REAL PROPERTY Copyright February, 2005 State Bar of California

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1 REAL PROPERTY Copyright February, 2005 State Bar of California Alice and Bill were cousins, and they bought a house. Their deed of title provided that they were joint tenants with rights of survivorship. Ten years ago, when Alice moved to a distant state, she and Bill agreed that he would occupy the house. In the intervening years, Bill paid nothing to Alice for doing so, but paid all house-related bills, including costs of repairs and taxes. Two years ago, without Alice s knowledge or permission, Bill borrowed $10,000 from lender and gave Lender a mortgage on the house as security for the loan. There is a small apartment in the basement of the house. Last year, Bill rented the apartment for $500 per month to Tenant for one year under a valid written lease. Tenant paid Bill rent over the next seven months. During that time, Tenant repeatedly complained to Bill about the malfunctioning of the toilet and drain, but Bill did nothing. Tenant finally withheld $500 to cover the cost of plumbers he hired; the plumbers were not able to make the repair. Tenant then moved out. Bill ceased making payments to Lender. Last month, Alice died and her estate is represented by Executor. 1. What interests do Bill, Executor, and Lender have in the house? Discuss. 2. What claims do Executor and Bill have against each other? Discuss. 3. Is Tenant obligated to pay any or all of the rent for the remaining term of his lease, including the $500 he withheld? Discuss.

2 Real Property Outline of Issues Copyright 2005 Scott F. Pearce, Esq. I. Interests of Bill, Executor and Lender in the house. A. Joint Tenancy B. Mortgage - Severance? 1. Lien Theory 2. Title Theory C. No Adverse Possession D. Conclusion 1. Bill 2. Executor 3. Lender II. Claims of Executor and Bill against one another A. Executor v. Bill: Rent B. Bill v. Executor: Bills, Repairs and Taxes III. Tenant's Obligations A. The Lease B. Warranty of Habitability / Covenant of Quiet Enjoyment / Constructive Eviction

3 Real Property Model Answer Copyright 2005 Scott F. Pearce, Esq. I. Interests of Bill, Executor and Lender in the house. Bill, Executor (Alice's successor in interest) and Lender all have competing interests in a house Bill and Alice bought together years ago. To determine the rights of each party, it is necessary to explore their relationships. A. Joint Tenancy Bill and Alice were cousins. They bought the house together as "joint tenants with rights of survivorship." To be valid, parties to a joint tenancy need to meet four unities. They must take title at the same time, by the same instrument, with the same interest and with the same right to possess. It is evident that Bill and Alice were true joint tenants at the start of their ownership of the house. The right of survivorship means that, when the first joint tenant dies, the surviving joint tenant becomes the owner of the deceased tenant's interest. In this case, Alice died a month ago. If nothing happened after Bill and Alice took title that could sever the joint tenancy, Bill would be entitled to Alice's share upon Alice's death. B. Mortgage - Severance? Bill borrowed $10,000 from Lender two years ago, using the house as collateral for the loan. Alice neither knew about nor consented to this transaction. The impact of the mortgage on the parties' interest in the house will depend on what law is followed by the jurisdiction where the house is located. 1. Lien Theory In a lien theory jurisdiction, a joint tenancy is not automatically severed when one of the joint tenants takes out a mortgage on the property. If the house is located in a jurisdiction that follows the lien theory, Bill and Alice were joint tenants at the time of Alice's death, and the house would belong to Bill in fee simple absolute. Executor would have no interest in the property. Lender would have an equitable ownership interest in the house up to the value of the mortgage. 2. Title Theory In a title theory jurisdiction, a joint tenancy is severed automatically when a joint tenant mortgages his or her interest. If the house is located in a title theory jurisdiction, Bill and Alice became tenants in common the moment Bill took out the mortgage. Tenants in common each hold an undivided one-half interest in the property, and the right of survivorship no longer exists. Thus, if the house is located in a title theory jurisdiction, Bill has only a

4 one-half share in the house, subject to Lender's mortgage. Executor, as Alice's successor in interest, takes an undivided one-half interest in the house, which Executor will be responsible for distributing to the beneficiaries of Alice's estate. C. No Adverse Possession It should be noted that Bill does not have a claim to the house based on adverse possession. Although it is possible that his 10-year occupation of the house is enough to satisfy the time element of some adverse possession statutes, he never occupied it with hostile intent. It is true that Alice has lived in a distant state for ten years, but that does not terminate her interest in the house. It is also true that Bill mortgaged the house without Alice's knowledge or permission, but that act by itself does not suggest Bill's occupation of the house was hostile to Alice's interest. It is apparent that Bill and Alice agreed that Bill would live in the house without paying rent to Alice, and Bill would be responsible for the upkeep of the property and the payment of taxes. This is not an uncommon arrangement between joint tenants. Had Alice abandoned the house altogether, it is conceivable that Bill's upkeep and continual occupation of the house, combined with his payment of taxes, would be enough for him to take title by adverse possession. D. Conclusion 1. Bill In a lien theory jurisdiction, Bill takes a fee simple interest in the house, subject to the mortgage held by Lender. In a title theory jurisdiction, Bill takes a one-half interest in the house as a tenant in common with Executor, and Bill's interest is subject to the mortgage held by Lender. 2. Executor In a lien theory jurisdiction, Executor has no legal interest in the house. In a title theory jurisdiction, Executor takes an undivided one-half interest in the house as a tenant in common with Bill. 3. Lender Lender's mortgage is valid. In a lien theory jurisdiction, Lender's interest will attach to the whole house, and in a title theory jurisdiction, Lender's interest would attach to Bill's tenant in common interest. II. Claims of Executor and Bill against one another As representative of Alice's estate, Executor will seek to enforce whatever obligations Bill owed to Alice. The facts suggest that Bill will have claims against Alice's estate, too. A. Executor v. Bill: Rent Bill rented a small basement apartment in the house to Tenant for $500 a month. Tenant paid $3,500

5 over seven months before moving out. Tenant's obligations are discussed below in part III. As either a joint tenant or a tenant in common, Bill is responsible for sharing income earned from the property. Executor will be entitled to take $1,750 from Bill, subject to any liabilities owed Bill by Alice's estate. B. Bill v. Executor: Bills, Repairs and Taxes Absent an agreement to the contrary, co-tenants are equally responsible for the costs of maintenance and upkeep of the property, as well as any taxes that owners liable for. As discussed above, it is evident that Bill and Alice agreed that Bill would live in the property when Alice moved out of town to a distant state. It is not unreasonable for one co-tenant to occupy the house and to pay for upkeep and taxes in return for not having to pay rent to the other co-tenant. It is likely that Bill paid many times more than $1,750 for these costs during the time he occupied the house. If for some reason it was determined that Alice's estate owed Bill for her share of these expenses, the amount due would be reduced by $1,750. Bill will have to pay Executor $1,750, Alice's share of the rental income. Executor will not have to reimburse Bill for Alice's share of the bills, repairs and taxes, since Alice and Bill's apparent agreement would likely be respected. III. Tenant's Obligations A. The Lease Bill rented to Tenant the small apartment in the basement of the house. The one-year lease was valid and it was in writing. Bill paid for seven months of rent before vacating the premises before the end of the lease term. The following analysis indicates that Tenant will be excused from further performance under the lease. B. Warranty of Habitability / Covenant of Quiet Enjoyment / Constructive Eviction At common law, residential tenants took the premises strictly as-is. The result of this rule was that landlords had no real incentive to maintain the property beyond the dictates of their own consciences. Modern law has chosen to impose more obligations on landlords, particularly those who rent out residential property. The warranty of habitability requires that a landlord maintain the leasehold premises in a livable condition. The covenant of quiet enjoyment requires the landlord to do (or to refrain from doing) acts that make it possible for the tenant to comfortably enjoy the premises. If the landlord's maintenance of the property is so bad that the premises become uninhabitable, the tenant can claim to have been constructively evicted by the landlord's neglect.

6 During the time Tenant occupied the basement apartment, he repeatedly complained to Bill about the malfunctioning of the toilet and drain, but Bill did nothing. Bill's conduct is not satisfactory. It does not live up to a modern landlord's duties to a tenant. Tenant was within his rights to hire a plumber to fix the problem, since Bill would not do so. The problems with the toilet and drain were so severe that the plumbers Tenant was compelled to hire were unable to repair them. It is not reasonable for a landlord to expect a tenant to put up with a leasehold in which the drain and toilet are broken beyond the point of repair. Tenant was constructively evicted by Bill. Tenant is entirely within his rights to declare the lease broken - by the landlord - and to vacate the premises without facing liability for the remaining part of the lease term. Tenant is not obligated to pay any rent for the remaining term of his lease, including the $500 he withheld.