Leasehold Estates

Compared to freehold estates, the leasehold estate normally does not last as long and does not convey as much ownership rights. The leasehold estate, nevertheless, does convey some ownership interest to the holder of the leasehold estate.

Leasehold estates are created by a lease agreement, which effectively transfer an ownership interest from the grantor (landlord) to the tenant, usually in return for rent or other consideration. The ownership interest transferred is limited, typically only the right of possession.

All states have enacted a statute of frauds, which set requirements for certain contract. Most states require that lease agreements of more than one year must be in writing. Monthly and other short-term leases can be oral, but should be written when possible.

  • Lessor. In the lease agreement, the landlord or property owner is called the lessor. The lease agreement normally gives the lessor a reversionary right to retake possession of the property, if the tenant defaults.
  • Lessee. The tenant is called the lessee.

There are four basic categories of leasehold estates:

  1. Estate for years. This leasehold estate continues for a definite period of time. Contrary to its name, this most popular of the leasehold estates does not require a term of one or more years. The key here is the term. If the tenant dies during the term, the leasehold estate continues; it merely passes on to one of the tenant's heirs, who assume the lessee role.
  2. Periodic estate. Also called estate from period to period, this leasehold estate is more open-ended. This leasehold is for one, usually short, period at a time, and renews every time the consideration (rent) is paid. For example, the month-to-month rent has a period of one month. Every time the rent is paid, the lease-which is normally oral-renews for another month. Termination of this leasehold does require advance notice: usually one week for weekly lease, one month for a monthly, and three to six months for a yearly lease.
  3. Estate at will. Often called a "tenancy at will," this estate occurs when the landlord allows the tenant to possess the real property for an indefinite period. For example, the strip mall owner allows Ophelia to place her antique wares in the neighboring empty store while the owner-landlord finds a new tenant. With a tenancy (estate) at will arrangement, Ophelia would have to move out her items as soon as a new tenant is found. Either party can terminate this tenancy with sufficient notice, or upon the death or insanity of either party.
  4. Estate at sufferance. Also called a "holdover tenancy" or "tenancy at sufferance," this situation occurs when a tenant continues to possess and occupy a property, even after the tenancy has ended. This is not trespassing, because the original entrance was lawful. This is a wrongful possession; however, if the landlord receives any payments during this holdover, this automatically becomes a periodic tenancy or estate. Thus, when a landlord is trying to evict a wrongful tenant, the landlord should not accept any payments from that tenant.

For a more detailed discussion of leases and leasehold estates, see the "All About Leases" article.

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