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What is a “Fee Simple” interest in real property?
Fee simple is the term used to represent the maximum ownership interest in real property that is allowed under the law. It can be referred to as “complete ownership”. Generally, a person who purchases real property (land) assumes that they own 100% rights in the property. That is, they assume that they own the property in fee simple. So, fee simple is a type or degree of ownership or rights that an owner has in real property.
- Note: It may help in understanding fee simple ownership by comparing it to a life estate or an easement covering the real property.
The holder of fee simple has complete rights recognized under the law, and these rights carry on in perpetuity (i.e., they never expire). More specifically, a fee simple owner has full legal rights and powers to possess, use, and transfer the land to others. Anyone else who claims an interest in the real property, such as a lienholder or holder of an easement, has a lesser claim of right to the property than the fee simple owner.
- Note: Look at the deed to real property. If you have complete or total ownership of the property it will have language stating that the grantor owns and is transferring fee simple interest in the property. For example, the language of the deed may read “the grantor holds the aforementioned property in fee simple” or “grants to grantee said property in fee simple”.
Limitations on Fee Simple Ownership
There are, however, certain limitations that can be placed on fee simple ownership. That is, the fee simple ownership can be subject to conditions that result in the holder of fee simple ownership automatically (or at the prerogative of a beneficiary) losing their rights in the property.
Fee simple ownership that has no limitations or conditions is known as Fee Simple Absolute. Fee simple absolute ownership means that all interests in the property are transferred. There is no limitation or conditions attached to the transfer.
The most common forms of fee simple with limitations include:
- Fee Simple Defeasible – Fee simple defeasible ownership means that a condition (or multiple conditions) is/are attached to a transfer of the property. The deed will include language directing that if a certain event occurs, the transfer of the property from the prior owner to the current owner is undone and the property either reverts back to the original owner or to an identified third party. This brings up the concept of a reversion interest in the transferor or his/her heirs or assigns. We explain this concept in the context of termination of an interest in a life estate.
- Example: The Jones Family Trust owns a historic home in fee simple. The home is located on the edge of University A’s campus. The Trust transfers (sells) the property University A. The deed indicates that University A receives the property in Fee Simple. However, it directs that ownership of the land may be reclaimed by the trust (or the beneficiaries of the trust if not in existence at that time) if the property is ever used for any purpose other than a classroom. Even though the deed did not expressly include the words “defeasible”, the intent is to transfer the property in fee simple defeasible to the University. If the University ever violates these terms, the trust will be able to bring legal action to undo the transfer. If successful, fee simple rights will revert back to the trust. As such, the University will own the land in fee simple defeasible in perpetuity (forever).
- Fee Simple Determinable – Fee simple determinable is very similar to fee simple defeasible. The difference is that a fee simple determinable ownership interest in land automatically ends or terminates if a specific occurrence or non-occurrence happens. A fee simple defeasible simply allows a beneficiary holding a remainder interest to undo or terminate the transfer of ownership upon a specific occurrence of non-occurrence. The difference is the presence of language in the deed directing that the property “will revert” back to the grantor versus allowing the grantor the ability to reclaim fee simple ownership of the property.
- Fee Simple Subject to Condition Subsequent – This type of fee simple ownership places a specific condition in the transfer of ownership. If this condition occurs or fails to occur, a future interest holder (the interest holder at the time of the condition’s trigger) has the option to void or terminate the transfer of ownership. This type of fee simple grants additional rights in the grantee of the land, rather than the grantor. That is, the current holder of the land can undo the transaction (and likely recover any amounts paid for the property) upon the occurrence of a specific condition.
It is worth noting that the default rule for the transfer of ownership of real property is that the parties to the real estate purchase agreement intended the transfer to be in fee simple. Historically, the parties used the phrase in the contract and/deed, “to Recipient and his/her heirs.” Because the language includes “and his/her heirs”, it was construed to mean a fee simple transfer. Failure to include this language could result in the transfer being interpreted as a life estate. Now, the rule in every state is that simply writing “to Recipient” or “to [name]” creates the presumption that the transfer is in fee simple. The better practice, however, is to write, “To [name] and his/her heirs or assigns, in fee simple absolute”.
- Example: Tom transfers property to Ann under the condition that it always be used for residential purposes. If the land is ever used for anything other than residential purposes, it reverts back to Tom (or his heirs).
- Note: The rights retained by the transferor of a fee simple defeasible or a designated third party is discussed below in the context of a life estate.
These characteristics of a fee simple interest are important tools for individuals when determining the extent of property interest to transfer.
Discussion: How do you feel about the ability of an owner of real property to transfer an interest in that land subject to conditions? Can you see any advantages or disadvantages to limiting the owner of the land’s use of her property? Does this ability in any way run afoul of the goals or objectives of government in recognizing ownership interest in land?
Practice Question: Veronica wishes to transfer the land she inherited from her grandfather to her alma mater, Great College. She drafts a deed that states that all interest in the property is transferred to Great College, so long as it is used for academic purposes. If it is ever not used for academic purposes, it reverts back to her estate. Years later, Great College decides to rent the land to a group of fast-food restaurants seeking to serve the student body. If Veronica has passed away, what are the rights of Veronica’s estate to demand the return of the property?
- A fee simple defeasible is a conveyance of property that has conditions placed on it. The holder of a fee simple defeasible possesses the property as a fee simple subject to that condition. For the contracts to accurately reflect the intent of the parties, they must include words/conditions of conveyance. If the condition is violated or not met, then the property will either go back to the original grantor or a specified third party. In the example, Veronica’s estate has a right to institute a case against Great College so as to recover and repossess the piece of land as the college has violated the condition of the fee simple. https://www.bankrate.com/glossary/f/fee-simple-defeasible/
Academic Research on Fee Simple Ownership
Wyman, Katrina, In Defense of the Fee Simple (November 2017). Notre Dame Law Review, Vol. 93, No. 1, 2017; NYU Law and Economics Research Paper No. 17-43. Available at SSRN: https://ssrn.com/abstract=3082971
Fennell, Lee Anne, Fee Simple Obsolete (July 17, 2016). 91 New York University Law Review 1457 (2016); University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 739; U of Chicago, Public Law Working Paper No. 559; Kreisman Working Papers Series in Housing Law and Policy No. 33. Available at SSRN: https://ssrn.com/abstract=2717111 or http://dx.doi.org/10.2139/ssrn.2717111
Blumm, Michael C., Why Aboriginal Title is a Fee Simple Absolute (February 14, 2012). Lewis & Clark Law Review, 2011; Lewis & Clark Law School Legal Studies Research Paper No. 2011-24. Available at SSRN: https://ssrn.com/abstract=1910876