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Leasehold estate

Leasehold estate

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A leasehold estate is an ownership of a temporary right to land or property in which a lessee
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...

 or a tenant holds rights of real property
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...

 by some form of title
Title (property)
Title is a legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or an equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document that serves as evidence of ownership...

 from a lessor or landlord
Landlord
A landlord is the owner of a house, apartment, condominium, or real estate which is rented or leased to an individual or business, who is called a tenant . When a juristic person is in this position, the term landlord is used. Other terms include lessor and owner...

.

Leasehold is a form of land tenure
Land tenure
Land tenure is the name given, particularly in common law systems, to the legal regime in which land is owned by an individual, who is said to "hold" the land . The sovereign monarch, known as The Crown, held land in its own right. All private owners are either its tenants or sub-tenants...

 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
Fee simple
In English law, a fee simple is an estate in land, a form of freehold ownership. It is the most common way that real estate is owned in common law countries, and is ordinarily the most complete ownership interest that can be had in real property short of allodial title, which is often reserved...

 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 999 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. Terms of the agreement are contained in a lease
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...

, which has elements of contract and property law intertwined.

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). An estate for years is not automatically renewed.

Colloquially, "lease" and "leasing
Leasing
Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments....

" 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 a short period.

History


Laws governing landlord-tenant relationships can be found as far back as the Code of Hammurabi
Code of Hammurabi
The Code of Hammurabi is a well-preserved Babylonian law code, dating to ca. 1780 BC . It is one of the oldest deciphered writings of significant length in the world. The sixth Babylonian king, Hammurabi, enacted the code, and partial copies exist on a human-sized stone stele and various clay...

. However, the common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...

 of the landlord-tenant relation evolved in England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...

 during the Middle Ages
Middle Ages
The Middle Ages is a periodization of European history from the 5th century to the 15th century. The Middle Ages follows the fall of the Western Roman Empire in 476 and precedes the Early Modern Era. It is the middle period of a three-period division of Western history: Classic, Medieval and Modern...

. 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
Lord of the Manor
The Lordship of a Manor is recognised today in England and Wales as a form of property and one of three elements of a manor that may exist separately or be combined and may be held in moieties...

.

Modern leasehold estates can take one of forms the fixed-term tenancy or tenancy for years, the periodic tenancy, the tenancy at will, and the tenancy at sufferance, all discussed below. Forms no longer used include socage
Socage
Socage was one of the feudal duties and hence land tenure forms in the feudal system. A farmer, for example, held the land in exchange for a clearly defined, fixed payment to be made at specified intervals to his feudal lord, who in turn had his own feudal obligations, to the farmer and to the Crown...

 and burgage
Burgage
Burgage is a medieval land term used in England and Scotland, well established by the 13th century. A burgage was a town rental property , owned by a king or lord. The property usually, and distinctly, consisted of a house on a long and narrow plot of land, with the narrow end facing the street...

.

When a landowner allows one or more persons, called "tenants", to use his 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". A tenant pays rent
Renting
Renting is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership from landowners...

 (a form of consideration
Consideration
Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from...

) to the landowner. The leasehold can include buildings and other improvements to the land. The tenant can do one or more of: farm the leasehold, live on it, or practice a trade on it.

Tenancy was essential to the feudal hierarchy
Feudalism
Feudalism was a set of legal and military customs in medieval Europe that flourished between the 9th and 15th centuries, which, broadly defined, was a system for ordering society around relationships derived from the holding of land in exchange for service or labour.Although derived from the...

; a lord would own land and his tenants became his vassals. However, it still happens today in many parts of the world. In the Commonwealth Realms leasehold estates are often Crown land
Crown land
In Commonwealth realms, Crown land is an area belonging to the monarch , the equivalent of an entailed estate that passed with the monarchy and could not be alienated from it....

 held by tenants for a specific period of time, typically 99 years; within certain jurisdictions, for example the Australian Capital Territory
Australian Capital Territory
The Australian Capital Territory, often abbreviated ACT, is the capital territory of the Commonwealth of Australia and is the smallest self-governing internal territory...

, all private land "ownerships" are actually leaseholds of Crown land. In the U.S.A., there are food co-ops which supply tenants with a place to grow their own produce. Rural tenancy
Rural tenancy
Rural tenancy refers to a type of share-cropping or tenancy arrangement that a landowner can use to make full use of property he may not otherwise be able to develop properly. A "tenant" or non-landowner will take residency on the property of the landowner and work the land in exchange for giving...

 is also a common practice. Under a rural tenancy
Rural tenancy
Rural tenancy refers to a type of share-cropping or tenancy arrangement that a landowner can use to make full use of property he may not otherwise be able to develop properly. A "tenant" or non-landowner will take residency on the property of the landowner and work the land in exchange for giving...

, 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.

Termination


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. It is also possible for a tenant, either expressly or impliedly, to give up the tenancy to the landlord. This process is known as a surrender of the lease.

Periodic tenancy


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
Statute of frauds
The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a signed writing with sufficient content to evidence the contract....

 (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.

Termination


The landlord may terminate the lease at any time by giving the tenant notice as required by statute. Typically, the landlord must give six months' notice to terminate a tenancy from year to year. Tenants of lesser durations must typically receive notice equal to the period of the tenancy - for example, the landlord must give a month's notice to terminate a tenancy from month to month. However, many jurisdictions have varied these required notice periods, and some have reduced them drastically.

The notice must also state the effective date of termination, which, in many jurisdictions, must be on the last day of the payment period. In other words, if a month-to-month tenancy began on the 15th of the month, in such a jurisdiction the termination could not be on the 20th of the following month, even though this would give the tenant more than the required one month's notice.

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
Notice
Notice is the legal concept in which a party is made aware of a legal process affecting their rights, obligations or duties. There are several types of notice: public notice , actual notice, constructive notice, and implied notice....

. It usually occurs in the absence of a lease
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...

, or where the tenancy is not for consideration
Consideration
Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from...

. 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 nominal consideration may be required.
  • a tenant wishes to occupy the property urgently, but there was insufficient time to negotiate and execute a lease. The tenancy at will terminates in this case as soon as a written lease is completed. If a lease fails to be realized, the tenant must vacate the property.


In a residential lease for consideration, a tenant may not be removed except for cause
Causation (law)
Causation is the "causal relationship between conduct and result". That is to say that causation provides a means of connecting conduct with a resulting effect, typically an injury. In criminal law, it is defined as the actus reus from which the specific injury or other effect arose and is...

, even in the absence of a written lease. If a landlord can terminate the tenancy at will, a tenant by operation of law
Operation of law
The phrase "by operation of law" is a legal term that indicates that a right or liability has been created for a party, irrespective of the intent of that party, because it is dictated by existing legal principles. For example, if a person dies without a will, his heirs are determined by operation...

 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
Life estate
A life estate is a concept used in common law and statutory law to designate the ownership of land for the duration of a person's life. In legal terms it is an estate in real property that ends at death when there is a "reversion" to the original owner...

 or even a fee simple
Fee simple
In English law, a fee simple is an estate in land, a form of freehold ownership. It is the most common way that real estate is owned in common law countries, and is ordinarily the most complete ownership interest that can be had in real property short of allodial title, which is often reserved...

.

A tenancy at will terminates by operation of law
Operation of law
The phrase "by operation of law" is a legal term that indicates that a right or liability has been created for a party, irrespective of the intent of that party, because it is dictated by existing legal principles. For example, if a person dies without a will, his heirs are determined by operation...

, if:
  • the tenant commits waste
    Waste (law)
    Waste is a term used in the law of real property to describe a cause of action that can be brought in court to address a change in condition of real property brought about by a current tenant that damages or destroys the value of that property...

     against the property;
  • the tenant attempts to assign
    Assignment (law)
    An assignment is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party—the assignor—to another party—the assignee...

     his tenancy;
  • the landlord transfers his interest in the property;
  • the landlord leases the property to another person;
  • the tenant or the landlord dies.

Lease expiration


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.

Tenancy at sufferance


A tenancy at sufferance (sometimes called a holdover tenancy) may exist when a tenant remains in possession of property even after the end of the lease, until the landlord acts to eject the tenant. The occupant may legally be a trespasser
Trespasser
In the law of tort, property, and criminal law a trespasser is a person who commits the act of trespassing on a property, that is, without the permission of the owner. Being present on land as a trespasser thereto creates liability in the trespasser, so long as the trespass is intentional...

 at this point, and the possession of this type may not be a true estate in land, even if authorities recognize the condition to hold the tenant liable for rent. The landlord may be able to evict
Eviction
How you doing???? Eviction is the removal of a tenant from rental property by the landlord. Depending on the laws of the jurisdiction, eviction may also be known as unlawful detainer, summary possession, summary dispossess, forcible detainer, ejectment, and repossession, among other terms...

 such tenant at any time, without notice. Action to evict will terminate a tenancy at sufferance, because the tenant no longer enjoys possession. Some jurisdictions impose an irrevocable election whereby the landlord treats the holdover as either a trespasser, or as a tenant at sufferance. A trespasser is not in possession; but a tenant at sufferance continues to enjoy possession of the real property.

The landlord may also be able to impose a new lease on the holdover tenant. For a residential tenancy, such new tenancy lasts month to month. For a commercial tenancy of more than a year, the new tenancy is year to year; otherwise, the tenancy lasts for the same length of time as the duration under the original lease. In either case, the landlord can charge a higher rent, if the landlord, before the expiration of the original lease, has notified the tenant of the increase.

Simply leaving property behind on the premises does not constitute possession and thus, a tenancy at sufferance cannot be established. E.g., Nathan Lane Assocs. v. Merchants Wholesale, 698 N.W.2d 136 (Iowa 2005); Brown v. Music, Inc., 359 P.2d 295 (Alaska 1961).

Continuation tenancy


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. For example, in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

, a business tenant has a right to continue occupying their demise
Demise
Demise, in its original meaning, is an Anglo-Norman legal term for a transfer of an estate, especially by lease...

 after the end of their lease under the provisions of sections 24-28 of the Landlord and Tenant Act 1954
Landlord and tenant act 1954
The Landlord and Tenant Act 1954 is an act of the United Kingdom Parliament extending to England and Wales. Part II of the act is a statutory code governing business tenancies. Part I of the act, which deals with the protection of residential tenancies, is now largely superseded.Part II of the...

 (unless these provisions were formally excluded by agreement before the lease was completed). At the end of their lease they need do nothing but continue payment of rent at the previous level and uphold all other relevant covenants such as to keep the building in good repair. They cannot be evicted unless the landlord serves a formal notice to end the tenancy and successfully opposes the grant of the new lease to which the tenant has an automatic right. Even this can only be done under prescribed circumstances, for example the landlord's desire to occupy the premises himself or to demolish and redevelop the building.

Duties of landlord


The first 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
American rule (property)
In property law, the American rule of possession states that a landlord is obligated only to deliver legal possession, but not actual possession, of a leased premises to a tenant...

 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. This can be breached in three ways.
  1. Total eviction of the tenant through direct physical invasion by landlord.
  2. Partial eviction when the landlord keeps the tenant off part of the leased property (even locking a single room). Tenant can stay on the remaining property without paying any rent.
  3. Partial eviction by someone other than landlord where this occurs, rent is apportioned. If landlord claims to lease tenant an area of 1000 square metres but 400 square metres of the area belongs to another person, tenant only has to pay 60% of the rent.

Landlord's tort liability


Under the common law, the landlord had no duties to the tenant to protect the tenant or the tenant's licensees and invitees, except in the following situations:
  1. Failure to disclose latent defects of which the landlord knows or has reason to know. Note that the landlord has no duty to repair, just to disclose.
  2. For a short term lease (3 months or less) of a furnished dwelling, the tenants are treated as invitees, and the landlord is liable for defects even if the landlord neither knows nor should know of them.
  3. Common areas under landlord's control (e.g. hallways in an apartment building), if the landlord failed to use reasonable care in maintaining them.
  4. Injury resulting from landlord's negligent repairs even if the landlord used all due care.
  5. Public use, if the following three factors exist:
    1. Landlord knows or should know that the tenant makes public use of the land (e.g. the land is rented for use as a restaurant or a store);
    2. Landlord knows or should know that there is a defect; and
    3. Landlord knows or should know that the tenant will not fix the defect.

Duties of tenant


Under the common law, the tenant has two duties to the landlord:
  1. to pay rent when it is due,
  2. to avoid waste
    Waste (law)
    Waste is a term used in the law of real property to describe a cause of action that can be brought in court to address a change in condition of real property brought about by a current tenant that damages or destroys the value of that property...

     of the property.

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
Eminent domain
Eminent domain , compulsory purchase , resumption/compulsory acquisition , or expropriation is an action of the state to seize a citizen's private property, expropriate property, or seize a citizen's rights in property with due monetary compensation, but without the owner's consent...

, 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 6 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. Tenants have to pay the landowner even though they are doing all of the agricultural work. In a sense, it is a cycle where the tenant is never really able to become a landowner because they constantly have to pay the landowner, as well as other expenses. If a crop does not flourish, the tenant will still have to pay for the use of the land. The landowner, since he is ultimately owner of the land, also can have a say in what the tenant uses the land for or what he can or cannot grow. On the contrary, rural tenancy
Rural tenancy
Rural tenancy refers to a type of share-cropping or tenancy arrangement that a landowner can use to make full use of property he may not otherwise be able to develop properly. A "tenant" or non-landowner will take residency on the property of the landowner and work the land in exchange for giving...

 has advantages. If a person owns too much land for just their family to use, tenants can rent it and make use of the land. Also, if a landowner rents out the land, it can be a source of economic income for the tenant which may not have previously existed. In poorer communities, rural tenancy can give the tenants a chance to grow crops to sell in markets and to feed their families.

See also

  • Housing cooperative
    Housing cooperative
    A housing cooperative is a legal entity—usually a corporation—that owns real estate, consisting of one or more residential buildings. Each shareholder in the legal entity is granted the right to occupy one housing unit, sometimes subject to an occupancy agreement, which is similar to a lease. ...

  • Landlord and Tenant Act
  • Landlord harassment
    Landlord Harassment
    Landlord harassment is the willing creation, by a landlord or his agents, of conditions that are uncomfortable for one or more tenants in order to induce willing abandonment of a rental contract. Such a strategy is often sought because it avoids costly legal expenses and potential problems with...

  • Leasehold valuation tribunal
    Leasehold valuation tribunal
    A Leasehold Valuation Tribunal is a statutory tribunal in England which determine various types of landlord and tenant dispute involving residential property in the private sector...

  • Rental agreement
  • Tenant farmer
    Tenant farmer
    A tenant farmer is one who resides on and farms land owned by a landlord. Tenant farming is an agricultural production system in which landowners contribute their land and often a measure of operating capital and management; while tenant farmers contribute their labor along with at times varying...


External links

  • Lease advice, the government's leasehold advisory service for England
  • DoorMouse Blog, improving the lives of a tenants and landlords.