A Guide On Freehold Estates: Different Types And How They Work
Victoria Araj4-minute read
August 09, 2021
If you’re a seasoned homeowner, then you know what goes into buying real estate. But real estate is a complex landscape.
The type of property you purchase depends on your unique needs as a buyer. Whether you want to purchase a home as your primary residence or start your side hustle as a landlord, you can purchase a type of real property called a freehold estate. These properties come with no fixed ownership timeline, which you can pass on indefinitely. Here is a rundown on how they work.
What Is A Freehold Estate?
When you own a freehold estate, you have exclusive rights to the property for an undefined length of time. There are three types of freehold estates out there: fee simple absolute, fee simple defeasible and life estate.
They represent an immovable asset in the real estate industry that you hold interest in. Each type of real property fits into a classification of ownership that determines what you can do with that asset.
How Does A Freehold Estate Work?
A freehold estate is a type of real property. It comes with indefinite ownership, which you can essentially pass on forever. You can find three primary types of freehold estates, and each one requires you to meet certain conditions to maintain that ownership down the road.
The Three Types Of Freehold Estates
There are three different types of freehold estates: fee simple absolute, fee simple defeasible, and life estate. Here is how to tell them apart:
Fee Simple Absolute
Fee simple and fee simple absolute are often used interchangeably and stem from the term freehold estate. In the case of a fee simple absolute, an owner has complete ownership over the property without restriction. There is no limit on the length of time you can own the real estate. You can also pass it down to your heirs.
You keep unrestricted ownership as long as you keep up with your obligations as an owner, such as property taxes. As long as you do so, you can use the land as you please.
This is the most common type of property ownership.
Fee Simple Defeasible
A fee simple defeasible is a form of freehold estate that puts more limitations on the owner compared to a fee simple absolute. With this real estate, owning the land comes with certain conditions.
For example, you may have to use the property for a specific purpose. If you don’t follow through, you could lose ownership. Remember: Every property will come with its own unique set of parameters, so it’s important to review any documents before purchase.
A life estate, a type of freehold estate, is something to consider during estate planning. Often, people want to give their home to their children after they pass. Through a life estate, a homeowner can make that transition process easier.
The original owner, otherwise known as the life tenant, can live out their life in the home. While the life tenant stays there, though, they share joint ownership with the inheritor. So, you still have responsibilities, such as insurance payments and property taxes. But you need to get approval from the remainderman, or the receiver of the home, for any changes.
Once the life tenant passes, they no longer hold rights to the property. Instead, the beneficiary takes ownership, allowing them to inherit without the need of a probate court.
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Types Of Nonfreehold Estates
Nonfreehold estates are a type of real property that you have a limited right to use or occupy but don’t own. In effect, you lease the property without holding any ownership over it. For example, a nonfreehold estate may include a condo you rent. In contrast, with a freehold estate condo, the unit is owned by the tenant outright.
These types of property are generally called nonfreehold estates; however, two other names for them are leasehold estates or less than freehold estates. Additionally, since nonfreehold estates involve tenants, they are sometimes referred to as tenancies.
Tenancy For Years
Tenancy for years is a type of estate created by a lease. When the tenant enters this type of lease agreement, they have it for a fixed amount of time. The contract outlines the beginning and end date for the tenancy. Because of this, neither the tenant nor the landlord has to notify each other about termination of the lease. The documentation already specifies the dates. At the end of the term, the tenant either moves out from the property or renews it.
You may also hear a tenancy for years referred to as an estate for years or tenancy for a definite term.
Tenancy From Period To Period
Tenancy from period to period, or periodic tenancies, are leases that do not have a defined end date. The agreement may still identify a length of time for the occupancy. However, the landlord and tenant can extend the tenant’s stay, renewing indefinitely.
Both parties can also agree that notice is necessary before the lease’s termination. Although, the contract should note that, along with the time needed for the notice.
Tenancy At Will
You may hear of a tenancy at will referred to alternatively as an estate at will. Under this type of agreement, either the owner or the tenant can terminate it at any time.
The two parties do not use a binding contract or lease. The agreement also doesn’t typically specify the occupancy’s time length or the way the tenant pays. Instead of a contract, local and state laws govern the tenure. People often seek this out when they want to flexibly move rentals without breaking any contracts.
Tenancy At Sufferance
A tenancy at sufferance works somewhat similarly to a tenancy at will. Like the latter, it does not occur under a contract or lease. Instead, it is a type of tenancy that takes place after the tenant’s lease expires but before they leave the property.
So, it occurs without a lease, under the landlord’s permission. However, the tenant still has to adhere to the contract’s original conditions, such as rent payments. If the tenant does not comply, the landlord can evict the tenant without any notice.
Tenancy at sufferance is also called estate at sufferance and is the lowest form of estate known to law.
The Bottom Line: Understand The Ins And Outs Of Freehold Estate
Every homeowner is looking for a property that matches their needs. Fee simple absolute, fee simple defeasible and life estate are freehold estates that allow you to obtain the level of ownership that fits those goals.
With their many characteristics, it’s essential to research the rights you have over a property. Consider speaking to your real estate agent if you have any concerns about whether a property is right for you. Finding the freehold estate that meets the ownership level you need will help you protect your interests in the future.
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