Estates and Future Interests

Marketable title act does not prevent enforcement of reversionary interest in the root of title

/ Estates and Future Interests, Real Estate Transactions

The Ohio Supreme Court ruled that a reversionary interest in a deed donating a park to the city was not extinguished by operation of the state marketable title act. Cleveland Botanical Garden v. Worthington Drewien, 2022 Ohio LEXIS 2153 (Ohio 2022). When the park was donated to the city of Cleveland, it contained a possibility of reverter that would be activated if the city ever stopped using the property for public park purposes. The deed required the park to be “open at all times to the public” and to be used only for “park” purposes. The heir complained when the city’s lessee closed the park on Mondays, began charging admission to enter the park, and constructed and operated a parking garage on part of the property. The court first determined that the terms of the conveyance had not been violated because the city (and its lessee) had the power to create …

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Texas Supreme Court interprets life estate as a fee simple because the remainders were subject to divestment

/ Concurrent or Common Ownership, Estates and Future Interests, Real Estate Transactions, Wills and Inheritance

In Jordan v. Parker, 2022 WL 17998227 (Tex. Dec. 30, 2022), the Texas Supreme Court held that a conveyance of a life estate actually conveyed a fee simple since the remainders were subject to alteration or even complete divestment by the life estate owner. In this case, a man devised his entire estate to his widow for life with remainders in their children, but the devise gave the widow complete power to transfer both the life estate property and to redirect ownership of the remainders. Part of the estate was a fractional ownership interest in a ranch. Some years later, while the widow was still alive, a son who was a remainder owner conveyed his remainder interest to his daughters (the granddaughters of the widow and the testator). The widow never exercised her power to alter the remainders in her children during her lifetime, and the question was whether the widow …

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Commercial rent acceleration clause invalid if it is a “penalty”

/ Estates and Future Interests, Leaseholds, Real Estate Transactions

The Massachusetts courts say that there is no duty to mitigate damages in commercial leases but they sure look like they recognize such a duty when a lease has an acceleration clause (requiring the full remaining rent for the rest of the lease to be paid if rent payments are missed). In the case of Cummings Props., LLC v. Hines, 2022 WL 17409280 (Mass. App. Ct. 2022), a commercial tenant defaulted only two months into a five-year lease and the landlord demanded the tenant pay the full rent for the rest of them five-year lease term in accodance with an acceleration clause in the lease that required this. The rent was $1364.50 per month and the damages would have been $74,000. The court recognized that acceleration clauses were valid and enforceable but applied ordinary contract doctrine that enforces liquidated damages (damage amounts set in contracts) only if they are a reasonable …

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100 year fixed-price option to purchase land is an invalid and unreasonable restraint on alienation

/ Estates and Future Interests, Real Estate Transactions, Servitudes

A Texas court has held that an option to purchase an interest in land for a fixed price of $50,000 that would last for 100 years was an invalid and unreasonable restraint on alienation of land. Tiner v. Johnson, 2022 WL 2062478 (Tex. Ct. App. 2022). The court could have held it to be void under the traditional rule against perpetuities. Although Texas statutes have reformed the rule against perpetuities, the court found that none of those reforms applied in this case. The case is a useful reminder that the common law rule against unreasonable restraints on alienation is an independent limit on interests that may vest too far into the future and which might have the effect of inhibiting sale of land. The way to avoid the rule is to place a reasonable time limit on them and/or make the sale price equal to fair market value at the time the …

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Parcel is landlocked after 90 year easement ends

/ Estates and Future Interests, Real Estate Transactions, Restraints on Alienation, Servitudes

Most courts granted an easement by necessity when an owner severs its land and leaves a parcel without access to a public road. The easement allows passage over land that had been connected to the landlocked parcel before it became landlocked. The courts differ on whether this is a mandatory rule of law (owners are not allowed to create land to which there is no access) or a default rule based on the implied intent of the parties, in which case the courts will allow a parcel to be landlocked if that is what the parties bargained for. The argument for a mandatory rule is that land has no use if the owner cannot get to it and no one will buy a landlocked parcel, making the land inalienable. The argument for a default rule is that the owner of the landlocked parcel can always give or sell it to …

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Rights of first refusal do not violate the rule against perpetuities if they must be exercised during the holder’s lifetime

/ Estates and Future Interests, Real Estate Transactions

New York retains a version of the traditional rule against perpetuities. Like most states, it has classified options to purchase and rights of first refusal as “executory interests” subject to the rule against perpetuities. They therefore must vest (if at all) within 21 years of their creation, or within 21 years of the death of a named person in the conveyance or during the lifetime of a named person. The latter was the case in Martin v. Seeley, 142 N.Y.S.3d 252 (App. Div. 2021) where the right of first refusal could be exercised only by the original holder of it. The court also resolved a conflict between language suggesting the covenant ran with the land but that it would not apply to any successors in interest by finding that the “running with the land language” was of no legal effect.

Reverter clause requiring property to be used for church purposes not an invalid restraint on alienation

/ Estates and Future Interests, Real Estate Transactions, Restraints on Alienation

The Virginia Court held that a future interest requiring forfeiture of title if property was not used to church purposes was a valid possibility of reverter, and was not an invalid or unreasonable restraint on alienation of land. Canova Land & Inv. Co. v. Lynn, 856 S.E.2d 581 (Va. 2021). The court said that a liberal interpretation should be granted to deeds involving land granted for charitable purposes because limiting property to charitable uses is consistent with public policy.

Reverter clause requiring property to be used for church purposes not an invalid restraint on alienation

/ Estates and Future Interests, Real Estate Transactions, Restraints on Alienation

The Virginia Court held that a future interest requiring forfeiture of title if property was not used to church purposes was a valid possibility of reverter, and was not an invalid or unreasonable restraint on alienation of land. Canova Land & Inv. Co. v. Lynn, 856 S.E.2d 581 (Va. 2021). The court said that a liberal interpretation should be granted to deeds involving land granted for charitable purposes because limiting property to charitable uses is consistent with public policy.

Proceeds of partition by sale divided according to ownership interests without any credit given to co-owner whose funds were used to buy the property

/ Concurrent or Common Ownership, Estates and Future Interests, Real Estate Transactions

Because the Texas partition statute requires the proceeds of a partition sale to be divided “according to [the owners’] just rights therein,” joint tenants were entitled to 50% of the sale proceeds even though one of the co-owners had used his own funds to purchase the property. Gallagher v. Townsend, 443 P.3d 847 (Wyo. 2019). At the same time, the court would be entitled to adjust the amounts each party received to reflect the fact that one co-owner had paid more of the property taxes.

California limits enforceability of private transfer fees

/ Estates and Future Interests, Real Estate Transactions, Restraints on Alienation, Servitudes

California passed a statute prohibited private transfer fees unless used exclusively to support the encumbered property or cultural, education, charitable, recreational, environmental, conservation, or similar activities. Cal. Civ. Code §1098.6 (2018 Cal. Stat. ch. 306). Note that the Federal Housing Finance Agency and the Federal Housing Administration are prohibited from dealing in mortgages on properties encumbered by private transfer fee covenants that do not provide a “direct benefit” to the real property encumbered by the covenant.12 C.F.R. §1228.1.

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