What is fee simple defeasible in real estate?

In a real estate transaction, there are several ways to protect a seller’s interests — but not all of them carry the same legal weight. Fee simple is a legal term regarding property ownership. There are different types of fee simple ownership, one of which is fee simple defeasible. This category carries some very specific conditions surrounding the legal ownership of the property.

What is fee simple defeasible?

“Fee simple” is a real estate-law term meaning that an owner possesses the property in question outright. “Fee simple defeasible,” however, comes with some restrictions.

In a fee simple defeasible situation, ownership is dependent upon the buyer meeting specific conditions, which are clearly spelled out by the seller in the contract. If the buyer violates these conditions at any point, then the property could legally revert back to the seller, or to a specified third party.

Types of fee simple defeasible

There are three different types of fee simple defeasible ownership. All are similar, but each with one key difference:

Fee simple determinable

Fee simple determinable is the clearest and most binding form of fee simple defeasible. In this situation, if the buyer violates the seller’s explicitly stated stipulations, then the property immediately reverts back to the seller, or the seller’s heirs.

Fee simple subject to condition subsequent

This agreement is still subject to the stipulated conditions of the seller. However, with fee simple subject to condition subsequent, ownership of the property does not automatically revert to the seller if the conditions are violated. Instead, it is up to the seller to pursue legal action to retake possession of the property. So the difference here is that the seller here must take action to retake ownership.

If there is any gray area about whether a binding agreement is fee simple determinable or fee simple subject to condition subsequent, U.S. courts will usually interpret the language as being subject to condition subsequent.

Fee simple subject to executory limitation

Fee simple subject to executory limitation is also similar to fee simple determinable, but with a different twist. In this case, if the conditions in the agreement are violated, ownership of the property automatically transfers not back to the seller, but to a previously designated third party.

Reasons to use fee simple defeasible in real estate

The majority of real estate transactions do not call for fee simple defeasible arrangements. It is most often employed when a property has been in a family for generations, say, and the family wants to protect the land in certain ways. Or if the selling party has very clear purposes that they want to ensure the land is used for.

Examples of fee simple defeasible

One example of a fee simple determinable situation might be the sale of a family farm, in which it is stipulated that the land remain agricultural. If the new owner violated these conditions by, say, trying to develop the land into a shopping plaza, the property would immediately revert to the previous owner.

If a fee simple subject to condition subsequent is governing a property sale, the conditions must still be honored, but the onus to pursue legal recourse is on the seller. Say a buyer purchases a cattle ranch, for instance, that is being sold with the express intention of keeping the ranching function intact. If the buyer then starts to develop the property for large-scale soy crops, the spirit of the contract is theoretically being breached. However, nothing happens unless the seller pursues the matter legally — and even then, it is up for the courts to decide.

A fee simple subject to executory limitation might come into play if, for example, a plot of land passes to a conservation group upon the death of the owner, with the stipulation that no structures are to be built upon it, and that if any are in fact erected on it, possession of the land will immediately transfer to the school that it abuts. If the conservation group were to violate this, ownership would legally transfer to the school.

What is the difference between fee simple defeasible and fee simple absolute?

This is a simple one, no pun intended. Fee simple defeasible holdings are characterized by binding conditions that trigger one of several scenarios if violated, as outlined above. With fee simple absolute holdings, there are no provisions or restrictions governing the property. The owner possesses the property outright, and no claims can be made against it.

Bottom line

Very few real estate transactions these days call for a fee simple defeasible arrangement. The vast majority of deals are unencumbered by a seller’s conditions. But in certain cases, it can be desirable to define the parameters of a sale with a fee simple defeasible contract. This gives the seller — or the seller’s heirs down the line — legal recourse if those legally stipulated wishes are ever breached in the future.