Fee Simple, Leasehold, and Leased Fee Explained In 3 Minutes
Originally posted at The Real Estate Appraisal Group blog page on March 26, 2015
What’s the real difference between leasehold, leased fee, and fee simple?
Fee simple is the form property ownership people are most familiar with. The term means you have absolute ownership- you own the rights to the entire property, including the land and buildings on it. This is often called “The bundle of rights.” You can occupy the property, you could rent out a room, you could paint it purple. And provided your local laws allow it; you can re-zone it, you can sub-divide it, add square footage, tear it down, whatever you want. It’s your property.
Leased Fee & Leasehold
When there is a lease involved, the landlord has leased fee ownership, and the tenant has leasehold rights. When a property owner wants to lease out a portion of their property, usually they do so because they want to make money. They want to collect a fee. They want to collect that fee from someone who wants to occupy their property- that person want’s to hold the rights to live there, or to occupy the property. If you get in an argument with your landlord (who has leased fee ownership) and he or she tells you to pack your things and leave, you don’t have to. Assuming the lease says so, you have the rights to occupy the property (why would you sign a lease that says otherwise?), meaning your landlord would have to formerly evict you.
Leasehold rights are less significant when we are discussing renting a room or house. Typically they are more important when you are talking about owning a property where you own the building but you do not own the land. This is commonly seen on large farms where there are often 100 year leases. It is also quite common in some cities, like Baltimore, MD. where the property owners are paying a monthly fee to lease the land that their home sits on.
I hope this brings some clarity to these often misunderstood terms. If you do have more questions, please leave a comment below and I will be sure to answer them.
Jonathan Montgomery Founder and President of the The Real Estate Appraisal Group. He has been a real estate professional since 1998. He’s been a broker, and investor, and now serves as an appraiser. He currently works as an appraiser, doing real estate appraisals in Washington D.C., Southern Maryland, and Northern Virginia.