In part 1 of this series on real estate ownership and transfer, we had left off with a discussion of the types of freehold interests one has with regards to his or her ownership interest in property. The last type of fee simple we had discussed was the Fee simple determinable: a conveyance that creates a fee simple but also contains a limitation providing that the fee SHALL AUTOMATICALLY EXPIRE upon the occurrence of a stated event.
In this case, the Grantor retains a future interest (Possibility of reverter (to O)). In short, the rule to remember here is that a defeasible fee is less than fee simple absolutes, and require an heir to take ownership of the property subject to the stated conditions. The heir (3rd party grantee) will maintain a future interest in the property prior to acquiring conditional ownership. Therefore, there is the possibility of executory interest, but not a remainder (Remainders NEVER can follow any fee simple)
As previously discussed, there are 3 sub-types of defeasible fee simple interests: fee simple determinable, fee simple subject to condition precedent, and fee simple subject to executory limitation.
With a fee simple subject to condition subsequent the happening of a certain event triggers the grantor the right to enter and terminate the estate. This is different from a fee simple determinable, where the interest automatically expires. With a fee simple subject to condition subsequent, the Grantee’s estate does not automatically expire when the event occurs; in this situation, the grantor must take affirmative steps to take back possession. The Grantor will typically have a future interest, usually in the form of a possibility of re-entry (otherwise known as a power of termination). Also, as with the fee simple determinable, prior to receiving the ownership the grantee will have an executory interest in the property (future interest).
Example: From O –> B land, but if B uses land as a movie theater, O has a right of re-entry
Key words to identify: “provided, however” “but if” “on the condition that” “if, however”
The third type of defeasible simple is the fee simple subject to executory limitation- a fee simple that automatically expires when a stated event occurs, but gives the right to possession to a 3rd party transferee instead of having the property revert back to the grantor.
Example: Ownership in townhouse from O to B, but if B uses unlawful drugs, then to C. <–key difference
Key Language: “but if” + C (aka third party)
Let us break down this example- In this situation, B has a fee simple subject an executory limitation. B’s interest is cut short by C if B uses unlawful drugs. There isno act C can take or do to get interest in the property, it is solely for Bto screw his chances at the townhome by using unlawful drugs. With regards to the Grantor’s future interest, O has nothing if either B uses or not uses unlawful drugs- either way, the townhome does not have a possibility of reverter. However, C has an executory interest as it is a possibility that he or she may become owner of the townhome one day, even if the chances are small.
As you can see, there are many different subsections regarding how you can take title to property besides the most commonly known fee simple absolute (aka I was given/bought land and now it is mine- no conditions attached). The above limitations and conditions restricting property transfer and ownership come into play for estate planning, real estate sales, contracts between property owners, and more. If you are looking to add the above legal ideas to your next contract or transfer, call an attorney today to see how these constructs can benefit you, your family, or your business.