This article examines the entitlement to possession of real estate held by owners of different interests in a parcel of real estate.
A matter of possession
A parcel of real estate is located by circumscribing its legal description on the “face of the earth.” Based on the legal description, a surveyor locates and sets the corners and surface boundaries of the parcel.
The legal description is contained in deeds, subdivision maps or government surveys relating to the property.
However, a parcel of real estate is three dimensional, reaching beyond the surface boundaries. In addition to the surface area within the boundaries, real estate consists of the soil below the surface to the core of the earth as well as the air space above it to infinity.
All permanent structures, crops and timber within this inverse pyramid are also a part of the parcel of real estate.
A parcel of real estate is often mistakenly thought of as a plot of unimproved land. Also mistaken is the notion any improvements can be treated as personal property, unless they are to be removed from the land.
Real estate, sometimes legally called real property, consists of:
· the land;
· the improvements and fixtures attached to the land; and
· all rights incidental or belonging to the property. [Calif. Civil Code §658]
Real estate includes buildings, fences, trees, watercourses and easements within the parcel’s boundaries.
Anything below the surface, such as water and minerals, or above the surface in the air space, such as crops and timber, is part of the real estate.
The rental of a boat slip includes the water and the land below it, both of which comprise the real estate. Thus, landlord/tenant law controls the rental of the slip. [Smith v. Municipal Court of San Mateo County (1988) 202 CA3d 685]
In the case of a condominium unit, the air space enclosed within the walls is the real estate conveyed and held by the owner of the unit. The structure, land and air space outside the unit are the property of the homeowners’ association, creating what is called a common interest development (CID). [CC §1351(f)]
Possessing interests in real estate
The ownership interests a person may hold in real estate are called estates. Four kinds of estates exist in real estate:
· fee estates, also known as inheritance or perpetual estates;
· life estates;
· leasehold estates, sometimes called estates for years; and
· estates at will. [CC §761]
In practice, these estates are separated into three categories: fee simple estates, leasehold estates and life estates. Estates at will are part of the leasehold estates controlled by landlord/tenant law.
A life estate terminates on the death of the owner of the life estate or the death of another person named in the deed which conveys or reserves the life estate to the owner.
Leasehold interests in the real estate exist for a specific period of time. The interest will terminate when the period of time expires.
An estate at will, unlike a leasehold, is not conveyed in an exchange for value, called consideration or rent. Estates at will terminate at the discretion of the fee owner, subject to proper advance notice. Possession of real estate under leasehold interests and estates at will is controlled primarily by landlord/tenant law.
Fee ownership
A fee owner has the right to possess and control his property indefinitely. A fee owner’s possession is exclusive and absolute. Thus, the owner has the right to deny others permission to cross his boundaries. No one can be on the owner’s property without his consent, otherwise they are trespassing. The owner may recover any money losses caused by the trespass.
A fee owner has the exclusive right to use and enjoy the property. As long as local ordinances such as building codes and zoning regulations are obeyed, a fee owner may do as he pleases with his property. A fee owner may build new buildings, tear down old ones, plant trees and shrubs, grow crops or simply leave the property unattended.
A fee owner may occupy, sell, lease or encumber his parcel of real estate, give it away or pass it on to his heirs or to anyone he chooses on his death. The fee estate is the interest in real estate transferred in a real estate sales transaction, unless a lesser interest is noted.
A fee owner is entitled to the land’s surface and anything permanently located above or below it. [CC §829]
The ownership interests in one parcel may be separated into several fee interests. One person may own the mineral rights beneath the surface, another may own the surface rights, and yet another may own the rights to the air space. Each solely owned interest is held in fee in the same parcel.
Underground oil and gas reserves have a tendency to flow from one place to another. However, the right to extract oil and gas can be separately conveyed by the fee owner of the real estate. The drilling rights separated from the fee ownership are called profit a prendre. [Gerhard v. Stephens (1968) 68 C2d 864]
Profit a prendre is the right to remove profitable materials from property owned and possessed by another.
Consider a fee owner who grants separate fee interests in his property to two individuals. One individual receives the land’s surface and air space rights. The other individual receives the subsurface oil and mineral rights.
The surface owner claims the title to the entire parcel of real estate should be vested — quieted — in his name.
The subsurface owner objects, claiming the surface owner’s real estate interest is less than the entire fee estate in the property.
Here, the surface owner’s fee interest in the parcel of real estate is separate from the subsurface ownership and possession of the oil and mineral rights. Also, they are not co-owners of the real estate. Both owners hold an individual fee estate in mutually exclusive and divided portions of the same parcel. [In re Waltz (1925) 197 C 263]
In most cases, one or more individuals own the entire fee and lease the subsurface rights to others to remove underground oil or minerals. Thus, a fee owner can convey a leasehold interest in the oil and minerals while retaining the fee interest.
Life estates and the life tenant
A life estate is an interest in a parcel of real estate lasting the lifetime of the life tenant. Life estates are granted by a deed entered into by the fee owner, an executor under a will or by a trustee under an inter vivos trust.
Life estates are commonly established by a fee owner who wishes to provide a home or financial security for another person during that person’s lifetime, called the controlling life.
Life estates terminate on the death of the controlling life. Life estates may also be terminated by agreement or by merger of different ownership interests in the property.
For example, an owner of a vacation home has an elderly aunt who needs a place to live. The owner grants her a life estate in the vacation home for the duration of her lifetime. The aunt may live there for the rest of her life, even if she outlives the fee owner who granted her the life estate.
Although the aunt has the right to exclusive possession of the entire parcel of real estate, the owner retains title to the fee. Thus, the conveyance of a life estate transfers a right to possession which has been “carved out” of the fee, comparable to possession under a leasehold interest since it is conveyed out of a fee. Unlike a lease, a life estate does not require rent to be paid.
On the aunt’s death, possession of the property reverts to the fee owner, his successors or heirs since the right to possession under the life estate is extinguished on the aunt’s death.
The holder of a life estate based on his life has the right of possession until death, as if he were the owner in fee. The holder of a life estate is responsible for taxes, maintenance and a reasonable amount of property assessments. [CC §840]
However, the holder of a life estate may not impair the fee interest. [CC §818]
For instance, the holder of a life estate may not make alterations which decrease the property’s value, such as removing or failing to care for valuable plants or demolishing portions of the improvements or land.
Conversely, the owner of the life estate has the right to lease the property to others and collect and retain all rents produced by the property during the term of the life estate. Profit on the sale of the life estate can be taken in addition to rental income.
For example, a life estate tenant enters into a lease with a logging company allowing it to remove trees from the property.
The property value increases after the trees are removed since the property’s best use is as a farm. Additional crops can be planted on the cleared land, making the parcel more productive and able to generate greater rents.
The fee owner claims the life tenant did not have the right to remove the trees, which were improvements.
However, the life tenant did not injure the fee interest by diminishing its value, called impairment. The life estate tenant is entitled to the profits from selling any timber located on the parcel, provided the property’s value is not impaired by the removal of the trees. [Sallee v. Daneri (1942) 49 CA2d 324]
Also, a life tenant is entitled to be reimbursed by the fee owner for the fee owner’s share of the costs to improve the property.
For example, a city inspector notifies a life tenant the city will order the property demolished unless the property is renovated to bring it up to health and safety codes.
The life tenant has a duty, owed to the fee owner, not to impair the property’s value. Thus, the life tenant must prevent the demolition of the property.
To do so, the life tenant improves the property, satisfying code requirements and increasing the property’s value, all at considerable expense.
Here, the fee owner is liable to the life tenant for any increase in the value of the fee ownership in the property resulting from the improvements made by the life tenant. [Eastman v. Peterson (1968) 268 CA2d 169]
The rights of a life tenant as against a fee owner are quite different from those of a leasehold tenant against a fee owner (landlord).
Leasehold interests held by tenants
Leasehold interests are the result of rights conveyed to a tenant by a fee owner (or life estate tenant or master lessee) to possess a parcel of real estate. Leaseholds are created when the landlord and the tenant enter into a lease or a rental agreement that conveys a possessory interest in the real estate to the tenant.
The tenant becomes the owner of a leasehold with the right to possess and use the entire property until the lease expires. The title to the fee interest in the property remains with the landlord (or his successor) throughout the term of the leasehold, subject to the tenant’s right to possession, which is carved out of the fee on the fee owner’s entry into the lease agreement.
In exchange for the right to occupy and use the property, the landlord is entitled to rental income from the tenant during the period of the tenancy.
Types of leaseholds
Four types of leasehold interests exist and can be held by tenants. The interests are classified by the length of their term:
· a fixed-term tenancy, simply known as a lease and legally called an estate for years;
· a periodic tenancy, usually referred to as a rental;
· a tenancy-at-will; and
· a tenancy-at-sufferance, commonly called a holdover tenancy.
A fixed-term tenancy lasts for a specific length of time agreed to in a lease between a landlord and tenant.
On expiration of the lease, the tenant’s right to possession automatically terminates unless an agreement, such as an option which is exercised, extends the expiration date or renews or establishes an entirely new tenancy.
Periodic tenancies also last for a specific length of time, such as for a week or a month. However, in the creation of a periodic tenancy, the landlord and tenant agree to automatic successive rental periods of the same length of time, such as in a month-to-month tenancy.
A tenant-at-will has the right to possession of property with the consent of the owner. Tenancies-at-will can be terminated at any time by an advance notice from either party or as set by agreement. Tenancies-at-will do not have a fixed duration, are usually not in writing and a rent obligation generally does not exist.
A matter of possession
A parcel of real estate is located by circumscribing its legal description on the “face of the earth.” Based on the legal description, a surveyor locates and sets the corners and surface boundaries of the parcel.
The legal description is contained in deeds, subdivision maps or government surveys relating to the property.
However, a parcel of real estate is three dimensional, reaching beyond the surface boundaries. In addition to the surface area within the boundaries, real estate consists of the soil below the surface to the core of the earth as well as the air space above it to infinity.
All permanent structures, crops and timber within this inverse pyramid are also a part of the parcel of real estate.
A parcel of real estate is often mistakenly thought of as a plot of unimproved land. Also mistaken is the notion any improvements can be treated as personal property, unless they are to be removed from the land.
Real estate, sometimes legally called real property, consists of:
· the land;
· the improvements and fixtures attached to the land; and
· all rights incidental or belonging to the property. [Calif. Civil Code §658]
Real estate includes buildings, fences, trees, watercourses and easements within the parcel’s boundaries.
Anything below the surface, such as water and minerals, or above the surface in the air space, such as crops and timber, is part of the real estate.
The rental of a boat slip includes the water and the land below it, both of which comprise the real estate. Thus, landlord/tenant law controls the rental of the slip. [Smith v. Municipal Court of San Mateo County (1988) 202 CA3d 685]
In the case of a condominium unit, the air space enclosed within the walls is the real estate conveyed and held by the owner of the unit. The structure, land and air space outside the unit are the property of the homeowners’ association, creating what is called a common interest development (CID). [CC §1351(f)]
Possessing interests in real estate
The ownership interests a person may hold in real estate are called estates. Four kinds of estates exist in real estate:
· fee estates, also known as inheritance or perpetual estates;
· life estates;
· leasehold estates, sometimes called estates for years; and
· estates at will. [CC §761]
In practice, these estates are separated into three categories: fee simple estates, leasehold estates and life estates. Estates at will are part of the leasehold estates controlled by landlord/tenant law.
A life estate terminates on the death of the owner of the life estate or the death of another person named in the deed which conveys or reserves the life estate to the owner.
Leasehold interests in the real estate exist for a specific period of time. The interest will terminate when the period of time expires.
An estate at will, unlike a leasehold, is not conveyed in an exchange for value, called consideration or rent. Estates at will terminate at the discretion of the fee owner, subject to proper advance notice. Possession of real estate under leasehold interests and estates at will is controlled primarily by landlord/tenant law.
Fee ownership
A fee owner has the right to possess and control his property indefinitely. A fee owner’s possession is exclusive and absolute. Thus, the owner has the right to deny others permission to cross his boundaries. No one can be on the owner’s property without his consent, otherwise they are trespassing. The owner may recover any money losses caused by the trespass.
A fee owner has the exclusive right to use and enjoy the property. As long as local ordinances such as building codes and zoning regulations are obeyed, a fee owner may do as he pleases with his property. A fee owner may build new buildings, tear down old ones, plant trees and shrubs, grow crops or simply leave the property unattended.
A fee owner may occupy, sell, lease or encumber his parcel of real estate, give it away or pass it on to his heirs or to anyone he chooses on his death. The fee estate is the interest in real estate transferred in a real estate sales transaction, unless a lesser interest is noted.
A fee owner is entitled to the land’s surface and anything permanently located above or below it. [CC §829]
The ownership interests in one parcel may be separated into several fee interests. One person may own the mineral rights beneath the surface, another may own the surface rights, and yet another may own the rights to the air space. Each solely owned interest is held in fee in the same parcel.
Underground oil and gas reserves have a tendency to flow from one place to another. However, the right to extract oil and gas can be separately conveyed by the fee owner of the real estate. The drilling rights separated from the fee ownership are called profit a prendre. [Gerhard v. Stephens (1968) 68 C2d 864]
Profit a prendre is the right to remove profitable materials from property owned and possessed by another.
Consider a fee owner who grants separate fee interests in his property to two individuals. One individual receives the land’s surface and air space rights. The other individual receives the subsurface oil and mineral rights.
The surface owner claims the title to the entire parcel of real estate should be vested — quieted — in his name.
The subsurface owner objects, claiming the surface owner’s real estate interest is less than the entire fee estate in the property.
Here, the surface owner’s fee interest in the parcel of real estate is separate from the subsurface ownership and possession of the oil and mineral rights. Also, they are not co-owners of the real estate. Both owners hold an individual fee estate in mutually exclusive and divided portions of the same parcel. [In re Waltz (1925) 197 C 263]
In most cases, one or more individuals own the entire fee and lease the subsurface rights to others to remove underground oil or minerals. Thus, a fee owner can convey a leasehold interest in the oil and minerals while retaining the fee interest.
Life estates and the life tenant
A life estate is an interest in a parcel of real estate lasting the lifetime of the life tenant. Life estates are granted by a deed entered into by the fee owner, an executor under a will or by a trustee under an inter vivos trust.
Life estates are commonly established by a fee owner who wishes to provide a home or financial security for another person during that person’s lifetime, called the controlling life.
Life estates terminate on the death of the controlling life. Life estates may also be terminated by agreement or by merger of different ownership interests in the property.
For example, an owner of a vacation home has an elderly aunt who needs a place to live. The owner grants her a life estate in the vacation home for the duration of her lifetime. The aunt may live there for the rest of her life, even if she outlives the fee owner who granted her the life estate.
Although the aunt has the right to exclusive possession of the entire parcel of real estate, the owner retains title to the fee. Thus, the conveyance of a life estate transfers a right to possession which has been “carved out” of the fee, comparable to possession under a leasehold interest since it is conveyed out of a fee. Unlike a lease, a life estate does not require rent to be paid.
On the aunt’s death, possession of the property reverts to the fee owner, his successors or heirs since the right to possession under the life estate is extinguished on the aunt’s death.
The holder of a life estate based on his life has the right of possession until death, as if he were the owner in fee. The holder of a life estate is responsible for taxes, maintenance and a reasonable amount of property assessments. [CC §840]
However, the holder of a life estate may not impair the fee interest. [CC §818]
For instance, the holder of a life estate may not make alterations which decrease the property’s value, such as removing or failing to care for valuable plants or demolishing portions of the improvements or land.
Conversely, the owner of the life estate has the right to lease the property to others and collect and retain all rents produced by the property during the term of the life estate. Profit on the sale of the life estate can be taken in addition to rental income.
For example, a life estate tenant enters into a lease with a logging company allowing it to remove trees from the property.
The property value increases after the trees are removed since the property’s best use is as a farm. Additional crops can be planted on the cleared land, making the parcel more productive and able to generate greater rents.
The fee owner claims the life tenant did not have the right to remove the trees, which were improvements.
However, the life tenant did not injure the fee interest by diminishing its value, called impairment. The life estate tenant is entitled to the profits from selling any timber located on the parcel, provided the property’s value is not impaired by the removal of the trees. [Sallee v. Daneri (1942) 49 CA2d 324]
Also, a life tenant is entitled to be reimbursed by the fee owner for the fee owner’s share of the costs to improve the property.
For example, a city inspector notifies a life tenant the city will order the property demolished unless the property is renovated to bring it up to health and safety codes.
The life tenant has a duty, owed to the fee owner, not to impair the property’s value. Thus, the life tenant must prevent the demolition of the property.
To do so, the life tenant improves the property, satisfying code requirements and increasing the property’s value, all at considerable expense.
Here, the fee owner is liable to the life tenant for any increase in the value of the fee ownership in the property resulting from the improvements made by the life tenant. [Eastman v. Peterson (1968) 268 CA2d 169]
The rights of a life tenant as against a fee owner are quite different from those of a leasehold tenant against a fee owner (landlord).
Leasehold interests held by tenants
Leasehold interests are the result of rights conveyed to a tenant by a fee owner (or life estate tenant or master lessee) to possess a parcel of real estate. Leaseholds are created when the landlord and the tenant enter into a lease or a rental agreement that conveys a possessory interest in the real estate to the tenant.
The tenant becomes the owner of a leasehold with the right to possess and use the entire property until the lease expires. The title to the fee interest in the property remains with the landlord (or his successor) throughout the term of the leasehold, subject to the tenant’s right to possession, which is carved out of the fee on the fee owner’s entry into the lease agreement.
In exchange for the right to occupy and use the property, the landlord is entitled to rental income from the tenant during the period of the tenancy.
Types of leaseholds
Four types of leasehold interests exist and can be held by tenants. The interests are classified by the length of their term:
· a fixed-term tenancy, simply known as a lease and legally called an estate for years;
· a periodic tenancy, usually referred to as a rental;
· a tenancy-at-will; and
· a tenancy-at-sufferance, commonly called a holdover tenancy.
A fixed-term tenancy lasts for a specific length of time agreed to in a lease between a landlord and tenant.
On expiration of the lease, the tenant’s right to possession automatically terminates unless an agreement, such as an option which is exercised, extends the expiration date or renews or establishes an entirely new tenancy.
Periodic tenancies also last for a specific length of time, such as for a week or a month. However, in the creation of a periodic tenancy, the landlord and tenant agree to automatic successive rental periods of the same length of time, such as in a month-to-month tenancy.
A tenant-at-will has the right to possession of property with the consent of the owner. Tenancies-at-will can be terminated at any time by an advance notice from either party or as set by agreement. Tenancies-at-will do not have a fixed duration, are usually not in writing and a rent obligation generally does not exist.
Leaseholds conveying special uses
In addition to the typical residential and nonresidential leases, leases exist which serve special purposes.
Oil, gas, water and mineral leases convey the right to use mineral deposits below the earth’s surface.
The purpose of an oil lease is to discover and produce oil or gas. The lease is a tool used by the property owner to develop and realize the wealth of his land. The tenant provides the money and machinery for exploration and development.
The tenant pays the landlord rent, called a royalty, and keeps any profits from the sale of oil or minerals he extracts from beneath the surface of the parcel.
A ground lease on a parcel of real estate is granted to a tenant in exchange for the payment of rent. Rent is based on the rental value of the portion of the parcel called land, whether the parcel is vacant or improved. The lease is a financing tool for fee owners of vacant, unimproved land to induce others in acquiring an interest in the property and developing the property.
Ground leases are common in more densely populated areas. Developers often need financial assistance from owners to avoid massive cash outlay to acquire unimproved parcels. Also, owners of developable property often refuse to sell, choosing to become landlords for the long-term rental income they will receive.
An original tenant under a ground lease constructs his own improvements. Typically, the tenant encumbers his ground lease with a trust deed lien to provide security for a construction loan.
Master leases benefit owners who want the financial advantages of renting fully improved property, but do not want the day-to-day obligations and risks of managing the property.
For instance, an owner of a shopping center and a prospective owner-operator agree to a master lease.
As the master tenant, the owner-operator will collect rent from the many subtenants, address their needs and concerns and maintain the property. The master tenant is responsible for the rent due the landlord under the master lease, even if the subtenants do not pay their rents to the master tenant.
The master lease is sometimes called a sandwich lease since the master tenant is “sandwiched” between the fee owner (the landlord on the master lease) and the many subtenants with their possession under subleases.
The master lease is a regular, nonresidential lease agreement form with the deletion of any clause prohibiting assignments and subletting. A sublease is also a regular, nonresidential lease agreement with an additional clause referencing the attached master lease and declaring the sublease subject to the terms of the master lease. [See first tuesday Form 552]
Another type of special-use lease is the farm lease, sometimes called cropping agreements or grazing leaes. Here, the tenant operates the farm and pays the landlord either a flat fee for rent or a percentage of the value of the crops or livestock produced on the land.
In addition to the typical residential and nonresidential leases, leases exist which serve special purposes.
Oil, gas, water and mineral leases convey the right to use mineral deposits below the earth’s surface.
The purpose of an oil lease is to discover and produce oil or gas. The lease is a tool used by the property owner to develop and realize the wealth of his land. The tenant provides the money and machinery for exploration and development.
The tenant pays the landlord rent, called a royalty, and keeps any profits from the sale of oil or minerals he extracts from beneath the surface of the parcel.
A ground lease on a parcel of real estate is granted to a tenant in exchange for the payment of rent. Rent is based on the rental value of the portion of the parcel called land, whether the parcel is vacant or improved. The lease is a financing tool for fee owners of vacant, unimproved land to induce others in acquiring an interest in the property and developing the property.
Ground leases are common in more densely populated areas. Developers often need financial assistance from owners to avoid massive cash outlay to acquire unimproved parcels. Also, owners of developable property often refuse to sell, choosing to become landlords for the long-term rental income they will receive.
An original tenant under a ground lease constructs his own improvements. Typically, the tenant encumbers his ground lease with a trust deed lien to provide security for a construction loan.
Master leases benefit owners who want the financial advantages of renting fully improved property, but do not want the day-to-day obligations and risks of managing the property.
For instance, an owner of a shopping center and a prospective owner-operator agree to a master lease.
As the master tenant, the owner-operator will collect rent from the many subtenants, address their needs and concerns and maintain the property. The master tenant is responsible for the rent due the landlord under the master lease, even if the subtenants do not pay their rents to the master tenant.
The master lease is sometimes called a sandwich lease since the master tenant is “sandwiched” between the fee owner (the landlord on the master lease) and the many subtenants with their possession under subleases.
The master lease is a regular, nonresidential lease agreement form with the deletion of any clause prohibiting assignments and subletting. A sublease is also a regular, nonresidential lease agreement with an additional clause referencing the attached master lease and declaring the sublease subject to the terms of the master lease. [See first tuesday Form 552]
Another type of special-use lease is the farm lease, sometimes called cropping agreements or grazing leaes. Here, the tenant operates the farm and pays the landlord either a flat fee for rent or a percentage of the value of the crops or livestock produced on the land.
