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To hold an interest in a property, one must typically be either a landlord or a tenant. A property owned by a landlord is known as freehold estate. There are two criteria that properties must have to be deemed freehold estates. First, it must be immovable, meaning it literally cannot be moved from one place to another. Second, there is no fixed timeline of real estate property ownership, meaning that if certain guidelines are met, it may be transferred, sold, or bequeathed in perpetuity.
Types of freehold estate
There are three types of freehold estate:
Fee simple absolute
This is the most common definition used to define the clear absolute ownership of a real property. The current owner has the ability to use it as they see fit, as long as its usage meets local zoning laws. Additionally, provided the owner pays the mortgage, estate charges, and taxes, he or she can keep the property, transfer or sell it, or gift it to an heir as part of estate planning.
Despite the name, this type of fee simple estate deed is not truly absolute. It's actually limited by the four government powers in real estate: police power, eminent domain, taxation, and escheat. Police power is the government's right to enforce regulations for land development for the sake of public's safety. Eminent domain is the government's right to convert private property to public property (after compensating the owner). Property owners by law must pay property taxes. Lastly, escheat is the ability of the government to seize unclaimed property or assets of an estate.
Fee simple defeasible
In this case, while the owner still has a claim on the land, he or she must only use it in the way it is intended. For example, if a parcel of farmland is meant to be kept as such, it cannot be transformed into the site of an apartment complex, or any other building, for that matter. Should the owner attempt to do this, their ownership will cease; this is known as fee simple determinable. If the ownership is terminated with the agreement of the owner or the owner's estate, then the ownership term is known as a fee simple subsequent.
In this type of freehold estate, a person (the grantee) holds an interest in the estate for the lifetime of another person (the grantor) who allowed for the interest in the first place. In this case, the grantee is known as the life tenant. The life tenant can reside at the property with all rights and privileges -- though they're required by law to maintain it -- until the death of the grantor, at which time the life tenant must vacate the property and forfeit any interest in it. Should the life tenant predecease the grantor, the property reverts back to the grantor in what is known as estate in reversion.
|Type of Freehold Estate||What It Means|
|Fee simple absolute|
|Fee simple defeasible|
What is nonfreehold estate?
A lessee's interest in property is known as nonfreehold estate, sometimes called less than freehold estate. Unlike for a landlord's interest in property, a lessee has possession of the property for a specified amount of time. There are three types of nonfreehold estate.
Estate for years
In this case, the lease must have a beginning and an end date. This is most often used as part of the year-long lease commonly held between a landlord and tenant, which is then renewed on a yearly basis.
Estate from period to period
This type of nonfreehold estate is also known as periodic tenancy. After the fixed-term leasehold expires, a tenant becomes a periodic tenant. Though the initial lease time has ended, the tenant can renew and pay the rent while also continuing to occupy or maintain an interest in the freehold property until they or the landlord gives notice -- usually 30 to 60 days. Whatever the timeframe of the lease -- be it years, months, weeks, or even days -- it will renew for the same amount of time automatically until otherwise noted.
Tenancy at will
Tenancy at will is a type of non-freehold estate that can be ended at any time at either party's request. This short-term lease is often used for month-to-month renters or when the property has been listed for sale although someone is still renting it. In the latter situation, the lessor must give the tenant a reasonable amount of time to move when the property is sold.
Tenancy at sufferance
The first three types of nonfreehold are done purposefully and with mutual agreement. This is not usually the case with tenancy at sufferance. This type of nonfreehold estate can come after a foreclosure when a tenant doesn't vacate the property. While they might have had a lawful interest in the property at some point, they no longer do, and they're subject to eviction at any time without any notice.
It's worth noting that a tenant at sufferance is not the same as a trespasser. A trespasser never had the right to the property, whereas a tenant at sufferance did at one time.
|Type of Nonfreehold Estate||What It Means|
|Estate for years|
|Estate from period to period|
|Tenancy at will|
|Tenancy at Sufferance|
The bottom line
Whether you're on the freehold or nonfreehold side of the real estate transaction, it's important to understand the rights you have -- or do not have -- regarding interests in and use of the property.
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