When you’re in the market to purchase property, it’s vital that you sign the right real estate contract for your needs. After all, the type of property you purchase can affect its end value, the price you pay, and what you can use the property for.
Thus, it’s important to know about freehold estates, how they work, and what privileges they give you as a landowner. Let’s take a closer look at what a freehold estate is in detail.
What is a Freehold Estate?
A freehold estate, in a nutshell, is a type of property where you own exclusive rights to the property for an indefinite or undefined length of time. Simply put, freehold estates are “immovable” assets that you hold some amount of interest in.
Because freehold estates have indefinite durations (i.e., the estate can last for your lifetime or even beyond), many of them are classified as so-called estates of inheritance. In these cases, the freehold estate remains beyond the life of the original holder and is transferred to living heirs as specified by the law or a will.
In other cases, freehold estates may be referred to as “estates not of inheritance.” Also called life estates, these estates exist only for as long as the original holder is alive.
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What Are the Types of Freehold Estates?
When looking for property to purchase or when setting up your own estate, be aware that there are three types of freehold estates including:
Fee simple absolute
Fee simple defeasible
Fee Simple Absolute
A fee simple absolute freehold estate is an estate where the owner has total ownership over the property without any legal restrictions, including the length of time for which they can own the estate. This allows the owner to pass on the estate to their heirs or descendants.
So long as any obligations are taken care of as the owner, including property taxes, they can use the land however they please. Because of its simplicity and versatility, fee simple absolute estates are the most common form of property ownership overall.
Fee Simple Defeasible
A fee simple defeasible freehold estate is another estate that includes additional limitations compared to fee simple absolute.
With fee simple defeasible estates, the land always comes with conditions, such as:
You have to use the property for a specific purpose
You have to keep the land untarnished or undeveloped in specific ways
You have to transfer the property to another person at a set point in time
And so on
Fee simple defeasible estates’ conditions can vary heavily depending on the contacts concerning them. Thus, if you plan to purchase a fee simple defeasible estate, be sure to read the terms and conditions carefully.
Lastly, life estates are the third type of freehold estate, as touched on above. Life estates are essentially estates intended to be given to the children of the original holder. This makes transferring property from generation to generation much easier.
With a life estate, the original owner or life tenant can live out their life within the home and share joint ownership with the eventual inheritor. Once the life tenant passes, the rights of the property go to the beneficiary without having to go through the lengthy probate court process.
What is a Nonfreehold Estate?
A nonfreehold estate is any interest in property that’s less than the total interest in a freehold estate. Put another way, nonfreehold estates aren’t inheritable and only exist “without seisin,” which denotes ownership. So nonfreehold estates exist without a direct owner.
Nonfreehold estates may also be called leasehold estates. They’re created through leases or rental agreements (either oral or written). The holder of a nonfreehold estate technically doesn’t have any ownership interest in the property and can only use the property as it may have been established in the terms of their contract.
For example, a renter of an apartment doesn’t own the property. They are only allowed to use the property per their rental contract. The ownership of the nonfreehold estate lies with the landlord instead.
Since most nonfreehold estates involve tenants or renters, such estates are often called tenancies, of which there are four types.
Tenancy for Years
A tenancy for years (also called an estate for years or tenancy for a definite term) is an estate created by a lease where a tenant has a leasehold interest in property for a specified duration, such as a set number of months or a year.
A tenancy for years must have a defined beginning and end date for the contract. The lease is terminated automatically at the end date without further notice on the part of either party.
Tenancy from Period-to-Period
A tenancy from period to period is a leasehold estate where the tenancy is for a definite time initially, but it is automatically renewed unless voluntarily terminated by the lessee or lessor. These estates can also be called periodic tenancies and are technically of indefinite duration since they can be renewed as many times as needed.
Tenancy at Will
A tenancy at will, also called an estate at will, is a leasehold interest that exists “at the pleasure” of both a lessee and lessor. Either party may terminate the tenancy at will at any time. Most tenancy at will lease agreements include language that says the lease can be terminated instantly so long as notice is given.
In the case of a rented property, tenants are usually given a certain amount of time so they can safely vacate the property. Landlords may prefer to use a tenancy at will contract if they have a property for sale, and tenants may need to vacate rapidly.
Tenancy at Sufferance
Lastly, a tenancy at sufferance is a very low form of estate. That’s because it exists only from circumstances; such an estate is never deliberately made. A tenancy at sufferance is made when a person purchases or lawfully acquires land. However, they remain on the property without any legal right, usually without the current property owner’s consent.
For example, suppose a tenant for an apartment remains in the apartment after their one-year lease has been terminated without notifying the landlord. In that case, they are technically a tenant at sufferance. This tenant can then be evicted at any time.
Ultimately, a freehold estate is one of the most common types of property interest for both residential property owners and landlords looking to grow their portfolios. Now that you understand what a freehold estate is and what privileges it provides you, you can be sure you are making the right moves.
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