FREE ONLINE CLASS
Learn How To Start Investing In Real Estate
FREE ONLINE CLASS
Learn How To Start Investing In Real Estate

What Is A Freehold Estate? Defined & Explained

Written by Paul Esajian

Broadly speaking, an “estate” means the right to occupy or own a particular piece of real estate. This is not the only type of right to use a property. An easement, for example, grants the right to access a property at particular times for particular reasons. But if you’re living somewhere or operating a business, you’re going to need an estate.

Estates for land and buildings fall into two broad categories: freehold estates and leasehold estates. In this article, we’ll be discussing everything you need to know about freehold estates. Let’s begin!

What Is A Freehold Estate?

A freehold estate generally refers to what we would call “ownership” in everyday speech. With a freehold estate, you have permanent ownership and control over the property. Keep in mind that this does not mean you have no obligations. If you fail to pay property taxes, for example, you could lose title to the property.

Furthermore, there are different types of freehold estate, each with its own obligations. For these reasons, it’s important to understand what type of estate you hold.

What Is The Difference Between A Freehold Estate & A Leasehold Estate?

A freehold estate is permanent. As long as you meet your legal obligations, you will always have the right to use and access your property. On the other hand, a leasehold estate represents a temporary right of occupancy. Think of a typical apartment lease. The tenant agrees to pay monthly rent for the course of a year. As long as they pay rent, they can continue to occupy the apartment. But at the end of the lease, the landlord regains that right.


[ Rental property investor, rehabber or wholesaler? Get to know which investing strategy is the best fit for YOU by attending our FREE online real estate class. ]


freehold estate definition

The 3 Types Of Freehold Estates

As we mentioned, there are three different types of freehold estate:

  • Fee Simple Absolute

  • Fee Simple Defeasible

  • Life Estate

Here’s a quick overview of each type.

Fee Simple Absolute

Fee simple absolute is the most straightforward form of real estate ownership. You hold full title to the property and can do with it what you will, provided you follow applicable zoning laws. And as long as you pay your taxes and mortgage payments, you can sell the property or leave it to your heirs.

That said, fee simple absolute isn’t entirely absolute. To begin with, the government can limit your activities due to public safety. For example, you can’t open a shooting gallery in a residential neighborhood. The government also maintains the right to forcibly purchase your property due to eminent domain. Your property could also be seized due to unpaid property taxes or as part of compensation in a civil judgment.

Fee Simple Defeasible

A fee simple defeasible is similar to a fee simple absolute in that you maintain complete ownership of the land. But in this case, there are additional restrictions on how the land may be used. This is most commonly done as part of open space policies by a local government. In exchange for giving up the right to develop land or sell it to a developer, landowners can obtain significant tax breaks. Limits are also common due to the requirements of a will. For example, a donor may leave a large building to charity, but only if it is used for certain purposes.

Life Estate

A life estate is a special type of estate that’s set up for estate planning purposes. Normally, if you want to leave your home to your children after you pass, the property will have to go through probate, which can take as long as a year. During that time, your children will not be able to occupy the property.

With a life estate, you create a shared ownership arrangement with your heirs. You maintain ownership as long as you are alive, and you remain responsible for property taxes and any other expenses. However, the inheritor, known as the remainderman, must approve any renovations or modifications. When you pass, your heir will obtain full ownership without going through the probate process.

What Is A Nonfreehold Estate?

A nonfreehold estate, also known as a leasehold estate, conveys a temporary right to occupy a property, most commonly via a lease. Unlike with a freehold estate, a nonfreehold estate holder cannot sell the property. And if they die during the term of their lease, their heirs do not inherit the estate.

The 4 Types Of Nonfreehold Estates

Nonfreehold estates are often called tenancies, and fall into four different categories:

  • Tenancy For Years

  • Tenancy From Period To Period

  • Tenancy At Will

  • Tenancy At Sufferance/p>

Tenancy For Years

A tenancy for years is typically used for long-term leases, lasting for a year or more. In this type of lease, the tenant and the landlord agree on a start date and an end date, as well as a fixed payment schedule. When the end date arrives, the tenant vacates the premises without the need for either party to give notice.

Tenancy From Period To Period

A tenancy from period to period has a defined length, just like a tenancy for years. However, this kind of tenancy automatically renews unless either the landlord or tenant gives notice. This is common for apartment rentals, whether they renew from month to month or from year to year.

Tenancy At Will

A tenancy at will is a tenancy that can be ended at any time by either party. This can be an informal arrangement between family members, or a formal written lease. If it’s a written lease, there will normally be a clause that requires the landlord to give a reasonable amount of notice.

Tenancy At Sufferance

A tenancy at sufferance happens when a tenant remains on a property after their lease has ended. The tenant may be paying rent, or they may be squatting. Either way, the landlord can have them evicted at any time, without prior notice.

Summary

A freehold estate is just a fancy legal term for what everyday people call “ownership.” Unless you’re studying real estate law, that’s probably all you need to know. Then again, if you have a fee simple defeasible or a life estate, it’s important to understand the legal nuances. We hope this guide has helped!


Ready to start taking advantage of the current opportunities in the real estate market?

Whether you’re brand new to investing or have closed a few deals, our new online real estate class will cover everything you need to know to help you get started with real estate investing. Expert investor Than Merrill explains the best real estate strategies to help get you on the path towards a better financial future.

Register for our FREE 1-Day Real Estate Webinar and get started learning how to invest in today’s real estate market!