- Real Estate Investing
In This Article
In This Article
- How Fee Simple Ownership Works
- Fee Simple vs. Leasehold Ownership
- Frequently Asked Questions (FAQs)
Fee simple ownership entitles a homeowner to full enjoyment of the property, including the land and any structures that may be erected on the land. It's limited only by zoning laws, deed or subdivision restrictions, and covenants.
- Fee simple ownership provides the owner will full enjoyment and control over the property.
- Fee simple owners can encumber the property as collateral for loans and can bequeath it to a beneficiary in a will, but they’re still restricted from breaking the law or local covenants on or within the property.
- Fee simple is one of the most popular forms of ownership in the U.S. and has been used for centuries. Most residential property in the U.S. is fee simple.
- Fee simple ownership is still vulnerable to creditors with judgments and unpaid property taxes.
How Fee Simple Ownership Works
The concept of fee simple ownership traces back to feudal England. It was once the custom for certain individuals, to hold land in exchange for the services they performed for their overlords. Likewise, the overlords had a responsibility to protect these workers. These arrangements were called "fiefs." The term "fee" is derived from "fief."
These feudal landholdings were eventually abolished. What remained was "simple" or pure ownership, with no strings attached.
- Alternate name: Fee ownership, estate of ownership, absolute ownership, fee simple absolute
The duration of fee simple ownership isn't limited, and you can pretty much do whatever you like on the property as long as you're not breaking the law or otherwise infringing on public welfare. You're free to use the property, sell it, rent it out, or leave it to your heirs.
Other laws can limit fee simple ownership, however. Your free will with the property doesn't mean that you can murder someone in your basement with impunity. Others are still free to place liens against the property if you fail to pay property taxes or if a creditor gets a judgment against you for money you owe.
You can and probably will be taxed on the property's value, but you can also place encumbrances against it, such as a mortgage.
Threats to ownership can surface regardless of how you hold the title, but fee simple ownership offers the most protection.
Types of Fee Simple Ownership
Fee Simple Absolute
Fee simple absolute is property ownership that allows you, the owner, to have complete control over your property without any restrictions.
The owner can do anything with their property as long as it doesn't interfere with others' rights. The owner can sell, dispose of, mortgage, lease or otherwise transfer their property without anyone else's permission.
When there are restrictions, fee simple conditional may fall into one of these categories below:
- Fee Simple Defeasible
- Fee Simple Determinable
- Fee Simple Subject to Condition Subsequent
- Fee Simple Subject to Executory Limitation
Fee Simple Defeasible
This type of ownership has two conditions. The first condition is that it can be transferred to another party without any restrictions and the second condition is that it will revert to its original owner if the other party does not maintain or use the property for a specific period of time.
Fee Simple Determinable
This type of ownership will terminate automatically and revert back to its original owner after a particular condition is met, such as a certain number of years passing or an event occurring. This type of reversionary ownership will often terminate automatically and revert back to its original owner after a death or bankruptcy.
Fee Simple Subject to a Condition Subsequent
This type of ownership is contingent on an event occurring in the future, such as the owner's death. If you break a condition of this type of fee simple, you could lose the property title.
- Fee simple subject to a condition subsequent with time that is measured by a specific number of years: This type of ownership will terminate automatically and revert back to its original owner on the specified date in the future, such as 30 years after death.
- Fee simple subject to a condition subsequent with time that is measured by an event: For example, this type of ownership will terminate automatically and revert back to its original owner on the day following the death of the life tenant.
Fee Simple Subject to Executory Limitation
Executory limitation means that the property is subject to an ongoing contract or unexpired lease that prevents the conveyance of the property. Usually, this is a restrictive covenant contained in a deed. It restricts the use of the property to current purposes, such as residential or commercial uses and other specific purposes.
Fee Simple Ownership vs. Leasehold Ownership
Some people want to own their homes, while others are just as happy to rent. Still others prefer to own a condo or townhouse. Fee simple ownership contrasts with leasehold ownership to cover these choices.
|Fee Simple Ownership||Leasehold Ownership|
|Provides ownership of the property||Offers full access to property, but not ownership|
|Owner can encumber property as collateral for loans||Leaseholder cannot encumber property|
|Owner can leave property to heirs||Leaseholder has no right to leave property to heirs|
|No restrictions other than actions that are outside the law||Can be subject to owners' restrictions|
True leasehold ownership provides you with full use and access to the property, but you don't actually own it. You have full enjoyment of the premises, but you don't own the home when you rent it, so you can't encumber it or leave it to your heirs in your will. And many leases impose restrictions on tenants, such as prohibiting pets. When a lease reaches its end date, the property reverts to the owner.
When you purchase a condo, you buy a given unit but not the land upon which the entire building is situated.
Leasehold ownership can also apply to land. You might have the right to cultivate certain acres for a set number of years, but you wouldn't enjoy the same freedoms that you would if you had purchased it outright and had fee simple ownership. This, too, works something like a rental agreement.
Frequently Asked Questions (FAQs)
What does "fee simple" mean?
Fee simple is the most common type of real estate ownership in the US. “Fee simple” is a legal term meaning you have complete and permanent ownership of your land, as well as any buildings on that land. Owning real estate “fee simple” means you possess absolute control over your property, including the right to sell it or to donate it as you wish.
What is fee simple ownership?
A fee simple estate is when you're totally free to do as you please with your property. Your fee simple ownership rights are still restricted by government powers like tax, compulsory purchase, police power, and you may also be limited by encumbrances or conditions in the deed.
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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Online Etymology Dictionary. "Fee."
Burke, B. Barlow. "Property: Examples and Explanations." Page 155.
Century 21. "Fee Simple Defeasible."
National Association of Realtors. "What Is a Leasehold Property?"
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