Interests and Estates in Land

Interests

An interest in real estate is ownership of any combination of the bundle of rights to real property, including the rights to:

•  possess
•  use
•  transfer
•  encumber
•  exclude

Undivided interest. An undivided interest is an owner’s interest in a property in which two or more parties share ownership. The terms “undivided” and “indivisible” signify that the owner’s interest is in a fractional part of the entire estate, not in a physical portion of the real property itself. If two co-owners have an undivided equal interest, one owner may not lay claim to the northern half of the property for his or her exclusive use.

Examples of interests include:

•  an owner who enjoys the complete bundle of rights
•  a tenant who temporarily enjoys the right to use and exclude
•  a lender who enjoys the right to encumber the property over the life of a mortgage loan
•  a repairman who encumbers the property when the owner fails to pay for services
•  a buyer who prevents an owner from selling the property to another party under the terms of the sale contract
•  a mining company that temporarily owns the right to extract minerals from the property’s subsurface
•  a local municipality that has the right to control how an owner uses the property
•  a utility company that claims access to the property in accordance with an easement

Interests differ according to:

•  how long a person may enjoy the interest
•  what portion of the land, air, or subsurface the interest applies to
•  whether the interest is public or private
•  whether the interest includes legal ownership of the property

Interest in real estate:

• possession: estate
• non-possession: encumbrance & public Interest

Interests are principally distinguished by whether they include possession. If the interest-holder enjoys the right of possession, the party is considered to have an estate in land, or, familiarly an estate. If a private interest-holder does not have the right to possess, the interest is an encumbrance. If the interest-holder is not private, such as a government entity, and does not have the right to possess, the interest is some form of public interest.

An encumbrance enables a non-owning party to restrict the owner’s bundle of rights. Tax liens, mortgages, easements, and encroachments are examples.

Public entities may own or lease real estate, in which case they enjoy an estate in land. However, government entities also have non-possessory interests in real estate which act to control land use for the public good within the entity’s jurisdiction. The prime example of public interest is police power, or the right of the local or county government to zone. Another example of public interest is the right to acquire ownership through the power of eminent domain.

Estates in land

An estate in land is an interest that includes the right of possession. Depending on the length of time one may enjoy the right to possess the estate, the relationships of the parties owning the estate, and specific interests held in the estate, an estate is a freehold or a leasehold estate.

Estates in land include:

• freehold
• leasehold

In a freehold estate, the duration of the owner’s rights cannot be determined: the rights may endure for a lifetime, for less than a lifetime, or for generations beyond the owner’s lifetime.

A leasehold estate is distinguished by its specific duration, as represented by the lease term.

Ownership of a freehold estate is commonly equated with ownership of the property, whereas ownership of a leasehold estate is not so considered because the leaseholder’s rights are temporary.

Both leasehold and freehold estates are referred to as tenancies. The owner of the freehold estate is the freehold tenant, and the renter, or lessee, is the leasehold tenant.