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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 law. It can be referred to as “complete ownership”. The holder of fee simple has complete rights recognized under the law, and these rights carry on in perpetuity. More specifically, a fee simple owner has full legal rights and powers to possess, use, and transfer the land. 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 perogative of a beneficiary) losing their rights in the property. The most common forms of fee simple with limitations include:
- 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.
- Fee Simple Defeasible – Fee simple defeasible ownership means that a condition (or multiple conditions) is/are attached to a transfer of the property. This means that if a certain event occurs, the transfer is undone and the property either reverts back to the original owner or to a 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.
- 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.
- 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 hold (the interest holder at the time of the condition’s trigger) has the option to void or terminate the transfer of ownership. On many accounts, this is simply another name for fee simple determinable, except that the conditions specifically occur subsequent to transfer and carry on the future interest holders.
It is worth noting that the default rule for the transfer of ownership in 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 land to transfer and interest in that land subject to conditions? Can you see any advantages or disadvantages to limiting the owner of 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?