Real estate ownership takes many forms in New Jersey.
Rights in real property change based on the number of owners and their percentage share, martial relationships, whether subject to inheritance or automatic transfer, death of a beneficiary, use restrictions, right of re-entry, and termination upon the occurrence of a pre-defined event.
Deeds in New Jersey convey the following types of ownership interest:
- Fee Simple Absolute
- Fee Simple Defeasible
- Tenancy in Common
- Joint Tenancy with the Right of Survivorship
- Tenancy by the Entirety
- Life Estate
This section discusses how each ownership interest functions and the language of creation.
Fee Simple Absolute
Fee simple absolute is the greatest possible interest in real estate. The owner has the exclusive right to use, possess, dispose of, and even damage the property.
No reversionary interests exist to a third party, and property descends via the probate process upon the death of the fee simple owner. There are no restrictions on fee simple absolute owners. Given the extensive rights, only one fee simple absolute owner may exist at a time.
Where a grantor has fee simple absolute ownership, deeds in New Jersey are presumed to transfer the full interest to the grantee unless a contrary intention is expressed in the deed. N.J.S.A. 46:3-13. No special wording is needed to establish a fee simple absolute estate.
Every deed conveying lands shall, unless an exception be made therein, be construed to include all the estate, right, title, interest, use, possession, property, claim and demand whatsoever, both in law and equity, of the grantor, including the fee simple if he had such an estate, of, in and to the premises conveyed, with the appurtenances, and the word “heirs” shall not be necessary in any deed to effect the conveyance of the fee simple.
Fee Simple Defeasible
Fee simple defeasible ownership has the characteristics of fee simple absolute, except that ownership terminates upon a specific condition or qualification. If the condition never occurs, the defeasible estate may last indefinitely and be inherited by heirs.
Common defeasible interests are fee simple determinable, fee simple subject to condition subsequent, and fee simple subject to an executory limitation.
Fee Simple Determinable.
Fee simple determinable is a form of ownership that expires upon the occurrence of a specific condition, and ownership interest automatically reverts to the grantor, successor, or other designated third-person.
The individual with the right to receive ownership upon the occurrence of the specific condition has the “possibility of reverter.” This reversionary interest may be sold or transferred by the individual.
Phrases in a deed such as “while”, “during”, “so long as” create fee simple determinable estates. Lehigh Valley R.R. Co. v. Chapman, 35 N.J. 177 (N.J. 1961).
Fee Simple Subject to a Condition Subsequent.
Fee simple subject to a condition subsequent is a fee simple estate which, upon the occurrence of a specific condition, creates a right to terminate the estate in favor of the original grantor or third party.
This right to terminate is called the right of re-entry or power of termination.
An example of a fee simple subject to condition subsequent would be that the owner transfers his residential property, with the condition that he has the right to have ownership returned to him if the property is used commercially.
Upon the occurrence of the specific condition, termination of the current ownership is not automatic. Ownership continues as prior to the occurrence of the specific condition, until the power of termination is exercised.
The words “upon condition that” or “provided that”, accompanied by a description of the condition triggering the right of re-entry, in a deed create a fee simple subject to a condition subsequent estate. Hagaman v. Bd. of Ed. of Tp. of Woodbridge, 117 N.J. Super. 446 (N.J. Super. 1971).
Fee Simple Subject to an Executory Limitation.
A fee simple subject to an executory limitation is an interest in real estate that, upon the occurrence of a specific condition, automatically transfers to a third person.
The third-person’s future interest is called an “executory” interest.
See Claremont Health Sys., Inc. v. Point Pleasant Borough, 16 N.J. Tax 604 (1997) (“The fee simple subject to an executory limitation, on the other hand, is defeasible in favor of a person expressly designated in the creating instrument other than the person who created the defeasible fee simple or his successors in interest.”)
Tenancy In Common
A tenancy in common is the most frequent form of co-ownership. Real estate transfers in New Jersey to two or more people create a tenancy in common unless the deed states otherwise (with the exception of husband and wife). N.J.S.A. 46:3-17.
Property rights of co-tenants are equal (same percentage of ownership) and undivided (shared interest in each part of the “bundle of rights”) unless altered by the deed.
Tenants in common may freely transfer their interest to a third-party without consent of other co-tenants. Upon death, the rights of a tenant in common are inherited via the intestate process – ownership does not transfer to the surviving co-tenant.
Upon the sale of commonly owned property, owners that paid more than their pro-rata share of operating expenses are entitled to a credit from the other co-owners. Esteves v. Esteves, 341 N.J. Super. 197 (App. Div. 2001).
Deeds may create a tenancy in common using the following language: “Grantor grants and conveys ownership of the property described below to Grantees, as tenants in common, along with all of its rights and appurtenances.”
A joint tenancy is a form of co-ownership marked by the “right of survivorship”. Ownership rights of a deceased joint tenant automatically transfer to the surviving joint tenants.
Joint tenants may sell or transfer their interest, severing the joint tenancy and ending the right of survivorship. The person to whom the joint tenants interest was conveyed becomes a tenant in common with the remaining co-owner. Gauger v. Gauger, 73 N.J. 538 (N.J. 1977).
Since New Jersey favors tenants in common, parties must express their intention in the deed to create a joint tenancy. N.J.S.A. 46:3-17.
Deeds may create a joint-tenancy using the following language: “Grantor grants and conveys ownership of the property described below to Grantees, as joint tenants with right of survivorship and not as tenants in common, along with all of its rights and appurtenances.”
Tenancy By The Entirety
A tenancy by the entirety is a form of joint property ownership available only to spouses. The purpose of this ownership is to protect assets during a marriage, and to provide security for one spouse on the death of the other.
Transfer of real estate to a husband and wife create a tenancy by the entirety unless the deed expresses or has a “tenor” manifestly indicating otherwise. N.J.S.A. 46:3-17.3.
Features of tenancy by the entirety include:
- Right of Survivorship – The surviving spouse becomes full owner of the property upon the death of the other spouse. N.J.S.A. 3B:9-1.
- No “Partition” Actions Allowed – Neither spouse may force the involuntary partition of the subject property during divorce. Jimenez v. Jimenez, 454 N.J. Super. 432 (N.J. Super. 2018).
- Written Consent Required to Impact Interest – Spouses may not impact their interest in a tenancy entirety during marriage or separation without the written consent of both spouses. N.J.S.A. 46:3-17.4.
- Tenancy in Common Upon Divorce – Tenancies by the entirety convert to a tenancy in common upon divorce with each spouse maintaining an equal one-half interest. Freda v. Commercial Trust Co., 118 N.J. 36 (N.J. 1990). Spouses may file a “lis pendens” to protect their interest during a divorce, and obtain a court order prohibiting the other from alienating or encumbering marital assets. Vander Weert v. Vander Weert, 304 N.J. Super. 339 (N.J. Super. 1997).
Tenancy by the entirety can be created in three ways under N.J.S.A. 46:3-17.2:
- The written instrument granting ownership to husband and wife designated both of their names as husband and wife;
- A husband and wife lease property with an option to purchase designating both of their names as husband and wife;
- An owner spouse conveys or transfers an interest in real property or personal property to the non-owner spouse and the owner spouse jointly under written instrument designating both of their names as husband and wife.
Where a deed grants ownership to three persons, two of whom are husband and wife, the husband and wife take one half, and the other person takes the other half. Petrone v. Petrone, No. A-5974-08T1, at *21-22 (N.J. Super. Oct. 28, 2013).
A life estate is a form of interest in real property that conveys the right to possess the property to a “life tenant” until the death of a named person. Upon death of the named person, the property automatically transfers to a designated remaindermen.
The “named person” whose death triggers the transfer can be the life tenant, grantor, or any third-person.
As an example, an owner may grant a life estate to a family member, such as a sibling or child, to reside in the home until their death. When the grantee passes away, ownership of the property transfers to the remaindermen.
Absent intent to the contrary, grantees of the life estate retain exclusive right of possession of the property with all the rights and obligations associated with ownership, including receiving income and paying costs such as taxes. See Dolan v. Muzyka, No. A-4521-11T2 (N.J. Super. Apr. 18, 2013).
Deeds may use the phrase “during the natural life of” to identify the person whose death triggers the life estate to transfer to the remaindermen, and the phrase “the remainder over at death to” to identify the remaindermen.