Over 99% of the privately owned land in the US is a fee-simple type of ownership. It is the most preferred way to own a property. It also offers indefinite possessory rights, no inheritance limitations, and the ability to sell the entire property.
Apart from fee simple, joint tenancy, tenancy in common, and tenants by entirety are well-known ownership types. In this blog, we’ll explain what fee simple means, its types, and how it differs from other forms of ownership.
FACTS ABOUT FEE SIMPLE 🔍
- Fee simple dominates U.S. land ownership, with over 99% of the privately owned land under this model.
- It offers indefinite ownership, provided all regulations and obligations are met.
- Fee simple enables easy inheritance. Your property goes to chosen heirs unless stated differently in your will.
What Is Fee Simple?
Fee simple is a legal term. This type of ownership gives complete rights to use your property without any major limitations. Fee simple absolute is the best type as it offers unparalleled freedom to use the land.
Nevertheless, conditions or termination of ownership may occur based on how you use it. It is subject only to any applicable laws or regulations. This means you can use the property in any way you see fit, sell it, or give it away.
What Are the Different Types of Fee Simple Ownership?
There are two main kinds of fee simple ownership. Here’s how they work:
Fee Simple Absolute
With fee simple absolute ownership, the property is forever yours. It does not have an expiration date or landlord surveillance. You can also build, plant, and pass it down for generations without any implications.
But remember, you still need to abide by the regional rules and regulations, like payment of tax and following local rules. Specific details and nuances can vary. Hence, you should consult a legal professional for specific advice for your situation.
Fee Simple Defeasible
Defeasible ownership hinges on conditions such as restrictions on sale, maintenance requirements, and payment clauses. These conditions are established before the property transfer and outlined in the title deed by the homeowner.
Eventually, if these conditions are not met, the property may revert to the grantor or a third party. Fee simple defeasible has three types. Each type involves different outcomes or actions if property ownership conditions are violated.
1. Fee Simple Subject to Condition Subsequent: In this type, the property doesn’t automatically go back to the homeowner if conditions are unmet. Additionally, the homeowner can reclaim it or let it stay with the grantee.
2. Fee Simple Determinable: In this ownership, the title unquestionably goes back to the homeowner if conditions are not met, without additional action.
3. Fee Simple Subject to Executory Limitation: In this type of ownership, if conditions are violated, then, as a result, the ownership automatically shifts to a third party. Hence, no additional action is required.
What Are Other Types of Ownership?
The number of property ownership types in the US isn’t fixed and can vary based on how you categorize them. However, here are some of the most common and distinct categories:
1. Life Estate
Ownership lasts for a person’s lifetime. After their death, ownership transfers to beneficiaries, also known as the remainderman.
Example: An owner grants a cottage to their grandkids but keeps life estate rights. This lets them live in the home while ensuring the grandkids inherit it someday.
2. Joint Tenancy
In joint tenancy, two or more people own the property equally, with the right of survivorship. This means the deceased owner’s share unquestionably passes to surviving owners.
Example: Best friends A and B buy a beach house in joint Tenancy. When B passes, his share goes to A. This ensures their dream vacation home stays in the family.
3. Tenancy in Common
Tenants in common also share ownership, but the shares can be unequal. If one tenant passes away, their share goes to their heirs, not necessarily the other tenants.
Example: Siblings A and B contribute 60% and 40% of funds to buy a cabin respectively. If B passes, 40% will go to their kids, not A, despite the shared ownership.
4. Leasehold Estate
This type includes temporary ownership for a fixed period. Owners have the right to use a property through a lease agreement but don’t own the land.
Example: A modern office space can be rented under a 10-year lease. This rented space in which they run the business is owned by a bigger workspace lending provider.
However, different subcategories and variations may exist within these types. State laws and agreements can introduce further nuances, so it’s best to consult a legal professional for personalized guidance.
How Does Fee Simple Differ From Other Forms of Ownership?
Fee simple stands out due to its maximum ownership rights and minimal limitations. Here’s how it differs from the other common ownership types:
| Fee Simple | Life Estate | Joint Tenancy | Tenancy in Common | Leasehold Estate | |
| Duration | Permanent | It ends with a specific person’s life | Ends after the death of all owners | Ends after the death of all owners | Temporary ownership for a fixed period |
| Control | Complete control | Restricted in modifications or selling without permission | Equal control for all owners | Individual control over your share | Based on lease terms set by the owner |
| Restrictions | Local zoning laws and easements | Specific terms set by the grantor | Subject to owners’ agreement / legal requirement | Subject to owners’ agreement / legal requirement | Limitations as per the lease agreement |
| Inheritance | Passes to heirs as per will | Transferred to beneficiaries upon tenant’s death | The deceased owner’s share passes to the surviving owners | Inherited by anyone designated in the deceased owner’s will | No inheritance rights |
| Taxes | Current owner’s responsibility | Usually, it is the life tenant’s responsibility | All owners are responsible | All owners are responsible | Depends on the lease agreement |
Important Considerations for Fee Simple Owners
If you plan to buy property under this ownership type, consider these key factors:
- Property Taxes: This includes state or local taxes or the current property tax of $1,682. It can be any assessment for public improvements such as roads or sewers.
- Zoning Laws: Zoning dictates allowable activities on different lots, such as residential, commercial, or industrial uses. Hence, compliance with federal zoning laws is crucial to avoid conflicts.
- Liens: Your land will be subjected to various types of liens. If you consider purchase of a property, it’s important to conduct a thorough title search to identify any such issues before you close the deal.
- Eminent Domain: In certain circumstances, the government may choose to exercise its power of eminent domain. To take possession of a private property for public use. While this is a rare occurrence, it’s important to understand your rights.
Bottom Line
Fee simple is the real estate ownership above all other ownership types. Additionally, this type grants maximum rights and control to property owners. Due to its benefits, most of the privately owned land falls under this ownership type.
Even if you consider purchase of a property under this type of ownership, it’s important to conduct your due diligence and consult with a real estate professional. To ensure that you fully understand your rights and obligations as an owner.
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FAQs
What is the meaning of fee simple?
The term "fee" in fee simple comes from the old English word "feodum," which referred to land held by a person or group in return for services or duties. "Simple" is used to distinguish it from other more limited forms of ownership, such as a life estate or leasehold.
Is fee simple a good thing?
Fee simple ownership is generally considered a good thing as it provides property owners with the greatest possible rights and control over their property.
What is the difference between fee simple and leasehold ownership?
The key difference is that in fee simple, you own the entire property. But for a leasehold interest, you must pay rent to the original owner until the interest ends.
Is freehold or leasehold better?
Freehold purchases are better than leasehold in terms of overall simplicity and complete ownership. Freehold properties tend to cost more upfront to purchase than leasehold, but leasehold properties often come with additional costs.
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