To hold an interest in a property, one must typically be either a landlord or a tenant. A property owned by a landlord is known as freehold estate. There are two criteria that properties must have to be deemed freehold estates. First, it must be immovable, meaning it literally cannot be moved from one place to another. Second, there is no fixed timeline of real estate property ownership, meaning that if certain guidelines are met, it may be transferred, sold, or bequeathed in perpetuity.
Types of freehold estate
There are three types of freehold estate:
Fee simple absolute
This is the most common definition used to define the clear absolute ownership of a real property. The current owner has the ability to use it as they see fit, as long as its usage meets local zoning laws. Additionally, provided the owner pays the mortgage, estate charges, and taxes, he or she can keep the property, transfer or sell it, or gift it to an heir as part of estate planning.
Despite the name, this type of fee simple estate deed is not truly absolute. It's actually limited by the four government powers in real estate: police power, eminent domain, taxation, and escheat. Police power is the government's right to enforce regulations for land development for the sake of public's safety. Eminent domain is the government's right to convert private property to public property (after compensating the owner). Property owners by law must pay property taxes. Lastly, escheat is the ability of the government to seize unclaimed property or assets of an estate.
Fee simple defeasible
In this case, while the owner still has a claim on the land, he or she must only use it in the way it is intended. For example, if a parcel of farmland is meant to be kept as such, it cannot be transformed into the site of an apartment complex, or any other building, for that matter. Should the owner attempt to do this, their ownership will cease; this is known as fee simple determinable. If the ownership is terminated with the agreement of the owner or the owner's estate, then the ownership term is known as a fee simple subsequent.
In this type of freehold estate, a person (the grantee) holds an interest in the estate for the lifetime of another person (the grantor) who allowed for the interest in the first place. In this case, the grantee is known as the life tenant. The life tenant can reside at the property with all rights and privileges -- though they're required by law to maintain it -- until the death of the grantor, at which time the life tenant must vacate the property and forfeit any interest in it. Should the life tenant predecease the grantor, the property reverts back to the grantor in what is known as estate in reversion.