A leasehold estate is a legal agreement between a landlord and a tenant. It gives the tenant the right to occupy the determined space for a specific amount of time.
For example, a landlord may offer a leasehold estate to a company that intends to use the space for their offices over a specified period, such as three years. Most leasehold estates are granted with the use of a contract.
What Are the Types of Leasehold Estates?
There are four specific types of leasehold estates according to real estate law. These include:
Estate for Years
A leasehold estate that is classified as an estate for years is a long-term arrangement that lasts for a minimum of several years. There’s no anticipation of renewal once the term ends, and renters typically leave at the end. This type of leasehold estate is common for business or corporate arrangements.
Estate from Period to Period
This type of leasehold estate is most commonly associated with home or apartment rentals. The length of time of the leasehold is typically one year but may be arranged as a month-to-month rental. Under this type of lease, the landlord will expect the arrangement to renew automatically unless the renter decides otherwise.
Estate at Will
An estate at will is informal in nature and doesn’t have a defined start or end date. There is no written lease document. An estate at will is common with adult children who live with their parents. This type of lease may only be ended with eviction or if the tenant decides to move out.
Estate at Sufferance
An estate at sufferance occurs when a renter continues to occupy the space after a lease has ended and continues to pay the regular rent. The tenant has no legal obligation to vacate the property. If the landlord would prefer that they leave, they must give the renter a notice to leave.
When Are Leasehold Estates Used?
Leasehold estates are used whenever there is an arrangement between a renter and a landlord to occupy grounds owned by the landlord.
Agreements to occupy a space over a number of years are most common for businesses and corporations under an estate for years arrangement. The lease agreement may give occupancy rights to the business for anywhere from two to 20 years (and sometimes more).
For individuals renting an apartment or house, the estate from period to period is most common. Those who decide to rent may need to sign a leasehold estate agreement for a year (or sometimes less). This type of lease usually automatically renews unless the renter indicates that they will be leaving, in which case they need to give notice.
People who live with parents, relatives, or friends for periods of time with no rental contract reside under an estate at will. In this type of arrangement, the only way the person living with the estate owner can be forced to move is if they are given an eviction notice or if they choose to leave.
An estate at sufferance is fairly uncommon. Most renters and landowners want to have a rental arrangement on paper. However, this may occur when a tenant needs additional time to find a new place to live or run their business.
What Are the Landlord/Tenant Rights and Responsibilities Under a Leasehold Estate Agreement?
The terms of the rental contract will outline the responsibilities of both the landlord and tenant. However, there are basic requirements that are normally part of the agreement.
A landlord must provide their tenant with a functioning property. This means it has a sound foundational structure, no leaks, and the utilities are hooked up. In addition, landlords must allow their tenants to enjoy the property without interference from the owner.
Additional responsibilities may be required of the landlord, depending on the property’s location.
A tenant has the responsibility of paying their rent on time. Usually, rent must be paid by the first of the month. However, depending on their move-in date or locality rules, the due date of payment may vary.
The tenant is also responsible for caring for the property. They must not damage it, and if they do, they are often required to handle the repairs.