QUESTION PRESENTED 
               Your memorandum inquired as to whether Brian G~, a Supplemental Security Income (SSI)
                  recipient, has rental liability to his brother, William G~ (the purchaser), who entered
                  into an agreement of sale dated August 8, 2004. You referred to a memorandum prepared
                  by the Office of the General Counsel in March 2005 (PS-05-120) discussing the doctrine
                  of equitable title and you inquired whether William G~ could claim equitable title
                  to the property. If not, you inquired whether Brian G~ is receiving rent-free shelter
                  from Tibor D~ (the seller), who is the owner of record.
               
               SUMMARY
               According to the Pennsylvania common law doctrine of equitable conversion, when William
                  G~ signed an agreement of sale to purchase the property, he obtained equitable title
                  to the property, while Tibor D~, the seller, retained legal title. A purchaser, by
                  virtue of becoming the equitable or beneficial owner, is entitled to any benefit accruing
                  to the real estate between the date of execution of the agreement of sale and the
                  actual conveyance including any rents arising from the property. As an equitable owner,
                  William was entitled to any rental proceeds from the property. We believe that the
                  obligation of Brian to pay rent arises out of a valid oral agreement with William,
                  per the Pennsylvania statue permitting oral rental agreements. Therefore, because
                  William G~ has equitable title to the property and any benefit accruing to the real
                  estate, has been granted permission to possess the property prior to closing and delivery
                  of the deed, and because Brian G~ may be deemed to have a valid obligation to pay
                  rent per an informal agreement with William G~, we do not believe that Brian G~ is
                  receiving rent-free shelter from Tibor D~.
               
               BACKGROUND
               You indicated in your memorandum that Brian G~ reported that he lives alone in the
                  property that is under an agreement of sale to his brother, William, who told you
                  that he sometimes stays on the property when he visits, but that he has a principal
                  residence in Towanda, Pennsylvania. Both Brian and William reported that Brian pays
                  William $500 per month for rent and utilities, including cable service. Apparently
                  there is no written lease for this arrangement. You indicated that there is a dispute
                  over whether William G~ has paid the full purchase price for the property.
               
               Your investigation revealed that property records for the City of Philadelphia list
                  Tibor D~ as the owner of the property, and that in a phone conversation, Mr. D~ acknowledged
                  that he had an agreement of sale with William G~ for the property dated August 8,
                  2004. However, Mr. D~ claims that William G~ has not fulfilled the terms of that agreement
                  because he has not paid Mr. D~ all funds due. The notarized agreement of sale that
                  you provided contains an "as is" clause whereby the purchaser is to assume the outstanding
                  water bill and taxes beginning on September 8, 2004, for a total of 30 monthly payments
                  of $400 each, a total obligation of $12,000. According to your conversation with Mr.
                  D~, William G~ has not satisfied this obligation. There may be other payment obligations
                  due under the agreement of sale, as well, according to party statements in your file.
                  Mr. D~ indicated that no legal action had been initiated by either party to the agreement.
                  Mr. D~ also acknowledged that he had an informal agreement with William G~ that he
                  could inhabit the property with the understanding that he would perform some work
                  on the property.
               
               DISCUSSION
               The common law doctrine of equitable conversion has been in effect in Pennsylvania
                  since at least 1863. See Reed v.
                     Lukens, 44 Pa. 200 (Pa. 1863), 1863 WL 4782 (Pa.) (stating that after a contract for the
                  sale of real estate is duly executed, until the conveyance of the deed, the purchaser
                  is the equitable owner and entitled to all advantages that may thereafter arise, and
                  responsible for all loss that may befall it). See also
                     Payne v. Clark, 409 Pa. 557, 561, 187 A.2d 769, 770-71 (1963) (stating that from the moment an agreement
                  of sale is executed it vests equitable title to the purchaser who may go into a court
                  of equity seeking to enforce the contract and compel specific performance).
               
               The doctrine of equitable conversion arose in England out of the power of the chancellor
                  to compel the performance of what was intended by the parties. This power was grounded
                  in the principle that equity treats as done those things that should be done. It is
                  because of the equitable remedy of specific performance that fundamental real property
                  rights are created in a purchaser of realty prior to delivery of the deed.  See Pivirotto v. City of
                     Pittsburgh, 515 Pa. 246, 250-525, 28 A.2d 125, 127-28 (Pa. 1987) (finding that the purchaser
                  of property at a tax sale had equitable title and an interest in equity of redemption
                  that entitled him to notice prior to demolition by the city and to damages).
               
               In determining whether an equitable interest arose in a real estate agreement of sale
                  in Pennsylvania between a Pennsylvania corporation and a resident of another state,
                  a federal district court noted that the Supreme Court of Pennsylvania has found that
                  equitable conversion will come about only where the contract for the sale of land
                  is unconditional "such as equity will specifically enforce." Filsam
                     Corp. v. Dyer, 422 F. Supp. 1126, 1132 (E.D. Pa. 1976). In deciding whether Dyer's contract to
                  purchase land was conditional upon seller Filsam Corporation making certain repairs
                  and alterations, the Court clarified that "the existence of such conditions as are
                  within the control of the parties to a contract cannot in itself render the doctrine
                  of equitable conversion inapplicable." Filsam
                     Corp., 422 F. Supp. at 1133. The Court further clarified that the requirement that the
                  land sale contract be unconditional should only bar equitable conversion where the
                  condition must be accomplished before the contract can become operative, citing In
                  Re Governor Mifflin Joint School Authority, 401 Pa. 387, 394,164 A.2d 221, 224 (1960) (finding that a land agreement conditioned
                  upon the passage of hoped-for zoning change was not within the control of the parties
                  and that equitable conversion had not taken place). Finding no condition that was
                  beyond the control of the parties, the Court in Filsam Corp. held that the purchaser's equitable interest arose upon execution of the agreement
                  of sale and that the purchaser could assert his right to avoid the contract because
                  of the seller's non-performance of the repairs specified in the contract. 422 F. Supp.
                  at 1133. Equitable title carries with it a number of rights, including the right to
                  collect rents. See Sullivan v. U.S., 461 F. Supp. 1040, 1044 (W.D. Pa. 1978), judgment aff'd, 618 F.2d 1001 (3d Cir.
                  1980).
               
               Applying these principles of Pennsylvania common law to the agreement of sale between
                  William G~ and Tibor D~, we note that the special clause regarding the monthly payments
                  of $400 appears to be a condition that is within the control of the parties and is
                  not described as one that is required to be accomplished before the contract can become
                  operative. We also note that although there is a dispute regarding the full payment
                  of the purchase price, this dispute is within the control of the parties and may be
                  remedied by legal action. The purchaser, if not in default, may seek specific performance
                  of the contract. The purchaser may also seek to rescind the transaction if the seller
                  has repudiated the contract. The seller may sue for breach of the contract when the
                  purchaser has refused to pay. Therefore, because the dispute regarding the payment
                  of the terms of the contract is within the control of the parties, and remediable,
                  we believe that the agreement of sale is an enforceable contract, that the doctrine
                  of equitable conversion applies to the agreement, and that William G~'s equitable
                  interest in the property arose on August 4, 2004, the date that the contract was signed
                  by both parties.
               
               You indicated that while there is no written rental agreement between William and
                  Brian G~, Brian resides on the property and pays William $500 per month for rent and
                  utilities. Your Report of Contacts with Brian and William dated August 28, 2007, indicate
                  that they consider this arrangement to be a rental agreement. In Pennsylvania, a lease
                  of real estate for a period of less than three years may be oral; the relevant Pennsylvania
                  statute does not require a written contract. 68 Pa. Stat. Ann. § 250.201. A lease
                  for more than three years must be in writing and signed by the parties, "otherwise
                  it shall have the force and effect of a lease at will" . . . "unless the tenancy has
                  continued for more than one year and the landlord and tenant have recognized its rightful
                  existence by claiming and admitting liability for the rent, in which case the tenancy
                  shall become one from year to year." 20 Pa. Stat. Ann. § 250.202. In your Report of
                  Contact with Tibor D~ on September 28, and November 7, 2007, you indicated that he
                  thought that Brian has lived in the property over a year, but he did not know exactly
                  how long. If Brian has been a tenant in the property for over a year, and he and William
                  G~ continue to recognize the rental agreement, we believe that Brian G~'s rental liability
                  to William G~ continues on a year to year basis.
               
               We note that the right to possess a property under an agreement of sale does not usually
                  arise until the purchaser pays the price in full at closing, and the deed is conveyed
                  to the purchaser, who then records it. There has been no closing, and, therefore,
                  we assume, no conveyance of the deed. Although not addressed in the agreement of sale,
                  the seller admitted to you that he gave William G~ permission to possess the property
                  in exchange for doing "work around the place."
               
               We believe that, according to the doctrine of equitable conversion, William G~ would
                  be entitled to any rents that arise from the property whether or not he has actual
                  possession. See Nikole, Inc. v.
                     Klinger, 412 Pa. Super. 289, 603 A.2d 587 (1992), app. den'd, 535 Pa. 660, 634 A.2d 223 (1993);
                  Reed v. Lukens, 44 Pa. 200, 1863 WL 4782 (1883). Until such time as the seller initiates a successful
                  action for breach or rescission of the agreement of sale, or an action to eject William
                  G~ and his brother from the premises, we believe that Brian G~ has rental liability
                  to William.
               
               CONCLUSION
               We believe that William G~ has equitable title to the property and that William and
                  Brian G~ have entered into a valid oral rental agreement. Accordingly, Brian G~ has
                  rental liability to William G~ and is not receiving rent-free shelter from Tibor D~.
               
               Michael M~
               Regional Chief Counsel
               By:__________________________
               Patricia M. S~
               Assistant Regional Counsel