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What Are Freehold and NonFreehold Estates? | Real Estate Exam Prep Video - YouTube
Channel: The Real Estate Classroom
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[Music]
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everyone my name is Paul fat Chesky and
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welcome to the real estate classroom
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YouTube channel it's just a place where
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folks trying to get their real estate
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license can find tools tips and videos
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to help them pass their real estate
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licensing exam
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understand the freehold estate means
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ownership some type of ownership
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now there's another doctrine we're going
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to talk about in this video called non
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freehold estate or less than free old
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and that is someone who has interest in
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a piece of property but they don't have
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ownership interests for example so we'll
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discuss that later on in this video but
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anytime we talk about a freehold estate
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we're talking about somebody that has an
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ownership interest not the quad the
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quality of ownership but just some
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ownership because everybody has a
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different level of ownership interest or
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legal interest in a piece of property
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may be a better way to say this now
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there are three sub categories of
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freehold estate which we need to talk
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about here the first one is known as
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fee-simple or sometimes called fee
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simple absolute those two terms are used
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interchangeably so if somebody owns a
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piece of property fee simple absolute
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that means they have absolute ownership
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interest they have all the bundle of
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rights afforded to them they have the
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right to purchase the property sell the
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property mortgage at lease it they have
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the right to its service rights at
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subsurface rights its air rights they
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have the right to bequeath it or will it
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to errors if they want to so they have
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that complete total bundle of rights fee
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simple absolute the second type is fee
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simple defeasible now the root word here
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is de fees which means defeat so what
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this means is something its ownership
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its fee simple so I own this piece of
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property for example but there's
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something defeating absolute ownership
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now there's two doctrines under fee
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simple defeasible
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one is determinable that's the first one
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and the second one is condition what we
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call conditions subsequent and it's
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actually fee simple determinable or fee
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simple to us to a condition subsequent
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and let me explain this so let's say I
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own a piece of property and the city is
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the city wants that piece of property to
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put apart
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there they want my piece of property
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that I own fee simple absolute so
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because I own it fee simple absolute I'm
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gonna give it to the the city but I'm
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gonna put a requirement on that piece of
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property and we're going to actually put
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it into the deed restriction of the deed
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when I transfer title meaning title
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meaning ownership over to the city
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you
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all right so I'm actually gonna sign a
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deed I'm gonna transfer title over to
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the city but in that deed restriction it
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says that it can only be used as a park
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and so if it's used for anything else
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then it's going to be passed on the
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ownership is gonna be passed on to
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someone else
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so I own the property fee simple
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absolute I transfer title over to the
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city now the city owns it
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they have fee simple title but they have
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fee simple defeasible because there is
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something defeating absolute title and
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that is I put a condition on the city's
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ownership of my former property meaning
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that it has to remain a park now these
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to document these two doctrines
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fee-simple the determinable and fee
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simple to a condition subsequent means
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that under a determinable situation I
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transfer the property to the city to be
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a park and let's say it's a park for the
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next 20 years but at the point that it
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stops being a park the city stops using
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is it a park then then the ownership
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automatically transfers to what we call
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the remainderman automatically transfers
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to somebody that I pre designated as the
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heir to this property so maybe I put in
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the deed in the deed restriction I put
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in there that the city can own it for as
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long as they want but at the point that
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it stops being a park it automatically
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determinable it automatically transfers
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to the Catholic Church for example now a
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condition subsequent would be a
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defeating moment where I would say
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listen the city can have this they own
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it but there is a deed restriction that
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says that it must remain a park now if
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it stops remaining a park then the city
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still owns it until someone me or
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someone in my heirs or my estate goes in
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and says or anybody actually and says
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files a action against it saying no it's
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no longer a park so this needs to revert
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to whoever the church or whatever the
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case may be
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so remember fee simple defeasible means
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something is defeating absolute
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ownership and then we categorize
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fee-simple defeasible by determinable or
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conditions subsequent the third part is
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a life estate and we're gonna spend a
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little bit of time on this because life
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estates are cool so let's take a look at
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the life estate part of this
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you
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all right let's talk about a life estate
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here's what a life estate is and the key
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here is life life estate so meaning
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someone has legal interest in a piece of
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property for their life or the remaining
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time of their life that's what a life
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estate is so let's say that I own this
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property maybe it's a rental property
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and my mom is 70 years old and and I say
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mom here's the thing I'm gonna give you
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this house for the rest of your life but
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at the point that you're the point that
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you died then I'm going to transfer the
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title on to somebody else so I transfer
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title to mom
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so mom now owns it all right mom owns it
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mom owns it for the rest of her life
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so we X transfer title and remember
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title and real estate means ownership
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but I'm gonna pre designate who gets the
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property after mom dies so when mom dies
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then I'm going to transfer the property
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over to my brother Tom all right so Tom
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is known as the remainder men
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he's the remainder bin now there is a
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future ownership interest that belongs
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to Tom because we know mom isn't going
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to live forever so we know that we know
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that at some point Tom or his estate is
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going to own this property when mom dies
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that interest that future legal interest
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in the property is known as reversionary
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reversionary interest now I don't have
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to when I transfer title to mom I don't
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have to designate Tom or anybody else to
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be the new owner I could actually say
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well after mom dies it comes back to me
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in that case I'm the remaindermen and
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the reversionary interest that future
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owner ownership interest that belongs to
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me but it's still called reversionary
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interest you need to know these two key
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terms because there's a good chance that
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if you select if you draw
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if you try a test question or a
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particular test it's heavy on life
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estates those two key terms are gonna be
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in there all right so once again I own
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the house I transfer the title to mom
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and mom is mom's the owner mom you know
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if somebody owns a piece of property
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what can they do well here's the
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interesting thing mom can take out a
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mortgage on it now I bet you're saying
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well okay how can mom take out a
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mortgage on it because what happens if
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mom dies there's the technical side of
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it that you need to know for the test
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and then there is the practical side
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quite honestly I think it would be very
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difficult from all practical intents
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purposes for mom to get a mortgage but
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it's legally possible mom can actually
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sell the property she can sell the
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property she can lease the property out
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there's only two things that mom can't
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do with that property mom can't waste
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the property which means destroy it so
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if I own a proper if I own this property
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fee simple absolute and I want to burn
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the house down or tear it down because I
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want to vacant lot I can do that as long
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as local zoning permits it but mom can't
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do that she can't waste the property
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that's what it's called
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and she cannot will it or what we call
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bequeath it to any of her heirs or
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anyone else interestingly enough mom if
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she wants to
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mom can sell the property so let's say
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mom sells the property to Sally Sally
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now owns it now what's gonna happen is
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as soon as mom dies then Sally's done
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her ownership automatically reverts to
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Tom who's the remainderman so it's kind
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of it's kind of cool how this all plays
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out I have actually seen this scenario
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I've never seen the mortgage scenario
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but I have seen the scenario where mom
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does sell it to somebody now here's the
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thing I transfer title to mom as a life
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estate all right that's a freehold
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estate because it's ownership but mom
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owns it for the rest of her life
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remember
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life is the key here now once mom dies
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and that property goes to Tom who's the
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remaindermen Tom now owns it fee simple
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title and if he owns it fee simple
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absolute and he has fee simple title
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then he has all the rights all the
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bundle of rights to do whatever he wants
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now he can sell it he can he can lease
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it he can mortgage it he can farm and he
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can he has rights to the mineral rights
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the air rights and all of that the
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entire bundle of Rights that's offered
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private ownership someone who owns title
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fee simple absolute so that's a life
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estate the next thing I want to talk
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about is non freehold estate or
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sometimes called less than freehold
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estate two terms two phrases you have to
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know because the tests can use them
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interchangeably we know that a freehold
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estate deals with ownership interest non
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freehold estate is non ownership
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interests there there is a legal
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interest in the property and they have
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rights but there's no ownership interest
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and we see this with the landlord tenant
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relationship so when you own a piece of
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property
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freehold a fee simple absolute you know
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that you can lease the property that's
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part of your bundle of rights and so
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there's two things two there's two
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interests that someone has when they own
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a piece of property they have the
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ownership or the title interest meaning
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they own the property and there's a
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separate legal legally distinct right
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called
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the right of possession or the legal
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right of possession so if I own the
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piece of property and I'm gonna lease it
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out to you then I'm gonna retain the
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ownership interest but if I sign a year
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lease or month a month or whatever I'm
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gonna transfer the legal right of
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possession to you so you have a legal
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interest in this piece of property but
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we have to call it something because the
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lawyer said we have to so there's legal
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names for this so in that data state
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like you're what we call it is the
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landlord hasn't we call a lease fee
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interest F EE
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and the tenant has a hold interest okay
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so when we have a non freehold estate or
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less than freehold estate remember the
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landlord tenant situation both parties
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have a legal interest in the property
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and the tenant has the leasehold
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interest and the landlord has the least
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fee interest there that's the legal
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names for this relationship here
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regarding their interest now here's how
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I used to remember this when I was a
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student
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the landlord's interest in that
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landlord-tenant relationship is called
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least fee the landlord charges a fee
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called rent in exchange for giving up
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the legal right of possession the tenant
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if they don't pay the fee called rent
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they're gonna hold leasehold they're
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gonna hold the property hostage until
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eviction so that's just a little tool
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that I use to to remember this situation
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non freehold means non ownership we see
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it in the landlord tenant relationship
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and we have to give legal names to the
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interest the tenants interest is a
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leasehold interest and the landlord's
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interest in the property is called
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leased fee but if you have any questions
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that's why we have a comment section
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please put your question down in the
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comment section and I'll return with an
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answer also if you have already taken
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your licensing exam and you remember a
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question regarding a life estate do me a
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favor write it down there and share your
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experience with everybody else I would
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appreciate that until next video if you
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haven't taken your exam yet best of luck
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you
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