Ownership of real property - Defeasible fees

Learning Outcomes

After reading this article, you will be able to identify and distinguish the three types of defeasible fees, recognize the future interests associated with each, and apply the correct legal rules to MBE-style questions. You will also be able to spot common exam traps and avoid typical errors when analyzing conveyances that create defeasible fees.

MBE Syllabus

For MBE, you are required to understand the rules governing defeasible fees as a present estate in land. This includes:

• Recognizing and differentiating the three types of defeasible fees: fee simple determinable, fee simple subject to condition subsequent, and fee simple subject to executory limitation.
• Identifying the correct future interest associated with each defeasible fee.
• Applying the correct language to classify a conveyance as a defeasible fee.
• Understanding the consequences of ambiguous language and the preference for avoiding forfeiture.
• Analyzing the effect of violations of conditions and the process for reversion or forfeiture.
• Recognizing the Rule Against Perpetuities issues with executory interests following defeasible fees.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following phrases most likely creates a fee simple determinable?
   1. "To A and her heirs, but if alcohol is sold, O may re-enter."
   2. "To A and her heirs so long as the land is used for residential purposes."
   3. "To A and her heirs, provided that the land is not used for business."
   4. "To A and her heirs, then to B if A ever sells alcohol on the land."
2. What future interest does the grantor hold after conveying "to B and her heirs, but if the property ceases to be a park, O may re-enter and reclaim the land"?
   1. Possibility of reverter
   2. Right of entry (power of termination)
   3. Executory interest
   4. Reversion
3. Which of the following is true regarding a fee simple subject to an executory limitation?
   1. The future interest is always held by the grantor.
   2. The future interest is subject to the Rule Against Perpetuities.
   3. The estate automatically reverts to the grantor upon breach.
   4. The estate cannot be transferred during the holder’s lifetime.

Introduction

Defeasible fees are present possessory estates in land that may be terminated upon the occurrence of a specified event. Unlike the fee simple absolute, which lasts forever, defeasible fees are subject to divestment if a stated condition is violated or ceases to exist. Understanding the types, language, and consequences of defeasible fees is essential for MBE success.

Types of Defeasible Fees

There are three main types of defeasible fees:

1. Fee Simple Determinable: Ends automatically upon the occurrence of a specified event.
2. Fee Simple Subject to Condition Subsequent: Continues until the grantor takes action to reclaim the property after a condition is breached.
3. Fee Simple Subject to Executory Limitation: Ends automatically upon a specified event, but the future interest passes to a third party, not the grantor.

Key Term: Defeasible Fee A fee simple estate that may be terminated before its natural end upon the occurrence of a specified event or condition.

Fee Simple Determinable

A fee simple determinable is created by language that clearly limits the duration of the estate using words of time or duration (e.g., "so long as," "while," "during," "until"). If the condition is breached, the estate ends automatically and the property reverts to the grantor.

Key Term: Fee Simple Determinable An estate that ends automatically upon the happening of a stated event, with the property reverting to the grantor.

The future interest retained by the grantor is called a possibility of reverter.

Key Term: Possibility of Reverter The future interest held by the grantor following a fee simple determinable, which vests automatically upon breach of the condition.

Fee Simple Subject to Condition Subsequent

A fee simple subject to condition subsequent is created by language that provides for the estate to continue unless and until the grantor takes action to reclaim the property after a condition is breached. Typical words include "upon condition that," "provided that," "but if," or "if it happens that." The grantor must expressly reserve the right to re-enter.

Key Term: Fee Simple Subject to Condition Subsequent An estate that does not end automatically upon breach, but may be cut short at the grantor’s election if a stated condition occurs.

The future interest retained by the grantor is called a right of entry (also known as power of termination).

Key Term: Right of Entry The future interest held by the grantor following a fee simple subject to condition subsequent, requiring affirmative action to reclaim the property.

Fee Simple Subject to Executory Limitation

A fee simple subject to executory limitation (also called a fee simple subject to an executory interest) is created when, upon the occurrence of a specified event, the estate passes automatically to a third party, not the grantor.

Key Term: Fee Simple Subject to Executory Limitation An estate that ends automatically upon a stated event, with the future interest held by a third party.

The future interest is called an executory interest.

Key Term: Executory Interest A future interest in a transferee (not the grantor) that cuts short a preceding estate upon the occurrence of a specified event.

Worked Example 1.1

O conveys Blackacre "to A and her heirs so long as the land is used for farming." Five years later, A builds a shopping center on the land.

Answer: A held a fee simple determinable. By ceasing to use the land for farming, the condition was breached, and Blackacre automatically reverted to O (or O’s heirs) by operation of the possibility of reverter.

Worked Example 1.2

O conveys Greenacre "to B and her heirs, but if alcohol is ever sold on the premises, O may re-enter and reclaim the land." Ten years later, B opens a bar.

Answer: B holds a fee simple subject to condition subsequent. When B sells alcohol, O has the right of entry but must take affirmative steps to reclaim the land. Until O acts, B retains the estate.

Worked Example 1.3

O conveys Blueacre "to C and her heirs, but if the property is not used as a park, then to D and her heirs." C later builds a house on the property.

Answer: C holds a fee simple subject to executory limitation. When C stops using the property as a park, the estate automatically shifts to D (or D’s heirs) by means of D’s executory interest.

Language and Construction

• Fee Simple Determinable: Look for durational language ("so long as," "while," "during," "until").
• Fee Simple Subject to Condition Subsequent: Look for conditional language and an express right of re-entry ("but if," "provided that," "upon condition that," plus "O may re-enter").
• Fee Simple Subject to Executory Limitation: Look for a condition that, if breached, passes the estate to a third party.

If language is ambiguous, courts prefer to avoid forfeiture and will generally construe the estate as a fee simple subject to condition subsequent, requiring the grantor to act.

Future Interests and RAP

• Possibility of Reverter and Right of Entry are not subject to the Rule Against Perpetuities (RAP).
• Executory Interests are subject to RAP. If the executory interest might vest too remotely, it is void.

Exam Warning

On the MBE, pay close attention to whether the future interest is retained by the grantor or given to a third party. If the future interest is in a third party, always consider whether the Rule Against Perpetuities could make it void.

Revision Tip

When analyzing a conveyance, always identify the triggering language and ask: Who holds the future interest? Does the estate end automatically or only if the grantor acts?

Key Point Checklist

This article has covered the following key knowledge points:

• Defeasible fees are fee simple estates that may end early upon the occurrence of a specified event.
• Three types: fee simple determinable (automatic reversion), fee simple subject to condition subsequent (grantor must act), and fee simple subject to executory limitation (automatic shift to third party).
• Key language: durational for determinable, conditional plus right of entry for condition subsequent, and shifting to a third party for executory limitation.
• Future interests: possibility of reverter (determinable), right of entry (condition subsequent), executory interest (executory limitation).
• Possibility of reverter and right of entry are not subject to RAP; executory interests are.
• Courts prefer to avoid forfeiture and will construe ambiguous language in favor of condition subsequent.
• On the MBE, always identify the estate, the triggering event, and the holder of the future interest.

Key Terms and Concepts

• Defeasible Fee
• Fee Simple Determinable
• Possibility of Reverter
• Fee Simple Subject to Condition Subsequent
• Right of Entry
• Fee Simple Subject to Executory Limitation
• Executory Interest