What is a leasehold estate?

A leasehold estate is a rented property in which the tenant (leaseholder) is given the right by the tenant (freeholder) to temporarily possess the property for a certain period of time, usually a year, a decade or more. Most states in the US require, in accordance to the Statute of Frauds, the leases of more than one year to be made in writing in order to be considered legitimate.

How it works

A leasehold estate usually comes with a much lesser price compared to purchasing a new property outright, and can be used by a lessee for typical 10, 40, and 50 years. Although it is usually applicable to commercial properties such as business centers or malls, it is relevant to residential properties as well.

In a leasehold estate agreement, the leaseholder will make a down payment of less than 20% of what is essentially required on a regular property before he or she renders a monthly rent. Also, he or she has the right to make necessary renovations on the property, and can even build a new adjoining structure for lease, or can sell the leasehold estate, depending on the stipulated agreement.

However, once the lease expires, the property and whatever additions made will be returned to the freeholder or owner.

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4 Types of leasehold estates

  • Leasehold estate for Years
    This type of estate is leased for a specific term, and is specified in a lease agreement with the clear stipulation of the starting and ending dates. Once the ending date comes, the tenant is expected to vacate the property, unless a new lease agreement is made.
  • Period-to-period Leasehold
    This leasehold agreement specifies a starting date and the length of tenancy, but doesn’t end when the period ends because it renews automatically at the end of each term. It will only end when one of both parties gives notice of termination of lease.
  • Leasehold estate at will
    This type of leasehold has no end date as well as the period of tenancy. The leasehold will continue as long as the property owner allows occupancy. Terminating the lease requires notice from either one of both parties.
  • Leasehold estate at sufferance
    This type of leasehold has something to do with the tenant’s occupancy in a property even after the leasehold agreement expires. It is because the owner allows further occupancy and usage of the property until such time the he or she tells them to vacate the property.

 

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