What Does Fee Simple Mean?

January 8, 2009

Residential

Townhouses

Townhouses

I live in a fee-simple town home. Last night the officers of the association had a meeting, and whether I like it or not, I had to go because I’m the president. What? If you understand why this is weird, read on. If you don’t understand why this is weird, read on.

Fee simple is one of the bits of real estate legalese that Chicagoans may occasionally hear in conversations standing at the water cooler or sitting on a stool at the local hole-in-the wall. “My place is fee simple, so I don’t have assessments…” What the…? Hang on, it’s not all that difficult.

Fee-simple in Chicago (the general, legal definition is below since it’s far less interesting) usually means that the home is a townhouse where there is no property held by an association. In fact, there is usually no association at all. To understand what this means, it might be easier to compare it to a typical Chicago condo or townhouse.

A Typical Condo

In a typical condo or townhouse, parts of the property are held by, and the responsibility of, all of the owners?in other words, the association?and are usually called common areas. Some examples of common property are lobbies, roofs, courtyards, and often windows.

A Fee-Simple Townhouse

However, in a fee-simple townhouse there is nothing that is owned by the association. The owners own their roof, their windows, the land under and around their townhouse. That means the individual owners are responsible for taking care of any lawn, painting the outside, fixing leaks in the roof, and shoveling the snow.

In my case, I live in a courtyard townhouse. There are two rows of homes with a beautiful little courtyard filled with trees and flowers (or mounds of snow) between them. A sidewalk runs down the exact middle. Only the end units face the street. I own, and am responsible for, the part of the courtyard that extends from my front door to the middle of the sidewalk. I have to pay for and plant the flowers. I have to cut my grass. I have to clean my gutters. I have to rake the leaves that fall on my bit of grass.

The only thing that I share with anyone are the walls dividing my home from the homes on either side of mine. If something were to poke a hole in either of those walls, both my neighbor and I would have to pay to have it fixed. If the damage is just on my side of the wall…it’s my problem.

Luckily, this complex of townhouses decided that it was nuts for each person to mow their own 10 foot x 10 foot bit of grass, shovel half of the side walk, and clean only their gutters. About 20 years ago, well before I bought here, they formed a loose association. We all pay a very small assessment so we can hire someone to do all these odd jobs that impact all of us. In our case, the association owns nothing. It just exists to buy services that all of us need and benefit from. This is why I was at the meeting last night?looking at expenses.

What Are The Pros & Cons of a Fee-Simple Townhouse?

The first pro you will notice is that there are no assessments. This, in my opinion, is a very big advantage. It means that you can pay more for the home. When you are looking to buy and you know you can spend $1,000 a month, that whole $1,000 can go toward your mortgage. None of your monthly payment is going toward an assessment. The added benefit is that all of the interest on a mortgage payment is tax deductible where an assessment payment is not.

The other pro that springs to my mind is the feeling of independence you have versus a standard condo. You don’t have to worry about what the neighbors think; they can’t make a rule about the size of your dog or how you empty your garbage.

The cons are just the other side of the same coin: you can’t control your neighbors in any way. So, if your next door neighbor?the person you share one wall with?decides to paint their house black with lime green accents, there’s not a thing you can do. If they decide to dig up their bit of grass and replace it with a spongy-floored play area for their kids, your hands are tied.

But What Does Fee Simple Mean in General?

Fee simple is a legal phrase that indicates the highest form of property ownership. Fee comes from the word fiefdom, which means the legal rights in land. Simple in this case means without constraints. So, fee simple ownership of a bit of property means the absolute and unqualified legal title to the land and any permanent buildings on it; no one else has any claim to the property at all. It’s the most common form of ownership.

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About Rod Holmes

Rod has been a broker working in Chicago since 2004. He has worked with developers, buyers, sellers, and as well as managing offices. He is currently a partner in Chicago Style SEO working primarily with real estate firms to improve their Internet marketing. Rod lived for nearly ten years in Japan where he owned a corporate training and executive coaching firm with clients including Hitachi and 3M Japan. He lives in Lakeview with his wife and two children. He enjoys coaching and watching his kids participate in sports, cycling, camping, and traveling in general. You can find Rod online on Twitter at @roddesu, Facebook and LinkedIn.

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4 Responses to “What Does Fee Simple Mean?”

  1. Josh Says:

    Are there fee simple condos at all?

    Reply

  2. Rod Holmes Says:

    The short answer is, “no.” However, we’re having one of our contributors write up the long answer…you will see it shortly!

    Reply

  3. Lisa Gregg Says:

    Not as far as I’m aware of in Chicago. Although, I certainly understand why you are asking. :-) Fee simple is usually outright ownership, no association, no management, no assessments. Condos in Chicago, by & large, are managed by an elected board of members who live in the building & if it’s a high-rise or a building with a large number of units, the building will additionally have a management company to oversee the daily business (assessment collections, common areas maintenance, janitorial staff, parking facility, etc). Each building differs though, based on their declarations (decs) and by-laws set-up at the time the building was erected. I should comment that it’s important for a purchaser to review the decs/by-laws during their contract period so they are well-educated on the building policies. Knowledge is power. (It’s law that the buyer is provided a complete set of condo documents after acceptance of a contract, per the contract terms).

    Chicago condos have a variety of styles, such as high-rise, mid-rise, 2 units +. The condos in a building with say 2-10 units are most likely self-managed by the unit owners and will typically have a lower assessment. This is in part because of the smaller common areas, no management company to pay or it’s employees. There are still basic costs for any condo building though, such as water, heating and common area insurance. There may also be variable seasonal expenses like lawn care, scavenger removal, snow removal, etc. It’s based on what the members want to pay for in their monthly assessments vs. just taking care of it themselves. Like I said, each building has different policies. The decs/by-laws are their governing documents.

    To add to the Fee-simple town home conversation, there are town homes in Chicago where the association takes care of the common areas, grass cutting, garbage removal & security. Again, each association differs in it’s approach & is defined by its decs/-by-laws. For example, Kinzie Park is a gated community in River North at Kinzie/Canal by the East Bank Club. This community is unique. Within its gates is a high-rise, mid-rise & 30+ town homes. The high-rise, mid-rise & town homes have a master association that covers the entire premises & addresses how the grounds will look, be taken care of, be secured. This is done for conformity reasons so that someone doesn’t hang their laundry out to dry on their front yard or paint their town home pink. You know what I mean. There’s a beautiful asthetic at Kinzie Park and that’s a positive selling point for the community and its owners. The town homes in Kinzie Park do pay assessments for the maintenance of the grounds, security & more. The owners are responsible however for all parts of their town home inside its walls. The association considers everything outside of the walls to be common elements, such as, but not limited to, gutters, downspouts, exterior walls, roofing, decking, fencing. The purpose of the assessments is for repairing, maintaining and replacing of these common elements for supporting the health, safety & welfare of the association (paraphrased straight from their decs/by-laws). Most would consider this a pro for Kinzie Park.

    Lisa Gregg
    Licensed Realtor (R) & Admin/Contract Specialist

    Reply

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