What is Fee Simple Ownership?
Real estate transactions are anything but simple, making us question; what is fee simple ownership? Property ownership is a multi-faceted contract that provides buyers control over the surface, subsurface, and other resources on the property, respectively.
You see, once you pay for a piece of land, many factors, including the contract clauses and state law, dictate the terms of your ownership.
Although it sounds confusing, understanding the types of ownership, especially fee simple ownership, is necessary for those planning to buy property. Even if you already have fee simple rights to a property and want to know more about it, this discussion might help.
Types of Ownership
If we look at the basics, the term ‘ownership’ simply means having the right or state to possess something. However, when it comes to property, the term ownership holds multiple meanings you should know before entering the industry.
The type of ownership you hold or intend to pay for determines the extent and limitations of your rights toward the property. Mainly, with fee simple ownership being the primary type, there are four main types of property ownership.
Fee Simple Ownership
While most ownership types are limited to certain parts or depths of a property, fee simple ownership is an absolute case that covers all aspects.
Meaning if an owner has paid for fee simple ownership of a property, they hold the right to use all aspects of the said property for as long as they like without any limitations. This means they can dig for and extract any minerals under the surface and construct any surface structure.
Similarly, they can sell their mineral rights completely or partially to a third party in any way without any limitations and earn steady royalties income. Besides that, they can also lease their property for mineral, oil, or gas extraction.
Severed Minerals Rights Ownership
In some cases, mineral rights are severed or separated from property rights. Meaning two different owners will have the rights to the structures on the surface and the minerals in the subsurface, respectively.
Usually, this occurs when a fee simple owner decides to sell mineral rights for their property and splits the estate rights into two. Both parties must sign a deed that comprehensively specifies the surface and mineral rights as different entities.
Surface Rights Ownership
Surface rights ownership is when the owner has rights to the land and other permanent structures on the surface. Such owners cannot access any minerals if found underneath their land nor grant any oil and gas rights for lease.
In other words, surface rights ownership is also called surface estate.
A royalty owner is a person who has sold his mineral rights to a third party. Meaning while they will receive regular royalty payments and profits generated through the resources underneath their land, their rights end there.
They cannot extract or process the minerals in any way or explore the property further for resources. Similarly, they cannot grant oil or gas leases or receive rental payments if the mineral rights owner rents the property.
What is Fee Simple Ownership?
The extent to which an owner can apply his rights to a property determines the type of land ownership. As mentioned, four types of ownership dictate a person’s actions upon their property.
Among these four, fee simple ownership lets the person exercise full power over their property and conduct any activities indefinitely. It is a legal term that grants the owner absolute ownership of the land and other entities, such as immovable surface structures, surface resources, and subsurface resources.
Usually, if you purchase a home, you are paying for its fee simple ownership unless the contract specifies that you will only receive the rights to the surface and the ownership of other resources remains with the previous owner.
That’s why you must maintain thorough diligence and get professional consultation while purchasing land so you know exactly what you’re paying for.
Types of Fee Simple Ownership
Even if you have fee simple ownership of your land, there might be some limitations to your power over the property. That’s because two types of fee simple ownership determine the extent of your rights.
Absolute Fee Simple
Absolute fee simple ownership is the form you should go for when purchasing a property. It gives you full authority over your land, apart from any zoning guidelines or property rules defined by the state.
For example, even if you have absolute fee simple ownership, you cannot conduct commercial activities in a residential area in some countries based on their property laws.
Apart from that, you can conduct any activities on the property, sell it, or give it away in any way you like.
Moreover, if you’re passing the property down to your heirs, you can mandate any conditions in the arrangement. Such conditions include a non-resale clause so the heirs can never sell the estate or a family-only restriction to ensure the property remains within the bloodline.
Fee Simple Defeasible Ownership
While absolute fee simple ownership gives you complete power over your land as long as you abide by the law, fee simple defeasible ownership has some limitations. Yes, these owners also have complete authority over their land, but they must meet certain conditions placed by the previous owner.
Usually, an owner places fee simple defeasible ownership restrictions over a property when they sell it to a second party to preserve the essence of the property itself. That’s why the owner signing a defeasible ownership deed must agree with what the previous owner has in mind for the property, or he can risk losing it in the future.
Some common restrictions in the case of fee simple defeasible ownership include,
- Limitations regarding its use
- Police authority
- Government ownership clauses
Fee Simple Ownership Rights
If you have fee simple ownership of a certain property, you can exercise the following rights.
- Own the airspace
- Access the mineral resources
- Modify the surface structures
- Sell or rent the property to anyone
- Have your progeny inherit the estate according to your terms
In a nutshell, fee simple ownership entails absolute and complete power over a property. If you have fee simple ownership, you also have both surface rights and mineral rights to your land.
Apart from building any structures on the surface, you can also extract minerals from the subsurface or sell the rights to someone else.
However, even fee simple ownership comes with some restrictions from the government, which you should know about before signing a contract. If you’re not well-read regarding these clauses, you should consider getting professional assistance to avoid future inconvenience.