A freehold estate is an ownership type where the owner gets to enjoy the property for an undefined length of time. This compared to an estate that has a time limitation.
There are three types of freehold estates. The first is a fee simple absolute, the second is a fee simple defeasible, and the third is a life estate.
A fee simple absolute estate represents the greatest interest in ownership that a party can have in a property and is also the most common form of real estate ownership. In this estate, there cannot be limitations placed on a property by the previous owner or their heirs, but that does not mean that it is free of encumbrances. Fee simple absolute estates are still subject to the four powers of government that effect real estate, being taxation, eminent domain, police power, and escheat. For more information on these government powers, view our video the 'Explanation of Government Powers in Real Estate' which is found inside our real estate exam preparation course.
The second type of freehold estate is a fee simple defeasible. This type of estate is created when a grantor places a condition on the property for the next owner. There can be a fee simple determinable or a fee simple subject to a condition subsequent. An example of a fee simple determinable would be in the instance a grantor gives land to another party so long as it is never developed. If the grantee breaches this condition, then the land will automatically revert to the grantor’s estate.
An example of a fee simple subject to a condition subsequent would be if a grantor places a condition that ‘no guns are to be shot on the property.’ If that condition is breached, then the property would revert to the grantor’s estate.
The final type of freehold estate is a life estate. Now, this one can be confusing because there is a time limitation, but that limitation is the life span of the grantee. For example, a child can grant a home to their aging parent for the period of the rest of their life. The parent would then be considered the life tenant. When the parent dies, the property will then revert to the child or the child’s estate.
A restriction of a life estate is that the grantee is not allowed to leave the estate to another party in their will. However, they do have the ability to sell, lease or mortgage the property for the duration of the life tenancy.
When preparing for your exam, make sure that you have a clear understanding of what a freehold estate is and the three types of estates that fall under this category.
If you want to see some examples of questions that will be on the actual real estate exam, check out our free real estate practice exam. We have been named as the best real estate exam practice for 7 years in a row!
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