Not a lot are aware of this, but the majority of people actually have a Fee Simple Estate of the property they currently own.
If you have heard of this real estate term or for those who are unsure what this is – YOU’VE COME TO THE RIGHT PLACE.
If you are clueless as to what Fee Simple Ownership is and how it works, you’re in luck as we’ll break it down for you in the sections below.
What Is Fee Simple Ownership?
The most common form of homeownership in the United States is actually categorized as Fee Simple Ownership.
If you have recently acquired a property, most likely it falls under Fee Simple Ownership.
SO…What Is It?
BASICALLY – Fee Simple Ownership pertains to HOW A PERSON OWNS A REAL ESTATE.
It’s referred to as the highest form of real estate or freehold ownership.
It grants the fee simple owner FULL RIGHTS to the piece of land and all the outbuilding components that come with it – such as buildings, sheds, or garages.
Not only that, but property owners also hold the rights to do ANYTHING they want with the land.
For example, the title holder can opt to do the following:
- Add a second story to the existing house,
- Install a swimming pool in the backyard,
- Completely tear down the existing infrastructure to put up a new house or building.
Having full rights to whatever you want to do with the land also means you can sell it WHENEVER you want.
Options are usually to sell it, lease the estate, or pass down the title to whomever you wish to pass it on to.
It sounds good — however, it does not mean it does not bear the risk of losing a property forever.
The Risks
For instance, individuals and the government may file liens against property owners should they be caught in violation of zoning laws or criminal offenses.
Likewise, if the owner is found guilty of avoiding property taxes, the property can be taken away from the opener through a legal process.
Why Is It Called Fee Simple Ownership?
It sounds uncommon and quite frankly, a bit odd.
The origin of this term traces back to the medieval era when feudalism was still prevalent.
During these times, the society was composed of “kings”, “lords”, “vassals” and “knights”, to name a few.
The term “Fee” was derived from “fief” or fiefs – which were arrangements that entailed occupation of land in exchange for protection or certain services.
However, as the society or government changed its structure, this relationship or form of ownership was also abolished.
Legal estate owners are no longer subject to this type of arrangement wherein they have to render services or favors to the previous owner.
It transitioned to Fee Simple Ownership to indicate that an ownership is SIMPLE and STRAIGHTFORWARD.
In other words – with NO STRINGS ATTACHED.
Types of Fee Simple Ownership
As mentioned, Fee Simple Estate is the most common form of ownership in most if not all U.S. home sales.
Under this category, there are TWO TYPES of ownership: Fee Simple Absolute and Fee Simple Defeasible Ownership.
Although both differ on one thing, there is a clear difference between the two.
1. Fee Simple Absolute Ownership
Fee Simple Absolute is MORE POWERFUL and oftentimes more preferred than Fee Simple Defeasible.
Basically, it allows real estate owners to maintain a hold of their property so long as they pay what is due, such as mortgages and property taxes.
Under the Fee Simple Absolute Ownership, owners can make changes to the land and properties on the land however they want to.
They can choose who they want to pass it down to as well.
In addition to this, the title holder can include certain conditions in the deed when passing the Fee Simple estate down to an heir.
The most common examples are: the property must remain within the family or that the old or original infrastructure itself cannot be torn down.
2. What Is Fee Simple Defeasible Ownership?
The second form of property ownership is the Fee Simple Defeasible or also referred to as Fee Simple Subject to Condition Subsequent.
It operates in the same way to the extent that it still offers full ownership of the property.
However, in contrast to Fee Simple Absolute, there is a catch.
The owner has to abide by the conditions set by the previous owner or by the government.
In simpler terms, real estate ownership is subject to certain restrictions or limitations.
In the first example mentioned in Fee Simple Absolute, the new and succeeding Fee Simple owners would be categorized under this type of ownership.
Popular stipulations include the observance of passing it on only to an immediate family, prevention of turning the property for commercial use, or abiding by the city’s design control.
Fee Simple Ownership VS. Leasehold Ownership
Although the majority of properties being bought and sold fall under the Fee Simple Ownership, there are also a significant number of individuals who maintain leasehold ownership.
Understanding Leasehold Ownership
Leasehold ownership simply refers to the rent-tenant model or type of arrangement. This is most evident in metro cities where space is more limited and cost of living is higher.
In effect, most individuals resort to a lease.
The leasehold model gives the person the right to “lease” or occupy the land or property for x amount of years.
Typically, these are subject to long-term leases that can last for 20 years and above.
How Leasehold Ownership Works
This arrangement entails that the person “renting” the property, or referred to as lessee, pays a certain amount of rent money to the property’s owner, or lessor, in exchange for occupancy.
When the contract ends, tenants are expected to vacate the premises. In effect, the property reverts back to the original owner unless they decide to renew the agreement.
This agreement is usually seen in building apartments or leasing a condo or a townhouse.
Needless to say, the lessee only has the right to occupy and have full access to the land and property but not make any changes to it.
Real estate owners normally provide lease guidelines and certain restrictions when it comes to renovations or repairs.
However, there is also a term called “ground lease” wherein a property owner entrusts the land and allows the lessee to develop it for a certain period of time.
For all types of lease – the premise is the SAME.
As they do not have possession or right to the title, they are NOT allowed to pass it down to an heir nor use it as encumbrance or collateral in loans.
Frequently Asked Questions
Do You Own the Property in Fee Simple?
Yes, and it can either be categorized either Fee Simple Absolute OR Defeasible.
Although there might be conditions that limit or restrict the latter to limited activities that they can do with the property and land, both types still indicate FULL rights and ownership to the land.
Real estate owners have rights as long as they abide by the conditions, city and government laws, and pay property taxes.
What is Fee Simple Determinable?
This form of ownership is synonymous to Fee Simple Defeasible.
Both simply pertain to a particular “condition subsequent” or “fee tail” that needs to be observed in order to retain rights and ownership to the land and property.
What Are Examples of Fee Simple Properties?
Most common fee simple estates are land, houses, and buildings. However, shared properties in the property do NOT belong to this type of ownership.
For instance, in condo ownership, only the space and unit are owned, but not the land.
Although there are rights and ownership to the property, technically, it does not fall under this category.
Conclusion
Knowing the type of property ownership you have to a certain property or land is crucial.
More specifically, it’s important to know the implications of these types of ownership in order to determine the rights to the land as well as conditions in order for the occupant to retain occupancy rights and ownership.
