In the world of real estate, a leasehold estate pertains to the agreement between a landlord (the owner of the property, or lessor) and a tenant (the one who occupies the property, or lessee).
What Exactly Is a Leasehold Estate?
Leasehold Estates are basically an agreement in which the landlord allows the tenant to occupy the property of the owner. In other words, it’s a lease agreement between two parties, the landlord, and the tenant.
Types of Agreements
In general, there are 4 types of leasehold estates.
- Estate for years
- Estate from period to period or periodic tenancy
- Estate at will
- Estate at sufferance
The type of leasehold estate will depend on the leasehold agreement between the landlord and the tenant.
Estate for Years
Estate for years is a leasehold agreement set for a fixed period of time. In other words, this lease agreement has a start date and an end date. Once the end date arrives, the contract will then end.
It’s important to note that although this type of leasehold estate is called Estate for “Years“, the duration of the lease does not have to be specified in years.
The specified period can be in months, or even days; it doesn’t really matter. What’s important is the agreement is for a fixed period of time.
An example of this would be a property owner giving a tenant permission to occupy his property for a period of 6 months.
Estate from Period to Period
Also known as the term periodic tenancy, the difference of this type of leasehold is there is no date of termination.
There can be a specified lease term, like years, months, or even days, but the lease does not end. Instead, the lease on the property is automatically renewed.
So how do these types of lease agreements end?
Either party gives notice to terminate the lease. Typically, it’s stated in the contract how long either the landlord or tenant must give notice.
An example of this is a landlord allowing a tenant to occupy the property on a month-to-month basis.
Estate at Will
Estate at will is probably the vaguest in terms of the rights reserved between the landlord and the tenant.
This type of leasehold estate is usually a temporary agreement in which the landlord gives the tenant permission to occupy his property.
Bear in mind that in this case, only the owner and the tenant are involved. This means that once either party dies, the deal is terminated.
An example of this is when a tenant’s parents let their child stay at their property indefinitely.
While the parents(or lessors) still have possession of the property, their child is given the right to occupancy to the leasehold estate.
Estate at Sufferance
Estate at sufferance is a term you would never want to encounter as a lessor in the real estate world. This estate occurs when a lessee refuses to leave the estate at the end of their tenancy.
After a lease ends, a tenant refusing to vacate the property is known as holdover tenants.
To solve this problem, lessors must search for legal solutions to successfully evict their holdover tenants.
It’s also worth mentioning that holdover tenants are technically not trespassers, as a lease agreement existed for the real estate.
It just so happened that they lost the rights to the property they are occupying, and thus, they have to vacate the property.
An example of this is when one tenant is unable to pay rent, thus, violating the lease contract. If the tenant refuses to leave, the real estate situation becomes an estate at sufferance.
The key difference here is that in freehold estate, you have possession of the property, not rights to a tenancy.
Of course, when searching on the open market for property, one may come across mortgages, which might seem like renting, but is not.
In mortgage, you periodically pay off your debts to eventually own the property, while in renting, it’s agreed that you will never have the right to own the property you’re renting.
When studying for your real estate exam or entering the real estate industry, it’s useful to learn about what a leasehold estate is and its different kinds.
With knowledge of leasehold estates and its related terms, you can now explore a possible job in the industry or maybe even start your own real estate business!