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To understand the concept of property as "the rights one has in the property," we need to discuss specific property rights. To aid in this discussion and understanding, property rights are sometimes described as a "bundle of sticks" with each stick in the bundle representing a property right. Using this analogy, the question becomes "which sticks in the bundle (which rights) do I have with respect to this item and which sticks (which rights) do you have with respect to this item?"  We will use this analogy frequently.

We will primarily use real property examples to illustrate these legal principles.

Estates in Property

Fee Simple Absolute -- considered the highest form of ownership; to be considered as having a fee simple absolute, the owner(s) must have these three rights in the property.

• Fee -- potentially infinite duration (could own it forever if the owner(s) could live that long)
• Simple -- no limits on inheritability (the owner(s), upon their death, can bequeath (will) the property to whomever they wish)
• Absolute -- not subject to a condition that will terminate the owner's interest (there is no limitation or qualification that will take away the owner(s)' interest -- this concept is discussed subsequently and will be clearer at that time)

North Dakota statute -- "Every estate of inheritance is a fee, and every such estate, when not defeasible or conditional, is a fee simple or an absolute fee." N.D.C.C. §47-04-04

There are situations where an owner does not have a fee simple absolute. The next three examples illustrate a few of these situations.

See illustration of the idea that the bundle of rights is divided between two "onwers."

Fee Simple Determinable -- note that this type of ownership is not "absolute"

• A fee simple determinable can be described as a qualification on the owner's interest; that is, the owner's interest will terminate if the qualification or condition is met; see N.D.C.C. § 47-02-03.
• As part of the sale of property, a landowner has the right to impose restrictions on its future use as long as the restrictions are not contrary to public policy. 263 N.W. 721
• Example based on a Missouri case; 1998 court case interpreting a 1925 deed.
  • The "qualification" in this case was that the buyer of the land would sell electricity to the seller of the land.
• Also see a Minnesota case
  • The "qualification" in this case was that the land must be used for a railroad.
• A fee simple determinable is followed by Possibility of Reverter; that is, someone has to have the right (a "stick in the bundle") to take this propery (e.g., land) if the current owner violates or fails to fulfill the qualification or condition. The right to seize the property if the qualification or condition is not met (that "stick in the bundle") is called a possibility of reverter.

Fee Simple Subject to Condition Subsequent -- another type of ownership that is not "absolute;" similar to (but not identical to) a fee simple determinable

• Again, a qualification on the owner's interest; see N.D.C.C. §47-02-03.
• Followed by a Right of Entry for Condition Broken or a Power of Termination; remainderperson must act to terminate the owner's interest.

Although these two types of estates ( Fee Simple Determinable and Fee Simple Subject to Condition Subsequent ) may not be common, they do exist, they are legal, and they can lead to unexpected results if the owner is unaware that such a limitation had been imposed by a previous owner. As discussed in later sections, these estates are examples of why it is critical that anyone who owns land (or is in the process of acquiring ownership) take steps to determine which "sticks in the bundle" (what property rights) they own or are acquiring.

A property owner cannot impose unreasonable limits that would prohibit future owners from transferring property rights to others. For example, the Rule Against Unreasonable Restraints on Alienation illustrates this concept. As a Missouri court explained, this rule "is designed, 'to prevent the inalienability of present or future vested interests.' ... Although not every restraint is declared a violation, this rule is based, among other reasons, upon the desirability of keeping real property responsive to the current exigencies of its current beneficial owner and the 'desirability of avoiding the retardation of the natural development of a community by removing property from the ordinary channels of trade and commerce.' excerpt from Cole v. Peters, Missouri Court of Appeals Western District, case number 56013 (search for 56013). Also see N.D.C.C. §47-02-26.

Life Estate -- type of ownership that does not include the "simple" right; that is, the current "owner" (life tenant) is not able to specify who will receive the property at the time of his or her death.

• Ownership of the property, when the life tenant dies, will transfer to the person or persons holding the future interest.
  • Simple example of a life estate: Person A owns a fee simple absolute in a tract of land. Person A wants to own the property until their death; Person A also wants, after their death, to have their spouse own (use/receive the income from) the property until the spouse dies, and then have the property owned by Person A's children. In this situation, Person A may prepare a will that leaves a life estate to the spouse, and the remainder interest to the children. This arrangement assures 1) the surviving spouse has the benefit of the land for the remainder of the spouse's life and 2) that the children will get the land after the spouse dies.
• Life tenant has possession during existence of the life estate; the person with the future interest will acquire possession at the death of the life tenant.
  • Reversionary interest: future interest held by grantor (person who set up the life estate) (N.D.C.C. §47-04-09); Remainder interest: future interest held by someone other than grantor (N.D.C.C. §47-04-10); in most cases, the future interest is a remainder interest.
  • Estate of Hitz, 319 N.W.2d 137 (N.D. 1982) -- a father established a life estate with his spouse holding the life estate and a son holding the future interest.
    • "Prior to John's death in 1962, he and his son, Frank, farmed the 880 acres of farmland owned by John. John's will provided that Frank was to receive a remainder interest in fee to 560 acres of the farmland subject to a life estate interest in John's wife, Magdalena Hitz. John's will further provided under paragraph three that Frank was to receive a remainder interest in another 160 acres, subject to a life estate interest in Magdalena, "provided that he shall pay" to John's son, Ludwig, the sum of $5,000. Paragraph four of John's will, the disputed provision in this case, provided that Frank was to receive a remainder interest in an additional 160 acres, subject to a life estate in Magdalena, "provided that he shall pay" to John's daughter, Ann Pecora, the sum of $4,000.
    • "Magdalena died on February 11, 1980, at which time the life estate interest in the farmland which she received under John's will terminated.
    • "We believe that John's will, when considered as a whole, indicates John's intent that his farmland, upon Magdalena's death, should go to his son Frank, who had chosen to remain on the farm and pursue farming as his avocation. John's will further indicates his intent that his son, Ludwig, and his daughter, Ann, should receive legacies of $5,000 and $4,000, respectively. The devise of farmland to Frank under paragraph's three and four of John's will "provided that" Frank pay such legacies to Ludwig and Ann can be construed, consistent with John's intent that Frank receive all of the farmland while Ludwig and Ann receive monetary legacies, by interpreting the will as placing an equitable lien upon that farmland for payment of the legacies."

• Current owner (the life tenant) has the right to use the property during his/her lifetime -- including leasing it to someone else (N.D.C.C. §47-02-33); but upon the life tenant's death, the property will be owned by the remainderperson; that is, the person(s) holding the future interest.

  • N.D.C.C. §47-02-33. Rights of owner of life estate . The owner of a life estate may use the land in the same manner as the owner of a fee simple, except that the owner of a life estate must do no act to the injury of the inheritance.

• Life tenant may not commit waste and is obligated to make repairs, pay interest on mortgage, and pay annual property taxes (N.D.C.C. §47-02-34).

  • N.D.C.C. §47-02-34. Life estate - Obligation to maintain property - Waste - Taxes - Other charges and assessments. The owner of a life estate must keep the buildings and fences in repair from ordinary waste and must pay the taxes and other annual charges and a just proportion of extraordinary assessments benefiting the whole inheritance.
  • N.D.C.C. §32-17-22 . Waste - When actionable. If a guardian, tenant for life or years, joint tenant, or tenant in common, of real property, commits waste thereon, any person aggrieved by the waste may bring an action against the one committing waste therefor, and in such action there may be judgment for treble damages, forfeiture of the estate of the party offending, and eviction from the premises.
  • Ruggles v. Sabe, 2003 ND 159, 670 N.W.2d 356
    • "Ruggles owns a one-third vested remainder in property located in Bowman County, North Dakota. Sabe currently holds a life estate, based on the life of a third party from whom he purchased the life estate, and a two-thirds vested remainder in the same property. Ruggles brought an action for conversion and waste when she discovered Sabe removed an airplane hanger from the property and converted it for his own use.
    • "Sabe removed the hanger from the property in which he holds a life estate and a two-thirds vested remainder. As a holder of a remainder interest, Ruggles protested the removal of the hanger. As the holder of the life estate, Sabe owed a duty to Ruggles, a remainderman. If removal of the hanger resulted in a diminishment of the remainder interest, then the remainderman is entitled to damages for waste."

• Life estate overrides the life tenant's will or, if the life tenant does not have a will, the intestate succession statute (N.D.C.C. chapter 30.1-04); that is, the life tenant does not have the "stick in the bundle" (the legal right) to specify who will receive the property upon his or her death.
  • Even though the life tenant's will may state "all my property goes to the church at the time of my death," property in which the life tenant only has a life estate will transfer to the remainderperson (regardless of what the life tenant's will specifies).
  • Life estate can be an estate planning tool; e.g., a property owner (most likely with a fee simple absolute) could specify in his or her will that a life estate should transfer to the surviving spouse and that the future interest should transfer to the children so that upon the death of the surving spouse, the property will transfer to the children (as a fee simple absolute) regardless of what the spouse's will might specify.

• The death of the life tenant terminates the life estate and the remainderperson becomes the owner of the property; the ownership of the remainderperson is usually a fee simple absolute.
  • How long into the future can a life estate (or series of life estates) be extended? Could I create a life estate in my property for my surviving spouse, and then for my children, and then for my grandchildren? Could I specify a series of life estates so that the next person(s) to have a fee simple absolute would be my great-grandchildren who are not yet born (and who may never exist if my descendants do not have children)?
  • A property owner cannot "string together an endless list of life estates," such as "to my surviving spouse for his lifetime, then to my children for their lifetime, and then to my grandchildren for their lifetime, and then to my great-grandchildren..." Instead, the law requires that at some point in time the ownership interests re-combine to the level of a fee simple absolute. This is generally known as the Rule Against Perpetuities. For example, see N.D.C.C. §47-02-27.1.

• Life estate and future interest (N.D.C.C. §47-02-11) can be transferred (e.g., sold), but the market will reflect the partial interest; transferring a life estate does not change whose life will be used to measure the duration of the life estate. 
  • If I buy your life estate today and you die tomorrow, the property will transfer to the remainderperson, thus I may not be willing to pay much for your life estate if I think there is a good possibility you may die soon.
  • I may not pay much for your future interest if I think the life tenant will live a long time.

• Life estate and future interest merge if owned by the same person (most likely merge into a fee simple absolute).
  • "A merger occurs when a greater and a lesser estate meet in the same person, and the lesser estate is said to merge into the greater estate."  Estate of Flynn, 2000 ND 24, 606 N.W.2d 104

It may also be helpful to review South Dakota statutes that address Present and Future Interests in Property (Chapter 43-3 of South Dakota Codified Laws).

Concepts to remember

• The type of estate a grantee acquires is determined by the instrument/document (usually a deed) which transfers ownership.
• YOU CANNOT TRANSFER MORE THAN YOU OWN; you cannot transfer to someone else a property right that you do not have; e.g., if I have a life estate, I cannot transfer a fee simple absolute to you.
• No one ever has all "the sticks in the bundle;" even the owner of a fee simple absolute is subject to society's (the goverment's) right to impose a property tax on the land, and to force you to sell the property for a public purpose (i.e., eminent domain, discussed in a subsequent section).
• Property owners are expected to protect or assert their property rights (that is, to act like the owner); failure to timely assert your rights may prevent you from being able to assert them in the future; it may even lead to you losing those rights to someone else (related concepts include statute of limitations, laches, adverse possession).
• The law seeks to protect the right of property owners to sell or otherwise transfer all or a portion of their property rights.

Summary of Key Points

• A fee simple absolute is the highest form of ownership, but even a person who holds a fee simple absolute does not have all the "sticks in the bundle."
• A property owner can impose reasonable limitations on what future owners can do; the difficulty with this practice is keeping track of who owns which "sticks in the bundle."
• A life estate consists of a life tenant and a remainderperson.
• Part of the challenge of understanding property is understanding who owns which legal rights ("sticks in the bundle").

The next page introduces concurrent ownership.

Last updated February 14, 2010

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