A leasehold estate is an ownership of a temporary right to hold land or property in which a lessee or a tenant holds rights of real property by some form of title from a lessor or landlord. Although a tenant does hold rights to real property, a leasehold estate is typically considered personal property.
Leasehold is a form of land tenure or property tenure where one party buys the right to occupy land or a building for a given length of time. As lease is a legal estate, leasehold estate can be bought and sold on the open market. A leasehold thus differs from a freehold or fee simple where the ownership of a property is purchased outright and thereafter held for an indeterminate length of time, and also differs from a tenancy where a property is let (rented) on a periodic basis such as weekly or monthly.
Until the end of the lease period (often measured in decades or centuries; a 99-year lease is quite common) the leaseholder has the right to remain in occupation as an assured tenant paying an agreed rent to the owner.
The term estate for years may occasionally be used. This refers to a leasehold estate for any specific period of time (the word "years" is misleading, as the duration of the lease could be a day, a week, a month, etc.) An estate for years is not automatically renewed.
Colloquially, "lease" and "leasing" are often a formalization of a longer, specific period as compared with a "rental" that created a tenancy at will, terminable or renewable at the end of the lease period.
Laws governing landlord-tenant relationships can be found as far back as the Code of Hammurabi. However, the common law of the landlord-tenant relation evolved in England during the Middle Ages. That law still retains many archaic terms and principles pertinent to a feudal social order and an agrarian economy, where land was the primary economic asset and ownership of land was the primary source of rank and status. See also Lord of the Manor.
Modern leasehold estates can take one of four forms—the fixed-term tenancy or tenancy for years, the periodic tenancy, the tenancy at will, and the tenancy at sufferance. Forms no longer used include socage and burgage.
When a landowner allows one or more persons, called "tenants", to use the land in some way for some fixed period of time, the land becomes a leasehold, and the resident- (or worker-) landowner relation is called a "tenancy".
Tenancy was essential to the feudal hierarchy; a lord would own land and the tenants became vassals. Leasehold estates can still be Crown land today. For example, in the Australian Capital Territory, all private land "ownerships" are actually leaseholds of Crown land.
In the US, there are food co-ops that supply tenants with a place to grow their own produce. Rural tenancy is also a common practice. Under a rural tenancy, a person buys a large amount of land and the rural community uses it agriculturally as a source of income.
Fixed-term tenancy or tenancy for years
A fixed-term tenancy or tenancy for years lasts for some fixed period of time. Despite the name, such a tenancy can last for any period of time – even a tenancy for one week would be called a tenancy for years. At common law the duration did not need to be certain, but could be conditioned upon the happening of some event (e.g. "until the crops are ready for harvest", "until the war is over"). In many jurisdictions that possibility has been partially or totally abolished.
The tenancy will come to an end automatically when the fixed term runs out, or, in the case of a tenancy that ends on the happening of an event, when the event occurs.
A periodic tenancy, also known as a tenancy from year to year, month to month, or week to week, is an estate that exists for some period of time determined by the term of the payment of rent. An oral lease for a tenancy of years that violates the statute of frauds (by committing to a lease of more than—depending on the jurisdiction—one year without being in writing) may actually create a periodic tenancy, the construed term being dependent on the laws of the jurisdiction where the leased premises are located. In many jurisdictions the "default" tenancy, where the parties have not explicitly specified a different arrangement, and where none is presumed under local or business custom, is the month-to-month tenancy.
Tenancy at will
A tenancy at will or estate at will is a leasehold such that either the landlord or the tenant may terminate the tenancy at any time by giving reasonable notice. It usually occurs in the absence of a lease, or where the tenancy is not for consideration. Under the modern common law, tenancy at will can arise under the following circumstances:
- the parties expressly agree that the tenancy is at will and not for rent.
- a family member is allowed to live at home without formal arrangement.
- a tenant wishes to occupy the property urgently, but there was insufficient time to negotiate and execute a lease.
In a residential lease for consideration, a tenant may not be removed except for cause, even in the absence of a written lease. If a landlord can terminate the tenancy at will, a tenant by operation of law is also granted a reciprocal right to terminate at will. However, a lease that expressly continues at the will of the tenant ("for as long as the tenant desires to live on this land") does not automatically provide the landlord with a reciprocal right to terminate, even for cause. Rather, such language may be construed to convey to the tenant a life estate or even a fee simple.
A tenancy at will terminates by operation of law, if:
- the tenant commits waste against the property;
- the tenant attempts to assign his tenancy;
- the landlord transfers his interest in the property;
- the landlord leases the property to another person;
- the tenant or the landlord dies.
Tenancy at sufferance
A tenancy at sufferance is created when a tenant wrongfully holds over past the end of the duration period of the tenancy (for example, a tenant who stays past the expiration of his or her lease).
The landlord may also be able to impose a new lease on the holdover tenant.
Simply leaving property behind on the premises does not constitute possession and thus, a tenancy at sufferance cannot be established.
Depending on the laws in force in a particular jurisdiction, different circumstances may legally arise where a tenant remains in possession of property after the expiration of a lease.
In some jurisdictions, the tenant has a legal right to remain in occupation of the premises after the end of a lease unless the landlord complies with a formal process to dispossess the tenant of the property.
Duties of participants
The first duty of the landlord is to put the tenant in physical possession of the land at the outset of the lease (the English and majority rule, as opposed to the American rule which only requires the tenant be given legal possession, or the right to possess); the second is to provide the premises in a habitable condition—there is an implied warranty of habitability. If landlord violates either, the tenant can terminate the lease and move out, or stay on the premises, while continuing to pay rent, and sue the landlord for damages (or withhold rent and use breach of implied warranty of habitability as a defense when the landlord attempts to collect rent).
The lease also includes an implied covenant of quiet enjoyment – landlord will not interfere with tenant's quiet enjoyment.
Under the common law, the tenant has two duties to the landlord:
A tenant is liable to third party invitees for negligent failure to correct a dangerous condition on the premise – even if the landlord was contractually liable.
Effects of condemnation
If land under lease to a tenant is condemned under the government's power of eminent domain, the tenant may be able to earn either a reduction in rent or a portion of the condemnation award (the price paid by the government) to the owner, depending on the amount of land taken, and the value of the leasehold property.
With a partial taking of the land, the tenant may claim apportioned rent for property taken. For example, suppose a tenant leases land for six months for ¤ 1,000 per month, and that two months into the lease, and the government condemns 25% of the land. The tenant will then be entitled to take a portion of the condemnation award equal to 25% of the rent due for the remaining four months of the lease—¤1,000, derived from ¤250 per month for four months.
A full taking, however, extinguishes the lease, and excuses all rent from that point. The tenant will not be entitled to any portion of the condemnation award, unless the value of the lease was greater than the rent paid, in which case the tenant can recover the difference. Suppose in the above example that the market value of the land being leased was actually ¤1,200 a month, but the ¤1,000 per month rate represented a break given to the tenant by the landlord. Because the tenant is losing the ability to continue renting the land at this bargain rate (and probably must move to more expensive land), the tenant will be entitled to the difference between the lease rate and the market value – ¤200 per month for a total of ¤800.
Effects of tenancy
Many adverse effects come from this system.
In England in recent years, some new homes and apartments have been sold by large housebuilders with a leasehold where the ground rent payable doubles every 10 to 25 years, with consequently a very high price to buy out the lease.