Property Review

 

 

Property: a set of interests/rights, a "bundle of sticks."

 

 

 

Ownership means and involves possession, exclusion of others, transfer of ownership, use, profit and destruction (misuse).

 

 

 

Major types of property:

 

real, personal (chattels), intangible (choses in action), land, immovable, fixture

 

estate: freehold endures for a life or longer; nonfreehold everything else defined by the passage of time

 

choses in possession characterized by tangible (money)

choses in action, intangible (copyright, mortgage)

 

fixture: object formerly personal property now attached to real property.

 

Title by conquest or by discovery.

Title traceable to original owner

 

 

Rules for finder of property

Common law—the person who obtains possessory rights to the property depended on why the true owner went out of them.

 

Finder gets possession subject to rights of true owner who still has claim.

 

Classes:

1-Naturally placed—property that has never been created/owned by the hands of man but placed on the land by natural forces (meteor). The person with the right to possess such property is the person who controls the locus in quo, the land owner.

 

2-Abandoned—property that has been owned at one point; the true owner has gone out of possession of that property and has no intent to regain. The first person who goes into possession obtains possession and the right of it. Finder must have 1)physical control over goods and 2) intent to assume dominion over them.

 

3-Lost—property which is out of the possession of the true owner, without the true owner realizing it, and not yet abandoned. The person who finds that kind of property gains the right to possess it, unless they are operating within the scope of their employment, in which case the employer gains the right.

 

4-Mislaid—is property out of the possession of the true owner intentionally, where the true owner forgets to regain possession. With mislaid property, possessory rights go to the person who controls the locus in quo. If no one controls the locus in quo, it goes to the finder.

 

5-Treasure-trove— (minority) a specific kind of property (e.g., gold, money, jewels) that are out of possession of the true owner intentionally, where the owner intended not to regain immediate possession believed when the owner hid the property. Treasure-trove goes to the finder. Only recognized in a minority of jurisdictions.

 

Many states have passed statutes regarding lost property, that remove the distinction between lost and mislaid property. They are treated as one category. They typically require the finder to turn this property over to the police for a set period of time, with an obligation for the police to search for the true owner. If the owner is not found, the finder usually gains not only possession but the title (common law made no title transfer). [finders keepers; losers weepers].

 

Possession—controlling property with the intent to continue to control it.

 

Actual possession—the person has physical contact with the property.

 

Constructive Possession—the area where the property is located is controlled. You don't control the property, but where it is located.

 

Bailment—exists where the personal property is transferred out of the possession of the true owner into the possession of any other party; i.e., authorized possession without ownership.

 

Types—

 

1-For hire (pure bailment)—results in the payment of any kind of compensation by the bailor to the bailee for holding the property.

 

2-Gratuitous—results from no compensation.

 

3-Involuntary (constructive)— transfer of possession that is not intentional.

 

The bailee of property owes an absolute duty to return that property.

 

If the property is misdelivered—this is considered a conversion—the bailee is liable for chattels and property.

 

Bailee owes the public duty of care while the property is in bailee's possession.

 

Traditionally:

1) Bailee for hire owes great care (managed parking garage).

2) Gratuitous bailee owes reasonable care (coat check, intentional request to friend to "watch" his property).

3) Involuntary (constructive) bailee owes slight care.

 

Today we are unlikely to use these three categories but the results are the same.

 

"Park and Lock"—where owner parks himself and keeps his own keys, most courts have found that the lot owner never obtains actual control of the car.

 

Contents of a container—most jurisdictions will include the contents of the container within the bailment, as long as this is the kind of property you would expect in that kind of container. In a minority of jurisdictions, only property within knowledge of bailee is bailed.

 

 

BONA FIDE PURCHASERS

 

A BFP is given title to the property even as against the true owner—the purchase must qualify under either statutory or equitable estoppel. (not both, only one).

 

1-Statutory estoppel requires five elements to be shown:

1-the owner entrusts the property to a merchant of that kind of property.

2-purchaser must pay the value for the property; must be a purchase, not a gift.

3-purchase must be done in ordinary course of business.

4-purchase must be done in good faith.

5-purchaser must be without knowledge of the true state of title: the purchaser has no idea the property is not owned by the merchant.

 

If all five of these requisites are shown, the purchaser will be a bona fide purchaser for value, and the true owner cannot recover the property from that individual.

 

2-Equitable BFP requires:

1-purchaser must pay the value—must be a purchase, not a gift.

2-purchaser must show good faith.

3-true owner has cloaked the vendor with some kind of indicia of title (a title document of some kind or the mere possession).

 

Void title is a title of no value. Under the common law, from theft or fraud in execution of a sale; a void title cannot become good. It never existed; has and will have no effect through a BFP. Under the UCC, a void title can sometimes be made good; see 2-403.

 

Voidable title is a defective title resulting from fraud in inducement (e.g. payment with a bad check). A voidable title can become good through a BFP. It exists until such time as revoked or canceled.

 

 

UNAUTHORIZED POSSESSION

 

The right of two possessors as against each other.

the right of possession belongs to the party who took possession first in time.

the wrongful possessor who loses possession is without

remedy. Whoever the current, latest party is, has possession.

In 1 and 2, if the true owner comes along...

How long can the true owner wait, and still have the right to reclaim his personal property.

 

Rules:

1-Adverse possession rule (majority)— requires party claiming possession to establish adverse possession. This requires a hostile, visible, actual, exclusive, continuous possession of property for the period not greater than condition given in the statute of limitations (usually six years). If any of these elements is missing or not true then it is not an adverse possession and the true owner can recover the property.

Hostile—not with permission

Actual—in your possession

visible—not hidden

exclusive—true owner and adverse possessor cannot own together

continuous—... cf. tacking

 

2-Discovery rule—true owner loses the right to reclaim the property if a period of time passes again from the time the owner knew or should have known he had a cause of action—if that period has exceeded the statute of limitations then the true owner has lost the right to recover the property (minority rule but the trend ).

 

Adverse possession rule focuses on conduct of the possessor while the discovery rule focuses on the conduct of the true title holder/owner.

 

Accession—what happens when someone in good faith and under a claim of right to do so improves the property of another.

 

Traditional rule is that true owner can reclaim the improved property unless the very nature of the property has changed (e.g., grapes to wine).

More modern rule—the true owner can reclaim the property unless there has been a very good increase in value due to the wrongdoer's conduct. Under either of these rules, however, owner is not entitled to reclaim the property itself but is entitled to damages (the value of the raw material).

 

The wrongdoers cannot claim the value of their labor. They are without remedy. Equity attempts to balance a situation to prevent owner from receiving a "windfall.".

 

Donative Transfer

 

A donative transfer is the transfer of title to property without [the donor seeking] value. Two things necessary to accomplish donative transfer:

1-intent to give

2-delivery

 

Some jurisdictions will further require that the gift be accepted, while others will consider it abandoned property, if it is not [accepted].

 

The intent to give includes both the intent to transfer goods and property and also the intent to transfer without any compensation.

 

Delivery

Actual: occurs when the thing itself is physically handed over to the donee.

If something which by law is required to be transferred by a title

document, the delivery of the title document properly endorsed

constitutes delivery of the thing-actual delivery. e.g., endorsed

title to a car.

Symbolic: is the transfer of one object with express intent to represent

the other object. For example, the key for a car would constitute a

symbolic delivery.

Constructive: (most common form of delivery). There are several typical

forms, most common one being a bill of sale or bill of transfer

which is a legal document transferring title to personal

property.

 

It is possible to make a gift of future interest in property. It is not possible to make a gift to become effective in the future ("I will give you this tomorrow" has no legal meaning).

 

Inter vivos: a gift made during donor's lifetime. This type of gift is essentially irrevocable after delivery. Elements are:

 

Present intent

Acceptance, which is usually presumed

 

In causa mortis: "is a gift of personal property made by a party in expectation of death, then immanent, and upon the essential condition that the property shall belong fully to the donee in case the donor dies as anticipated, leaving the donee surviving him, and the gift is not in the meantime revoked, but not otherwise..."

 

A gift that is made effective upon death of the donor. It requires that the gift be made by a party in expectation of death which is then immanent and on condition that the property will belong to the donee if the donor dies as anticipated without revoking the gift. This type is gift is revocable, normally upon survival of the "impending death," i.e., if donor does not die, the gift is revoked automatically (common law).

 

Elements:

Impending peril/death

Death must occur as a result of the specific impending peril or cause of death

Delivery (statement of intent, not necessary in writing)

 

Gifts causa mortis tend to be very narrowly constricted in most jurisdictions, because the use of them directly contradicts the statutes on wills. If possible, use a joint bank account for making a gift. If one person's money is on deposit with the bank, naming a second owner on that account constitutes a gift of the money in that account, although proportionately. An exception: when the co-owner is named not as an intended gift, but rather for the administrative convenience of the party holding the account. Here the person named is merely a trustee or beneficiary.

 

Totten trusts. The "poor man's will.". A opens an account, styled "A, in trust for B," and deposits money. This account is revocable. At A's death, B has ownership (but not before death). Illinois recognizes Totten trusts.

 

Trusts in general. Evolved from Chancery. The settlor transfers "legal" title (ownership) to a second person, the trustee, directing that the property shall manage it and pay its revenues to a third person, the beneficiary or cestui que trust. When the trust is terminated, the trustee distributes the contents of the trust according to the settlor's instructions.

 

[Beginning of review]

Trust—a three party transaction (although one or more of the parties may be the same individual) which allows one person to hold property for the benefit of another.

 

Settlor—person who created the trust.

 

Trustee—holds legal title to the property.

 

Beneficiary—holds equitable title to the property.

 

Possession—control with the intent to continue controlling.

 

Actual and constructive—control of the area in which something that lies as opposed to control of the thing itself.

 

Title—to roughly equate ownership in the law.

Just as possession follows this concept of inferior and superior rights (right to possession, all but the true owner) so too does title.

multiple people can hold title to the same piece of property (husband and wife).

sometimes one gets to hold different aspects of title (e.g., landlord-tenant-some interest in the property, but different).

 

"Possession is 9/10 of the law" is not arbitrary. Title and possession are strongly interlinked. The party in possession of property has rights merely because of that possession, and as a consequence has some form of title—clearly because that possession may be inferior—but is title nonetheless.

 

Transferring Property:

 

Donative transfer—intent and effective legal delivery.

 

Lost Property—who has possession if owner goes out of possession.

 

Bailment—situation where a person who holds property has transferred possession from true owner to another party.

 

Bona fide purchaser for value—how BFP can cut off everybody else's title between two owners.

 

Unauthorized possession—different legal systems look at the same problem and come up with opposite conclusions—whether one wrongful possessor has a right of possession over another wrongful possessor.

 

Accession—sometimes people make mistakes and improve someone else's property. Courts have come up with serious solutions to handle this problem.

 

Heir—those people who take property under the relevant intestacy statute. If you name someone in a will with real estate, he is called a devisee. If you name him in personal property he is called a legatee.

 

The statute comes into effect when:

1-Someone dies without a will.

2-Someone dies with an incomplete will.

3-Someone dies and the will makes reference to an heir.

[End of review]

 

 

ESTATES DOCTRINE

 

The estates doctrine categorizes people's interest in land based on the estate to which they are said to hold title. The estates doctrine separates the thing from that which is owned or follows. One owns an estate; one does not own land.

 

For any given thing, multiple simultaneous estates can exist:

Some possessory, others non-possessory.

Some exist now, some will exist in the future.

Some exist always and others are dependent on events.

 

We look at two of the main types of these estates: freehold (lasts at least as long as somebody's life) and non-freehold estate. In freehold estates there is "some kind of title" called seisin; it is the larger of the two. Marketable title deals with how the title actually appears rather than how it actually is.

 

1-Fee simple absolute: consists of the maximum rights it is possible to own under our system of law. [Complete bundle of sticks].

 

2-Life estate: is practically the opposite. It only exists during the period of a specified life of a specified person: exists only while they are alive, usually the grantee. This is the minimum freehold estate that can exist. Anything less than a life estate would be non-freehold estate.

 

Under Common Law, to create a fee simple absolute estate, on use the words "to A and his heirs". A life estate uses just the words "to A". In modern law, "to A" would create whatever estate the grantor had, including fee simple absolute. To create a life estate, one must say "to A for life."

 

When the grantor creates a life estate, the grantor has the reversion in fee simple absolute in himself. Grantor could also convey this reversion to someone else, in which case it would be called the remainder in fee simple absolute. Typically a life estate is based on the grantor's life but could also be based on someone else's life in which case it would be called a life estate per autre vie.

 

When a life tenant dies, the grantor's reversionary estate or the remainderman's remainder estate becomes possessory. Nothing springs into existence. Rather the right of possession which used to be with the life tenant automatically goes to the reversionary holder. This creates a problem for life estates per autre vie: if the person who has the land dies before the measuring life, there is a gap. Under Common Law, anyone who took possession of that property got to keep it, under modern law this is treated as personal property of the life tenant and handled through the legatee or heir of their will: it is personal property, not real property.

 

Life tenant owes qualified fiduciary obligation to the remainder man or grantor (depending on situation). Their use of the property must not adversely affect the value of the property. If it does, it is called waste. There is the voluntary waste wherein a tenant commits a deliberate, destructive act; involuntary waste is where the tenant fails to exercise reasonable care to protect the property and allows it to deteriorate through negligence. Ameliorating waste occurs where the tenant improves or attempts to improve the property there by lessening its value. [in case of ameliorating waste, courts are always required to balance the special interest of the portion to determine whether or not the improvement constitutes waste.

 

Life estate is not a fee estate. A fee estate can potentially go on forever. A life estate obviously cannot.

 

 

DEFEASIBLE ESTATES

 

3-Fee Simple Determinable—estate is given for a limited purpose, which will automatically terminate if that purpose is violated.

 

Words: "To A and her heirs so long as/until/during..."

"but upon breach automatically reverts to grantor"

 

Grantor's Estate: after conveyance of fee simple determinable is called possibility of reverter.

 

4-Fee simple subject to a condition subsequent: also given for a limited purpose, but rather than terminating automatically, gives the grantor the option of terminating it if the condition is violated.

 

Words: "To A and his heirs upon condition that/provided that...

but upon breach the grantor can re-enter (terminate) the estate.

 

Grantor's estate: after conveyance of fee simple subject to a condition subsequent is known as either power of termination or right of entry (recommended).

 

If the document is not clearly drafted, the court will first of all try to interpret that document as a fee simple absolute estate, and upon that not working, will go to fee simple subject to condition subsequent, and only if it is still unclear will apply fee simple determinable to prevent forfeitures under those circumstances.

 

For a defeasible estate, a mere limitation in purpose is not sufficient. The language that terminates the statement also must be expressly stated in the fee; it's not enough to limit the purpose of the grantor's possibility of reverter or power of termination must also be created; if not created, you'll end up with a fee simple absolute, not with a defeasible estate.

 

Waste, doctrine of, for a life estate does not apply to the defeasible estate. The person holding a defeasible estate does not owe the grantor any type of other fiduciary duty. The grantor's interest is too remote.

 

For a fee simple subject to condition subsequent, the grantor has a period of time to enforce a breach of condition. This period of time does not begin to run until that condition is violated; once it is violated the grantor must take action both within a reasonable period of time and within the period of time given by the statute of limitations.

 

For a fee simple determinable, however, there is no express period of time by which the grantor has to take action, because the estate terminates automatically by operating law. The analysis is whether or not an adverse possession has occurred between the grantor's inaction.

 

Unless there can be established that in effect the grantee has a defeasible estate as adverse possessor, the grantor still has the right to enforce the retake.

 

"Fee simple" and "held in fee" are used by courts as abbreviations for fee simple absolute, which students should use.

 

Possibility of reverter follows a fee simple determinable; the estate is automatically created when a violation occurs.

 

Power of termination follows a fee simple subject to condition subsequent: it describes the fact that the grantor has the right to come in and retake possession of the estate.

 

[Remainder is always held by the grantee. Reversion is always held by grantor.]

 

All of the estates spoken of have been created inter vivos by gift, by sale, by transfer, etc. The only limitations we've seen so far is the power of termination and the possibility of reverter which in most states goes to one's heirs upon death. Not to devisees, but to the heirs. Not controlled by will, but by statute. Not alienable or transferable.

 

[Review]

Review of Estates (Possessory)—Six types thus far considered under CL.

1) Fee simple absolute.

2) Fee simple determinable.

3) Fee simple subject to condition subsequent.

4) Fee simple subject to executorial limitation.

5) Fee tail (aka fee simple conditional).

6) Life estate.

 

Two parties:

 

"To A and the heirs of his body":

grantee = fee tail (or fee simple conditional).

Grantor = (in fee tail) reversion

(in fee simple condition) = reverter

 

"To A":

grantee=life estate.

grantor=reversion.

 

"To A for life":

grantee=life estate.

grantor=reversion.

 

"To A for life so long as property is used as a school otherwise back to the grantor":

grantee=fee simple determinable.

grantor=possibility of reverter and reversion.

 

"To A and her heirs" "provided used as a school otherwise grantor may reclaim property":

grantee= a fee simple subject to condition subsequent. (Grantor may reclaim the property.)

grantor's estate = right or re-entry or power of termination.

 

"To A for as long as B lives":

grantee = life estate per autre vie. The measuring life is not grantee. grantor=reversion.

 

"To A and his heirs provided property is used as a school.":

grantee=fee simple absolute.

grantor=interest is not created. It must have language creating the grantor's estate. Doesn't say what happens if the property is not used as a school...therefore it is not sufficient to create a defeasible estate but a fee simple absolute. Must have both.

 

Three parties:

 

"To A and his heirs so long as property is used as a school, otherwise to B and his heirs":

A=a fee simple subject to an executorial limitation.

B=an executorial limitation.

 

"To A for life and then to B and his heirs":

A=a life estate.

B=a remainder in fee simple absolute.

 

"To A for life and to B and the heirs of his body":

A=a life estate.

B=a fee trial.

Grantor=a reversion.

 

To A for life, then to B for life, then to C and his heirs:

A=a life estate.

B=a remainder in a life estate.

C=a remainder in a fee simple absolute.

 

All estates are fee estates except life estates.

 

Principal characteristic of a fee estate is it can potentially last forever. A life estate obviously cannot last forever.

 

Notice that escheats run always-the potential exists that the land/property will encheat to the state.

 

All above estates are freehold estates: all last as long as at least somebody's life. Not measured by years, but by lifetimes or longer.

 

Words of purchase describe grantee: "to A"

Words of limitation describe estate: "and his heirs"

 

Heirs are defined by a jurisdiction's intestate statute. One cannot change the definition of one's heirs.

 

Legatee — takes personal property under a will.

Devisee — take real property under a will.

 

Per capita — count heads.

Per stirpes — representational (heirs step up in the shoes of their ancestors).

 

When does the tenant of a possessory estate owe a duty to those holding non-possessory estate?

In a life estate—owe quasi-fiduciary duty. The only time someone who is in possession of a possessory estate owes a duty to someone who has a non-possessory estate is in a situation of a life estate to either the remainderman or reversionary holder. In that situation there is a duty not to commit waste: a quasi-fiduciary duty.

 

Waste: when life tenant intentionally destroys the property.

voluntary or commissive, where tenant intentionally destroys the estate..

ameliorating—attempt to improve.

Permissive or involuntary—negligence (does nothing, allowed to happen).

 

With ambiguous deed language attempting to create some kind of conditional estate, courts first tries to create an estate.

1) Fee simple absolute.

2) Fee simple subj. to con. sub.

3) Fee simple determinable.

 

Defeasible estates are: fee simple determinable.

(they disappear) fee simple subject to condition subsequent.

fee simple subject to executorial limitation.

 

How to determine whether grantor's interest is to be categorized as a reversion or something else?

Life Estate and Fee Tail = the word "simple" is missing. It is a reversion. If "simple" is there, then it is not reversion.

 

[End of review]

 

 

Effect of conveyance "to A and the heirs of his body." It is either the creation of a fee simple conditional or a fee tail estate.

 

5-Fee simple conditional in the grantee is qualified by "heirs of the body." Once that heir was produced the grantee will have the power to convey a fee simple absolute estate inter vivos. If he did not convey a fee simple absolute estate, the heir of the body will convey a fee simple conditional estate....and the entire pattern is repeated.

 

If at any point one of the people who took this fee simple conditional estate died without heirs of the body, the estate would revert to the grantor.

 

The alternate view of the same language is the FEE TAIL ESTATE. This was created initially by the statute de donis conditionalibus.

 

6-A fee tail estate is a life estate to the grantee with a remainder in the heirs of the body of the grantee in fee tail.

 

The courts created the mechanism of the common recovery sham law suit to allow an estate that was entailed to be disentailled. Consequently, the fee tail estate did not work anymore effectively than the fee simple conditional in truly limiting the estate of the heirs of the body.

 

Fee tail estates can be limited to specific sexes (male or female), specific spouse (called fee tail special), or not, and called fee tail general.

Should there not be an heir of the body somewhere down the chain, the grantor's reversionary estate becomes possessive. The grantor has a reverter following fee simple conditional and has a reversion following fee tail itself.

Most US jurisdictions abolished fee tail and fee simple conditional estates. A slight majority (27) of the states may also create a fee simple absolute if there is an attempt made to create a fee tail or fee simple conditional.

Other jurisdictions are going to recognize either a fee tail or fee simple conditional with a whole variety of limitations that make it very easy to disentail the estate. Some recognize it for only one generation; others allow the sham common recovery type lawsuit without the need of doing anything.

 

 

CONTINGENT REMAINDERS

 

A contingent remainder is a remiander for which some condition must be met before the estate can become possessory in addition to the expiration of the prior estate.

e.g., "to A for life, then to B and his heirs, if B passes the bar." Not only must life terminate but B must also pass the bar to have a contingent remainder. If it does not have this type of contingent condition on it, it becomes possessory.

 

Three separate types of vested remainders.:

 

1-Indefeasibly vested remainder: the simplest; once created the identity of the remainderman is known and not changed. e.g., "to A for life, remainder to B and his heirs"; B has defeasibly vested remainder.

 

2-Vested remainder subject to open: is one where parties can be added to or subtracted from the interest. But the definition of who is a class patron rests on moment of creation e.g., "to A for life, remainder to the children of B where B is alive with the children." B's children here have a vested remainder subject to open: the quantity of the estate taken will vary by the admission of additional children, however, the quality of the estate, the interest, will not change.

 

3-Vested remainder subject to divestiture: one where a party can take possession without any condition, but if certain conditions are not satisfied the estate shall be removed from them. e.g., "to A for life, remainder to B and his heirs but if B never marries, then to C and his heirs."

 

The distinction between vested and contingent remainders is quite important. The law is going to give different treatment to contingent interest than it does to a vested interest.

 

 

DOCTRINE OF DESTRUCTIBILITY OF CONTINGENT REMAINDERS.

 

In: "to A for life, remainder to B and his heirs if B passes the bar."

The remainder interest to B is destroyed if A dies before B passes the bar. The condition has not been satisfied at the time the life estate ends and at that moment the contingent remainder is destroyed.

 

The technical rule states that a contingent remainder is destroyed whenever a life estate and a reversion merge where held by the same party, i.e., if the grantor obtains a possessory estate after having granted out a life estate, the contingent remainders that may exist are terminated.

 

This works also in the opposite direction. The basic pattern to look for is whether the interest that the grantor has becomes possessory or goes to the party that has possession with the contingent remainder being destroyed.

The doctrine of destructibility of contingent remainder has been abolished in most jurisdictions today. It is still important because those deeds executed prior to its abolition are still subject to it.

The doctrine of destructibility is one aspect of the concept of "merger."

 

 

RULE IN SHELLY'S CASE

 

This rule will transform a life estate in the grantee into either a fee simple absolute or a fee tail estate whenever the following criteria are met:

a freehold interest in real property is given to a grantee.

a remainder interest in that same property is given to the grantee's heirs or the grantee's heirs of the body.

these interests are obtained (created) in the same instrument.

either both legal or both equitable in nature.

 

If all four of above are true, the grantee will take either a fee simple absolute or fee tail estate and the remainderman will take nothing.

 

The rule merges estates whether or not they are possessory or future interests.

 

The rule will merge estates even if there is an intervening estate. The person will take the grantor interest subject to the intervening estate.

 

As with the doctrine of destructibility of contingent remainders, the rule in Shelly's Case has been abolished in all but 8 jurisdictions in US today. But they are still very much with us in older chains of titles prior to the resignation of the rule.

 

DOCTRINE OF WORTHIER TITLE

 

This doctrine applies whenever there is a grant made with a remainder interest in the grantor's heirs. In such cases,

 

if the rule is to be considered a rule of law, the remainder interest is void and the grantor's heirs take nothing under the deed.

 

If the rule is considered to be one of constriction, the remainder interest is void unless the grantor's intent to violate the rule is clearly stated, a knowing violation, in which case the interest is valid.

 

 

FUTURE INTERESTS

 

A future interest is any estate that will become possessory in the future, i.e., an estate in land that does not have associated with it possessory rights.

 

Common Law recognizes four:

1-reversions

2-possibility of reverter

3-power of termination

4-remainder

5-executory interest (Statute of uses introduced)

shifting uses

springing uses

 

Language that creates future interest in the grantor:

 

Reversion: "to A for life or alternatively to A and the heirs of his body."

possibility of reverter in grantor: "to A and his heirs, so long as no liquor is sold otherwise back to the grantor."

power of termination in grantor: "to A and his heirs provided liquor is not sold, but if it is, the grantor may retake the estate."

 

Language that creates future interest in grantee:

 

Indefeasibly vested remainder: "to A for life then to B and his heirs." B has an indefeasibly vested remainder.

OR

To A and the heirs of his body, upon failure to B and his heirs. [Again B has indefeasibly vested remainder].

 

Contingent remainder: "to A for life, then to B and his heirs if B passes the bar." Here in creating a contingent remainder in B, there is also created a reversion in the grantor, so that if the contingency is not satisfied the grantor retakes possession.

 

Vested remainder subject to open: To A for life, then to the children of B if B is alive with children creates a vested remainder subject to open.

 

Vested remainder subject to total divestiture: To A for life, then to B and his heirs, but if B never marries, back to the grantor. Here the grantor retains a reversion; if B does not marry, grantor will retake the estate.

 

Shifting use: To A and his heirs, so long as liquor is not sold otherwise to B and his heirs. A shifting use is created for B. [Violates rule against perpetuities]

 

Springing use: To A and his heirs as soon as A marries. Springing use is created in A. [Does not violate rule against perpetuities]

 

Determining the interest:

 

Each future interest has a different characteristic, different right associated with it, different limitation upon it. It is very critical therefore that when faced with a property problem that has future interests associated with it, that we start off by categorizing everyone's estate.

 

This is done by starting with the possessory estate, for that will usually determine what the future interest is. Future interests follow certain possessory estates that are associated with them. Before trying to understand the property, do a categorization of the estates—anytime there is more than one party involved. [First "who owned what," and then "what is the right of each party."]

 

It is very important to know whether the interest is vested or not. Non-vested interests are treated differently in the law, and may not be subject to the attachment of a creditor, who may not be able to seize a non-vested interest caused by a death.

 

A variety of rules apply to some or all of these non-vested interests such as the destructibility of contingent remainders and, most importantly, the Rule against Perpetuities, which applies to all non-vested interests.

 

For a remainder interest: if you know who the grantee will be when the prior estate terminates, this is considered vested. To determine this, it is almost always easier to look backwards: at what happens when that prior estate terminates: who is entitled to the estate at that moment simply because the estate terminated. If one can absolutely answer that a specific person will take the property, then we have a vested remainder in one of the various forms. If one cannot answer which specific person will take, then the interest is contingent.

 

It is also important to distinguish that in a contingent remainder you have to satisfy "someone who walks through the door" and a vested remainder subject to divestiture where you can walk through the door without problems that came to pull you back out. One is condition before you can take the estate, the other is something subsequent you have to do to keep the estate.

 

[Review]

Contingent terms:

Condition precedent: something that must be satisfied prior to an obligation or here before possession can be had.

 

Condition subsequent is something that can affect an obligation, after the condition occurs; here deprives of possession.

 

In the real world today, these situations are rarely created intentionally. But people still do their own legal work and there are lawyers who should not be.

 

There are a variety of special rules that apply to future interests.

 

1-Doctrine of destructibility applies only to contingent remainders and affects no other interest "out there." The doctrine destroys a contingent remainder, terminates it, makes it cease to exist: if the remaindermen are not eligible for possession when the prior estate terminates, or alternatively, if the original grantor conveys his reversion to the life estate.

 

Technically, the doctrine applies any time the reversionary interest and the possessory estate are held by the same party.

e.g., "to A for life, remainder to B and his heirs if B passes the bar."

B's remainder will be destroyed either if

1-B has not passed the bar at the time of A's death, or alternatively.

2-if the grantor conveys to A his reversionary interest.

 

In either of these circumstances the doctrine of destructibility of contingent remainders will make B's contingent remainder cease to exist. The doctrine has been abolished in most jurisdictions today. Unfortunately can be in all chains of title. Most states had recognized the doctrine of therefore it can still come up and affect property law.

 

The language does not have to be specific, but must have the requisite of a contingent remainder.

e.g., if B is determined to hold shifting use, then the whole doctrine does not apply.

 

2-Rule in Shelly's Case

The rule applies (is involved, is violated) any time four conditions are true. When all four are true, the effect is to transform a life estate into a fee estate and extinguish the remainder interest.

 

Rules to be satisfied:

a freehold interest in real property is given to the grantee.

a remainder interest in that same property is given to the grantee's heirs or the grantee's heirs of the body.

all of these interests are created in the same instrument.

and they are both equitable interests or both legal interests, i.e., uses or not uses.

If all four rules are satisfied the Rule is invoked. The person who took the freehold possessory estate will end up with a fee estate rather than a life estate. "The estate gets promoted." If the rule is invoked, the individual with the possessory estate gains the larger estate-is granted the remainder.

 

If the remainder granted a fee tail estate, whoever had a possessory estate will now have a fee tail estate.

If remainder granted a fee simple absolute, whoever had the life estate or the fee tail estate would end up with the fee absolute estate. It does not matter what type of remainder it is, contingent, vested, subject to open or investiture—all of these are promoted to a fee simple absolute estate (or potential fee tail estate).

 

Rule has been abolished in all but eight states and cited as a minority rule. All property transactions occurring before the rule was abolished are still subject to that rule. For our professional careers, the rule is Shelly's case will be a constant source of headaches.

 

3-Doctrine of Worthier Title

This doctrine favors transferring real property to those who would be the grantor's heirs through the mechanism of a will rather than through the mechanism of an inter vivos transfer. Basic deed pattern: "to A for life, remainder to grantor's heirs."

 

Originally, the DOWT is considered a rule of law and as such a remainder interest created in the grantor's heirs is void, never had any force.

 

Many jurisdictions today have abolished this rule, or if they did not abolish it, transformed it into a rule of construction rather than a rule of law. A rule of construction is something of help to understand what language means. As a rule of construction the DOWT indicates that if you are making a remainder interest to the grantor's heirs, you must do so very clearly and make it apparent that the violation of the DOWT was intentional and not a poor draftsmanship problem.

The effect of the DOWT: if it is involved either or a rule of law or the rule of construction is violated, the interest in the grantor's heirs is void.

A remainder in grantor's heirs triggers an analysis of whether doctrine of worthier title has been violated.

 

Basic fact pattern: "to A for life then to grantor's heirs."

 

In rule of law jurisdiction: the remainder interest in grantor's heirs is void. Thus the deed is "to A for life." As a consequence the grantor maintains a reversion.

 

In rule of construction state: "to A for life, remainder to grantor's heirs." The remainder interest is crossed out and grantor retains reversion.

 

If deed read "to A for life, remainder to grantor's heirs knowing that this remainder interest violates the DOWT."

 

In rule of law jurisdiction: still it gets crossed out. Grantor's reversion is still in existence.

 

In rule of construction state: it is sufficient to overcome presumption that you do not want to do this, if the grantor's heirs have a remainder.

 

[Remember: a remainder in one's heirs is always contingent.]

 

4-Rule against perpetuities: [be aware that this exists—do not expect to understand rule, and certainly not try to apply it.]

 

This applies to any interest that is not vested. Interests not vested are contingent remainders and executory interests—everything else in the law is considered vested—therefore the rule against perpetuities does not apply to these other interests.

 

Rule states that a future interest is not valid unless it must vest if at all within 21 years after some life in being at the time the interest was created.

 

For purposes of this course: the most you are expected to say is "this is a contingent remainder." Therefore the Rule against Perpetuities might apply to it.

 

Expected to know that with a contingent remainder or executory interest a rule against perpetuities analysis would be necessary to determine if the rule was violated.

 

It is not a rule of rationality but a rule of absolute logic. It does not matter whether factually something did not occur if logically it could occur. Thus 80 year old women will be deemed able to have children, where we rationally know they don't.

 

Rule has been abolished or highly modified in most jurisdictions.

 

5-Executory interests: The statute of uses which created them did not outlaw uses, but rather they executed upon them, which it made legal title follow equitable title (merged the two together). There are three major holes in the statute because of the way it works, with all of modern land law and trust law based on it.

the statute only affects the first use it finds. If there is a "use on a use," the second use survives. In "to A and his heirs, for the use of B and his heirs, for the use of C and his heirs" the statute would execute on B's use leaving legal title with B and allowing equitable to go on to C, resulting in a use between B and C in this pattern.

 

the statute only applies to real property; there is no application at all to personal property.

 

the statute does not apply if the legal title holder has any additional duty in addition to holding legal title. In "To A and his heirs to maintain and collect income for B and his heirs," maintaining and collection constitutes a duty in addition to holding legal title, and as a consequence that does not execute.

 

The statute if uses created our executory interests, because the equity courts prior to that time would recognize them, and therefore there was a form of equitable title, and since the stature executed upon equitable title, there was now suddenly a form of legal title.

 

It created our two executory interests springing uses and shifting uses. Executorial limitation is one created by a deed. Executorial devise is created by a will. There are two kinds of executory limitations:

 

shifting use occurs whenever a condition effects the transfer of a possessory estate from one grantee to another grantee.

 

springing use transfers the possessory estate from the grantor to the grantee (it "springs out of" the grantor).

 

[End of review]

 

 

CONCURRENT ESTATES - COTENANCY

 

Tenants in Common, Joint Tenancy; Tenancy by the entirety. By default there is Tenancy in Common. The only exception is in those states that recognize tenancy by the entirety.

If you convey property to a husband and wife and they are identified as such there is tenancy by the entirety.

"To John and Jane Smith, husband and wife" is tenancy by the entirety.

Joint tenancy with the right of survivorship is the hardest to gain. In most states there must be a clean expression of intent.

Co-tenants' interest in an estate is described as a proportionate share, proportionate interest. This means a co-tenant has an ownership interest over the entire estate, not some fraction of it.

Both joint tenancy and tenancy by the entirety have a right associated with them called survivorship. If one of tenants of the estate dies, the other tenant automatically becomes vested in the decedent's share. This is automatic, and nothing has to transfer.

The tenancy in common has no survivorship rights. When a tenant dies, that proportionate interest of the decedent passes on to the heirs or devisees depending on it. In order to create a tenancy in common you must have the fourfold unities: interest, time, title and possession.

 

To have joint tenancy there must be the fourfold unities:

1-Unity of Interest—each tenant owns an equal interest, equal share of the estate.

2-Unity of Title—every one of the tenants receives title in the same transaction or document.

3-Unity of Time—each tenant's interest vested at the same moment.

4-Unity of Possession—each tenant receives of the entire estate, not a fractional portion.

 

Tenancy in entirety is further limited to married (by law) couples only. Those not actually married do not have tenancy by the entirety. It gives to husband and wife co-equal rights to control the property under the modern view. Neither can convey his interest without the consent of the other, and neither can compel partition. Additionally, in most jurisdictions, the creditor of one tenant cannot reach the property held by tenancy by the entirety; has to be a creditor of both spouses.

 

 

MARITAL ESTATES

 

Common law had jure uxoris which gave the husband everything—and has been abolished everywhere.

 

The rights that have survived to a limited extent are

 

curtesy under which the husband has a life estate of all the lands the wife is seised of as soon as the child is born and

 

dower, which means a 1/3 life estate in the husband's real estate goes to the wife if she survives him.

 

Both dower and courtesy have been highly modified in most jurisdictions. They either have been outrightly abolished prospectively (not retroactively) or they have remained as the right of election, i.e., if you accept the dower rights you may have, you then do not take any property based on intestacy statutes or wills.

 

Homesteading allows a family to declare one piece of real estate its homestead which makes it exempt totally or partially from the claims of creditors.

 

If one cotenants pays more than the proportionate share of the expenses associated with the property (e.g., mortgage, real estate taxes), the other cotenants are required to contribute their fair share. The paying cotenant is given a lien, which is a security interest, against the shares of the other cotenants until that contribution is made.

 

Cotenants normally owe each other a fiduciary duty. At a tax or foreclosure sale, therefore, that involves the entire estate, each cotenant must act for the entire cotenancy and cannot act for oneself. If one of the cotenants buys the property at a foreclosure sale, all other cotenants have the right to redeem their portion by contributing their proportionate share of the cost. If only the interest of a particular cotenant is being affected, e.g. given a mortgage that the other cotenants did not sign and is being foreclosed, in that circumstance everyone can bid for himself.

 

Net profits must normally be split proportionally among co-tenants. If one cotenant collects all of the profits and rent, others have right to collect their proportionate share after fees have been deducted (including a reasonable fee for that cotenant's services).

 

While profits and rents must be split, no co-tenant required to pay rent for his or her own occupancy of the premises. Unless there is an ouster, no payment of any form is required. If there is an ouster, then there is an obligation to pay not rent, but a reasonable value for the occupancy of the premises as damages.

 

Each cotenancy in a tenancy in common or a joint tenancy has the right of partition. At the time of the partition the court will do an accounting for any expenses or profits made. A partition severs the tenancy in one of two ways:

partition in kind—split the land so each cotenant receives a portion in accordance with their share, or

sold and proceeds distributed equitably to the cotenants..

 

In general a future interest is not subject to partition until it vests in possession.

 

This partition right can be surrendered in contract as long as there is a reason to do so. Additionally, one cannot surrender this partition right for all times. Most jurisdictions require a reasonable time, interpreted as no longer than the period of time given in the rule against perpetuities.

 

A joint tenancy can be severed by any tenant taking action to destroy one or more of the four unities. One cotenant can only sever a joint tenancy for their share of any joint tenancy they are participating in. If there are more than two cotenants, part of the estate will end up being held in common with the remaining portion held as a joint tenancy.

 

It is also possible to destroy a joint tenancy by going directly against the right of survivorship. One way to do this is to murder one's cotenant. Additionally, this can be done by deed, simply by conveyancing to a tenancy in common from a joint tenancy.

 

If the language is not clear, the tenants may end up with something not wanted, a tenancy in common, or worse, tenancy in common on a life estate with contingent remainders in fee simple absolute in the survivor. The actual language to create a joint tenancy varies from state to state. This is done by following the forms and not being creative.

 

Mortgages can be

liens (majority rule) or

title transaction —if so, the granting of a mortgage by one party to a joint tenancy will sever the joint tenancy, because the unity of title has been broken.

 

Tenancy by the entirety also has specific rules that distinguish it from other forms of tenancy:

it only is applied to real estate

it only available to spouses

it has all of the other aspects of a joint tenancy but additionally is non-severable and non-partitionable.

Neither cotenant can sever the survivorship provision without the consent of the other, nor can they voluntarily or involuntarily convey their interest to another.

 

Under the common law the husband was given exclusive control over the property. Now all but one state that recognize tenancy by the entirety make it a mutual decision with either party having veto.

 

Tenancy by the entirety cannot be partitioned.

 

Community property is a western (US) concept of holding property within a marriage. It recognizes both individual property if that property was owned prior to the marriage or which is received by gift or devise and community property—everything else.

 

 

CONDOMINIUMS, ETC.

 

In structure the condominium owner holds title in fee to the unit, and has a tenancy in common interest to all the common areas of the condominium. In a cooperative each owner holds a proportionate share of stock in the corporation that holds title to the property along with a proprietary lease between the corporation and the individual who occupies the particular unit.

 

Time-shares can be either condominiums or co-ops where they are additionally limited to a set period of time during a given year.

 

Condominiums are the most typical form of common ownership today, predominately caused by the lesser power given to the board of directors of a condominium, the fact that each condo owner has real estate which is therefore subject to mortgage rather than a personal loan and the fact that each unit owner controls exclusively the operations that occur inside the unit. The principal weakness of a condominium is faced if you have multiple non-paying tenants, because in that circumstance the condo board has no property to use for security for a loan.

 

To determine the common elements of a condo one must look at the declaration of the condo; this also defines the precise boundaries of the unit. Typically, common elements would include parking lot, walk ways, roofs, etc. The interior unit is usually defined based on the interior surface of either the wallboard or the studs and moving in towards the unit.

 

 

NON-FREEHOLD ESTATES [LANDLORD-TENANT]

 

The requisite in forming a leasehold includes establishing that there is a definite space in the subject's legal rental. Additionally, unless there is some statute or court rule in the jurisdiction that reverses it, a definite term of possession and rental value must also be agreed upon. With these three elements, a leasehold agreement is created.

More traditional states will also require the premises be turned over to the tenant before the leasehold estate exists. Prior to the delivery of possession, the parties merely have a contractual agreement to form a leasehold, rather than having a leasehold itself.

At best, some states will say the tenant has a right of entry which is a future interest as opposed to any kind of present possessory remainder. Most states treat it as merely a contractual right.

The Statute of Frauds applies to leases that have a duration of longer than one year. In most jurisdictions that kind of lease must be in writing; if not in writing, it is not enforceable.

Identification of four kinds of leasehold estates that can exist (tenancies): T for years, periodic T, T at will and T at sufferance.

 

1-Tenancy for years is identified as any leasehold which has a definite period of time for which it exists. It need not be in existence for an actual period of years, rather the ending point of the leasehold must be definite.

 

2-Periodic tenancy is a leasehold that continues for successive units of time until either party notifies the other that it wishes to terminate the arrangement. Most visible periods are week to week or month to month. The agreement can be terminated by either party at any time, giving the appropriate amount of notice in advance. Under Common Law, if the period was one year or longer, one period's notice was required. Many states have now abandoned these purely restrictive rules and require most typically one month's notice in advance.

Periodic tenancies are often created indirectly when premises are let on an oral lease and a rental payment is made on some kind of periodic basis. The law will usually view that kind of arrangement as a periodic tenancy.

 

3-Tenancy at will is defined to be anything that is not a tenancy of years or periodic tenancy. It can be achieved where attempting to create one of the other tenancies has failed (e.g., an estate for years with a duration longer than a year violating the Statute of Frauds creates a tenancy at will) and can also be created by agreement. Tenancies at will can be terminated by either party at any time requiring minimal, if any, notice. Often the parties just leave.

 

4-Tenancy at sufferance (mere possession, not quite a tenancy) is what survives after another tenancy has been terminated, for whatever reason. It is merely the right of possession: the right of the tenant to wait for the sheriff to evict.

 

A landlord-tenant arrangement can theoretically be created that will go on forever with successive rights to renew a lease. However, courts highly disfavor this kind of arrangement, and if you do so, in most jurisdictions you must do so in very clear writing. Courts prefer the creation of a fee and not the use of the landlord-tenant law.

 

Landlord's obligations

 

The principal obligation that a landlord agrees to under a lease is called a covenant of quiet enjoyment. Most states require that a landlord agrees to a covenant of quiet enjoyment and will imply it into every lease even if it is not there. Under this clause, the landlord must put the tenant into at least legal possession (American rule) of the premises at the beginning of the lease term. Most states will also require the landlord to put a residential tenant in the actual possession (English rule) of the premises at the beginning of the term. On the other hand, the majority of jurisdictions do not require that commercial tenants be put in actual possession: legal possession alone is sufficient for a commercial tenant.

There is a minority of jurisdictions that require all tenants to be put into possession.

If the lessor has not provided the quality of possession necessary, legal or actual, the damages that the landlord owes to the tenant equals the value agreed upon in the rent less whatever rent the tenant chose not to pay because of the violation.

In addition to possession at the beginning of the term, the covenant of quiet enjoyment also requires that the tenant be free from adverse conduct by the landlord or his agents and from adverse claims of title.

In most jurisdictions the covenant of quiet enjoyment does not include any protection from third parties including other tenants. If, for example, there is a trespasser on the premises, it is solely the responsibility of the tenant to remove the trespasser—as long as trespasser is not the landlord or landlord's agent.

 

CONSTRUCTIVE EVICTION

 

Once a tenant is put into possession of the premises, and if the landlord deprives that tenant of all or any portion of the premises physically, an eviction has occurred and the landlord has lost right to collect rent. If it is not physical deprivation, but intentional acts to interfere with the tenants' use and enjoyment of the premises, or the natural and probable consequences of the landlord's conduct is that the tenant will lose the use and enjoyment of the premises, a constructive eviction has occurred.

A majority of the states have not extended this constructive eviction concept through the landlord's failure to control other tenants. The trend seems to be in that direction, particularly where the landlord has allowed a commercial tenant to interfere with residential tenants, or where the landlord in the lease or elsewhere has established rules of conduct or behavior for all tenants.

Additionally, this doctrine of constructive eviction has not been irreversibly applied in commercial settings; much more commonly seen in residential settings.

Most jurisdictions in a constructive eviction do require the tenant to move out. The minority does not.

 

HOUSING DISCRIMINATION

 

Defective Premises: traditionally, landlord was under no obligation to make repairs. But since there is no duty to make repairs, the tenant could not withhold rent if the repairs were not done. Even if the landlord had agreed to make repairs, the tenant still could not withhold rent because of the independence of covenants doctrine. The rental obligation was considered independent of the landlord's obligation for repairs.

 

Changes to common law: starting in the late 60's, and moving through today, the courts began to alter this rule radically to prevent a clash with tenants.

 

1-if an apartment was leased in violation of the housing code at the time lease was signed and entered, that lease was voidable. As a consequence of this, the tenant's obligation to pay rent did not exist although there might be an obligation to pay a "reasonable use occupancy" under a quantum meruit provision.

2-after these cases were decided the courts were faced with the problem of having housing code violations that came up after the lease was entered. The courts established (through D.C. Court) the implied warranty of habitability.

Under this warranty the landlord is required to maintain the premises in a habitable condition which translates to at least to the standards of the building code and the house and safety code for the jurisdiction. If the landlord failed to meet this standard, the tenant was allowed to apportion his or her rent by deducting an amount equal to the cost to repair the problem.

This implied warranty of habitability does not in itself allow a tenant to vacate the apartment or declare the lease terminated. The remedy is to deduct from the rent the amount of the cost to repair. The tenant will be able to terminate, however, if the higher standard required for constructive eviction is met — a substantial breach of the landlord's obligation—so that it constitutes a breach of the covenant of quiet enjoyment. If the housing code violations are extreme enough, the tenant will be in a situation of terminating a lease under the theory of constructive eviction. The key decision point for most courts is the cost to repair; if defect is something that can be repaired with one or two months worth of rent, it will not be considered constructive eviction. But if defect will cost 20-30 months worth of rent it will not.

 

Implied warranty of habitability has not crossed the line into commercial premises in most jurisdictions. Vast majority of states have rejected what is called the implied warranty of suitability (for offices, etc.). Even those jurisdictions that have accepted it have allowed the landlord/tenant to waive the implied warranty in the lease.

 

 

LIABILITY OF THE LANDLORD

 

If someone is negligent and injured on the premises, the modern standard in a residential setting is that the landlord must act as a reasonable person under all of the circumstances, including the likelihood of injury to others, the probable seriousness of such injuries and the burden of producing or avoiding the risk. This is a very classic negligence test. The landlord is liable even for the criminal conduct of others if the landlord could have foreseen the possibility of criminal attack and could have provided reasonable protection against such attacks.

If the landlord's failure to provide the protection also constitutes a breach in the implied warranty of habitability, the negligence will be found almost a matter of law: negligence per se can be used.

This modern standard is a very radical transformation to the traditional common law.

 

No liability with seven exceptions rule: the traditional common law held that the landlord was not liable in tort unless:

 

the area was used in common by more than one tenant;

the landlord failed to disclose latent defect that the landlord knew about;

the premises were being leased for the admission of the public;

the landlord was negligent in making repairs whether he had agreed to do so or not;

the landlord breached the statutory duty to make repairs and such breach constitutes negligence per se in that jurisdiction;

the landlord breached an express covenant to repair.

the injury was caused by defect that would be a breach of the implied warranty of habitability and occurred in a dwelling leased for short term occupancy.

 

If the landlord could be held accountable for negligence if one of the (above) seven exceptions were met.

This more restrictive law has not disappeared from the scene for two reasons: if you would be liable under the old law, you certainly are going to be liable under the new. Also, in commercial settings the newer standard has not been adopted by as many states. Many states still use the "no liability with seven exceptions rule" for commercial landholds.

A residential landlord is also not free in most states to make himself immune from tort liability. These "exculpatory" clauses (e.g., dry cleaners, parking garages) are either illegal in their very nature or they have been prohibited in residential leases by court opinion or statute. This is not true of commercial leases; in most jurisdictions, the vast majority, the landlord is free to exculpate himself from liability in a commercial lease.

 

Rental obligations of tenant are purely a matter of convenience and agreement. The only way to tell what a tenant has to do is to look at the lease.

In commercial settings the provisions can be immensely complex in describing the rental agreement. As with any other matter, draftsmanship of the lease provisions becomes critical. In some ways the drafting appears more critical because the payment of rent is so fundamental and so important in this agreement.

 

Rent increases that the tenant may be subjected to: the constitutional challenges to those laws have almost always been unsuccessful, at least when there is some possibility the class of landlord will receive a return (reasonable). The only laws which have been struck down under pure rent regulations are those which do not allow the landlord the option of recovering any mark-up whatsoever. "Rent stabilization" is almost synonymous with "rent control."

 

 

HOLDOVER TENANTS

 

If the lease has language regarding holdover tenants, the lease provisions generally will be enforced if they give the landlord reasonable remedies.

If there is no contract language, the traditional rule held in most jurisdictions is the landlord has the choice of treating that situation as a tenant at sufferance and proceed with an eviction or as a periodic tenancy where the period of the tenancy is set, based on the duration of the original lease, up to one year, at the landlord's choice.

Modern courts, and many courts now, are beginning to put a limitation on this: not giving the landlord the right to evict where it is clear that the tenant's holding-over was accidental, particularly where it is of very short duration. If a holdover tenant moves out, the landlord under modern law would be under a duty to mitigate damages at his choice within a reasonable time

Section 8 Housing is a federally run rent subsidy program. The program gives qualified individuals a rental subsidy for them to rent improved Section 8 housing, which is effectively housing on the open market. The housing is provided by private landlords and is not in any way public housing.

A tenant under a Section 8 apartment or Section 8 rent guarantee subsidy has a property right in that tenancy. It cannot be terminated without the landlord showing good cause.

 

The traditional grounds for good cause for eviction were failure to pay rent, damage either to other tenants or to the premises. Some form of criminal behavior also can be found to be good cause, usually when that criminal behavior is occurring on the premises itself.

Many states have statutes to protect particular classes of individuals in their renting of rental housing, particularly as rental housing [became] condominiums. The most typical groups protected are senior citizens and handicapped individuals.

The details of these statutes differ greatly from state to state, and if a problem ever arises in this area one should be sure the statute applies before relying on it. The only way to do this is to read the statute with painstaking care, particularly the definitions section. Very often the legislature will define terms in a way that is not consistent with the ordinary everyday meaning of the terms. If you use the ordinary meaning of the word, rather than that of the statute, you will reach the wrong result

Taking, or endorsed condemnation: the government physically requires a feeholder in possession of a premises, to submit to a physical taking which the government acquires by compensation.

This physical deprivation occurs in two principal ways:

The government itself takes the property for governmental uses, or alternatively,

the government can force some other party to take in connection with that property.

Even where it is not a physical taking, if the government regulates the use of the property to such an extent the person's property rights are effectively terminated.

 

A regulatory taking has occurred and also requires compensation.

Normally, regulation is not a constitutional problem; if it gets egregious or grievous and outrageous enough the court may find it to be an eviction.

 

 

USE OF THE PREMISES

 

A leases provision indicating the use to which the premises are to be used can be either permissive or mandatory. If the language is clear that the tenant can only use the premises for a particular purpose, there are mandatory laws that can be enforced most typically by an injunction against other uses as opposed to an eviction. If the language is not mandatory, it will be considered permissive to allow the tenant to use the premises for any lawful purpose.

This issue of the language in the lease is separate from the issue of representations made prior to the signing of the lease.

If the tenant fraudulently obtains the lease by misrepresenting the purpose to which the premises will be used, the fraud that was done is the basis for the rescission of the lease. The standard of proof for fraud is very high; courts do not like fraud actions and as a consequence make it severely difficult to prove.

 

The doctrine of waste applies to the landlord-tenant relationship. In a residential setting, however, this permissive waste concept does not apply, since it is the landlord who has the obligation to repair, not the tenant.

Traditionally, the doctrine of waste, entirely or in part, can be modified by lease provisions that would affect them.

 

Normally the landlord maintains title to all fixtures that exist in the premises. A fixture is any chattel or piece of personal property which is physically and permanently attached to the realty.

A tenant is free to remove "trade fixtures" however, as long as no material injury will occur to the premises by the removal, and as long as the removal was done before the leasehold is surrendered. Trade fixtures are installed for the purposes of conducting the trade or business.

In most jurisdictions, the renewal of a lease constitutes a surrender and reacquisition of the premises and as a consequence trade fixtures will become the property of the landlord if they are not expressly reserved in the renewal lease (saving clause).

A court will read an implied covenant of continued operation into a commercial percentage-based lease, if the terms of the lease indicate that the lessor needs them in order to make sure they are bargained for, this is particularly true when the minimum rent set is not standard-separating percentage lease from a profit-sharing arrangement.

 

EVICTION ACTION

 

This is a suit to reclaim the possession of property which the tenant will not move from voluntarily.

Most states have a formal multi-step process. A formal notice is required to be served. If the tenant does not move out in response to that notice, a formal law suit would commence.

If the lawsuit is successfully won by the landlord, the sheriff (court magistrate, police) will be ordered to put the tenant and his possessions on the street through a summary eviction action.

Most states will not allow a landlord to evict a residential tenant in retaliation for the tenant complaining about a building code violation to the appropriate governmental agency, such as, for example, plumbing. Some states expand this defense even farther, saying that the landlord cannot evict in retaliation for any housing related activities by the tenant, i.e., forming a tenants union. A small minority of states expand this to include any constitutional or statutorial protected right.

 

 

ABANDONMENT BY TENANT

 

At common law, if a tenant abandoned the premises prior to the expiration of the lease, the landlord was not required to re-enter the estate in an attempt to mitigate damages. The landlord could leave the premises vacant and sue for the rent due to that day from the tenant who abandoned.

If the landlord did choose to go back into possession of the premises, that would constitute the termination or effective surrender of the lease, and the leasehold is terminated. As a consequence, the tenant's obligation to pay rent and any other form of compensation would also terminate.

If the lease allowed for it, however, the landlord could go back into possession of the premises as the agent of the tenant and re-let it as the agent of the tenant. The problem with this particular circumstance, though, is that it puts the landlord in a fiduciary capacity towards the tenant, almost an untenable position to be in.

The modern trend is to treat the abandonment of the tenancy not as an estate problem but as one of contract. As a consequence, as in the completion of any other contract, the landlord is obligated to mitigate damages. If the landlord does not do this, the landlord will still be charges with the value that should have been obtained through an attempt to mitigate. This is minority rule in commercial settings and probable majority rule in residential settings.

Under the modern trend, the landlord not only can, but must re-enter the estate, must effectively re-let it, and any money that is recovered through that process will serve to lessen the damages the tenant has to pay.

 

The taking of security deposits by the landlord, particularly in the residential area, has historically been a very abusive process. As a consequence of this, most states highly regulate the taking of security deposits. Typically, the state will limit the size of the deposit, will require a prompt return after the leasehold is over or alternatively an accounting of why it is not being returned, and finally requiring the money be placed in some form of escrow or separate account.

 

CONVEYANCE OF THE PROPERTY DURING THE TERM OF THE LEASE

 

If the landlord conveys the interest, it is normally made subject to any leasehold that may exist therein.

If the tenant transfers the leasehold, the relationship that results will depend on the kind—or how the tenant transferred their interest.

Under the traditional common law, the transfer by the tenant will be considered an assignment if the tenant transferred all of the remaining term of the leasehold. If the tenant reserved as little as a day, or any period of time at the end of the leasehold that is not transferred, the common law would then create a sublease.

Two minority rules in this area: the New York rule which treats it as a sublease, and the more modern trend of contractual analysis of what is the intent of the party. If the party intended an assignment, then in that case it will leave it.

The consequences are fairly automatic. If it is a sublease, the landlord is not in privity of estate with the subtenant. If it is an assignment, however, the landlord is in privity of estate with the assignee.

Thus the landlord is in a position to sue an assignee directly for rent but not in a position to sue in a sublease situation for rent.

An assignee of a lease who does not undertake an obligation to pay all rent as it becomes due in the future can only be held accountable for rent for the period that the assignee was in actual or constructive possession of the premises.

A subsequent assignment by that assignee will terminate the obligation to pay rent provided that subsequent assignment is not "colorable." A "colorable" assignment is one when the assignor maintains active or constructive possession of the premises; not fraudulent, however.

The normal rule is that all leases can be assigned or sublet by the tenant without the consent of the landlord. If the lease prohibits such assignments, or prohibits them without the consent of the landlord, once the landlord consents to the assignment the first time, he has no further right to limit subsequent assignees. This is the rule in Dumpor's Case. The exception is if there is a clause which requires the landlord's consent for assignment by its very terms supply knowledge of the first assignment but also future assignments, then Dumpor's case will not be applied.

 

 

EASEMENTS

 

An easement is the interest in the land possessed by another that allows the limited use or enjoyment of that land. This use can be protected from interference by others. It is not subject to the will of the titleholder. It is not a normal right that is extended to non-possessors of land, and it can be created by covenant.

 

Easements can be either:

affirmative and allow a party to do things on another party's land, or

negative and allow its holder to prevent the use of the land in a particular way.

 

Easements can be either:

appurtenant and benefit the titleholder of a neighboring parcel of land

in gross and benefit a party who is not a neighboring land owner.

 

In evaluating easements, the estate which benefits from the appurtenant easement is called the dominant estate, while the estate that is subject to the easement is called the servient estate. With an easement in gross there is a servient estate but no dominate estate.

 

A profit is effectively a form of easement and provides a right to a nonholder of title to enter the land and to remove therefrom certain things, particularly mineral rights and agricultural products. It does not allow them to plant anything, just to remove it.

 

Appurtenant easements are favored over easements in gross; courts generally dislike easements in gross and generally limit them unless they are held by a railroad, utility company or such entity. Most courts hold that an easement in gross to a non-utility is a personal right of the holder that is not inheritable but will die with that individual.

 

Traditionally to create an easement, the holder of that easement had to be a party to that deed—either a grantor or grantee. A majority of states have now changed that rule and allow the creation of an easement in a stranger to the deed. This also can be done simply by conveying the easement and then conveying the land subject to it, or by reserving the easement in the grantor and then subsequently conveying it.

 

Distinguish:

lease—conveys interest in land and most particularly possession of it to another party.

License—revocable at the will of the party, unlike an easement which cannot be revocable at will.

Irrevocable license—the party cannot revoke, and for all intents and purposes is an easement. Most commentators have declared this to be effectively an estoppel if their license would normally be revocable, but because of the conduct or misconduct of the party, they lose that right to revoke it.

Normally a license is not enforceable in equity. If it is breached, the remedy available is damages. There is no way to force a person to allow you to use a license.

 

In addition to being able to create an easement expressly by deed, it can be created by necessity, by implication or by prescription.

To establish an easement by necessity the dominant estate holder must show the original unity of ownership between the dominant and servient estates and that no other means are available to access a public road except over the land that was granted or retained at the time of severance. An easement by necessity survives inchoate until needed; they always exist and can spring up later.

Easements by implication (pre-existing use) are created by the party's use of the land or by reference to a deed, map or description showing some form of common usage. To establish an easement by pre-existing use, or by implication, the dominant estate holder must show again common ownership of the two parcels followed by conveyance of one or the other, that before the severance occurred, the use by the dominant estate of land within the servient estate was: apparent, obvious, continuous and permanent and the claimed easement is necessary and beneficial to the dominant estate. The Restatement will set forth the eight factors (as printed in the casebook) that became relevant in a modern type analysis.

Easements by prescription are not created by actual or implied consent. They result from continuous use of the servient estate by the dominant estate. In a majority of jurisdictions, an easement by prescription results from:

the use of the servient estate's land by the dominant estate holder,

the claimed servient estate holder's acquiescence (but not consent) and

as a consequence prescriptive easements cannot follow a license unless that license has been terminated by either party.

 

The claimed easement must be used in an open, adverse, continuous, uninterrupted and under a claim of right for a period of more than that given in the statute of limitations (most typically 10-20 years) in order to exist.

A minority of jurisdictions require the acquiescence of the servient estate holder to exist throughout the prescriptive period as part of the proof of adverse use.

To simplify the law, because it is a mess, many jurisdictions have adopted the joint use presumption. The joint use of a driveway or other feature that is opened up or created by the servient estate holder is presumed to be permissive, while the joint use of the driveway opened up by the dominant estate holder is presumed to be adverse.

Finally, a minority of American jurisdictions have adopted the English concept of customary rights. Where there has been a long and general use of the servient estate by the public at large, exercised without disruption and without dispute, and being reasonable type of use for the land in question, and where the consent of the holder of the land was never required or never sought, and no other laws were violated, a customary right is established. This is a distinct minority rule. Most American jurisdictions will not recognize customary rights.

 

 

An easement can only be used by the estate to which it is appurtenant. An easement in gross can only be used by the individual or company that holds the right.

The character of the use of the easement cannot be changed from that which was originally granted. If the change in use imposes an unreasonable use on the easement, the use can be enjoined. If the change in use does not impose an unreasonable burden, it will not be enjoined. (i.e., if the easement was originally granted to allow horse-drawn to cross the road and now automobiles are going to cross the road).

The servient estate holder cannot unreasonably interfere with the use of easement. The courts evaluate interference using a "rule of reason" if they need to. It is a rule of interpretation. First, they look at the easement. If it is specific and has been violated, the courts will enjoin it. If the servient estate is not allowing the use given specifically in the grant, the court will enjoin the interference of the use.

 

If the courts need to "read between the lines," the rule of reason will be used. The courts will interpret the easement based on contemporary needs, not based on the needs when granted. Wagonwheel easements will turn into automobile easements.

When the dominant estate has the right to an easement in an unspecified location across the servient parcel, the dominant estate holder must be reasonable in the choice of the location—a location that interferes in the least reasonable way possible with the servient estate.

If the ownership of an easement is split among more owners than originally granted, the new owners are generally required to exercise that easement collectively, rather than individually. This is to prevent "surcharge of the easement" by increasing the quantity of use. This results when an easement is used at a level more than the original grant intended. If the increased use is unreasonable, the surcharge will be enjoined.

 

TERMINATION OF EASEMENTS

 

Easements, like any other property interest, may be terminated:

 

expressly (by deed or grant)—when the dominant estate holder conveys a release of the easement to the servient estate, an express termination of the easement occurs.

 

By merger—when the servient estate acquires title to the dominant estate (or vice versa), termination by merger has occurred. The easement will merge back into the fee. One cannot own an easement across one's own land.

 

By abandonment—If the dominant estate holder stops using the easement with an objective intent to abandon it, termination by abandonment occurs. This could either be through a writing or through conduct that is inconsistent with the easement, such as building a fence across it.

 

By prescription—If the servient estate holder interferes with the use of the easement openly, adversely, continuously and uninterruptedly under a claim of right for a period of more than that specified in the statute of limitations, termination by prescription has occurred.

 

 

 

REAL [OR RESTRICTIVE] COVENANTS

 

A real covenant is a promise that involves land and its use. In order to have a real covenant the promise must run with the land, and for this to occur, the promise must "touch and concern the land," must be made with the intent that it run, and it must be made and enforced between parties with the appropriate quality of privity.

To determine if a promise "touches and concerns" the promisor's land an estate must be rendered less valuable because of the promise. Likewise, to determine if the promise "touches or concerns" the promisee's land, that estate has to be rendered more valuable because of the promise. This is the common law view.

The Restatement view is a little more flexible. It simply requires that they reach the promise concerning the benefits, use and enjoyment of the land.

If a party to the enforcement action is not a party to the contract that created the promise in the first place, then that right and obligation must run with the land. It is only of concern when the parties that are doing the enforcement are not the original affected parties.

 

The parties must intend that the covenant run with the land. This is generally done with a simple statement to the intended parties for whom this covenant shall run.

The parties must be in the appropriate level of privity with each other in order to enforce the promise. Most American jurisdictions only require vertical privity, i.e., the enforcement parties are successors in interest to the original contracting parties. (They bought the land from somebody who originally made the contract or promise.) This is a very minimal level of privity.

The minority rule in the US is to require horizontal privity, i.e., if the original parties were grantor and grantee on a piece of property when the covenant was created.

England requires mutual privity, that the original party has a continuing interest in the same parcel of land, effectively a landlord-co-tenant situation. No American jurisdiction requires mutual privity. Most require vertical, a minority require horizontal.

 

A few states seemed to have abolished the formal requirement of privity altogether. But even in those states there needs to be some kind of direct relationship between the party who is not in privity and the promise, most typically this is dealing with a homeowner's association, or other collective agent if you will for the property owners.

Most jurisdictions do not even require privity.

 

For a real covenant, a subsequent grantee of either the dominant or servient parcel will be benefited or burdened by the promise simply by accepting the conveyance.

Additionally, in a majority of jurisdictions, a conveyance serves to discharge an individual from the obligation or the advantages of a real covenant. If you have a parcel of land that is subject to a covenant, and you convey that parcel of land, you are no longer subject to any kind of liability.

Restricted covenant and equitable servitude are twins; they have a legal effect that is basically identical.

 

EQUITABLE SERVITUDES

 

Equitable servitudes exist to satisfy the intent of the parties where one or more of the technicalities associated with the restricted covenant have not been met. The most typical gap-bestowing is privity, i.e., this is what the equitable servitude was in fact intended to do, to fill a gap. Not all gaps can be filled. Many jurisdictions do not allow it to fill what would be a restricted covenant in gross (since a restricted covenant in gross cannot exist).

A smaller number of jurisdictions will allow equitable servitude to fill this gap, and allow equitable servitudes in gross.

Another area where we find an older policy is where the courts declare that certain kinds of restrictive covenants would not be enforced, most typically a covenant not to compete if the land is being granted.

A large number of jurisdictions will now enforce these covenants, not as restrictive, but as equitable servitudes to fill in that gap.

Regardless, however, of whether they are enforced as equitable servitudes or restricted covenants, such clauses are usually limited to a commercial setting and examined for reasonableness on a case by case basis.

 

 

IMPLIED NEGATIVE RECIPROCAL EASEMENTS

 

A minority of courts recognize the theory to allow enforcement of a restricted covenant against an unrestricted lot. The unrestricted lot must be shown to have originated from a common owner in all of the lots that are restricted. The unrestricted lot must have been purchased with actual or constructive knowledge of the restriction, usually because of the nature of the neighborhood. This doctrine theory of implied reciprocal negative easements has been highly criticized, particularly because it makes the process of title search close to impossible. Also, although it calls itself an easement, it is in part an equitable servitude.

A common development scheme effects the establishment of the dominant party to a restrictive covenant. If the subdivision has been developed under a common development scheme, any lot owner who is in that common development will dominate every other lot within the parcel and will be dominated by every other parcel.

 

 

CONSTITUTIONAL AND PUBLIC POLICY LIMITATIONS ON COVENANTS

 

Racially restrictive covenants cannot be enforced by the courts under the 14th Amendment; it does not make them illegal, but simply makes them unenforceable. This kind of clause as well as many other kinds of clause, however, have been made illegal by a variety of statutes both at the state and federal level. A minority of states will also defeat a restrictive covenant if it violates public policy, although most will only do so based on statutory or constitutional grounds.

 

Interpretation of restrictive covenants, like any other type of agreement that needs to be interpreted, can be troublesome. There are two ways the courts tend to treat them: as any other agreement, and as a consequence their purpose is to determine the intent of the parties and they will interpret and put into effect the intent of the parties. This is the more modern and the majority view. Other courts under the more historic view treat them very narrowly, considering them a restraint on alienation and a restraint on land, and under this view they are strictly construed, only what is specifically stated will be enforced, no filling in will be done.

 

The reservation or right to amend a restrictive covenant by a developer or someone else will have the effect of preventing them of becoming restrictive covenants; they will be personal to the developer. If the developer wants the covenants to run with the land, an ongoing committee must be established, or alternatively, the power needs to vest in all of the landowners. It is something that goes on through time. In either case the decision maker on amendment rights in most jurisdictions must act reasonably and in good faith and cannot be arbitrary or capricious in their conduct.

 

A restrictive covenant or equitable servitude can be terminated by waiver, abandonment or changing use doctrine.

 

Waiver is a failure of the dominant estate hold to enforce the covenant and will prevent that covenant from being enforced in like circumstances in the future.

 

Abandonment of a restrictive covenant, like any other abandonment, starts with the waiver and is coupled with the objective intent never to seek enforcement of that covenant again.

 

The changing use doctrine deactivates a restrictive covenant where the use of the land in the area surrounding the lot has changed from that originally intended to such an extent that enforcing the restriction no longer makes any rational sense. The changing use must exist within the development and be so extensive effectively that all parcels within that development are affected. In particular border lots are not allowed to look outside the development and say the surrounding neighborhood has changed., since a border lot's primary purpose is to protect the interior.

 

Support of Land

 

In general, the right to support of one's land from the lands adjoining is one of the incidents of ownership.

 

"Lateral support" is support that land receives from the adjacent land. "Subjacent support" is support the land received from underlying strata.

 

Right to support of land in its natural state: A landowner is strictly liable if he does anything to cause the collapse of a neighbor's land. The right to lateral support of land is absolute. There is no defense.

 

Right to support of buildings on land: Generally, there is no obligation to support the added weight of buildings. However, a downhill landowner is strictly liable if the land would have collapsed even without a building on it. Jurisdictions disagree on extent of damages.

 

Majority rule: A downhill landowner is strictly liable for damage to the uphill land and buildings.

 

Minority rule: A downhill landowner is strictly liable only for damage to the uphill land. Any damages to buildings cannot be recovered under strict liability.

 

In a minority of states, if an uphill landowner makes significant changes in the land, he terminates the strict liability provision.

 

In a majority of states, the uphill landowner who makes significant changes is required to prove that the land would have collapsed anyway.

 

Uphill landowners can also recover in negligence theory. There are two ways to show negligence:

 

1. Failure to provide against foreseeable risks, that is, a known risk of harm or risk that should have been known. Example: failing to maintain a retaining wall. A covenant to maintain such a wall runs with tine land.

 

2. "Unnecessary excavation rule" - this balances the value of the excavation against the risk of damage to the uphill owner. Is the excavation being dug out of spite or for some useful purpose?

 

Generally, the doctrine of lateral support has not been applied to landslides. Unless negligence is shown, an uphill owner usually is not liable if a retaining wall collapses and uphill land falls on downhill land.

 

Right to subjacent support: Strict liability generally has not been used where the settling of land results from the removal of groundwater. Plaintiff must show negligence.

 

Drainage - This deals with removal of "diffused surface waters" —precipitation. If a landowner makes changes in the drainage pattern, there are three (3) rules to determine if he must compensate for any damage those changes create:

 

"Common enemy" doctrine: Under this, a landowner is free to do whatever he wants to rid his land of surface water. There is no liability for resulting damage.

 

"Civil law" doctrine: Under this, a landowner is liable for any damage caused by changes in drainage patterns.

 

"Reasonable use" test (Modern majority rule): This balances the foreseeability of harm, the value of the water's removal, and the costs that are imposed on the other landowners. As a general rule, if the change in water flow causes significant damage, the party making the change will be forced to absorb the loss.

 

Water Rights

 

A riparian estate must be contiguous—touching—the watercourse and must be within the watershed of that watercourse.

 

In England, each owner of a riparian estate was allowed to use the water but not own it. After each use, it was to continue without material diminution in quantity or quality.

 

The American system has two rules:

 

1. Natural flow theory. This allows each riparian estate owner to use the water that would be provided by the natural flow of the watercourse.

 

2. Reasonable use theory. This allows each riparian owner to make reasonable use of the water. Each owner has the right to be free from anyone else's unreasonable use of that water.

 

To determine whether the use is "reasonable," it traditionally is measured based on the nature of the use. Natural uses such as domestic and livestock were preferred over artificial uses, such as irrigation and manufacture. This is the majority rule.

 

If an upstream riparian holder needed all the water for natural uses, he could appropriate it.

 

If all natural uses have been satisfied, some states say each riparian holder can take no more than his proportionate share of the water. Others say the first in time can use it. Still others say the one upriver can use it.

 

The majority of jurisdictions today use the Restatement view of "reasonable use" which weighs nine factors, the most important of which is nature of the use. Natural uses beats out artificial uses. Among artificial uses, irrigation will beat out manufacture.

 

Under the Restatement view, if the equities are in perfect balance, the first user of the water prevails.

 

Diversion of Water. If water is being diverted from riparian land, there are two rules as to whether that use can be prevented:

 

Majority view (Reasonable use test): This allows reasonable use of the water, provided no present or future harm occurs to other riparian holders.

 

Minority view (Natural watercourse rule): Under this rule, any diversion to non-riparian land is illegal, per se, even if there is no injury.

 

Priority of appropriation doctrine. This is the rule in many Western states. Under this rule, the first person in time to use the water can continue to use the water for that purpose, barring all others. There is no test as to whether the use is appropriate. If someone was using water for manufacture and was the first to use it, others could die from thirst.

 

Groundwater - There are a variety of rules pertaining to groundwater:

 

English rule. This allowed the titleholder to use the groundwater for whatever he wanted. If he found it under his land, he could use it -- regardless of the consequences to anyone else. He could pump other wells dry. Minority rule in the US.

 

American rule of reasonable use. This is the majority rule in the US. It allows the titleholder to extract whatever water he reasonably and beneficially uses.

 

Correlative rights doctrine. In California, each titleholder is allowed to extract no more than his proportionate share of the aquifer,

 

The trend seems to be in the direction of the Nebraska rule which uses the reasonable use rule in times of plenty and the correlative rights rule in times of shortage. Minority rule, but there is a trend to move in this direction.

 

Air Rights - the rights existing above the surface of the land.

 

As a general rule, the titleholder is free to build a structure of any height on the land. These rights can be conveyed in fee title. The landowner owns at least as much of the space above the ground as he can occupy or use in connection with the land.

 

Any other party who may be privileged to cross the boundaries of the land must avoid the structures that are there.

 

The right to build structures can be conveyed separately from the land. You can own air rights.

 

The airspace above the minimum safe flight altitude can be used by general aviation without impinging any landowner's rights. The minimum safe flight altitude is currently defined as 1,000 feet above the ground or 500 feet above any structure, whichever is higher.

 

In order to land an airplane, the airport must either have title to or an easement across the land at the end of the runway.

 

Access to Sunlight

 

Common law: Access to sunlight was governed by the "ancient lights doctrine," a form of negative prescriptive easement. Once the landowner received sunlight for a significant period of time, he was entitled to continue to receive and use that sunlight.

 

Modern law: In the US today, the doctrine has been rejected in most jurisdictions and you cannot have a negative prescriptive easement to sunlight.

 

An exception is made in cases of "spite fences" where a person puts up an obstruction out of "malice" merely to interfere with sunlight.

 

Some states have moved toward a "reasonable use" analysis for sunlight access. Even more are legislating or regulating in the area. This is particularly true in the Southwest and Florida.

 

The degree to which energy is derived from sunlight is directly correlated to the amount of regulation of the light received, e.g., little in MA and significant in AZ.

 

The Real Estate Contract

 

Normally, seller lists property for sale with a real estate agent or broker, who will advertise the property. A purchaser will make a written offer to purchase, commonly called a "binder." The binder may be considered an agreement to agree, an agreement to negotiate in good faith or an enforceable real estate contract. In most cases, it is not a binding contract. Lawyers then draft the real estate contract.

 

The closing is the next step. It is the transaction where title gets conveyed, money is exchanged, mortgages get issued. Most of the transaction is done in escrow.

 

To determine whether the seller owns what he is trying to sell, a search of title records is done. A "certificate of title" or "abstract of title" is produced. In most transactions, the purchaser and the bank buy "title insurance."

 

The Oral Contract

 

The Statute of Frauds was enacted in 1677 and was designed to prevent fraud and perjury. Among other things, it requires contracts for the sale of land to be in writing.

 

In the US today, each state has a slightly different view of the Statute of Frauds. This is based both on the differences in language in each state's statute and differences in judicial philosophy in interpretation.

 

In the vast majority of jurisdictions, a contract which falls within the Statute of Frauds is unenforceable. You cannot sue on it. Some states make the contract void. It never existed.

 

Doctrines of Part Performance and Equitable Estoppel

 

Although the normal requirement is that a contract be in writing, there are certain times when an oral contract will be enforced anyway (this is called "taking the contract outside of the Statute of Frauds").

 

Two principle theories allow an oral contract to be taken out of the Statute of Frauds and to be enforced, namely part performance and fraud and estoppel.

 

To invoke either of these theories, however, it is necessary to be able to prove the existence and terms of the original oral contract. Taking something outside of the Statute of Frauds cannot create the contract if the contract is not there.

 

Part performance theory. Most states recognize the part performance theory but they have different requirements, required to take the contract out of the Statute of Frauds, which must be proved.

 

All states that recognize the part performance doctrine require at the minimum that the purchaser went out of possession and the purchaser went into possession of the premises. Most states require something more than possession, either that all or a portion of the purchase price has been made, that some type of valuable, lasting and permanent improvements have been made; or that there is some kind of change in position so that irreparable injury will occur if the contract is not enforced by the Statute.

 

Also most jurisdictions require that a tie or nexus be established, an "unequivocal reference" to the existence of the sales contract. It cannot be explained by any other agreement or arrangement. The actions of the party only make sense if there was, in fact, a contract of sale.

 

If you cannot take the contract out of the Statute of Frauds under the part performance doctrine, you should apply fraud or equitable estoppel theories.

 

Fraud. Where the Statute of Frauds itself is used as a mechanism or instrumentality of fraud, most courts will enforce the oral contract. If you can show that a person intentionally and fraudulently obtained an oral contract knowing that no court would enforce it because it was oral, and he obtained the contract to cheat and get money that way, the court will enforce the oral contract anyway. As a practical matter, fraud does not occur that often and fraud is highly disfavored by the court system and difficult to prove. There is a higher standard of proof in fraud cases, "clear and convincing" evidence. This part of the theory is not commonly used.

 

Estoppel. Where there has been a reasonable reliance on the oral contract by the party seeking enforcement and the party has so changed his position that injustice can be avoided only by specific enforcement of that contract, it will be taken out of the Statute of Frauds and enforced. This is a very modern theory and distinctly a minority rule.

 

Most jurisdictions will allow both parties to enforce an oral contract if either party is in a position to take the contract out of the Statute, This is another example of the doctrine of "mutuality of remedies."

 

There are two predominant ways that courts interpret the Statute of Frauds. It is based on the court's philosophy.

 

In "evidence" states, the principle theory is that the Statute was passed to prevent fraud and perjury in court and the court will interpret it so that it prevents fraud and per jury in court. But if enforcing it will not prevent fraud and perjury in court, it will not enforce it. These are the more liberal states, most likely to recognize the part performance theory and the estoppel and fraud theory.

 

In "Blackletter Law" or "absolutist" states, the courts simply follow the Statute: no oral contract is enforceable.

 

Written Memorandum

 

The real estate contract itself need not be in writing as long as there is a memorandum or note thereof in writing. The memorandum or note must specify the parties, in all jurisdictions, and at least the essential terms of the contract, in at least general terms. The essential terms differ, depending on the jurisdiction.

 

All states require the note or memorandum to specify name of the parties and usually identification of the real estate. In some states, that is sufficient. The degree of particularity where these two things have to be identified differs greatly also. Some states, for example, require a full legal description of the property before they will recognize the contract, while other states merely require any description that can be made specific.

 

Other states, in addition to these two basic terms, will require any other material terms be specified. The degree and how many of them have to be specified also varies, some requiring practically everything, and some saying that the memorandum, notes, parties, the land to be sold and all other terms can be oral, including for that matter the price that is to be paid.

 

The memorandum or note may consist of multiple documents. Most states require that the document signed by the party being charged make some form of reference to the other documents that constitute the note of memorandum.

 

Binder. There is a two-step analysis appropriate to determine whether a binder will have any legal effect.

 

First, does it comply with the Statute of Frauds? If it does not, e.g., if there is insufficient memorandum, it cannot be enforced. If it does comply, then the intent of the parties must be looked at.

 

Second, did the parties intend to be bound by this agreement? If the binder was signed with the intent that it was to be an enforceable agreement, it will be considered an enforceable agreement even if it makes reference to the execution of a more formal real estate contract.

 

If it is clear the parties do not intend bound by the agreement, i.e., they intend merely to note the basic terms so that the agreement can be drafted, then the binder itself is not a contract and cannot be enforced.

 

To help the buyer, add this language to the binder: "The purchaser's obligations shall be contingent on the execution of a formal real estate contract" or "Subject to my lawyer's approval."

 

Agency. The signature of the party to be charged must be on one of the documents. If someone signs as an agent. There must be a "power of attorney" or "agency form."

 

Parol Modification and Rescission

 

Rescission (majority view): Executory contracts involving real estate, i.e., not yet performed, can be rescinded by a subsequent parol agreement. However, performed contracts involving real estate can only be rescinded in writing.

 

Modification (majority view): Modification of executory contracts involving real estate must be in writing.

 

Modification (minority rule): Modifications must be in writing unless they have nothing to do with real estate. Said another way, a modification must be in writing unless it affects a term, condition or promise that is not within the Statute of Frauds. If they touch and concern the real estate, they must be in writing.

 

Example: In a formal real estate contract, A and B agree to buy and sell, respectively, a piece of property. Later, A and B agree orally that B will give A a mortgage. B also agrees orally to convey a washer and dryer to A for $200. Can the mortgage agreement be enforced?

Majority view: No. Oral modifications are not allowed.

Minority view: No. The modification touches and concerns real estate.

 

Can the sale of the washer and dryer be enforced?

Majority view: No. No oral modifications.

Minority view: Yes. It is a conveyance of personal property under $500.

 

Parties can agree not to rescind or modify, except in writing. If there is a clause in the contract requiring that all modifications or rescissions be in writing signed by both parties, most courts will enforce the provision, absent an estoppel.

 

Although the parties have the right under the Statute of Frauds to make an oral modification of the contract, that right can be surrendered in the contract, and most typically, is with a clause stating that "all modifications must be in writing and signed by the parties."

 

 

Standard Written Contract

 

Time for Performance

 

Results you can achieve in a court suit depend on what remedy you seek. At law, you can get money. In equity, you can make someone perform. Examples: injunction, specific performance.

 

General rule: Time is not of the essence in a real estate contract. This means that breach of a time promise will not be considered "material."

 

Parties can make time of the essence by saying so in the contract.

 

A party can demand strict compliance, by giving reasonable notice at any point. Having done so, it makes time of performance a material term of the contract.

 

Where time is of the essence and it is breached, the contract has been breached materially. This allows the non-breaching party to refuse to perform.

 

If time is not of the essence, failure to meet a time deadline is still a breach of the contract but does not excuse non-performance by the non-breaching party.

 

In either case, the non-breaching party is entitled to damages.

 

Seller's potential damages: loss of use of the money; carrying costs, including mortgage and taxes for the extra time, etc.

 

If seller can show no damages, seller gets $1. All breaches of the contract cause damage. Damage is presumed.

 

Buyer's potential damages: living expenses, storage charges, moving charges.

 

Presumptions: A court at law will assume that time is of the essence. It assumes that all terms are material. A court in equity will assume time was not of the essence.

 

Clifford says "Never make time of the essence unless you have a really good reason to do so."

 

Mortgages and Installment Land Contracts

 

The most typical form of financing in real estate is a mortgage. A mortgage is a conveyance of land to secure payment of a debt. It is not a promise to pay.

 

It is the conveyance of a determinable fee title to secure payment of a debt. The estate will determine (defease) upon payment of the debt. It will return to the grantor.

 

The party who obtains the financing, the mortgagor, must make the final payment to the mortgagee on the law day of the mortgage.

 

By doing so, it will determine the condition.

 

A failure to do so results in a default.

 

In modern practice, once the default has occurred, the mortgagee can commence a legal proceeding known as a foreclosure, resulting in what is called a judgment of foreclosure.

 

This judgment of foreclosure terminates the "equity of redemption," the legal interest that the mortgagor had in the property up to the moment of foreclosure. The "equity of redemption" can never be waived in advance. It is not a right that can be waived.

 

Foreclosure can be one of two forms: a strict foreclosure or a foreclosure by sale.

 

Strict foreclosure leaves title to the property in the mortgagee in fee simple absolute. Strict foreclosure has been abolished in most states.

 

Foreclosure by sale, on the other hand, takes the property, sells it at public auction and divides the proceeds of that sale. The mortgagee gets first chunk of the money. If there is anything left, the mortgagor gets it. A majority of states use foreclosure by sale.

 

Most states, in addition to the equity of redemption, have created a statutory redemption right. This exists from the time the judgment of foreclosure is entered usually until the moment the sale is confirmed and the deed is executed by the court. The details of the statutory redemptions, however, change significantly from state to state with very little common ground.

 

Most mortgage transactions consist of two principal legal documents: the mortgage (dealing with property and title conveyance) and the mortgage note (creating the obligation that secured the individual promise by the mortgagor that he can repay the money).

 

The mortgage makes the land subject to the debt. The mortgage note makes the individual subject to the debt.

 

The mortgage note is important when the property is sold at a deficiency: the sale does not bring in enough money to cover the mortgage debt and associated costs and expenses. At that point, the mortgagee will sue on the note to obtain the balance of the balance of the payment due.

 

Unless the mortgage says so, the mortgagor may not have the right to pre-pay the mortgage.

 

Mortgage Contingency Clause - Almost all residential real estate contracts are contingent upon the buyer being able to obtain financing. This type of clause is called a "mortgage contingency clause" and serves as a condition precedent to the liability of the purchaser. If the purchaser does not get the financing under the terms of that clause, the purchaser must notify the seller of that fact and the contract is null and void.

 

If the clause says it is contingent on the buyer getting the "proper amount of financing," the contract will not be enforced on the grounds it is "vague" or the promise is "illusory."

 

Mortgage contingency clauses must be both "definite" and "non-illusory." They should include three things:

The amount of financing

The basic terms of the mortgage (number of years, interest rate, how it will be amortized)

The mortgage contingency date, the date on which the buyer must tell you he did not get the mortgage

 

The clause can make reference to community standards.

 

Installment Land Sales Contract - These are an alternative to a mortgage. They have caused significant legal problems. They can lead to unjust forfeiture by the vendee. Most jurisdictions have imposed significant safeguards on these contracts, so that there is no significant advantage to them over a mortgage. As a consequence they are less and less common, for several reasons; increasingly, courts will not enforce them; there have been some tax law changes which have hurt the seller; and the Federal National Home Mortgage Association (Fannie Mae) will not buy them.

 

Majority view: Defaulting vendees have the right to redeem the contract.

 

Minority view: The vendee can only redeem if the forfeiture clause in an installment land sales contract constitutes a "penalty." Otherwise, the vendee forfeits the contract.

 

Courts are treating installment land sales contracts like mortgages.

 

Under an installment land sales contract, the vendor maintains title throughout the existence of the contract until the final payment has been made.

 

Should the redemption not occur, the vendor normally is required to make restitution of the amount of money he has collected that exceeds his actual damages.

 

Waiver - If a party to a contract waives strict performance once, that party has waived it always, unless they expressly reserve their rights.

 

Merchantable Title -- Marketable Title

 

There is a covenant to deliver marketable title unless the contract says otherwise.

 

The seller's obligation is not to deliver good title. It is to deliver marketable title.

 

"Marketable title" has various definitions, most of which are not very helpful because they are by their very nature, circular:

 

You can tell what is marketable because it is marketable.

 

It is title that is reasonably free from the threat of litigation.

 

It is title readily subject to resale and free from reasonable doubt.

 

Underlying concept: Defects in title that decrease the value of land make title unmarketable.

 

Will a title insurance company insure it? If so, it is marketable.

 

Look at examples of unmarketable title: a break in the chain of record title, an unpaid mortgage, unpaid taxes, dower, leases, defect in description of the property, lack of possession by the vendor, lost deed, outstanding contract of purchase, title tainted with fraud, no patent or land grant from government, suits pending against the vendor, will construction, deed construction, necessary party omitted in a proceeding, special assessments, judgments, claims against a decedent's estate, building restrictions, easements, encroachments, title based on judicial or tax sale, defectively executed instruments and variation in names.

 

Better drafted real estate contracts try to avoid the quagmire of marketable title by making reference either to the Standard of Title (e.g., produced by the state associations) or becoming much more common to use insurable title rather than marketable title. The title is considered valid if the title insurance company will issue a policy.

 

There is a difference between "bad title" and "unmarketable title." Good title can be unmarketable. Bad title can be marketable. Whether title is "marketable" is determined case-to-case.

 

Example of unmarketable title: real estate contract calls for a residential home; zoning prohibits anything except a commercial building.

 

Not all defects make title unmarketable. Example: a utility easement not recorded on the land records or not mentioned in the contract.

 

Adverse possession can get you good title, but not marketable title. To get that, you need to bring an action to quiet title.

 

Well-drafted real estate contracts solve the problem of unmarketable title by avoiding it. They will either make reference to a Bar-produced document that defines exactly what defects are and are not unmarketable. Or they will require delivery of what is called "insurable title," that title which a title insurance company will insure without exception to the defects.

 

A vendor in an installment sales contract need not have marketable title until the end of the contract.

 

To avoid the problem, require warranties of title in the contract and require the vendor to continue possessing the land throughout the contract.

 

If the person selling the land does not own it at the time the contract is made, it is likely that the contract can be rescinded. If the seller claims he owns the land and he does not, he would be misstating a material fact and that would be grounds for rescission.

 

Tender and Demand

 

Normally, the vendor is given a "reasonable" period of time after the law day set for closing in which to cure a title defect.

 

Before either party is really free to declare the other in default, even where there is a defect of title, the obligation of tender and demand must be met. The party must tender its own performance and demand that the other party do likewise or the other party is probably not in default.

 

Exception to the rule: where the other party could not possibly perform. As a practical matter, this is never the case. You always do a tender and demand if you are setting up a real estate contract suit.

 

An incurable defect in title is a defect that cannot be remedied by the seller within a reasonable period of time. Example: a break in the chain of title.

 

If there is an incurable defect, the seller is automatically in breach.

 

If there is a curable defect, the purchaser must immediately notify the seller of the defect and ask him to cure it.

 

In a well-drafted contract, you can define what is meant by "reasonable" period of time to avoid later disputes.

 

If the buyer tries to rescind the contract prior to the closing date, it will be an anticipatory repudiation of contract.

 

A "tender" is an unconditional offer to perform at least the minimum obligations under the contract.

 

Assignment of Real Estate Contracts

 

Types of injunctive relief: temporary restraining order (TRO), a short-term ex parte remedy to avoid "irreparable injury," preliminary injunction, which follows a preliminary hearing; and permanent injunction, following a full trial on the merits.

 

Most real estate contracts are assignable unless they say otherwise.

 

Even in cases where assignment is prohibited, those clauses are strictly construed because courts highly disfavor restraints on alienation and do not like forfeitures. As a result any clause that restricts the ability to transfer the contract will be strictly construed.

 

For an assignment to exist, the assignee must "step into the shoes" of the assignor and must perform the assignor's obligations. The new party must be taking on the obligations of that original contract. If the obligations are different or are owed to a different party, then we are not dealing with an assignment but rather some form of independent contract. (In the landlord-tenant area, it is called a sub-lease.)

 

Consent clauses

 

Traditional rule and unless otherwise specified: A party can simply say "no" to a proposed assignment. He need not be reasonable. Consent can be denied for no reason at all. (Mass)

 

Modern trend: A party must act reasonably and in good faith in withholding his consent to a proposed assignment. The party must be able to articulate a reasonable reason why he did not consent.

 

The Rule in Dumpor's Case applies to real estate assignments.

 

Most assignments do not release the assignor from liability. The only time the assignor is released from liability is if there is a novation. A novation is an assignment combined with a release of liability on the part of the assignor (the party stepping away). It requires a release to be obtained by the assignor from the promisee. The assignee becomes liable; the assignor is released from liability.

 

Suretyship is where one party is obligated to pay another party's debt. If there is an assignment, the assignee is primarily liable; the assignor is secondarily liable. The assignor is liable as a surety for the payment by the assignee.

 

Remedies for Breach of Contract

 

The most typical remedy in equity is specific performance.

 

The general rule is that both the vendor and vendee have the equal right to seek a decree of specific performance for breach of a real estate contract.

 

There is some indication that the vendor, at least when dealing with "fungible" real estate such as condominiums in towers, will not be entitled to a decree of specific performance.

 

In addition to or as an alternative to remedies in equity, parties can seek damages at law. The rules differ depending on whether you are the vendor or vendee.

 

Vendee's Damages. If the vendee is seeking damages in law for the vendor's breach, some states require that the vendee show the vendor's bad faith, fraud or willfulness in order to recover "benefit of the bargain" damages.

 

An equal number of states require no special showing to get "benefit of the bargain" damages.

 

There is a 50/50 split of authority.

 

"Benefit of the bargain" damages consist of the difference between the market value of the real estate at the time of the breach and the unpaid contract price. "Benefit of the bargain" damages put you where you would have been financially if the deal had been performed.

 

All states allow vendees to claim "out of pocket" damages, consisting of any amount paid by the vendee to the vendor, including the downpayments, interest on that money, and such costs as title search and other specific costs. If those forms of damages are available to the vendee within the jurisdiction, the vendee is given the election of which one he wishes to take; he cannot receive both. The election is usually exercised after the verdict has been returned by the jury specifying the amount of those damages.

 

Vendor's Damages. If the vendee breaches the contract, the vendor's damages are defined to be the amount promised in the contract, less the amount the vendor should have received in selling the property to another. The vendor must attempt to mitigate damages by selling in a "commercially reasonable" manner. In addition, the vendor can obtain incidental expenses such as drafting fees, recording fees, broker's fees, etc. .

 

Liquidated damages. Most real estate contracts allow the vendor to retain or keep the downpayment made as a form of liquidated damages. Most states will allow this provided the amount that is kept bears some relationship to the amount of anticipated damages in a typical real estate deal.

 

There are a minority of states that disallow liquidated damages in all instances, and a few that authorize them. Most jurisdictions do require damages to bear a reasonable relationship to what one would actually suffer.

 

The existence of one of these liquidated damages clauses in a contract, unless otherwise stated, does not limit any other remedy the vendor may have. Merely having the right to liquidated damages does not mean that the vendor cannot appeal for specific performance or sue for actual damages.

 

Equitable conversion

 

Generally, as soon as a real estate contract is signed, equity will treat that contract as if it had been fully performed. "Equity regards as done that which ought to be done." The vendor will consequently be deemed to have title to payment and the vendee will be deemed to have title to the real estate. The fact that the legal title does not match this, creates a constructive trust for each party holding the property to the benefit of the other. The rule is not an automatic rule, however, and is limited as an equitable rule. If for any reason it would be inequitable to enforce the rule of equitable conversion, the courts will not do so.

 

The typical things that affect this is where there is some kind of substantial change on the part of the control of the parties which changes the whole purpose or meaning of the contract. The parties are left with whatever remedy at law that they may have, whereas courts of equity will not enforce this because it would be unjust. A typical example of this is where the zoning of the real estate has changed radically from the time when the contract was signed to when the parties were to perform; generally a court of equity will not decree specific performance, i.e., use equitable conversion. A law court may, however, here award damages; a changing of zoning is not a frustration of purpose in the contractual analysis.

 

Another major consequence of this doctrine of equitable conversion is felt when either of the parties to a real estate contract dies before that contract is performed. The doctrine in general required you to treat real estate subject to a sale of contract as personalty of the vendor, and likewise requires to treat proceeds which are identified to purchase real estate by the vendee as real estate of the vendee within the probate of the estate. This obviously changes who will receive the property if either the will distinguishes between real and personal property or if the intestacy statute does if there is no will.

 

Additionally, if parties are dealing with real estate located in a different state from where they live, the real estate that is subject to a sales contract has a species in personal property will be probated in the domiciliary state in which the individual lives. Although the normal rule is to probate real estate in the state in which it is located, if there happens to be a real estate contract, it is a domiciliary matter.

 

The doctrine also affects the spouse's dower or curtesy rights, terminating the vendor spouse's rights and vesting the vendee spouse's rights upon execution of the contract. The spouse would have to cosign the contract.

 

The doctrine can terminate a tenancy by the entirety, because real estate can be held in that estate, but personal property cannot. As a consequence, if a husband and wife sign a real estate contract on land that is owned, a tenancy by the entirety no longer makes sense and is severed.

 

Equitable conversion only operates with binding real estate contracts. An option is not enough.

 

Equitable conversion only operates on enforceable contracts. The contract cannot violate the Statute of Frauds.

 

The Deed

 

Risk of Loss

 

Majority rule: The risk of loss falls on the vendee if the property is damaged or destroyed after execution of the contract for sale. This is the English rule. It is based on the doctrine of equitable conversion.

 

Within the majority rule, there are six different types. Many states will not transfer the risk of loss until the vendor is ready and able to perform. Some states will not shift the loss until the date set for closing.

 

Minority rule is called the "Massachusetts rule": the risk of loss falls on the vendor until the vendee either gets possession or legal title is conveyed. Rhode Island and Connecticut follow the "Massachusetts rule."

 

Uniform Vendor and Purchaser Risk Act basically codifies the Massachusetts rule. It has been adopted in 12 states, including New York and California. Sixteen states have adopted either the Uniform Act or the Massachusetts rule.

 

Effect of Insurance Proceeds

 

Casualty insurance is only paid if the party has an insurable interest. If the party without the risk of loss is insured, the insurer is not required to pay.

 

If there are insurance proceeds, will they be used as a credit against the

purchaser's obligations under the contract?

 

Majority rule: If the vendee buys an insurance policy for the benefit of the vendor as part of the consideration of the contract, the vendee is entitled to offset any

insurance proceeds against the purchase price.

 

Where the policy is not part of the consideration, the vendor can pocket the money.

 

The Role of the Real Estate Broker

 

Most real estate sales involve real estate brokers. Brokers have two main jobs:

finding potential buyers and negotiating the best deal possible for their client, the

seller. Some brokers cause trouble for attorneys. They tell the buyer that their attorney is giving them bad advice. Sometimes, they give legal advice. There is natural conflict between brokers and lawyers, who are seen as "deal breakers." Some states regulate brokers highly, some regulate a bit, some do not regulate them at all. Most states allow anyone who says he is a broker to serve as a broker. There is no licensing requirement.

 

Broker's Commissions

 

Majority rule: If there is no specific agreement to the contrary, a broker's fee is earned when the broker produces a purchaser ready, willing and able to buy upon the terms specified or agreed to by the seller. An executed purchase and sale is conclusive evidence of such a purchaser.

 

Minority rule (the Ellsworth rule): A broker is entitled to a commission when

 

(1) he produces a buyer ready, willing and able to buy on the terms fixed by the owner,

(2) the purchaser enters into a binding contract of sale with the seller, and

(3) the sale is consummated. Trend is toward the Ellsworth standard.

 

What if the real estate contract is breached by the buyer? In a majority of states, the broker still gets his commission. In a minority of states, the broker would not get a commission.

 

What if the seller breaches the listing agreement with the broker by refusing to negotiate with a ready, willing and able purchaser on terms that should be acceptable? Broker may be able to recover on a theory of quantum meruit.

 

A lot of states require listing agreements and broker's agreements to be in writing. Key to real estate contracts: draft them carefully. Well-drafted contracts keep clients out of court.

 

The Deed

 

Conveyancing at Common Law and Under the Statute of Uses

 

A deed is the formal document that conveys legal title.

 

At common law, the symbolic ceremony called "livery of seisin" conveyed title. It transferred a possessory estate. A grant was used to convey non-possessory estates (i.e., future interests). Only non-possessory estates would be transferred in writing. Things changed with the adoption of the Statute of Uses in 1535. The Statute of Uses established for the first time the ability to transfer land in writing by deed. It created "bargain and sale" deeds which conveyed equitable title by the doctrine of equitable conversion. Equitable title was then executed by the Statute and legal title was conveyed.

 

(Side issue: Why doesn't the Statute execute on a contract of sale? The Statute only executes on "naked" uses. A contract of sale is not a naked use.) The Statute of Uses also created other forms of transferring land. The most typical was the "lease and release" where a lease was given to the grantee for a term of years (a tenancy for years in the vendee), when the grantor released his reversionary interest to the grantee. Through the doctrine of merger, grantee got fee simple.

 

Statute of Uses is considered part of the common law of all jurisdictions even if the Legislature in the jurisdiction never passed it.

 

In some states, livery of seisin can still convey title. In others, it violates the Statute of Frauds and is not recognized.

 

In the US, the principal deed used today is the "bargain and sale" deed. No one uses the "lease and release" any more

 

The Modern Deed -- Types and Elements

 

There are two major forms of deeds: "Bargain and sale" deeds and "Statutory short form" deeds.

 

Deeds are also divided into "warranty" and "quitclaim" deeds.

 

A warranty deed conveys the land along with the grantor's promise that he actually owns the land, that he has the right to convey it, and that he will defend the grantee should any adverse title claim be made. Most real estate transactions are done by warranty deed.

 

A quitclaim deed is without warranties. It conveys the land or whatever title the grantor has in the land, if any. The grantor does not assert he has any interests at all. Quitclaim deeds are often used in settlement matters, estate planning purposes, conveyances among family members, and some business transactions. A deed is usually set forth in specific sections, in a specific order. Under the common law, this was required. Under modern practice, it is not. However, altering the order can lead to confusion. (Caveat: the quitclaim deed in Massachusetts is not a quitclaim deed.)

 

There is never any good reason to alter the order of the deed. The order used in most of the country is as follows:

Identify the parties.

Specify the consideration (In some areas, you only need to say "for $1 and other valuable consideration."

Create any joint tenancies ("To John Grantee and Jane Grantee, as joint tenants with the right of survivorship . . . ")

Specify the words of conveyance ("give, grant, bargain, sell and convey...") If "bargain and sale" are not mentioned, equitable title is not conveyed so the Statute of Uses cannot execute upon it. The deed does not convey legal title.

Describe the land being conveyed, including any easements it is subject to and any rights that are associated with it. Describe the land by describing its boundaries. Use the exact description shown on the deed given to the grantor. Do not change the legal description without a court order. (What comes in is what goes out, unless you are intentionally changing it.) Otherwise, you destroy the marketability of your title.

Insert the "saving" clause. It is a direct reference to the deed by which the grantor obtained his property. Specify any new easements or reservations, if any, that you are creating. ("...subject to an easement being reserved in the grantor to cross the land for purposes of voting.")

Insert habendum clause, any "words of limitation" necessary to create the estate. The habendum clause is the paragraph in a deed that starts "To have and to hold."

Set forth warranty provisions, if any.

Leave space to execute, witness and acknowledge the deed. You should use the Blumberg form for Massachusetts and fill it in. You should follow it exactly. A deed is a very formal document.

 

Ambiguities in the deed. If there are ambiguities in the deed, courts normally will allow the submission of extrinsic evidence to clarify the ambiguity. Courts are looking for the intent of the grantor. If the deed does not clearly express that intent, they will look at other circumstances that do express that intent: the sales contract, what the parties said or did around the time of closing, the land itself. If the court cannot solve the problem even by looking at outside evidence, traditionally it would favor the language in the granting clause over all other sections of the deed. (At common law, the granting clause was given more weight than the habendum clause.)

 

Today, courts look at overall intent of the parties. If they cannot determine it, then they will either favor the grantee or take the granting clause.

 

General rule is that the grantee will be favored over the grantor. Thus, the largest estate that can be reasonably interpreted out of the deed is that which is conveyed.

 

In most jurisdictions, deeds are limited to being a two-party instrument: grantor and grantee. (That does not mean you cannot have multiple grantees, as long as they are taking some kind of joint tenancy in the same property.)

 

If multiple parties are getting different interests, they should have separate deeds.

In a minority of jurisdictions, a third party grantee is allowed on a deed, at least as far as creation of an easement.

 

(To solve church parking problem: Option #1: Convey an easement to the church in the first deed. Convey the land, subject to that easement in the second deed.

Option #2: Convey the land, with a reservation of an easement in the grantor, in the first deed. Convey the easement in the second deed.)

 

To convey real estate, you must use words of conveyance: action verbs. Otherwise, there is no conveyance.

 

The grantor can execute a deed without naming the grantee, provided a party is authorized to fill in the name of the grantee. If there is no party authorized to fill in the name of the grantee, the deed is void. If a party authorized to fill in the name of the grantee also has the power to fill in his own name, that power will survive the death of the grantor. It is called a "power, coupled with an interest."

 

Generally, an agent's authority terminates with the principal. If you have a power of attorney and your client dies, your authority is gone. There are exceptions:

A durable power of attorney will survive the incompetence of the principal.

An irrevocable power, coupled with an interest, survives the death of the principal.

 

Execution of the Deed

 

In order to convey land, the deed must be properly executed and properly delivered. Both are required. If either is not done properly, the deed is void and no title passes.

 

Execution means the deed must be signed by the grantor, witnessed by the appropriate number of persons, and acknowledged. Improper execution is rarely a problem. Lack of a witness probably is the most typical problem. Expiration of a notary commission is probably second. Outright forgery is probably third.

 

Delivery also is very rarely a problem. When problems occur, it is usually because of something going wrong with the escrow.

 

Virtually all real estate transactions involve at least one escrow. In an "escrow," a grantor gives a deed to an escrow agent who holds the deed waiting for conditions to be met. Once they are met, the agent is instructed to give the document to the grantee.

General rule: Until the future event occurs (the condition of the escrow occurs), no delivery has occurred. Giving the deed to the escrow agent is not "delivery" of the deed. "Delivery" is deemed to have occurred when the condition is satisfied, even if deed is never physically conveyed to the grantee.

If necessary, the court will "relate back" the time of delivery to when the escrow was created if the interests of justice require it. This is the legal fiction called the "doctrine of relation back." This situation can typically occur when a party becomes incompetent or dies prior to the satisfaction of the conditions of escrow; although the conditions must still be met, and once they are the deed will relate back to when the escrow was created.

 

In a majority of jurisdictions, anyone can serve as escrow agent except the grantor or grantee.

 

In a minority of jurisdictions, the grantee is allowed to have a "conditional delivery" of a deed so that the grantee gets the deed on certain conditions. A vast majority of jurisdictions have rejected this position.

 

Majority rule: If an escrow agent releases a deed before the conditions are met, no delivery has been made. The deed is void and no title passes. If the deed was transferred out of escrow because the grantor was fraudulently induced to approve the release, in that situation the deed is described as voidable. If a subsequent conveyance to a bona fide purchaser for value occurs, the voidable deed will convey title while a void deed will not. As a consequence if the conditions are fraudulently induced to be satisfied, the grantor is at risk of losing he property.

 

This is different than when the escrow conditions are satisfied through "fraudulent inducement." In those situations, the transaction is voidable, not void. So a bona fide purchaser for value without notice takes title prior to the time that the grantor attempts to void the transaction, the BFP is protected. He has title even against the true title holder.

 

Equitable estoppel can also apply. If the true titleholder delivers both possession and an indicia of title (i.e., and executed deed) to a third party who conveys it to a BFP, that BFP is protected against a claim of title. The true owner is estopped from asserting title against a bona fide purchaser. The theory of statutory estoppel does not apply to real estate. The UCC applies to the sale of goods, not the sale of real estate; consequently the theory of statutory estoppel does not apply.

 

An escrow agent who acts outside the scope of the instructions is personally liable for whatever injury has occurred. Violation of an escrow agreement is not professional malpractice so malpractice insurance will not cover it in most situations.

 

Subject Matter Conveyed

 

Clifford says this is the "most important" topic. Property description is probably the most litigated issue of property law. Boundary disputes—title disputes—are what property law is about. In urban areas, there are few problems. There are problems in the description of land in the suburbs.

 

In order to know this area well, you need to know surveying and geometry. The land description must be accurate so you know what is being conveyed. At a minimum, the description must include the location of the land and the boundaries. If it is not possible to obtain that information from the deed or through a trial, the deed is void.

 

There are two systems of land description:

 

1. Eastern system of metes and bounds - Start at a known point, give a direction and a distance, another direction and a distance, until you get back to the known point. This is called "closure." You need a "findable" starting point and an accurate description of the boundaries.

 

An alternative plan used in the East is to describe land by who owns the adjoining parcels. "The parcel separated on the East by the parcel of John Smith, on the South by the parcel of Mary Jo, etc." This is becoming less and less common.

 

2. Remainder of the US uses the rectangular or governmental system. US government chopped up the country into 36-mile square mile chunks called townships and chopped them up into 36 square miles called sections. The land can be identified by merely specifying the area within the section within the township within the range. Even if the land has been subdivided into non-square parcels, the system requires there to be a reference to the governmental map.

 

In the governmental system, there is a presumption that if you convey land without describing its boundaries, you convey a square. If there is an inaccurate description in a deed, various rules of construction are applied.

 

A latent defect is one which is not apparent on the face of the deed. Latent defects can be cured by parol evidence. Any defect considered not to defeat the deed is considered latent.

 

A patent defect is one which is hopelessly contradictory on its face. A deed with a patent defect is void. A patent defect is extremely rare. Courts will go to any length to determine what the grantor meant and to give some meaning to the conveyance. The patent-latent distinction is losing favor in the courts.

 

If a grantor conveys "all my property wherever situated," a majority of jurisdictions would say it is sufficient to pass legal title. It accurately describes all the land it is conveying. However, it may not convey marketable title.

 

Goal: The courts seek to determine the intent of the grantor. There are no hard and fast rules of law on how to determine the grantor's intent. There are only doctrines of interpretation.

 

The document itself is most important. Since deeds are required to be in writing, what is stated in the "four corners" of the deed will be given force if it can be. If there is no confusion or ambiguity in the deed, the courts will simply enforce it. If the inaccurate description is exactly what the parties intended to convey, there is

no defect but there is a warranty claim.

 

If there is more than one way to interpret a deed, courts will weigh a variety of factors:

 

1: Favor the grantee over the grantor.

 

2: Parol evidence can be used to explain a deed that is incomplete. Courts will use parol evidence to deal with a curable defect in the deed. What can the parties tell us about what was intended? What does the contract tell us about what was intended? What does the land tell us about what was intended? Such evidence cannot contradict the deed, but can be used to explain the deed if it is unclear.

 

3: There is a hierarchy among landmarks and other descriptions the courts will use if they help. Generally, courts will prefer natural landmarks over artificial landmarks, landmarks over an adjacent owner's property lines, property lines over courses and distances, courses over distances and then area description.

 

There are also general rules of interpreting any written document:

 

1. If specific language contradicts general language, courts usually use the specific language.

 

2. An exception or reservation will be construed narrowly.

 

3. A grant will be construed broadly.

 

4. Attempt to interpret the language so that the whole document makes sense.

 

5. If there are two interpretations, one of which makes the deed invalid and one of which makes it valid, use the one that makes it valid.

 

Fixtures. Unless expressly excluded, fixtures convey with the land.

 

Measuring Landmarks or Monuments. Unless a contrary intent is shown, a conveyance includes through the center of any landmarks or monuments that are mentioned (also e.g., the middle of a river unless otherwise stated).

 

Highways. A highway is an artificial monument.

Majority rule: Go to the center line of the fee interest.

Exception: Public highways. Don't use the center line. Use the near boundary.

Most highways are not owned in fee. Most are easements. Use the center line in these cases.

 

Acquiescence. In a majority of jurisdictions, if parties to a boundary dispute come to an agreement as to where the boundary is and rely on that agreement, they will be bound by it and that agreement will run with the land, binding subsequent grantees. This is called acquiescence; it is technically oral. Both parties must know about the agreement and rely upon it. Such agreements should be recorded. Otherwise, land may be unmarketable. Acquiescence creates an immediate property right.

 

The Recording System

 

All jurisdictions in the United States, including Louisiana, have land record systems. The systems differ. Recording is a creature of statute.

 

At common law, if there were two competing deeds, the first one in time (the first one executed and delivered) was valid. All other subsequent deeds were void.

 

In the US, the land recording system was created.

 

Here's how it works: The grantee with an interest in land is responsible for bringing the deed to the appropriate government office.

 

There, a clerk makes a copy of the original deed and files the copy in a book. Deeds are cited by book and page.

 

An index is created.

 

In most jurisdictions, deeds are indexed by grantor and grantee. Every party to a deed is individually indexed alphabetically. One index is in order by grantor. The other is in order by grantee.

 

In a few jurisdictions, there are tract indexes or parcel indexes.

 

Doing a title search is a three-step process:

 

1. Build the chain of title. This is the record of anyone who has ever held a fee interest in the property since the time the land was originally conveyed from the State, through a Land Grant.

 

Most states have a "saving" statute or a "search cut off" statute, requiring that you search the title only 60 years back.

 

Start with the grantee index, searching for the name of the current owner.

 

2. Determine if there is anything adverse in the chain of title. Look for mortgages, easements, attachments, mechanic's liens, judicial liens, multiple conveyances and so on. See if property was conveyed to two different people.

 

Check the grantor's index for the period of time each grantor had the property.

 

Then, search for releases of encumbrances.

 

3. Check the documents in the land records to determine if there are any inconsistencies and defects in execution (For example: If not notarized or properly executed, the deed would be void.).

 

At the end of this 3-step process, also check for outstanding taxes, certificate of occupancy, betterment taxes, water and sewer fees, public improvement assessments, probate court records, etc.

 

Section 1. General Operation of the System

 

Generally, anything recorded in the land records serves as constructive notice to everyone who has the obligation of searching the land records. Anyone will be presumed to know if it is in the land records, even if they decide not to search the land records.

 

A person involved with a property interest (for example, a purchaser, a mortgagee, etc.) will be deemed to have notice of whatever is in the land records.

 

A person not involved with the title transaction (for example, a contractor) will not be deemed to have notice of what is in the land records. He is not obligated to search the land records. Knowledge of what is in the records will not be imputed to one who is not involved in the title transaction.

 

By statute, some states require contractors to do title searches or check with the utility company.

 

Recording a void deed can never make it valid. Recording a voidable deed can. A void deed is limited to those deeds improperly executed or improperly delivered.

 

In a vast majority of states, a defectively executed or defectively delivered deed has no force and effect. It is void. Even if a prescriptive easement is committed to writing, for example, it does not serve as notice to anyone if it is defectively executed.

 

A voidable deed (which is then recorded) will become valid as soon as it is conveyed to a bona fide purchaser for value.

 

The land records never affect the relationship between the particular grantor and particular grantee. They will only affect the relationship among "other people," not parties to the deed itself.

 

Purpose of the recording statutes: to make record title actual title wherever possible. In many ways, record title is more important than true title. In any dispute over a deed, the instrument that you look at is the deed itself, the writing of the parties.

 

In a dispute, who is preferred, the true title holder or the BFP who acquired title from the record title holder? Answer: As a general rule, the BFP.

 

There are policy reasons for that:

 

1. It upholds and reinforces the recording system. It increases the reliability.

 

2. The true title holder can protect himself by making sure the land records reflect the true title. The loss is placed on the party who could have protected against the problem by recording.

 

Record title is probably true title 99.9% of the time. True title tends to follow record title. There are very few exceptions: void deeds, adverse possession, prescriptive and implied easements.

 

Not all defects are of record. Some defects will not show up in a title search, e.g., adverse possession.

 

In most jurisdictions, you need not record adverse possession. Conveyance of record title to a BFP does not extinguish title acquired by adverse possession.

 

An adverse possessor's title is good, even against a BFP for value.

 

In some states, specific information must be recorded with the deed. For mortgages, this might include the interest rate, terms, addresses, etc. Failure to record that information might constitute failure to record the deed. Record notice would be defective so it gives notice to no one. A BFP would take, not subject to the mortgage.

 

 

Indexes to the Land Record System.

 

In a vast majority of jurisdictions, indexes do not form part of the land records.

 

Majority rule: If a grantee files a deed, it is considered recorded, even if it is not indexed or is indexed improperly. It serves as effective notice. Public policy reason: by filing the deed, grantee did all he could possibly do. Thus if there is a failure to index, or a misindexing occurs, a deed has nonetheless been recorded and all subsequent grantees of the deed know of it, even though in practice they will never find it.

 

In a small minority of jurisdictions, indexes are included as part of the land records. Consequently, if the deed is indexed improperly or misindexed, it is not recorded

 

Three types of recording statutes:

 

1. Pure Race: conveys true title to the first grantee to place his/her deed on the land records. This title is against all other recorded instruments. First to the courthouse wins. A race notice statute places true title in this first grantee who records, provided a grantee had actual or constructive knowledge of a competing instrument of a prior conveyance.

 

This type of recording statute applies only in North Carolina and three other states.

In a jurisdiction with a race recording statute, protect the buyer by establishing an escrow where funds are not released until it is recorded first in time as against all other deeds. (Under the common law, the first deed executed and delivered, won.)

 

2. Race-notice: The first party to record gets true title, provided that party did not have notice of a prior conveyance. In that case, he loses, despite recording first.

 

"Notice" includes actual or constructive notice.

 

Race-notice statutes are likely to include language such as "the first duly recorded..."

 

3. Pure Notice: A subsequent purchaser without knowledge of a prior conveyance will hold true title. There is no need to record first. Who records first is irrelevant.

 

Note: If the first conveyance was recorded prior to the second being executed and delivered, the second grantee has constructive knowledge of the first conveyance.

 

Pure race statutes are found in only four states. Of the remaining states, they are split almost evenly between race-notice and pure notice, though race-notice has a slight edge.

 

Recording statutes are very difficult to classify. Courts often modify the statutory language. By court decision, pure notice statutes often are turned into race-notice statutes. (Don't trust the statute. Check the cases.)

 

Persons Protected by the System

 

In most jurisdictions, only a bona fide purchaser for value is protected by the land record system. It does not protect someone who does not pay consideration. The system does not apply to donative transfers. It does not protect gratuitous transferees. Generally, the statutes say they protect "purchasers."

 

In Colorado, even a donative grantee is protected by the recording statute. That statute protects "any class of persons."

 

Donative transfers. In any State except Colorado, if there are two donative transfers, under the common law rule, the first deed executed and delivered would be valid. The second deed would be void.

 

The value that is required by most recording statutes is defined as valuable consideration, that is, money or something that is worth money. It could be coffee beans. A vast majority of courts will only determine whether "valuable consideration" was paid. They will not look into its adequacy. A few courts will attempt to determine whether adequate consideration was paid. They will look at whether it is reasonable or nominal in amount.

 

"Fraud" would include the recital of consideration that is not actually paid. If the deed says money was paid and it was not, it becomes a donative transfer and common law rules apply.

 

 

Quitclaim v. Warranty Deeds

 

In a majority of jurisdictions, it does not matter if a subsequent grantee obtains his interest by quitclaim deed. That has no effect in terms of the recording statute.

 

In a minority of jurisdictions, a quitclaim deed serves as constructive notice of a title problem. It puts "inquiry notice" on the grantee to determine if the state of the title is really as claimed. If there is a title problem, the individual with the quitclaim deed gets nothing.

 

BFPs and the chain of title. Once a BFP enters the chain of title, it sanitizes the chain. The chain is protected against a claim of the true owner. All subsequent holders of the property are protected even if they take with notice of the prior claim.

 

Caveat: If an individual in the chain of title prior to the BFP comes back into the chain of title after the BFP, that individual is not protected. All others, before and after, will be protected.

 

 

Mortgages to secure pre-existing debt. Execution of a mortgage to cover pre-existing debt is not valuable consideration and as a result the mortgagee will not gain the protection of the recording statute.

 

If there is no new consideration paid, there is no valuable consideration and there is no bona fide purchaser for value. If you're not a BFP, you are not protected by the recording statutes.

 

To avoid this problem, the mortgagee must give up something. Often, the mortgagee agrees not to collect the debt, or to sue, for a set period of time even though the mortgagee has the legal right to do so. Thus the time value of the money serves as consideration for the arrangement. Agreeing to delay collection of a debt even for one day is valuable consideration.

 

Constructive trusts can lead to problems. They are created by operation of law, have no physical existence and as a consequence cannot be recorded. As soon as a party is defrauded of their property, a constructive trust is created concerning that property. Constructive trusts cannot be recorded in the land records to preserve the rights of the trust beneficiary.

 

The majority view is that a legal interest recorded on the land records by a BFP for value will cut off a constructive trust just as it will cut off any other equitable interest not recorded on the land records.

 

Judgment liens secure a pre-existing debt. Since judgment lien creditors are not purchasers, they would not protected by the recording statutes. This is minority view.

 

However, many states have specifically overruled that result. In those states, judgment lien creditors are included in the definition of parties protected by the recording statute. Some statutes require judgment lien creditors to record their judgment on the land records.

 

 

Notice. Except for jurisdictions with pure race statutes, most require that a subsequent purchaser take without notice of a prior conveyance.

 

Notice can be either actual or constructive. If either exists under either a race notice or pure notice statute, the subsequent grantee is not protected by the recording statute.

 

If the subsequent grantee has actual notice, he will not be a BFP. If a record of the prior conveyance is on the land records, the subsequent grantee will have notice and cannot be a BFP.

 

Constructive notice. The most typical form of constructive notice is a third party being in possession of the premises. If a third party is in possession, the grantee is under the duty of inquiry notice to that third party to determine the state of that third party's title claim, if any. This is the anti-blinder rule.

 

Possession of a third party must be "open, notorious, visible, and unequivocal" in their acts of occupancy and must be consistent with title claimed.

 

In a minority of jurisdictions, the grantee also is put on constructive notice when he gets a quitclaim deed. In those jurisdictions, someone getting a quitclaim deed is not protected by the recording statutes. If there is an adverse title transaction, no title conveys.

 

Burden of Proof. The largest minority view is that the burden of proof is upon the party who wishes to take advantage of the recording statute, usually the subsequent grantee. A person wishing to be a BFP must show he:

 

1 - paid valuable consideration

 

2 - purchased in good faith, and

 

3 - purchased without notice.

 

There is no majority view. There are many different rules regarding burden of proof.

 

The Chain of Title

 

Chain of title is the list of everyone who owned the property and the period of time in which they owned it.

 

Generally speaking, an interest created outside the chain of title does not serve any notice under the recording statutes.

 

There are exceptions where the law imputes knowledge to a subsequent grantee of matters outside the chain of title:

 

1 - Common development schemes and implied reciprocal negative easements. Theory: the notice on the land records of easements in all other deeds should put the party on notice of the restrictions, even all of those easements are outside of the chain of title.

 

2 - After-acquired title, where title is acquired after it is conveyed. This is also called estoppel by deed. The trend is to exclude any interest that is not in the chain of title. A wild deed outside the chain of title will not be given effect.

 

 

THE METHODS OF TITLE ASSURANCE

 

Quality Assurance. What happens when there is any defect in the fixtures conveyed in a real estate transaction?

 

Implied warranty of habitability. This was first applied to landlord-tenant conveyances. It is now being applied to residential real estate.

 

It requires that the building be "reasonably suited for its intended use."

 

Most courts limit the implied warranty to "latent" defects. For "patent" defects, the buyer would have to look to other contract rights.

 

The warranty applied, was created, as long as the vendor built the house with the intent to sell it to another. The warranty lasts for a reasonable period of time, theoretically before and after the conveyance. Damages are established between the cost to repair, if practical to repair the building, otherwise the difference in value between the building promised and the building actually delivered. A minority of jurisdictions will allow rescission of the deal for either conveyance where the defects are very substantial, i.e., structural defects that can not normally be repaired.

 

Most jurisdictions will not use the implied warranty of habitability for used houses; this is something created by the builder only for new houses.

 

Waiver. The majority view is that the implied warranty of habitability can be waived by contract between the parties. The standards differ. The Illinois standard: the buyer must know he is waiving, the waiver cannot be in boilerplate language, the waiver must be conspicuous, and the waiver must set forth the consequences of waiving the implied warranty.

 

Many states also require specific consideration be paid in exchange for the waiver.

 

Implied warranty of habitability has been adopted in a majority of jurisdictions for residential property. In a majority of jurisdictions, it has been rejected in commercial settings. The implied warranty of habitability is extended by any builder, professional or otherwise, who builds the house with the intent to convey it. Applies whether he is a professional builder or not, and with other product liability types of actions, there generally does not have to be direct privity with the builder. The vendee of a vendee can bring an action against the builder under the implied warranty. If 3 professional builder constructs a building for his own use and then conveys it, there is no implied warranty of habitability.

 

Privity is not necessary. In most jurisdictions, a subsequent grantee can sue a builder directly for breach of the implied warranty of habitability.

 

Length of Warranty. It runs for a "reasonable" period of time. Usually, it is "reasonable" if it is within the Statute of Limitations.

 

Damage for breach of the implied warranty of habitability is the difference between the value the property should have had if delivered as promised and the value it actually has as delivered. Some jurisdictions will allow rescission if the defects are "very substantial."

 

Used housing. In the vast majority of jurisdictions, used housing is not covered by an implied warranty of habitability. Whether it applies to renovation or repair work is an unanswered question.

 

There is a common law action in "misrepresentation" available if the vendor affirmatively misrepresented or misstated the condition of the property.

 

Most states have a set Statute of Limitations for building defect claims, usually 7 to 15 years. The most typical period is 10 years. Claims must be filed within 10 years of the building's construction.

 

A large minority of states employ the "discovery rule." They say there is a two- or three-year Statute of Limitations, but not from the time the building was constructed. It runs from the time when the defect was or should have been discovered, whichever is earlier.

 

The implied warranty of habitability applies only to fixtures on the land, not to the land itself. Parties have tried—and failed—to apply the implied warranty of habitability to septic systems and water wells. If there is a defect in the land leading to injury, there is no recovery under the implied warranty. Caveat emptor applies to naked land.

 

Merger occurs when a deed is executed and delivered, generally expressed as "the contract merges into the deed." From a legal perspective this says that the contractual promises become unenforceable and only promises made in the deed remain viable.

 

Promises related to the conveyance will merge out of existence. Other promises, termed collateral, will survive the and do not merge.

Examples: A agrees to buy an office building and a boat from B. Sale of the boat is collateral to the main transaction and does not merge into the deed.

A agrees to buy land from B on which B agrees to build a building. Promise to build merges into the deed. Unless the deed restated it, A could no longer sue for breach of that promise.)

 

Today, in a majority of jurisdictions, if a promise "touches and concerns" title to the land, it merges into the deed. (This would include representations as to encumbrances, contractual warranties of title, etc. These kinds of promises merge in a deed.)

 

The implied warranty of habitability does not merge and survives delivery of the deed.

 

The trend in this area is to abolish the doctrine of merger altogether. The Uniform Land Transactions Act (ULTA) advocates that.

 

To avoid problems with merger, either:

1. Execute a new contract separate from the one which will be merged in the deed, or

2. Agree in writing that the promise will not merge by the execution of the deed.

 

Alternate use of Waiver of the implied warranty of habitability. The standards differ. Some states, such as Texas, make it is easy to waive the implied warranty. Texas requires only that the waiver be "clear and free from doubt."

 

Other states, such as Illinois, are hostile to waivers. They say the waiver must be conspicuous, it cannot be in boilerplate language, it must set forth what is being waived clearly, and it must set forth the consequences of waiving the implied warranty.

 

Other states take a middle ground. They require the waiver to state, by name, which warranty is being waived and that the waiver be conspicuous.

 

Defective Housing. Even if implied or express warranties are waived or not available, the vendee may have other causes of action.

 

Actions in Tort. If a vendor intentionally or negligently misstates facts about the condition of housing, the vendee could sue for fraud or for negligent misrepresentation.

Several states are moving in the direction of requiring a vendor to disclose known defects, at least where the vendee is unlikely to discover them.

Actions under the "Unfair Trade Practices Acts." These prohibit the use of any unfair act or practice in the conduct of trade or business. Selling defective housing has been found to be a violation of these Acts. Rights under these acts cannot be waived. Real estate brokers are often sued under these Acts.

 

Lender liability for defective housing. The general rule is that the lender is not liable for defective housing. An exception is recognized if the lender is in a joint venture with the developer. This means there is a common business undertaking, an understanding as to the sharing of profits and losses, and a right of joint control. Few lenders meet this standard, and most jurisdictions will not impose any kind of liability on the banker or the lender.

 

Environmental Liens. The federal CERCLA law, passed in 1980, imposes a lien on land and its owner to pay for toxic waste cleanups.

 

This is an extraordinary lien. It is for the full value of the cleanup—regardless of the value of the land. The land holder is personally liable for any difference between the value of the land and the cost of the cleanup, unless he can show he was an innocent purchaser. That is, he did not know of the toxic wastes. In that case, he is still responsible up to the full value of the land for is not liable for the excess.

 

The property owner has a cause of action against the polluter. The polluter must pay the property owner compensation unless it can show an act of God, an act of war, or act of an independent third party.

 

State environmental liens can be imposed for underground oil tank leaks. These are "super priority" liens. All other liens, except federal tax liens, are secondary.

 

Innocent landowners are now excluded from CERCLA.

 

Covenants for Title and After-Acquired Title (Estoppel by Deed)

 

There are six standard warranties in a warranty deed. These are also known as covenants for title. The six are:

1 - Seisin

2 - Right to convey

3 - Against encumbrances

4 - Further assurances

5 - Quiet enjoyment

6 - Warranty

 

Present warranties include: seisin, right to convey, and against encumbrances.

If breached at all, these are breached at the moment of conveyance.

These are subject to Statutes of Limitation, usually 10 years. They do not run with the land.

 

Future warranties include: further assurances, quiet enjoyment and warranty. These can last forever.

These can be breached upon constructive or actual eviction of the grantee or the grantee's successors and assigns.

For eviction to occur, there must be more than just superior title in another party. There must be some attempt to assert that title by the superior title holder.

In some cases, the grantee must bring an action to quiet title to force a third party to assert his superior title, cause a constructive eviction, and allow the grantee to sue the grantor for breach of future warranties.

Future warranties run with the land.

 

Warranty of seisin. At common law, it warranted only that the grantor is seized of the land, not seized of any particular estate in the land. It warrants only that the grantor is in possession. Even it the possessor is only a trespasser, the warranty of seisin would not be breached.

Modern statutes often have reversed the common law. They warrant that the grantor is seized of a particular estate. Failure to convey that estate is a breach of the warranty of seisin.

 

The default warranty is that the grantor warrants only that he is in possession of the land at-the time of conveyance. To obtain a warranty of title, the warranty of seisin would have to be modified so that it warrants that the grantor is seised in fee simple absolute of the land: this is a title warranty. The standard type of warranty is really a warranty of possession not of title.

 

Warranty of right to convey. This warranty is breached in forgery cases or in cases where a party legally incompetent to execute a document executes a document anyway.

 

Warranty against encumbrances. At common law, it was a warranty against three types of defects:

1 - Pecuniary charges, e.g., liens, mortgages, etc.

2 - Estates to which the premises are subject that are not fee estates, e.g., landlord-tenant relationship, life estates and leaseholds.

3 - Easements, restrictive covenants and equitable servitudes. These include profits a prendre. A profit is a form of easement.

 

At modern law, an encumbrance is defined as "any right to or interest in the land subsisting in a third party that lowers the value of the land, although it is consistent with conveying the land in fee."

A majority of states will consider the warranty against encumbrances breached if there is any encumbrance on the land which is not specifically accepted in the warranty deed.

A middle group of states say that if it is an "open, notorious and visible" easement or other form of encumbrance for such purposes as highways, railroads, power lines, etc., and not mentioned in the deed it is still irrelevant and not a breach in the warranty.

A distinct minority exclude any "open, notorious and visible" encroachment from coverage under the warranty.

A fee simple determinable or a fee simple conditional would not be considered an encumbrance.

 

Future warranties run with the land while present warranties do not. As a result subsequent grantees are free to bring a claim under the warranty anywhere down the chain of title as long as it is a future warranty.

 

Knowledge. Some courts say there is a breach of the warranty against encumbrances if the encumbrance is not specified in the warranty deed, even if the encumbrance is "open, notorious and visible."

A majority of courts say there is a breach of the warranty against encumbrances if the encumbrance is "open, notorious and visible," unless the easement is a public highway, utility line, railroad or the like.

Still others say there is no breach if the encumbrance is "open, notorious and visible."

 

Present warranties do not run with the land. Future warranties do. A subsequent grant will terminate present warranties. A subsequent grant will not terminate future warranties. They can last forever.

 

Damages which flow from a breach of the warranty of title are somewhat limited in most jurisdictions. If there is an eviction:

Majority rule: entitlement the amount of the purchase price received by the grantor with interest at the time of purchase.

Two minority rules allow the depreciated value of the land to be recovered, with one rule limiting it only to fixtures that existed at the time of conveyance and the other, having no such limitation, allowing recovery of the current market value of the land.

 

If an eviction has not occurred and the grantee is still in possession of the premises, the damages are limited to the amount necessary to clear the defect, e.g., the amount to pay off the mortgage. If the defect cannot be cleared, then the damages would be calculated by the decreased value of the land (which includes the value of any improvements added by the grantee).

 

Generally, the measure of damages is the amount to cure the defect, including attorney fees and other costs associated with clearing the defect—not associated with suing the grantor.

 

If the defect cannot be cleared (i.e., an easement that the dominant estate refuses to release), damages are the amount the land has decreased in value because of the defect.

 

Rights of the good faith improver

 

At common law, a good faith improver would have no remedy or, at best, he could recover only the reasonable value of the improver's personal labor and materials.

 

Today, to avoid unjust enrichment, statutes in many jurisdictions entitle a good faith improver to the enhanced value of the land to the grantee or to the true owner, less whatever the rental value of the land would have been to the party who did the improvement. Damages are limited to the amount that the good faith improver actually spent on improvements.

 

After-acquired title. This is also known as estoppel by deed. This doctrine operates to convey title immediately to a prior grantee under a warranty deed. If the land is conveyed where title is not owned, and at a subsequent the grantor does obtain title, it is immediately conveyed under that prior deed. Stated another way, it applies whenever someone conveys something before he owns it, then acquires it later. The doctrine applies immediately. The courts treat as done that which ought to be done.

 

[In Robben v. Obering, CB 1331, Ed Meirink retained, after execution of the gas and oil lease to E.A. Obering and after Ed gets the quitclaim from Arthur, a 1/4 undivided reversionary interest in fee simple absolute. Obering has a 1/2 interest in the lease. Arthur has a 1/4 undivided reversionary interest in fee simple absolute. Once the lease expires, Ed has a 1/4 undivided interest in fee simple absolute; Arthur has a 1/4 undivided interest in fee simple absolute.]

 

This doctrine was first developed in connection with warranty deeds. Today, most jurisdictions will allow a quitclaim deed to support a claim of after-acquired title where there is at least a representation of ownership with the quitclaim deed. While a quitclaim deed does not warrant that there is title, it represents that there is title. Because of that, it seems fair to estop the grantor from denying he has that estate once he acquires it. That's why this is also called estoppel by deed.

 

After-acquired title is a defect that is outside the chain of title in the land records yet most states will recognize it. You will not pick up the problem when doing a title search. Despite that, knowledge of it is still imputed to a subsequent grantee.

 

Examination of the Records of an Abstract of Title

 

An abstract of title or certificate of title is based only on land and other governmental records. It is intended to show the state of title.

 

It is a very exacting process, both to create such a document and to use such a document. Every point must be studied very carefully. The grantee is only going to obtain protection at the minimum skill level of the abstractor and the attorney who evaluates the abstract.

 

Problems: Defects not appearing of record (i.e., those outside the chain of title, adverse possession, etc.) will not be picked up. Also, the quality of the abstract is dependent entirely upon the quality of the abstractor.

 

We spent 30 minutes discussing the "Abstract of Title" which starts on page 1338. If the will is valid, Sylvester has "a remainder in fee simple absolute, subject to a life estate in Bernadina and subject to a life estate in the east upstairs room in Mary."

 

Who can sue the abstractor?

Traditional rule: Only those in strict privity with the abstractor (paid for or ordered) could sue him for negligent preparation of the abstract. (This limits suits to the purchaser of the abstract, usually the grantor.) Today, the traditional rule has broken down and there are two alternate rules:

 

Michigan rule (most liberal) holds the abstractor responsible for damage for anyone whose reliance on the abstract is either known or could reasonably be foreseen by the abstractor. This would include all parties to the transaction and in most cases subsequent grantees of the grantee involved in the transaction. The abstract of title, in effect, runs with the land.

 

The other narrower rule (Florida) is that the abstractor is liable to the contracting party as well as anyone who the abstractor knew, or should have known, would rely on the abstract. Usually, grantees of grantees would not be able to sue under this rule.

 

The cause of action in suing an abstractor sounds in negligence. The duty on the abstractor is a high duty, a professional duty. The abstractor is held to the standard of a "reasonably prudent abstractor." If the abstractor misses something of record, it is negligence per se. If a reasonable abstractor would not have found the problem, there is no strict liability.

 

Damages recovered: those damages proximately caused by the abstractor's negligence. Most courts award the purchase price, plus interest, plus costs. Majority view does not allow improvements by grantee to the land or appreciation. This is a Palsgraf problem; the answer depends on how conservatively or liberally the jurisdiction interprets Palsgraf. The more liberal, the more likely to recover improvements to the land.

 

Torrens System of Land Registration: Several states, including Massachusetts, have authorized an alternative to the land record system (race, notice, etc.) called the Torrens system. It is also known as "title registration." It is supervised by a court and starts with an initial judicial finding of the exact state of title and that is reduced to a certificate which becomes the title document to the land.

In the land records system, the documents are evidence of title. In the title registration system, the certificate is title.

The court initially must determine the exact state of title through a lawsuit akin to a quiet title action. It then issues a "certificate of title." This is filed in the registration office. A duplicate is given to the title holder.

Any interest that does not appear on the certificate of title, at least in theory, does not exist. Under the Torrens system, there cannot be adverse possession.

However, not all defects appear on the certificate. Example: federal tax liens, persons not listed in the original lawsuit (their interest will survive the initial judicial finding since they did not have the appropriate constitutional protection). Because of this, you must search the land records.

 

Initial lawsuit. You must sue anyone you know or should know who may have an interest in the land. This includes anyone in the chain of title, heirs and assigns, abutters, all neighbors, municipality, utility company, anyone holding a mortgage, lien or easement, etc. A person's property interest survives if he is not named in the lawsuit. Reason: Due Process Clause of the 14th Amendment to the US Constitution.

 

You must still search the land records to confirm that all parties of record were named in the lawsuit.

 

Even in those jurisdictions that uses Torrens, the vast majority of land is not registered. Registration is commonly used for two kinds of land: for undeveloped land (to protect against adverse possession) and for subdivisions.

 

Under the Torrens system, an "assurance fund" is created, funded by registration fees, to protect property owners against errors made by the registration clerk.

 

Title insurance is a policy of insurance that can be acquired to protect title. It only insures that the title is as it is described in the title insurance policy. It does not say the title is good. It does not say the title is marketable. It only says title is as described in the policy.

 

Title insurance is routine in residential real estate transactions and most commercial transactions. It protects both the buyer and the mortgage company, which almost universally require title insurance policies.

 

Title insurance policies are uniform. Schedule A sets forth the title. Schedule B sets forth the exceptions, including specific exceptions (easements, a mortgage, a leasehold, etc.) and general exceptions.

 

The primary liability of a title insurance company is under its policy. It is only liable to the extent of that policy. A title insurance claim is a contract claim. You get the coverage the policy states.

 

If there are uncertainties in interpreting whether there is coverage, the language of the policy is construed against the insurance company and in favor of the policy holder, maximizing coverage. Coverage provisions in Schedule A are interpreted broadly; exclusions in Schedule B are interpreted narrowly.

 

In the alternative, there may be a negligence claim against the title insurance company if the company negligently prepared the abstract. This action would be independent of the contract action.

 

Under modern practice the title insurance company also does the abstract of title and has the same liability that any other abstractor would have. Title insurers also can be sued for breach of the "covenant of good faith and fair dealing," a covenant included in all title insurance policies in most jurisdictions.

 

Adverse possession in dealing with real estate: the adverse possessor is one who is in actual possession in an uninterrupted, open and notorious, hostile, exclusive, and under a claim of right and in good faith for a statutory period.

 

Uninterrupted possession means that the adverse possessor must not go out of possession during that entire statutory period, which is measured in the nature of the land and its uses (e.g., summer residence to be used by adverse possessor only as summer residence).

 

Successive adverse possessors can also tack their periods of possession together from the moment they are in privity with each other.

 

Open and notorious means that the adverse possessor's possession of the property has to be clear and visible; cannot be hidden in any way.

 

Hostile means that the possession is against the true owner's title, as opposed to any kind of viciousness or hostility. This implies that the adverse possessor can never enter the land or stay on the land with the permission of the true owner; once the permission is given, it is no longer hostile.

 

Exclusive means the possession is exclusive as against the true owner. If not exclusive, the best that can result is some form of prescriptive easement.

 

Matter of right. Adverse possessor must believe that they are occupying the land as a matter of right. Mere trespassers (according to the historic rule of adverse possession) were not entitled to claim title to the land because they knew it did not belong to them. Today there is some trend lessening this exclusion of known trespassers, with less emphasis placed on good faith and the claim of right

 

Methods of Land Use Regulation

 

There is nothing new about land use regulation. Even in feudal times, there was private land regulation. The feudal lord granted land to a tenant but required him to do something on the land. After the feudal system broke down, defeasible estates (fee simple determinable and fee simple subject to condition subsequent) developed.

 

Today, there are two major methods of private land use regulation:

the use of restrictive covenants or easements

nuisance suits to limit the use of a neighbor's land.

 

Since the 1920's, government has served the predominant role in land use regulation. Initially, the first level of zoning only separated industry from housing.

 

What we call zoning actually is composed of six separate systems:

1. Outright prohibition of certain kinds of activities

2. Regulation of the fixtures on the land , through building, housing and fire codes

3. Regulation of subdivisions and requiring permission before land parcels can be divided into smaller parts

4. Official maps for municipal growth

5. Outright purchase of land by the government followed by sale use or sale to another.

6. Zoning regulations

 

Zoning. Initially, zoning was claimed to be a "taking" of land because it limited the landowner's use of the land. A constitutional challenge was brought.

 

In 1926, the US Supreme Court determined that zoning was a proper exercise of "the police power," government's authority to act for the "health, safety, morality or general welfare" of its citizens. It held that zoning regulations are not unconstitutional per se.

Usually, if there is any "reasonable relation" between the zoning regulation and the police power, the regulation will be upheld.

Generally, aesthetic regulations and historic preservation district regulations have been upheld.

Regulations prohibiting yard signs have been held unconstitutional because they conflict with one's right to free speech. They can regulate the "time, place and manner" of signage.

Regulations limiting religious meetings have been held unconstitutional.

 

Schemes of zoning are constitutional. Individual zoning decisions and individual zoning regulations are subject to constitutional challenge. Even though these regulations adversely affect individual property owners' title or value of their land, as long as the overall scheme is implemented within the state police power the courts will uphold the overall scheme.

The state police power includes anything designed to regulate "the public health, safety, morals or general welfare."

The Supreme Court says a zoning regulation in individual applications cannot be enforced unless it bears a substantial relationship to the police power (public health, safety, morals or general welfare).

 

Subdivisions. Most jurisdictions regulate subdivisions. A planning board can disapprove a subdivision if it "potentially" will lead to a condition that will violate something that can be regulated by the police power, i.e., potential health, safety, moral or general welfare problem.

 

A planning board's authority is not unlimited. It is a creature of its own regulations. The board must adopt regulations stating what must be done to get a subdivision permit. It then must evaluate subdivision plans according to the regulations. It cannot be "capricious." Planning is a political function.

 

If there is any evidence to support the board's factual conclusions, courts will generally uphold the board. If the regulation is applied correctly and it is a valid exercise of the police power, the decision will be upheld.

 

Official Maps. These are planners' attempts to show the land which the municipality may wish to acquire for public use, either for a road, firehouse, park, school, etc. Official maps control the title holder's use of the land to a certain degree in that he may not use the land on the map inconsistent with the use designated, unless there is some kind of substantial hardship or injury that would be invoked thereby. If there is substantial injury, then the landowner is free to use the land as he may choose.

 

[Purpose: Official maps limit the use of land without the municipality having to pay for it.]

 

Generally, a land holder is not allowed to build on land designated on an official map unless he has no other way of building. A city can deny a building permit on the grounds that the building would be located in the path of a proposed street.

 

In most cases, if the title holder builds within the designated area, he does so at his risk. He waives his right to compensation for the improvements if the municipality ultimately takes the land. The municipality only will pay for the "naked" land.

 

Official maps have been more successfully challenged on constitutional grounds than other types of zoning regulations, mostly because official maps tend to prohibit all uses of the land rather than just some use.

 

As a general rule, if, an official map regulation does not have an "escape" clause of some kind allowing the use of the land in ways inconsistent with the official map if no other economic return can be obtained, then that ordinance probably is unconstitutional. There must be an escape clause ("a way out") or the municipality is required to compensate the owner.

 

An official map regulation which "freezes" any development on land for one year, without compensating the landowner, is unconstitutional on its face. Though the regulation is silent as to compensation, a minority of courts infer a requirement that the municipality pay for a one-year "option" to purchase the land, in order to save the regulation. This is not really an "option," since it restricts all uses of the land for a year. It is really a lease or a restrictive covenant.

 

Public Ownership. This might be the ultimate form of zoning. There is no problem if a municipality takes land for municipal purposes.

 

Some cases go beyond that. Those are cases where the municipality takes land, not for its own use, but for the benefit /conveyance of a third party.

 

In a 1984 Hawaii case, the US Supreme Court upheld a state law designed to break up a land oligopoly by condemning the land and offering it for sale to others. The court said regulating oligopoly and the evils associated with it is a classic exercise of the state's police powers.

 

If there is "no articulable reason" why the law falls within the police power or it is "palpably without reasonable foundation," it will be struck down. Otherwise, it will be upheld.

 

In the Northeast, the same sort of thing happened during "urban renewal" in the 1960s and 1970s.

 

Bottom line: the State can coerce ownership from someone as long as they are paid just compensation.

 

Administration of Land Use Controls

 

A nonconforming use is any use of the land that is inconsistent with the zoning. This is because the use is not allowed or because of the physical characteristics of the land or a fixture on the land does not comply with the zoning. Normally, nonconforming uses are illegal and will be enjoined.

 

Pre-existing nonconforming uses are those non-conforming uses created either before the adoption of zoning regulations or change in zoning regulations. Colloquially, this as a "grandfather clause."

 

Generally, a pre-existing non-conforming use is allowed to continue, but with severe limitations, designed to bring about its eventual termination. The most typical limitation is a prohibition on improving, modifying, expanding or renovating the property. Also, if the property owner stops using the property for a period of time (usually 6 months), he loses the right to continue the nonconforming use.

 

Some zoning regulations affirmatively require non-conforming uses to go away over a given period of time by a theory called "amortization."

 

States which have such regulations have found them to be constitutional as long as the titleholder is given a "reasonable" period of time within which to extinguish the non-conforming use.

 

"Reasonableness" is based on three things: the size of the injury the titleholder will incur, how inconsistent the non-conforming use is, and the useful life of fixtures on the land.

 

Some jurisdictions do not recognize amortization at all, saying that the property owner has a "vested" interest.

 

Vested rights in zoning

 

In a majority of jurisdictions, a property owner's rights "vest" in the prior zoning only :

 

1 - If there are significant improvements on the land consistent with the prior zoning, inconsistent with the new zoning.

 

2 - If there are significant expenditures of money consistent with the prior zoning, but inconsistent with the new zoning.

 

3 - If there are significant contractual obligations.

 

4 - significant alterations to the land.

 

Most jurisdictions require that the developer also must be acting in good faith.

 

If any of #1, 2 or 3 are true, the property owner has a "vested" right in the prior zoning. The owner can use the land for that purpose as a non-conforming use, subject to all restrictions of non-confirming uses.

 

Minority rule: If a building permit has been issued, the property owner has "vested" rights in the prior zoning. If it has not, it is not vested, no matter how much or how little money has been expended.

 

Just because the zoning vests, does not make it a legally conforming lot. Any restrictions to the nonconforming lot would apply to the vested lot.

 

Estoppel. This is an alternate theory. If a municipality knows that a developer is relying on a particular zoning classification and the municipality encourages that reliance, and the developer does rely on the classification and would be injured if it is removed, the municipality will be estopped from preventing reliance on that zoning. The nonconforming use will be allowed. This is a minority rule.

 

A zoning variance is approval by the municipality to use the land in a way inconsistent with the zoning regulations.

 

In order to obtain a variance, the landowner must show a "substantial and compelling hardship," more than merely economic. In theory, variances should be exceedingly rare; in reality, they are quite common.

 

The courts have been strict in their interpretation of this standard. Because of this, challenges to variances are often successful.

 

No one has a "right" to a variance. If you are turned down for a variance, the court will not review it unless you prove the zoning appeals board did something illegal.

 

Once a variance is obtained, it changes a nonconforming lot into a conforming lot for all time.

 

Special exceptions are spelled out in the zoning regulations themselves. The vast majority of zoning regulations do not have special exceptions.

 

For special exceptions, there is no hardship requirement.

 

Zoning itself is usually a two step process. Typically, there is first some form of planning function. The most important result is the development of a comprehensive plan for a community. Once this is done, it is used as the controlling document for zoning regulations. If the regulations do not match the comprehensive plan, this can lead to confusion and litigation.

 

Comprehensive Plans. "Comprehensive plans" or "master plans" are required in most jurisdictions. They set forth in a general way the land use patterns for an entire municipality. In turn, a master plan is implemented through zoning regulations.

 

The first distinction that is made is between the legislative process in creating zoning and the administrative or quasi-judicial process of enforcing it. Where the line gets drawn differs from jurisdiction to jurisdiction.

 

Judicial review of zoning decisions: When a legislative act (i.e., initial creation of a master plan) is reviewed by the courts in most jurisdictions, it is entitled to a presumption of validity. It will be struck down only if it is unconstitutional. Otherwise, it will be upheld.

 

When a quasi-judicial act (i.e., an individual application to a local zoning board for a zoning change) is reviewed by the courts, there is a higher level of review. The courts review the law and the way the law was applied to the facts that were found. If it is found to be quasi-judicial, the burden of proof is placed on the person seeking the change to prove first and foremost that the change is in the public interest, is within the police power of the municipality, and is generally consistent with the comprehensive plan developed for that community.

 

Majority rule: Some jurisdictions will go even father and require that the public interest being sought by the change is best achieved by the proposed change and there is no other way of achieving it that is better. A majority of states seem to follow some version of the Fasano standard for reviewing zoning decisions. (Fasano is probably minority now, but is rapidly becoming majority.) They place some burden of proof on the party seeking the change to show consistency with the comprehensive plan and that the change will result in public good. The exact standard is unclear.

 

Minority rule: Under the "Maryland change or mistake" rule, no zoning change can be allowed unless it is shown that the zoning was originally done by the state or alternatively by showing that the conditions in the neighborhood itself have changed to such an extent that the original zoning is no longer justified. If neither exist, the property owner must seek a variance with its "substantial and compelling hardship" standard.

 

In any challenge to zoning obviously the titleholder is always an interested party and has a right to participate in the process: to be heard and to seek a court challenge to any changes that was made. In fact, anyone with a property interest (tenant, remainderman, mortgagee, lessee, licensees, easement holders) may be an interested party.

 

Most states also recognize abutter's rights to challenge zoning. They follow the "abutters" rule. Other states, including Massachusetts, follow the "abutters to abutters" rule; others "anyone in the neighborhood." Some go further, allowing anyone owning property within the municipality or any resident to challenge the zoning restriction.

 

Contract Zoning: This is a new concept in which municipalities require a developer to give something to the municipality (i.e., a restrictive covenant, an easement, etc.) in exchange for a zoning change.

 

Only a minority of jurisdictions, one of which is Massachusetts, allow contract zoning.

 

In a majority of jurisdictions, contract zoning is not allowed. There are several major theories used by the courts to-strike down contract zoning:

 

1 - It is considered "spot zoning" because they tend to affect only one parcel of land.

 

2 - It is considered an illegal bargaining away by a legislative body of its right to legislate.

 

3 - It is considered an "ultra vires" act, an act which exceeds a municipality's authority.

 

4 - It is considered an improper exercise of the police power and, therefore, unconstitutional.

 

In some cases, a municipality's demands may be seen as "blackmail" by the party seeking the zoning change.

 

Planned Unit Development (PUD): This also is called "cluster zoning" or "density zoning." It if one of the latest developments in zoning.

 

A PUD regulation allows flexibility. Under this type of zoning, a municipality will specify minimums and maximums for density (ranges) of different kinds of uses of land. The details are worked as to where things are to be located is worked out between the developer and the zoning board. It does not control the exact location of anything but it controls the density of everything.

 

Developers of planned unit developments must stick to the plans they submit to the zoning board. They cannot change them unilaterally. Many jurisdictions will not allow any change in the plan if it will be visible.

 

Most jurisdictions have either upheld PUDs or passed legislation regarding them. However, they cannot be a pure "floating zone."

 

"Floating zones" are zones that exist in the regulations but not on the zoning map. A property owner can ask that his property be rezoned to that classification. Floating zones are generally struck down as being spot zoning under the Constitution or the statutes. As long as the PUD is not allowed to float over the municipality, but rather attached to specific zoning classifications, most jurisdictions have upheld them without any kind of problem.

 

Regulatory Takings

 

A "regulatory taking" is governmental action which limits the use of land to the point where it amounts to a "taking" under the Fifth Amendment to the Constitution. The 5th Amendment to the US Constitution provides that no person shall be deprived of life, liberty or property without due process of law and that private property will not be taken for public use without just compensation.

 

The standards that the US Supreme Court announces are more dependent on the individual political and economic philosophy of the court bench than they are under any overriding or underlying themes of constitutional law. As a major consequence of this, every time a new justice is named to the Supreme Court regulatory taking law changes.

 

The supposed current theory that the court is using was announced in the Keystone case. A taking is deemed to occur either if the statute does not substantially advance a legitimate state interest or if the statute denies the owner all economic viability of the land. The real problem comes in DETERMINING what constituted an interest which is legitimate and in determining whether that interest is advanced by the particular statute. Equally hard is determining how much economic viability of the land has to be impinged upon before there has been a taking. Although the standard says "all economic viability," that clearly is not the standard that is used in fact.

 

 

The 14th Amendment to the US Constitution secures all persons against any state action which results in either deprivation of life, liberty or property without due process of law, or, in denial of equal protection of the laws.

 

There seem to be two major theories running through "takings" cases:

 

"Physical Occupation" theory: If there is a physical invasion by the government, it is a taking and must be compensated. [Examples: Causby and Loretto CATV]

 

"Public Nuisance" theory: If the statute or regulation being challenged is a bona fide attempt to control a use that leads to a public nuisance, it probably is not a regulatory taking. [Example: ordering destruction of diseased cedar trees which threatened an entire state's apple crop.] The Penn Central case did allow the regulation of land merely for aesthetics. Historic preservation districts have also been upheld. Interests that are not public nuisances can also be sufficient. Theoretically any interest that is within the police power should be.

 

Cases which fall between are more difficult.

 

In 1987, the US Supreme Court decided a series of regulatory "takings" cases which shed some light on the subject:

 

Keystone Bituminous Coal v. DeBenedictis (1987): In a 5-4 decision, the US Supreme Court upheld a Pennsylvania law regulating coal mining. The law had been challenged as unconstitutional on its face.

 

The Court outlined a two-part test:

 

It held that a land use regulation can effect a "taking" if it "does not substantially advance legitimate state interests...or denies an owner economically viable use of his land."

 

[Note: In deciding whether the owner was denied "economically viable use" of the land, the majority did not look at individual estates in land. It looked at the entire bundle of sticks. If there is an economically viable return from the whole bundle of sticks, as regulated, the Court held there has been no taking.]

 

We do not have a definition of "substantially advance" but do have cases that interpreted this term:

 

Nollan v. California Coastal Commission (1987): In a 5-4 decision, the Court held that a state cannot condition the granting of a land use permit on a matter not directly related to the land use permit. The state's interest in preserving a view of a beach was not substantially advanced by the easement given that ran across the dry sand area of the beach. There was no attempt to regulate what could be called a "public nuisance." The regulation here was a physical taking: the giving of an easement was a physical occupation and that makes the regulation more suspect than if it were merely a regulation on the limitation of use.

 

The first aspect of any regulatory taking analysis has to deal with whether or not there is a legitimate state interest and whether that interest has been substantially advanced by the regulation.

 

The second half of the test is whether the owner has economic viability of the land left after the regulation is imposed. Theoretically this required the holder's interest in the land to be examined in toto, not merely a narrow interest. If an economically viable return is available from the entire parcel, then the regulation does leave the owner with economic viability.

 

The composition of the supreme court has changed since 1987, and this concept of looking at the entire parcel of land may or may not survive with the current court. This is particularly suggested by the Lucas South Carolina case. If the court determines that an economic viability has been affected, there will be a taking regardless of whatever the other legitimacy of the interest is. The current court is looking at portions of the parcel, subdividing it.

 

First English Evangelical Lutheran Church of Glendale v. County of Los Angeles (1987): In a 6-3 decision, the court held that a property owner whose land is "taken" by a land use regulation may recover damages from the time the regulatory taking occurred to the point it is rescinded. A landowner must be compensated for even a "temporary" taking which deprives him of all use of his property. The basic holding is that a titleholder is entitled to compensation for a regulation that is ultimately deemed to be a taking during the period of time that it is being litigated.

 

The measure of damages is fair value for use of the property during the period the regulation is in place.

 

Finally, in looking at contract zoning requisites in the City of Taggert case:

the city cannot demand a contractual give-back by the landowner as a condition of zoning approval unless the give-back itself substantially advances a legitimate state interest and

is designed to mitigate a problem that is caused by the landowner's new use of the land and

is roughly proportional to the size of that impact.

 

There is a point at which the exercise of the police power amounts to a "taking" of property. While property may be regulated to a certain extent, if regulation goes too far it will be recognized as a "taking." A state statute that substantially furthers important public policies may so frustrate distinct investment-backed expectations as to amount to a "taking." This was the US Supreme Court's holding in Pennsylvania Coal Co. v. Mahon (1922).

 

A governmental regulation is invalid if it denies a property owner all reasonable return on his property. However, a property owner cannot show a "taking" simply by showing that he has been denied the ability to exploit a property interest he believed had been available to him prior to the governmental action.

 

"Transferable development rights" allow a landowner to transfer his development rights lost by a zoning change to land he might acquire in a designated "receiving area" elsewhere in the city.

 

"Incentive" or "bonus zoning" provide that a developer can exceed the prescribed standard if he provides some amenity for the public, typically open space.

 

Development exactions. "Exaction" is the act of demanding or requiring that which is not justly due. A synonym is "extortion."

 

The most common development exactions are dedication of streets and utility easements within a subdivision.

 

Some local governments also have impose "impact fees" upon developers to defray the costs of community facilities such as water plants.

 

In some states, developers have been required to set aside a portion of residential housing for low- or moderate-income persons or make an "in-lieu donation." These acts are called "inclusionary zoning."

 

Developers of offices have been required to pay "linkage fees" to provide affordable housing, to balance displacement of such housing by the office project or creation by it of additional need for such housing.

 

 

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