A freehold estate exists when someone owns real estate, and that ownership lasts for an indefinite period. A landlord’s interest in a property is usually considered a freehold estate, while a tenant’s interest is typically classified as a nonfreehold estate. Learn what a freehold estate is and how it differs from a nonfreehold estate.
What Is a Freehold Estate?
A freehold estate is ownership in property. To be considered a freehold estate, two criteria must be met:
- Immovable: The asset cannot be moved; therefore, it is either land or some sort of interest in that land.
- No fixed length of ownership: The property can be passed on forever if the right criteria are met. There is no set timeline for ownership in the property to expire.
How Freehold Estates Work
There are three primary types of freehold estates, and they all can be passed on forever. Some require certain conditions to be met before being passed on, while others have absolutely no conditions.
1. Fee simple absolute: This type of ownership in land is complete and unrestricted. It is the right to own the land and use it as you wish within the confines of the law. This is the most common type of property ownership. There are three characteristics of fee simple absolute:
- No set length of ownership: As long as you pay your taxes, pay the mortgage on the property, if you have one, and follow the law, the owner, or the owner’s heirs, can own the property forever.
- Can be transferred: Ownership of the property can be transferred or sold to another individual.
- Can be inherited: If the property owner dies, the property can be inherited by their heirs.
2. Fee simple defeasible: This type of ownership in land is subject to certain conditions. For example, a condition could be that the land must only be used for educational purposes or can only be used to grow corn. If the conditions for the use of the land are violated, the ownership in the land will automatically be terminated, which is known as fee simple determinable. Or the ownership in the land can be terminated at the will of the owner or the owner’s estate, which is known as a fee simple subsequent.
3. Life estate: In this type of freehold estate, an individual is granted an interest in the property for as long as they live. The individual who is allowed to occupy the property is known as the life tenant. The life tenant is responsible for keeping the property in good repair and not committing waste. Once they die, the life tenant no longer has any right to the property.
Property owners can, for the most part, do what they want with their property. They can't restrict the right of a new property holder to sell or transfer the property, though. For example, you can't transfer land to your daughter and then prevent her from selling it. This is called the rule against restraints on alienation.
What Is a Nonfreehold Estate?
A nonfreehold estate involves leasing the property for a period without having any actual ownership in the land. There are four main types of nonfreehold estates.
1. Estate for years: This type of property lease must have a set duration; it must have a beginning date and an ending date. Most lease agreements between landlords and tenants would be classified as an estate for years. The tenant agrees to pay rent to the landlord and follow the terms of the lease agreement for the duration of the lease.
2. Estate from year to year: Another name for this is periodic tenancy. It is a type of tenancy that automatically renews every year. An individual typically becomes a periodic tenant after a fixed-term lease expires. For example, a tenant’s one-year lease agreement expires on December 31. The tenant pays rent on January 1 to continue living in the apartment and the landlord accepts. The tenant is now considered a periodic tenant.
To terminate this type of tenancy, the landlord or tenant would have to give notice of termination far in advance, usually 30 to 60 days, of the date that the lease would automatically renew.
3. Tenancy at will: With this type of arrangement, there is no written contract or lease agreement between landlord and tenant. Since there is no fixed-term contract in place, either party can end the tenancy at any time. Based on state landlord-tenant laws, there may still be requirements on how much notice must be given to tenants, such as 30 days before being required to move out.
4. Tenancy at sufferance: This is a tenant who had an original right to reside in the property, but whose lawful right to reside in the property has expired or been terminated. The tenant does not have the landlord’s permission to remain in the property and could face an action for unlawful detainer. Another name for this type of tenant is a holdover tenant.
- A freehold estate exists when someone owns real estate and that ownership is for an indefinite period of time. A landlord's interest in property is typically a freehold estate.
- There are three primary types of freehold estates: fee simple absolute, fee simple defeasible, and life estates.
- A nonfreehold estate is when you have the right to use the property but you don't own it. A tenant's interest in a property is a nonfreehold estate.