Fee Simple Interest vs. Tenancy Interest

Posted by CourthouseDirect.com Team - 24 May, 2013

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fee simple interestAs any seasoned homeowner or real estate professional knows, buying and selling property is not a one-size-fits-all process. Under U.S. law, there are several different types of legally valid real property interests. While some are used more commonly than others, all of these interests have their place. 

The topic of ownership rights is far too broad to be summarized in a single article, but the all-important distinction between fee simple interests and tenancy interests is a great place to start. 

Fee Simple Interest Explained

As the most common type of real property ownership, fee simple interest has been discussed at length in countless publications. The most pertinent characteristics of a fee simple interest include:

  • A sole owner who enjoys absolute rights of sale, transfer and disposal
  • Upon the property owner's death, his or her spouse or legally designated heir receives full control of the property
  • Rights of ownership continue indefinitely until the owner dies without leaving succession instructions

Tenancy Defined

Also known as "vesting", tenancy describes a situation in which the occupants of a property lack absolute rights of sale and ownership. Although they may also be described as "tenants", these individuals are typically known as "grantees." Unlike fee simple owners, they share rights of ownership and sale among themselves and must follow certain protocols of transfer and succession. A list of the most common tenancy arrangements follows.

Joint Tenancy

This special and often temporary situation permits multiple grantees to enjoy mutual ownership of a given piece of real property. Joint tenants generally own an equal share of the property in question. This arrangement is defined by the following characteristics:

  • The tenancy must be conferred by the same deed or grant
  • Each tenant must become party to the arrangement simultaneously
  • Each tenant must enjoy the same rights and privileges of possession and disposal
  • Each tenant's interest must be identically sized

Once a joint tenant sells or transfers his or her interest, the entire arrangement is deemed to be terminated or "broken." A "broken" joint tenancy reverts to a tenancy in common.

Tenancy in Common

This arrangement permits a theoretically unlimited number of tenants to possess ownership interests in a defined real parcel. Although this ownership arrangement doesn't have to be proportional, all tenants in common do enjoy rights of possession and succession. Crucially, a tenant in common may designate an heir to receive the rights to the property after his or her death. This permits the arrangement to continue in perpetuity. Specific tenants may also elect to "buy out" other tenants and increase their share proportionally. 

Survivorship Tenancy

A survivorship tenancy prohibits its participants from independently transferring their property interests to a third party. Although these individuals own fractional shares in the property in question, they may only make such transfers in concert with the arrangement's other participants. When a survivorship tenant dies, his or her interest passes proportionally to the arrangement's other tenants. This type of arrangement prohibits its participants from transferring their interests through normal means of succession.

Transfer on Death Tenancy

This special type of tenancy permits its participants to designate specific beneficiaries to receive their tenancy interests in the event of their death. Although this arrangement may be cancelled by the wholesale transfer of the entire property, it's most often used to protect specific heirs that might otherwise not stand to inherit these interests through the normal means of succession.

It's important to note that this isn't an exhaustive list of the types of tenancy or the differences between fee simple interests and tenancy interests. However, it should serve as a good starting point for those who wish to learn more about this fascinating and practical area of property law.

* Image courtesy of FreeDigitalPhotos.net

Topics: Real Estate, Finance


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