The Fee Simple Determinable & The Possibility of Reverter

The following is an excerpt from my book titled Phillips on Land Title Examination: Estates in Blackacre.

Chapter 3:

In the previous chapter concerning the life estate and the reversion, we learned that the grantor of a life estate retains a reversion in blackacre. This reversion is certain to vest upon the natural expiration of the concurrent life estate. The reversion is patient in that it waits for the death of the life tenant.

In contrast, the fee simple determinable imposes a restriction that may act to cut short the interest of the fee simple owner. If such restriction is violated, the fee simple owner immediately loses all rights.

Note: In these writings, I use the words “restriction” and “condition” interchangeably. Though there is a technical distinction between a condition and a restriction, most property practitioners treat them as if they are one in the same.

Refer to the Table of Corresponding Estates displayed in the beginning of this writing. You will see that the fee simple determinable, an estate of present possession, corresponds with the possibility of reverter, an estate of future possession.

At the end of the previous section regarding the life estate and the reversion, I asked the reader to consider the fee simple absolute as the mother ship of all our estates. The fee simple absolute is the purest form of land ownership. We learned that whenever a piece of the fee simple absolute is carved out, there is a creation of new estates.

A fee simple is made defeasible in one of three ways: (1) by the creation of a fee simple determinable, (2) by the creation of a fee simple upon condition subsequent, and (3) by the creation of a fee simple subject to executory limitation. This chapter will examine the first of these; the fee simple determinable.

*Calculus of Estates → fee simple determinable + possibility of reverter = fee simple absolute.

The fee simple absolute represents an entire line segment. The fee simple absolute line is broken by the conveyance of a fee simple determinable.

What is a fee simple determinable? A fee simple determinable is a fee simple estate that is made defeasible by a condition attached to the conveyance, which condition, if violated, triggers an automatic reversion to its original grantor. This automatic reversion makes the fee simple determinable a formidable estate. It automatically and immediately terminates the interest of the holder of the fee simple determinable.

Example: Let's say that Bill Smith is the owner of blackacre in fee simple absolute. Bill Smith then conveys blackacre to Shirley Thomas, so long as the land is used for residential purposes, and if the land ever ceases to be so used, the property shall automatically revert back to Bill Smith and his heirs, in fee simple absolute.

Discussion:

The above example creates a fee simple determinable. The conveyance from Bill to Shirley creates a right of automatic reversion if the property is used for other than residential purposes. The language in the conveyance is the key. For a fee simple determinable to be created, there must be specific words which would lead a reasonable person to conclude that an automatic reversion was intended. Our example uses the phrase “so long as the land is used for residential purposes, and if the land ever ceases to be so used, the property shall automatically revert back to Bill Smith and his heirs, in fee simple absolute.” The body of this sentence contains two portions, which I have represented in bold, which makes clear that the grantor intended to create a fee simple determinable.

Now, after the conveyance of the fee simple determinable to Shirley Thomas, we must go back to the calculus of estates to determine what new estates have been created.

*Calculus of Estates → Fee simple determinable + ?? = fee simple absolute.

We call Bill's retained interest a possibility of reverter. If Shirley violates the condition, the property will automatically revert back to Bill Smith in fee simple absolute. It is called a “possibility of reverter” because a breach of the condition attaching to the fee simple determinable is not certain to happen. In our example, if blackacre is continuously used for residential purposes, there will be no breach. Absent breach, Bill, or Bill’s heirs, will never be able to execute the possibility of reverter. Conversely, if there is a breach, Bill, or Bill’s heirs, will become the immediate owners of blackacre in fee simple absolute.

The possibility of reverter, being only a possibility, is often referred to as an estate in expectancy. The holder of the possibility of reverter is expecting, but not guaranteed, to regain ownership.

Examples Creating a Fee Simple Determinable & Possibility of Reverter:

Conveyance #1: Bill Smith, a single man, conveys blackacre to Shirley Thomas, so long as the land is used for residential purposes, and if the land ever ceases to be so used, the property shall automatically revert back to Bill Smith and his heirs, in fee simple absolute.

State of Title: Fee simple determinable in favor of Shirley Thomas with possibility of reverter in favor of Bill Smith.

If the land is subsequently used for other than residential purposes, Bill’s possibility of reverter will activate, automatically terminating the interest of Shirley. Bill will then own in fee simple absolute.

*The above conveyance is that of a fee simple determinable. The calculus of estates is satisfied, as the fee simple determinable and the possibility of reverter add up to a fee simple absolute.

Conveyance #2: Samantha Jones conveys blackacre to Marcia Mayfield, on condition that no liquor will be sold on the subject property, and if this condition is violated, the property shall immediately return to Samantha Jones.

State of Title: Fee simple determinable in favor of Marcia Mayfield with possibility of reverter in favor of Samantha Jones.

Note: The language in the above conveyance is different than that contained in the first example. However, we look to the words in the conveyance to establish the intent of the grantor. The portions on condition that and shall immediately return indicate that there is to be an automatic reversion upon breach. This would certainly establish that a fee simple determinable was intended and created.

If liquor is subsequently sold on the land, Samantha’s possibility of reverter will activate, automatically terminating the interest of Marcia. Samantha will then own in fee simple absolute.

*The above conveyance is that of a fee simple determinable. The calculus of estates is satisfied, as the fee simple determinable and the possibility of reverter add up to a fee simple absolute.

Conveyance #3: Dave Phillips, a single man, conveys blackacre to Hercules, so long as the land is used as a training facility for property professionals, and if it ever ceases to be so used, the property shall revest in Dave Phillips.

State of Title: Fee simple determinable in favor of Hercules, with possibility of reverter in favor of Dave Phillips.

If Hercules turns blackacre into a restaurant, the condition will have been violated. As a result, Dave’s possibility of reverter will activate, automatically terminating the interest of Hercules. Dave will then own in fee simple absolute.

*The above conveyance is that of a fee simple determinable. The calculus of estates is satisfied, as the fee simple determinable and the possibility of reverter add up to a fee simple absolute.

Conveyance #4: Taylor Made, the world’s best female golfer, conveys blackacre to Dave Phillips, as long as he remains unmarried, and if he marries, then the property shall immediately return to Taylor Made.

State of Title: Fee simple determinable in favor of Dave Phillips, with possibility of reverter in favor of Taylor Made.

If Dave marries, Taylor’s possibility of reverter will activate, automatically terminating the interest of Dave. Taylor will then own in fee simple absolute.

*The above conveyance is that of a fee simple determinable. The calculus of estates is satisfied, as the fee simple determinable and the possibility of reverter add up to a fee simple absolute.

Discussion:

The fee simple determinable is very harsh. If the restriction defining the fee simple determinable is violated, the interest of the holder of the determinable fee is automatically destroyed. A violation of such restriction enables the holder of the possibility of reverter to immediately possess blackacre; no court proceedings are necessary.

Concerning Title Examination:

The first step in proper title examination is to identify, with particularity, the request of the customer. In other words, what is the transaction and who are the proposed parties?

I would suggest this to you: If your state of title discloses estates other than a fee simple absolute, stop and call your applicant. The purpose of your call is twofold: 1) you want to disclose to the customer the various estates, and 2) you want clarification as to how the customer wants to proceed.

You see, a simple conversation with the customer, usually a lender, can help to insure that you produce an accurate and functional title commitment.

(Scenario #1): The Applicant is the Holder of the Fee Simple Determinable.

As a general rule, a lender is probably not going to be excited about securing its loan to an estate held in fee simple determinable. The reason is this: if the lender is forced to foreclose on the mortgage, it would be left holding title to land that is subject to a possibility of reverter. An attempted enforcement of the possibility of reverter may subsequently eliminate the interest of the lender. As a result, the lender will most likely require the termination of the possibility of reverter. In this way, the lender, upon foreclosure, would be able to take title to the entire fee simple absolute.

Given this scenario, I would place the following requirement on Schedule B-I of the Commitment:

REQUIREMENT: Record a document properly terminating the possibility of reverter, as recited on Schedule A. (Documents submitted to satisfy this requirement are subject to underwriter approval. This Commitment is subject to further requirements and exceptions)

(Scenario #2): The Applicant is the Holder of the Possibility of Reverter.

If the holder of the possibility of reverter is your applicant, chances are best that the specified contingency contained in the fee simple determinable has been violated.

Given this scenario, I would place the following requirement on Schedule B-I of the Commitment:

REQUIREMENT: Submit to the Company satisfactory evidence to establish that the specified contingency contained in the fee simple determinable has, in fact, been violated, resulting in the activation of the possibility of reverter. (Documents submitted to satisfy this requirement are subject to underwriter approval. This Commitment is subject to further requirements and exceptions)

NOTE: If your customer requires the termination of either a fee simple determinable or a possibility of reverter, you must ask for guidance from your particular underwriter. Your underwriter will likely have a specific set of requirements for terminating such interests.

Summary:

A fee simple determinable corresponds with the possibility of reverter. The name says it all. There is a possibility of reverter in favor of the original grantor. The property will not revert back unless the condition attached to the fee simple determinable is violated. Compare this to the last section in which I discussed the life estate and the reversion. There, the reversion was certain to take effect upon the death of the current life estate holder.

The next section covers the fee simple upon condition subsequent and the right of re-entry. These estates are similar in function to the fee simple determinable and the possibility of reverter, but they offer the holder of the fee simple upon condition subsequent a little more breathing room in case of a breach of condition.

dave