Fee Simple Ownership Guide: 2 Types of Fee Simple Ownership

In real estate, fee simple ownership gives a person total ownership rights to the land and buildings on a piece of real property. It's the most common form of real estate ownership in the United States. If you are a fee simple owner, you can sell the property, leave it to an heir, or take out loans against it. This contrasts with leasehold ownership, which gives a lessee the right of entry and right of use but no legal ownership interest that can be sold to others.

Fee simple ownership traces back to English common law in the age of feudalism. The word "fee" derives from "fief," which was a freehold estate owned by nobility but effectively leased to knights and other tenants in exchange for service. Although feudal land tenures have disappeared, the fee simple form of ownership endures.

Under fee simple ownership, a property owner can do whatever they choose with their land and building structures. Fee simple owners enjoy specific rights that govern their relationship with their property.

• Deeding: A fee simple estate can be deeded to other people, with the owner acting as a grantor in a deed and the recipient acting as a grantee. These deeds can be to relatives (often via a quitclaim deed) or to commercial buyers (often via a warranty deed).
• Leasing: Fee simple ownership of a property means you can serve as a lessor and rent out the property to a lessee.
• Encumbrances: Fee simple owners can borrow money against the value of their home, which effectively puts liens on the property. As a fee simple owner, you can negotiate easements, or the right to access your property without owning it. Such encumbrances can sully the title on a property, but they are permitted in fee simple real estate ownership.

Properties with shared communal spaces—like townhouses and condominiums—tend to fall under fee simple ownership, but full use of the owned land is subject to rules established by a communal governing body. For instance, a condo owner may have fee simple ownership of their condominium but not the land beneath it. In many cases, they must also abide by landscaping rules and pay a homeowner's association fee.

There are two main types of fee simple ownership: fee simple absolute and fee simple defeasible ownership.

1. 1. Fee simple absolute ownership: Fee simple absolute ownership is the most protected and most common ownership status for a freehold estate. While fee simple absolute owners must pay property taxes and follow local laws, they otherwise enjoy complete ownership of the property.
2. 2. Fee simple defeasible ownership: Less common than a fee simple absolute estate, a fee simple defeasible estate has minor limitations on a person's ownership stake. These limitations often involve eminent domain, escheat, special taxation, police power, and covenants from a previous owner. For instance, an original owner may deed a building under the stipulation that it always be used as a schoolhouse. These conditions are sometimes called fee tails. Legally, there are two types of fee simple defeasible ownership—fee simple determinable and fee simple subject to condition subsequent—which enable the grantor to put conditions on the transfer of the estate.

Most people live in either a fee simple estate, which is owned outright, or a leasehold estate, which is rented from a legal owner. The day-to-day use of these properties is similar, but their legal underpinnings are quite different.

• Fee simple ownership represents equity stake. The owner of a fee simple estate has full ownership of their property. They may do whatever they wish with it, provided that they abide by municipal laws. Privileges include occupying the property, renting it out, or selling it to a new owner.
• Leasehold ownership gives rights but not equity. A lessee has full rights to enter and use a property, much in the same way a fee simple owner does. However, the lessee does not hold equity in the property and may not sell it or deed it to heirs.
• Both provide the right of entry and right of use. A lessee has full rights to make use of their rented property, provided they are not breaking local laws or violating the rules set by a property owner. They may treat their leased property as a home and do not need permission to enter and exit.
• Fee simple owners may take on encumbrances. A fee simple owner can choose to assume liens against their property—most commonly by taking out a mortgage. They can also negotiate easements with neighboring property owners or utility companies. Lessees do not have these privileges.

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