What Is a Freehold Estate [Ultimate Guide]

Fact-checked

Buying real estate can be difficult, especially if you don’t understand the many confusing concepts used in the real estate world. When purchasing or renting a property, one of the key things to know is what rights you get over the real estate in question.

This article will answer the question of what is a freehold estate and what it means for you as an owner.

What Is a Freehold Estate

A freehold estate is the possession of land or property without a specific termination date for ownership. In other words, it grants you exclusive rights for an indefinite amount of time, as long as you use it in accordance with the local law.

This type of estate’s ownership lasts at least a lifetime and is inheritable, which means that you have the right to pass it on to an heir. You can also choose to share the property’s ownership rights with one or several other people, an occurrence known as a joint tenancy. As an owner, you can also decide on selling the property. It involves a lot less paperwork compared to a non-freehold estate, and it doesn’t require authorization from the state. Unfortunately, this also makes it more expensive to purchase.

DID YOU KNOW: Regardless of your ‘absolute’ right of ownership of your freehold estate, if the government needs that land for public projects, they can use their right of eminent domain to take your property. They would have to compensate you for it, however.

Freehold Estate Types

These kinds of estates fall under three basic categories. Each one of them comes with its own conditions regarding the estate’s inheritability:

Fee Simple Absolute

This is the most common type of freehold estate. It comes with the highest degree of interest in the land that one can possess. It is characterized by not having any restrictions in terms of the way you decide to use the land, and the length of your ownership is unlimited as well. As long as you pay your taxes (and mortgage if you have one), and abide by the local and state laws, the property is yours until you decide otherwise. As the owner, you can use the land or property however you want, without having to ask for anyone’s permission to do so.

Another characteristic of the fee simple absolute is that it can be inherited or sold. Upon the owner’s death, the freehold house or land will be automatically passed on to the owner’s heirs, unless stated otherwise in the owner’s will. In such a case, the person named as the heir must go through probate court, whose role is to check whether the deceased owner’s debts are paid and whether the assets are being transferred to the right beneficiary.

Although the word ‘absolute’ gives you the notion that this type of real estate grants you complete and unrestricted rights over the land, it is, in fact, limited by the four government powers in real estate: taxation, escheat, police power, and eminent domain.

Fee Simple Defeasible

This is another form of freehold estate, subject to the conditions determined by the grantor. If the person (grantee) does not fulfill those specific conditions, they will lose the estate. At this point the freehold ownership will go back to the grantor or their heir/s. For example, if the property is meant to be used as farmland, or the grantor forbids serving alcohol on the premises, converting the landscape into an apartment complex site or throwing a wine party will break the conditions that have been initially set, and will lead to you losing your ownership rights.

If you’re looking for a more in-depth explanation about the fee simple defeasible, the following three subtypes should give you a clearer picture:

Fee Simple Determinable

An estate that will be terminated as soon as the freehold tenant breaks the initially set condition. For example, if the property is meant to be used as a museum, the person can only use the land as long as it is used as a museum. If the museum shuts down, the estate will be automatically transferred to the grantor.

Fee Simple Subject to Condition Subsequent

This type of estate is similar to the previous one, but in the event of the condition being broken by the grantee, the holder must take action to regain possession of the land. Making use of the previous example, if the premise is no longer used as a museum, the grantor has a right of entry and proceeds with recovering the land. If no action has been taken, the property will remain in the grantee’s possession, regardless of the way it’s been used.

Fee Simple Subject to Executory Limitation

This type of freehold real estate involves a stated event. If it occurs, this automatically deprives the grantee of his/her limited right of estate possession and transfers the land to a third party. This would mean that the property stays in the grantee’s possession as long as it is used for its initial purpose. If they start using it for something else, the property is handed over to the person who has an executory interest in the property. All of this must be initially stated in the agreement.

Life Estate

A life estate is a type of freehold estate that grants the individual the right of freehold interests for as long as they or the property owner lives. The person who occupies the property is called a life tenant. They can reside at the premises with full privileges and are responsible for maintaining the property and paying the property taxes. However, they are not allowed to pass on the premises to an heir. They can still lease and mortgage the property, or even sell it but the contract will end with the death of the life tenant. In such a case, the property will go to the remainderman – a person who will inherit the life estate upon the termination of a preceding estate. If the agreement doesn’t involve such a person, the property goes back to the grantor, which is known as an estate in reversion. In case the owner dies before the tenant, the latter is obliged to leave the property.

Characteristics of Freehold Estate

The freehold estate definition states that for a property to be considered a freehold estate, it must fulfill these two basic criteria:

Immobility

This means that the estate should be an immovable asset that cannot be moved from one place to another, i.e. land or some kind of building affixed to the land.

Indeterminate Duration

There is no set time when the property’s ownership will expire, meaning that passing it on to future generations must be an option.

Key Takeaways

The term freehold estate means that someone owns real estate for an indefinite period of time.
There are three types of freehold estates: fee simple absolute, fee simple defeasible, and life estate.
For an asset to be called a freehold estate, it has to be immovable and with no fixed ownership length.
Owning a freehold estate frees you from paying rent, but you must still pay the taxes.

Freehold vs. Nonfreehold Estates

Estates fall under two main classifications: freehold and non-freehold estates. A freehold estate is the kind of estate that involves ownership, meaning that an individual is granted the exclusive right of possession of the property.

A non-freehold estate, also known as leasehold, or less than freehold estate, gives the individual the right to occupy the premises as long as they pay rent and respect the lease agreement rules, but does not give them the right of property ownership. They are also subjected to tenant screening, as landlords are usually careful about who they will allow to reside at their premises. There are four types of non-freehold estates:

Tenancy for Years

The most distinctive feature about this kind of tenancy is that it is created by a lease agreement that strictly defines the duration of the tenancy period, i.e. it contains the beginning and the end date for the tenancy. It also defines the tenant’s obligations regarding rent payment and property maintenance. Even though most of the time tenants pay their rent on time and keep the premises in a good condition, it is advisable that landlords get an insurance policy, to be protected from eventual financial losses. As the amount of time the tenant will reside at the property is initially fixed, there is no need for both the landlord and the tenant to notify each other about the termination of the lease. There is usually an option to renew the agreement if both parties are willing.

Tenancy From Period to Period

These are also known as periodic tenancies, as they do not clarify the exact end date. The agreement can still point out the length of time for the occupancy, but both parties can extend it, renewing the agreement for an indefinite amount of time. However, this type of tenancy requires notice prior to the lease’s termination.

Tenancy at Will

Also referred to as periodic tenancies, tenancies at will are a type of estate that gives both the tenant and the landlord the freedom to terminate the non-freehold estate at any time. It is a short-term lease that is usually used for month-to-month renters, or when the property is listed for sale, regardless that someone is still renting it. You can read more about tenancy at will here.

Tenancy at Sufferance

In contrast with the previous three types of non-freehold estates, the tenancy at sufferance is not based on a mutual agreement. It usually occurs when the holdover tenant doesn’t leave the property after their lease has expired, and continues to pay rent and reside at the premises without a lease agreement, but with the landlord’s permission. They are still responsible for abiding by the contract rules, or otherwise, the landlord can evict them without previous notice.

It is important to differentiate between a tenant at sufferance and a trespasser. While the trespasser had never had the right to rent the property in the first place, the tenant at sufferance did have it at one point in time.

DID YOU KNOW: Mostly, property owners can do whatever they want to with their premises. But what they can’t do is forbid the new property owner to sell or rent it. As long as they have their residential rights, they can list the property for renting or selling. This is known as the rule against restraints on alienation.

Wrap Up

Choosing which type of estate fits you best depends solely on your unique needs and preferences as a buyer/tenant, so deciding on the type of estate is entirely up to you. Bearing in mind their distinct characteristics, you should also consider the rights you’ll have over the property according to the type of freehold property you decide on. It is best to consult an agent or a real estate company if you have any questions or concerns, in order to protect your interests in the future.

FAQ

Is a life estate a freehold estate?

A life estate is a type of freehold estate. Its main characteristic is that it limits the life tenant’s ownership right to the duration of the owner’s lifetime. The owner can choose to live out their lives in the home, in which case, he will share joint ownership with the tenant. Once the owner dies, however, the tenant no longer has the right of residence at the property.

Which estate is always inheritable?

The type of estate that is always inheritable is known as a fee simple absolute. It gives the individual the most extensive property interest they can possess, as it doesn’t involve any limitations or conditions regarding the owner’s rights over the property.

Is freehold land an asset?

Yes. If you are also wondering what is a freehold estate asset, it is basically real estate or land that belongs to you and can be passed on to your heirs. While cash and stocks are known as current assets, premises and freehold land are fixed assets.

ABOUT AUTHOR

Alex is an IT wizz gone SEO gone fire-juggler. We’re not even joking. When he isn’t researching why one personal loan is better than the other and which piece of hardware you should buy next, he’s rollerblading or selling homes (because he does that, too, the smarty-pants).

Latest from Aleksandar

Best Payout Online Casino UK A Guide to Living Off the Grid [7 Things You Need to Know] How to Become an Appraiser in 2022 How to Flip Houses With No Money in 2022

Leave a Reply