So you are studying for your real estate exam and need to know what a freehold estate is, huh?
It’s one of the many real estate vocabulary words you will need to know to pass.
You’re in luck, as that is MY job to teach you!
So, What Is a Freehold Estate?
A freehold estate is ownership in land in which you have exclusive rights for an unlimited length of time. To be considered a freehold estate, two benchmarks have to be met:
It must be Immovable: The asset cannot be moved, therefore, it is either land or some sort of interest in that land.
No Fixed Length of Ownership: There is no set timeline for the ownership in the property to expire. The property has the ability to be passed on to all future generations if the right criteria are met.
There are only three types of freehold estates (pay attention amigos, test questions here):
1. Fee simple absolute
This type of land ownership in land is unrestricted. It is the purest form of ownership there is. With this type of freehold estate, you can use the land for whatever you want as long as it is legal (zoning laws). Based on our research, this is also the most common type of property ownership.
Three characteristics of fee simple absolute are….
It Can Be Inherited: If the property owner kicks the bucket, the heirs (normally children) will receive the land and buildings.
No Set Length of Ownership: As long as you pay Uncle Sam (taxes), pay the mortgage on the property, if you have one, and follow the law, the owner, or the owner’s heirs, can own the property forever.
It Can Be Sold: Ownership of the subject property can be sold (or transferred) to someone else.
Ownership via a Fee simple estate gives you absolute power (insert evil laugh here) and is only limited by government powers of….
Police Power – Uncle Sam regulating (mount up)
Escheat – die without a will or heirs? Back to Uncle Sam…
Eminent Domain – government taking your property
I’ll say it again for the kids in the back….
THIS IS THE MOST COMMON TYPE OF REAL ESTATE OWNERSHIP
You can do whatever you want, whenever you want and however you want.
In fact, this type of ownership is so popular that it has more than one common name. Many times, it is called “absolute ownership,” “freehold ownership,” “fee- ownership,” “estate of inheritance,” or “fee simple absolute estate.”
2. Fee simple defeasible
A fee simple defeasible estate is created when the grantor (seller) has conditions on a fee simple estate that is recorded on the deed. If one of those conditions is met, the property might be lost.
An example would be…
if your grandmother put in the deed that you were to receive the property after she dies unless you didn’t take her cat to the beach on every July 4th and then you missed a year, you lose the property.
No bueno….
3. Life estate
Too many people complicate this, so I am going to dumb it down for all of us.
If sally owns a property with a life estate, she owns it for her life. When she dies, it goes to someone else that was agreed upon prior to her death.
A life-tenant is responsible for taking care of the property and paying taxes normally. If a life tenant allows a property to deteriorate, it would be committing waste; a life tenant cannot commit waste.
Additionally, a life-tenant cannot leave property to anyone in their will, because it is already promised to someone else. They are just holding for a period of time and then the property will change hands upon the death of that person.
However, that person can still get a mortgage or sell their interest in the property (if they can find someone to make a loan on that or a buyer).
Is A Freehold Estate A Life Estate?
Sort Of. A life estate is also a freehold estate although ownership is limited to the lifespan of that person.
This person is known as the life tenant. A life tenant has rights to the property ONLY while they are alive (confused yet?).
Is Freehold property An Asset?
Absolutely! Although subject to a condition, Freehold Estates are classified as assets.
