What Is Fee Simple Ownership?
Definition and Examples of Fee Simple Ownership
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.
This is by far the most common form of ownership in the U.S., and most single-family homes fall under this type of ownership. The law recognizes fee simple ownership as the highest form of ownership in real estate.
What Is Fee Simple Ownership?
The concept of fee simple ownership traces back to feudal days. It was once the custom for certain workers, such as knights, 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 landholdings were eventually abolished. What remained was "simple" ownership with no strings attached.
- Alternate name: Fee ownership, estate of ownership, absolute ownership, fee simple absolute
How Fee Simple Ownership Works
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.
You can and probably will be taxed on the property's value, but you can also place encumbrances against it, such as a mortgage.
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.
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
A gray area of distinction lies between fee simple defeasible ownership and fee simple absolute ownership. Fee simple defeasible ownership is less common. It provides for five possible restrictions:
- Escheat or ownership that can potentially revert to the state
- Eminent domain or the right of the government to seize the property for its use
- Police power
- Covenants or restrictions dictating how the property can and cannot be used; covenants are typically placed by a previous owner and are carried over.
Evans v. Abney, a 1970 Supreme Court decision, is often cited as an example of a covenant restriction in fee simple defeasible ownership. A wealthy senator left a large parcel of land to his city—Macon, Georgia—as part of his estate plan. The deed transferring the land to the city included a defeasible restriction stating that the land—subsequently turned into a park—could only be used by white people.
This flew in the face of the Civil Rights Act some years later, and the issue ended up going all the way to the U.S. Supreme Court. The Court ruled in favor of the federal act, stating that the park should be opened to everyone. The senator's family objected and argued that the senator's estate plan was therefore no longer enforceable as written due to the law at that time.
The Supreme Court accepted that loophole, holding that estate law—that which governed the senator's estate plan and his trust—effectively trumped the Civil Rights Act. The land reverted back to the Senator's family.
Compare this with fee simple ownership. There would have been no issue had the city held the title to the land in this way. Macon would have been free to do whatever it liked with that parcel. It would have opened the park up to everyone based on federal law at that time.
Fee Simple Ownership vs. Leasehold Ownership
Some people want to own their homes, while others are just as happy to rent. 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 dannot 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.
- 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 ownership is the most common form of ownership in the U.S.
- Fee simple ownership is still vulnerable to creditors with judgments and unpaid property taxes.