What are the Different Estates in Real Property?

There are two ways to hold ownership rights in real property today, these are called Freehold and Leasehold Estates. A Freehold Estate is ownership for an indefinite period of time while a Leasehold Estate establishes rights for a definite period of time.

Freehold Estates:

Fee simple ownership (fee simple absolute) has the most ownership rights. A person who has fee simple absolute ownership has the highest bundle of rights available for a property holder for an indefinite period of time. A fee simple ownership can be divided up into several different entities. For example, a person can hold a fee interest in the soil underneath a structure, while another could hold a fee interest in the structure. Fee ownership can also be divided within a property such that each owner owns a certain portion of the property and its common areas (like a condominium property).

Tenants in Common and partnerships can also own undivided equal or unequal portions of fee simple ownership. Both partnerships and tenants in common ownership structures allow the property to be passed on to the heirs of the owners incase of a death. These are the preferred ownership structures for 1031 Tax Exchanges (1031 TIC Exchange).

Community property represents ownership that is equal and undivided between husbands and their wives and is acquired after marriage with community funds. When one of the partners becomes deceased, their half of the property gets distributed according to their will. Community property can also be held with the right of survivorship. 

Joint tenancy ownership between two or more parties is held with the right of survivorship. This means that upon the death of one of the parties, their interest becomes vested in the other party. These arrangements are typically only structured between husband and wife. If the husband dies in this situation, the wife would automatically be vested in the husbands’ portion of the ownership, and would therefore be the sole full owner of the property. In a three party joint tenancy ownership, the two surviving parties would share equally in the ownership portion of the deceased.

Leasehold Estates:

A leasehold estate is an estate that maintains ownership rights for a definite period of time. A leasehold ownership is when a landlord gives up ownership rights to a tenant for a given period of time in an agreement called a lease. The landlord retains the legal fee ownership of the property, but the tenant has physical control over the property during the period of the lease.