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Interests and Properties in Real Estate: Exploring Its Facets

Introduction

In the exciting world of real estate, it is crucial to understand the concepts of “Interests” and “Properties in Real Estate” (Interests & Estates). These seemingly simple terms are the basis of all real estate transactions and agreements. In this article, we will delve into “Interests” and the various forms of “Real Estate Properties” found in the market.

Interests in Real Estate

Let's start by exploring “Interests”. In the context of real estate, interests can be divided into two main categories: “Possession” and “Non-Possession.”

Interests

Possession / Possessory                             Non-possession / Non-possessory:

• estate in land • private: encumbrance
• public: public interest

Possessory Interests

In this category, we find “Estates in Land”, which confer the right to possession of the property. Properties in land can be either “Freehold” or “Leasehold”.

Freehold Estates

Free properties in land grant the right to possession without a set time limit. Within this category, we have two important subtypes: “Fee Simple” and “Life Estates”.

  • Simple Fee: This is the highest type of interest in real estate, and is characterized by absolute ownership. A “Fee Simple Absolute” means that the owner has unrestricted rights and that the interest is not limited by time or subject to any particular conditions. However, there are also “Fee Simple Defeasibles”, which can revert to a previous owner if certain conditions are met. As mentioned above, this is the absolute highest interest rate on a property.– not limited by one's lifetime – absolute: highest form of ownership interest – defeasible: reverts to previous owner per conditions
  • Life Estates: These properties on earth are temporary and are based on a person's life. They can be “Conventional” or “Legal”. The properties of life conventional They are limited to the life of a tenant or named person, and then pass to another named beneficiary. Legal life estates, on the other hand, are created by state laws and are often designed to protect family survivors, such as “Homestead” laws. – passes to another on death of named party – remainder: named party to receive estate – reversion: previous owner to receive estate – created by operation of state law as opposed to a property owner's agreement – designed to protect family survivors – homestead: rights to one's main residence:
    – laws protect homestead from creditors
    – family must occupy the homestead
    – cannot be conveyed by one spouse
    – endures over life of head of household
    – interests extinguished if property destroyed

           Conventional life estate

             – limited to lifetime of life tenant/ named party

             – ordinary: estate passes to remainderman or previous owner when life tenant dies

             – pur autre vie: limited to lifetime of another, passes to remainderman or previous owner

 

           Estates In Land

– include right of possession

– leasehold = limited duration: In these cases, the occupant of the property has possession rights, but only for a limited period of time. This commonly applies to residential and commercial leases.

– freehold: duration is not limited: In contrast, freeholds do not have a defined time limit. Here we find the “Fee Simple” and the life properties.

Freehold (own) Leasehold (lease)

• fee simple • estate for years
– absolute • periodic
– defeasible • estate at will • estate at sufferance

• life estates
– conventional
- legal

Leaseholds: Exploring Different Types of Leases

 

Within the category of “Estates in Land”, we find a variety of leasing arrangements that govern the use of a property. Leaseholds represent the right to occupy a property for a specific period, and these arrangements can vary significantly in terms of duration and terms.

Estate for years: specific, stated duration, per lease; expires at end of term

Periodic: lease term renews automatically upon acceptance of rent; renews indefinitely if landlord accepts rent

Be at will: for indefinite period subject to rent payment; cancelable with notice

Be at sufferance: tenancy against landlord's will and without an agreement

Estate for Years

The “Estate for Years” is a specific type of lease that is characterized by having an established and specific duration that is specified in the lease contract. This period can be short or long, but the essential thing is that it has a clear end date. Some key aspects of this type of lease include:

  • Specific Duration: The lease establishes a specific duration, such as six months, a year or even longer.
  • Expires at End of Term: A distinctive feature of this type of lease is that it automatically ends when the expiration date specified in the contract is reached.
Periodic (Periodic Lease)

In the case of a “Periodic Tenancy”, the lease is automatically renewed at regular intervals as long as the tenant continues to pay the rent and the landlord accepts it. Some important features of this type of lease include:

  • Automatic renewal: When a lease period nears the end, it is automatically renewed for an additional period if the tenant continues to pay rent.
  • Timeless: Unlike an Estate for Years, a periodic tenancy does not have a predetermined end date, meaning it could last indefinitely.
Estate at Will

A “Lease at Will” is a rental agreement that does not have a specific set duration. In this case, the tenant occupies the property for an indefinite period and is subject to paying rent on a regular basis. Some key aspects include:

  • Timeless: This type of lease has no predetermined time limit and can continue as long as both parties wish.
  • Cancelable with Notice: Despite the lack of a fixed term, this type of lease can usually be canceled with advance notice from both parties. For example, the landlord could notify the tenant that he or she wants to repossess the property with reasonable notice.
Estate at Sufferance

“Suffering Lease” occurs when a tenant continues to occupy a property after their lease has expired and the landlord has not granted a new lease. Some important details of this scenario include:

  • Against the Will of the Owner: This type of tenancy occurs against the will of the landlord, as the tenant does not have permission to continue occupying the property.
  • Lack of Formal Agreement: There is no lease agreement in place, and the tenant may be illegally occupying the property at this point.
  • Possible Eviction: In many cases, the landlord can take legal action to evict the tenant for continued occupancy after the expiration of the lease.

In summary, Leaseholds represent a variety of leasing arrangements that can significantly affect the duration and terms of occupancy of a property. Each type of lease has its own characteristics and legal considerations, and it is essential to understand these differences when entering into a lease agreement.

Non-Possessory Interests

In the category of non-possession interests, we find “Encumbrances” and “Public Interests”.

  • Burdens (Encumbrances): These are limitations or rights on the property that affect its use, but do not grant possession. Common examples include easements, liens, mortgages, and use restrictions.
  • Public Interests: These are rights or restrictions that benefit the general public, such as zoning restrictions and building regulations.

Conclusion

Understanding “Interests” and the different forms of “Real Estate Ownership” is essential.

Legal and Tax Disclaimer

Please be advised that the content presented in this blog is for informational purposes only and should not be construed as legal or tax advice. The articles and information provided here are written from the perspective of a real estate agent affiliated with Keller Williams, and do not represent legal or tax counsel.

As the author, I am a licensed real estate professional under Keller Williams, holding Brokerage DRE License Number: #02197031. However, it is important to note that my expertise is in the field of real estate, and not in legal or tax matters. The insights and opinions shared on this blog are based on my experiences and knowledge in the real estate industry and should be treated as general guidance rather than definitive legal or tax advice.

For specific legal or tax concerns relating to any real estate transactions or investments, readers are strongly encouraged to consult with a qualified attorney or tax advisor who can provide tailored advice based on your individual circumstances and the latest legal and regulatory requirements.

The information on this blog is provided "as is" without warranty of any kind, and I, along with Keller Williams and its affiliates, disclaim all liability for any loss, damage, or misunderstanding arising from reliance on the information contained herein.

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