property

PropertyOUTLINE UCLA School of Law Contracts, Professor Nelson Fall 2000 Timothy M. Whalen Overview: Property, Posession, and Ownership Definition of property Concept of property Judicial remedies for the protection of property Bailment Definitions Requirements Liability Adverse possession Definition Purpose Requirements Actual Open and notorious Hostile Exclusive Continuous Stopping adverse possession Methods of Transferring Property Intervivos tranfer Voluntary transfers Involuntary transfers Transfers occurring after the owner’s death Instestate transfers Consanguinity Spouse and children Testamentary disposition Present and Future Estates in Land Theory Creation of estates Non-estate interests (non-possessory) Easements Profits Servitudes Types of estates Freehold Non-Freehold (leaseholds) Present estates Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 1/74 Fee simple absolute Fee simple defeasible Fee simple determinable Fee simple subject to a condition subsequent Fee simple subject to an executory interest Fee tail Life Estate Leasehold Future estates Definition Purpose Types Future interests in grantor Possibility of reverter Right of entry Reversion Future interests in someone other than grantor Executory interest Remainder Restraints on alienation Protection of Future Interests Law of waste Definition The law Types of waste Remedies for waste Unproductive property Time value of money Marital Estates and Concurrent Estates Marital estates Common law – dower and curtesy Modern modification Concurrent estates Joint tenancy Creation (Specific! Default rule nowadays is T/C!) Four unities Severance Violation of unities Conveyance Mortgage (lien theory vs. title theory) Divorce (?) Lease (?) Murder Tenancy by the entireties Creation Four unities + marriage Non-severable Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 2/74 Tenancy in common (Modern law’s preferred estate for unmarried co-tenants!) Creation One unity (possession) Rights and duties of co-tenants Remedies Accounting Contribution Partition Possession by one tenant (IT and OT) By agreement Rent for IT’s use and occupation Majority law: not liable to OT in absence of ouster or fiduciary rel. Minority law: liable to OT Accounting for rent rec’d from third-party Contribution Improvements – OT not liable Repairs – OT generally not liable Taxes and mortgage interest – OT generally not liable Partition Fiduciary duties Community property Limited, only exists in 8 states Theory Qualifies CP vs. SP, presumption in favor of CP Transmutation Management Dissolution Landlord and Tenant Nature and creation of leaseholds Leasehold vs. license vs. easement Type of tenancies Tenany for years Periodic tenancy Tenancy at will Tenancy at sufferance Statutory modifications Fundamentals and duties of leasehold relationship Duties of landlord Delivery of possession Actual possession, American vs. English rule Quiet enjoyment Eviction, contructive or actual IWH Dutied of tenant Rent Occupation Repairs Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 3/74 Security deposit Transfer by landlord and tenant Theory Assignment Sublease Consent Covenants running with the land Termination of leaseholds By notice Tenant wrongfully in possession Common law: forcible entry; self-help Statutory: ejectment, FED and UD summary proceedings Abandonment of premises Termination Doing nothing Mitigation Fixtures Condemnation The Law of Easements Nature (definition, distinguishment from profits) Types of easements Appurtenant or in gross Positive or negative Creation of easements Express grant or reservation Creation by implication Implied by prior use Implied from necessity Creation by prescription Theory (lost grant vs. adverse possession) Requirements Public easements Scope and interpretation Introduction Rule – intention of the parties How was easement created? Express easement Implied easement Precriptive easement Use for benefit of non-dominant tenement Change in location of easement Use by serivent owner Division of easements in gross Extinguishment Methods of termination Unity of title Act of third party Act of dominant owner Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 4/74 Execution of deed of release Abandonment Destruction of dominant tenement Act of servient tenement Sale and Financing of Real Estate Contract of sale Overview Earnest money contract Executory period Closing The contract The use of escrows Introduction Function Concept of marketable title Introduction Prior to closing Implied warranty of marketability Post closing Defects in title Breaks in the chain Private encumbrances Remedies for breach Buyer’s remedies (SP, rescission, damages) Seller’s remedies (SP, rescission, damages) Mortgage Financing Introduction Terminology History Theory Title theory Lien theory Intermediate theory Mortgage priorities Junior and senior mortgages Foreclosure purchaser’s liability Deeds Introduction Requirements Types of deeds Warranty deed Special warranty deed Quitclaim deed Title assurance Title warranties Covenants for title in warranty deeds Present covenants – seisin, encumbrances, right to convey Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 5/74 Future covenants – warranty, quiet enjoyment, further assurances\ Breach of covenants Merger Breach of present covenants Breach of future covenants Recording acts Common law = first in time, first in right Types of acts Race – whoever records first Notice – BFP Race-notice – BFP who records first Definitions of paying value and notice Interests outside of the recording acts Who is protected? Torrens system of title registration Title insurance Two types Buyer’s insurance Lender’s insurance How it works Buyer’s insurance policy Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 6/74 I. Property, Possession, and Ownership A. Definition of property Bundle of rights, interests, or expectations, held in a thing, intangible or otherwise, that can be brought to bear on a third party. B. Concept of Property 1. Theories of property: a. Occupation theory: Occupation or possession of a thing justifies legal protection of the occupier’s/possessor’s claim to the thing. b. Labor theory: A person has a moral right to the ownership and control of things he produces or acquires through labor. c. Contract theory: private property is the result of a contract between individuals and the community. d. Natural rights theory: “natural law” dictates the recognition of the rights of property. e. Social utility theory: the law should promote maximum fulfillment of human needs and aspirations, and the legal protection of private property promotes those goals. 2. Classification of property: Real Property Present Interests: Fee simple absolute (FSA): Largest bundle of rights, highest form of ownership. Fee simple defeasible (FSD): Ownership on given condition, property can be lost if condition(s) occur or are not satisfied. Life estate: Right to possess estate as measured by grantee’s life, or someone else’s life (“pur autre vie”) Leasehold: A present right to possess, a tenancy. Grantor retains ownership. Future Interests: Reversion: A right to ownership of granted estate upon occurrence of a condition, or when the holder of a life estate dies. Future interest in grantor. Possibility of reverter (only exists with FSD). Future interest in grantor. Right of entry (only exists with FSD). Future interest in grantor. rd Remainder. Future interest in 3 party. rd Executory interest. Future interest in 3 party. Personal Property Absolute ownership of a chattel (a thing). Sometimes requires a title. (no good analogy for FSD in personalty) Life estate: A lifetime ownership of a thing, like a trust fund. Leasehold: Chattels may be leased, e.g. a car. Reversion. Possibility of reverter. Right of entry. Remainder. Executory interest. 3. Rights under FSA in real estate a. Right to occupy and possess – though note that this is limited by building codes, covenants, and ordinances. b. Right to use – not absolute: zoning laws, restrictive covenants, “private nuisance” doctrine which limits enjoyment of land to bar interference of another’s right to use and enjoy his land. c. Right to exclude – limited by anti-discrimination laws if business, also law and health officials with a warrant are not excluded. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 7/74 d. Right to alienate or transfer – the most important right. i. Some ordinances prevent splitting a lot into smaller parcels. ii. Discrimination is not allowed. iii. Taxes act as indirect restrictions. iv. Direct restraints on alienation (none of these are allowed!)  Forfeiture restraint – if grantee attempts to transfer his interest, it is forfeited to another (not allowed!)  Disabling restraint – withholds from grantee power of transferring interest  Promissory restraint – provides that the grantor promises not to transfer his interest v. Restraints on use – are allowed C. Judicial Remedies for the Protection of Property 1. Chancery Courts: Equitable courts in England. 2. Legal Remedies vs. Equitable Remedies a. Legal: Provides substitutionary relief according to what the law states. b. Equitable: Provides specific relief according to what is equitable or just. i. No jury, just judge. ii. Only allowed to claim in equity when no legal remedy exists. 3. Remedies for Real Property: a. Ejectment: Legal remedy – if out-of-possession P wins trial, court will order marshal to forcibly eject D from premises. b. Trespass: Legal substitutionary remedy – P is in possession but D has interfered with exclusive right to possess; remedy is usually damages. c. Injunction: Equitable specific remedy – court will not deliver possession of real estate usually, but in some cases will. d. Quiet Title: Equitable specific remedy – court determines whose claim to the property is valid. 4. Remedies for Personal Property: a. Trover: Legal substitutionary remedy – D has illegally converted (“taken”) P’s chattels, and P wants $ in damages. b. Replevin: Specific remedy, analogous to ejectment – D has taken P’s chattel and P seeks the return of it. Damages may include fair rental value for the period P was out of possession, recovery repair cost if damaged chattel. c. Detinue: Specific remedy. When property has been legally acquired, but illegally retained. Damages inclusive of above. Most states merge this and replevin. d. Equitable Replevin: Replevin for unique items. D. Bailment 1. Definition: when one person (bailor) gives temporary possession of his property to another (bailee). Bailments only exist with chattels, never with realty. 2. Bailments require: a. Assumption of actual physical control by the bailee, and b. Bailee’s intent to exercise control 3. Procedural process: a. Determine if bailment is created: i. Sometimes created by law, as in the case of finders-keepers: finder is usually treated as a bailee of what he’s found. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 8/74 ii. Delivery of chattel may sometimes be constructive. b. Determine the scope of the bailment, what is being bailed. c. Determine standard of liability imposed on the bailee: Who benefits? Bailment is solely for the benefit of the bailor. (X leaves her car at gas station owned by her friend Y for a free car wash.) Bailment is for mutual benefit of bailee and bailor, as in bailments for hire. (X leaves her car at a mechanic for service.) Bailment is solely for the benefit of the bailee. (X gratuitously lends her sportscar to Y.) Bailee departs from the terms of the bailment, or fails to redeliver item (exceptions: involuntary bailee, fraud causing misdelivery). (Ferris Bueller analogy: X drops off keys at parking garage and employees take it for a joyride.) Standard of care: Slight care is required; liability only arises through gross negligence on bailee’s part. Ordinary care is required. Extraordinary care is required. Strict liability. Peet v. Roth Hotel Co., 62, Supreme Court of Minnesota, 1934 Facts: P leaves a valuable ring with a cashier at a hotel, for another guest to pick up. The ring is subsequently lost; P sued for damages. Issue: To what extent is the bailee held liable if the scope of the bailment is not made known? Holding: The bailee is held to a standard of ordinary care in this case, since the bailment is for the mutual benefit of the hotel and the guest. The bailee is presumed to know the scope of the bailment on the face value of the object being bailed. d. Determine burden of proof. i. Bailor establishes bailment, and loss or damage of goods; establishes prima facie case – if not rebutted entitles bailor to recover full value of goods ii. Bailee has burden of proof concerning what happened to goods. iii. Bailor must counter-argue. Allen v. Hyatt Regency – Nashville Hotel, 70, Supreme Court of Tennessee, 1984 Facts: Issue: When a garage attendant is not given keys to a car and therefore does not have complete dominion and control, does a bailment occur? Holding: (Harbison) Yes. Constructive bailment occurs when a ticket is given which must be presented to exit the garage, there is an attendant present, and there is limited access. Dissent: (Drowota) No keys = no control. Note: This is the newer trend in “park-and-lock” cases. In cases of attended parking lots where keys are turned over to an attendant – bailment is created. If car owner does not leave the keys but the parking lot has attendants providing surveillance, bailment may be found even though the attendant has no physical control of the car. e. Contractual modifications of liability, which relieve one party of liability under bailment. i. Posting of a sign is not enough – unless bailee can show bailor saw and accepted the sign. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 9/74 ii. Limited liability on a claim check is sometimes enough: must be printed (in California) in at least 8-point font, with “THIS CONTRACT LIMITS OUR LIABILITY – READ IT” printed across top in at least 10-point font. f. Finders: a finder of a chattel is deemed to be a constructive bailor, and is held liable only for gross negligence. g. Involuntary bailment: no exercise of domain, no bailment. E. Adverse Possession 1. Definition: adverse possession is a means to acquire title to land through obvious occupancy of the land, while claiming ownership for the period of years set by the law of the state where the property exists. 2. Purposes of adverse possession a. To protect title: because title may be difficult to prove. b. To bar stale claims: in suits of quiet title. c. To reward those who use land productively: making productive use of land is a good thing; courts and society encourage those who do, as opposed to an owner who allows land to sit vacant. d. To honor expectations: people who use land for a time have reasonable expectations they will be allowed to continue to do so. 3. Requirements of adverse possession – goal is to put the actual owner on notice that statute of limitations has begun by virtue of public (i.e. evident) use of land in a manner consistent with the nature of the land. a. Actual: meaning that there must be some physical element involved. Basically means that you make use of the land in the manner that a reasonable owner in the community would possess it. Monroe v. Rawlings, 82, Supreme Court of Michigan, 1951 Facts: D built a cabin on P’s wild and undeveloped land and used the cabin and land seasonally for hunting, fishing, and vacationing purposes. D paid taxes on the land, and sold timber off the land. P claimed D’s AP was not actual, since D did not live on the property. P sought ejectment. Issue: Does seasonal use of land as hunting grounds constitute AP, or must person live there at all times? Holding: (Dethmeyer) As long as AP’or uses the land in a fashion that is consistent with the nature of the land, AP is established. Note: Would be actual if leased the land, if that is what a true owner might do. b. Open and notorious: possession must be such that a reasonable person would be put on notice (not necessarily the true owner). Open and notorious acts look like typical acts of an owner of property. The type of land decides type of act required. Land cannot be taken unless the owner is capable of finding out that someone is on it. c. Hostile: meaning that the possession must be adverse, or non-permissive with regard to the true owner. AP’or must be there against the true owner, not by, through, or under the true owner. Recent trend is that intent doesn’t matter – whether the AP’or is innocent of what they or doing, or well aware – only matters that the AP’or is non-permissively occupying the land. Refer to Manillo v. Gorski. Peters v. Juneau-Douglas Girl Scout Council, 86, Supreme Court of Alaska, 1974 Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 10/74 Facts: P claimed that the AP was not hostile given that D asked permission to stay on land, and that others used the land. Issue: Can AP be established when AP asked for permission to use land, and what constitutes hostile and exclusive use of the land? Holding: (Connor, J.) Permissive use destroys AP, but in this case D was asking so as to acquire title and protect land as a true owner would. The objective test of hostility in AP is whether the AP’or is “whether or not the claimant acted toward the land as if he owned it.” Also, use of land by others was in line with what actual owner would have allowed. Mannillo v. Gorski, 93, Supreme Court of New Jersey, 1969 Facts: Boundary dispute case in which an exterior stairway on D’s house was built unknowningly encroaching on P’s property by 15 inches. D claims title to the 15 inches by AP. P claims the AP was not hostile because D did not have the intention to adversely possess. Issue: Does a person need have an intent to take land to fulfill the hostility requirement, and what constitutes an open adverse possession? Holding: (Haneman, J.) Hostility: mental state of the AP’or does not matter, so long as his actions evince adversity (this is the Connecticut Doctrine, which is contrary to the Maine Doctrine – used in a majority of states – requiring intent to adversely possess). Open and notorious: requires that the encroachment be based on physical evidence such that it puts a person on notice. In this case, encroachment was too small to be considered this. If minor encroachment, owner needs actual notice of the AP for the statute to run. Shives v. Niewoenher, 101, Supreme Court of Iowa, 1971 Facts: 5 siblings co-own farm property. The brother worked the farm; he and one sister lived there and claimed title by AP after a family falling-out. Ds (sisters) contended the AP was not hostile. Issue: Given that the parties to the action were siblings as well as co-tenants, what constitutes hostile possession sufficient for adverse possession? Holding: Among co-tenants, hostility is established when there is ouster, either constructive or actual. In this case, ouster was constructive because Ps paid the mortgage, made improvements, kept rent and money from condemnation, told sisters that they wouldn’t get land until he died. Ouster can also be actual: “Get thine butt off my property!” d. Exclusive: specifically of the true owner; to some extent of the general public. e. Continuous: cannot break the actual occupation of the land – must use the land as a reasonable owner would use it (much like the “actual” requirement). If there is a break in continuity, the clock stops ticking. i. Some things that can stop continuity:  Judicial action – an ejectment, etc., filed by the true owner,  Permission offered and accepted stops the clock (but permission offered and refused strengthens the hostility element),  If the AP makes sporadic use of the land (i.e., not as a reasonable owner would), the clock stops each time he leaves. ii. Tacking – in which multiple sequential APs tack their adverse possession together so the final one gets the whole shebang if all of the other elements are satisfied. If the APs are in privity of estate with each other, then the periods of time can be tacked.  Privity could be deed of title conveyed successively, in writing or (more difficultly) orally.  Abandonment by AP1 and subsequent immediate possession by AP2 does not constitute tacking; no privity of estate. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 11/74    If an AP dies and title (or specifically “right”) is conveyed successively to the next AP, privity is found. If a third party X ousts an AP, X cannot tack on AP’s period. Once a statute starts to run against O, it runs against O and all of O’s successors in interest. Porter v. Posey, 106, Missouri Court of Appeals, 1979 Facts: Ds seek to quiet title through deed conveyed by previous owners use, who they claim established AP. Issue: Was the possession open and notorious, exclusive, and hostile, and was there transfer of the land adversely possessed? Holding: It was open given the fact that the land was bulldozed and used. It was exclusive because while members of the public used it, it was in line with nature of the land. There was transfer of land because there was an intent to transfer entire lot, including part adversely possessed. 4. Stopping adverse possession: a. Owner re-entering premises with the intent to regain possession. b. Owner granting the AP permission – but beware: if the owner refuses to accept the permission offered, this strengthens the AP’or’s claim. c. Owner taking AP’or to court. i. Can be suit of ejectment ii. Suit to quiet title d. Tolling (not really stopping): occurs when Owner is unable to bring a lawsuit for some reason (Owner is not mentally competent, or is in jail, etc), and is granted an extension by disability provisions. But such provisions are limited: i. Only disabilities specified in the statute are considered, and ii. The disability must be present when the statute begins to run – if the clock is already ticking, it keeps ticking. 5. Miscellaneous: a. Mortgage: Not extinguished by AP. b. Statutes of limitations: p. 80. c. California: 5 years, need to have paid taxes on land. d. An AP’or takes the land as she finds it – if AP is perfected (satisfying all of the elements AND the time requirement), an AP’or only gains what the Owner’s interest was. This includes easements, liens, servitudes, etc., which are not quashed by AP. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 12/74 II. Methods of Transferring Property A. Intervivos transfers – made while grantor is alive 1. Voluntary transfers a. Deed: Source of deed: Feoffment by livery of seisin. i. Earnest Money Contract: Agreement to consummate contract.  Equitable conversion doctrine: When earnest money contract is signed, buyer’s interest converts into real estate; buyer has equitable title. Seller has legal title, but interest is in personal property, money. ii. Executory Period: 30 –90 day waiting period during which all inspections are made and mortgage is acquired. iii. Warranty Deed: Deed containing warranty against defect(s) in land. iv. Quitclaim Deed: Grantor grants all interest in land, regardless of whether title is good or bad. b. Lease (a type of deed because interest in property is transferred) c. Patent (deed from government, transferring federal/state land) 2. Involuntary transfers of land – in which owner does not authorize transfer a. After an EMC, a seller may be taken to court over not wanting to sell the land b. Foreclosure sale for mortgage default c. Foreclosure sale for credit default d. Condemnation – sovereign wants the land in question, and forces owner to sell it to them at FMV e. Adverse possession – technically not a transfer, but title expires and a new one arises at the same time. f. Tax lien B. Transfers occurring after the owner’s death 1. Intestate transfers – distribution of testator’s property by statute in absence of will a. Descent of land in England – prior to 1540 when there were no wills i. Promigeniture – eldest son took land ii. If no sons, daughters split land iii. Ancestors/spouse excluded b. Statute of Distribution, 1670, England – applied to personalty i. Right of surviving spouse  Kids? Spouse got 1/3  No kids? Spouse got 1/2 ii. No spouse, children took all. Spouse, children took 2/3. iii. Issue of deceased child took the share that would have been the child’s iv. Next of kin  If there were children, kin took nothing.  If there were no children but there was a spouse, kin took 1/2.  If neither spouse nor children survived decedent, kin took all. c. Distribution of property in U.S. (Ohio statute, p 214) i. No distinction between personal and real property. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 13/74 ii. Decendants trump ancestors and collaterals. iii. Failing all, even next of kin, goes to state. d. Relation definitions i. Consanguinity: related by blood. ii. Affinity: related to other than by blood. iii. Ancestor: descend from in a linear fashion iv. Descendant: descend from one in a linear fashion v. Lineal consanguinity: ancestors and descendants vi. Collateral: non-lineal consanguinity. vii. Next of kin: anyone related to you, up to the nth degree. viii. Adopted Children: treated as blood relations. e. Other definitions i. Heir: Person who would take your property if you die intestate. You can be an heir and be in the will. ii. Per stirpes: take their share by representation:  Decedent has children  Alice  Bob  Charlie, who is deceased, but has living children  David, and  Edward  A and B each take 1/3; D and E take half of C’s 1/3. iii. Per capita: take by individual – A, B, D, and E each take 1/4. 2. Testamantary disposition (transfer by will) a. 1540, Statute of Wills: Prior to this, could not leave property to anyone else. If there was no will, realty went to heir, personalty divided between spouse and children (see intestate transfer, above). b. Wills in U.S.: Based on English Statute of Frauds (1677) and Wills Act (1837), and Uniform Probate Code i. Requires: 2 witnesses, who sign in presence of the testator. ii. Legislative intent: Tries to take into account reasonable person, and of whom the state will have to take care. iii. Destruction/revocation of wills:  Oral revocation not permitted by Statute of Frauds  Marriage (in some states marriage nullifies an extant will only if the union produces issue)  Divorce  Draft of a new will – which generally trump extant wills – but just to make sure, a clause containing the intent should be included (more express than “last will and testament”  Physical destruction of will – but no one should rely exlusively on that  Codicil – signed and dated amendment to a will, may add to or subtract from the original content iv. Will substitutes – other devices which contain rights of survivorship that are triggered by the death of the owner (or one of the co-owners)  Joint tenancy  Tenancy by the entireties Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 14/74 v. Electing against the will: Wife has right to question the will if she has been cut out. Allows her to take her forced share (i.e., what she would have been given according to the intestacy statutes). III. Present and Future Estates in Land A. Theory 1. Restatement of Property defines “estate” as an interest in land, a. That is or may become possessory, b. The ownership of which is measured in terms of duration. 2. Land itself is not owned, but an estate is owned (bundle of rights concept, as described above) B. Creation of estates – by language in the deed 1. Words of purchase: describe and identify the person purchasing the estate: “To A …” 2. Words of limitation: describe and limit the estate being purchased, usually to designate it as something other than an FSA. “… for life.” C. Non-Estate Interests (non-estates because non-possessory) 1. Easements 2. Profits from the land 3. Restrictive covenants/servitudes a. A property owner with a restrictive covenant on land may still have an FSA. Grantor may sue for breach of contract if the covenant if violated. b. Precatory clause: simply conveys a wish or desire – less than a restrictive covenant. D. Types of estates 1. Freehold – any estate which does not feature a landlord-tenant relationship a. Fee estate – any estate of potentially infinite duration i. Fee tail – fee estate in which grantor conveyed title to someone and his direct lineal descendants only – a bloodline inheritance ii. Fee simple – any fee estate with no limitations on its inheritance  Fee simple absolute – fee simple estate which cannot be divested or will not end upon the happening of of any event  Fee simple defeasible – fee simple estate which can end either because there are no more heirs, or because a special limitation or condition has been satisfied  Fee simple determinable  Fee simple subject to condition subsequent  Fee simple subject to executory interest b. Life estate – estate limited in duration to the life of the beneficiary, or a third party (life estate “pur autre vie”) 2. Non-freehold – estate characterized by a landlord-tenant relationship a. For years (leasehold) b. Periodic c. At will d. At sufferance Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 15/74 3. A different type of scheme separates estates into present estates and future estates a. Present estates are interests in property in which the privilege of possession or enjoyment is now, in the present. b. Future estates are interests which occur in the future E. Present Estates (227 ff.)(Gilbert 76) 1. Fee Simple Absolute. “Fee” meaning “of potentially infinite duration;” “Simple” meaning “no limits on inheritability;” and “Absolute” meaning “cannot be divested” a. Future estate: none. b. Language creating: i. “To A and his heirs” ii. “To A, his heirs, and his assigns” iii. “To A” c. Duration: unlimited d. Transferability: by deed, will, or intestacy e. The biggest bundle of rights. Absolute ownership insofar as that is recognized in Anglo-American society. 2. Fee Simple Defeasible. “Defeasible” means “can end upon some condition” – basically two types: 1) one in which title flies automatically back to the grantor upon the occurrence of a specific condition (fee simple determinable), and 2) one in which the grantor has the power to terminate the grantee’s estate upon or after the occurrence of a specific condition (fee simple subject to condition subsequent or subject to an executory interest). Note that other types of estates (like a life estate) may be made defeasible. a. Fee Simple Determinable – terminable automatically i. Future estate: possibility of reverter (possibility of reverter only follows a determinable present estate) ii. Language creating – need words of limitation, and should probably have indication of reverter:  “To A, so long as … or title reverts to me”  “To A, until …”  “To A, while …” iii. Duration: potentially infinite, so long as limiting event does not occur. iv. Transferability: by deed, will, or intestacy b. Fee Simple Subject to Condition Subsequent – not terminable automatically, but grantor is given power to terminate upon the occurrence of some condition i. Future estate: right of entry or power of termination ii. Language creating – need words of limitation, and should probably have right if entry expressed  “To A, provided that … and I retain right of entry”  “To A, on condition that …”  “To A, but if X happens, I reserve the right to terminate.” iii. Duration: potentially infinite, so long as the condition is not breached; thereafter, until the holder of the right of entry exercises the power of termination in a timely manner. iv. Transferability: by deed, will, or intestacy v. Notes: Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 16/74 Change in Circumstances Doctrine: The surrounding circumstances have changed to a degree that the FSD or FSSCS is no longer valid; say, if land changes to farmland.  California marketable title legislature (1988):  Stated that all fee simple defesable title automatically converted into FSSCS.  In order to maintain FSSCS, must file notice every 30 years. If did not, automatically became FSA.  Adverse possession is easier under FSD. Statute of limitations for FSD and FSCSS  FSD: starts running right away, as soon as title flies back to grantor  FSSCS: doesn’t start to run until grantor takes action  Waiver: if for any reason O wants to waive his right to the estate  FSD: nothing O can do to prevent title from flying back to him  FSSCS: title doesn’t automatically vacate. Inaction can be construed as a waiver.  Rents and Profits:  FSD: if busted, grantor begins to collect at that moment because thereafter, A is a trespassor.  FSSCS: O cannot collect until he exercises his right of entry; A can keep rents and profits until then. c. Fee Simple Subject to Executory Interest – functionally the same as FSSCS, but the future interest is held by a third party other than the grantor. i. Future estate: executory interest ii. Duration: pontentially infinite, so long as stated contingency does not occur iii. Language creating: pretty much the same as FSSCS, except a third party is named iv. Transferability: by deed, will, or intestacy  Wood v. Board of County Commissioners of Fremont County, 234, Supreme Court of Wyoming, 1988 Facts: Woods conveyed land to Fremont County “for the purpose of constructing thereon a County Hospital.” Land was so used for 35 years, sold during that time, and put up for sale after a new hospital was built nearby. Woods sued, claiming the title reverted to them. Issue: Does the language “for the purpose of constructing and maintaining thereon a County Hospital” create either a fee simple determinable or a fee simple subject to condition subsequent? Holding: (Brown, C.J.) In order for conveyance to be determined a FSD or FSSCS, there must be present the express language designating these conditions, as well as express language stating under what circumstances the FSD or FSSCS takes effect. Note: Clauses which limit estates are usually not favored, and so will be interpreted against it unless it is unequivocally stated that it is such. Woods might have actionable claim for recovery based on breach of resptrictive covenant. 3. Fee Tail – an attempt held over from the English feudal system, whereby the land is tied up to someone and his direct lineal dscendants only; a bloodline inheritance. This was mostly done away with, because courts favor free alienability of land. Most courts therefore will interpret ambiguities against the presumption of a fee tail. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 17/74 a. Future Interest: reversion in conveyor and his heirs; remainder in grantee’s lineal descendants. b. Duration: for life in first taker (“tenant”) in tail; thereafter through succeeding generations to any living lineal descendants of the first tenant in tail c. Language creating: i. “To A and the heirs of his body” ii. “To A and the hiers of his body, remainder to B” d. Transferability: by deed, but when grantor dies, goes back to his lineal descendants. Cannot transfer by will. e. Fee Tail in U.S. i. Most commonly, a fee tail is recognized as a fee simple.  Half of the states that do this have a statute about remainders: any remainder in B is construed as an executory interest to become possessory if A dies without lineal descendants.  In the other half of the states which do not have a statute regarding remainders, A gets FSA and B gets nothing (includes California). ii. Some states change a fee tail into a life estate in A with remainder in FSA in the lineal descendants of A.  Division of authority whether interests of A’s lineal descendants must survive A to share in the fee simple estate. iii. Third kind of statute gives A a fee tail for life and A’s lineal descendants acquire a fee simple estate (essentially same as (ii)). iv. Delaware, Maine, Massachussetts and Rhode Island recognize fee tail in its historic form, except that tenant in tail can convey estate in FSA and bar the entail. 4. Life Estate – gift or conveyance of an estate for the duration of the life of the benificiary or of some third-person (pur autre vie) a. Future interest: Reversion in grantor, remainder in grantee other than life tenant b. Duration: for the life or lives of the person indicated by the conveyor as the measuring life or lives c. Language creating: i. “To A for life” ii. “To A for and during his natural life” iii. “To A until he dies” iv. “To A for the life of B” d. Transferability: by deed only, but transferor gets no more than what life tenant had; specifically, an estate measured by someone’s lifespan e. Usually used to set up a trust. f. May be made defeasible g. Life tenant typically has responsibility to pay for: i. Taxes ii. Mortgage  Interest only  To pay on principal would enrich the future interest owner’s estate 5. Leasehold – see Landlord/Tenant Law, below (section VI-3) a. Periodic tenancy Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 18/74 b. Tenancy for years c. Tenancy at will d. Tenancy at sufferance F. Future estates – to figure out what kind of future estate someone has, look at present estate, also look at who has the future interest (grantor or someone else)(Gilbert 83) 1. Definition: a nonpossessory interest in land capable of becoming possessory in the future. Not a present interest, but the future interest is owned now. 2. Purpose: we care about who owns future interests presently in three cases a. Condemnation – if the government condemns land, it pays compensation. The holder of the future interest is entitled to part of the compensation, as is the holder of the present interest in the land b. Transfer – future interests are transferable, even though the holder does not have possession yet c. Waste – future interest holders have a presently-existing interest in the land, obliging the present interest holder not to allow the land to deteriorate “on her watch”; future interest holder may be entitled to recover damages or enjoin the present interest holder’s actions (more on the law of waste in section IV) 3. The types of Future Interests: a. Future interests in Grantor: i. Possibility of reverter – follows FSD (see above, (E)(2)(a)); “To A so long as the land is used as a residence” ii. Right of entry, or power of termination – follows FSSCS (see above, (E)(2)(b)); “To A, but if property is not used as a residence, I may re-enter and claim it” iii. Reversion – follows a present interest that is not a fee simple determinable or a fee simple subject to condition subsequent  “To A for life”  “To A for 10 years”  “To A and the heirs of his body” iv. Note: Possibility of reverter and right of entry diminish the value of the land, and so there are statutes of limitation regarding these. b. Future interest in someone other than Grantor: i. Executory Interest – simply a future interest created in someone other than the grantor, which is not a remainder (due to not satisying one or more rules) ii. Remainder – must satisfy the rules of remainder:  Must be created at same time and by same document that created prior estate  Must follow a freehold estate, but cannot follow a fee simple defeasible  O  A for life, then to B and heirs: this is ok  O  A so long as the land is not subdivided, and if it is, then to B: not ok; has a fee simple defeasible  Remainder cannot have the capacity to cut short the prior estate  There can be no built-in time gap between termination of prior estate and the remainder’s taking possession iii. Example: O  A for life, then to Amy, if she graduates from law school. This is a remainder; it follows the four rules. Created at same time, follows a freehold, no time gap, and doesn’t cut short A’s life estate. This is a contingent remainder, because there is an express condition precedent. 4. Restraints on Alienation (p 273): Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 19/74 a. Disabling restraint – divests the owner of the power to alienate (sale or transfer), almost invariably invalid b. Forfeiture restraint – forfeits the estate if owner attempts to convey (by will or deed), also almost invariably invalid c. Promissory restraint – a promise that purports to be enforceable by damages or injunction, most are invalid d. Restriction on partition – only an indirect restraint on alienation, common provision of T/C. Usually enforceable. 5. Partition – generally no right to partition between present and future interest holders in an estate Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 20/74 IV. Protection of Future Interests A. Law of Waste 1. Definition of Waste: conduct by the life tenant that permanently impairs the value of the land or the interest of the person holding title or having a future interest in the land; unreasonable use. 2. The Law of Waste: operates to restrict the activity of the life tenant so as not to cause waste. Analogize to a sum of money invested – life tenant entitled to income but may not encroach upon the principal. 3. Types of waste: a. Voluntary (affirmative) waste: life tenant decreases value of future estate by actively causing permanent injury (destroying buildings or landscaping on the land) b. Involuntary (permissive) waste: life tenant allows land to fall into a state of disrepair or fails to take measures protecting the land from the elements, and thereby decreases the value of the future estate – does not include ordinary wear and tear, but does include failure to pay taxes allowing property to be sold at a tax sale i. Doctrine of Estovers: allows life tenant to take timber (if the land is timberland) in a reasonable fashion ii. Open mines policy: allows a life tenant to remove minerals, etc., from a mine or well already open iii. Real estate taxes, mortgage payments – must be made by life tenant, same as anything else “upkeep-ish”. Fire insurance not necessary – because harm will not inevitably befall if property is not insured. c. Ameliorating Waste: change by the life tenant increases the value of the land – actionable if court finds that i. Grantor intended to pass the land with specific building(s) on it to the remaindermen, and ii. The building(s) can be reasonably used for the purposes built Brokaw v. Fairchild, 280, Supreme Court of New York County, 1929 Facts: In 1887 Isaac Brokaw erected a fine residence in Manhattan. In 1913, he died, leaving “my residence” to his son for life, then to B. The son wanted to commit voluntary waste by tearing it down (worth $300K) and erecting an apartment building (costing $900K), increasing the son’s income by $30K per month. Issue: Given the language of the will, may the voluntary waste be committed given that it would increase the value of the property? Holding: (Hammer, J.) The language of the will supersedes everything. Given that the will expresses an intent to maintain the property as a residence, the court does not allow for the change, especially in light of the fact that the residence is in a neighborhood of fine residences as can reasonably be used as such. 4. Remedies for waste: owner(s) of the remainder may a. Sue for injunction against threatened waste, b. Recover damages i. Time value of money Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 21/74 ii. Example: Alice, life tenant, to spite Bob, burns down a house on the property. Property was worth $500K before, now worth $300K. Diff is $200K. Bob, as remainderman, is entitled to some.  Refer to actuarial table to determine Alice’s life expectancy (say 20 years)  Refer to table (p. 292). Lump sum = $200K, N = 20.  Assume an interest rate (say 6%); result is 200,000 x 0.3118 B. Unproductive Property If the land has no rental value, or if the rental value plus income from resources from the land is less than it costs to keep up the land, a life tenant and owners may elect to sell the land in fee simple. Parties can bargain among themselves about sale and division of proceeds. Equity may intervene and order sale of the property if the sale is necessary for the best interest of all the parties. Equity courts use this solution sparingly because of the underlying presumption that the grantor wants the land itself (not the economic value) passed onto the remaindermen. Baker v. Weedon, 287, Supreme Court of Mississippi, 1972 Facts: Anna in possession of land that is more holds more commercial value than rental value and so to live of the interest, she wanted to sell, but remaindermen didn’t want to sell. Issue: Given that the land is unproductive and therefore to some extent undergoing economic waste, should the court force partition? Holding: (Patterson, J.) Partitioning in an action such as this will take into account not only waste and deterioration, but also what is “necessary for the best interest of all parties.” In this case, sale isn’t the best solution claims the court, because they could sell only a piece of the land, or hypothecate (mortgage) the land. Life tenant has stronger argument when comes to partition, because that person is living there. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 22/74 V. Marital Estates and Concurrent Interests A. Marital Estates 1. Common Law (296 + handout) a. W’s interest: surviving widow was given a life estate of one-third of H’s lands (realty only), called a dower. i. Inchoate during the lives of the spouses  Could not be defeated be inter vivos transfer without W’s consent  Could not be defeated by seizure and sale to satisfy H’s debts  Could be barred by antenuptual or postnuptual settlement  Could be defeated by annulment ii. Consummate once husband deceased iii. Limited to husband’s present estate iv. W had to elect between H’s will and dower only if will intended such an election b. H’s interest: surviving widower was given a life estate in ALL of W’s lands (realty only), called a curtesy. i. During the marriage, H had present estate by marital right in all of W’s lands ii. Issue requirement: as soon as issue was born, H acquired a curtesy initiate, like an inchoate dower (protected expectancy, similar to above) iii. Consummate once wife deceased iv. H had to elect between W’s will and curtesy only if will intended such an election 2. Modern Modification: a. Dower and curtesy eliminated or modified – confined to lands owned by the deceased at death, curtesy decreased to one-half or one-third (rather than all) – and is fee simple in the survivor, rather than life estate b. Surviving spouse is “heir” now – meaning that spouse could be disinherited by will c. To protect surviving spouse against this, most statutes now employ election against the will whereby widow(er) may elect to take intestate share (usually one-third), rather than the share left by will – surviving spouse is a “forced heir.” i. Decedent could still use “will substitutes” by putting assets into life insurance policies with third-party beneficiaries or create joint tenancies between himself and a third person ii. Concept of “augmented estate”, from Uniform Probate Code – value of property that the decedent disposed of during his lifetime (and during the marriage), to which the spouse has a right of one-third; extended the “forced-heir” concept  Too little: Bring into account all past gifts made within the statute of limitation, 2 years.  Too much: Can go back over the entire marriage to determine how much she received to determine if she already got her 1/3. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 23/74 B. Concurrent Estates Two or more parties simultaneously owning land together. Creation Joint Tenancy “To A and B as joint tenants, not as tenants in common, with right of survivorship” All 4 required. Yes, last survivor takes entire estate. Yes, when interest is conveyed … becomes T/C. Yes. No. Decedent’s interest goes to survivor(s). Yes, unless restrained by condition. In undivided whole. By partition and severance. Tenancy by Entirety “To A and B as husband and wife” Tenancy in Common “To A and B” Unities Survivorship? Severable? Alienable? Devisable thru will? Partitionable? Interest Termination All 4, + marriage. Yes. If there is a divorce, becomes T/C or J/T. No, except by death, divorce, or mutual spousal agreement. Yes, with spousal permission. No. Decedent’s interest goes to surviving spouse. Yes. In undivided whole. By voluntary partition and severance. Only possession. No. Yes. Yes. Yes, passes to heirs. Yes. In undivided fraction. By partition. 1. Joint Tenancy a. Creation: i. “To A and B” – J/T was the favorite of the common law, so this language was presumed to create a J/T. Caveat: today most states would presume a T/C, so it is favorable to use more specific language: ii. “To A and B, as joint tenants with right of survivorship, and not as tenants in common” – expressly creates J/T with survivorship  “To A and B as joint tenants” – in some states, need right of survivorship expressly mentioned  “To A and B jointly” – split authority  J/Ts can also be interpreted as joint life estates with remainder with dual contingent remainders Albro v. Allen, 316, Supreme Court of Michigan, 1990 Facts: “To Carol Allen and Helen Albro as J/T with full rights of survivorship.” Allen tried to convey her interest to a third-party via quitclaim deed; Albro sought to enjoin the sale. Issue: What did the original deed convey, and what does the third-party get? Holding: (Boyle, J.) Two kinds of J/T in Michigan – traditional one with 4 unities, and J/T with full right of survivorship (interpreted as joint life estate with dual contingent remainders – a non-severable joint tenancy), created in this case because language is so specific. Third party gets a life estate measured by Allen’s life with rd rd a contingent remainder. If Allen dies first, 3 party gets nothing. If Albro dies first, 3 party gets it all. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 24/74 b. Four Unities: creation of a J/T had to satisfy the four unities … want of one or more unities at the time of formation resulted in the creation of a T/C i. Unity of time: interests must have been created at the same time ii. Unity of title: interests must have been created by same instrument, or by joint adverse possession.  Under traditional rule, “A  A and B” did not create a J/T, only a T/C because the unities of time and title were violated.  “Straw Man” – a device to get around the above difficulty by conveying interest first to a third paty, then having the third party convey to the joint tenants: “A  X” + “X  A and B as J/T.”  Statutory changes in many states allow “H  H and W” to create a J/T. iii. Unity of interest: all tenants must have acquired identical interests: two joint tenants get ½ each. Also, O can convey “an undivided one-half interest to A and B and an undivided one-half interest to X” – as between A and B, there is a J/T, but as between A & B and X, they are T/C. iv. Unity of possession: each tenant must have right to possession of the whole. An agreement by one tenant to waive his right to possess does not break this unity. c. Severance: any joint tenant may sever the J/T, resulting in a T/C. i. Unities:  Common law: when one of the four unities was violated, a T/C replaced the J/T.  Modern interpretation: usually follows the formalistic common law approach, but trend is to examine intent of the parties, whether to sever or not. ii. Conveyance by joint tenant: conveyance by one tenant of his/her share results in a severance of the J/T with respect to that share, whether it is a conveyance to a third party or to another joint tenant.  J/T may be terminated without notice to or consent of the other tenants. Execution and delivery of deed or written instrument containing intent to convey does not have to be recorded to be a valid severance (in California and in some other jurisdictions – CA statute on 311) Crowther v. Mower, 308, Court of Appeals of Utah, 1994 Facts: P claims that D’s failure to file deed of conveyance did not sever the joint tenancy, all interest belong to him by right of survivorship. Issue: Must a deed be recorded in order for severance to occur in a joint tenancy? Holding: (Davis, J.) There is no need for a recording or notification to other joint tenants in order to sever the joint tenancy. Survivorship is destroyed by its mere conveyance. Note: Do you have to warn your fellow joint tenants about severance? NO. Patience v. Snyder, handout, California Court of Appeal, 2000 Issue: Given that the deed was not recorded before executor’s death, was the joint tenancy severed and right of survivorship terminated? Holding: (Ward, J.) Severance did not occur and right of survivorship remains given CA legislature – in CA, must record a deed before death, to sever a J/T. Deathbed exception = if deed was given 3 days prior to death, can be recorded up to 7 days after death and still be valid. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 25/74  Contract to convey:  Contract by one tenant – doctrine of equitable conversion converts the joint tenant’s legal ownership into a contract right to receive the selling price; therefore the unity of interest is violated if a joint tenant enters a EMC to convey his interest.  Contract by all tenants – has been found not to sever Estate of Phillips v. Nyhus, 312, Supreme Court of Washington, 1994 Facts: Parties own as joint tenants; all sign earnest money agreement to sell. One party dies before closing (Phillips), his estate’s lawyer says there was no severance and therefore Nyhus gets only half. Issue: Is joint tenancy severed when both parties agree to sell to a third party? Holding: Earnest money agreement does not in and of itself severe a joint tenancy. In this case, there was no indication that it was meant to, so joint tenancy stands. Formalistic approach: The main point of evidence is the fact that both parties signed the earnest money agreement. While unities changed, they changed together. Intent approach: Doesn’t help, because don’t know if they were going to take the money and split. iii. Mortgage: when one party gives a mortgage on the J/T property, does this sever? Courts divide between jurisdictions following title theory and lien theory of mortgages.  Title theory (minority) – mortgage has the effect of conveying legal title to lender and retaining equitable title in borrower, allowing borrower to get back legal title once debt is paid.  Unilateral mortgage (one party gives mortgage): J/T is severed because of violation of unities of time, title, and interest. Paying off the mortgage cannot redeem J/T.  If mortgagor defaults, lender gets mortgagor’s interest.  If mortgagor dies, same result.  Bilateral mortgage (both parties agree): J/T is not severed because no unities are violated.  Lien theory (majority) – mortgage does not convey legal title but rather gives a lien on the property; legal title remains with the borrower. J/T is not severed, unilateral or bilateral.  Death of mortgagor: Suppose A and B own in J/T, A gives a mortgage to lender; thereafter, A dies. Some courts hold B takes A’s interest subject to mortgage; some hold B takes free and clear of the mortgage. Brant v. Hargrove, 325, Court of Appeals of Arizona, 1981 Facts: Husband took out a trust, and wife died. W’s estate arguing for severance to get her part, P opting for no severance so that money goes to H at W’s death, then to lenders. Issue: Did the execution of mortgage cause a severance of the joint tenancy? Holding: (Haire, P.J.): In a lien theory state, title in no form changes hands. As a result, while the unities are different, they are still symmetrical with respect to the two parties. Arizona is a lien theory state, and so there was no severance. H gets W’s ½ interest at her death and mortgage is collected on the entire property. Note: Remedy for creditors is partial severance, in which the court declares that there is no severance, in which case the other party might get it all, and makes it untouchable by creditors, they are allowed to take their share, but only from the part that was given over by joint tenant. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 26/74  Partial severance: If A dies, courts will sometimes recognize partial severance of A’s share of the estate, which is available to creditors. A’s share is vulnerable to creditors/mortgagor’s, and the balance reverts to B. iv. Divorce: does NOT sever a J/T, but in most states a property settlement agreement can sever a J/T if the parties so intend. Porter v. Porter, 321, Supreme Court of Alabama, 1985 Facts: Husband and wife own in J/T. H divorces, remarries, and dies, new wife claims the joint tenancy was severed. Issue: Does divorce sever J/T? Holding: (Almon, J.) The granting of exclusive possession to W did not destroy the unity of possession, because of the intention to later modify the decree (“until a change in the circumstances warrants a modification”). Temporary division without intent to partition does not sever. Note: Courts sometimes infer such an agreement to sever from the divorce proceedings, as in Mann v. Bradley (cited in this case on p. 323). v. Lease by joint tenant: the question of whether a conveyance of a leasehold severs a J/T involves the same issues as severance by mortgage, and courts divide in the same ways.  Classical common law held that leasehold destroyed unity of interest because lessor had reversion whereas the other joint tenant(s) had fee simple.  Modern view holds there is no severance, but cases split whether the surviving joint tenant takes one half subject to the lease, some holding that surviving tenant takes subject to lease and some holding he takes unencumbered.  For more on co-tenants rights and duties with a lease agreement, see (B)(4). vi. Murder of one joint tenant by another severs the J/T Estate of Grund v. Grund, 375, Court of Appeals of Indiana, 1995 Facts: H and W owned in J/T (actually in TbE); W charged and convicted of murdering H. Issue: Does murder of one joint tenant by the other sever the J/T? Holding: (Sullivan, J.) Yes, analogous to divorce proceedings destroying a TbE. d. Miscellaneous: i. Creditors and mortgagers can foreclose on interest owed by the joint tenant that defaulted. Purchaser becomes tenant in common with other tenants. ii. Forced partition: can occur by act of creditors or mortgagors. AFFECTS ONLY THE PARTY WHO IS UNDER CREDIT. 2. Tenancy by the Entirety a. Creation: i. Preferred estate for married persons at common law (and moden view), thus any conveyance to husband and wife was deemed to create a TbE.  “To H and W, husband and wife”  “To H and W, husband and wife, and their survivors” Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 27/74  “To H and W, husband and wife, as tenants by the entirety” ii. Presumption may be rebutted by clear evidence to create an estate other than TbE. Clear language is always the best, whatever the intention iii. Can include personalty as well as realty iv. TbE is recognized in about half of the states b. Requirements: i. Four unities are required, as in J/T ii. Requires that the parties are married  If TbE is created with unmarried couple, cases are split – some say J/T results; some say T/C  Effect of divorce on TbE creates either J/T or T/C iii. Use of “straw man” to create a TbE by grantor who will also be a grantee c. Miscellaneous: i. Unlike a J/T, a TbE is non-severable ii. TbE cannot be involuntarily partitioned: creditor who has a claim to one party may not touch property owned by the entirety iii. Conveyance  Traditional law was that neither spouse could convey his/her interest without the consent of the other.  In majority of states recognizing TbE, neither spouse can convey their own interest, and creditors are prohibited from levying on either the usufruct or the right of survivorship  In a fair number of states, TbE is treated as cotenancy for life with dual contingent remainders in the survivor: a non-severable J/T (see Albro v. Allen), and therefore each tenant’s interest is freely transferable. If bank forecloses on a mortgage or creditor forces a sale, P buys two things: a life estate in one spouse’s half-interest, and that spouse’s right of survivorship. Similarly, if H or W wants to convey their interest, they may; grantee would get same as above.  In a couple of states, only the right or survivorship may be levied upon by a creditor or conveyed by a spouse.  In Massachussetts, a distinguishment is made between a residence and other non-residential entireties property. In non-residential properties, MA functions as above. For residential, statute precludes siezure of principal residence. Coraccio v. Lowell Five Cents Savings Bank, 370, Supreme Court of Massachussetts, 1993 Facts: H and W own family home in TbE. H grants mortgage to lender on his interest without W’s consent or knowledge. H defaulted. Issue: Can a creditor levy the property owned in TbE? Holding: (Liacos, J.) In MA, one spouse may convey or encumber his/her interest subject to the continuing rights of the other spouse without consent of the other spouse, the conveyance limited to the spouse’s interest. 3. Tenancy in Common a. Creation: i. Modern law’s preferred estate for unmarried co-tenants  “To A and B” Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 28/74  “To A and B as tenants in common” b. Characteristics: i. Only one unity required, that of possession ii. NO right of survivorship! iii. Interests of co-tenants freely alienable as if each were the sole owner of the estate iv. Partition restraint is a common provision in T/C … since it’s a restraint only indirectly affecting alienation and is generally limited in time, these restraints are generally valid  Ownership of condominiums in T/C generally have provision prohibiting partition of the common areas in a partition action 4. Rights and Duties of Co-Tenants a. Remedies for co-tenants: i. Accounting action, OT makes IT account for his actions, generally brought when IT is not paying OT rent OT is entitled to. ii. Contribution action, brought by IT against OT when IT has paid for something and wants OT to shoulder some of the cost. iii. Partition action, a final accounting, like a divorce, either a partition in kind (physically splits up the estate) or a partition sale (selling the land and splitting the proceeds). Any co-tenant has a right to bring a partition action, except in TbE. Partition can be judicially ordered (“forced”) if parties cannot otherwise come to an amicable agreement. Delfino v. Vealencis, 357, Supreme Court of Connecticut, 1980 Facts: Ps and D own as T/C undivided 1/3 shares of a 20-acre lot. D lives on lot and Ps want to develop it. They want partition by sale; D wants partition in kind. Issue: Which is preferable if both are practicable? Holding: (Healey, A.J.) Partition in kind is preferable because it serves the best interest of all of the parties involved. Partition by sale would force D to relocate her home and her business. Selling her property without her consent is warranted only in extreme cases. Note: If this had been a partition in kind and the tracts were not equal in value, the court would have required one tenant to make a cash payment to the others to equalize values. b. Possession by one tenant (“in-tenant;” “IT,” as opposed to tenant not in possession, called “out-tenant;” “OT”). Each co-tenant is equally entitled to possession and enjoyment, and no co-tenant can exclude another from any part of the property. i. By agreement. Co-tenants may agree among themselves that one tenant goes into exclusive possession and becomes IT. This does not sever unity of possession or sever a J/T. ii. Accounting for reasonable rent. Must an IT pay reasonable rental value to the OT(s)?  Majority rule: if OT is not ousted by IT, IT is entitled to use and occupancy of the property without paying rent to OT. OT cannot recover rental value unless he has been ousted, or IT agreed to pay rent, or IT stands in a fiduciary relationship to OT. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 29/74   Carrying charges: since IT does not have to pay rent to OT, IT must bear costs of reasonable upkeep and cannot demand contribution from OT, unless taxes and mortgage interest exceed the fair rental value. In this case, IT will be entitled to more than his proportionate share in a partition action or accounting.  Ouster is an act by IT that deprives an OT of the right of possession, can be actual or constructive – has a flexible definition to make it fairer to the OT.  Remedies for ousted OT – may bring suit to collect his share of reasonable rental value. Minority rule: IT must account to OT for OT’s share of the reasonable rental value of the premises. IT is accountable for his share of the net reasonable rental value after deducting expenses of upkeep. Lerman v. Levine, 344, Appellate Court of Connecticut, 1988 Facts: Property owned in J/T between H+W and P. Due to tension, P moves out and does not return. H+W were not opposed to her return, but P instituted partition action, also demanding share of fair rental value of the property from IT, H+W. Issue: May an OT demand a share of the reasonable rental value of the property from the IT when there has not been ouster? Holding: (O’Connell, J.) Yes. Common law says no, but CT statute allows an OT to bring an action against an IT “for use and occupation.” c. Accounting for rent received from a third party i. Default rule: OT has right to proportionate share of rent collected by IT, established by the Statute of Anne in 1704. Collecting IT must account for the net amount actually received, not for the reasonable rental value of the land. Carr v. Deking, 349, Court of Appeals of Washington, 1988 Facts: Son and father own farmland as T/C leased to D in share rent situation, in which tenants take a share of the crop. Son (OT) wants cash rent. D arranges with father (IT) a 10-year lease based on sharecrop payment. Son discovers this and sues to eject D. Issue: May the OT eject a tenant leasing from the IT, and what portion of the rent is OT entitled to, in a share rent situation? Holding: (Green, J.) OT may not eject tenant in lease with IT. IT has right to lease his interest to lessee without OT’s consent. OT is entitled to his fair share of the net amount of the crop as rent, rather than cash. ii. Imputed rent: if IT is leasing the property for commercial purposes, is held accountable to OT for OT’s fair share. If IT is living on the property, must still split rent from commercial operation.  OT has no rights to share of IT’s profits, if IT is using the premises as base for commercial operation; only share of rent iii. Repairs – IT may withhold amount of rent spent on repairs and carrying charges. iv. Taxes – IT may deduct taxes before giving OT share of rent. d. Contribution: Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 30/74 i. Improvements made by the IT to the land. Generally, he cannot sue for contribution from OT because of a public policy argument preventing IT from “improving OT out of the land” by making expensive improvements he knows OT can’t afford. On the other hand, if the “improvement” ends up de-valuing the property, IT takes the loss. ii. Repairs made by IT cannot impel contribution from OT (slight majority), unless the IT is compelled to account for rents and profits iii. Taxes and mortgage interest paid by IT – may impel contribution from OT only if they do not exceed the reasonable rental value of the property … otherwise IT has responsibility to bear the taxes and mortgage payments. e. Partition: i. Improvements made by the IT to the land will generally increase IT’s portion of the proceeds from a partition sale, if the value of the land is increased by the improvements. ii. Repairs made by IT may be reimbursed at before sale proceeds are distributed. iii. Taxes and mortgage interest paid by IT – may impel contribution from OT only if they do not exceed the reasonable rental value of the property … otherwise IT has responsibility to bear the taxes and mortgage payments. f. Fiduciary duties: co-tenants are generally not fiduciaries because they generally do not hold their interests for the benefit of another. However, fiduciary duties may be implied. Implied fiduciary duties may exist when there is a confidential relationship between the co-tenants, like a family bond, deeming a co-tenant who acquires an outstanding lien on the property as havinf acquired it for the benefit of all the cotenants Massey v. Prothero, 352, Supreme Court of Utah, 1983 Facts: IT purchased family-owned property at a tax sale because relative had not paid taxes. IT kept this a secret from siblings until he tells them to stay off the land. Siblings bring action to quiet title. Issue: Does a co-tenant who buys title to land he co-owns at a tax sale extinguish the rights of other cotenants? Holding: (Stewart, J.) No. T/C still exists and is not extinguished by this action, since an implied fiduciary duty exists among the co-tenants. The IT who purchased at the tax sale was deemed to have done so in the interest of all of the co-tenants, because the understanding among the co-tenants was that the IT was under the obligation to pay taxes. 5. Community Property a. Limited: only exists in 8 states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington b. Theory: rests on notion that H+W are a marital partnership and that both contribute to and share equally in material acquisitions. Community property is owned in equal undivided shares by both spouses. Each may own property in his or her individual right (“separate” property) c. What qualifies as community property? i. Separate property (SP):  Anything owned by either spouse previous to marriage  Anything conferred by gift, will, or intestate succession, to one spouse during the marriage (“lucrative” acquisitions) Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 31/74 Interest and/or income on SP (in most states – in some, interest is community because it accrues after marriage – see below) ii. Community property (CP):  Wages or income during marriage  “Onerous” acquisitions – those obtained as result of the effort, skill, or industry of either spouse during the marriage  Interest and/or income on CP  Everything else not separate property – presumption in favor of CP  Present asset is considered CP unless it can be traced to SP  Natural produce of SP (rents, interest, profits) during the marriage:  Considered to be CP under the “civil law” or “Spanish” rule (in Idaho, Louisiana, and Texas)  Considered to be SP under the “American” or “California” rule  Personal injury damages – used to be CP, now trend is to separate damages in terms of loss of earnings on one hand (usually CP) and pain and suffering of the individual on the other (usually SP)  Proprietary nature of an asset (CP or SP) if fixed when it is acquired, which begs the question when acquisition occurred. Three doctrines are typically used to determine:  “Inception-of-title” – when the credit transaction was initiated  “Time-of-vesting” – when legal title vested  “Pro rata” – piecemeal division of ownership  Commingling of CP and SP to acquire new assets – to “uncommingle” requires tracing of records (bank statements) to show it was SP as opposed to CP d. Transmutation: the spouses’ conversion of CP  SP or vice versa, effected by two legal mechanisms: i. Contract  Prenuptial, by statute, must be in writing and acknowledged  Postnuptial, depends upon statute, usually must be in writing except for California which permits oral transmutation of real estate ii. Gift – easier to prove gift of SP to CP instead of other way around e. Management: i. In general, each spouse has power to manage and dispose of his or her own SP as if s/he was single. Each spouse has the power to dispose by will all of his/her SP and one-half of the CP. Surviving spouse may NOT elect against the will in CP states  Personalty in CP: each spouse has the right to deal alone or bind the other spouse by their decision  Realty in CP: transfer requires signature of both spouses (even when realty in SP is transferred it’s a good idea to get both signatures) ii. Limitation of liabilities of spouses to third persons  Liability of either spouse before marriage is separate  Presumption that debts incurred during marriage are community debts, but SP of one spouse is not liable for the other spouse’s separate obligations (limited exception in cases that make SP liable for family necessities)  Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 32/74  Creditors who hold claim against community may reach CP and in most cases SP  Creditors who hold claim against separate spouse may generally only reach that spouse’s SP and not the CP or the SP of the other spouse  Family Purpose doctrine: if obligation incurred by separare spouse was for “family purpose”, debt may be collected from SP and CP  No family purpose: debt collected from separate spouse’s SP, then their half of the CP, then from other half of CP f. Dissolution of marital community i. Death of a spouse  Will (see above in Management)  Intestate succession – deceased spouse’s SP and one-half of the CP distributed according to statute as per usual (except Louisiana which is weird) ii. Divorce or annulment of marriage  SP:  AZ, CA, ID, LA: each spouse gets their own SP  Other states: divided on “equitable” basis  Child support, alimony: determined irrespective of SP  CP:  CA, LA, NM are “equal division”; each spouse gets one-half  Other states are “equitable division” granting judge wide leeway in deciding the split Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 33/74 VI. Landlord and Tenant A. Important Overall Stuff to Know 1. Types of Tenancies: a. Tenancy for Years – fixed period with beginning and ending dates b. Periodic Tenancy – period to period (e.g., month-to-month) until notice of termination given c. Tenancy at Will – no stated duration, continues until L or T desires an end d. Tenancy at Sufferance (holdover tenancy) – T remains after end of one of the above tenancies 2. Landlord’s Duties: a. To deliver possession, at the beginning of the lease b. Not to interfere with tenant’s quiet enjoyment (watch for construction and/or actual eviction issues) c. To provide habitable premises – courts today usually find an express warranty, an implied warranty of habitability, or a statutory duty d. Landlord not generally liable in tort e. Landlord retains right of reversion f. Repairs? 3. Tenant’s Duties: a. To pay rent, b. Not to damage the premises, c. Not to disturb other tenants. d. Duties are independent of the Landlord’s; T’s duties still remain even if L has breached one of his duties e. Repairs? 4. Landlord’s Remedies: a. Most common: eviction 5. Assignment and Sublease: a. Assignment – transfer of the entire interest under the lease b. Sublease – transferor retains an interest in the leasehold B. Nature and Creation of Leasholds 1. Leasehold is estate in land, with right to possess. Twofold nature: a. As a conveyance of real estate: payment of rent for the possession of the leasehold – T buys estate and therefore must care for it (traditional property rule) b. As a contract: lease contains certain promises and covenants, which are mutually independent (L’s breach of a covenant does not permit T to breach a different covenant) 2. Distinguishing leaseholds from other relationships – leaseholds are generally characterized by a. Express intention of duration b. Agreement concerning rent (rent is implied obligation unless clearly or specifically indicated otherwise; a leasehold may be a gift) c. Acts of the parties (see table and Friend v. Gem Int’l, Inc.) Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 34/74 Leasehold 1. Estate, deemed to be possessory 2. Identifiable, specific area that may not be changed 3. Usually irrevocable during its term, assuming lessee satisfies the lease terms 4. Ability to exclude others, including L 5. Specifically enforceable by lessee 6. Unless there is enforceable lease language to the contrary, the lessee’s interest is transferable and survives the death of either party (when T dies, T’s successor has interest in lease) License 1. Neither an estate nor an interest in land 2. Usually deemed revocable. Grantor of the license has the power to revoke 3. Generally a nonexclusive privilege to use another’s real estate (grantor can’t claim holder is trespassor) 4. A contractual right and creates no in rem right in the land 5. At most enforceable by damages and not by specific performance 6. May not be transferred. Generally will not survive death of either party 7. Ex: tix to entertainment events, permits to hunt or fish on another’s land, parking arrangements, dept store concessions Easement 1. Incorporeal (nonpossessory) right to use land. While not an estate, it’s definitely an interest in land 2. Irrevocable (ex: 5-yr, life, perpetual) 3. Often exclusive, although some easements are shared w/others 4. Specifically enforceable 5. Generally transferable 6. Ex: roadways, power lines, sewers, etc. Friend v. Gem Int’l, Inc., 393, Missouri Court of Appeals, 1971 Facts: P, employee of company operating a department inside D’s department store injured on a wet stairway. P alleges company is a tenant and therefore D owes a duty of care. D contends that company and P are licensees and therefore no duty of care is owed. Issue: Is the relationship between D and the company (and P) a lease or a license? Holding: (Weier, C.) A contractual instrument used to grant exclusive dominion of a space, albeit space that changes according to the whim of the grantor passes an estate in land and is therefore a lease. Note: Parties’ intention is usually the key, but is not conclusive. Other factors to be considered are 1) Uses permitted – the more limited the use, the more likely it is a license 2) Defined area of space – the more specific the boundaries, the more likely it is a lease 3) Rent reserved – lease usually calls for periodic payment; easement or license is usually purchased with a lump sum 4) Duration – leases are generally specific in duration; easements are generally not 3. Types of tenancies (Gilbert 169): Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 35/74 a. The Tenancy for Years: i. Duration: fixed time in units of one year or divisions or multiples thereof. May be subject to possibility of reverter, right of entry, or executory limitation ii. Creation: by agreement (lease, oral or written, subject to Statute of Frauds)  L’s ownership is reversion coupled with right of entry to secure payment of rent and other commitments of T  Security typically requested by L  L’s interest is a term for years. Leasehold does not begin until T takes possession (until then, L’s interest is interesse termini) iii. Termination:  By expiration of stated period of time (most common)  By occurrence of limitation or contingency  By surrender of unexpired portion of the term  By release of L’s interest to T  By condemnation  By expiration of L’s estate, etc. b. Periodic Tenancy: i. Duration: indefinite and seamless, as opposed to series of successively repeating periods. One party may give notice of termination to the other by a certain time in advance of successively repeating points of time (30-day notice). Functionally a tenancy at will only terminable by proper advance notice. ii. Creation:  By agreement (lease, oral or written, subject to SoF)  By L giving possession to T for unspecified period of time with agreement for periodic rent  By T remaining in possession with consent of L subsequent to termination of a prior tenancy (holdover; see below)  By T taking possession under void lease but making periodic rental payments iii. Termination:  By notice given by L or T properly in advance (prescribed by statute)  By other methods listed under “Tenancy for Years” c. Tenancy at Will: i. Duration: continues only so long as both L and T refrain from taking action inconsistent with its continuation. L’s interest is reversion subject to terminable possessory right of T. ii. Creation:  By agreement  By T taking possession with L’s consent with no agreement as to term, rental periods, or pattern of rental payments  By entry in possession under void lease prior to making periodic rental payments iii. Termination:  By either party without formal notice of termination (must be “fair” notice)  By L conveying property  By death of L or T, etc d. Tenancy at Sufferance: Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 36/74 i. Duration:  Until demand of possession by L, or  Until L elects to have a tenancy other than tenancy at sufferance ii. Creation:  By entering into possession rightfully and retaining wrongfully – meaning without L’s consent (holdover tenancy) iii. Termination: formally, no tenancy to terminate – wrongdoer’s possession cannot be defended against any reasonable action of L. L is usually given two alternatives in a tenancy at sufferance:  To consider the T as holding under a new tenancy, or  To consider T as a wrongdoer from whom possession can be recovered immediately David Properties, Inc. v. Selk, 404, Court of Appeal of Florida, 1963 Facts: D lives on property he sells and conveys to P by deed. P misses final payment so D forecloses – but only reason P missed is because D did not leave when P wanted him off the land. D held over after deed was conveyed, but when P wanted him off and requested rent, D ignored. Issue: When a landlord demands a different rent for continued possession of property, and T receives demand and continues to hold without protest, does T agree to rental terms? Holding: (Waybright, A.J.) Yes. Holdover T becomes liable for increased rent if L has notified T of increase and T fails to express his nonassent. Note: One of the main reasons law recognizes tenancy at sufferance is to prevent holdover T from adversely possessing property by not leaving. URLTA allows L to being an action for possession if he wants to treat T as a trespassor and recovery of up to 3 months’ reasonable rent 4. Statutory modifications: a. Statute of Frauds (1677) – prevents oral leases for more than one year … leases i. Must be in writing ii. With specific requirements:  Identification of rent  Term  Premises  Must be signed by the party to be charged (the party against whom you are attempting to enforce the lease) b. Part performance doctrine – parties to a void lease, if there is enough physical action by either party, might suffice to lower the barrier of the SoF and allow a plaintiff to show that a lease exists i. Evidentiary theory, in which a T in possession, paying rent, making improvements, is evidence seen to be pointing towards the existence of an agreement ii. Estoppel reliance theory, where the plaintiff is afforded the opportunity to prove to the court what he is relying on (i.e., the lease) C. Fundamentals and Duties of Leasehold Relationship 1. Duties of Landlord: a. Delivery of possession – transferring to T at the beginning of the tenancy the legal right to possession. L warrants his power to demise (lessor warrants that he has Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 37/74 such interest in the leased premises as enables him to convey the interest he purports to convey in the lease) in doing so i. If another party has possession:  T’s remedies prior to entry is termination of the lease ii. Actual possession  English Rule (majority): L has duty to deliver actual possession (as well as the right of possession). If there is a holdover tenant, L has responsibility of removing him within a reasonable time, or L is in default  T may then terminate lease and recover damages,  T may affirm lease and refuse to pay rent for portion of term T is not in actual possession and recover damages  American Rule (minority): L has no duty to deliver actual possession, only right of possession. If there is a holdover tenant, T has responsibility of getting holdover out  T has same remedies L would have in relation to holdover:  T may sue to evict  T may treat holdover as tenant for another term with rent payable to T Hannan v. Dusch, 412, Supreme Court of Appeals of Virginia, 1930 Facts: L leased premises to T and failed to deliver possession Issue: Is a L, without any express covenant to deliver possession, when leasing property, required to oust holdovers or trespassors so as to have it open for entry by the T at the beginning of the term? Holding: (Prentis, C.J.) No, there is no implied covenant to deliver possession in Virginia (American Rule) b. Quiet enjoyment – T has right to use and enjoy the premises in peace and without interference. This covenant is always implied in a lease. L’s disturbance of this covenant can be a breach; an eviction (actual or constructive) breaches this covenant. This covenant is dependent; T’s duty to pay rent is suspended until T is back in possession. i. Actual eviction: T is physically evicted from entire leased premises; T’s duty to pay rent ceases entirely.  Partial eviction: T is evicted from any portion of the premises; T’s duty to pay rent is abated until possession thereof is restored to him  T may remain in possession during this time ii. Constructive eviction: through the fault of L, there is a substantial interference with T’s enjoyment of the premises such that T cannot enjoy the premises as contemplated  T may terminate the lease, vacate the premises, and be excused from rent liability  Distinguishment from actual eviction: actual eviction requires intentional expulsion or exclusion from possession; constructive eviction is interference with enjoyment Barash v. Penn. Terminal Real Estate Corp., 436, Court of Appeals of New York, 1970 Facts: T rents office space in a glass-enclosed, air-conditioned building, which has its windows sealed. L promises comfortable use of the premises 24 hours a day. L turns off the a/c at 6 p.m. and T, wanting to work Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 38/74 late, finds the office unbearably hot and stuffy. T stays in possesstion but refuses to pay rent on grounds that this is partial actual eviction. Issue: Does L’s failure to provide a/c after 6 p.m. constitute partial actual eviction? Holding: (Breitel, J.) No, but L’s actions do constitute constructive eviction. Since this is not partial actual eviction, T cannot stay in possession and refuse to pay rent. To claim constructive eviction he must vacate the premises. If T knows of the interference and takes possession despite it, T has waived the interference and cannot claim constructive eviction  Prior to claiming constructive eviction, T must give notice to L of the objectionable conduct and allow L reasonable time to remedy the situation iii. T’s remedies in general for interference with quiet enjoyment:  Suit to recover possession  Treat lease as terminated  Suit for damages (measured by difference between rental value for the remainder of the term specified in the lease and the rent in the lease, plus special damages in certain circumstances) c. Warranty of habitability – i. Common law rule was that T takes premises “as-is”; there was no warranty that the premises were in tenantable condition or fit for the intended purpose. This doctrine was known as “caveat emptor” or “caveat lessee”  Anderson Drive-In Theatre v. Kirkpatrick, 425, Appellate Court of Indiana, 1953 Facts: L leased farmland to T, who intended to use the land for a drive-in movie. After lease was signed, T had land inspected. The land turned out to be swampy and soft, incapable of intended use. T refused to pay rent and L brought suit. Issue: Did the lease warrant the land as suitable for T’s intended use? Holding: (Royse, C.J.) Purchaser or lessee of land has no right to rely on representations made by vendor as to the quality when he T has the opportunity to inspect it and judge it for himself before the lease is signed. The rule of caveat emptor applies unless the T makes material representations constituting fraud, or if there is a fiduciary relationship between the parties. ii. Implied covenant (or warranty) of habitability (IWH) – in recent years courts have held that there is an IWH in residential leases (at the inception of the lease and continuing throughout); sometimes this has been extended to commercial leases as well  Originated in building codes, but these were typically only enforceable by governmental action, not by parties to the lease  T now has actionable case if IWH is violated Hilder v. St. Peter, 443, Supreme Court of Vermont, 1984 Facts: T entered lease and took possession of premises in bad condition. Over time and through no fault of T, living conditions because unfit for human habitation. L made many promises to repair and upkeep but failed to do so. Issue: Does L have a duty to deliver premises in habitable condition and to keep them in that condition? Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 39/74 Holding: (Billings, C.J.) Yes. All residantial leases have an implied warranty of habitability. T’s remedies include withholding of rent until L makes necessary repairs. Alternatively, T may make repairs and withhold the charges from rent paid. Punitive damages may be awarded when appropriate.        IWH does not deal with aesthetic concerns, only health and safety issues IWH in general cannot be waived or contracted around due to public policy concerns  T is protected against his own folly if he takes under a lease with a provision puporting to waive the IWH  T’s agreement to repair – if he fails to repair and this contributes to breach of IWH, courts will contrue this as attempt to waive L's duty of IWH and will most likely find for T (458-9) T does not have to vacate to assert a breach of IWH T does have cause of action on IWH after the leasehold expires (Hilder v. St. Peter) T’s obligation to pay rent is mutually dependent on L’s compliance with LWH (Jack Spring, Inc. v. Little, 451, Supreme Court of Illinois, 1972) T’s remedies:  Termination of the lease: T may terminate, vacate, and recover damages. Damages may include relocation costs and the FMV of the lease (difference between K rent and market rent)  Continuation of lease: T may stay in possession and recover damages  Damages may be measured by difference between K rent and value of premises as they are (not popular solution because it does not inspire Ls to repair)  Loss-of-bargain rule: Damages measured by difference between rent of the premises as is and rent had the premises been as warranted (Hilder v. St. Peter)  Continuation of lease with rent used to repair – T may use reasonable amount of rent to pay for repairs  Continuation of lease with rent withheld – T may withhold rent after notification to L  Defense of breach of IWH to L’s action for unpaid rent T’s damages (456-7):  If T vacates at the end of the lease. Measure of damages:  Difference between K rent and fair rental value  Difference between value of premises as warranted and fair rental value  If T vacates during the term of the lease  Damages measured pre-vacation: one of the two formulae above  Damages measured post-vacation: measureed by lost “bonus value” (if any) as measured by the difference between K rent and fair value of the premises if they had been as warranted  If T stays in possession and stops paying rent, and raises defense of L’s breach of IWH  Past: was there breach? PropertyOUTLINE – Nelson, Fall 2000 page 40/74 Timothy M. Whalen  No – T booted, judgment for L in amount of back rent Yes – depends on degree … T may owe nothing of violation was slight; T might owe over and above rent withheld (in which case court allows T grace period to make up arrearages)  Future: K rent is paid into court until violation is remedied Exceptions to IWH:  Certain public and private institutions (hospitals, prisons, schools)  Contract purchasers in possession  Fraternal and social organizations  Hotels and motels  Residence as an employee  Condominiums  Farm homes under agricultural leases   2. Duties of Tenant: a. Rent payment – as specified in the lease agreement b. Duty to occupy premises – unless failure to occupy results in permissive waste, T has no duty to occupy premises Mercury Investment Co. v. F.W. Woolworth Co., 417, Supreme Court of Oklahoma, 1985 Facts: T, an anchor tenant leasing space in L’s shopping mall, paid rent on % of profits basis. L contended that T was not bringing in enough rent and brought action on implied covenant to operate diligent business. T replied that it was under no obligation to do any business at all. Issue: Does the contract give rise to an implied covenant that the T occupy and conduct business on the premises? Holding: (Opala, J.) In this case, no. In the absence of a contractual promise to do so, a T has neither the duty to occupy leased premises nor to use the premises for any particular activity. Note: In business leases, courts will often look to the rent and the terms of the K. If the base rent is nominal and most of the rent comes from % of profits, a court will imply such a covenant. c. Duty to repair – in the absence of a duty on L’s part to repair (by statute, IWH, or by express covenant), T has duty to make ordinary repairs, to keep propery in same condition as at the beginning of the lease (usually expressed in a redliery clause) i. Ordinary wear and tear excepted ii. T does not have to make substantial repairs, but must protect premises from damages (as from the elements) iii. T is generally not liable for casualty loss/damage to premises iv. T may expressly covenant to repair and maintain the premises (usually a “general repair clause”), but if a governmental authority orders repairs, the lease must be interpreted to determine who is liable. Leases also often contain “tenant’s redelivery clause” which obligates the tenant to return the premises in good condition (or same condition) at the end of the lease. Ts should never sign a lease containing unqualified general repairs clause or redelivery clauses, at least not without a “casualty loss not the fault of tenant” clause in it (casualty losses are those due to acts of God) Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 41/74 Hadian v. Schwartz, 427, Supreme Court of California, 1994 Facts: L leased to T with a form net lease whereby T agreed to make necessary repairs to the premises. City inspectors informed L that the premises needed seismic retrofitting at a cost of $34,000. L paid for the retrofitting and sued T for the amount. Issue: Was the lease a net lease, and if so, did the T have responsibility for the seismic retrofitting? Holding: (Arabian, J.) Six factors are examined if the language is not clear in terms of the tenant’s use of the premises: 1) cost of the repair in relation to the rent specified in the lease; 2) term of the lease; 3) benefit to the lessor vs. benefit to the lessee; 4) stuctural repair vs. non-structural repair; 5) curative action harming the tenant; rd and 6) the likelihood that the parties anticipated the repair. The 3 element places this repair squarely in the benefit of the lessor, since the lessee only has the premises for a limited amount of time. Therefore, the lessor should pay for the repairs. Note: “Net” lease generally means T has duty to repair. “Net, net, net” lease means T makes repairs, pays taxes on premises, and pays insurance on premises. v. No matter which party has duty to make repairs, T in tenancy for years should bargain for a clause allowing him to terminate if premises are so much destroyed that it would be infeasible to occupy. d. Duty not to damage premises (voluntary or affirmative waste) e. Duty not to disturb other tenants D. Security Deposit 1. Theory: Lease provisions usually require T to make a security deposit at the time the lease is executed to assure T’s performance. L promises to return at the end of the tenancy if T has not breached any covenant (leaves premises in a dirty or damages condition or does not pay rent) 2. Typical dispute is that L retains what T thinks is unfair portion of deposit. To give T some leverage, since L has upper hand, URLTA legislation typically provides a. Limitation on amount of security deposit collected b. Application of the deposit only upon termination to payment of accrued rent and damages, if any c. L must supply T with an itemized list of deductions from the security deposit, plus the balance of the deposit, within a reasonable amount of time (usually 30 days) d. Provision for T to collect entire deposit amount (or more) if L does not supply itemized list withing prescribed time Garcia v. Thong, 465, Supreme Court of New Mexico, 1995 Facts: T, upon expiration of lease, vacated. L brought suit for damages and T denied, counterclaiming for the amount of the deposit. Issue: Does th failure of a L to provide T with an itemized list of deductions from the deposit within the statutorily specified period result in a forfeiture of L’s claim to any of the deposit? Holding: (Frost, J.) Yes. A forfeiture to either any part of the deposit or a right to claim damages occurs when L does not provide T with an itemized list of withheld charges. 3. California: a. Transferred liability for deposit: if L1 transfers interest to L2, default rule makes L1 still liable to T for the return of the deposit. Under (g), L2 is generally not liable to Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 42/74 b. c. d. e. T. Default rule can be reversed (letting L1 off the hook) if L1 exercises either the option of i. Transferring deposit to L2 and notifying T of the transfer, or ii. Returning the deposit to T When T moves out at expiration of lease, (f) provides for the itemized statement If T sues L for return, (k) entitles T to return of deposit and up to $600 damages maximum – no attorney fees, and there must be “bad-faith” retention. If L goes belly-up, (d) provides T with protection: T’s claim for the security trumps all competitor’s claims (except gov’t) Statute is silent on interest on the deposit E. Transfer by Landlord and Tenant 1. Theory: in the absence of a prohibition in the lease, either T or L may freely transfer his interest in the premises (bias in favor of alienability). This transfer may be an assignment (L  L2; T  T2), whereby all of the assignor’s interests are transferred to the assignee, or a sublease (T  T2), whereby the sublessor retains a right or reversion. a. Assignment: transfers whereby assignor (L or T) shifts all of his rights and interests to assignee (L2 or T2) i. May be from L  L2, or from T  T2 ii. Privity (Assume for example that L leases to T, with T’s promise to pay $500 per month for rent. T assigns leasehold to T2.)  Privity of contract: relationship in which two parties have agreed with each other to do or not to do certain things; in this case, a leasehold agreement. Orginal parties to the lease are in privity of contract with each other and are therefore liable to each other for breach of any covenants in the lease. In the example above, L and T are in privity of contract; therefore L can sue T if the rent is not paid. Conversely, T may sue L for L’s breach. L and T2 are not in privity of contract because T2 was not a party to the original lease.  Privity of estate: Invented relationship to give L right to sue assignee of T and to give assignee right to sue L for breach of any covenants. In the above example, L and T2 are in privity of estate with each other; T2 is “benefitted and burdened” with everything that “touches and concerns” the premises. L can sue T2 for non-payment of rent, and T2 can sue L if L breaches. b. Sublease: transfers whereby sublessor (T) shifts all of his rights and interests to sublessee (T2), but retains a right of reversion (if sublease between T and T2 expires before the original lease between L and T). Sometimes if T retains a right of entry, the transfer is deemed to be a sublease. T essentially becomes T2’s landlord. i. May only be from T  T2 (or Tx  Ty) ii. Privity (Assume as above, but T  T2 by sublease)  Privity of contract: L and T remain in privity of contract. L and T2 are not in privity of contract. L is not liable to T2 and vice versa.  Privity of estate: L and T remain in privity of estate. L and T2 are not in privity of estate. L is not liable to T2 and vice versa. Davis v. Vidal, 536, Supreme Court of Texas, 1912 Facts: L leases to T for $100/mo. T “assigns and sublets” to T2, and T2 defaults. The transfer from T  T2 reserved a right of entry in T (in the event that T2 did not pay rent; T reserved the right to terminate). L attempts to sue T2 for rent. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 43/74 Issue: Is a transfer by a tenant to a subtenant a transfer or a sublease when the transfer is for the remainder of the term of the original lease, but contains a right of entry? Holding: (Dibrell, J.) A right of entry is a contingent reversionary interest and therefore the transfer shifted less than the tenant’s total interest in the premises. It is therefore a sublease, and T is liable to L for the rent. Note: This is a minority position – most courts have held that T reserving a power to terminate the lease does not render what would otherwise be an assignment into a sublease. Note also that L could have gone after T for nonpayment of rent – probably did not because T might have been broke. Consent Privity of Estate Assignment by L  L2 T’s consent not required L2 and T in privity of estate Assignment by T  T2 L’s consent may be required by lease L and T2 in privity of estate Privity of Contract Liability for covenants in lease L2 and T not in privity of contract. L and T remain in privity of contract. L2 liable to T on all covenants that run with land (priv of estate). L and T2 not in privity of contract. L and T remain in privity of contract. T2 liable to L on all covenants that run with land (priv of estate), unless T2 assumes. T remains liable to L on all covenants in lease (priv of contract) Sublease by T  T2 L’s consent may be required by lease L and T2 not in privity of estate. L and T remain in privity of estate. L and T2 not in privity of contract. L and T remain in privity of contract. T2 not liable to L on any covenants in the lease and cannot enforce L’s covenants. T remains liable to L on all covenants in lease (priv of contract) L remains liable to T on all covenants in lease (priv of contract) 2. Consent: usually there is a clause in the lease prohibiting transfer unless approved by L (usually by written consent) a. Bias in favor of transferability would cause this clause to be construed literally: prohibition of sublease would not be read to prohibit assignent, and vice versa. L may impliedly waive any covenant against transfer by accepting rent from the transferee with the knowledge of the transfer. b. If T effects a transfer without L’s consent, L has option to terminate the lease by declaring forfeiture – generally this is only enforceable only if L has inluded a clause allowing him to terminate in the event of an unauthorized transfer. The courts usually allow such transfers even though specifically forbidden by the lease, because such a no-transfer provision is a disabling restraint. c. With a “simple clause” (that L may withhold his consent for assignment or sublease), L may withhold consent for any reason. i. This is traditional “default rule” ii. This can be used as a method by which L can capture bonus value in the lease, but withholding consent unless the rent is raised iii. In some cases, L’s denial of consent must be reasonable: Kendall v. Ernest Pestana, Inc., 542, Supreme Court of California, 1985 Facts: L leased to T with a commercial lease, then assigned interest to L2. Lease (to T) provided that written consent of the lessor before the lessee could assign any interest. T wanted to assign to T2, but L2 denied consent in favor of increased rent. Issue: May a landlord withhold his consent for economic advantage? Holding: (Broussard, J.) No. An objective test is applied to determine the reasonability of withholding consent for transfer of interest, such as the financial responsibility of the proposed new tenant and his suitability for the Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 44/74 building, but landlord cannot consider general economic advantage. This would allow L2 in this case to get more than he originally bargained for in the lease. Since he is not required to bear the burden of a depressed rental market, he cannot take advantage of increased value. 3. Covenants running with the land: a. Theory: for L to enforce any covenant against T2, or vice versa (or T against L2), the covenant (a burden or benefit) must “touch and concern” the land (from Spencer’s Case (1583). i. For a covenant to run with the land, it must satisfy requirements:  The parties to the lease must intend that the covenant run to assignees  The assignee must be in either privity of estate or privity of contract with the person suing or being sued  The covenant must touch and concern the land ii. Examples of covenants that run:  T’s promise to pay rent  T’s promise to pay taxes on premises  L’s or T’s promise to repair the premises or do (or not do) some other act affesting the physical condition of the premises  L’s promise to provide services (heat, water, etc.) to premises  T’s promise not to assign or sublet without L’s consent  L’s promise to renew lease or convey reversion to T  L’s duty to refund T’s security deposit  Use restriction covenants  T’s promise to pay insurance, if the lease requires L to use the insurance proceeds for rebuilding. Abbott v. Bob’s U-Drive, 567, Supreme Court of Oregon, 1960 Facts: L leased land to T. Contained in the lease was a clause wherein parties agreed to arbitate any dispute arising in the lease. T assigned interest to T2, and a dispute about rent arose. Issue: Can L force T2 to arbitrate the rent dispute? Holding: (O’Connell, J.) Yes. A promise to arbitrate a dispute runs with the land because it touches and concerns the land. A covenant to pay rent touches and concerns; it would follow that a covenant to arbitrate a dispute about the rent touches and concerns as well. Burton v. Chesapeake Box & Lumber Corp., 575, Supreme Court of Appeals of Virginia, 1950 Facts: L leased building and furnishings to T. The lease required T to maintain fire insurance, and also imposed a duty on T to maintain the premises and to return it at the end of the lease in good condition. T assigned to T2. T2 did not pay the premiums and the insurance was cancelled. Thereafter, a fire damaged the building. L sued T2 for damages to repair the premises. Issue: Did the covenant to pay for fire insurance run with the land from T to T2? Holding: The bare covenant to insure, without a reciprocal promise by L to use the proceeds to restore the premises in case of fire which benefits T2, is a personal covenant and therefore does not run with the land. Here, there was no such reciprocal promise; therefore the covenant did not run from T to T2, and T2 is not bound by it. iii. Personal promises do not touch and concern (T’s promise to bathe L once a week) (n 3, p 573) Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 45/74 iv. Reassignments: An assignee (T2) who reassigns (to T3) releases himself from liability for anything that happened not during his tenancy. Tx is only in privity during the assignment; cannot be held liable for anything before or after v. Assumptions: An assignee who agrees to take possession subject to all of the covenants in the original lease (not just those running with the land), this is an assumption.  Effectively this brings T2 into privity of contract with L (in addition to privity of estate).  Since an assumption brings T2 into privity of contract, reassigning to T3 does not absolve T2 of liability (as mentioned immediately above).  In commercial leases, nearly all reassignments are assumptions vi. Subleases: Since in a sublease from T  T2 there is no privity of contract between L and T2, no covenants running with the land bind L and T2. Neal v. Craig Brown, Inc., 587, Court of Appeals of North Carolina, 1987 Facts: L leased to T for 15 years. Thereafter, T  T2 by sublease. T2  T3 by assignment. T3 installed a furnace at a cost of $6100. L wants T3 out; T3 brings up options to renew. Issue: Does T3 have right to renew under the existing lease with L? Holding: No. The sublease from T  T2 renders all transfers subsequent transfers of the sublease. Because it was a sublease, T3 is not in privity of contract with L (or in vertical privity of estate with T) and therefore the options to renew the lease are not extend to him. The options were not covenants running with the land. Note: T3 could have argued the existence of an extended oral lease by estoppel theory or by evidentiary theory of the part performance doctrine. The installation of the furnace and other acts of part performance (payment of rent and physical improvement of premises) could establish the right to prove the oral lease exists, lowering the bar of the statute of frauds. A further consequence of a sublease is a lack of vertical privity of estate between T and any assignees of T2.  T’s reservation of a right of entry in a reassignment to T2 sometimes renders the transfer into a sublease, sometimes not. Significant variations from the terms of the main lease in a purported reassignment to T2 may be construed as a sublease.  Agreements modifying incidents  To get an assignment (for all practical purposes) with the incidents of a sublease, reserve a one-day reversion.  To get a sublease (for all practical purposes) with the incidents of an assignment, use language to assign to the subtenant, for the term of the sublease, all of T’s claims and rights against L  Implied covenants run despite lack of vertical privity b. Covenant to pay rent – is covenant running with land i. Assignment: original T remains liable to L for rent. T2 also remains liable to L for rent. No mention of liability for rent need be made in the lease for this to hold.  T is surety – when T2 becomes liable for rent, T2 is primarily liable because he has the benefit of possession. T’s liability, based on privity of contract, is secondary. Between T and T2, the latter is responsible. T is a surety, a guarantor if T2 fails to perform. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 46/74  Gerber v. Pecht, 581, Supreme Court of New Jersey, 1954 Facts: L leased to T. T assigned to T2, with L’s consent. T2 assigned to T3, without L’s consent (still valid) Issue: Is T released from suretyship by his assignment of a lease? Holding: (Jacobs, J.) Yes, but only if the terms of the original lease are varied to the extent that T is relieved from such liability. The variations of the lease must be prejudicial to T (by increasing the rent, or increasing the term of the lease). A surety (T) is released from obligation if L makes the burden on the principal (T2) more onerous, without T’s consent. Note: T could have been released from liability if L expressly “let him off the hook.” F. Termination of Leases 1. Termination by Notice a. Notice typically needs to be given by a certain statutorily prescribed amount of time prior to the next period of the lease (at common law, this amount of time was equal to the period itself; month-to-month tenancies required one month’s advance notice) b. Notice typically needs to specify the last day of the period c. Notice needs to be given so that the landlord will receive the notice prior to the expiration of the current term Arbenz v. Exley, Watkins & Co., 505, Supreme Ct. of Appeals of W. Virginia, 1905 Facts: L leased to T for 5 years and 3 months for annual rent of $700, payable in monthly installments. Two years into the lease, a fire destroyed the building. In September 1898, T sent letter of notice of termination to L effective October 1898. Issue: Was the notice sufficient to terminate the lease? Holding: (Brannon, P.) No. The lease was not a term for years (for want of a seal, an antiquated method of certification), it was a periodic lease from year-to-year and therefore 6 month’s notice was required to terminate. T had not given notice sufficiently in advance to terminate before the next period began; therefore the lease continued. Since T did not give notice again, T was held liable for the full amount of the rent due for the entire term of the lease. Note: Today a court would probably have held that T’s notice would have terminated the tenancy at the end of the earliest period when a notice could do so. This case set out rigid requirements governing proper termination (mentioned above). Also note that the fire and subsequent destruction of the building did not automatically terminate the lease because of the traditional concept that T leases the land, not necessarily the buildings on it. 2. Tenant wrongfully in possession (after lease expires or not paying rent) a. Common law remedies i. Forcible entry – now forbidden by forcible entry and detainer (FED) statutes ii. Self-help – hiring thugs to toss out T b. Statutory remedies: i. Ejectment – slow process, because L had to show better claim to title than T ii. Self-help – more efficient, but FED and unlawful detainer (UD) statutes developed summary proceedings, which were quick court actions  Majority rule: Forbid self-help; require L to resort to judicial remedy  Minority rule: Allows L “peaceful self-help” only, and judicial remedy. Changing locks while T is not home, or entering and removing all of T’s belongings, are deemed to be “forcible” iii. Constitutionality of summary proceedings Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 47/74 Lindsey v. Normet, 514, Supreme Court of the United States, 1972 Facts: L brought suit to evict T under Oregon’s FED statute, which allows L to bring action 10 days after rent is due when the T is in breach of some other covenant and the L has terminated the lease. T contended this time was too short and that it violated due process laws and was therefore unconstitutional. Issue: Is the amount of time specified in the FED statute too short for a defendant to mount a substantial defense to the charges brought against him and therefore contrary to constitutional due process laws? Holding: (White, J.) No. Housing is not a fundamental right and therefore no state needs to justify the statute. However, the requirement that a double bond (twice the amount of rent) must be posted while the matter is in litigation (single bond is permissible) exceeds rationality and violates equal protection. Note: Waivers in leases permitting T to waive L’s prohibition to use self-help are usually not valid. 3. Tenant abandons the premises – L or T may terminate the lease before its expiration by agreement. This is termed surrender. When this is done without the proper formalities, as when T simply leaves without the intent to return, it is abandonment. This action is interpreted as an invitation for the L to terminate. L typically has three options a. To terminate the lease. L must be cautious in taking steps that might appear to be terminating if his intent is not to terminate. He may then take action: i. Specific performance of covenant to operate (if commercial lease). About a 50% chance this will work. ii. Sue for accrued rent, possibly with interest. b. To do nothing (see a., L must be careful not to do anything construing termination) i. Rent acceleration clause – to avoid the rule that a landlord must wait to sue for rent as it falls due, a rent acceleration clause is usually included in the lease, providing for rent due for the balance of the term to become payable in full on the tenant’s default of payment of rent or other obligation. L cannot accelerate rent and terminate – to do so allows double recovery. c. To opt to mitigate by finding a substitute tenant. i. Option or obligation? Common law: option. Modern view: obligation. ii. Commercial lease: cases are split. Sommer v. Kridel, 528, Supreme Court of New Jersey, 1977 Facts: Before lease period begins, T discovers he cannot take the premises as planned. L refuses to rent to anyone else even though another party was interested in renting the unit. L sues T for accrued rent. Issue: Does L have a duty to mitigate damages by finding a substitute tenant? Holding: (Pashman, J.) Yes. A utilitarian argument that it is contrary to public policy to allow land to go unused even if there is clear indication it can be. L not only has the duty to mitigate when seeking to collect accrued rent, but he carries the burden of proof to show he used reasonable diligence in attempting to re-let. Note: Courts favor mitigation, but for L to not inadvertently terminate and let T off the hook in L’s efforts to re-let (cleaning, getting the place ready to show to other tenants), L should clarify to T that his intention to mitigate is not for L’s benefit, but for T’s. 4. Tenant’s fixtures a. Definition: fixtures are chattels that are more or less affixed to the land. Improvements, partitions, installed machinery. b. Default rules: i. Chattels leave with the tenant. Fixtures stay. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 48/74 ii. If lease is silent about installation of fixtures and improvements, T’s installation is prohibited. L may terminate at his option if he finds T is or has installed fixtures. iii. If lease permits fixtures but is silent about what happens to them, they stay.  L may have T remove fixtures  L may remove them and charge T  Trade fixture exception – allows commercial T to remove fixtures so long as any damage caused by such removal is repaired before premises is returned to L (analogous to residential Ts is the domestic fixture exception) iv. Fixtures must be removed before the end of the lease, or before the premises are returned to L. 5. Condemnation of premises subject to a leasehold a. Definition: when governmental authority forces L to sell part or all of the premises. b. Division of the condemnation award between L and T i. Total condemnation (all parts of the lease land are condemned): T gets share only if there is bonus value in the lease (K rent is lower that fair rental value of the premises) – T gets out of the lump sum the amount which, when invested at an assumed rate for the time the leasehold would have run but for the condemnation, would produce the bonus value over that remaining time. ii. Partial condemnation: common law requires T to pay full amount of rent on all the premises, including the portion taken. If there is bonus value in the lease, T’s share has two components:  The sum which, invested at an assumed rate for the remainder of the term of the lease would produce the rent due for the portion taken, plus  The discounted present value of any bonus value the tenant may have for the portion taken.  This formula sucks. Should reduce T’s rent pro rata. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 49/74 VII. The Law of Easements A. Nature of Easements 1. Definition: an easement is a grant of interent in land that entitles a person to use land possessed by another. Also termed “incorporeal hereditaments” (incorporeal because they are non-possessory; hereditament because they are inheritable) 2. Distiguishing easements from profits: a profit allows something on the land to be taken off (oil, minerals, lumber); whereas an easement allow the land to be used in some way without taking anything from it 3. Distinguishing easements and profits from licenses: a. Easements and profits (servitudes) are interests in land; licenses are not. b. Servitudes are “rights”; licenses are “priveleges”. c. Servitudes are subject to the Statute of Frauds; licenses may be oral. d. Servitudes are generally not revocable upon the will of the grantor; licenses are, but may become irrevocable under some circumstances Ricenbaw v. Kraus, 696, Supreme Court of Nebraska, 1953 Facts: Owner O of land granted an oral license to neighbor A to go on O’s land and build a drain tile so A’s land will be protected from flooding by natural water drainage. A does so at substantial expense, with O’s knowledge. 50 years later, owner of O’s land plugs drain and wants to revoke permission for owner of A’s land to use the drain tile. Issue: May O revoke permission? Holding: (Wenke, J.) No. A license was granted and it would be inequitable to allow O to revoke the license after A as the licensee made expenditures on the strength of the license. Note: Another way to look at this would be to say that O granted A an oral easement, but then there is the problem of the Statute of Frauds, which does not permit oral transfers of land for periods longer than one year. The part performance doctrine can take the agreement out of the SoF. Part performance has two branches: evidentiary branch, which allows the grantee to attempt to prove the existence of an easement by showing physical acts consonant with the existence of an easement; estoppel reliance branch, which allows the grantee to explain why they relied to their detriment on the alleged easement. B. Types of easements 1. Appurtenant or in gross a. Easement appurtenant: benefits its owner in the use of another tract of land. The land benefitted is the dominant tenement or dominant estate, and the land burdened is the servient tenement or servient estate. Courts prefer easements to be appurtenant. i. Examples are walkways, driveways ii. Appurtenant easements pass with the dominant tenement (“tail on the dog”) b. Easement in gross: benefits the owner in some personal way, not in connection with his ownership of any specific parcel of land i. Examples are easements for utility lines held by utility companies, railroad easements ii. Easements in gross  Commercial easements in gross – freely transferable  Personal easements in gross – not transferable (unless there is a specific clause saying so), like a reserved right to fish in a lake (p 692) 2. Positive or negative Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 50/74 a. Positive easement: owner has the right to go onto the land of another and do some act on the servient land. Most easements are positive, or affirmative. b. Negative easement: owner can prevent the owner of the servient tenement from doing some act on the servient estate (p 693) C. Creation of easements: Easements may be created by express grant or reservation, by implication, or by prescription. 1. Creation by express grant or reservation: a. Definition: when an easement is granted to another (grant), or when a grantor grants land and reserves an easement over it to himself (reservation – land granted is servient tenement) b. Requirements for express grant: i. Easements are governed by the Statute of Frauds, so they must be in writing ii. Language should be precise, described as “easement”, “profit”, “right to use” (never “strip of land” or “right of way”) iii. Location of the easement should be specified: “over the south 20 feet of Lot 2” or metes and bounds description  If location is not specified, a “floating easement” results, which significantly de-values the servient tenement because the owner can never be sure where to build because the location of the easement is unclear. Floating easements cloud title. iv. Scope and purpose of the easement should be described Berg v. Ting, 700, Supreme Court of Washington, 1995 Facts: Tings and Youngs owned adjacent tracts of land. Bergs owned tract of land adjacent to Tings. Bergs opposed to a reapportioning of the Tings’ and Youngs’ tracts until Bergs were promised a driveway easement through the land being reapportioned. The easement acknowledged that the final reapportionment had yet to occur. When the reapportionment did occur, it was different than originally planned, and the easement did not refer to the land as it actually was apportioned. Bergs brought suit to quiet title. Issue: Does an easement granted by a document that does not accurately describe the servient tenement violate the Statute of Frauds? Holding: (Brachtenbach, J.) Yes. The Statute is violated because the document describes an arrangement of land that had not yet come to fruition, and actually never did; therefore the description of the easement is invalid. This is not a valid floating easement because the description of the servient tenement is incorrect. Note: Evidentiary theory of part performance doctrine fails because the three elements (possession, payment, and improvements) are not satisfied – consideration alone is insufficient. Estoppel reliance theory does not work either because forgoing of objection is not enough. 2. Creation by implication: a. Definition: easement by implication is created by an operation of law, not expressly by a written instrument, although a written instrument may be involved. It is inferred that the grantor intended to grant an easement b. Types: i. Easement implied from prior use (sometimes referred to as “easement implied from quasi-easement”): If, prior to the time a tract of land is divided into two lots, a use exists on the “serivent” part that is reasonably necessary for enjoyment of the “dominant” part that the court finds the parties intended to continues after the tract is divided, an easement may be implied. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 51/74    Easement is implied when owner divides land into two parcels. If an easement is implied in favor of the grantee, it is an implied grant. If an easement is implied in favor of the grantor, it is an implied reservation (courts are more reluctant to recognize implied reservations because the grantor should have expressly reserved it in the deed). Implied easements only benefit a dominant tenement; they are never implied in gross. They only arise when there was unity of title in the tracts in question; when both parcels were carved out of a previously undivided tract of land. Courts use the elements of the existing use (at time of severance or division) to ascertain whether an easement is implied. The existing use is called the “quasi-easement” since it doesn’t really exist as an easement until after the land is split. The elements are that the existing use must be:  Apparent – a quasi-easement is apparent if a grantee could, by reasonable inspection of the premises, discover the existence of the use; “apparent” does not mean “visible”: underground drains may be apparent if their surface connections would put a reasonable person on notice of their presence. Otero v. Pacheco, 713, Supreme Court of New Mexico, 1980 Facts: O builds two houses on his property. O installs a sewer line to run from the street to house 1 then to house 2. O sells house 1 to A. Although the sewer line running under house 1 is not visible, A could discover upon inspection that it serviced house 2 as well (by calling a plumber). A sued O when the sewer backed up and O counterclaimed, alleging an implied easement for use of the sewer. Issue: Did O reserve an easement by implied reservation? Holding: Yes. The circumstances were such that a reasonable person would have inquired, because of the presence of surface connections (toilet). The easement is implied because the use of the sewer line was apparent. Campbell v. Great Miami Aerie No. 2309, 709, Supreme Court of Ohio, 1984 Facts: O owned a large piece of land containing a restaurant and a hotel which used the same sewage system. The sewage system was attached to the hotel. O sold the hotel part of the property to A and the restaurant part to B. When A discovered that B was using the sewage system, he sued for trespass and for an injuction against B’s continued use. Issue: Was there an implied easement for B to use the sewage system on A’s land at the time the property was severed? Holding: No. The presence of the restaurant’s access to the sewage system was not apparent to A, who inspected the land with a master plumber. B’s use of the sewage system was also not apparent. Because the use was not apparent when the land was split and sold to A and B, and implied easement does not exist.  Continuous – the previous use of the quasi-easement must have been continuous, rather than sporadic. Intent can be inferred that the parties wanted the use to continue from action implying this intent, including a permanent physical change in the land for a particular use (like paving a roadway)  Necessary – the easement must be necessary for the enjoyment of the dominant tenement. Necessity is an important factor because if implies the intent of the parties as to whether the existing use was to be Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 52/74 continued. Most jurisdictions require reasonable necessity (as opposed to strict necessity; refer to Otero v. Pacheco) in questions of implied reservation, which are usually held to a higher standard of necessity than questions of implied grant.  Permanent – usually lumped into “continuous” or “necessary”; this factor deals with the parties’ implied intent to use the quasi-easement on a permanent basis after severance. ii. Easement implied from necessity (or a “way of necessity”): If an owner of a tract of land divides the tract into two (or more) lots and by this division deprives one lot of access to a public road (and thus is “landlocked”), an easement by necessity is implied to provide access to the road.  Doctrine rests on the theory that either public policy requires a way of access to each parcel or land, or that the parties intended to create an easement but overlooked including it in the deed.  Easement by necessity is not perpetual – lasts only as long as the necessity lasts – if the owner of the landlocked parcel later acquires access to a public road (for example, if one is built), the easement evaporates  Requirements:  Unity of title – does not mean that the dominant and servient tenements had to both have been carved out of the same undivided tract of land; all that is required is that the same owner at one time owned both parcels.  Dominant tenement is severed from the servient tract thus depriving access to a public roadway (landlocked).  Necessity existed for the right of way at the time of the severance. Strict necessity is usually the standard, although reasonable necessity is sometimes used. Necessity could have existed at either when the original ownership was split, or when the common owner acquired both parcels and conveyed one off. Hurlocker v. Medina, 718, Court of Appeals of New Mexico, 1994 Facts: O initially owned several lots, which through a series of conveyances resulted in A owning a landlocked parcel and B owning a parcel through which A would have access to a public roadway. Issue: Does A have an implied easement over B’s land for access to a public roadway when A paid less for his tract of land precisely because it is landlocked? Holding: (Black, J.) Maybe. Unity of title does not require the parcels to have been carved from a single undivided tract, only to have been owned by the same entity before being conveyed. Furthermore, intention of the parties is a more telling factor than public policy, since public policy would seem to indicate that A can get an easement over B’s land without paying for it. Intent would seem to indicate, however, that an easement is not created because A paid less for his parcel. If the owner of the servient estate fails to establish the exact location of the easement at the time the dominant estate is created, the owner of the dominant estate may locate the easement with due regard for the convenience of the parties. iii. Easement implied from a plat 3. Creation by prescription:  Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 53/74 a. Definition: an easement by prescription arises out of an operation of law and not from a written instrument (possibly). The idea is that if you use someone’s land for long enough, you acquire a non-possessory easement. b. Theory: two theories upon which the creation of an easement by prescription is based: i. The lost grant theory – prescription means “before writing”, which is related to an invented fiction of the assumption that if someone is using land for a substantial amount of time, at some point there was a written grant conveying an easement which has since been lost.  Permission from the servient owner strengthens the lost grant claim  Protestation by the servient owner stopped the clock, since owner is essetially saying that there never was a lost grant ii. The adverse possession theory – used by a majority of American courts, the doctrine that if someone uses land long enough, they acquire a right to use it analogous to adverse possession of land.  Permission from the servient owner stops AP from occurring  Protestation by the servient owner strengthens the AP claim c. Requirements, based on adverse possession analogy: i. Use must be adverse and under a “claim of right”, e.g., against or inconsistent with the rights of the owner; non-permissive Hester v. Sawyers, 725, Supreme Court of New Mexico, 1937 Facts: A and B are adjacent landowners. There is a public road adjacent to B’s land, and all sides of A’s land except for the side adjacent to B are fenced. A uses a roadway across B’s land to access the public road. B conveys land to C, who erects a fence and moves the roadway further south. A claims a right to pass over the land and tears down a gate to access the roadway, and maintained the roadway with continuous grading. Issue: Does A acquire an easement by prescription allowing use of the roadway over C’s land to access the public road? Holding: (Brice, J.) Yes, because A claimed a right to use the roadway and maintained the roadway for his use. The use of the old roadway may have been permissive, but the use of the new roadway was adverse because of the lack of evidence of permissive use and the fact that A tore down a gate to get through the fence. Shanks v. Floom, 730, Supreme Court of Ohio, 1955 Facts: A and B own adjacent lots and share a common driveway that was built by A’s and B’s predecessors by sharing the expense equally. Difficulties arise between A and B to the extent that A sues B for trespass and seeks an injuction against A’s use of the driveway. Issue: Do A and B hold mutual prescriptive easements for the shared use of the driveway? Holding: (Bell, J.) Yes. With a shared driveway there is a presumption of adverse use, since both parties use the driveway by claim of right (remember that adverse use does not require emnity). Note: This reasoning, and the presumption of adverse use, seems counterintuitive. But remember that adverse possession may seem to resemble permissive use – all adverse possession requires is that the party acts under a claim of right. If there was a presumption of permission, A and B’s predecessor’s agreement created a license – which in turn created detrimental reliance and therefore estoppel to revoke the license – same result. ii. Use must be open and notorious, e.g., without concealment – most often litigated in cases involving underground tiles and drains. If sewer could be reasonably discovered on inspection, this requirement is satisfied. iii. Use must be continuous and uninterrupted: Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 54/74 Continuous does not mean constant; may be periodic use – must give owner notice that use is being claimed by use on a regular basis  Tacking: allowed in prescription. Conveyance of the dominant tenement to a grantee establishes privity required for grantee to tack his use to that of his predecessor’s as he waits for it to ripen into a prescriptive easement.  Easement in gross: if a hunting club hunts on land every other season, the members can acquire a prescriptive easement (difficult to apply tacking to this concept b/c no dominant tenement to show privity)  Uninterrupted – if the use is interrupted by the owner of the servient tenement, the prescriptive period ends; if the adverse use continues after the interruption, a new prescriptive period begins. Interruption can be  Protest by the owner, in the lost grant theory,  Owner bringing suit  Owner granting permission d. Public easements: cumulative use of many members of the public by continuous use is sufficient to establish prescriptive easements in favor of the government on behalf of the public. i. Implied dedication: one who invites or simply permits the public to use her land for a long period is deemed to have made an offer of implied dedication. Even if the owner has no such intent, courts have held that a prescriptive easement exists, but most courts hold that public body asserting the easement must prove both either actual intent to dedicate or the specific elements of prescription. Usually concerns roadways. ii. Ocean beaches:  Customary rights doctrine: use of beaches have existed so long ripen into prescriptive easements  Public trust doctrine: “wet sand” area belongs to the public and thus the public acquires rights across public property to access it (since it is effectively landlocked).  D. Scope and Interpretation 1. Introduction – after an easement is created, questions may arise about what use the easement owner can make of the easement or about what interference by the servient owner is permitted 2. Rule: scope of an easement depends on the intention of the parties. In finding this intent, the court examines how the easement was created, what changes in the use of the easement might have been anticipated by the parties, and what changes in use are required to achieve the usefulness of the easement under modern conditions. The court also examines whether the increase in the burden is unreasonable (making it a “surcharge”, by examining the use in two ways: a. Qualitative: the nature of the use b. Quantitative: the “heaviness” of the use 3. How easement was created: a. Express easement: court will examine language of the instrument together with the surrounding circumstances to ascertain parties’ intent Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 55/74 Cameron v. Barton, 744, Court of Appeals of Kentucky, 1954 Facts: In 1876, O grants A a right of way over the servient tenemenet to reach A’s land, which is used as a slaughterhouse. About 25 years later, the slaughterhouse burned down and thereafter the land was used for farming purposes. The land is then sold for commercial use, and the owner of the dominant tenement now uses the land for storage of highway trucks and usees the passway for transportation of them. The owner of the servient tenement now objects, alleging that the use was intended for farmland vehicles. Issue: Is A’s use of the right of way for transporation of highway vehicles within the scope of the easement? Holding: (Clay, C.) Yes. The evolution and use of motor vehicles on the passway does not create a surcharge. The terms of the original grant are unknown, but the servient tenement’s owner’s contention that the passway was restricted and not general is without merit since the use of the passway changed with the occupancy of the dominant tenement (from slaughterhouse to farmland, and now to storage for vehicles). The purpose of the easement is to provide access to the dominant tenement, however it is used. Note: Revolutionary change (20 trucks a day to 100 trucks a day in a matter of weeks), rather than evolutionary change (gradual increased use), is a surcharge. b. Implied easements: If easement was implied on the basis of a use existing at the time of severance, the scope is generally determined in the same as in an express easement. In an easement by necessity, the extent of necessity determines the scope. Fristoe v. Drapeau, 746, Court of Appeals of California, 1950 Facts: Dominant tenement originally contained a lemon grove, which was cleared out by owner who desired to build a residence. Owner of servient tenement tried to enjoin use of easement for single-family home use. Issue: May the easement be used for single-family home use? Holding: Yes. The use of the land for residential purposes was within the reasonable contemplation of the original parties to the easement. The intended use does not anticipate overburdensome use of the easement. Note: The owner of a servient estate can effectively control the use of the dominant estate by trying to show that anticipated use would be a surcharge not within the contemplation of the parties. c. Prescriptive easements: More difficult to increas the burden on a prescriptive easement because there is little or no basis upon which to assume that the parties intended the easement to accommodate future needs, thus if a prescriptive easement was acquired to reach a house and the use of the dominant tenement changed from residential to commercial, the added traffic probably would not be permitted and would be deemed surcharge. Some courts hold that change in the dominant tenement which produces some increased use is permitted: Glenn v. Poole, 747, Appeals Court of Massachussetts, 1981 Facts: Owner of a servient estate, wishing to register his land in the Torrens system, sought to eliminate easements on his land, including one used by the owner of the dominant estate over his land. The original use of the easement was for hauling wood and gravel and to reach the dominant tenement for truck storage. Since then, the owners of the dominant estate had improved the road easement and used their premises as a garage and repair shop. Traffic on the roadway increased. Issue: Was the increased traffic within the scope of the original prescriptive easement? Holding: (Kass, J.) Yes. The use made of a prescriptive easement does not fix the scope of the easement eternally; it may change over time, if the changes are consistent with the general pattern formed by the adverse Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 56/74 use. Improvements do not overburden an easement, especially when done for safety purposes. As for the intensity of use, it is consistent and is not substantial enough to be considered unreasonable. i. Use for benefit of non-dominant tenement: easement granted for the use benefit of Lot 1 cannot be used for the benefit of Lot 2 even though the same person owns Lot 1 and Lot 2. The dominant owner cannot increase the scope of the easement by using it to benefit a non-dominant tenement. Brown v. Voss, 738, Supreme Court of Washington, 1986 Facts: Dominant owner of Lot 1 acquired ownership of Lot 2, adjacent to Lot 1, and began building a house on the non-dominant tenement (Lot 2). Servient owner sought an injunction because of construction equipment moving over the easement, and because dominant owner was using easement for the benefit of non-dominant land. Issue: May the owner of an easement use it to benefit non-dominant land, if he owns it? Holding: (Brachtenburg, J.) No. However, injunctive relief might be inequitable and besides, the dominant owner’s use of the easement was not injurious to the servient owner. Damages might be more appropriate. ii. Change in location of easement: if an easement was set in location by both parties, it cannot be moved to another location on the servient tenement, even if the new location would be just as convenient to the dominant owner, if one party acts unilaterally to move it. Sakansky v. Wein, 758, Supreme Court of New Hampshire, 1933 Facts: A held an easement over B’s property in a specific location on the property. B wanted to erect a building over the easement and limit the height of the resulting tunnel to 8’. Alternatively, B was willing to grant a new easement around B’s proposed building. A objected to the alternative easement. Issue: Does the rule of reason require A to acquiesce to the new easement? Holding: (Woodbury, J.) No. The rule of reason does not grant rights different from the original grant, and cannot apply to a proposed easement not within the description of the original one. The rule of reason applies only to the original easement; specifically to the height in this case – a reasonable height should be set. iii. Use by servient owner: the servient owner has the right to use the servient land in ways that do not unreasonably interfere with the easement (including, in fact, the construction of a building over the easement if there is sufficient vertical clearance for the passage of vehicles below). The owner of the servient tenement may use the easement itself provided that the easement is not exclusive and that it does not interfere with the use of the owner of the easement. Pasadena v. California-Michigan Land & Water Co., 751, Supreme Court of California, 1941 Facts: O grants an easement to a water company A to lay pipes beneath his land, in a 5’ wide strip of space. O subsequently granted an easement to a competing water company B to lay pipes in the same easement. A sought to enjoin B’s use of the easement, contending that A’s easement was exclusive, that B’s use would cause unreasonable interference, and that the easement to B was invalid. Issue: Did O have the right to grant an easement to B? Holding: (Gibson, C.J.) The language in the grant did not express exclusivity so therefore the easement is nonexclusive. Since it is non-exclusive, O retains the right to use the easement, which includes the right to allow Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 57/74 others to use it as well, so long as the use does not interfere with the paramount right. Since the easement is underground, this allows space for both B and A to lay pipes without B interfering with A’s use. Note: This is an easement in gross. See notes on division of easements in gross, below. iv. Division of easements in gross: may an easement or profit in gross be “divided” or “apportioned”, i.e., transferred to two or more persons and used by them independent of each other? Turns on if easement is exclusive or not.  Nonexclusive easement – one that is enjoyed by both easement owner and servient owner. Absent authority in the grant, the easement owner may not divide the right among others who use it independently; this would constitute excess competition with the servient owner for the sale of the rights (Ex.: if one company wants to run its fiber-optic cables alongside another company’s in the same non-exclusive easement, the servient owner’s permission is required, and consideration for use is paid to the servient owner).  Exclusive easement – if the holder of the easement has the exclusive right to enjoy it, he can divide and transfer it to others who can use it independently, unless the original grant prohibits this (Ex.: company B pays company A for the right to run its fiber-optic cables in A’s easement, not servient owner).  Overuse of profit in gross: overuse of a profit can deplete the natural resources of the servient tenement.  “One stock” rule: When two or more persons own a profit in gross they must use the profit as one stock; together – neither may operate independent of the other. One owner can veto use by the other because consent of all is required.  Rationale is to prevent surcharge  Surcharge can result in holder’s forced cure, the holder’s liability to the servient owner, or even the termination of the holder’s interest E. Extinguishment 1. Introduction – easements die, some simply on their own terms (easements for years or easements for life. If easement is granted by a servient owner with an interest less than FSA (like a leasehold), easement only lasts so long as the servient estate. 2. Methods of terminating an easement: a. By unity of title – if one owner acquires both the dominant and servient tenements, the easement evaporates by the merger doctrine. If land is later split and sold, new easement must be expressed if intended, or can be implied. b. By act of third party: i. If easement is junior to a mortgage that forecloses, easement is wiped out ii. If servient tenement is subject to a tax lien and sold at a tax sale, easement is wiped out iii. If servient tenement is condemned by sovereign power, easement is wiped out c. By act of dominant owner: i. Execution of a deed of release, or quitclaim deed, by the dominant owner. Oral release is invalid by the Statute of Frauds … but if owner of easement orally releases it servient owner and the servient owner expends money on the release, easement owner is estopped from pleading the SoF (estoppel reliance theory) Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 58/74 ii. Abandonment: mere non-use is never enough to extinguish an easement. The owner of an easement must act in such a way to indicate an unequivocal intent to abandon the easement for it to be extinguished my abandonment. Such acts can include oral release coupled with failure to maintain the easement, or permitting the easement to be blocked by others, or establishing a substitute easement elsewhere. Lindsey v. Clark, 762, Supreme Court of Appeals of Virginia, 1952 Facts: O sold land to A, reserving for himself an easement on the south side of A’s property (location mentioned in the deed). O and his tenants actually uses a passway on the north side of A’s property. A builds a house encroaching onto the south easement. A brings action to prevent O from parking his cars next to A’s house, contending that O has no easement on the south because he abandoned it, and no easement on the north because one was not reserved. Issue: Does O’s non-use of the south easement constitute extinguishment? Holding: (Buchanan, J.) No. Abandonment of an easement requires more than non-use, no matter how long; nor does the use of a more convenient way. Clearly O was mistaken either in the deed or by his use in thinking the reserved easement was on the north side rather than on the south and therefore exhibited no intent to abandon the easement. Equitable estoppel of O’s assertion of an easement on the north side fails because A had knowledge of the O’s use. The southern easement still exists. Hickerson v. Bender, 766, Court of Appeals of Minnesota, 1993 Facts: A, owner of dominant estate, has an easement on servient estate owned by B. B, unaware of the easement because A has not used it during B’s ownership or his predecessor’s, builds a house partially encroaching on A’s easement. Issue: Does A’s non-use of the easement constitute abandonment? Holding: (Harten, J.) In general, mere non-use of an easement is not abandonment. In this case, however, A’s 32 years of non-use coupled with A’s implied acquiescence when B built a house encroaching on the easement and landscaped over the rest of it in such a way as to make the easement location indistiguishable from the rest of B’s property does constitute abandonment, which extinguishes the easement. Note: The court could have used adverse possession theory to award use of the easement back to B, but chose instead to stretch the doctrine of abandonment to cover this situation. iii. Destruction of the dominant tenement, to the extent that the easement is no longer required for its original use. d. By act of servient owner i. Estoppel from asserting an easement: like reliance on an oral deed – if the servient owner acts to his detriment in his reasonable belief that an easement has been abandoned, the easement can be deemed by a court to have been extinguished.  If the easement is estopped because the servient owner in reliance has erected an obstruction over the easement, the easement is estopped only for the reasonable life of the obstruction. ii. Destruction of the servient tenement, to the extent that the easement is no longer physically there. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 59/74 VIII. Sale and Financing of Real Estate A. The Contract of Sale 1. Overview – in the sale of land, there are usually three parts a. Earnest money contract (E$K), which discusses i. Price ii. Financing iii. State of title iv. What kind of deed will be delivered b. Executory period, generally 30-90 days, during which time the parties are “in escrow”. Each party accomplishes different things during this period: i. Buyer:  Physically examines the premises  Has the title examined  Methods of title insurance  Lawyer’s opinion in a title opinion,  Title insurance system, based on what the insurance company can determine about the title from their database (the title plant) – seller gives abstract to buyer who examines it to make sure title is marketable; if not, buyer is given a reasonable time to back out of the deal  Abstract system: abstracts are biographies of land, listing every transaction which occurred regarding a specific piece of land (at least, that was recorded) – seller provides buyer with premilinary title report (TITLE-1), which contains a legal description of the land, by plat or map, by reference to a gov’t survey, or by metes and bounds description  Secures financing ii. Seller gets ready to move, etc. iii. Both parties go into escrow c. Closing: i. Seller is cashed out ii. Seller delivers a deed iii. Buyer goes into possession iv. Mortgage (or mortgages) are executed and delivered to the lender 2. The contract (E$K) a. No requirement to have one; if things must be done quickly, or the buyer is sophisticated, it is plausible to have no E$K (although this is far in the minority) b. Written E$K: i. If the executory period is for over a year, SoF requires the E$K to be in writing ii. Oral E$K:  If deal reaches closing, seller delivers deed and buyer pays price, neither party can rescind – if K is consummated, deed cannot be voided ex post facto  If buyer puts $ down and seller reneges, this is allowable under SoF, but the court can get buyer’s $ back in restitution Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 60/74 Seller agrees to sell to buyer, but a third-party makes a better offer – buyer cannot get specific performance because the K is not in writing, but can bring an action of tortious intereference with contract relations  Part performance doctrine to enforce an oral E$K (in equity)  Evidentiary branch:  Cardozo said we need possession, payment, and improvements; these things go to show executory K for the sale of land (sometimes only the first two are needed)  These acts must unequivocally refer to a contract (Nelson says this is nonsense; the three elements could refer to AP, or a lease, etc.)  Normally when a buyer sues, he points to his own acts to show part performance – but seller can point to buyer’s actions (when seller sues or is sued) to show K exists  Estoppel reliance – if you rely to your detriment, you get to show why you did c. Requirements to satisfy the SoF i. Names of the parties ii. Identification of the land  Legal description  Governmental survey  Metes and bounds  Reference to map or plat  Street address iii. Words of intent to sell and words of intent to buy iv. Price (if parties have agreed to one at this point – if not, and other requirements are met, court will supply a reasonable price) v. Reasonable details of seller financing vi. Signature by the party to be charged thereby (typically both buyer and seller) Sometimes, vii. Vendor must sign  B. The Use of Escrows 1. Introduction: sometimes a third-party is used to effect the closing during the escrow period, the escrow company. This is popular in California and a few western states. It is not required, merely customary. Escrow companies are deemed to be disinterested objective parties, and typically cost about ½% of the purchase price of the house. Escrow fee is usually split between buyer and seller. 2. Function of the escrow company a. Places itself, with its considerable experience, in charge of computing the flow of funds, recording of documents, etc. b. Serves as closing agent – avoids inconvenience of face-to-face closing with all of the parties in one room together to pass papers. If no escrow, different parties handle the closing: i. Sometimes the lender (small fee) ii. Sometimes the title insurance company (small fee) iii. Sometimes an attorney handles it iv. Sometimes seller’s broker c. Makes sure the seller’s title remains clear until the closing Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 61/74 d. “Relation-back” feature C. The Concept of Marketable Title 1. Introduction: marketability of title is basically a promise by the seller that he can convey what he purports to convey; that he has marketable title, a title free from reasonable defects, one which a prudent buyer would accept. a. Prior to closing, i. There is an implied warranty of marketability in every contract for the sale of land! … unless the parties agree otherwise. A quitclaim deed negates this default provision – it will even negate an express promise to deliver marketable title. ii. Buyer and seller may agree beforehand to a title less-than-marketable (this is what is usually done; refer to TITLE-2)(see note on quitclaim deed, above)  Reservations, easements, etc., are usually deemed encumbrances, which render the title less than marketable.  Encumbrances are usually espected  Prior to closing, buyer may object … seller may cure … ultimately buyer may back out if objection is not cured. iii. Buyer and seller may similarly agree to a more-than-marketable title (perfect title) iv. Two main methods by which buyers ensure marketability:  Written attorney’s opinion,  Based on attorney’s personal research, or  Based on an abstract provided by an abstract company  Obtaining a title report from a title insurance company – not necessarily a complete statement of findings, just states that the company is willing to insure the title based on its findings – but insurability does not mean marketability; with insurable title you get less, and you can only recover the maximum amount of the property (does not protect against inflation)  Alternative, if the seller has acquired the land by AP – he must clearly prove it – can offer buyer written evidence or other proof. Of course, if the buyer is in doubt, he can consult a title insurance company b. Post-closing, if buyer moves in and finds a defect that would have rendered the title unmarketable, the theory in most states is that objections merge into the deed and are lost once the transaction is closed. Does this mean the buyer is shafted? No. i. Warranty deed – if buyer gets a warranty deed from the seller, buyer may sue for breach of warranty (can’t do this with a quitclaim deed though) ii. Title insurance – if buyer has title insurance policy, he can collect on that iii. Attorney – if the defect should have been discovered, attorney may be liable in a malpractice suit 2. Defects in title: a. Breaks in the chain of title – title may be unmarketable because of a defect in some prior instrument of conveyance. This can indicate that there is an unrecorded claim on the land. b. Private encumbrances – claims against the land by third parties Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 62/74 i. Easements – lessen the value of the property. Easements benefitting the value of the property do not necessarily render the title unmarketable. Usually a buyer will take subject to non-interfering easements ii. Restrictive covenants – buyer will usually take subject to these as well, but violations against restrictive covenants render title unmarketable iii. Mortgages, and iv. Liens, both of which may in fact be satisfied at closing with proceeds from the transaction. Usually title is treated as marketable if it will become so at closing. If the buyer is taking subject to a mortgage loan (with the price lowered accordingly), some mortgages have a “due-on-sale” clause if the buyermortgagor transfers the premises without the lender-mortgagee’s consent. Beware of this! Seller would probably be liable to the buyer for any damages incurred. v. Leases – although sometimes buyer will want to take subject to a lease vi. Recorded options to purchase. vii. Recorded E$Ks. viii. Physical encroachments – of neighbor’s land onto the premises, or building on premises encroaching on a neighbor’s land ix. Landlocked land. x. Zoning laws – do not render title unmarketable, but violation of zoning laws does xi. Title by AP – unless grantor can prove that title is perfected (can use title insurance as a “test” of this) xii. Existing AP’ors on premises. xiii. Building codes, and violations thereof, usually do not render title unmarketable c. Title does not have to be marketable until closing d. Buyer, if defects are found, is expected to bring notice of any to the seller to allow the seller reasonable time to cure the defects 3. Remedies for breach of contract – unless contrarily indicated, payment of the purchase price and delivery of deed are dependent covenants: one party cannot place the other in default unless he himself has complied a. Buyer’s remedies, supposing that the seller is unable or refuses to close i. Specific performance: since land is unique, damages might be inadequate. The buyer attempts to get the court to force the seller to execute a deed and if he does not, the court will execute one ii. Rescission, if the title is unmarketable. A good idea is to include a clause in the E$K allowing buyer to recover his down payment if the seller breaches for any reason. iii. Damages – rare, buyer will almost always go for SP. Damages are usually limited to the difference between the E$K price and the fair market value of the premises as of the day of closing.  Sometimes damages are preferred if the seller doesn’t have the property anymore (i.e., he sold it to someone else)  Sometimes done if the title is unmarketable if it was agreed to be. Loss-ofbargain damages result b. Seller’s remedies, supposing that the buyer is in breach Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 63/74 i. Specific performance: if there is a defect on the title which is insubstantial and not material (and buyer is nitpicky and is attempting to use it as an excuse not to go through with the deal), seller can enforce the K specifically (sometimes with an abatement to compensate for the deficiency, if any) Laba v. Carey, 840, Court of Appeals of New York, 1971 Facts: Seller and buyer enter into a E$K for the sale of a residence. The title insurance company issues a title report which reveals that the sidewalk in front of the premises is one foot lower than that prescibed by city ordinance. The report also lists the city’s “waiver of legal grade.” The title insurance company is willing to insure buyer against the city enforcing the ordinance, but buyer claims the ambiguity in the waiver renders the title unmarketable. Issue: Is title rendered unmarketable when there is a waiver releasing the seller from present violation of a city ordinance? Holding: (Scileppi, J.) No, title is still marketable because the E$K stipulates that the conveyance is subject to restrictions not now in violation, and because of the waiver, the sidewalk does not violate any ordinance. ii. Rescission – on a breach by the buyer, the seller may rescind iii. Damages – seller might sue for his loss of bargain, but needs to prove that the value of the property at closing is worth less than the K price (rarely done).  E$K might provide that the seller can retain the down payment as liquidated damages if the buyer breaches … otherwise the damages awarded might be nominal. D. Introduction to Mortgage Financing 1. Introduction: a buyer rarely pays cash for the purchase of property; he needs to obtain financing. There are usually three sources: a. A loan from a third party i. Obligation to pay is represented by a promissory note, and security for the loan, which is a mortgage (or deed of trust) given to the lender by the buyer ii. Not all mortgages are to purchase property; some are for other investments (sending the kids to college, starting a business, etc.) iii. Lender usually records the mortgage in the county courthouse when it is given, and once recorded, the buyer takes subject to the mortgage (refer to “F”, and the recording acts) b. Taking over payments on an existing loan, c. Seller financing 2. Terminology: a. Mortgagor – the borrower or the debtor; the buyer b. Mortgagee – the lender c. Equity – the borrower’s interest in the land (short for equity of redemption) d. Deficiency judgment – if on foreclosure sale the land does not bring enough to satisfy the outstanding amount due on the mortgage, the mortgagee can get a deficiency judgment on the balance, for which the mortgagor is liable e. Purchase money mortgage – a mortgage given in return for a loan to buy land f. Balloon payment mortgage – mortgage that calls for interest payments for a few years and then one lump sum for the principal PropertyOUTLINE – Nelson, Fall 2000 Timothy M. Whalen page 64/74 g. Amortized payment mortgage – mortgage in which the principal and the interest are figured over the term of the mortgage and the whole is divided into equal periodic payments such that the final payment pays the balance of the principal. Early payments are principally allocate to payment of interest with later payments allocated more heavily to the principal. i. Number of payments is a function of frequency, term, interest, and principal ii. Usual term is 25-30 years h. Second mortgage – a mortgage given on land that is already mortgaged, for another loan i. Deed of trust – borrower transfers title to a third person as trustee for the lender to secure the debt (third person is usually appointed by the lender). If debt is not paid, trustee sells land under a power of sale, pays off the debt, and pays excess to borrower j. Debt acceleration – when borrower defaults, mortgagee makes the remaining amount due in full 3. History of mortgage a. Mortgages historically were strict against the borrower. Failure to pay the mortgage on the due date (“law day”) resulted in termination of the buyer’s interest in the land, which reverted immediately to the seller. There were no exceptions. b. Equity courts realized the unfairness of this scheme and began to allow the buyer (mortgagor) reasonable extensions on traditional grounds of fraud, accident, etc. The allowed tardiness of payment was a right, and was referred to as the mortgagor’s equity of redemption. c. Mortgagee could not count on prompt payment because the mortgagor’s equity became routine. The chancellors concurrently developed the mortgagee’s right to foreclosure, which allowed a reasonable time to pass after law day during which the mortgagor could redeem; after this time passed, the mortgagee could bar the mortgagor’s right to redeem thereafter. No sale was involved. This was strict foreclosure. d. American courts developed two kinds of foreclosure: i. Judicial foreclosure, where the sale of land to pay the debt was only held after a full court proceeding  Statutory period of redemption: many states allow borrowers a certain period after judicial foreclosure to redeem from the purchaser at foreclosure sale ii. The power of sale, in which the property is sold by the mortgagee or some other third party (a trustee with a power of sale, for instance) 4. Theory of the mortgage a. Title theory of mortgage – holds that title is in the mortgagee (lender) until the mortgage is satisfied or foreclosed; thereupon reverting to the borrower (in satisfaction) or to the purchaser (at a foreclosure sale) (usually followed in eastern states) b. Lien theory of mortgage – holds that the mortgagor reserves title at all times, but the mortgagee has a valid lien as secutiry against the property until the mortgage is satisfied. Failure to satisfy the mortgage results in foreclosure (usually followed in states west of the Mississippi) Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 65/74 c. Intermediate theory of mortgage – holds that the right of possession is held by the mortgagor (borrower) until default; thereafter it is held by the mortgagee (followed in some eastern states) 5. Mortgage priorities – if there are multiple mortgages on the land a. Example: Suppose O owns a house subject to a mortgage to E1, in the amout of $200,000. O wants to borrow $50,000 so he arranges a loan from E2 and in return for the loan gives E2 a mortgage. E1’s mortgage is senior to E2’s because it occurred earlier in time (E2’s is junior). i. O defaults on the mortgage to E1, and E1 accelerates and forecloses and holds a sale. Suppose the house is worth $300,000 FMV. A purchaser at this sale will acquire the house in the condition it was at the instant before the mortgage was given to E1, e.g., clear of all mortgages. Therefore P should only pay (at most) $300,000 for the house. P receives title free of all mortgages; mortgages junior to E1’s are wiped out. All junior interests are wiped out (easements, etc.).  If P pays more than the amount of the senior mortgage ($200,000), excess will go to E2, excess of that will go to O.  If P pays more than the amount of the senior mortgage, but less than the sum of both mortgages, excess will go to E2. E2 will most likely get a deficiency judgment against O for the balance.  If P pays less than the amount of the senior mortgage, E1 will get a deficiency judgment against O for the balance, as will E2. E1’s claim is probably superior. ii. O defaults on the mortgage to E2, and E2 accelerates and forecloses and holds a sale. Suppose the house is worth $300,000 FMV. P will acquire the house in the condition it was at the instant before the mortgage was given to E2, e.g., subject to the mortgage from E1. Therefore P should only pay (at most) $100,000 (FMV minus balance on E1). P receives the title subject to any sernior mortgages.  If P pays more than the amount of the junior mortgage ($50,000), excess will go to O.  If P pays less than the amount of the junior mortgage, E2 will get a deficiency judgment against O for the balance. b. Purchaser at a foreclosure sale never incurs personal liability for any mortgages he purchases subject to (unless he agrees to). Personal liability remains with O. i. This means that if P defaults and the property is sold at another foreclosure sale, O is liable for any amount owing after the proceeds from the sale are applied to the mortgage debt, whether this happens a year or three decades later. ii. Likewise if P defaults and P2 buys at the sale, etc., to Px, none of the purchasers are ever personally liable; O remains personally liable. iii. Of course it is in P’s best interest to make mortgage payments if he buys subject to a mortgage, because he will lose the land if he defaults. c. Suppose the FMV of O’s house is worth less than the mortgage on it. Any junior mortgage is “under water” – usual remedy is for E2 to collect from O’s other assets. d. Because of the higher risk that E2 will have a tough time collecting money, interest rates on second mortgages are usually substantially higher than first mortgages. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 66/74 E. Deeds 1. Introduction – at closing, the most important thing that happens is that title is passed from the seller to the buyer by a deed (note that there is no such thing as “the” deed to land; there can be many deeds, and new ones can be drawn up on a bar napkin if necessary – once a deed is recorded, the paper representation of it can be discarded). 2. Requirements of a deed: a. Statute of Frauds requires that the deed be in writing (usually). i. Oral deeds, if the land is a gift, may be taken out of the SoF on part performance (Ex.: Grandmother orally gives property to grandson, who moves there and builds a house on the reliance that she means it.) ii. Forged deed: no interest passes with a forged deed iii. Deed procured by fraud or coercion: is invalid b. Grantor and grantee identified. c. Land described (legal description, street address, “My Farm” [good enough, if the grantor only has one farm]) d. Words indicating present intent to convey (“I hereby give …”) e. Signature of grantor – because he is bound. i. Grantee’s signature unnecessary – it is neither required nor customary that the grantee signs the deed. Grantee’s acceptance of the deed constitutes his agreement to be bound by the covenants ii. Spouse’s signature – if the spouse has rights in the property accruing from marriage (dower, curtesy, homestead, TbE, community property) f. Acknowledgement – sometimes required, but always a good idea i. By notary ii. By witnesses g. Consideration is not required for a deed to be valid, and it is not required or customary to list the true consideration or purchase price (if any) in the deed. It is customary to include a clause like “for ten dollars and other good and valuable consideration” to rebut any presumption that the purchaser is a donee, and hence is entitled to protection under the recording acts Chase Federal Savings and Loan Assoc. v. Schreiber, 898, Supreme Court of Florida, 1985 Facts: O conveyed her home to A by means of a quitclaim deed, containing the usual “ten dollars and other valuable consideration” but also contained “this quitclaim deed is being given with the consideration being love and affection.” O delivered the deed and A recorded, and subsequently sold the property to B for $50,000, who gave mortgage to Chase. O then brought an action to rescind to have the deed set aside on grounds that a deed not supported by valuable consideration is only good between parties related by blood or marriage and therefore the deed was invalid. Issue: Is a deed supported by “love and affection” valid, if the parties are not related by blood or marriage? Holding: (Boyd, C.J.) Yes. Florida statutes do not require consideration for a deed to be valid and besides, invalidating this deed for want of consideration would render any conveyancing to charity invalid as well. h. Delivery – deed must be delivered to the grantee for it to be valid. Delivery is usually presumed if i. Deed is handed to the grantee ii. Deed is acknowledged by a notary iii. Deed is recorded 3. Types of deeds – there are three types of deeds used in the U.S. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 67/74 a. A warranty deed (full warranty deed, general warranty deed) – normally contains all six of the “usual” covenants (infra). Warrants title against defects arising before as well as during the time the grantor had title. b. A special warranty deed (limited warranty deed, grant deed) – also normally contains all six of the usual covenants, but warrants the title against defects arising during the grantor’s tenure, and not against defects arising prior to that time. c. A quitclaim deed – warrants nothing; merely conveys whatever right, interest, and title Iif any) the grantor has. F. Title Assurance 1. Title Warranties: a. Covenants for title in warranty deeds i. Covenant of seisin – grantor warrants that he owns the estate or interest he purports to convey (present covenant) ii. Covenant against encumbrances – grantor warrants against and third-party claims against the estate or interest conveyed (mortgages, liens, leases, easements, etc. – see list supra in C-2) (present covenant)  Phrase “subject to easements and restrictions of record” is used as exception to this covenant, indicates that buyer already knows of these encumbrances and is accepting them iii. Covenant of right to convey – grantor warrants he has the power to convey the land (if owned by himself or grantor in trustee on behalf of the owner) (present covenant) iv. Covenant of warranty – grantor warrants that he will defend on behalf of the grantee any layful claims exsiting at the date of conveyance and compensate grantee for loss sustained by assertion of superior title (for practical purposes, this does the same thing as the cov’t of quiet enjoyment) (future covenant) v. Covenant of quiet enjoyment – grantor warrants that the gantee will not be disturbed in possession or enjoyment of property by a third party’s assertion of superior title (future covenant) vi. Covenant of further assurances – grantor warrants to perform whatever acts are reasonably necessary to perfect the purchaser’s title if it turns out to be imperfect (future covenant)  This covenant is not required and is only sometimes included  This is the only covenant enforceable by specific performance b. Breach of covenants (refer to COVT-1 handout) i. Merger of contract into deed – acceptance of the deed releases seller from any promises made in the E$K. Promises “merge” into the deed. Once the deed is accepted, the buyer can sue only on breached of the covenants listed in the deed.  If title is unmarketable for some reason, buyer can rescind, get earnest money back, and unwind the deal – or sue on the contract for damages (lossof-bargain = K price minus FMV)  English Rule: not fair to impose dmages on seller when the reason seller is in breach is because title is unmarketable; buyer only gets loss-ofbargain when seller is in bad faith (when seller refuses to convey)  American Rule (majority): buyer gets loss-of-bargain damages even when seller is on good faith, because seller should know if title is unmarketable before he signs an E$K Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 68/74 Deal cannot be rescinded once the deed is delivered because of unmarketable title. Suing for misrepresentation is allowed, but not based on deficiencies ii. Breach of present covenants:  If these covenants (seisin, encumbrances, right to convey) are breached, they are done so when they are made, rendering the title defective upon delivery  What constitutes breach?  Seisin – if the grantor does not have what he purports to convey, or does not have all of what he purports to convey  Encumbrances – if there is an encumbrance on the land (an existing lease, for example). Must be a valid encumbrance, one running with the land (if the “lease” turns out merely to be a license).  Right to convey – if the grantor is not a valid agent of the owner  Remedies for breach?  Damages – principle is to put the plaintiff in as good a position as he would have been had the breach not occurred  Seisin – grantee entitled to receive up to the full purchase price. If grantee recovers, must reconvey possessory interest to the covenantor. If partial breach (if grantor did not own all of the he purported to convey), recovery is limited to proportional amount of the FMV of the whole  Hillboro Cove, Inc. v. Archibald, 968, District Court of Appeal of Florida, 1975 Facts: O conveyed parcel 1 to A, then conveyed parcel 2 to B. It was later found that A was actually the owner of a 30’ strip of land included in the conveyance to B. B paid A for the 30’ strip and sued O. Issue: Did the court error in awarding B only the proportional value of parcel 1? Holding: (Woodson, A.J.) No, the measure of damages is such fractional part of the whole consideration paid as the value at the time of purchase of the part to which the title failed, with interest. Encumbrances – grantee recovers the difference between FMV with the encumbrance and FMV without the encumbrance  Statute of limitations limits the amount of time during which the grantee can bring suit on a breach of a present covenant  Only the immediate grantor can be sued by the grantee for breach of present covenants (A  B  C; C can only sue B on present cov’ts) iii. Breach of future covenants:  If these covenants are breached (quiet enjoyment, warranty, further assurances), it is not until the grantee is actually or constructively evicted  What constitutes breach?  A covenant of quiet enjoyment or warranty is not breached until the grantee is disturbed or evicted. The mere presence of a superior title does not constitute a breach if the grantee is not disturbed  Brown v. Lober, 964, Supreme Court of Illinois, 1979 Facts: O conveyed land to A by warranty deed, and A discovered after accepting the deed that B had a claim of superior title in the coal rights of the land, and brought suit against O for breach of covenant of quiet enjoyment. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 69/74 Issue: Does superior title in land held by a third party constitute a breach of the grantor’s covenant of quiet enjoyment? Holding: No, without actual or constructive ouster or eviction, the mere presence of superior interest in land does not constitute a breach of a future covenant.   Eviction occurs if  Paramount title holder obtains decree of ejectment against grantee  Paramount title holder threatens grantee with eviction  Grantee buys paramount title to prevent being evicted  Grantee surrenders claim to holder of paramount title  Outstanding floating easement  Grantee paying off an existing mortgage  Any interference with grantee’s use, basically Remedies for breach?  Damages – cap is amount received for the property or the actual damages, whichever is less  Specific performance – if the breach is of the covenent of further assurances  Statute of limitations starts to run once there is an eviction  Grantor may sue remote grantees – typically want to go after the one who received the most amount of money for the property (Ex.: O  A for $10K, A  B for $5K. B is evicted. B may sue A for $5K maximum, but may sue O for $10K maximum, so long as both O and A warranted against future eviction).  Estoppel by deed: A purports to convey to B but at the time of conveyance A really has no title. B gets nothing except a claim against A on the covenants of title. If A acquires title at a later date, title passes instantly to B. A is estopped to deny that title has passed. 2. The Recording Acts: a. Deal with protecting grantees who record their deeds against prior unrecorded interests. b. Common law default rule: “first in time = first in right” (Ex.: O A as gift, then O  B by sale. A has better title; B is not protected. Once O conveys to A, he has nothing to convey to B.) i. Purpose of Recording Acts is to protect B against prior unrecorded interests in the land. ii. Recording of a deed is not necessary, but the law provides incentive to do so to protect against someone else usurping title iii. Note that if prior taker (A) records before subsequent party (B) takes, A trumps B every time! Recording acts only have to do with prior unrecorded takers. c. Types of Recording Acts i. Race statutes (race to the registry): whoever wins the race to record prevails over persons who subsequently record or who do not record. (“No conveyance or mortgage of an interest in land is valid against any subsequent purchaser whose conveyance is first recorded.”)  Louisiana – strict race statute: he who records first wins Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 70/74 North Carolina and Delaware – he who records first, and pays value, wins. If B is the recipient of a gift, he loses even though he may record first, if A has paid value. ii. Notice statutes, prevalent in about half the states. In order for a buyer B to prevail, B must be a bona fide purchaser (BFP). A corollary is that if B is a BFP, he needs never record (although he has incentive to record to prevent another BFP, C, from recording and taking title). (“No conveyance or mortgage of an interest in land is valid against any subsequent purchaser for value without notice thereof, unless it is recorded.”) BFP means that  B must pay value, and  B must take without notice of any other previous takers (actual or constructive notice) iii. Race-Notice statutes, prevalent in about half the states (including California!). (“No conveyance or mortgage of an interest in land is valid against any subsequent purchaser for value without notice thereof whose conveyance is first recorded.”) In order for a buyer B to prevail, B must  Be a BFP, and  Must record before A (or any other BFPs) d. Definitions: i. Paying value: usually a question for the jury if litigation arises. Basically anything paid, if more than a nomical sum, is paying value. Does not mean FMV. ii. Notice:  In 44 or the 47 states that require notice, B may not have constructive notice of a prior unrecorded claim if he is to be considered a BFP. (Ex.: B takes subject to a lease. If T is in possession of the premises under the terms of the lease, B is deemed to be on constructive notice. Possession is a “recording substitute”.)  In the other 3 states, knowledge must be actual. If a buyer has actual notice or actual knowledge of a prior unrecorded claim, he is not a BFP. e. Interests and conveyances outside the Acts – certain prior interests that cannot be replaced by the recording acts, which we are deemed to have constructive notice of: i. Adverse possessors, ii. Holders of prescriptive easements (adverse users), iii. Holders of implied easements, iv. Short-term leases (for less than one year), v. Governmental transfers, vi. Marital rights (dower, curtesy, etc,), vii. Mechanic’s liens – when someone works on your home and does not get paid, they get a mechanic’s lien. Mechanic’s liens have a high priority in public policy. Can be tricky to get yourself off the hook – need to pay general contractor, but there’s often no guarantee (unless specifically requested) that the general contractor proves that he has paid all of the sub-conctractors. Safest way is to get lien waivers from all of the sub-contractors working on an improvement.  Exceptions: some states have single-family dwelling exceptions, and some states have statutes whereby the subs are deemed to have been paid if the general has been paid. Minority positions. Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 71/74  Life of a mechanic’s lien:  Date of last work (on a residence or any premises), followed by a 4-6 month period during which the owner pays the general and the general pays the subs. If this is not done,  Worker files a lien claim, which is recorded and discovered by anyone searching the title. Before this period, it is not a lien yet. After filing it is “ready to pounce” if the worker is not paid.  Generally a one-year period between filing of a lien claim before the date of foreclosure, at which time owner loses title. A lien claim, once filed, clouds the title until it is paid or released.  If there is a closing before a lien claim is filed, beware (buyer can insist on title insurance covering against unrecorded lien claims)  New house (no improvement work done): liens date back to the date of first visible improvement. f. Who is protected by the recording acts? i. Purchasers ii. Lessees iii. Spouses iv. Subsequent easment takers v. Basically anyone who is deeded an interest in land vi. Mortgagees and lenders  O  mortgage to E1 (unrecorded by E1), then O  mortgage to E2, who records  E2 is protected as a BFP if he  Takes without notice, and  Pays value – which he does by loaning money to O  If E2 records first, basically switches priorities of the two mortgages – E1 is now junior to E2 (and is capable of being defeated in terms of priority; E2 foreclosing wipes out E1)  Any actions taken by E1 subsequent to E2’s recording are irrelevant vii. Creditors ???  O  mortgage to E1 (unrecorded by E1), then O borrows money from L2, a creditor. L2 approaches O later and wants security for the loan and O agrees to give him a mortgage (making L2 into E2). E2 then records.  L2 is protected as a BFP if he  Takes without notice, and  Pays value:  But in this case no value was paid, since the debt is antecedent to the mortgage. L2 did not pay value, therefore L2 is not a BFP and is therefore not protected by the recording acts  In a case where O asks for an extension and L2 asks for a mortgage in return, L2 did pay new value and is therefore a BFP and protected. If L2 gets anything new, or meaningful worth, he is deemed to have paid value and is therefore a BFP.  If L2 is a BFP and records first, the mortgage becomes senior to E1’s. Any actions taken by E1 after L2’s recording are irrelevant viii. Judgment lienors ??? Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 72/74     Assume an unrecorded mortgage to E1, and O defaulting on a credit card debt. Creditor litigates and obtains judgment lien against O, and records.  About half of the states shaft the judgment lienor (JL)  Other half (including California) deem the JL as protected by the recording acts as a BFP (if he takes without notice). The JL pays value by expending court costs to litigate the matter. If JL is a BFP and records first, the lien becomes senior to E1’s mortgage. Any actions taken by E1 after JL’s recording are irrelevant Note that if JL is not a BFO, but records first and forecloses, and a purchaser P who buys at the foreclosure buys without notice of E1’s mortgae (if still unrecorded) can be deemed a BFP and therefore might wipe out E1 if P records the deed expediently. 3. The Torrens System: a. A title registration system available in 11 states, whereby property is brought into the system via a process much like a quiet title action. Notice is sent to persons having an apparent claim, and a hearing is held. If regsitrant’s claim is sound, he pays a substantial fee and the land is registered. b. All transactions affecting land are thereafter recorded on the registry’s copy of the certificate of title, or they are not binding. “Memorials” are added (like an easement granted) or deleted (like a mortgage being paid off). New certificates are made up every time a memorial is changed. c. Advantages i. Anyone can determine state of the title by looking at the certificate of title ii. Transactions are quick and easy to record iii. No historical search is necessary when ascertaining the integrity of the title d. Disadvantages i. Numerous statutory exceptions, so certificate is not really the complete statement of the title ii. Mistakes; Torrens registry has limited liability. Fees are paid into the Torrens fund. This fund is the limit of recovery. e. Where available, the Torrens system is not required 4. Title Insurance: a. In general – the predominant method of assuring real estate in the U.S. Not required to get a title insurance policy, just customary to do so. b. Two types of title insurance: i. For the buyer ii. For the lender (more coverage, generally, than a buyer’s policy – because a lender typically has more at stake) c. How it works i. Title insurers obtain title searches and examinations before issuing policies  “All-inclusive” method: company does research and releases a preliminary report to the buyer which shows the matter disclosed by the search and lists them as exceptions  Approved attorney writes a title opinion and this is given to the buyer ii. Premium for the policy is paid  One-time premium Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 73/74  Seller customarily pays for buyer’s premium  Buyer customarily pays for the lender’s premium d. The buyer’s insurance policy (refer to form on p. 1006) i. What is covered  Risk that someone else owns an interest  Forgery, defects, etc. (Attorney’s title opinion generally would not cover these)  Risk of landlocked land  Risk of restrictive cov’ts and liens (unrecorded)  Leases and easements  Risk that title is unmarketable  Encroachments (might not cover encroachments on the property over onto neighbor’s property)  Insures the buyer’s use of the house for the intended residential purpose  “Other defects”  Sometimes, protection against inflation (increases maximum amount of coverage of the policy) ii. Exceptions  Any defects found on the title search known to the insurance company; specific defects of the land (like the existing mortgage) iii. Exclusions  Governmental action (like condemnation)  Risks created by the buyer, or known to the buyer but not to the insurance company  Failure to pay value  Lack of right to any other land (protects against being landlocked, but typically will not protect choice of multiple possible passways) iv. Conditions  Definitions  Continuation of the policy – generally extends as long as buyer (insured) owns title, etc., protects anyone who inherits land from insured  How to make a claim  Choices when insured makes a claim  Payment of claim  Settlement of claim  Litigation of claim  Payment to insured of amount listed in policy  Cancellation of the policy and payment of buyer e. The lender’s insurance policy (refer to p. 1012). The basic differences are i. Lender’s policies provide more comprehensive coverage, and ii. Lender’s policies are assignable Timothy M. Whalen PropertyOUTLINE – Nelson, Fall 2000 page 74/74