What Is Fee Simple In Real Estate? How It Works And Why It Matters

If you’ve bought a house in the United States, it’s likely you’ve taken fee simple ownership of the real property. The fee simple way of owning a home is the most common type of homeownership in the country.

But if you’re like most people, you probably don’t know what this type of ownership is and what rights it grants you. Fortunately, despite its unusual name, this form of ownership is relatively easy to understand.

The real estate term fee simple describes a landowner’s complete and total ownership of a piece of land and all properties on it. The fee simple owner may do anything they wish on the land, as long as it falls within established easements and zoning laws.

This means you can add a bedroom to your home, build a second-story addition, create a new garage or tear down your entire home and build a new one from scratch.

You also have the right to sell the land and its buildings whenever you want. Or you can pass down the property to whomever you’d like.

However, this doesn’t mean owners can’t lose their properties and land. Government bodies can use eminent domain to file liens against fee simple estates if the owners fail to pay property taxes or commit other violations. These stakeholders can then take back the property through the foreclosure process.

Now that you understand what fee simple ownership is, let’s discuss the different types of this kind of ownership.

Fee Simple Absolute

Fee simple and fee simple absolute are often used interchangeably, but there is a slight difference. That’s because there are two main types of freehold estate: fee simple defeasible and fee simple absolute.

Fee simple absolute is more powerful than fee simple defeasible because it’s outright ownership with no restrictions. It’s actually the most common form of ownership in the U.S. Fee simple absolute is what people usually mean when describing fee simple ownership.

Under absolute ownership, owners can own their properties and land forever – as long as they make their mortgage payments and pay their property taxes – and make any changes they’d like.

Owners in a fee simple absolute arrangement can also include certain conditions on their property or life estate when passing it to an heir. For instance, an owner might state that their heirs can’t tear down the home on a piece of land. They might also require the property to remain within the family.

Fee Simple Defeasible

Fee simple defeasible, sometimes called fee simple determinable, is a slightly less powerful form of ownership. In this arrangement, owners can keep their properties and land forever. But to retain possession, they must meet certain conditions that were put in place by a former property owner.

Owners who violate these conditions automatically lose their property and land.

Say you buy land and a home from an owner who stipulates that you can own the property as long the house remains a residential property. If you turn it into a hotel, violating your agreement, ownership of the land and properties revert to the previous owner.

Fee Simple Subject To Condition Subsequent

Fee simple subject to condition subsequent is similar to fee simple defeasible. Owners must meet certain conditions to retain ownership of their properties or land. But if they violate these conditions, they might not lose their land. That’s because the original owners don’t automatically retake possession. The former owners can choose to ignore the violations and let the new owners retain ownership.

Again, say you buy land and a home with the condition that you leave the house as a residence. If you turn that home into a hotel, the former owner could retake possession of the property. But the former owner doesn’t have to do this.

In America, most residential real estate is owned on a fee simple basis. A smaller percentage of home sales result in leasehold ownership.

Under the leasehold model, one party owns a property while the tenant can use the land for a set number of years. Leases involved in these arrangements are usually long-term, typically lasting 55 years or more. Some owners may grant a life lease where the tenancy remains until the lessee passes away. In that case, the property reverts back to the grantor.

If you enter into a leasehold arrangement, you'll have to pay a fee to use the land, unlike fee simple ownership which requires no rent payments. You'll own any home on the land, but when the lease ends, both the land and home will revert to the previous owner – unless you negotiate a new lease before the old one expires.

While rare in the U.S., leasehold estate arrangements are most often seen with condos, townhouses and co-ops.

If you’re buying a home, it’s most likely that you’ll end up with the fee simple model of ownership. This is by far the most common real estate ownership arrangement in the country. If you want to learn more about this type of land ownership, and make sure your home is being sold under such an arrangement, you can work with a real estate attorney when buying a home.