What Are Leasehold Estates?
estates, also known as less-than-freehold estates, are lease or rental
interests and do not constitute legal ownership of real property. In fact,
leasehold estates are technically considered to be personal property and not
estates in real property at all. Holders of leasehold interests (tenants or lessees) have
permission to possess and use real property for a specified period of time, in
accordance with local laws and the terms of the lease agreement. This
agreement is a legal contract between the holder of the leasehold interest (the
tenant or lessee), and the owner of the property (the landlord or lessor),
which permits the tenant to use the property in return for rent payments or
other consideration. "Other consideration" can include "valuable" consideration like labor,
goods produced from or on the property, or "good" consideration such as love and affection. With a
leasehold estate, the landlord retains a right of reversion, which allows him
or her to recover possession of the property once the lease or estate ends.
This interest in the property retained by the landlord is known as a "leased
fee estate with reversionary right" (also called "leased fee estate PLUS RIGHT OF REVERSION" or "PLUS reversionary right").
Types of Leasehold Estates
There are four basic types of leasehold estates, with each characterized by different landlord-tenant relationships and lease periods. Each of the different leasehold estates is also known as a tenancy, referring to the manner in which an estate or interest in real property is held. Whether it is called a leasehold estate or a leasehold tenancy is a matter of preference and local custom; the terms as used in this sense are synonymous. The types of leasehold estates are: estate for years (tenancy for years), estate from period to period (periodic tenancy), estate at will (tenancy at will), and estate at sufferance (tenancy at sufferance).
Estate for Years (Estate for Term, Tenancy for Years)
An estate for years is a common type of residential leasehold estate. The term "years" does not really refer to any specific period of time. Instead, it refers to the fact that this estate has a duration that has been clearly stated and defined in the lease agreement. This duration can indeed be years, but it can also be months, weeks, or even days. An estate for years differs from other leasehold estate in that it has both a starting and an ending date. When the estate ends, the tenant must vacate the premises and surrender possession to the landlord, unless a new lease agreement is signed by both, or the tenant exercises an option to renew (provided this option was included in the lease agreement). Neither the tenant nor the landlord is required to give notice prior to the end of an estate for years, since it is presumed both are aware of the end of the estate as described in the lease agreement. Neither party may terminate the lease before its expiration date unless both agree to do so or the lease contract has been breached. A tenant with an estate for years has the right to use and possess the premises even if the landlord dies or sells the property to someone else, except in cases where the lease agreement contains a clause that states otherwise. If the lease agreement has an option to renew, the tenant may exercise this right even though ownership of the property has passed from the landlord to someone else.
Estate from Period to Period (Periodic Tenancy)
Even more common in residential leases than an estate for years, an estate from period to period is a leasehold estate with an initial period of tenancy that renews automatically unless either the tenant or landlord gives notice to the other of his or her intent to terminate the lease. The initial period is defined in the lease agreement, and can be week-to-week, month-to-month, year-to-year, or any other time period. The lease agreement for periodic tenancy has no end date. Instead, the lease is automatically renewed for the defined period when rent is offered and accepted. Since there is no agreed-upon end date, notice is required for either party to terminate the lease. Local law and the terms of the lease contract determine how much notice is required; 30 to 60 days notice is usually all that is required for the termination of a residential lease. If the landlord dies or sells the property, the tenant has the right to continue with the terms of the lease until the end of the next period. Proper notice must be given by the new owner in order to terminate a periodic tenancy.
Many lease agreements initially create estates for years, with both starting and ending dates for the tenant's use of the premises. Often, an option to renew for an additional lease term (with an end date) or to convert the estate for years to an estate from period to period (of indefinite duration) is included. If a tenant with an estate for years does not vacate the property once the lease has ended, a holdover tenancy is created. At this point, the landlord may evict the tenant, since the lease agreement has been broken. Alternately, the landlord may grant the tenant an estate from period to period and allow the tenant to continue to possess the property until notice of lease termination is given. If this occurs, case law shows that the periodic tenancy that has been created usually cannot exceed the duration of the estate for years or 1 year, whichever is less. For example, if a tenant has a 3-month lease and holds over after it expires, the new periodic tenancy cannot exceed 3 months. If the estate for years was to last for 2 years, the tenant may only hold over for 1 additional year, provided the landlord allows him or her to do so. In some states, however, a holdover tenancy is automatically considered to be either an estate at will or an estate at sufferance, dependent upon whether or not the landlord has given permission for continued use of the premises.
Estate at Will (Tenancy at Will)
An estate at will differs from an estate for years and a periodic tenancy in that it has no end date, and no defined initial period of tenancy. In other words, an estate at will continues as long as the landlord allows the tenant to possess the property. Notice to terminate the lease by either party must be given according to the lease and local law. Although there is no defined period of tenancy included in an estate at will, regular rent payments must still be made. Some states do not recognize this type of lease, and consider it to be a periodic tenancy. Unlike either periodic tenancies or estates for years, the death of the landlord or the tenant ends an estate at will.
Estate at Sufferance (Tenancy at Sufferance)
An estate is an interest in real property that allows one to possess that property. It might seem strange, then, that an estate at sufferance is created when a tenant's possession of property is unlawful and without the consent of the landlord or property owner. However, a tenant at sufferance has possession of real property, and therefore has an interest in it - and a possessory interest constitutes an estate. In addition, common law often provides a means for those who possess property to claim it as their own after a certain period of time. Two common examples of estates at sufferance are when a tenant for years holds over after the expiration of the lease term, or when a homeowner remains in possession of real property following a foreclosure. The landlord of a tenant at sufferance cannot physically remove the tenant from the property, but can begin eviction proceedings against him or her.
Article: Real Estate
Added: Tue Jun 24 2008
Last Modified: Wed Oct 01 2008