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All real estate falls under the classification of a specific type of estate.
The type of estate defines your rights while in possession of the property, whether you are a homeowner or a real estate investor.
One of these types of estates — and one that is advantageous to property buyers — is a freehold estate.
What is a Freehold Estate?
A freehold estate is an ownership of a real estate property for an unspecified amount of time.
In other words, a freehold estate deed grants you the exclusive right to possess a property.
Types of Freehold Estate
A freehold estate deed provides you with certain rights, which vary depending on the type of freehold estate you have.
Three types of freehold estate exist:
- fee simple absolute
- fee simple defeasible
- life estate
Let’s take a closer look at each of the freehold estate types.
Fee Simple Absolute
The most common form of a freehold estate is fee simple absolute.
This type of freehold estate allows you to do whatever you want on your property as long as it’s legal and doesn’t violate zoning laws.
An example of fee simple absolute is a property that a homeowner lives in.
Fee Simple Defeasible
A fee simple defeasible freehold estate is similar to a fee simple absolute, except it’s dependent upon certain conditions.
In the event that the conditions are violated, the property can be returned to either the grantor or a third party.
Life Estate
A life estate is a freehold estate in which someone has an interest in a property for as long as they live.
For example, you may assign property to a relative using a life estate deed. That relative then has full ownership rights, and can use the property and do as they wish. Upon their death, the property diverts back to you.
What is a Nonfreehold Estate?
A non freehold estate is a property involving a landlord and a tenant.
As the owner of the property, the landlord has a freehold estate interest in it. The tenant’s stake in, on the other hand, is called a non freehold estate.
A lease binds the tenant for a given period of time, but doesn’t have any ownership rights.
There are four types of non freehold estates to keep in mind. They include:
Estate for years
An estate for years is a lease agreement between a landlord and a tenant with a specific beginning and ending date.
For example, it can exist as a beach condo leased to a tenant for the summer.
Estate from year to year
An estate from year to year, or a periodic tenancy, is a lease agreement that automatically renews after the initial term period elapses unless the landlord or tenant has given the other a 30-day notice of termination.
Tenancy at Will
A tenancy at will is a rental agreement without a predetermined duration.
These agreements are commonly referred to as a month-to-month rental agreement.
They don’t involve a written contract, and the landlord or the tenant can end it at any time with proper notice.
Tenancy at Sufferance
A tenancy at sufferance is when a tenant continues living in a property after the lease expires or the landlord terminates it.
In either case, they no longer have permission to live there but haven’t left.
The Bottom Line: Freehold Estate
The only way to ensure that the type of estate you are looking to purchase aligns with your long-term plans for your property is to understand what type of estate it is — and whether or not it’s a freehold estate.
Along with understanding the type of estate the property is, ensure that you understand real estate terms, and for any questions you have about the homeownership or real estate investing process, we recommend you seek further real estate education with these resources.
