What Is Freehold Estate?
Owning Property vs. Leasing Property
Owning property or leasing property are two common ways to hold an interest in property. A landlord’s interest in a property is usually considered a freehold estate, while a tenant’s interest is usually classified as a non-freehold estate. Learn what a freehold estate is and how it differs from a non-freehold estate.
What Is a Freehold Estate?
A freehold estate is ownership in land. 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 has the ability to be passed on forever if the right criteria are met. There is no set timeline for the ownership in the property to expire.
3 Types of Freehold Estates
There are three different types of freehold estates. They all have the ability to be passed on forever. Some require certain conditions to be met to do so, 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 of course, especially zoning laws for the use of land. This is the most common type of property ownership. 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 his or her heirs.
2. Fee Simple Defeasible: This type of ownership in land is subject to certain conditions. Examples of conditions on the landlord could be, the land must only be used for educational purposes or that the land can only be used to grow corn. If the conditions for 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 the individual who granted the interest is living. The individual who has been 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 the grantor dies, the life tenant no longer has any right to the property.
What Is a Non-Freehold Estate?
A non-freehold estate involves leasing the property for a period of time without having any actual ownership in the land.
4 Types of Non-Freehold Estates
There are four main types of non-freehold estates. These are
1. Estate for Years: This type of property lease must have a set duration. It must have a beginning date and a set 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.
In order 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: In a tenancy at will, 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, such as 30 days’ before move out.
4. Tenancy at Sufferance: A tenancy at sufferance 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.