By Karen D. Friedman | 04.26.21
There are lots of ways you can hold property ownership.
Some ownership types impose conditions or restrictions that don’t allow the homeowner to fully exercise their “bundle of rights”.
The term “fee simple ownership” refers to one’s complete right and legal privileges over a real estate property. This means that there are no restrictions placed on the property and its use.
Let’s discuss what this means for the homeowner and what rights and privileges are included with Fee Simple Ownership.
What is a Freehold Estate?
To understand fee simple ownership, let’s start by discussing what a freehold estate is.
As the name implies, when you have a freehold estate that means you hold the estate freely. You are free to do what you want with the property while you presently own it. You also have the rights to the property for an indefinite period.
You have what’s called the “bundle of rights”. This means full ownership and legal privileges over a property.
What is the Bundle of Rights?
This bundle of rights allows the homeowner to do a multitude of things with the property. Here is a breakdown of the benefits that are included with the bundle of rights, also called U.P.T.E.E.:
USE – The owner has the right to use the property as he wishes (lawfully).
POSSESS – The right to live on the property and exclude others.
TRANSFER – The right to sell it, gift it, will it off, etc.
ENCUMBER – The right to use the property as security to borrow funds.
ENJOY – The right to enjoy the property without interference from others.
As long as a person is on title, they will enjoy the bundle of rights under the freehold estate and all that it has to offer.
Now that you understand what the freehold estate is and what it entitles the owner, you can understand fee simple ownership. This is a form of freehold ownership and a subcategory under the freehold estate.
Fee simple ownership is also known as fee simple absolute because the holder has full ownership.
What is Fee Simple Defeasible?
There are property ownership types that come with certain restrictions or conditions. Fee simple defeasible falls under this category.
Defeasible means able to be revised, voided, or annulled.
In relation to real estate, it’s referring to property ownership. With fee simple defeasible, ownership is transferred with some condition or restriction placed on the property. If that condition is not met, then the property reverts back to the original owner.
There are 2 types of defeasible estates – fee simple subject to a condition subsequent and fee simple determinable.
The conditions or restrictions placed on the property can vary. Here’s an example of fee simple subject to a condition subsequent:
The land is located near a protected wildlife area. The property will be sold on the condition that the land must be preserved. If the property is ever developed, that would violate the condition and result in loss of ownership.
In this scenario, if the condition is violated, the original owner has the “right of re-entry”. But this doesn’t happen automatically. The original owner would have to go to court to re-establish ownership.
With fee simple determinable, the condition refers to the property’s use while ownership is being held. This is an example of fee simple determinable:
You have a property sold on the condition that while it is being held, it will be used as a school. If the property at any point is not being used as a school, then they are at risk of losing ownership.
With fee simple determinable, if the property condition is violated, the ownership automatically reverts back to the original owner.
What is a Life Estate?
The life estate is another form of the freehold estate. This is when the owner of a fee simple, also known as the “grantor”, gives ownership to a person for the duration of their life. The person receiving ownership is called the life tenant.
The life tenant enjoys most of the ownership rights while in their possession. They can use and possess it as described in the “bundle of rights”. They also enjoy the right to rent or lease the property and received the income.
Upon the life tenant’s death, the ownership reverts back to the original owner or can be passed on to another party.
Creating a life estate is particularly useful in estate planning.
Normally, a will is created and then goes through probate. Probate is a court-supervised process intended to authenticate a last will and testament. This can be a lengthy process depending on the assets and how quickly the documents are filed.
Instead of creating a will, you can set up a life estate. When the ownership is set up in this way, you can avoid probate.
Final Thoughts Fee Simple Ownership
There are different types of fee simple ownership. Some with viable reasons for restrictions or conditions.
When it comes to ownership, fee simple or fee simple absolute allows for the most rights and privileges under the law. It is unrestricted and has no conditions. Fee simple ownership allows you to fully enjoy the “bundle of rights” afforded to homeowners.
That means you can paint your house pink or knock down a wall if you want. You can choose to live on your property or rent it out.
If you are a private or solitary person, you can put out a “no trespassing” sign. It is your right and you can exercise it.