What Is a Leasehold Estate?

A leasehold estate refers to a legal interest allowing a person or company temporary ownership of another person's land to use for agriculture, business or dwelling. In a leasehold estate, the landlord holds the title to the property, while the tenant has the right to use the property_._ Leasehold estates may vary in the way the agreement is created, the type of property being leased and the length of time the leasehold estate exists.

Establishing a Leasehold Estate

Although leasehold estates may be created in writing or through oral agreement, agreements that are meant to last more than a year may be required by state law to be placed into a written document. The leasehold agreement gives either implicit or explicit permission for one or more parties, known as the lessee, to posses the property of another party, known as the lessor.

An underlying feature that distinguishes a leasehold agreement from other property agreements, such as a purchase agreement, is the termination date. All parties in a leasehold agreement understand that the ownership interests agreed to will terminate and not extend indefinitely.

Another distinguishing feature of the leasehold estate is that the lessee holds the right to possess the property. Other types of property agreements, such as an easement or a license, simply give the holder the right to use the property.

Leasehold Property Explanation

Leasehold estates refer to land and any accompanying property at a specific address. Land may include not only the actual physical land but also the buildings on the property as well as natural resources that are within the land. A leasehold estate may also extend to include other types of personal property, such as machinery or fixtures, that are permanently attached to the land in a way that they are considered part of the property. Attached fixtures might include lighting, fencing or machinery such as windmills or wells.

Because an estate is a form of personal property, state laws typically govern the definition of personal property and may override aspects of a leasehold estate agreement. For example, in California a leasehold designated for horticultural or agricultural reasons is not allowed to exceed a term of 51 years in length.

Term of Years

Leaseholds are designed to expire after a certain term of years, also known as a tenancy of years. This specific time period is decided upon between the lessee and the lessor, unless state laws designate the time frame. Termination of the leasehold tenancy can occur before the stated time period, if the lessee chooses to surrender their hold on the property and the lessor accepts the lessee's surrender.

Types of Tenancy

There are four tenancy classifications for leasehold estates: fixed term, periodic, at will and at sufferance. Fixed-term tenancy is also called a term of years tenancy and is defined as a possession interest that is designed to last for a fixed period of time. A fixed time frame is established with a stated termination date. Fixed tenancy automatically ends without a termination notice.

Periodic tenancy is based upon a stated period of time, such as year-to-year, month-to-month or week-to-week. A landlord or tenant can end the leasehold by initiating the process through a notice to vacate. A notice to vacate is typically required to be delivered to the other party a certain number of days prior to the termination date. For instance, a tenant must give notice to a landlord 30 days prior to vacating the property.

Tenancy at will is the least structured of all the leasehold agreements. In this classification of leasehold estate, no date is established for ending the tenancy. Instead, either party, tenant or landlord, can end the tenancy at any time through reasonable notice. Reasonable notice is typically stated as 30 days.

Tenancy at sufferance occurs when a tenant stays past the date of termination stated in the leasehold agreement. The landlord has the right to evict a tenant in sufferance if he wishes.