Real estate ownership is not defined the same way across the board for every property -- there are multiple types of property ownership. Fee simple ownership is outright ownership: It means you will have the broadest possible rights over the property itself and the land underneath, including mineral rights. While in some parts of the country, most properties are fee simple, in the more densely developed suburban and urban areas, it can be hard to find desirable properties with that ownership type. Many properties in these areas are condos, co-ops, or planned communities with more limited ownership types and rights.
Sometimes two available properties within a half-mile of each other may seem comparable in every aspect, but one is fee simple and the other is not. If you prioritize having unrestricted rights over a property, one of your earliest questions needs to be, "Is this fee simple?"
Understanding fee simple
According to Fannie Mae, a fee simple estate "represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration." The ownership is unlimited and unconditional.
The industry definition has been simplified to: the most absolute and complete ownership possible for a residential property. It encompasses rights over the property/structures and rights to the land.
Synonyms include absolute ownership and fee ownership.
The difference between fee simple defeasible and fee simple absolute
An ownership type you see much less frequently, but closest to fee simple absolute, is fee simple defeasible. This means that when the prior owner sells the property to the next owner, there will be a condition on the deed to the property restricting how the land is used. If that condition (or covenant) is not followed, or if it says that something is supposed to be done and the thing is not done, then the ownership reverts back to the original owner who put the condition on.
For example, if a piece of real estate was sold with the condition that a pond on the land remains untouched and have certain native foliage planted around it, and then 10 years later the current owners ripped out the native plants to pour a concrete deck and build a guest house, the previous owners might be able to take the property back.
Fee simple defeasible is usually done to preserve something about a property, whether it's a physical feature or a usage intention. People who enter into this type of deal should be aligned in their visions of the property's future. With fee simple absolute, on the other hand, the prior owners need to be willing to walk away and let the new owners do whatever they want -- including a full tear-down of a home or other structure on the property.
Fee simple rights
Some rights bundled into fee simple ownership pertain to how an owner can modify the property and land. Others pertain to how they can use it. Rights include:
- Mineral rights
- Air rights
- Rights of inheritance
- Rights to modify the structures
- Unrestricted rights to sell it at any price you wish
- Unrestricted rental rights (as long as they comply with city and/or state regulations)
The caveat to all of this
Fee simple real estate owners are still subject to the laws and regulations of their community, city, and/or state. This causes a great deal of frustration among owners of fee simple absolute property who specifically purchased it so that they could do short-term rentals or modify the property for new usage, and then are told that because of community covenants or zoning laws, they cannot.
In a worst-case scenario for the owner, the government can exercise eminent domain and take a portion or all of the property for public use in exchange for "just compensation," whether the owner agrees to the arrangement or not.
Nonetheless, fee simple absolute is the closest thing to total unrestricted ownership and safeguards against private entities attempting to impose on owners.
Fee simple versus leasehold
From the condo side, fee simple has the most in common with freehold, but it is most often compared to leasehold, which is entirely different.
Leasehold ownership in residential real estate is one of the most confusing terms, because it applies to long-term renting--and is a common way to structure a long-term commercial lease -- but also applies to condo ownership. People know the term"lease" as it applies to only having something for a certain period of time. When you own a condo as a leasehold owner, you own the structure indefinitely, as well as a percentage of the common areas, but you don't own the land below your home. Some townhouses and some PUDs (planned unit developments) are also classified this way.
The way this plays out in the day to day is, you as a condo owner might own your unit, but the semi-enclosed patio that looks like part of your unit actually does not belong to you, and if the homeowners association (HOA) decides to send a work crew out to redo it or rip it out, that is their right. Likewise, if they want to do construction in the garage right above your parking space, and the construction debris makes it impossible to park, you can do little because you don't actually own the parking space.
Fee simple versus leasehold is a common research topic because it's so common when shopping for residential real estate to discover your dream home, townhouse or condo is actually classified as a leasehold and not a fee simple -- and this opens up a whole realm of nuance and complications around everything from ownership rights to mortgages.
Fee simple or leasehold by home type
- As noted earlier, single-family homes are usually fee simple.
- Condos are generally leasehold, not fee simple.
- Co-ops are not typically fee simple.
- Homes in planned developments (PUDs) are often leasehold, not fee simple.
- Homes in gated communities can often be fee simple.
- Townhomes are generally fee simple, although an HOA-governed townhome development can still enforce complex-wide maintenance and upkeep -- they just require owners to get it done instead of doing it through the association.