The term "leasehold estate'' isn't used very often anymore. However, it's still important for landlords to know. We've created a guide to this real estate term. Keep reading to learn what the term means, how it works, and its implications for landlords.
What is a leasehold estate?
Put simply, the real estate term "leasehold estate" refers to a leasing arrangement between a tenant and a landlord. Specifically, the lease agreement gives the tenant an opportunity to occupy and use the property for a set period of time. However, the landlord still retains ownership of the leased premises during the lease period.
It can be helpful to know what a leasehold estate is in contrast to a freehold estate. In a freehold estate, the person occupying the land is also the property owner. However, with leasehold land, the property owner typically does not occupy the property.
The term leasehold estate can apply to both a ground lease or a leased investment property.
What are the different types of leasehold estates?
Now that you have a better idea of what a leasehold estate is, the next step is to go over the different types of leasing arrangements available to you as a landlord. There are four types of tenancy:
- Estate for years: Estate for years refers to a type of tenancy that has a specified beginning and end date. This type of tenancy doesn't have to last for a year; it could last for days or weeks. However, the length of time is always spelled out in the lease agreement. In addition, the tenancy always ends on the specified end date unless a new agreement is entered by both parties.
- Periodic tenancy: Periodic tenancy refers to a type of tenancy that has a specified start date but no definitive end date. This is typically seen in a month-to-month lease. In this type of arrangement, the lease will automatically renew at the end of the lease term, unless proper notice is given by either party.
- Estate at will: Not all states recognize tenancy at will. However, this type of tenancy has no specified end date or lease term. Instead, the tenant is simply allowed to occupy the property for as long as the lessor allows. If either party wants to end a tenancy at will, they must give proper notice according to state law.
- Estate at sufferance: Finally, estate at sufferance refers to a situation where a holdover tenant remains in the property after their lease has expired. In this situation, the lessee typically stays in the leasehold property until the landlord uses legal measures to get them to vacate the property.
Duties of a landlord in a leasehold agreement
Under a leasehold agreement, a landlord must fulfil certain duties. We've outlined them below. However, keep in mind that this is by no means a complete list. Landlords are also bound to follow any state and local laws pertaining to the area where their investment property is located.
- Landlords must ensure that the property is habitable: Although the definition of the word "habitable" can vary from state to state, typically it means that the property is structurally sound and that all the basic utilities are in place. In other words, the property must be safe for a tenant to inhabit.
- Landlords must allow for their tenants' quiet enjoyment of the property: At its core, the phrase "quiet enjoyment" means that the tenant must be able to use the property without interference from the landlord.
Responsibilities of a tenant in a leasehold agreement
Similarly, a tenant has certain responsibilities under a leasehold estate. Again, this is by no means an exhaustive list. However, any other expectations must be spelled out in your lease agreement.
- The tenant must pay rent when it is due: That said, the amount of rent being charged, the payment frequency, and the due date must be stated in the lease agreement as well.
- The tenant must avoid causing damage to the property: It's important to note that damage is different from normal wear and tear, which is to be expected during a tenancy.
The bottom line
At the end of the day, you probably will not hear the term "leasehold estate'' being used unless you are getting ready to sit down for your real estate exam. Still, it's a good idea to have a firm understanding of what this term means and its implications for landlords while you're getting ready to instate a property agreement.