Deeds and Title
Property Law 101: What are the Types of Ownership?
To fully understand why buying real estate is so complicated, you have to start at the beginning, and the beginning goes back a long way.
For most of the United States, real property law is based on the English common law system, and its rules. We will go further into the history of English common law and how the system developed in future articles.
Why does this matter?
Understanding these ownership types matters because they are the fundamental building blocks of your ownership rights. You may run into these terms throughout the process of buyer or selling a property, and you need to understand what they mean.
The Types of Ownership: Fees
So with that out of the way, let’s focus on the most relevant part: fees.
Now, I know what you’re thinking, and we’re not talking about those kinds of fees. A fee in property law actually refers to an ownership interest in the property. Though fees come in several forms, only a few are still relevant today. Your fee interest in your property determines what title you have to the property.
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Fee Simple
A fee simple is ownership as we typically think about it. If a person owns a property in fee simple, they have full ownership rights to the property, or at least to their share of the property. You can get more information on fractional ownership and divided versus undivided interests here.
A Fee Simple owner can sell or lease the property, use it for whatever purpose they wish, subject to laws and encumbrances, or leave it empty. The owner has no obligation to make the land productive or to think of others in the owner’s use of the property.
Essentially, Fee Simple is legalese for “complete ownership,” or the maximum ownership of real property that is allowed by law.
Life Estate
A life estate is exactly what it sounds like: the holder has a right to the property for life. When the holder dies, the property reverts to whomever owns the fee simple, unless that person has granted a future interest to another party.
The life estate holder’s rights are limited in certain ways. For example, because the life estate is tied to the original life estate holder’s lifetime, the life estate holder can only transfer or encumber the property for the holder’s lifetime. So if someone were to buy the holder’s life estate, the buyer would have the right to use the property until the seller died, at which point the buyer would lose all right to the property.
Additionally, unlike a fee simple holder, who has no obligations to anyone with regard to their interest, the life estate holder has certain obligations to the holder of the fee simple on the property. For example, the life estate holder should not allow the property to deteriorate or lose value if the holder has the ability to prevent it.
Lease
It is worth mentioning leases here, though not technically an ownership interest. A lease is a possessory interest in property. It means that the lessee has all the rights to the property afforded to the lessee in the lease agreement. In residential leases, this means the right to reside on the property and use the property during the term of the lease.
Leases may be transferable, depending on the lease terms. For example, a sublease is actually a transfer of the lease interest in the property. It functions much the same as selling a life estate. The lessee cannot sublease the property for longer, or for different purposes, than the original lease because those are limitations on the lessee’s own interest. As long as the original lessee is within the terms of the lease (which is a grant for property law purposes), the original lessee can grant all of the original lessee’s rights or a specific set of those rights to another.
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