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In real estate transactions you may hear the term “fee simple” used. Though it may sound anything but simple, it is actually not difficult to understand. Fee simple applies to ownership of land and is the dominant form of ownership in the United States. Most homes purchased in the U.S. are fee simple purchases.
What is fee simple?
Fee simple is a legal term used in real estate that means full and irrevocable ownership of land, and any buildings on that land. Fee simple is the highest form of ownership — it means the land is owned outright, without any limitations or restrictions other than local zoning ordinances. The term fee simple applies only to real estate, which includes land, immovable property and any property directly attached, such as a building, road, pond or machinery.
In the instance of condominiums or apartments, the owners of individual units receive fee simple ownership that gives them 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.
What are the different types of fee simple ownership?
Fee simple absolute
Fee simple and fee simple absolute are the same thing. When you own land completely, without any limitations, it is also known as absolute.
Fee simple defeasible
Fee simple defeasible is also a type of property ownership. In the case of fee simple defeasible, however, ownership is dependent on very specific conditions. What’s more, if the conditions of ownership are violated, the property may be returned to the grantor or to a specified third party.
There are three different types of fee simple defeasible: subject to condition subsequent, determinable, and subject to executory limitation. Each type of fee simple defeasible includes different results or actions if the conditions of property ownership are violated. Here’s more about the three types:
Fee simple subject to condition subsequent
This is the first of the three types of fee simple defeasible. In the case of fee simple subject to condition subsequent, property does not automatically transfer back to the grantor if the conditions of ownership aren’t met or are violated. Instead, if the conditions are violated or fail to be met, the grantor has the option to take back the property. This option is referred to as right of reentry. If the grantor does not take any action in response to ownership conditions being violated, then the property remains with the party that violated the terms.
Fee simple determinable
Fee simple determinable takes that one step further. In fee simple subject to condition subsequent, when conditions are not met, the grantor must take action. But in fee simple determinable, if conditions are violated or somehow not met, ownership of the property is automatically transferred back to the grantor. There is no further action required on their part.
Fee simple subject to executory limitation
This final type of fee simple defeasible is very similar to fee simple determinable. However, in the case of fee simple subject to executory limitation, if conditions are violated or somehow not met, ownership of the property is automatically transferred to a third party with no further action required. (Whereas in fee simple determinable, it is transferred back to the grantor.)