Sunday, July 1, 2012

Future Interests

The following question was asked as a comment on the blog:

Can you clarify the differences between reversions, rights of entry, and possibilities of reverter?


Reversions: A reversion is the estate left in a grantor who conveys less than he owns. For example, x owns property in fee simple, and he conveys that property "To y for life." X has only conveyed a life estate even though x owned the property for an infinite duration. When y dies, the property will revert back to x. A few other important points, especially for MBE purposes: A reversion is alienable, devisable, and inheritable. In addition, the holder of a reversion (in this example, x) can sue for waste.

Rights of Entry: Similar to a reversion, a right of entry is reserved by the grantor. However, the right of entry is reserved only upon the grantor granting to another a fee simple subject to condition subsequent. A fee simple subject to condition subsequent has the potential to last indefinitely, so it's not certain, as it is with a reversion, that the grantor will ever regain an interest. For example, x grants property "To y, but if the property is not used for farming purposes, then x may reenter, and retake the property." The interest in x is not certain to vest; it will only vest if y fails to use the property for farming purposes. At that point, x will use his right of entry to reenter, and retake the property.

Possibilities of Reverter:
A possibility of reverter, like in our two previous examples, is reserved by the grantor. It's quite similar to a right of entry, the significant distinction being that the grantor need not take any affirmative action in reentering the property in order to retake the property. For example, x grants property "To y for as long as y uses the property for farming purposes." At that moment, y has a fee simple determinable. Y is subject to the same obligation as in our previous example; namely, to use the property for farming purposes. But if y fails to do so, x has no obligation to reenter the property; rather, the possibility of reverter will kick in, and the property will automatically revert back to x.