1. Principles of California Real Estate
Lesson 2:
Estates in Land and Methods of Holding Title
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2. Introduction This lesson will discuss: types of estates in land
ways of holding title to property
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3. Estates in Land Interests in real property
Interest: Interest in real property is a right to the property or a claim against it.
Interests may be:
possessory (also called estates)
nonpossessory
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4. Estates in Land Interests in real property
Estate: Absolute and exclusive right to possess property now or in the future.
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5. Categories of Estates Two basic categories:
freehold estates (include title)
leasehold estates (don’t include title)
Both freehold and leasehold estate may exist at same time in same property; this relationship is known as privity.
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6. Types of Estates Freehold estates
Two main kinds of freehold estates:
fee simple estates
life estates
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7. Freehold Estates Fee simple estates
most common type of estate
highest and most complete form of land ownership
can potentially last forever
Fee simple estate is perpetual, transferable, and inheritable.
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8. Fee Simple Estates Two types of fee simple estates: absolute
defeasible
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9. Fee Simple Estates Fee simple absolute
Estate transferred is fee simple absolute unless grantor makes clear some other estate intended.
Fee simple absolute owner is not subject to any special limitations or conditions.
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10. Fee Simple Estates Fee simple defeasible
Fee simple defeasible: Fee title with condition or qualification attached.
Interest will end if specified act or event occurs at some later date.
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11. Freehold Estates Life estates
limited in time
lasts only as long as a particular person is alive
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12. Life Estates Duration
Life tenant: Person who owns property for duration of measuring life.
Measuring life: Person whose life is used to measure length of life estate; usually same person as the tenant.
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13. Life Estates Future interests
When measuring life ends, title will pass to holder of:
estate in reversion, or
estate in remainder.
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14. Life Estates Estate in reversion
Estate in reversion: If deed giving title to life tenant states that title shall revert to grantor on death of measuring life, grantor has estate in reversion.
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15. Life Estates Estate in remainder
Estate in remainder: If deed giving title to life tenant states that title shall pass to third party on death of measuring life, third party has estate in remainder.
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16. Life Estates Sale or lease
Life tenant may sell or lease only interest she has in property.
Life tenant must maintain property in good condition.
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17. Summary Freehold Estates
Fee simple absolute
Fee simple defeasible
Life estate
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18. Categories of Estates Leasehold Estates
Leasehold estate: Limited, temporary estate created by lease contract.
Parties: landlord and tenant.
Tenant gets right to exclusive use and possession of property.
Landlord retains title and holds reversionary interest in property.
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19. Leasehold Estates Chattel Real
Because lease is considered personal property (even though it represents interest in real property), it may also be called chattel real.
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20. Leasehold Estates Types of estates
term tenancy
periodic tenancy
tenancy at will
tenancy at sufferance
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21. Types of Leasehold Estates Term tenancy
Term tenancy: A leasehold estate that lasts for any fixed term; also called estate for years.
One-week lease is estate for years.
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22. Types of Leasehold Estates Periodic tenancy
Periodic tenancy: Leasehold that is not limited to specific term; also called periodic estate.
Automatic renewal: continues from rental period to rental period until terminated by landlord or tenant, with proper notice.
Required notice period = rental period.
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23. Types of Leasehold Estates Tenancy at will
Tenancy at will: Often arises when lease has expired and parties are negotiating new lease; also called estate at will.
No agreement exists.
Tenant in possession with landlord’s consent.
California requires 30 days’ notice of termination.
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24. Types of Leasehold Estates Tenancy at sufferance
Tenancy at sufferance: Not true estate; tenant does not have leasehold interest.
Tenant keeps possession after valid lease expires, without landlord’s consent.
Commonly called holdover tenancy.
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25. Summary Leasehold Estates
Term tenancy
Periodic tenancy
Tenancy at will
Tenancy at sufferance
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26. Ways of Holding Title
Title to real property may be held by one person, known as ownership in severalty; or it may be held by two or more persons, known as concurrent ownership.
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27. Ways of Holding Title Ownership in severalty
Ownership in severalty: Ownership by one individual (often called “sole” ownership).
Individual owner may be:
natural person (human being)
artificial person (corporation, LLC, etc.)
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28. Ways of Holding Title Concurrent ownership
Concurrent ownership: Ownership by two or more persons at same time.
In California, there are three types of concurrent ownership:
tenancy in common
joint tenancy
community property
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29. Concurrent Ownership Tenancy in common
Tenancy in common is most basic form of concurrent ownership. It’s default form if:
arrangement doesn’t fit into one of other categories
deed did not specify another type
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30. Concurrent Ownership Tenancy in common
Tenants in common have undivided interest in property as a whole. This is called unity of possession.
Interests don’t have to be equal.
No matter how small tenant’s interest, he may share possession of entire property.
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31. Concurrent Ownership Death of tenant in common
Tenant in common may will interest to someone other than remaining tenant(s) in common.
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32. Concurrent Ownership Terminating a tenancy in common
Tenancy in common may be terminated by a partition suit.
Court will either divide property into separate parcels or order sale of property with proceeds to be divided among co-tenants.
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33. Concurrent Ownership Joint tenancy
In joint tenancy, two or more persons are joint and equal owners of property.
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34. Joint Tenancy Four unities
Requirements for joint tenancy:
unity of interest
unity of title
unity of time
unity of possession
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35. Joint Tenancy Right of survivorship
Right of survivorship is key feature of joint tenancy.
When joint tenant dies, her interest:
automatically passes to surviving joint tenants
is not part of her estate and cannot be willed
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36. Joint Tenancy Termination
Joint tenancy can be terminated by partition suit.
Also terminates if any of four unities is destroyed.
Example: If joint tenant transfers her interest to another, new owner is not joint tenant.
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37. Concurrent Ownership Community property
Community property is property owned jointly and equally by husband and wife.
System is used in California and 8 other states.
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38. Concurrent Ownership Community property
In community property states:
everything owned by married couple that isn’t separate property of one spouse is community property of both spouses
each spouse has an undivided ½ interest in community property
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39. Community Property Separate property
property owned before marriage
gift or inheritance acquired during marriage
anything purchased with separate property funds
profits or proceeds from separate property
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40. Summary Individual and Concurrent ownership
Ownership in Severalty
Concurrent ownership
Tenancy in Common
Joint tenancy
Community property
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41. Ways of Holding Title Business organizations
Real property may also be owned by business entity:
general partnerships and limited partnerships
corporations
limited liability companies
real estate investment trusts
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42. Business Organizations Partnership
Partnership: Association of two or more persons to conduct business as co-owners and share profits. Partnerships are formed by contract.
Types of partnerships:
general partnership
limited partnership
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43. Partnerships General partnership
General partnership: Each partner has:
ownership interest
voice in management
right to share in profits
obligation to share in losses
The partnership is not taxed, but each partner’s earnings are taxed individually.
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44. General Partnership Property ownership
Partner has right to use partnership property but is not co-owner of property and has no transferable interest in it.
But partner’s interest in partnership itself may be transferred.
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45. General Partnership Liability
Each partner may be held personally liable for debts and obligations of general partnership.
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46. Partnerships Limited partnership
Limited partnership is more regulated than general partnership.
Agreement must be in writing.
Only general partners have liability for partnership debt and obligations, and right to manage business.
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47. Partnerships Limited partnership
A limited partnership has at least one general partner, plus one or more limited partners. Most California real estate syndicates are limited partnerships.
Limited partners have:
limited liability
no control over partnership property
passive role in management
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48. Business Organizations Corporation
Corporation: Artificial person with perpetual existence. Made up of:
shareholders
board of directors
corporate officers
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49. Business Organizations Corporation
Corporations:
can own property
can incur debts
are subject to double taxation (profits are taxed before distribution to shareholders, then taxed again as ordinary income to the stockholders)
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50. Business Organizations Corporation
Shareholders:
own shares in corporation
have no managerial control
are liable only up to value of their stock
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51. Business Organizations Limited liability company
LLC may be organized like partnership or like corporation.
Owners are called “members.”
Income not taxed at entity level, so no double taxation.
Owners have limited liability.
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52. Business Organizations Real estate investment trust
REIT: One or more trustees manage real property for benefit of investors (the beneficiaries). Investor liability is limited to amount of investment.
An REIT:
qualifies for special tax treatment
must have at least 100 investors
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53. Summary Business Organizations
General partnership
Limited partnership
Corporation
Limited liability company
Real Estate Investment Trust (REIT)
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54. Ways of Holding Title Condominiums and cooperatives
There are two types of properties that combine elements of individual ownership and concurrent ownership:
condominiums
cooperatives
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55. Condos and Co-ops Condominiums
Condominiums are usually residential and resemble an apartment complex.
Residents:
own individual units in severalty
share ownership of common elements
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56. Condominiums Common elements
Common elements: Parts of a condominium property that are usable by all residents.
Examples:
grounds
elevator
hallways
swimming pool
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57. Condominiums Separate properties
Buyer of condominium unit:
receives deed for unit
finances purchase with separate loan
obtains separate title insurance policy
pays separate taxes
If lien against one unit is foreclosed, other units are not affected.
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58. Condominiums Governing board
Elected governing board usually manages condominium and enforces rules.
Condominium seller must give prospective buyer:
copy of bylaws
latest financial statements
CC&Rs for the project
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59. Condominiums Uses
Condominium can be designed for residential, commercial, or industrial use.
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60. Condos and Co-ops Cooperatives
Residential co-op might look like condominium, but ownership structure is very different.
Title is held by corporation.
Residents:
own shares in corporation
have long-term lease on unit
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61. Condos and Co-ops Cooperatives
Cooperative project is:
financed with single mortgage
taxed as single property
Rent paid to corporation is proportionate share of co-op’s expenses; if one tenant fails to pay rent, other tenants must cover to avoid foreclosure.
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62. Summary Condos & Co-ops
Condominium
Common elements
Governing board
Cooperative
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