Understanding Fee Simple Ownership And How It Works In Real Estate

For most people, their home is the single largest purchase they’ll make in their lives, and they certainly want to know that their investment is protected. Luckily, under the ownership structure most often used in the United States – fee simple ownership – homeowners have complete and total ownership of the property, as well as any structures on it.

If you’re buying a home, it’s important to understand what sort of rights and ownership you’ll have. Keep reading to learn more about fee simple ownership, how it works and any restrictions you may still be subject to.

What Does Fee Simple Ownership Mean?

“Fee simple” is a legal term in real estate found on a house’s official deed. It means you have complete ownership of a property. You have the right to decide who you can sell or pass your home to without restrictions, and you can make desired renovations as long as they observe local zoning laws.

The idea of fee simple ownership dates back to feudal England. In that time, a feudal lord might offer real estate as a form of payment for goods or services. The recipient of the land then had absolute ownership over it.

Fee Simple Vs. Leasehold Ownership

Leasehold ownership is when someone has full access to and use of a property but without actually owning it. Someone with fee simple ownership owns their property, while someone with leasehold ownership simply rents theirs.

Because it’s a rented property, the person with leasehold ownership doesn’t have full control over the property. In other words, they can be subject to certain restrictions and rules set by the landowner. For example, someone with leasehold ownership could be prohibited from having a pet on the premises or from painting their walls.

There’s also a form of ownership in between fee simple ownership and leasehold ownership. For example, in the case of condos, townhouses and co-ops, someone may have fee simple ownership of their actual unit and have full control over it. However, they don’t own the land their property sits on.

How Does Fee Simple Ownership Work?

Simply put, fee simple ownership gives someone complete and total control over their property (at least within the confines of the law). A list of things fee simple ownership gives someone the power to do includes (but isn’t limited to):

• Rent out the property: As a property owner, you have the right to rent out the property if you choose. And while the lease will give your tenant access to the property, you still have control over it and can set certain limits on how the tenant can use the property or what they can do with it.
• Use the property as you wish: When you live in an apartment, you may be subject to restrictions on having too many guests or running a business from your unit. But when you have fee simple ownership of your home, you can use the property for whatever you want, as long as you comply with the law.
• Sell or pass on the property: If you have fee simple ownership of a property, you also have the right to sell or pass on the property to someone else. This is done through a house deed.
• Make renovations: As long as you comply with local zoning laws and/or permit requirements, fee simple ownership gives you the right to update or renovate your property as you wish. You could choose to renovate the property, add an addition or even tear it down altogether.

Types Of Fee Simple Ownership

There are several different types of fee simple ownership someone might have over a property.

Fee Simple Absolute

Fee simple absolute is the purest form of fee simple ownership. Under this type of ownership, the owner has both the title and possession of the property.

Fee Simple Defeasible

Fee simple defeasible – also known as fee simple determinable – is a type of ownership that allows someone to have control of and access to the property indefinitely. However, if they fail to meet certain conditions, they could lose ownership.

For example, suppose one person sold a property to another. In the contract between the two parties, the buyer agrees not to use the property for certain purposes. If they break that agreement, the contract gives the seller the right to reclaim the property.

Fee Simple Subject To Condition Subsequent

Fee simple ownership subject to condition subsequent is a type of fee simple defeasible ownership. The current owner only has ownership of the property as long as certain conditions are met.

This type of ownership allows the grantor (meaning the previous owner) to reclaim ownership of the property, but they aren’t necessarily required to. Even if the current owner fails to meet the necessary conditions, the grantor could choose not to reclaim the property.

Fee Simple Subject To An Executory Interest

Fee simple ownership subject to an executory interest is another type of fee simple defeasible ownership. In this case, upon the occurrence of a state event or if certain conditions aren’t met, the property is transferred to another party. However, rather than being transferred to the grantor, the property is transferred to a third party.

Restrictions Associated With Fee Simple Ownership

As we’ve mentioned, fee simple ownership generally gives someone absolute ownership and control over a property. However, someone with this type of ownership is still subject to certain restrictions and must meet certain requirements.

• Taxes still apply. Homeowners must pay property taxes and, if they fail to do so, could have the home seized by the government.
• Must follow local laws. Having fee simple ownership of a property doesn’t give the homeowner the right to engage in illegal activity within the home.
• Subject to zoning and permitting requirements. In many cases, someone with fee simple ownership could be subject to zoning requirements or required to get a permit to make changes to their home.
• Liens can be put on the property. Various parties, from mortgage lenders to HOAs, may have the right to place liens on your property.
• Deed restrictions may apply. If you live in an HOA, you may be subject to certain deed restrictions that limit what you can do with your home or require approval beforehand.

The Bottom Line: Fee Simple Proves Full Ownership Of A Property

If you’re like most people, you’ve probably given very little thought to the exact type of ownership you have over your home. Luckily, the most common form of ownership in the United States is fee simple ownership, which gives property owners complete control over their land and homes. However, it’s important to know if you’re subject to fee simple defeasible ownership, as well as remember the restrictions that still apply to homeowners.

Are you considering becoming a homeowner? Start the mortgage approval process today so you can start shopping for your dream home.