Advertiser Disclosure

advertising disclaimer
Skip to main content
leasing agent

What Is Freehold Estate?

Both lessors and lessees should understand their rights and interests in a property.


[Updated: Feb 04, 2021] Aug 15, 2020 by Barbara Zito
Get our 43-Page Guide to Real Estate Investing Today!

Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide.

*By submitting your email you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

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.

Life estate

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
  • Owner can use the land as they see fit, provided it's within zoning laws.
  • Owner must continue to pay mortgage, taxes, estate charges, etc.
  • Owner can sell, transfer, or bequeath the property to an heir.
  • Limited by four government powers: police power, eminent domain, taxation, and escheat.
  • Fee simple defeasible
  • The owner must use the land only in the way it was primarily intended.
  • Should the owner not uphold this agreement, the ownership ceases (fee simple determinable).
  • If owner (or owner's estate) agrees to terminate ownership, it's known as a fee simple subsequent.
  • Life estate
  • A grantor allows the grantee (life tenant) to hold an interest in the estate for the lifetime of the grantor.
  • The life tenant is required by law to maintain the property.
  • Should the life tenant pass away before the grantor, the property reverts back to the grantor (estate in reversion).
  • 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
  • Lease must have a beginning and an end date, though it can be renewed; a common example is a year-long lease between landlord and tenant.
  • Estate from period to period
  • Also known as periodic tenancy; tenant becomes periodic tenant after fixed-term leasehold expires.
  • Tenant can renew and pay the rent while also continuing to occupy or maintain an interest unless tenant or landlord gives notice.
  • Lease will renew for the same amount of time automatically until otherwise determined.
  • Tenancy at will
  • Lease can be ended at any time at either party's request. 
  • Often used for short-term renters or when the property is on the market and a sale is imminent but a tenant still occupies it.
  • Landlord must give the tenant a reasonable amount of time to move in the event the property is sold.
  • Tenancy at Sufferance
  • Occurs when a tenant who previously had a rightful interest loses that right but does not vacate the property. 
  • Tenant is subject to eviction at any time without any notice.
  • 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.

    11% of the mega-wealthy swear by this investment…

    The richest in the world have made their fortunes in many ways, but there is one common thread for many of them: They made real estate a core part of their investment strategy. Of all the ways the ultra-rich made their fortunes, real estate outpaced every other method 3 to 1.

    If you, too, want to invest like the wealthiest in the world, we have a complete guide on what you need to take your first steps. Take the first step toward building real wealth by getting your free copy today. Simply click here to receive your free guide.

    Bank CD rates has a disclosure policy.