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1. Alex owned a fee simple absolute in Desertacre, a 500-acre tract of desert land. Desertacre was unimproved, except for a well on the land; a black electrical cable mounted on poles connected the well’s pump engine to the only power line in the region, which adjoined the west side of Desertacre. Twelve years ago, Alex conveyed
the east half of Desertacre to Beth in return for $250,000; the deed did not create any express easements. Beth planned to build a home on East Desertacre when she retired.
One week after Beth purchased the land, she installed an underground electrical cable that ran from her planned home site, crossed West Desertacre (Alex’s retained land) for a distance of 1,000 feet, and then connected with the power line. She used a tan-
colored cable, which was buried 12 inches below the ground in most places; but there was one area on West Desertacre where 25 feet of the cable were barely visible on the
land surface if a person looked closely. Beth used the electricity to power four large lights which she kept on all night to deter trespassers. Alex never noticed the tan cable, but he sometimes wondered where Beth got the electricity for her lights.
Five years ago, Alex borrowed $100,000 from Carl in order to build a cabin on West Desertacre; the loan was evidenced by a promissory note and secured by a mortgage on the property, but Carl did not immediately record. Alex began construction, but ran out of money to complete the project. He accordingly borrowed $50,000 from Dana; the loan was evidenced by a promissory note and secured by a mortgage on the property. Dana recorded her mortgage immediately; two days later, Carl recorded his mortgage. Neither Carl nor Dana ever visited the land.
While working on the cabin one year ago, Alex was badly bitten by a wild turkey, became paralyzed, was unable to work, and accordingly failed to make the payments due on the loans from Carl and Dana. In September, Carl sent Alex and Dana a notice
stating that: (1) Alex had defaulted; and (2) Carl had elected to accelerate the debt and begin foreclosure proceedings.
Carl scheduled a nonjudicial foreclosure sale for noon on Thanksgiving Day, on West Desertacre. At that time, the only bidders were Carl and Fiona; Carl bid $100,000, but Fiona then bid $100,001 and acquired the property. Alex then filed a lawsuit to set aside the sale.
What is the state of title to West Desertacre?
As part of your answer, be sure to discuss whether the foreclosure sale will be set aside.
Construction and Substance of the Response
A good answer is also a well-organized answer. Many professors advise students to spend 10-15 minutes outlining the answer to a 60-minute essay question before beginning to write. It is important to be able to (1) identify the issues, (2) assess their
relative importance, and (3) create a logical organization for addressing them. Headings and subheadings are vital to structure the answer.
Most professors expect that students will use the traditional IRAC formula in structuring their answers. Identifying the specific issue up front not only tells that professor that the student has correctly spotted the issue, but also focuses the analysis.
Stating the rule of law helps to ensure that the analysis is properly organized and targeted. Be sure not to jump from the issue to the conclusion. Almost always, the most important part of the answer is the analysis―applying the applicable legal rule to the particular facts in the question―not the conclusion. An answer that contains little or no analysis will receive a poor grade. Exam questions often present “gray area” issues that could reasonably be decided either way. In such a situation, there is no correct conclusion; the grade will be based on the quality of the analysis
Answer
Topic: Easements; Mortgages; Foreclosure
Purpose of the Question
This is a complex question which asks the student to evaluate the state of title to a tract of desert land. The student must determine (1) who holds title to the land and (2)
what encumbrances burden the land. Part of the complexity arises from the foreclosure of a mortgage on the land, which may be set aside―thus changing the identity of the owner.
There are three main issue clusters. First, is there a prescriptive easement on the land? Second, what is the relative priority of the two mortgages on the land? Finally, should the foreclosure sale be set aside and, if so, what impact will this have on the state of title?
Sample Answer
Prescriptive easement
In order to obtain a prescriptive easement, the claimant must use land owned by another in a manner which is adverse, open and notorious, and continuous for the statutory period.
a.
Adverse
Most states presume adversity where the other prescriptive easement elements are satisfied, if there is no clear evidence that the burdened owner consented to the use. Here, there is no indication that Alex consented to the presence of the cable on his land. Indeed, he “never noticed” the cable and “wondered” where Beth got her electricity from, which shows that he never consented. Because the other elements are
met, as discussed below, adversity is established.
b.
Open and Notorious
The claimant’s use must be so open and notorious that a reasonable owner who was present on the land would be able to discover it by a diligent inspection.
It would be difficult for Alex to discover the cable because almost all of it was buried, and the small portion on the surface was tan in color, which would probably blend in with the color of the desert surface, making it hard to see. Moreover, Alex failed to find it for over 12 years, which also indicates that it was hard to see. But the cable was visible if a person “looked closely,” and the most likely explanation for Alex’s failure to discover it is that he rarely visited the land, and thus did not conduct a diligent inspection. In addition, Alex was on notice that Beth’s land was somehow connected to the only power line in the area, which should have led him to investigate. Although this is a close question, a court would probably find that the use was open and notorious.
c.
Duration
Although state laws vary on the point, the most common statutory periods for a prescriptive easement are 5, 10, and 15 years. Because Beth’s use continued for 12 years, she would satisfy the statutory period in most jurisdictions.
d.
Conclusion
In conclusion, Beth has a prescriptive easement for her cable if the statutory period in the jurisdiction is 12 years or less.
Mortgage priority
In general, the first mortgage placed on a property takes priority over a mortgage created later in time unless the subsequent mortgagee is a bona fide encumbrancer (BFE). In notice jurisdictions, a BFE is a person who obtains her mortgage after a prior mortgage, provides value to the borrower in the form of a loan, and has no notice
of the prior mortgage. In race notice jurisdictions, the same requirements apply except that to qualify the BFE must also be the first to record her mortgage. Finally, in race jurisdictions the first mortgagee to record her mortgage has priority. A subsequent encumbrancer is on notice of a prior mortgage if she has actual notice, is charged with record notice, or is charged with inquiry notice.
a.
Bona fide encumbrancer
Here Carl’s mortgage was created first in time, so it has first priority unless Dana qualifies as a BFE. Dana easily meets all the requirements in a notice or race-notice jurisdiction except possibly for notice: her mortgage was created after Carl’s mortgage, Dana provided value to Alex by loaning him $50,000, and Dana recorded her mortgage two days before Carl did. In addition, because Dana recorded first, she has priority in a race jurisdiction.
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b.
Notice
A person has record notice when a standard title search would have revealed the existence of a prior deed or encumbrance. Because Carl’s mortgage was not recorded at the time Dana acquired her mortgage, she could not have found it in the public land records, and thus she did not have record notice.
A person is on notice of a prior interest that would have been obtained by investigating suspicious circumstances; a person planning to obtain an interest in real property must inspect the property to determine if suspicious circumstances exist. Although Dana never actually visited the land, she would have seen Alex’s partially-completed cabin had she done so. An argument can be made that this was a suspicious circumstance which would have put her on notice because some owners borrow money to build homes on their land, and such a loan would typically be secured by a mortgage. But the stronger argument is that this was not a suspicious circumstance because there was nothing on the site (such as a sign) that mentioned the
existence of a construction loan, and many owners would have been able to finance the construction of such a small structure (merely a cabin, not a house) with their own funds. On balance, Dana did not have inquiry notice.
c.
Conclusion
In most jurisdictions, Dana qualifies as a BFE. Therefore, her mortgage takes priority
over Carl’s mortgage.
Foreclosure sale
a.
Setting aside sale
A court will set aside a nonjudicial foreclosure sale in two situations: (a) the sales price is so low as to shock the judicial conscience, usually 20% of value or less; or (b)
there is a significant procedural irregularity in the sale.
The value of West Desertacre is unclear, but was probably at least $450,000. This is because East Desertacre (an identical unimproved parcel, apparently) sold for $250,000, and $200,000 has since been invested in building the cabin on West Desertacre. However, because West Desertacre is encumbered by Dana’s senior mortgage, the value of the equity that a buyer would obtain at a foreclosure sale is only $400,000. Based on this assumption, the sales price was about 20% of value and
accordingly the sale would be set aside on this basis.
There was no apparent procedural irregularity in the sale, except that it was conducted
on a national holiday. On the one hand, this might discourage bidding because people
would probably be spending the day celebrating with their families, not going to a foreclosure sale; this would explain why no outside bidders were present. But on the other hand, setting the sale on a holiday might actually encourage competitive bidding
because potential bidders would not be working at their normal jobs and thus would be able to attend the sale. Taken together, these two factors suggest that setting the sale on a holiday probably made no difference to the outcome.
The most likely conclusion is that the sale will be set aside.
b.
Effect of valid sale
A valid foreclosure sale eliminates the mortgage being foreclosed and all interests in the land that are junior to it. Because Dana’s mortgage had priority over Carl’s mortgage, the sale did not affect her mortgage. Thus, if the sale is valid Fiona took title subject to Dana’s mortgage.
Similarly, a valid foreclosure sale might eliminate Beth’s prescriptive easement. Because her easement was created first in time, it has priority over the mortgages held by Dana and Carl unless they were BFEs. Under the rules stated above, Dana and Carl were clearly BFEs in all jurisdictions except for the possible issue of notice: they acquired their mortgages after Beth obtained her easement; they provided value to Alex through their loans; and they recorded their mortgages, unlike Beth who failed to record her easement. Because Beth’s easement was never recorded,
Dana and Carl did not have record notice; nor do the facts suggest they had actual notice. However, the analysis in the prescriptive easement section above indicates that the cable was open and notorious, so Dana and Carl would have seen the cable had they inspected the land―and thus should have inquired as to whether Beth held an easement. Accordingly, in notice and race-notice jurisdictions, Beth’s easement is senior to their interests.
Conclusion
The most likely outcome is that a court will set aside the foreclosure sale. Thus, Alex owns a fee simple absolute in West Desertacre, encumbered by Beth’s easement, Dana’s mortgage, and Carl’s mortgage. If the sale is not set aside, then Fiona owns a fee simple absolute in the property, encumbered only by Beth’s easement and Dana’s mortgage.
2. Lois owned a shopping center. It consisted of a large store space leased to a famous supermarket and smaller store spaces for 10 other businesses. Tony dreamed of opening his own coffee house even though he had no business experience; he decided to rent one of these smaller spaces. Lois and Tony orally agreed that Tony would rent store space #7 for one year on these terms: (a) the term would begin on October 1; (b) rent was $5,000 per month; and (c) Tony could assign or sublease only if Lois consented.
On October 1, Tony opened “Tony’s Coffee” and paid rent for the first month. Throughout October the business attracted more customers each week; the weekly revenue totals were $500, $1,000, $2,000, and $3,000. Tony concluded that the business was doing so well that he could move it to a larger space in another shopping
center across the street. Tony orally agreed to transfer “all of the rest of my lease” to his friend Amy, so that she could take occupancy on January 1. Amy planned to continue operating the coffee house and had five years of experience running an ice cream store in the past. But when Tony asked Lois for permission, she replied: “No way. You’re the one who is so successful. What does Amy know about coffee? And if you open a bigger store across the street, you’ll take customers away from my center!” Disappointed, Tony failed to pay the rent due on November 1 and never paid
rent again.
Tony’s business continued to improve through November; the weekly revenue totals were $3,100, $3,250, $3,500, and $3,550. But on December 1, Lois’s staff erected the shopping center’s annual Christmas display, where visitors could get free hot chocolate. The display blocked the view of the coffee house from the road; it also occupied the 10 parking spaces closest to the coffee house. The display brought more customers to the center, but not to the coffee house. During the first 3 weeks in December, Tony’s business seemed to stagnate; the weekly revenue totals were $3,510, $3,470, and $3,530. Frustrated, Tony signed a five-year lease for a larger coffee house space in the shopping center across the street, with occupancy to begin on January 1. On December 24, Tony sent this email to Lois: “That Christmas display
is killing my business! Get rid of it. Tony.”
Lois never responded, so on December 31 Tony started moving his chairs, tables, coffee machines, and other equipment and inventory to his new location. Enraged that Tony was moving, Lois waited until he left that evening and used her key to enter
store space #7. She moved all of Tony’s remaining equipment and inventory to the public sidewalk, and changed the door locks. Lois then made diligent efforts for 9 months to mitigate her damages by trying to re-rent the space, but without success. Lois now plans to sue Tony for $55,000 in unpaid rent.
How much rent does Tony owe to Lois, if any? Why?
Construction and Substance of the Response
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A good answer is also a well-organized answer. Many professors advise students to spend 10-15 minutes outlining the answer to a 60-minute essay question before beginning to write. It is important to be able to (1) identify the issues, (2) assess their relative importance, and (3) create a logical organization for addressing them. Headings and subheadings are vital to structure the answer.
Most professors expect that students will use the traditional IRAC formula in structuring their answers. Identifying the specific issue up front not only tells that professor that the student has correctly spotted the issue, but also focuses the analysis.
Stating the rule of law helps to ensure that the analysis is properly organized and targeted. Be sure not to jump from the issue to the conclusion. Almost always, the most important part of the answer is the analysis―applying the applicable legal rule to the particular facts in the question―not the conclusion. An answer that contains little or no analysis will receive a poor grade. Exam questions often present “gray area” issues that could reasonably be decided either way. In such a situation, there is no correct conclusion; the grade will be based on the quality of the analysis.
Answer
Topic: Landlord-Tenant
Purpose of the Question
This is a complex fact pattern in which the student must identify and analyze the doctrines necessary to address the call of the question:
How much rent does Tony owe
to Lois, if any? Why?
A good answer would first make the point that that Tony has a term of years tenancy and, accordingly, is liable for all unpaid rent for the balance of the lease term unless he can successfully assert a defense.
Tony has three potential defenses. First, he can argue that Lois breached her obligation by failing to approve the proposed transfer to Amy; if she did breach this obligation, then it constitutes a material breach which excuses Tony from further performance under the lease, including the payment of rent. This requires that the student consider both the traditional approach and the modern approach to the landlord’s obligation to consent to the assignment of a commercial lease. Second, Tony can argue that he was constructively evicted by Lois’s holiday conduct. Notice that he cannot claim breach of the implied warranty of habitability because this is a commercial lease, not a residential lease. Finally, Tony can argue that Lois used self-
help to evict him, which breaches her obligations under the lease and excuses him from further performance, as discussed above.
Sample Answer
Term of years tenancy
A term of years tenancy has a fixed duration that the landlord and tenant agree to in advance. Once the term ends, the tenancy automatically expires. The tenant is liable for all rent due during the lease term absent a special defense. The Statute is Frauds is
not applicable here because the lease term was not longer than a year.
Here Lois and Tony agreed in advance that the lease would begin on October 1 and continue for “one year,” thus ending on September 30. Because this is a lease for a fixed duration, it created a term of years tenancy. Accordingly, Tony is liable for $55,000 in unpaid rent ($5,000 per month for 11 months) unless he can establish a defense.
Assignment
The law generally favors free alienation. Therefore, a tenant such as Tony is free to assign or sublease his interest unless the lease provides otherwise.
a.
Silent consent clause
A lease clause which provides that the tenant may assign or sublease only with the landlord’s consent, but fails to provide a standard for the consent process, is called a silent consent clause. The oral agreement here contains such a silent consent clause because the parties agreed that Tony could assign or sublease “only if Lois consented,” but did not provide a standard for granting or denying consent.
Most courts interpret a silent consent clause as giving the landlord the sole discretion to decide whether to consent to such a transfer. But the modern approach is that the landlord must have a commercially reasonable objection in order to deny consent in this situation. A landlord who wrongfully refuses to consent to a proposed transfer has
materially breached her obligations under the lease, which excuses the tenant from further performance.
b.
Sole discretion
Under the sole discretion approach, a landlord may deny consent to a proposed sublease or assignment for any reason or for no reason at all. Under this approach, the reasons that Lois provided for refusing consent (Amy’s lack of experience and competition from Tony’s new store) would be valid objections, and would not excuse Tony’s nonpayment.
c.
Commercially reasonable objection
Under this approach, the landlord must have a commercially reasonable objection to the proposed assignment or sublease. Denying consent on the basis of personal taste or belief is not commercially reasonable.
Lois’s first objection seems to be that Amy has no experience running a coffee business, which presumably expresses a concern that the business is more likely to fail
if Amy takes over. It is commercially reasonable for a landlord to select tenants who will maintain successful businesses. If a business fails, the tenant may be unable to pay the rent, which directly harms the landlord’s income; in addition, a failing business will not attract customers to the center, which means that other businesses in the center will suffer. The real question here is whether Amy is qualified to run Tony’s business. It is notable that Amy has five years of experience running an ice cream store, apparently with success; and although they obviously differ somewhat, both an ice cream store and a coffee house are essentially businesses that sell food products which members of the public consume on the premises. Compared to Tony, who had no business experience at all when he began the coffee house, Amy is highly qualified to run the business.
Lois’s second objection is that Tony’s planned “bigger store across the street” will take customers away from her center. Presumably she would argue that because Tony
has proven himself to be a successful coffee store operator, his new store would compete strongly with Amy’s older and smaller store; as a result, she would argue, business at Amy’s store would suffer―and the business might even fail. Further, the customers at Tony’s new store would tend to patronize other businesses in the other shopping center, rather than the businesses in Lois’s center. On the other hand, the immediate success of Tony’s coffee house suggests that there was an unfilled need for
a coffee house in the area, so it was successful simply because it was first in time, not because of any special ability that Tony possessed. The implication is that Tony’s new coffee house would not be particularly successful, because the market niche for coffee has already been filled by his existing coffee house and there would be no reason for patrons to switch to the new store. While it is a close question, at a minimum there seems to be a substantial risk that Tony’s proposed new store would divert at least some customers from Amy’s store and Lois’s center in general, and this should be viewed as a commercially reasonable objection.
d. Conclusion
Lois was entitled to refuse consent to the proposed assignment to Amy under both the sole discretion approach and the commercially reasonable objection approach. Accordingly, Tony will not be successful in asserting that she breached the lease.
Constructive eviction
Constructive eviction occurs when the landlord’s wrongful act or omission substantially interferes with the tenant’s beneficial use and enjoyment of the lease premises. In order to use the doctrine, the tenant must notify the landlord of the problem, give the landlord a reasonable time to fix the problem, and then (in most jurisdictions) vacate the premises within a reasonable period of time. Constructive eviction excuses the tenant from any further obligation to pay rent.
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a.
Wrongful act or omission by landlord
Lois’s alleged wrongful acts fall into three categories: (a) blocking the view of the coffee house from the road; (b) blocking the 10 parking spaces closest to the coffee house; and (c) giving away free hot chocolate. Lois would argue that they were all taken for a legitimate business reason: to create a Christmas display that would attract customers to the center. The fact that this was an “annual” display further suggests that the actions were taken in good faith and accordingly were not wrongful. At bottom, the issue here is whether landlord conduct that benefits most tenants but harms one tenant is wrongful. In general, any commercial tenant has a right to expect that the landlord will not unreasonably interfere with its normal business by impeding parking or blocking the store’s visibility. Further, nothing in the facts suggests the Christmas display could not have been placed in another location, where it would not have interfered with Tony’s business. The most likely outcome is that this will be seen
as wrongful conduct.
b.
Substantial interference
Substantial interference occurs when leased commercial premises are unsuitable for normal business. Here Lois’s wrongful conduct did not prevent Tony from operating his business; rather, the argument is that her conduct discouraged some customers from patronizing his business. Tony would argue that the revenue from his business increased rapidly each week in October and November, but then “seemed to stagnate” in December when the display was erected. In fact, the business revenue for the first 3 weeks in December was lower than the revenue in the last week of November. This suggests that the display crippled the growth of the business. While Lois might argue that the profits from any new business would level off at some point, it is a fair inference that the increased customer traffic during the holiday season should have boosted his revenue, not reduced it. While this does constitute interference with the business, however, the level of interference is probably not “substantial,” since the premises are still generally suitable for business. It is notable that Tony waited for 3 weeks before even complaining to Lois about the situation, which implies that the display was not a serious problem.
c. Procedure
Tony’s December 24 email satisfied the notice requirement because it clearly informed Lois about the nature of the problem―that the display was harming his business―and demanded that it be corrected. He also gave Lois 7 days to fix the problem before taking action, which was a reasonable period of time under the circumstances. It is a fair inference that that display was designed to be erected quickly and thus removed quickly, so 7 days was more than enough time. Finally, Tony began to vacate the premises when the 7 day period expired, and was only
prevented from doing so by Lois’s own conduct in evicting him, so a court would conclude that this element was satisfied.
d.
Conclusion
Tony will not succeed on a constructive eviction claim because Lois’s conduct did not
substantially interfere with his business.
Self-help eviction
In most jurisdictions, a landlord may not use self-help to evict a tenant. But self-help eviction is allowed in some jurisdictions if the landlord (a) is entitled to possession of the premises and (b) uses only reasonable force in carrying out the eviction. When the
landlord uses illegal self-help to evict the tenant, this breaches her obligation under the lease and relieves the tenant of liability for future rent.
In this case, Lois physically removed Tony’s personal property from the premises and changed the locks, all without his consent. This constitutes a self-help eviction. As a result, in most states Tony is no longer liable for rent that accrues after December 31.
The outcome is less clear in states that follow the minority approach. Lois was entitled to possession of the premises since Tony breached his obligation to pay rent for November and December. However, even though no physical violence actually occurred during the eviction process, some courts might find that there was a potential
for violence because Tony might have returned while Lois was removing his property and the confrontation could have developed into violence, and thus find that excessive
force was used.
In most jurisdictions, Lois’s use of self-help eviction would relieve Tony of rent liability for the period after December 31.
Conclusion
In most jurisdictions, Tony is liable for only $10,000 in rent (the rent due for November and December) because Lois engaged in illegal self-help eviction on December 31. In some jurisdictions, Lois’s eviction would be viewed as appropriate and there Tony would owe $50,000 in rent.