent and independent covenants: At common law, the promises in the lease are independent covenants. One party’s breach does not entitle the other to terminate or withhold performance. Modern courts treat some promises as dependent covenants, especially in residential housing. Specific examples are addressed below.

IV. Types of leaseholds: There are four types of leaseholds, or non-freehold estates:(1) tenancy for years, or estate for a fixed term;(2) periodic tenancy; (3) tenancy at will; and(4) tenancy at sufferance, including the holdover

tenancy.

A. Tenancy for years: A tenancy for years lasts for a specific period of time. This can be defined by dates or by reference to future conditions.

B. Periodic tenancy: A periodic tenancy lasts for a specific period of time, then automatically and repeatedly extends for the same period, until one party terminates. A periodic tenancy is created by agreement, implication, or operation of law.

C. Tenancy at will: A tenancy at will lasts for an indefinite period and is terminable at the will of either party, at any time. This tenancy is created by agreement or by operation of law.

D. Tenancy at sufferance: A tenancy at sufferance arises if a rightful tenant retains possession after the right of possession expires.

V. Tenant’s duties: A tenant must:(1) pay rent, (2) refrain from abandoning the premises, (3) refrain from waste, and(4) make limited repairs.A. Rent: The tenant must pay rent on the agreed

date. If the amount is unspecified, the rent will be deemed the fair rental value. 1. When due: The due date is usually

specified in the lease. If not, then at common law the rent for the entire term is due at the end of the term.

2. Early termination: If the lease terminates early, the duty to pay rent terminates with it. Termination can result from: (1) the landlord’s breach of certain duties,

such as the covenant of quiet enjoyment or the implied warranty of habitability;

(2) eviction;(3) the tenant’s surrender, with

acceptance by the landlord;(4) the taking of the entire premises

through eminent domain;(5) the termination (but not the transfer) of

the landlord’s estate;(6) any conditions specified in the lease; or

10

(7) the total destruction of the property without fault of either party; partial destruction reduces the rent proportionately.

3. Remedies: At common law, the landlord’s only remedy for failure to pay rent was to sue for damages. Today, the landlord can choose among several remedies. These remedies are discussed in your full outline.

B. Abandonment: Abandonment occurs when:(1) the tenant vacates without justification, (2) ceases to pay rent, and (3) has no intention to return.Abandonment is an anticipatory breach of the lease.1. Effect: Abandonment alone does not

terminate either the lease or the duty to pay rent.

2. Remedies: Upon abandonment, the landlord can:(1) accept the surrender, terminate the

lease, and sue for damages;(2) leave the premises vacant and sue for

rent; or (3) re-let the premises on the tenant’s

behalf.Please see your full outline for further details.

C. Waste: The tenant must not commit waste. A leasehold tenant’s obligations parallel those of a life tenant. [See Life tenant’s rights and duties, supra.]

D. Duty to occupy: The tenant has no duty to occupy the premises, unless specified in the lease. However, if the rent is a percentage of the tenant’s business revenues, most courts will find an implied covenant to operate the business.

E. Duty to repair: Today, a landlord has a broad duty to make residential repairs under the implied warranty of habitability, infra. If a tenant agrees in the lease to make repairs, the tenant’s duty is limited to ordinary wear and tear. A tenant is not required to make extensive

structural repairs, or to replace fixtures, if the tenant has not caused the condition.

VI. Duty to deliver possession: A landlord must deliver possession at the beginning of the lease term. The law distinguishes between legal and actual possession. A. Legal possession: The landlord is always

required to deliver legal possession. This requires that no third party has property rights that could cause the tenant’s eviction.

B. Actual possession: Most states also require the landlord to deliver actual possession. This requires that the property be free from any wrongful occupants.

C. Remedies: 1. Termination: The tenant can terminate the

lease for failure to deliver possession. A tenant who assumes possession with knowledge of the breach, and without objection, might waive this remedy. In many states, a tenant who knows of a superior legal interest cannot terminate unless the tenant is actually evicted.

2. Damages: Regardless of whether the tenant terminates, the tenant can sue the landlord for damages.

VII. Condition of premises: The common-law rule is caveat lessee: unless the lease provides otherwise, the tenant takes the premises as she finds them. This remains the rule in many commercial settings, but not in residential settings. Note: several exceptions to this rule are addressed in your full outline.

VIII. Quiet enjoyment: The landlord implicitly covenants that the tenant’s possession will not be disturbed by the landlord or by anyone claiming superior title. The covenant applies in both residential and commercial settings.A. Breach: Breach occurs when the tenant is

actually or constructively evicted from any part of the premises.

B. Actual eviction: The tenant is physically excluded from some or all of the property.

11

C. Constructive eviction: The landlord’s acts or omissions interfere with the tenant’s use or enjoyment to such a degree that the tenant is justified in abandoning the premises.

D. Breach without eviction: Some courts recognize a breach of quiet enjoyment when the landlord’s interference is significant, but does not rise to the level of constructive eviction. The tenant may remain in possession and sue the landlord for damages.

IX. Implied warranty of habitability (IWH): A residential landlord must deliver and maintain habitable premises. A. Waiver: The IWH is not waivable. B. Habitability: A habitable dwelling is

sufficiently safe and sanitary for human habitation. A reasonable person would not find the premises unfit to occupy.

C. Landlord’s obligations: Typical obligations include:(1) complying with code requirements that

affect health and safety;(2) necessary maintenance; and(3) supplying heat and hot water.

D. Procedure: The tenant must give the landlord notice and a reasonable opportunity to cure. If the landlord fails to cure, the tenant may seek a remedy. 1. Damages: The tenant can sue for damages,

including reduced rental value and personal injury.

2. Termination: The tenant can terminate the lease and vacate the premises.

3. Withhold rent: In many states, the tenant can retain possession and withhold rent. The court might require the tenant to deposit the rent with the court.

4. Use rent for repairs: In some states, the tenant can retain possession, make the repairs herself, and deduct the cost from future rent.

5. The IWH as defense: If the landlord sues the tenant for rent, the tenant can raise the landlord’s breach of the IWH as a defense.

X. Retaliatory eviction: A landlord may not evict or take other adverse action against a tenant in retaliation for protected activity; e.g., complaining about defects.A. Retaliation: Retaliation includes eviction,

raising rent, or shutting off utilities.B. Proof: In some jurisdictions, the tenant must

prove retaliation. Other jurisdictions presume retaliation subject to rebuttal.

C. Evidence: In many jurisdictions, retaliation is presumed if the landlord acts within a certain time of a tenant’s protected activity.

XI. Transfer by tenant: A. Definitions: In assignment, the tenant transfers

the entire remaining lease term to an assignee. In a sublease, the tenant transfers part of the leasehold to a subtenant and retains the rest.

B. Effect of assignment: 1. Landlord and tenant: The landlord and

tenant remain in privity of contract under the lease. The landlord may collect rent from the tenant if the assignee does not pay.

2. Landlord and assignee: The landlord and assignee enter privity of estate. They are liable to one another for all covenants that touch and concern the land, including rent. [See Real covenants, infra.]

3. Tenant and assignee: The tenant has secondary liability to the landlord for covenants that run with the land, including rent. If the tenant is forced to compensate the landlord for the assignee’s breach, the tenant can sue the assignee for reimbursement.

C. Sublease: The original tenant (prime tenant) transfers part of the original lease (the prime lease) to a subtenant under a sublease. 1. Landlord and prime tenant: The landlord

and prime tenant remain in privity of

12

contract and estate under the original lease. The prime tenant must still pay rent.

2. Prime tenant and subtenant: The prime tenant and subtenant enter privity of contract and estate. The subtenant is directly liable to the prime tenant for rent. The parties are not liable to each other under the prime lease, unless the subtenant assumes that lease.

3. Landlord and subtenant: The landlord and subtenant have no privity of estate, and no privity of contract, unless the subtenant agrees to assume the prime lease. The landlord may not collect rent from the subtenant.

4. Termination of prime lease: A sublease does not affect the landlord’s right to terminate the prime lease. If the landlord terminates the prime lease, then the sublease automatically terminates.

5. Assumption of prime lease: If the subtenant expressly assumes the prime lease, then the subtenant becomes directly liable to the landlord for all lease obligations.

6. Scope of subtenant’s use: If the prime tenant is prohibited from using the property in a certain way, so is the subtenant.

D. Restrictions on transfer: Absent contrary agreement, the tenant may freely assign or sublease. Restrictions in the lease are generally enforceable. 1. Strict construction: Restrictions on

transfer are strictly construed against the landlord.

2. Improper transfer: A transfer is not void merely because it violates a restriction in the lease. However, the landlord might sue the tenant for breach of contract.

3. Landlord’s consent: A transfer that violates a clause requiring the landlord’s consent is usually voidable by the landlord.

a. Rule in Dumpor’s Case: In some states, if the landlord consents to one transfer, then the landlord is deemed to consent to all future transfers. Note: there are exceptions to this rule, which are addressed in your full outline.

b. Withholding consent: i. Reasonableness required: In some

states, the landlord may not unreasonably withhold consent. Other states allow the landlord to withhold consent on any basis not prohibited by law.

ii. Residential leases: Most courts do not require a residential landlord to act reasonably in withholding consent.

c. Waiver: The landlord waives objections to transfer by accepting rental payments from a transferee.

XII. Conveyance by landlord: The landlord can convey the leased property to a third party without the tenant’s consent. A. Grantee and tenant: The tenant enters privity

of estate with the grantee. The grantee and the tenant become liable to one another for all lease covenants that run with the land, including rent.

B. Landlord and tenant: After the transfer, the original landlord and the tenant remain in privity of contract, unless the tenant releases the landlord.

XIII. Landlord’s tort liability: Please see your Torts Outline and Quick Study for more on this topic.

FAIR HOUSING: I. The Fair Housing Act: The federal Fair Housing

Act, 42 U.S.C. § 3601 et seq. (the Act), prohibits discrimination based on race, color, religion, sex, familial status, national origin, and disability.

II. Prohibited Actions: The Act prohibits discriminatory actions such as:

13

(1) refusing to sell or rent upon receiving a bona fide offer; or

(2) discriminating in the terms and conditions of sale or rental.

III. Proof: A violation requires either discriminatory intent or discriminatory effect, as defined in your full outline.

IV. Exemptions: The Act exempts (1) religious groups and (2) sales by private homeowners, among others.

V. The Civil Rights Act of 1866: The Civil Rights Act of 1866, 42 U.S.C. § 1982, prohibits race discrimination in the sale or lease of any kind of property, including real property.

NONPOSSESSORY RIGHTS IN REAL PROPERTY: Nonpossessory property rights include real covenants, equitable servitudes, easements, profits, and licenses. This section will also discuss zoning laws and fixtures. I. Definitions:

A. Covenants and servitudes: Real covenants and equitable servitudes (collectively, restrictive covenants) are promises regarding the use of land.

B. Easements, profits and licenses: These are three types of a right to enter another’s land.

C. Dominant and servient: The land that is benefitted by a nonpossessory right is called the dominant tenement; the land that is burdened is called the servient tenement.

II. Real covenants: A. Definition: A real covenant is:

(1) a promise to do or refrain from doing something on the promisor’s land,

(2) for the benefit of the promisee’s land, and which is

(3) binding on the parties’ successors, and (4) enforceable by damages.

B. Affirmative and negative covenants: An affirmative covenant requires the promisor to do something. A negative covenant prohibits certain activity.

C. Creation: Real covenants can be included in a deed or created as stand-alone agreements.

D. Successors: A real covenant is an interest in land, which can bind successive interest holders.

E. Enforceability: Enforcement between the original parties is a matter of contract law. Enforcement by or against the original parties’ successors in interest is a matter of property law. 1. Enforcement of burden against

successor: The original promisee can enforce a real covenant against the original promisor’s successor if the burden of the covenant runs with the land. The burden will run if: (1) the covenant is in writing;(2) the original parties intended that the

covenant run with the land;(3) the covenant touches and concerns the

land; (4) (in some jurisdictions) the original

parties were in horizontal privity;(5) the owner of the servient tenement is in

vertical privity with the original promisor; and

(6) the owner of the servient tenement had adequate notice of the covenant.

a. Writing: The covenant must be in a writing that satisfies the Statute of Frauds.

b. Intended to run with the land: The original parties must have intended the covenant to apply to their successors in interest. Intent can be shown by the language of the covenant or by the surrounding circumstances.

c. Touches and concerns the land: The covenant must affect the parties as landowners, with respect to the use or enjoyment of the land.

d. Horizontal privity: The original parties must have had some shared or

14

simultaneous interest in the properties subject to the covenant. Historically, horizontal privity could only exist between landlord and tenant. Courts now consider a grantor and a grantee to be in privity at the moment of the conveyance. Some states no longer require horizontal privity.

e. Vertical privity: The promisor’s successor must hold an estate of the same duration as the original promisor.

f. Notice: The promisor’s successor must have notice of the covenant. A purchaser who lacks notice will not be burdened by the covenant.

2. Successor’s enforcement of benefit against promisor: The original promisee’s successor can sometimes enforce the benefit of a real covenant against the original promisor. The benefit will run if:(1) the covenant is in writing;(2) the original parties intended that the

covenant run with the land;(3) the covenant touches and concerns the

land; and (4) the owner of the dominant tenement is

in limited vertical privity with the original promisee.

F. Remedies: The plaintiff can recover damages for breach of a real covenant. The plaintiff might also be able to enforce the real covenant as an equitable servitude, infra, to obtain equitable relief.

III.Equitable servitude: An equitable servitude is a promise between two parties regarding land, which benefits the dominant tenement, burdens the servient tenement, and is enforceable between the successors in interest to the original parties.A. Real covenants distinguished: Real covenants

and equitable servitudes are functionally identical, except (1) there are fewer requirements for an equitable servitude to run

with the land, and (2) an equitable servitude carries equitable relief.

B. Burden and benefit run with land: An equitable servitude is enforceable by and against the successors to the original parties if: (1) the servitude is in writing;(2) the original parties intended that the

servitude run with the land;(3) the servitude touches and concerns the

land; and (4) the owner of the servient tenement has

adequate notice. C. Remedies: Equitable servitudes are

enforceable by injunctive relief. Some equitable servitudes are also enforceable as real covenants.

D. Third-party beneficiaries: In some jurisdictions, a third party can enforce an equitable servitude if the original parties so intended.

E. Uniform plan of development: Many states recognize implied reciprocal servitudes among landowners in a uniform plan of development.

IV. Termination: A covenant or servitude can terminate in several ways: A. Merger: If one owner acquires complete

ownership of both the dominant and servient tenements, then the merger of ownership terminates the restriction.

B. Release: The owner of the dominant tenement can execute a formal, written release.

C. Condemnation of servient tenement: Condemnation of the servient tenement by eminent domain will terminate any restrictions.

D. Statutory limitations: Some jurisdictions limit the duration of a restriction by statute.

E. Express terms: The restriction might end by its express terms.

F. Prohibited discrimination: Restrictions based on forbidden discrimination, such as race discrimination, are unenforceable.

V. Defenses: Both real covenants and equitable servitudes are subject to various defenses:

15

A. Abandonment: The plaintiff has a pattern of tolerating violations by persons other than the defendant.

B. Acquiescence: The plaintiff has knowingly disregarded previous violations of the restriction by the defendant.

C. Estoppel: The plaintiff foreseeably causes the defendant to expect that the plaintiff will not enforce the restriction, and the defendant relies on this expectation to his detriment.

D. Laches: The plaintiff knowingly delays enforcing the restriction for so long that enforcing it now would cause unjust hardship.

E. Unclean hands: The plaintiff has violated a similar restriction.

F. Changed conditions: Changes in the conditions of the dominant and servient tenements have rendered the servitude obsolete and unable to fulfill its intended purpose.

VI. Covenants, servitudes, and zoning: Covenants or servitudes can conflict with zoning laws. A. Irreconcilable: If the zoning law cannot be

reconciled with the restriction, then the zoning law controls.

B. Superficial inconsistency: If the zoning law and the restriction are superficially inconsistent, then the owner must comply with both if possible (ex., zoning law allows fences up to 10 feet tall, but covenant limits fences to eight feet; owner must limit fences to eight feet).

VII. Common interest communities (CICs): A. Condominiums: Each owner holds a unit in

fee simple. The owners hold title only to the interiors of their units. The exteriors and common areas are held collectively by the unit owners.

B. Cooperatives: A corporation owns the land and the building, the tenants own shares in the corporation, and the corporation leases individual units to the shareholder-tenants.

C. Planned unit development: A collection of units, usually houses, in which each owner holds a unit in fee simple. Common areas are owned by the community association, to which each owner belongs.

D. Covenants and enforcement: A CIC is usually governed by a set of restrictive covenants. A community association or other governing body monitors compliance and often enforces the covenants.

VIII. Easements and profits: Easements and profits confer a limited right to use or enjoy the land of another. The property that benefits is the dominant tenement. The burdened property is the servient tenement. A. Types of easements:

1. Easement appurtenant: An easement appurtenant enhances the use and enjoyment of the dominant tenement, and runs with the land.

2. Easement in gross: An easement in gross benefits the holder personally, not in the use and enjoyment of the holder’s land.

3. Easements appurtenant favored: Any ambiguity as to the type of easement will be resolved in favor of an easement appurtenant.

4. Profit a pendre: A profit allows the holder to enter the servient tenement to extract products of the soil; e.g., timber or minerals. Profits usually are fully alienable.

B. Affirmative and negative easements: 1. Affirmative easement: The holder may

enter the servient tenement to do something.

2. Negative easement: The holder may prevent a specified use of the servient tenement (ex., blocking light or air).

C. Creation: 1. Grant or reservation: In an express grant,

a written instrument confers the easement. In a reservation, the grantor retains an easement as part of a conveyance.

16

2. Prescription: A trespasser openly, notoriously, and adversely uses the servient tenement in a limited way for a prescribed period of time. Adversely means without the owner’s permission. Only affirmative easements can arise from prescription.

3. Implied from existing prior use: An easement is implied when:(1) the grantor severs a parcel from

common ownership, while retaining the rest;

(2) there exists an apparent and continual use of one parcel for the benefit of the other; and

(3) the use is necessary, or sufficiently important, to the use and enjoyment of the parcel benefitted.

4. Necessity: A grantor subdivides land to convey one part while retaining the rest, and an easement is necessary to the use and enjoyment of one of the parcels. This easement does not require a preexisting use.

D. Scope and change: 1. Maintenance: The easement holder must

maintain the easement. The holder may not alter the easement to interfere with the use of the servient tenement. If the servient owner also uses the easement, then the parties must share the maintenance.

2. Servient owner’s use of property: The servient owner may use the servient tenement in any way that does not unreasonably interfere with the easement. This might include allowing others to use a non-exclusive easement.

3. Holder’s use of easement: The holder’s scope of use can depend on the type of easement. This is discussed further in your full outline.

4. Adapting to changing needs:

a. Frequency of use: The easement holder may increase the use of the easement consistent with the reasonable and natural development of the dominant tenement, provided this does not unreasonably burden the servient tenement.

b. Type of use: The easement holder may not make a use that is materially different from that initially contemplated.

c. Improvements: The holder may make reasonable improvements to the easement, if they do not unreasonably burden the servient tenement.

d. Change in location or dimensions: Generally, if the easement’s location and dimensions are fixed, neither party may change them unilaterally. A few jurisdictions allow the servient owner to change the location or dimensions unilaterally, if the change does not significantly affect the utility of the easement or contradict the parties’ intent.

e. Divisibility of easements in gross: To divide an easement is to allow others to use it. In most jurisdictions, an exclusive easement in gross can be divided, but a nonexclusive one cannot. In either case, the holder must not unreasonably increase the burden on the servient tenement.

E. Termination: Easements can terminate in various ways. 1. Express terms: The terms of the easement

might include a date or condition for termination.

2. Merger: A single owner acquires fee simple absolute ownership of the dominant and servient tenements. An easement extinguished by merger will not revive if the parcels are later divided.

17

3. Estoppel: Estoppel will extinguish an easement if (1) the servient owner reasonably and detrimentally relies on actions of the holder indicating that the holder no longer intends to enforce the easement, and (2) enforcement would unfairly harm the servient owner.

4. Condemnation: If the government condemns the servient tenement through eminent domain, the easement terminates.

5. Release: The holder can expressly relinquish the easement in writing.

6. Abandonment: Abandonment requires some clear indication that the holder intends to give up the easement. Intent can be shown by actions inconsistent with continued use of the easement. Nonuse alone is insufficient.

7. Misuse: Misuse usually does not terminate an easement. Instead, the servient owner can seek damages or injunctive relief. Misuse can terminate a profit, if the holder creates a surcharge.

8. Prescription: The servient owner must act in a manner that would only be lawful if the easement did not exist. The prescriptive activity must be continuous, adverse, open, and notorious for the prescriptive period.

9. Destruction of structure: If an easement burdens or benefits only a structure, and the structure is destroyed without fault of the servient owner, the easement terminates. The replacement of the structure will not revive the easement.

10. End of necessity: An easement created by necessity terminates when the necessity ends.

LICENSES: A license is permission to use the land of another for a specific purpose. A license is not an interest in land.I. Creation: A license can be created by:

(1) oral agreement,

(2) any act indicating the licensor’s intent, or (3) a failed attempt to create an easement Licenses are not subject to the Statute of Frauds.

II. Alienability: A license is usually not alienable. Some courts hold that a license terminates if the licensee attempts to assign it. However, a license acquired for valuable consideration might be assignable (ex., event ticket).

III.Termination: A. Death: The death of either party terminates the

license.B. Revocation: Notice is usually not required for

the licensor to revoke. 1. Irrevocable licenses: A few types of

licenses can be irrevocable, especially those acquired for consideration. These are discussed in your full outline.

C. Transfer of licensed property: The sale or transfer of the property will terminate the license.

FIXTURES: A fixture is chattel (personal property) that has been intentionally annexed to real property, such that the chattel becomes part of the realty. I. Annexation: Annexation can be actual or

constructive. A. Actual: A chattel is actually annexed if it is

physically incorporated into the real property, or if removing it would damage or destroy the real property.

B. Constructive: Constructive annexation occurs when:(1) the chattel is a part or accessory of a

fixture, or(2) the chattel has been adapted to the real

property and would not be usable elsewhere if removed.

II. Annexor’s intent: The chattel must be annexed with the intent to make the chattel a permanent accession to the realty, or to another fixture. Intent can be shown by the nature and use of the chattel, the relationship between the use of the chattel and

18

the use of the realty, and the relation of the annexing party to the realty, infra.

III. Roles and relationships of parties: The parties’ relationships to the real property are sometimes relevant. A. Owner: Courts usually presume that

improvements made by the fee simple owner are intended to be permanent.

B. Landlord and tenant: At common law, fixtures annexed by the tenant, during the lease term, become fixtures. 1. Exception—trade fixtures: A trade

fixture is a chattel annexed by a tenant to carry on a business. The tenant may remove tenant-installed trade fixtures before the end of the lease.

C. Mortgagor and mortgagee: A mortgagee has a security interest in any fixture on the realty, whenever added.

D. Buyer: A buyer of real property succeeds to ownership of all fixtures, except trade fixtures subject to a tenant’s right of removal.

ZONING: I. Authority: Zoning is part of a government’s

police power, which is the power to promote the general welfare of its citizens. A. Limitations: A state’s zoning power is limited

by the state’s constitution and the U.S. Constitution. The most important federal limitations are the Due Process and Equal Protection Clauses of the 14th Amendment, and the Takings Clause of the 5th Amendment.

II. Nonconforming uses: A nonconforming use is an existing use that conflicts with a subsequent zoning law. The government may not immediately eliminate a nonconforming use. The law provides several ways of balancing preexisting property rights with zoning authority. A. Restriction: A nonconforming use cannot be

expanded, nor converted to a different nonconforming use.

B. Termination: A nonconforming use can terminate via abandonment, destruction, or amortization.1. Abandonment: The owner discontinues

the use for a significant time, with the intent to give up the use.

2. Destruction: If the nonconforming use is destroyed, the owner might not be allowed to resume the use

3. Amortization: A nonconforming use must cease after some reasonable time.

III.Vested rights: A zoning law might take effect while a property owner is preparing for a nonconforming use. If the owner has made substantial expenditures in good-faith reliance on the previous law, the owner can acquire a vested right to the anticipated use.

IV. Changes to zoning laws: Under the U.S. Constitution, zoning laws are normally upheld unless they are arbitrary or unreasonable. Some states apply a higher level of scrutiny to certain zoning decisions. A. Spot zoning: Spot zoning treats one property

differently than others in the same area. Spot zoning is usually impermissible. Relevant factors include the nature of the special zoning, the size of the affected parcel relative to the zone, and any harm to surrounding property owners or to the public.

B. Rezoning—change or mistake: Some jurisdictions allow rezoning only if the surrounding area has materially changed since the last zoning decision, or if there was some mistake in the initial zoning.

V. Variances: A variance is permission to deviate from the zoning laws. Area variances are exemptions from physical requirements, such as square footage. Use variances allow what would otherwise be nonconforming uses. Use variances are often scrutinized more closely than area variances, because they can amount to rezoning.

VI. Special use permits: A special use permit is sometimes called a special exception, or a

19

conditional use permit. It is a conforming use that nonetheless requires special permission because of the potential for unusual impact on the surrounding area. The government may require the use to meet certain conditions to prevent or mitigate this impact.

SALES CONTRACTS: I. Introduction: The sale of real property generally

involves two stages. First, the buyer and seller execute a binding contract for the sale. After some time, the closing takes place, where the buyer pays, the seller delivers the deed, and title passes. The buyer might use the time between contract and closing to secure financing, investigate the seller’s title, and inspect the property. The closing is often contingent on the outcome of these activities.

II. Brokers: Many sales are handled through licensed real estate brokers, also called agents. The broker is usually the seller’s agent. A listing agreement will specify the terms of the brokerage relationship, including commission. A. Types of listing agreements: There are three

main types of listing agreements. 1. Exclusive right to sell: The broker is

entitled to commission if the property is sold during the listing agreement, regardless of who finds the buyer.

2. Exclusive agency: The broker is entitled to commission if anyone other than the seller finds the buyer.

3. Open: The broker is entitled to commission only if the broker finds the buyer.

B. Commission: Unless the agreement provides otherwise, the broker is entitled to commission upon producing a buyer, provided that the seller enters a contract of sale with the buyer. This rule requires commission even if the closing never occurs. Prudent sellers will include a provision that commission is not due until the buyer pays.

III.Statute of frauds: Under the Statute of Frauds, a real estate sales contract must:

(1) be in writing, (2) be signed by the party against whom

enforcement is sought, and(3) contain the essential terms of the agreement. Some exceptions are addressed below.A. Writing: No particular form is required. The

writing can be a single document, or a series of communications. A writing is sufficient if the essential terms of the agreement are ascertainable.

B. Signature: The signature can be a handwritten subscription, or any mark used by the signer to authenticate the writing. Most states recognize electronic signatures.

C. Essential terms: The writing must provide the essential terms of the contract, without resort to extrinsic evidence. The essential terms of most sales contracts are:(1) the parties’ identities; (2) words indicating each party’s intent to buy

or sell;(3) an adequate description of the property;

and (4) the price. A complex transaction might involve additional essential terms.

D. Exception—part performance: In most states, a sales contract that violates the Statute of Frauds can be enforceable under part performance. 1. Requirements: Part performance occurs if

the buyer has: (1) taken possession of the property, (2) paid some or all of the purchase price,

or (3) made substantial improvements to the

property. Most courts require two of these three actions, though the courts differ on which two.

2. Buyer’s acts attributable to contract: To trigger part performance, the buyer’s actions must make no sense unless there is

20

actually a sales contract. If the buyer’s actions can be interpreted as part of some relationship other than buyer and seller, then part performance will not apply.

E. Exception—estoppel: Estoppel occurs when the plaintiff reasonably and detrimentally relies on the existence of a contract.

IV. Performance: At closing, both parties must perform or tender performance. A. Contingencies: The responsible party must

make a reasonable, good-faith effort to fulfill any contingencies before closing.

B. Concurrent obligations: The seller’s obligation to deliver the deed, and the buyer’s obligation to pay, are concurrent obligations—each depends on the other. A seller has no duty to deliver the deed until the buyer pays, and vice versa.

C. Time for performance: Usually, the closing date is not an essential term of the contract. A party who tenders performance within a reasonable time after this date will not be in breach. 1. Making time essential: However, the

closing deadline may be strictly enforced if the parties so intended. Intent can be found based on (1) express contract language, or (2) the surrounding circumstances.

2. Effect of strict deadline: If time is of the essence, the courts will usually enforce the deadline strictly. In such cases, a party who tenders performance even thirty minutes late can be found in material breach.

V. Implied covenant of marketable title: Unless the contract expressly provides otherwise, a sales contract includes the seller’s implied covenant to convey marketable title at closing. A. Failure: The failure to convey marketable title

is a breach of contract, which excuses the buyer’s performance and allows the buyer to seek a remedy.

B. Marketable title: A marketable title is not free from every conceivable defect; rather, it is a

title that a reasonably prudent buyer would accept, or a title that is reasonably free from doubt.

C. Encumbrances: Title can be rendered unmarketable by encumbrances that are not accepted by the buyer or contemplated by the sales contract. This is further addressed in your full outline.

D. Adverse possession: Special problems of marketability arise if the seller acquired title by adverse possession. Most bar examiners follow the rule that title obtained by adverse possession is simply unmarketable.

E. Time of breach: A breach of the marketable title covenant can only occur upon closing, when the seller’s performance is due. If time is not of the essence, the seller usually has a reasonable time after the closing date to provide marketable title. Under an installment land contract, the seller need not deliver marketable title until the price is fully paid.

VI. Remedies: The law provides legal and equitable remedies for breach of a sales contract.A. Prerequisite: The plaintiff must have fully

performed or tendered performance. B. Buyer’s remedies: The buyer’s potential

remedies are rescission, specific performance, and damages.1. Rescission and restitution: The buyer can

rescind (cancel) the contract within a reasonable time after breach. Restitution will then return the parties to the same position they occupied before the contract. Restitution entitles the buyer to the refund of any deposit.

2. Specific performance: Specific performance involves an injunction compelling the seller to convey the property to the buyer at the stated price. Specific performance is awarded when money damages are inadequate. Each parcel of land is said to be unique; thus,

21

courts often award specific performance to protect the buyer’s unique opportunity. a. Abatement: If the seller is unable to

convey marketable title, the buyer has the option to seek specific performance with an abatement (reduction) of the purchase price.

C. Damages: Instead of specific performance, a buyer can sue for damages. The types of damages available are discussed in your full outline.

D. Seller’s remedies: The seller has the remedies of rescission, specific performance, and damages. 1. Rescission and restitution: The seller can

rescind the contract. If the buyer was in possession, the seller can recover for the rental value of the property, plus any property damage caused by the buyer.

2. Specific performance: Specific performance for the seller is an injunction compelling the buyer to pay the purchase price in exchange for title.

3. Damages: Instead of specific performance, the seller can keep the property and sue for damages. The types of damages available are discussed in your full outline.

VII. Equitable conversion: In the time between the contract and the closing, the buyer is considered the equitable owner of the property, while the seller has an equitable right to the purchase money. A. When triggered: Equitable conversion is

triggered when the contract becomes binding. Normal contingencies, such as financing or inspection, usually do not prevent equitable conversion.

B. Seller’s interest: The seller’s right to the sale proceeds is personal property. The seller thus has an equitable lien for the purchase amount. The seller also retains bare legal title, which the seller holds in trust for the buyer pending the closing.

C. Buyer’s interest: The buyer’s equitable ownership is an interest in real property. The buyer may alienate or encumber this interest, subject to the seller’s lien.

D. Possession: In some states, the buyer is entitled to possession between the contract date and closing. In other states, possession remains with the seller. The parties are free to bargain for their own arrangements.

E. Death of party: 1. Seller dies before closing: The seller’s

right to the purchase money passes as personal property. However, in some states, if the property is specifically devised (i.e., a specific taker is named), then the devisee will take the proceeds. In any case, the seller’s personal representative must convey the property to the buyer. If the buyer breaches, the representative can invoke the seller’s remedies.

2. Buyer dies before closing: The buyer’s equitable ownership passes as real property, subject to the seller’s lien. At common law, the buyer’s personal representative was required to pay the seller from other assets of the estate, in a process called exoneration. In many states, exoneration has been abolished, and the new owner takes subject to the seller’s lien. If the seller breaches, the buyer’s personal representative can invoke the buyer’s remedies.

F. Risk of loss: The parties can allocate the risk of loss in the sales contract. If they do not, then the law allocates the risk.1. Majority—buyer bears risk: Under the

majority rule, the buyer bears the risk of any loss not caused by the seller. The buyer must pay the full purchase price regardless of damage or destruction.

2. Minority—seller bears risk: In a minority of states, the seller bears the risk of any loss not caused by the buyer. Even these

22

jurisdictions sometimes shift the risk to a buyer who has taken possession. If the property is damaged, but not destroyed, the seller must give the buyer an abatement. If the property is destroyed, then the buyer can normally rescind the contract and recover any deposit.

VIII. Option to purchase: An option is a contract in which the seller (optionor) offers to sell the property to the buyer (optionee) at a specified price. The offer is typically good, and irrevocable, for a limited time. If the optionee exercises the option, a binding sales contract is formed. A. Validity: Options are generally not subject to

the rules governing restraints on alienation. However, they are subject to the rule against perpetuities. Thus, an option must either be exercised or expire within the perpetuities period. If the option does not specify a time limit, the courts may infer a reasonable time that preserves the option under the rule. [See The rule against perpetuities, supra.]

B. Statute of Frauds: Some courts hold that an option does not need to comply with the Statute of Frauds, but the resulting sales contract must do so. Other courts hold that the option must comply with the Statute of Frauds from the outset.

C. Exercise: An option is exercised when the optionee elects to purchase under its terms. Unless the option states otherwise, the optionee need not tender the purchase price to exercise the option.

D. Options and equitable conversion: Equitable conversion only occurs if the option is exercised. In most states, equitable conversion takes effect from the date of exercise. A minority holds that equitable conversion is retroactive to the date when the option contract was executed.

IX. Seller’s duty to disclose: A seller is sometimes required to disclose material defects in the property.

A. Traditional rule—caveat emptor: The common-law rule is caveat emptor—buyer beware. The seller has no duty to disclose known, latent defects, at least if the transaction is at arm’s length and both parties have the same opportunity to discover defects. 1. Fraud: Even under caveat emptor, the law

prohibits fraud.2. Fraudulent misrepresentation:

Fraudulent misrepresentation is:(1) a false statement of past or present

material fact, (2) made with knowledge or reckless

disregard of its falsity, and (3) intended to induce the plaintiff’s

reliance, when (4) the plaintiff justifiably relies on the

misrepresentation, and (5) suffers damages.

3. Fraudulent concealment: This has the same elements as fraudulent misrepresentation, except that the seller takes affirmative steps to hide defects from the buyer.

B. Modern rule: The modern trend requires a residential seller to disclose any known material defects, if they are not reasonably discoverable by the buyer. A defect is material if it has a significant effect on the value or desirability of the property. In addition, many states now require specific disclosures by statute. Caveat emptor continues to govern most sales of commercial property.

X. Implied warranty of quality and workmanship: Most jurisdictions impose an implied warranty of quality and workmanship on sales of new residential houses by a builder, a developer, or other seller of new housing (the responsible party). A. Content: The responsible party warrants that

the house was built in a careful, workmanlike manner and is fit for habitation. The responsible party is liable for substantial

23

defects that interfere with the buyer’s ability to inhabit the house.

B. Limited to builder-vendor: The implied warranty only applies against a builder or other vendor who is in the business of building and selling houses.

C. Latent defects: The responsible party is normally liable only for latent defects, i.e., those not reasonably discoverable by the buyer.

D. Damages: Damages are generally the reduction in the value of the house caused by the defect. Lost value can be measured by repair costs. The responsible party might also be liable for personal injuries caused by the defect.

E. Subsequent purchasers: Most courts extend the implied warranty to subsequent purchasers for a reasonable period after the sale to the original purchaser.

F. Disclaimer: Some authority allows the responsible party to disclaim the implied warranty. Disclaimers of specific conditions are more likely to be upheld than general disclaimers.

MORTGAGES AND SECURITY DEVICES: A creditor can acquire an interest in real property to secure a debt. Mortgages are the most common of these interests. I. Definitions:

A. Lien: A lien, or a security interest, is a creditor’s legal interest in property as collateral for a debt.

B. Mortgage: A mortgage is a lien against real property, given to secure a debt.

C. Mortgagor and mortgagee: The owner who mortgages her property is the mortgagor. The mortgagor is usually the debtor, though a mortgage can secure someone else’s debt. The party to whom the mortgage is granted is the mortgagee. The mortgagee is usually the creditor.

D. Note: The note is the legal document that creates or memorializes the debt. 1. Note v. mortgage: Do not confuse the note

with the mortgage. The note represents the debt. The mortgage is a lien against real property, which secures the debt.

E. Default and foreclosure: Default is the debtor’s failure to make payments under the note. Default usually entitles the mortgagee to foreclose on the property by seizing and selling it to satisfy the debt. Judicial foreclosure is foreclosure overseen by the court.

II. Theories of mortgages: The nature of the mortgagee’s interest depends on the relevant jurisdiction’s theory of mortgages. A. Lien theory: The mortgage conveys a security

interest in the property but does not transfer title. The mortgagor retains possession. Upon default, the mortgagee may foreclose. This is the majority theory.

B. Title theory: The mortgage gives the mortgagee legal title to the property, which reverts to the mortgagor when the debt is paid. At common law, the mortgagee had the immediate right of possession. In modern title-theory states, the mortgage conveys bare legal title, and the mortgagor retains possession. Upon default, the mortgagee theoretically may take both possession and full title without foreclosure.

C. Intermediate theory: The mortgagor retains full title and possession. In theory, upon default both possession and full title pass automatically to the mortgagee, without foreclosure.

D. Foreclosure protections: Modern debtor protections almost always require some foreclosure process, regardless of the underlying mortgage theory. Thus, from the creditor’s perspective, little difference remains among the three mortgage theories.

III. Mortgage equivalents: Other security arrangements function much like mortgages.

24

A. Deed of trust: Under a deed of trust, or security deed, the owner executes a deed conveying the property to a third-party trustee. The owner usually retains possession. Once the debt is paid, the deed is returned, or the property reconveyed, to the owner. Upon default, the trustee is authorized to seize and sell the property.

B. Installment land contract: An installment land contract conveys possession to the buyer in exchange for installment payments to the seller. The seller retains full legal title until the price is fully paid.

C. Sale-leaseback: The seller sells the property, then immediately leases it back from the buyer. This might be deemed an equitable mortgage, infra.

D. Equitable mortgage: An equitable mortgage is a transaction that is not formally structured as a mortgage, but is intended to secure a debt. A court will treat the arrangement as a mortgage, with attendant foreclosure protections.

E. Absolute conveyance: The debtor conveys the property to the creditor by deed. The creditor agrees either not to record the deed pending payment of the debt, or to sell the property back to the debtor for a nominal amount once the debt is paid. Upon default, the creditor either records the deed or retains the property. This arrangement is sometimes considered an equitable mortgage.

IV. Effect of repayment: The note is normally payable in installments. Once the debtor repays the debt, the mortgage is discharged, and ceases to encumber the property. If the terms of the note allow prepayment, the debtor may pay off the note early. Absent such terms, the debtor has no legal right to prepay.

V. Sale by mortgagor: A mortgagor can sell the mortgaged property, unless the mortgage provides otherwise. A sale that violates a no-sale clause is

valid, but the seller might be liable to the mortgagee for breach of contract.A. Seller-mortgagor’s liability: The seller-

mortgagor remains personally liable on the note, even after title passes to the buyer.

B. Buyer’s liability: If the buyer has notice of the mortgage, then the buyer takes the property subject to the mortgage. The mortgagee can still foreclose if the debtor defaults. The buyer is not personally liable on the note, unless the buyer expressly agrees to assume the debt.

VI. Assignment by mortgagee: A mortgagee can assign its rights to an assignee, unless the mortgage agreement provides otherwise. At common law, the mortgage follows the debt, and has no validity apart from the debt. Thus, the mortgagee will usually assign the mortgage and the note together.

VII. Subrogation: Subrogation occurs when a payor satisfies the debt and then stands in the mortgagee’s shoes as to the debtor and the mortgaged property. To trigger subrogation:(1) the payor must be someone other than the

primary debtor,(2) the payor must satisfy the entire debt at once,

and (3) the payor must be acting to protect the payor’s

interest in the property or the debt.A. Payor: A secondary obligor will usually be

entitled to subrogation. The payor can also be a joint obligor who pays more than his share of the debt.

B. Entire debt: The payor must satisfy the entire debt. Courts disfavor partial subrogation, which can create confusion as to the state of title.

C. Payor’s interest: The payor must be acting to protect some interest of the payor’s in the property or the debt; i.e., the payment must not be gratuitous.

D. Subrogation by assignment or agreement: A payor who does not meet the foregoing requirements might be subrogated through (1) an assignment of the mortgagee’s rights, or (2)

25

a valid subrogation agreement, under which the parties agree that the payor will pay the debt and obtain subrogation.

VIII. Default and foreclosure: Default occurs when the debtor fails to comply with the repayment terms. A mortgagee can seek foreclosure upon default by forcing the sale of the property and applying the proceeds to the debt.A. Avoiding foreclosure: There are several ways

for a mortgagor to avoid foreclosure upon default.1. Redemption: A mortgagor can redeem the

property by paying a sufficient part of the debt. The right of redemption can arise either in equity or by statute. Redemption is discussed further in your full outline.

2. Deed in lieu of foreclosure: The mortgagor can tender a deed in lieu of foreclosure. The mortgagee is free to accept or refuse. If the mortgagee accepts, the parties can negotiate over any remaining debt.

3. Renegotiating the debt: The mortgagor and mortgagee are free to renegotiate the terms of the note and the mortgage as an alternative to foreclosure.

B. Mortgagee in possession: A mortgagee who takes possession before the foreclosure sale may intercept rents, lease the property to a tenant, and make repairs. The mortgagee must account for all rents and must prudently manage the property.

C. Types of foreclosure: 1. Strict foreclosure: This is foreclosure

without a sale. The mortgagee sues for an order setting a deadline for redemption. If the mortgagor fails to redeem, the court will transfer title to the mortgagee. If the property is worth less than the remaining debt, the mortgagee might be able to sue the mortgagor for the deficiency. Only a few states routinely allow strict foreclosure.

2. Foreclosure under power of sale: A power of sale clause allows the mortgagee or trustee to sell the property upon default. This typically involves an abbreviated hearing before the clerk of court or similar official, who will authorize an auction sale. Roughly half the states allow power-of-sale foreclosures.

3. Foreclosure by judicial sale: Judicial sale is required in many states, and permitted in all states. The mortgagee sues the mortgagor and any junior interest holders, seeking a decree of foreclosure. The court will then order sale by public auction. Usually, the mortgagee, the mortgagor, and the general public may bid. The court will confirm the sale, and title passes to the highest bidder. The court will distribute the proceeds to the mortgagee and other creditors, infra.

D. Distribution of proceeds: The sale proceeds are distributed in the following order: (1) the costs of foreclosure and sale, including

attorney’s fees and court costs;(2) the mortgage being foreclosed;(3) junior mortgages or other junior liens, in

priority order; and(4) the mortgagor, if anything remains.

E. Deficiency: Any debt remaining after the sale is called a deficiency. The mortgagee can often sue the mortgagor for a deficiency judgment. In some states, fair value statutes limit a deficiency judgment to the difference between the remaining debt and the fair market value of the property. In addition, some states prohibit deficiency judgments in specific situations; e.g., foreclosures of purchase-money mortgages, infra.

F. Merger: The foreclosure buyer acquires the mortgagor’s interest in the property, plus the mortgagee’s rights under the mortgage. These interests merge, and the buyer takes free and clear of the foreclosing mortgage.

26

G. Effect of foreclosure on other interests: 1. Senior interests: Interests senior to the

foreclosing mortgage are unaffected by foreclosure. The buyer takes subject to these interests.

2. Junior interests: Foreclosure terminates all interests junior to the foreclosing mortgage, but only if the junior interest holder is a party to the foreclosure.

3. Priority: a. First-in-time: In general, interests that

attach earlier in time have priority over interests that attach later. i. Subordination agreements: A

senior mortgagee might agree to allow a junior mortgage to take priority. This is called the subordination of the senior mortgage.

b. Purchase-money mortgage: This is a mortgage given to secure payment of the purchase price. A purchase-money mortgage takes priority over all other mortgages or liens that arise through the mortgagor. If there are multiple purchase-money mortgages, a mortgage in favor of the seller has priority over one in favor of a third-party lender.

c. Future-advance mortgages: Under a future-advance mortgage, the lender loans the mortgagor an initial sum, followed by periodic additional disbursements. If the lender is required to make these disbursements, then the disbursements have the same priority as the original mortgage. If the later disbursements are optional, and the lender makes these disbursements with notice of a junior mortgage, then the disbursements, but not the original sum, are subordinate to the junior mortgage.

d. Refinancing and equitable subrogation: A debtor might take out

one mortgage to repay a previous mortgage. In many states, equitable subrogation places the new mortgage in the same priority rank as the mortgage that it pays off. Some states, however, subordinate the new mortgage to any preexisting mortgages.

TRANSFER OF REAL PROPERTY: An interest in property can be transferred from one holder to another. Important transfer methods include adverse possession, deeds, and wills.I. Adverse possession: An adverse possessor (AP)

can acquire title to property without the owner’s consent by using the property sufficiently.A. Requirements: The AP must actually enter

and possess the property. The possession must be:(1) continuous, (2) hostile, (3) open and notorious, (4) for the statutory period, and (5) exclusive.

B. Entry and possession: The AP must physically enter and possess the property by using it as a reasonable owner would. This use can vary with the nature of the property.1. Notice: Possession gives the owner notice

of the AP’s claim. The use must be visible upon reasonable inspection.

2. Begins statutory period: Possession starts the statutory period for adverse possession. To avoid transfer of title, the owner must eject or sue the AP during this time.

3. Scope: The AP normally can claim title only to the part of the property that she actually possesses.a. Exception—color of title: An AP who

possesses only part of the property may obtain title to the entire property if she acts under color of title. An exception to this rule is when the AP acts under

27

color of title, which is addressed in your full outline.

C. Continuous: The possession must continue for the statutory period without substantial interruption. This does not mean that the AP must constantly be present. It is enough if the AP repeatedly uses the property as a reasonable owner would. 1. Break in possession: A true break in

possession restarts the statutory period. A true break occurs if:(1) the AP voluntarily abandons the

property, with intent to relinquish it;(2) the owner openly retakes the property,

through physical occupation or by filing suit; or

(3) a third party, not the owner, ousts the AP.

a. Tacking: Tacking allows an AP to count a previous AP’s possession toward the statutory period. Tacking occurs only if the successive APs are in privity; i.e., if they succeed one another by conveyance, devise, or some other deliberate transfer of property rights.

D. Hostile: The AP must deal with the property as if her rights are superior to all others’, including the owner’s.

E. Open and notorious: The AP’s use must be apparent upon a reasonable inspection, and The AP must not conceal or hide her use. Some courts have disallowed adverse possession claims when the use was not visible.

F. Statutory period: The adverse possession must last for the statutory period.1. Commencement: The statutory period

begins when the AP first enters the property.

2. Owner’s disability: The statutory period may be altered if the owner is under a legal disability that prevents her from suing for trespass. Legal disabilities include infancy, insanity, and mental incompetence. The

effect of a disability can depend on whether the disability arose before or after the adverse entry.

G. Exclusive: The AP must possess the property in a way that is not shared, or cannot be shared, with the owner. 1. Absolute exclusivity not required:

Exclusivity is not destroyed merely because other people use the property—even the true owner might allow use by others. Rather, the AP must act as if everyone else’s property rights are inferior to hers.

2. Multiple adverse possessors: Multiple APs, acting in concert, may jointly possess the property. These APs will acquire title as concurrent owners, usually as tenants in common.

3. Possession shared with public: Possession is not exclusive if the public uses the land in a manner consistent with a public right. However, this rule does not apply if the public’s use is sporadic, or subject to the APs’ permission.

H. Taxes: In most states, the AP does not need to pay taxes on the property to establish a claim.

I. Interests affected: Not all property interests are subject to adverse possession. This distinction is addressed in your full outline.

II. Deeds—mechanics and formalities: A deed is a legal instrument that conveys title to property.A. General:

1. Recording: Most deeds are publicly recorded. Recording is not formally required to convey title. However, recording can affect the priority of title between competing claimants. [See Recording acts, infra.

2. Bona fide purchasers: A bona fide purchaser for value (BFP) is someone who buys property without notice of certain encumbrances or other title defects. A BFP is sometimes protected against challenges to the BFP’s title based on such defects.

28

BFPs will be more fully addressed under Recording acts, infra.

3. Deed only good once: After a transfer by deed, the deed is only significant as evidence that the transfer occurred. If the grantee later destroys the deed, or returns it to the grantor, this has no effect on the grantee’s title.

B. Signed writing: Under the Statute of Frauds, the deed must be in writing and signed by the grantor or the grantor’s agent. The grantee’s signature is not required.1. Exception—executed parol gift: Title can

transfer without a signed writing if the grantee, in reasonable reliance on the grantor’s promise to convey, (1) takes possession and (2) makes such substantial improvements to the property that it would be inequitable to void the transfer.

C. Separate grantor and grantee: The grantor and the grantee must be separate legal entities. 1. Exception—joint tenancy: Some states

allow conveyance to oneself as a method of severing a joint tenancy. [See Concurrent ownership, supra.]

D. Description of parties: The deed must describe the grantor and grantee with sufficient certainty that they can be identified. The parties can be described by name, or by other descriptive words. Extrinsic evidence is generally admissible to resolve ambiguities.

E. Description of property: The deed must describe the property precisely enough to distinguish it from all other parcels. Minor errors or ambiguities are not fatal, and courts will often admit extrinsic evidence to resolve them

F. Words of conveyance: A deed must contain language expressing the grantor’s present intent to transfer the property. No technical language is necessary. Common words include transfer, sell, and convey.

G. Consideration: Consideration is not essential for a valid deed; thus, the deed does not need to recite any consideration.

H. Execution generally: A deed must be executed (signed) by the grantor or the grantor’s agent. An agent must sign either in the grantor’s presence or with the grantor’s written authorization. A deed that is not properly signed is void.1. Acknowledgement and attestation:

Acknowledgement occurs when the grantor signs in the presence of a notary public or similar officer. Attestation occurs when the grantor signs in the presence of witnesses, who may also sign the deed. Most states do not require acknowledgement or attestation to make a deed effective. However, many states require one or both of these to make the deed recordable. [See Recording acts, infra.]

I. Forgery and fraud: 1. Forged deed—void: Forgery occurs when

a deed is written, altered, or signed by someone other than the grantor, without the grantor’s authorization. A forged deed is void and conveys no interest whatsoever, not even to a BFP.

2. Fraud in the execution—void: Fraud in the execution, sometimes called fraud in the inception, means that the grantor was deceived into thinking that he was signing something other than a deed. Such a deed is void, because the grantor never had the present intent to transfer title. [See Delivery, infra.]

3. Fraud in the inducement—voidable: Fraud in the inducement means that the grantor signed and delivered an instrument that the grantor fully understood to be a deed. However, the grantor was deceived into doing so by:(1) a material misrepresentation of past or

present fact,

29

(2) intended to induce the grantor’s reliance, and

(3) on which the grantor did rely to her detriment.

a. Voidable title: A deed procured by fraud in the inducement conveys voidable title. A voidable title is valid between the grantor and the grantee unless the grantor elects to void it. If a grantee with voidable title conveys the property to a BFP, the title is not voidable as between the BFP and the original grantor.

4. Grantor lacks capacity: If the grantor lacks capacity to execute the deed, then the deed is voidable. Incapacity can arise through infancy, mental incompetence, insanity, or other factors.

J. Delivery generally: A deed must be delivered to transfer title. Delivery is accomplished by:(1) words or acts of the grantor that

demonstrate (2) a present intent to (3) immediately transfer the property to the

grantee. There are various ways in which a grantor might express or fail to express the necessary intent. Please see your full outline for more details.

K. Conditional delivery in escrow: Conditional delivery (or delivery in escrow) occurs when the grantor gives the deed to an escrow agent, with instructions to give the deed to the grantee upon some future event. This can constitute legally effective delivery. 1. Effect: Title automatically passes to the

grantee when the specified condition occurs.

2. Evidence: The grantor’s instructions to the escrow agent can be proved by a writing or by parol evidence.

3. Grantor’s right to reclaim deed: A grantor might wish to reclaim the deed

before the condition occurs. The result can vary with the type of transaction, as discussed in your full outline.

4. Passage of title: If the escrow agent fails to deliver the deed when the condition occurs, title will nonetheless transfer to the grantee.a. Relation back: The grantee’s title will

sometimes relate back to the date when the deed was placed in escrow. This occurs if the grantor dies or becomes incompetent while the deed is in escrow. Relation back may also prevent the grantor’s creditors from attaching the property after the deed is placed in escrow. i. Exceptions: Relation back will not

prevent claims against the property by (1) a BFP or (2) the grantor’s mortgagee.

5. Wrongful delivery by agent: If the escrow agent delivers the deed to the grantee before the condition occurs, title will not pass until the condition is satisfied. Most courts hold that the grantee cannot convey good title before the condition occurs, even if the buyer is a BFP who lacks notice of the problem. A few courts do protect a BFP in this situation, especially if the original grantor was at fault in selecting the escrow agent, or in allowing the grantee to take possession early.

6. Evident failure of condition: If it becomes certain that the condition will not be fulfilled, the deed will be void.

L. Conditional delivery directly to grantee: A grantor might deliver a deed directly to the grantee, with conditions on the deed’s effectiveness. This amounts to an escrow without the escrow agent. 1. Majority—not permitted: The majority

rule does not permit conditional delivery directly to the grantee. If the grantor does so, most courts find that the grantee

30

immediately takes title, without any conditions. A minority holds that the deed is void.

2. Minority—permitted: A minority view allows direct conditional delivery, even with oral conditions.

3. Special case—grantor’s death as condition: A grantor might give a deed to a grantee on the condition that the grant will become effective upon the grantor’s death. Some courts hold that this deed is void as an attempted testamentary disposition that fails to meet the formalities of a will. However, many courts hold that the deed creates a valid future interest in the grantee, while reserving a life estate or some other present estate in the grantor.

M. Acceptance: A deed does not transfer title unless the grantee accepts delivery. Acceptance is usually presumed.

III.Types of deeds: A. Quitclaim deed: This deed conveys whatever

interest the grantor has, with no covenants of title.

B. Special warranty deed: This deed conveys the property (1) subject to all covenants of title and (2) with a warranty only against defects created by the grantor.

C. General warranty deed: The deed conveys the property (1) subject to all six covenants of title and (2) with a warranty against defects created by anyone.

IV. Covenants of title: Covenants of title are promises by the grantor regarding title. These covenants can be included in a warranty deed or incorporated by statute. Absent a statutory requirement, the deed may include some, all, or none of these covenants. The covenants are:(1) seisin, (2) right to convey, (3) the covenant against encumbrances, (4) quiet enjoyment, (5) warranty, and

(6) further assurances.The first three are present covenants; the last three are future covenants. These covenants are all covered thoroughly in your full outline.

V. Estoppel by deed: Estoppel by deed, also called after-acquired title, applies when a grantor uses a warranty deed to convey title that the grantor does not have. If the grantor later acquires title, that title immediately vests in the grantee. The grantor will be estopped to deny the grantee’s superior title.

VI. Transfer by will: A. Definitions: A will is a legal instrument by

which a testator directs the disposition of the testator’s property after death. The testator executes the will during the testator’s lifetime. Individuals who receive property under the will are called beneficiaries or devisees.

B. Ambulatory nature: A will is ambulatory: before the testator’s death, a will has no legal effect, conveys no property interest, and can be amended at any time.

C. Ademption: Ademption is the failure of a gift under a will. 1. Specific devises: Ademption only applies

to a specific devise, which leaves a specific, identifiable piece of property to a devisee.

2. Ademption by extinction: A gift is adeemed if the testator owns specifically devised property when the will is executed, but no longer owns it at death.

3. Ademption by satisfaction: Ademption by satisfaction occurs when the testator, during his lifetime, gives the devisee (1) something in place of the gift devised in the will, (2) with the intent that the gift replace the devise. Courts usually presume that the testator does not intend a gift as an ademption. However, if the testator is the devisee’s parent, then a gift is presumed to adeem.

4. Pro tanto ademption: If only part of specifically devised property has been adeemed, the devisee takes whatever is left.

31

D. Exoneration: Exoneration entitles a specific devisee to have any mortgages or other encumbrances satisfied from the general assets of the estate, unless the will provides otherwise. 1. Abolition: Most states have abolished the

exoneration rule. Unless the will specifically requires exoneration, the devisee will take subject to any encumbrances.

E. Abatement: If the estate is insufficient to satisfy all gifts called for under the will, then the gifts must be abated (reduced). The residual estate usually abates first, then general devises, then specific devises.

F. Lapse: Unless the will or a statute provides otherwise, a gift will lapse if the devisee predeceases the testator. A lapsed gift fails and passes into the residual estate. Many jurisdictions have antilapse statutes, which sometimes save a gift from lapsing. 1. Applicability: Antilapse statutes apply if:

(1) the devisee predeceases the testator,(2) the devisee has a specific family

relation to the testator, and(3) the devisee leaves behind the devisee’s

own children or other lineal descendants (issue).

2. Family relation: Antilapse statutes usually require the devisee to have a specified family relationship to the testator.

3. Devisee’s issue: Antilapse statutes only apply if the devisee leaves behind living children or other issue.

4. Effect of survivorship condition: If the will expressly conditions the gift on the devisee’s surviving the testator, then antilapse statutes usually will not apply.

5. Alternative devisees: If the will designates an alternative devisee in case of a lapse, then the antilapse statute will not apply.

6. Class gifts: Antilapse statutes typically apply to class gifts. A class member’s

statutory successors will divide the class member’s share among themselves. Absent an antilapse statute or a contrary will provision, only the surviving class members will take.

RECORDING ACTS: I. In general:

A. Purposes: A recording act (1) creates a system for providing public notice of property interests, and (2) can determine the relative priority of competing property interests.

B. Effect of recording: Recording is not required for an instrument to convey a property interest. However, recording can preserve a property interest by providing notice to other potential interest holders.

C. First in time: At common law, the first-in-time rule gave earlier interest holders priority over later ones, regardless of notice. The first-in-time rule still exists, but recording acts often make notice, not chronology, the measure of priority.

II. Bona fide purchasers: Most recording acts protect bona fide purchasers for value (BFPs) against prior interests of which the BFP lacked notice. The extent of protection depends on the type of recording act. [See Types of recording acts, infra.]A. Definition: A BFP is someone who:

(1) purchases a property interest(2) for value, and (3) without notice of some prior interest in the

property. 1. Purchases: A purchaser is someone who

gives consideration to acquire a property interest. a. Donees: Donees include heirs,

devisees, and recipients of inter vivos gifts. Donees do not give consideration, and therefore are not BFPs. [But see The shelter rule, infra.]

2. For value: A BFP must give valuable consideration. Money is the most common

32

form, though not the only one. For example, making improvements to land can qualify.

3. Without notice: A BFP must lack notice of the prior interest. Notice can be: (1) actual notice, (2) inquiry notice, or (3) record notice, also called constructive

notice.a. Timing: A buyer’s lack of notice is

determined as of the time the purchase is complete. Notice acquired after the purchase is irrelevant.

b. Actual notice: Actual notice occurs when buyer has subjective knowledge of a prior interest, from any source.

c. Inquiry notice: The buyer is on inquiry notice when she is, or should be, aware of circumstances that would prompt a reasonable person to investigate a prior interest. The buyer is charged with notice of whatever facts a reasonable inquiry would disclose. It does not matter whether the buyer actually investigated, or actually learned of the prior interest.

d. Record notice: Record notice, or constructive notice, arises when an instrument regarding the prior interest is properly recorded and appears in the buyer’s chain of title. The buyer can discover the prior interest through a reasonably diligent title search.

4. Time of BFP status: BFP status arises when the purchase is complete. This requires delivery of the deed or other instrument, plus full payment.

B. BFPs and other claims: A BFP is only protected against prior interests of which the BFP lacked notice. A purchaser might be a BFP as to some prior interests, but not as to others.

C. The shelter rule: A BFP’s grantee is protected from prior interests to the same extent as the BFP-grantor, even if the grantee is not herself a BFP.

III. Types of recording acts: There are three types of recording acts: (1) race statutes,(2) notice statutes, and(3) race-notice statutes.A. Race statute: A party who records first

prevails over any party who records later, regardless of other considerations.

B. Notice statute: A BFP prevails against any prior interests of which the BFP lacked notice, regardless of when or whether the BFP records.

C. Race-notice statute: A BFP prevails against any prior interests of which the BFP lacked notice, but only if the BFP records first.

IV. Mechanics: A document must be properly recorded to provide record notice.

V. Lis Pendens: A party to a lawsuit over property can record a notice of lis pendens. This provides record notice of the pending claim, and can protect the party’s interest against subsequent purchasers.

VI. Effect of recording on title: The chain of title is the history of conveyances and encumbrances affecting the property. A buyer will research the chain of title to identify any title problems.A. Title searches: A title search examines the

public records to evaluate any ownership interests, encumbrances, or other matters. Most property records are filed in the county recorder’s office. [But see Probate and other records, infra.]

B. Marketable title acts: Many states use marketable title acts to limit the time required to establish the chain of title. The time usually is between 20 and 60 years. Interests that arise before the statutory period generally do not affect the current state of title.

C. Indexing: A recorders’ office will maintain an indexing system for its records. Most

33

jurisdictions use either a grantor-grantee index or a tract index. These indices are discussed in your full outline.

D. Probate and other records: Instruments affecting title are sometimes recorded in the probate court or in other offices aside from the recorder’s office. A diligent title search might require checking multiple government offices.

E. Chain-of-title problems: 1. Chain-of-title problems and BFPs: In the

situations below, recorded documents fail to provide record notice, because they fall outside the chain of title. Thus, a purchaser can be a BFP in these situations, despite the recording of the prior interest. Note that these problems are irrelevant if the purchaser has actual or inquiry notice.

2. Indexing mistakes: A recorder’s office might index a document out of alphabetical order, or in a volume covering the wrong time period. Courts are divided over whether indexing mistakes destroy notice.

3. Misspellings: Recorded documents sometimes misspell the parties’ names. A significant spelling error often destroys record notice. However, many states follow the idem sonans doctrine, which provides that a slight, phonetic misspelling does not destroy notice. In these states, a title examiner must search for predictable phonetic variants of party names.

4. Wild deeds: A wild deed is a deed recorded outside the purchaser’s chain of title. The majority rule is that a wild deed does not provide record notice to subsequent purchasers.

5. Deed recorded prematurely: A grantor might convey to a grantee before the grantor actually acquires title. If the grantor later acquires title, and conveys to a second grantee, then in most jurisdictions the premature deed to the first grantee is outside the second grantee’s chain of title.

The deed therefore does not provide record notice to the second grantee.

6. Deed recorded late: A grantor might convey property to one grantee, then later convey the same property to a second grantee. If the second grantee records first, then in most jurisdictions, the first grantee’s late-recorded deed is outside the second grantee’s chain of title. The first grantee’s deed therefore does not provide record notice to anyone whose title runs through the second grantee.

7. Deed restrictions from common grantor: A common grantor might impose use restrictions in one deed that do not appear in later deeds split from the same tract. Some courts hold that a later grantee has record notice of the restrictions, because each grantee should search all conveyances from the common grantor. Other courts hold that a later grantee lacks record notice, because to hold otherwise would increase the burden of title searches.

VII. Title Insurance: Title insurance requires the insurer to defend and indemnify the insured against any covered defects. Compensable losses include the cost of correcting the defect or the consequent reduction in market value. In some states, an insurer can be liable for negligence if it fails to discover a defect before issuing the policy. S

WATER RIGHTS: Water rights involve both the right to use water and a landowner’s liability for water damage to other property. I. Categories: There are three legal categories of

water: (1) watercourses, which are natural bodies and

channels; (2) percolating ground waters, which are

subsurface waters; and(3) diffused surface waters, which do not run in a

natural channel.

34

Water rights are part of the surface estate, but can be severed.

II. Watercourses: Watercourses include lakes, rivers and streams, either above or below ground. Riparian owners own land adjoining the watercourse. A. Doctrines of use: Most states follow one of

three doctrines of use: (1) natural flow, (2) reasonable use, and (3) prior appropriation.1. Natural flow: Each riparian owner has a

right to the natural, unmodified flow of water. The doctrine prohibits use or diversion by an upstream owner that materially alters the natural flow downstream.

2. Reasonable use: Each riparian owner may make any reasonable use of the water that does not unreasonably interfere with downstream use.

3. Prior appropriation: A first-in-time user may use as much water as she wants, regardless of later users.

B. Boundaries:1. Accretion and erosion: Accretion is the

gradual accumulation of soil or silt on the riparian owner’s banks. The riparian owner has the right to these accretions. Thus, accretion can expand the boundaries of the property. Conversely, gradual erosion, which is the removal of soil by the water, can shrink the boundaries.

2. Avulsion: Avulsion is a sudden change in a watercourse, such as that caused by a flood. Avulsion does not change the boundary lines of riparian property.

C. Navigable public waters: If the adjoining water is navigable public water, then the riparian owner’s rights are usually subject to the superior rights of the public.

III.Percolating ground water: There are three theories of rights for percolating ground water:

(1) absolute ownership, (2) reasonable use, and (3) correlative rights.A. Absolute ownership: Each landowner has

unlimited use of the common reservoir, without concern for other landowners. This doctrine is little followed today.

B. Reasonable use: Each owner may use the water in a way reasonably related to the natural use of the overlying land. The landowner may not transport the water off the land, at least not if doing so interferes with use by other landowners.

C. Correlative rights: This rarely used doctrine limits each landowner’s use to his or her proportionate share of the available water.

D. Prior appropriation: Some states apply prior appropriation to groundwater in the same way as to watercourses. [See Prior appropriation, supra.]

IV. Diffused surface water: Diffused surface water is water that runs over the surface, but not through a watercourse; i.e., runoff or flood waters.A. Altering the flow: Disputes over surface

waters often arise when landowners alter the natural flow of the waters over their land. Most states follow one of three doctrines of use: (1) the common enemy rule, (2) the natural flow or civil law doctrine, and (3) the reasonable use doctrine.

B. Common-enemy rule: This doctrine treats diffused surface water as a common enemy against which each property owner can defend, without regard for the effect on other owners.

C. Natural flow or civil law doctrine: Owners of higher lands enjoy an easement for the flow of surface water across lower lands. However, the upstream owner is strictly liable for any damage caused by the altering the natural flow.

D. Reasonable use doctrine: The upstream owner may take reasonable measures to minimize damage to her own property from diffused surface waters. However, she must not

35

unreasonably interfere with the rights of other property owners.

CONFLICT OF LAWS: I. Situs Rule: A dispute involving real property is

governed by the law of the situs; i.e., the state (or nation) in which the property lies. [See Restatement (Second) of Conflict of Laws § 223.]

II. Effect of Conflict Rules: The law of the situs includes the law of conflicts. If a court’s own rules require it to apply another state’s law, then the other state’s law will govern.

III.Exceptions A. Choice of law: The parties might designate

some law other than the law of the situs to govern a property interest. Courts will often honor this intent. [See Restatement (Second) of Conflict of Laws § 224.]

B. Federal Law: If the issue involves an area of federal authority, then federal law might govern. Examples include (1) transfers in bankruptcy and (2) federal eminent domain. [See Restatement (Second) of Conflict of Laws § 226 cmt. d.]

AIRSPACE AND SUBSURFACE RIGHTS: At common law, a landowner held the surface of the property, all airspace above, and all space below, to the center of the earth (the ad coelum doctrine). Air and subsurface rights are no longer taken so literally.IV. Airspace: At common law, any intrusion into the

airspace above the owner’s property was a trespass. Today, a landowner is entitled to a reasonable amount of airspace, as necessary for the use and enjoyment of the land. Repeated government incursions can constitute a taking.

V. Subsurface rights:A. Ownership: Protections of subsurface

ownership can diminish the farther down one goes. Some courts limit a surface owner’s subsurface rights to the extent of the owner’s reasonable and foreseeable use of the subsurface estate.

B. Lateral and subadjacent support: Lateral support is the support of land by adjacent property. Subadjacent support is the support of surface land by the soil beneath. Someone whose activities compromise support can be liable to the affected landowner.

VI. Minerals: At common law, the surface owner also owns all minerals in place beneath the surface. Mineral rights can be severed from the surface estate.

36