Inherited property can quickly go from financial boost to a major headache.
What is fee simple defeasible?
Fee simple defeasible is a legal term and type of property ownership, where the ownership is dependent on specific conditions. If the conditions of ownership are violated, the property may be returned to the grantor or to a specified third party. For the contracts to accurately reflect the intent of the parties, they must include words of conveyance. These are legal terms that are that used to show intent to transfer the property.
There are three types of fee simple defeasible. “Fee simple determinable” terminates the interest in a property when conditions are not met or are violated. If the terms are violated or not met, the grantor automatically takes back the property without further action.
“Fee simple subject to condition subsequent” doesn’t automatically transfer the property back to the grantor if the conditions aren’t met or are violated, but it gives the grantor the option to take back the property. This option is referred to as right of reentry.
“Fee simple subject to executory limitation” terminates the interest in a property when terms are not met or conditions are violated. The property is automatically transferred to a third party without further action, and not the grantor.
Fee simple defeasible example
Here is an example of the three types of fee simple defeasible. Jeff is selling a commercial building to Peter, but also is acting as the financier.
In fee simple determinable contract, the contract gives Pete control of the property as long as he makes monthly payments to Jeff. If Pete defaults on the monthly payments, the property is automatically transferred back to Jeff.
In fee subject to condition subsequent using the same example as above, if Pete fails to make monthly payments, the property is not automatically returned to Jeff. However, Jeff has the option to take the property back.
In fee simple subject to executory limitation, also using the same example as above, Jeff has named his ex-wife as the third party. If Pete fails to make monthly payments, the property is automatically transferred to Jeff’s ex-wife.
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