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Back to the Future Interests: Tennessee’s Codification of a Common Law Property Principle

Back to the Future Interests: Tennessee’s Codification of a Common Law Property Principle

On March 19, 2015, Governor Bill Haslam signed into law HB 793/SB1226,  which codifies Tennessee case law regarding transfers of future interests in defeasible fee estates such as a “fee simple subject to a condition subsequent” and a “fee simple determinable.” Specifically, HB793/SB1226 makes clear that an original grantor or holder of a future interest in a defeasible fee estate can transfer their future interest to the holder of the corresponding defeasible fee estate only for the purpose of merging the interests.

The future interest retained by the grantor of a fee simple subject to a condition subsequent is known as a “right of entry” or “power of termination.”  The future interest retained by the grantor of a fee simple determinable is known as a “possibility of reverter.”  A party, usually the original grantor or its heirs, with a “right of entry” or “power of termination” may reclaim title when the stated condition fails to be met, provided that he or she takes some type of affirmative action to reclaim the title.  While a party holding a “power of termination” must take some type of affirmative action to reclaim title, the title automatically transfers to a party upon a breach of a specified condition in a deed creating a “possibility of reverter.”

Prior to Pickens v. Daughtery and Yarbrough v. Yarbrough (as now codified and clarified by HB 793/SB1226), prospective subsequent purchasers of defeasible fee estates who also wished to purchase the associated future interest to “merge” the interests were prohibited from doing so.  In case there was any doubt as to the validity and effect of Pickens v. Daughtery and Yarbrough v. Yarbrough, HB 793/SB1226, now makes clear that an original grantor or holder of a future interest in a defeasible fee estate can transfer their future interest to the holder of the corresponding defeasible fee estate only for the purpose of merging the interests. To be clear, Tennessee law prohibits the transfer of a possibility of reverter or right of entry by a holder other than the original grantor of the defeasible estate, unless the holder transfers the future interest to the holder of the defeasible estate for the purpose of merging the interests in any grantee.

C.E. Hunter Brush

BrushHunter