What is fee simple ownership?

Fee simple ownership represents the most complete form of property ownership available in the United States. If you've purchased a home with a mortgage, you've likely acquired fee simple ownership of that real property.

Despite its formal-sounding name, fee simple ownership is straightforward to grasp. This form of ownership grants you the broadest possible rights to your land and any structures on it, making it the foundation of residential property ownership across the country.

In this guide, we’ll explain what fee simple means in real estate and examine the different types of fee simple ownership you should know about.

Fee simple ownership definition

Fee simple is a form of ownership that gives someone the greatest possible interest in a piece of real estate and confers on them all typical property rights. Fee simple implies total, indefinite ownership and gives owners the power to do whatever they want with the real property, subject to established laws, zoning, regulations, and easements.

You can check to see if someone has fee simple ownership by checking their property deed.

How fee simple ownership works

Put simply, fee simple ownership gives you the right to do whatever you want with a property, so long as you follow the law and zoning restrictions. That means you can sell it, rent it out, build a shed, garage, fence, add a new bedroom, or even tear down the building if you want.

Fee simple ownership does come with some caveats. For example, your lender could still foreclose if you fail to pay your mortgage, or you could lose your home if you don’t pay your property tax because the government can use eminent domain to file liens against a fee simple estate.

What are the types of fee simple ownership?

There are a few different types of fee simple ownership. They fall into two broad categories of freehold estate: fee simple absolute and fee simple defeasible. It’s important to know the difference because it impacts how you can use a property.

Fee simple absolute

Fee simple absolute is more powerful than fee simple defeasible because it’s outright ownership with no restrictions, except those imposed by zoning and easement laws. It’s 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. They may make any changes they’d like if they adhere to zoning and easement laws.

Let’s say you have fee simple absolute ownership of your home, with no zoning law or easement restrictions. So, you tear down your home and rebuild a restaurant where it stood. This drastic change to the property does not risk your ownership because you have an absolute right to it.

Some zoning laws may prevent you from changing a residential property into a commercial one, even if you have fee simple absolute ownership.

Owners in a fee simple absolute arrangement can also include certain conditions on their property or life estate when passing it to an heir.

Fee simple defeasible

Fee simple defeasible, also called “fee simple determinable,” offers slightly fewer rights to a property. While you can still own the property and land forever, you must meet certain conditions put in place by previous property owners to keep possession of the land. Failure to do so could mean losing the property.

For example, say you buy land and a home from an owner who stipulates that you can own the property if the house remains a residential property. If you turn it into a hotel, violating your agreement, ownership of the land and properties reverts to the previous owner.

If you own land fee simple defeasible, it’s important to know that, as well as the conditions for retaining ownership, to ensure you don’t lose the land.

Fee simple subject to a 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.

For example, let’s 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.

Fee simple subject to an executory limitation

Fee simple subject to an executory limitation functions like fee simple defeasible, with the key difference being that if the conditions are not met, a third party specified by the seller of the property automatically becomes the new owner.

For example, imagine you buy a piece of land and a home. The seller could add a condition that you must use the home as a residence and, if you fail to do so, their cousin or that cousin’s heir becomes the owner.

If you turn the property into a hotel, you lose ownership of the land, with the previous owner’s cousin or that cousin’s heir automatically taking ownership.

What are the benefits of fee simple ownership?

Fee simple ownership is the most advantageous form of land ownership. It has many perks, such as:

• Full control. You can do whatever you want with the property, so long as it’s within the law.
• Indefinite ownership. There’s no time limit on your ownership of the land.
• Strong legal protection. You have legal rights to the property with no restrictions and legal protection to use it as you wish.
• Flexibility. You can make changes to the property based on your needs, adding additional buildings or rooms or converting it to new uses.
• Inheritance planning.You can transfer fee simple property to heirs when you die.
• Investment value. Fee simple real estate is worth more than other forms of ownership because of the lack of limitations on its use.

What are the drawbacks of fee simple ownership?

Fee simple property does come with some disadvantages that you need to keep in mind, such as:

• Full responsibility. You have full responsibility for the property and what happens on it, as well as the responsibility to pay taxes and your mortgage.
• Liability risks. You may be liable if someone is injured on your property and would need to get coverage for possible events like this through your homeowners insurance.
• Vulnerability to creditors and liens. Your ownership isn’t truly absolute because you can still lose fee simple property if you fail to pay your mortgage or some other bills.
• Government restrictions. The government can place some limits on how you use fee simple property through zoning.
• Market fluctuations. Owning property makes you subject to swings in the real estate market, where home prices can rise or fall.
• Potential loss in certain circumstances. Real estate may not appreciate in value, or your property could get destroyed or damaged, meaning you may face financial losses if you haven’t bought home insurance.

How does fee simple differ from other ownership types?

Though it’s the most common way to own land in the United States, fee simple ownership is just one type of ownership. It’s important to know how the other types of land ownership work.

Fee simple vs. leasehold ownership

In the U.S., most residential real estate is owned on a fee simple basis. A smaller percentage of property sales – mainly condos, townhouses, and co-ops – results 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 in which the tenancy remains until the lessee passes away. In that case, the property reverts to the grantor.

If you enter 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 the home will revert to the previous owner, unless you negotiate a new lease before the old one expires.

Fee simple vs. life estate

A life estate is a type of ownership that only lasts for the life of a specific person, typically the owner of the property. When the owner dies, the property reverts to the previous owner. They cannot pass it down in their will.

However, owners of a life estate still have the right to possess and use the property and can transfer ownership to another person. However, that new owner must understand that when the person named in the life estate dies, their ownership will end.

FAQ

Fee simple ownership is the most common way to own a property, so it’s important to understand how it works.

Can fee simple ownership apply to condos and townhomes?

For the most part, condos and townhomes are held fee simple. Leasehold condos and townhomes do exist, but they are usually in restricted to specific areas such as Hawaii, land managed by the government, or specialized developments.

Does fee simple mean there’s no HOA?

No, fee simple does not necessarily mean there is no HOA, but it also doesn’t imply the existence of an HOA. If there is an HOA, it may place some additional restrictions on how you can use the property.

How does fee simple ownership affect financing?

Fee simple ownership does not have much of an impact on financing. It’s the most common form of ownership in the U.S., so lenders are experienced with financing fee simple homes.

Is fee simple the same as owning outright?

No. Fee simple refers to a type of property ownership and the associated rights. Owning a home outright means that you don’t have any debt secured by your home, such as a mortgage.

The bottom line: Fee simple ownership is the gold standard for property owners

Fee simple ownership is the most common type of property ownership in the United States. It’s also the most advantageous form of ownership. It gives the greatest possible rights to a property, including the right to use it and make modifications so long as they comply with local laws and zoning.

If you’re ready to become a homeowner, you can work with Rocket Mortgage to apply for a mortgage.