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There are several different ways a party can own an interest in real property. There are possessory types of interests and non-possessory types of interests. This lesson explains the main types of real property ownership.
When we talk about ownership interests in real property, we're actually talking about many different types of ownership. Ownership interests come in various forms and, depending on the type of interest, a landowner's rights may be limited. Let's start by exploring some of the possessory interests possible when owning land. A possessory interest is the intent and right of a party to occupy or exercise control over a particular plot of land. This is the type of ownership most of us think about when we think about land ownership. There are three main types of possessory interests: fee simple absolute, life estate, and leasehold. Let's start with the greatest possible interest in land.
Fee Simple Absolute
A fee simple absolute is an ownership interest that includes all rights in the land. Just as the name suggests, this type of estate represents absolute ownership of the land. A fee simple absolute owner may do whatever he or she chooses with the land. The owner can use the land, destroy the land, give the land to someone else, and take items from the land. The landowner is limited only by zoning and building codes or other governmental restrictions.
The landowner can deed or will the entire fee simple estate to another person. This means that, should the landowner die without a will, the fee simple absolute ownership will automatically pass to the owner's heirs. Sometimes, a fee simple interest isn't absolute. There are times when a fee simple interest is granted, but the interest comes with certain conditions. These are known as conditional estates. Let's look at two examples.
A fee simple determinable is an ownership interest that automatically ends when a specified event occurs. For example, let's say that I grant my farm to a local agricultural college. My deed says that I grant my land to the university 'as long as it is used for educational purposes.' This means that, if the university stops using the land for educational purposes, the grant automatically ceases, and I own the land again. Or, if I'm deceased, my heirs will own the land.
This is similar to a fee simple subject to a condition subsequent. In this type of ownership interest, a landowner may reclaim the land if a specified event occurs. Notice that, unlike the fee simple determinable, the ownership interest doesn't automatically terminate. For example, let's say that I grant my land to the university, but specify that 'if corn ceases to be grown on the land, I can reclaim the land.' So, if the university decides not to grow corn, I can reclaim the land, or my heirs may reclaim the land if I'm deceased.
Let's turn to another form of possessory interest. A life estate is a land interest that expires upon the death of a specified person. For example, let's say that I grant my land as a life estate to my stepsister Susie. This means that Susie can occupy, possess, and enjoy the property during her lifetime, just as if it were a fee simple. However, Susie's ownership interest in the land will automatically stop upon her death. Rather than passing to her heirs, the land will pass back to me. Or, if I'm deceased, the land will pass to my heirs. Susie can't will the property to another person.
Life estates aren't common, but this type of interest can be helpful for estate planning purposes. Let's say that I'm married to Marvin. I want Marvin to be able to live on and enjoy my land after my death, so I grant him a life estate. However, after Marvin's death, I want my land to go to my heirs, rather than Marvin's heirs. The life estate assures that the land will revert to me, or to my heirs, upon Marvin's death. If I granted Marvin a fee simple, then the land would go to Marvin's heirs upon Marvin's death.
The last type of possessory interest is called a leasehold estate. A leasehold, or lease, is an interest in real property that grants possession for a particular duration. The lease can last for one year, can last for many years, can be week-to-week, or can be month-to-month. The duration doesn't matter, as long as it's specified in some way. A leasehold doesn't grant actual title to the land. Therefore, the lease owner can't will the property to someone else. Rather than a deed or title, the lease owner will have a lease agreement that dictates the rights and obligations of both the lease owner and the property owner. The lease will terminate and the property owner will regain all rights if one or both parties violate a term of the lease agreement.
Leases are quite common. There are four main types of leases:
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Estate for years. In this type of lease, the duration of the lease is specified as a certain period using calendar time. The lease both starts and ends on a particular date, as set out by the property owner.
Periodic tenancy. In this type of lease, the exact duration of the entire lease isn't specified, though the lease is for a definite period of time that automatically renews. These leases usually run month-to-month or week-to-week until either the lease owner or the property owner gives notice of termination.
Tenancy at will. In this type of lease, either party can terminate the lease at any time and for any reason, though most states require that notice of termination be given to the other party. The lease start date is specified but the end date is indeterminate.
Tenancy at sufferance. In this type of lease, a specified lease date has expired, but the tenant remains on the property. This type of leasehold begins as an estate for years, but then converts into a periodic tenancy. For example, I lease an apartment through January 1, but I fail to find another apartment by January 2. So, I remain in my current apartment and my lease converts to a month-to-month until I either sign a new lease with my current landlord or I terminate the lease by giving notice and moving out.
Now, let's take a look at a non-possessory interest. A non-possessory interest is an interest in real estate that doesn't include a current right to possess the land. There are several different types of non-possessory interests in real property.
One type of non-possessory interest is known as a future interest. As the name suggests, this type of interest is a legal right to receive full ownership of a property at some point in the future. The future interest becomes a current interest on a particular date or upon the occurrence of some event. For example, let's say that my will leaves my land to my stepsister Susie, but only after the death of my husband, Marvin. Susie holds a future interest in my land. She'll receive full ownership, but doesn't hold a current right to possess my land.
Sometimes, people use future interests for tax reasons. For example, let's say that I donate my land to the university, but with the condition that I'll continue to use the land for the rest of my life. I have a life estate in the land, and I can now claim a charitable tax deduction for my donation of the land, even though the university won't possess the land until my death.
There are several other types of non-possessory interests in real property. Remember that a non-possessory interest is an interest in real property that doesn't include a current right to possess the land. Instead, a non-possessory interest includes the right of one person to use land that belongs to another person. A non-possessory interest holder doesn't have title to the land. The true property owner continues to fully own the land. There are three main types of non-possessory interests:
The first is an easement. This type of interest means that one party has the limited right to use another party's land. For example, my neighbor might have an easement to use my private road, which runs across my land, in order to access her parcel of land.
The second is a profit. This type of interest means that one party has a possessory interest in some aspect of another party's land. For example, let's say that my neighbor is a profit holder of the corn crops on my land. She may access my land and take the corn, even though she doesn't have title to my land.
The third is a license. This type of interest means that one party has the right to access another party's land for a specific purpose. For example, let's say that my brother has a hunting license on my land. This means that he can access my land and hunt on it, even though he doesn't have title to my land.
Let's review. When we talk about ownership interests in real property, we're actually talking about many different types of ownership. Ownership interests can be possessory or non-possessory interests. A possessory interest is the intent and right of a party to occupy or exercise control over a particular plot of land. A non-possessory interest doesn't include a current right to possess the land. Some common possessory interests include fee simple absolute, life estate, and leasehold. Some common non-possessory interests include future interests, easements, profits, and licenses. It's important to know which type of ownership interest a party has because the type of ownership interest dictates the rights of the owner.
At the end of this lesson, you'll have the ability to:
Differentiate between possessory interests and non-possessory interests
Describe the three types of possessory interests
Compare and contrast fee simple absolute, fee simple determinable, and fee simple subject to a condition subsequent ownership interests
Explain the four types of leases
Define future interest
Summarize the three main types of non-possessory interests
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