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What Is Fee Simple Ownership In Real Estate?

What Is Fee Simple Ownership In Real Estate?

Fee simple is a type of property ownership that is often discussed but seldom understood. But don’t worry, we’re here to make things easier for you. Read on to learn everything you need to know about this topic.

What Is Fee Simple?

Holding a fee simple interest in a property means the property is yours to modify, rent, sell, or leave as an inheritance to another person.

Fee simple ownership is an unrestricted type of absolute ownership. It is the most common and highest level of real property ownership recognized by the law.

What Is Fee Simple graphic explaining what this type of ownership is

Fee Simple vs Leasehold Ownership

This differs from leasehold ownership because the owner’s rights are considered indefinite, not contingent on a lease contract, and the owner can use it as collateral or security for a loan. 

  • Fee simple property can be rented out or leased to a tenant by the owner. This does not involve a transfer of ownership.
  • A single-family home that is owned, not leased, falls under the fee simple (sometimes called fee simple absolute) category of ownership. 

Where Does Fee Simple Come From?

Breaking down the etymology – the word origins – of the phrase “fee simple” helps make sense of it. 

  • Fee” has historically been a property owner’s legal right to use and occupy a defined parcel of land. This old Latin term goes back to the times of feudalism when vassals held property in fealty (or “in fee”) in exchange for loyalty to a feudal overlord. 
  • “Simple” refers to the lack of limitations on the ownership of a property; one definition of simple is something that is not constrained or restricted by complexities or limits. In this case, the lack of limitations refers to the property owner’s full right to transfer of ownership.

After breaking down the terms, you can see what it means. In a nutshell, Fee Simple means an owner has full rights to sell, lease, or gift the land to someone, without restriction.

Is Mortgaged Property Considered Fee Simple?

Because fee simple estate is defined as unlimited, unrestricted property ownership, it’s reasonable to question whether mortgaged property is considered fee simple. Mortgaged property is still considered fee simple.

In fact, most fee ownership property is acquired through a mortgage. Although a mortgage means the property ownership interest is technically shared between the owner and the lienholder, the owner still has the legal right to make changes to the property, rent it, sell it, or will it to an heir.

This is where the “unlimited” part of fee simple ownership interest comes in. As Nolo puts it, fee simple is just “outright ownership.” The exception to ownership rights that mortgaged fee simple property presents is the lien holder’s ability to take possession of the property if payment conditions aren’t met. 

Can Multiple People Share Fee Simple Interest Ownership?

Yes, multiple people can share ownership interest in a fee simple estate. Fee simple interest might be owned by one person, a group of people, joint tenants, or tenants in common. 

The defining factor is the ownership’s presence on the actual property deed, giving them full property rights – the right to modify, sell, or leave the property to an heir or group of heirs. 

Fee Simple Ownership Limitations

Property taxes, zoning laws, deed conditions, eminent domain, and other types of regulations still apply to fee simple property ownership in the United States. These regulations, depending on the location, are part of the conditions of ownership.

Fee Simple Limitations

Fee Simple Absolute vs Fee Simple Defeasible

Defeasible estates have additional conditions on a fee simple property or estate written into the deed. If the conditions aren’t met, the property ownership can be voided.

Depending on the wording of the conditions in the deed, the estate will be either fee simple determinable or fee simple subject to a condition subsequent. Fee simple determinable estates have to follow the conditions in the deed or face the termination of their rights to the property.

The ownership is then returned to the original grantor of the deed (or their estate). Fee simple “subject to a condition” estates have different language in the deed that doesn’t mean a broken condition automatically reverts to the grantor.

The grantor still has the right to enter the property, but not to immediately take back ownership. 

Government Rights to Fee Simple Estates

The federal and state governments, under the allodial system, limit the rights of property owners in certain conditions. These limitations include:

Taxation on the Property

State governments can impose property taxes on owned property and seize ownership if those taxes are not paid. Tax liens have the top priority over all other types of liens on a property.

Escheat

In the case of the death of a property owner who has no heirs or has abandoned property, the state of their residence takes ownership of it. 

Eminent Domain

The government’s ability to acquire or seize property for a purpose like building or widening roads, parks, and schools. First, there is a negotiation between the property owner and the governmental body enacting eminent domain.

If an agreement can’t be reached, the property owner must take the dollar amount proposed in exchange for the property.

Fee simple limitations associated with the Alodial System

Police Power

This is the government’s right to enforce laws for safety, order, or otherwise “public good.” Zoning laws and building codes are enacted through police power. 

Together, these governmental rights create additional limitations on fee simple property ownership. Although the property is owned outright, it is not immune or excepted from these events. 

So, What Is Fee Simple?

As you can see, fee simple is a type of property ownership that applies to most home sales. However, it can be tricky. To recap what we’ve discussed:

  • Fee simple is a form of ownership that the law views as unrestricted, absolute ownership of a property by the owner(s) listed on the deed. 
  • This is different from leasehold ownership in that the property belongs to the owner. It can be left to heirs, rented to tenants, modified in any manner, or sold to another person.
  • Fee simple ownership still applies to mortgaged property. However, unpaid mortgages can still result in the lienholder taking possession of the property.
  • More than one person can share ownership interest in fee simple estates.
  • Fee simple ownership can be classified as either absolute, with no restrictions other than those imposed by government rights, or defeasible, where additional conditions in the deed apply.
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