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

Dan Rafter4-minute read

November 19, 2020

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If you’ve bought a house in the United States, the odds are immense that you’ve taken fee simple ownership of the property. The fee simple way of owning a home is by far the most common type of homeownership in the country.

But if you’re like most people, you probably have little idea what fee simple ownership is and what rights it grants you. Fortunately, despite the unusual name, this form of ownership is relatively easy to understand.

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What Is Fee Simple Ownership?

Fee simple refers to how people own real estate. Say you buy a home in the United States from a seller. In the vast majority of cases, you will now have what is known as fee simple ownership of this property.

With fee simple, you take full and complete ownership of a piece of land and any buildings that sit on it. If you buy a home, that means you own the land, the home and any other outbuildings on that land, including sheds, garages or coach houses.

When you have fee simple ownership, you have the right to do whatever you want to your land and the properties on it. This means you can add a main bedroom to your home, build a second-story addition, build 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. You can also pass down this property to whomever you’d like.

Fee simple is the most common form of real estate ownership in the United States. It’s also the highest form of ownership. This doesn’t mean that owners can’t lose their properties and land. Government bodies and individuals can still file liens against fee simple properties if their owners fail to pay property taxes or commit other violations. These stakeholders can then take back the property through the foreclosure process.

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 fee simple ownership: fee simple defeasible and fee simple absolute.

Fee simple absolute is more powerful and is the most common form of ownership in the United States. Fee simple absolute is what people usually mean when describing fee simple ownership.

Under fee simple 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 to them they’d like.

Owners in a fee simple absolute arrangement can also include certain conditions on their property or estate when passing it down to an heir. Owners, for instance, might state that the home on a piece of land can’t be torn down by their heirs. They might also state that the property must always remain within the family.

Fee Simple Defeasible

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

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

Maybe you buy land and a home from an owner who stipulates that you can own the property as long the home remains a residential property. If you turn that home 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 in that owners again must meet certain conditions to retain ownership of their properties or land. But if owners violate these conditions, they might not lose their land. That’s because the former owners don’t automatically retake possession. These 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 home as a residence. If you turn that home into a hotel, the former owner can retake possession of the property. But the former owner doesn’t have to do this.

Fee Simple Vs. Leasehold Ownership

Most residential real estate in America is owned on a fee simple basis. But a smaller percentage of home sales result in leasehold ownership.

Under the leasehold model, one party owns the land while the other has the right to use this land for a set number of years. The leases involved in these arrangements are usually long, typically lasting 55 years or more.

If you enter into one of these arrangements, you'll have to pay a fee to rent the land. 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.

This arrangement, while rare in the United States, is most often seen with condos, townhouses and co-ops.

Bottom Line

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 fee simple, and make sure your home is being sold under such an arrangement, you can work with a real estate attorney when buying a home.

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Dan Rafter

Dan Rafter has been writing about personal finance for more than 15 years. He's written for publications ranging from the Chicago Tribune and Washington Post to Wise Bread, QuickenLoans.com and RocketHQ.com.