Fee Simple Ownership in Real Estate: Definition and Exceptions
Fee simple ownership is the highest form of ownership in the U.S.
The law recognizes fee simple ownership as the highest form of ownership in real estate. It entitles the property owner to full enjoyment of the property, including the land and any structures on that 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 duration of ownership is not limited, and you can pretty much do whatever you like there, assuming that 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. Of course, you can and probably will be taxed on its value, but you can also place encumbrances against it, such as a mortgage. It's yours.
Fee simple ownership is also sometimes referred to as "fee ownership," "estate of inheritance," "absolute ownership," or "fee simple absolute."
A Little History
The concept of fee simple ownership traces way back to feudal days. It was once the custom for certain workers, such as knights, to hold land in exchange for services performed for their overlords. Likewise, the overlords had a responsibility to protect their workers. These arrangements were called "fiefs." The term "fee" is derived from "fief."
Then time marched on and these landholdings were eventually abolished. What remained was "simple" ownership with no strings attached.
Can Ownership Be Limited?
Other laws can limit fee simple ownership. Your free will with the property does not mean that you can murder someone in your basement with impunity. Others are still free to place liens against the property, such as if you fail to pay property taxes or a creditor gets a judgment against you for money owed.
Fee Simple Defeasible vs. Fee Simple Absolute Ownership
A gray area of distinction lies between fee simple defeasible ownership and fee simple absolute ownership. Fee simple defeasible ownership is less common in today's world, and it can also depend on the current law.
Fee simple defeasible ownership provides for five possible restrictions: taxation, 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, and covenants or restrictions dictating how the property can and cannot be used. These covenants are typically placed by a previous owner and are carried over.
Evans v. Abney
A 1970 Supreme Court decision in Evans v. Abney is often cited as an example of the last type of 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 no longer enforceable as written due to current law.
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 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 current federal law.
Fee Simple Ownership vs. Leasehold Ownership
Some people want to own their homes, while others are just as happy renting, and others prefer to own a condo or townhouse. Fee simple ownership contrasts with leasehold ownership to cover these choices.
True leasehold ownership provides you with full use and access to the property, but you don't actually own it. When you purchase a condo, you buy a given unit but not the land upon which the entire building is situated. Likewise, when you rent a home, you have full enjoyment of the premises, but you don't own 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.
Leasehold ownership can also apply to land. You might have the right to cultivate it for a set number of years, but you don't enjoy the same freedoms as you would if you had purchased it outright and had fee simple ownership. This, too, works something like a rental agreement. When the lease reaches its end date, the property reverts to the owner.
Threats to ownership can surface regardless of how you hold the title. Fee simple ownership is by far preferred just the same, and it offers the most protection.