Freehold Estate

freehold estate image

So how do estates work and what are they? Well, estates can be divided into two different sections: freehold estates, and leasehold estates. In this article, we will cover freehold estates.

A freehold estate is an estate in which you have an exclusive right to enjoy the possession of a property indefinitely. Contrast to a leasehold estate, where possession is limited by time period.

The three types of freehold estates that are on the real estate exam are:

  • Fee Simple Absolute
  • Fee Simple Defeasible
  • Life Estate

Fee Simple Absolute

Fee simple absolute, or fee simple for short, is an estate in land. It is the highest form of real estate ownership that is recognized by law, in which the owner can enjoy the property to its fullest extent and is only limited by government powers. Fee simple absolute is the greatest interest in a parcel of land that one can possibly own. The fee simple estate has unlimited duration and can be passed on to heirs.

Fee Simple Defeasible

A defeasible estate is created when a condition is added on a fee simple estate. If the condition is met, the estate may be lost. The estate then goes to the original owner, his or her heirs or a third party depending on the deed.

A good example is if an estate is made under the condition the property is used for religious services. For example, maybe someone wants to give their faith land to build a new church.  If the property ceases to be used for religious purposes, then the previous owners or their heirs have a reasonable amount of time to declare their rights and retake possession of the property.

Life Estate

A life estate is an interest in real property which is held for the duration of the life of a designated person. It may be limited by the life of the person holding it or by the life of another person. This designated person is called a life tenant.

This is a pretty easy concept. When you see or hear the word Life Estate just think of life. The estate only lasts for the duration of the tenant’s life. Interestingly a life tenant may sell, mortgage or lease the property for the duration of the estate. However, all contracts would be terminated upon the death of the life tenant.

Another important note is the life tenant cannot leave property to anyone in their will. Because it’s not theirs to give.

Author:
Zackary Smigel is a real estate professional with a love for teaching, based out of Pittsburgh, PA. He's had the opportunity to work with some of the brightest minds in real estate and has spent years learning how to become a successful agent.