APPENDIX—PRESENT ESTATES AND FUTURE INTERESTS

Question 1

ESTATES IN LAND

Answer 1

• “Estates in land” are possessory interests in land. - These interests may be presently possessory (present estates), or they may become possessory in the future (future interests).
• These topics are complex and account for only one or two questions on the MBE.
• That said, you still need to know them both for those questions and for your essays.

Question 2

PRESENT POSSESSORY ESTATES

Answer 2

A present possessory estate is an interest that gives the holder the right to present possession.

Question 3

Fee Simple Absolut

Answer 3

• A fee simple absolute is the largest estate recognized by law.
• It’s typically what we think of as full ownership of real property.

Question 4

Defeasible Fees

Answer 4

Defeasible fees are fee simple estates (that is, of uncertain or potentially infinite duration) that can be terminated upon the happening of a stated event

Question 5

Defeasible Fees: Fee Simple Determinable (and Possibility of Reverter)

Answer 5

• A fee simple determinable terminates upon the happening of a stated event and automatically reverts to the grantor.
• It’s created by durational language, such as “for so long as,” “while,” “during,” or “until.”
• For example, O “to A for so long as no alcoholic beverages are consumed on the premises” gives A a fee simple determinable.
• The accompanying future interest in O is called a possibility of reverter.
• If alcohol is served on the premises, the estate automatically goes back to O.

Question 6

Defeasible Fees: Fee Simple Subject to Condition Subsequent (and Right of Entry)

Answer 6

• A fee simple subject to a condition subsequent is created when the grantor uses words like “upon condition that,” “provided that,” “but if,” or “if it happens that.”
• In contrast to the fee simple determinable, here, if the stated event happens, the grantee’s estate continues until the grantor exercises her right to terminate by bringing suit or making reentry.
• The grantor’s future interest is thus called a right of entry or power of termination.
• This right must be expressly reserved.

Question 7

Defeasible Fees: Fee Simple Subject to an Executory Interest

Answer 7

• If a fee simple estate terminates upon the happening of a stated event (because it is determinable or subject to a condition subsequent) and then passes to a 3RD party rather than reverting to the grantor or giving the grantor a right to terminate, the 3RD party has an executory interest

Question 8

Life Estate

Answer 8

• Life estates are what they sound like: they’re ownership interests for life.
• When the interest ends, the land either goes
  back to the grantor (whose future interest is a reversion), or, more commonly, to a 3rd party (whose future interest is a remainder).
• Usually, a life estate is measured by the life of
  the grantee, called a “life tenant” (ex. O “to A for life”).
• A life estate measured by the life of someone other than the life tenant is a life estate pur autre vie (ex. O “to A for the life of B”).

Question 9

Life Estate: Rights and Duties of Life Tenant—Doctrine of Wast

Answer 9

• A life tenant is entitled to any ordinary uses and profits of the land but can’t do anything that injures the interests of a remainderman or reversioner.
• A future interest holder may sue for damages or to enjoin such acts, and if they spend money to perform the life tenant’s obligations, they’re entitled to reimbursement.

Question 10

Affirmative (Voluntary) Waste—Natural Resources

Answer 10

• Generally, a life tenant cannot consume or exploit natural resources on the property (like timber, minerals, or oil).
• Under the open mines doctrine, if mining was done on the land prior to the life estate, the life tenant can continue mining—but is limited to the mines already open.

Question 11

Permissive Waste

Answer 11

• A life tenant is obligated to preserve the land and structures in a reasonable state of repair and pay certain carrying charges (such as mortgage interest and ordinary taxes).
• Permissive waste occurs when a life tenant fails to do so.

Question 12

Ameliorative Waste

Answer 12

• Ameliorative waste is a change that benefits the
  property economically. Now, a life tenant may alter or even demolish existing buildings if:
• The market value of the future interests is not diminished; and either
• The remaindermen do not object; or
• A substantial and permanent change in the neighborhood conditions (ex. a change from residential to 90% industrial) has deprived the property in its current form of reasonable productivity or usefulness.

Question 13

Estate for Years, Periodic Estate, Estate at Will, Tenancy at Sufferance

Answer 13

These present estates are considered in Module 3, which concerns the landlord-tenant relationship.

Question 14

FUTURE INTERESTS

Answer 14

• A future interest gives its holder the right or possibility of future possession of an estate.
• Despite the fact that possession is in the future, a future interest is a present, legally protected right in property.

Question 15

Future Interests in Transferor—Reversionary
Interests

Answer 15

• Future interests retained by a grantor following a defeasible fee or a life estate are called reversionary interests.
• There are only three capable of creation in the grantor: the possibility of reverter, the right of entry, and the reversion.

Question 16

Future Interests in Transferees

Answer 16

• If a future interest is held by someone other than the grantor, it has to be either:
• A contingent remainder, OR
• A vested remainder, of which there are three types:
  (1) the indefeasibly vested remainder,
  (2) the vested remainder subject to complete defeasance (also known as the
  vested remainder subject to total divestment), and (3) the vested remainder subject to open, OR
• An executory interest (of which there are 2 types:
  (1) the shifting executory interest, and
  (2) the springing executory interest).

Question 17

Future Interests in Transferees—Remainders

Answer 17

A remainder is a future interest in a third person that can become possessory on the natural expiration of the preceding estate.
- Remainders always follow life estates.
- The remainder can’t divest a prior estate, and it can’t follow a time gap after the preceding estate. - A remainder must be expressly created in the instrument creating the preceding possessory estate.
- They may be either contingent (subject to a condition that must occur before the remainderman can take) or vested.
- Only contingent remainders are subject to the Rule Against Perpetuities.

Question 18

Vested or Contingent

Answer 18

• Vested remainders are either indefeasibly vested (not subject to divestment or diminution), vested subject to total divestment (subject to a condition subsequent), or vested subject to open (a class gift).
• Remainders are contingent if they are in
  unborn or unascertained persons or if they are subject to a condition precedent.

Question 19

Future Interests in Transferees—Executory Interests

Answer 19

• There are two and only two future interests that can be created in a transferee: remainders and executory interests.
• An executory interest is an interest that divests the interest of another.
• So, remember: If it is not a remainder because
  the preceding estate is not a life estate, then it must be an executory interest.

Question 20

THE RULE AGAINST PERPETUITIES

Answer 20

• The Rule Against Perpetuities provides that, to be valid, an interest in property must vest or fail not later than 21 years after a life in being at the time of the creation of the interest.
• If there is any chance the interest will vest after that time, the interest is void and is stricken from the grant.
• In other words, an interest is void if there is any possibility, no matter how remote, that it might vest (or fail) more than 21 years after some life in being at the creation of the interest.
• The Rule applies to executory interests, contingent remainders, class gifts, options and rights of first refusal, and powers of appointment.

Question 21

When Perpetuities Period Begins to Run

Answer 21

• The validity of an interest under the Rule is determined at the time the interest is created.
• That means that when an interest is created in a will, the perpetuities period begins to run on the date of the testator’s death.

Question 22

“Must Vest”

Answer 22

• An interest vests for purposes of the Rule when it becomes:
  (1) possessory, or
  (2) an indefeasibly vested remainder or a
  vested remainder subject to total divestment.

Question 23

“Lives in Being”

Answer 23

Any lives can be used to show the validity or invalidity of an interest, but no lives are of any help unless they are somehow connected with the vesting of an interest.

Question 24

Interests Exempt from Rule

Answer 24

• The following interests are exempt from application of the Rule Against Perpetuities: a charitable gift following a charitable gift, vested interests (other than open class gifts), and reversionary interests.

Question 25

The Rule in Operation—Common Pitfall
Cases

Answer 25

• Interests that typically violate the Rule Against Perpetuities on the bar exam are discussed in great detail in the Present Estates and Future Interests CMR.
• They include:
• An executory interest that follows a defeasible fee
• An age contingency beyond age 21 in an open class
• The fertile octogenarian (people are conclusively presumed to be capable of having children regardless of age) and
• The unborn widow or widower (widows and widowers are not determined until the spouse’s death and may not be the same spouse as when the interest was created)

Question 26

Perpetuities Reform Legislation

Answer 26

Most states have enacted statutes designed to eliminate some of the harsh results of the common law Rule Against Perpetuities:
(1) A “wait and see” statute, under which the validity of an interest following one or more life estates is determined on the basis of facts existing at the end of the life estate rather than at the creation of the interest;
(2) A cy pres approach, under which an invalid interest is reformed to comply with the Rule and carry out the grantor’s intent as nearly as possible; and
(3) The Uniform Statutory Rule Against Perpetuities, which provides an alternative 90-year vesting period.
- The Uniform Rule takes a “wait and see approach in determining whether an interest actually vests within 90 years.

Question 27

THE RULE AGAINST RESTRAINTS ON ALIENATION

Answer 27

• Generally, any restriction on the transferability of a legal (as opposed to an equitable) interest in property violates the CL Rule Against Restraints on Alienation and is void.

Question 28

Types of Restraints on Alienation

Answer 28

There are three types of restraints on alienation: (1) disabling restraints, under which attempted transfers are ineffective;
(2) forfeiture restraints, under which an attempted
transfer forfeits the interest; and
(3) promissory restraints, under which an attempted transfer breaches a covenant.
- A disabling restraint on any legal interest is void. Forfeiture and promissory restraints may be valid, depending on the nature of the restraint and the interest involved.

Question 29

Restraints on a Fee Simple

Answer 29

• Any total restraint on a fee simple—either forfeiture, disabling, or promissory—is void.
• The grantee may ignore the restraint and freely transfer the property.
• Partial restraints may be valid.
• Although absolute restraints on fee simple estates are void, a forfeiture or promissory restraint for a limited time and for a reasonable purpose may be upheld.

Question 30

Restraints on a Life Estate

Answer 30

• Forfeiture and promissory restraints on life estates are valid.
• However, disabling restraints on legal life estates are void.

Question 31

Options and Rights of First Refusal

Answer 31

• The right to have the first opportunity to purchase real estate when it becomes available, or the right to meet any offer, is valid if reasonable (ex. by specifying fair market value or other reasonable price).