Fee simple

Fee simple is a money term you need to understand. Here’s what it means.

What is fee simple?

Fee simple is a term that refers to real estate or land ownership. The owner of the property has full and irrevocable ownership of the land and any buildings on that land. He is free to do whatever he wishes on the land subject to local zoning ordinances. Fee simple and fee simple absolute are the same thing. Fee simple is the highest form of property ownership.

Deeper definition

The term fee simple only applies to real estate. Real estate includes land, immovable property and any property directly attached, such as a building, road, pond or machinery.

When the owner dies, property covered by fee simple forms part of the owner’s estate. It is then passed on to those who inherit the estate. Fee simple is the dominant form of property ownership in the U.S.

Fee simple is not the only way in which land can be legally occupied. It can be leased from the owner. A lease, also known as leasehold estate, is a written agreement between the owner (lessor) of the property and the leaseholder (lessee) that permits the property to be occupied under certain conditions and for a certain period of time.

This type of lease is often called a ground lease and permits the tenant to occupy and develop the property during the period of the lease. The leaseholder may sell the lease to another. The leaseholder usually will be required to make periodic lease payments to the owner of the property as a condition of the lease.

At the end of a lease, the land and all fixed property, including improvements made by the lessee, reverts back to the owner.

A particular form of lease is a life lease, which remains until the lessee dies. This type of lease is often used in senior housing. It provides the right to occupy the property while the leaseholder is alive. Thereafter, the property reverts back to the owner.

In the instance of condominiums or apartments, the owners of individual units receive fee simple ownership that gives the owners full legal rights subject to an agreement known as a restrictive covenant. The owners share common rights for the use of public areas and also carry certain obligations toward its upkeep.


Are you planning to purchase a home? Use our calculator to find out what you can afford?

Fee simple example

When you buy a home, you usually purchase it fee simple. This means you own the property and all rights to its use, and you are permitted to develop the land and buildings on the property subject to local ordinances. Your name is on the title deeds.

When you buy a home with a mortgage, the company that grants your mortgage is known as the lien holder. This lien holder shares an ownership interest in your home until you pay off your mortgage and, should you default, has the legal right to take possession of the property.

Are you intending to apply for a mortgage? Use our comparison tool to compare mortgage rates.




More From Bankrate