Lesson 1: Leaseholds Flashcards
Lessor
Landlord, or one who leases property to another, or who gives the right to possession of the property to another for some sort of consideration (rent).
Lessee
Tenant, or one who leases property from another, or who is given the right of possession of the property for a consideration (rent).
Interest
“Interest” is any kind of right held by someone in real property. “Interests” can be created by a mortgage, a lease, easements, options to purchase, listing agreements, property management agreements, water and mineral rights, government powers, as well as others.
Estates
“Estate” is a possessory interest in real estate; it can be by ownership of the property or by leasing or renting the property.
Ownership interests are called “freeholds” or “freehold estates”.
Any possessory interest not actual ownership is called “less than freehold (estates)” or “leaseholds”.
If you have ever rented an apartment or a house then you have entered into a leasehold estate. In our apartment example the apartment owner would retain a freehold estate and the tenant would have a leasehold estate. A less-than-freehold estate, a non-freehold estate, and a leasehold estate are all the same thing – a lease. The tenant holds the leasehold estate and the landlord holds what is called a reversionary estate or a reversion. The landlord’s estate is a future possessory estate and the tenant’s is a present possessory estate.
Example of Estates
Rental Agreement
Diane rents her house at 4420 West Road to Bob for 6 months.
Before the rental agreement Diane had the exclusive right to possession of 4420 West Rd. because she owned a “fee simple estate”.
After the rental agreement Bob had the exclusive right to possession of 4420 West Rd. for a period of 6 months.
Before the rental agreement Diane had a “fee simple absolute” - a present possessory estate.
After the rental agreement Diane (in legal terminology) has a “future possessory estate” called a “reversion”. A common term for Diane’s future possessory estate would be “leased fee” estate. Both “reversion” and “leased fee” estate are correct.
4 Most Important Leasehold Estates
Estate for years
Periodic tenancy
Tenancy at will or estate at will
Tenancy at sufferance
Tenancy at sufferance
When the right of possession by a tenant is ended or terminated but the tenant does not leave the property and discontinues paying rent. The landlord does not accept rent during this type of teanncy. The tenancy is now “tenancy at sufferance”. In order to remove the tenant, the landlord has to pursue a termination of the tenancy through action by the court system.
The tenant originally occupied the space legally, and then remains in possession without the landlord’s permission and does not pay rent.
Start date, end date, no rollover
Estate at will / Tenancy at will
Son staying with father for as long as it works out for both father and son.
Start date, no end date, no rollover
Less-than-freehold
Person has possession of the property, but does not have title to the property. This would include a person who has a leasehold or a lease, it includes the term tenancy, periodic tenancy and estate at will, tenancy at will, estate for years, estate from period to period, estate at sufferance.
Start date, end date, rollover? (ask class)
Estate for years
A leasehold estate with a fixed term. The name is really misleading - don’t let it confuse you - the duration does not need to be for a year or for a period of years - it must only be for a fixed term. It terminates at the expiration date. Example - Susie rents a ski cabin from Diane for a period from December 1 through February 28th. Susie has an estate for years because the rental term is fixed.
Start date, end date, no rollover
Estate for years
A leasehold estate with a fixed term. The name is really misleading - don’t let it confuse you - the duration does not need to be for a year or for a period of years - it must only be for a fixed term. It terminates at the expiration date. Example - Susie rents a ski cabin from Diane for a period from December 1 through February 28th. Susie has an estate for years because the rental term is fixed.
Fee simple estate
The highest and most complete form of ownership, which is of potentially infinite duration. It is inheritable, it may be encumbered (used as collateral or security for a loan), and the duration is indefinite. This also represents the entire “bundle of rights” of the property.
Bundle of rights: The rights inherent in ownership, the right to use, lease, encumber, will, enjoy, sell or do nothing with the property. The term is a synonym for ownership.
Perpetual, transferable, inheritable
Freehold estate
The person with a freehold estate has title to the property and is considered an owner. Freehold estates can be fee simple estates and life estates, estates in reversion. The person is ‘free’ to hold or own property.
Possessory, indeterminable duration, title to the property, can be transferred and inheritable.
Life estate
Life tenant has the right to use and enjoy a property for the duration of their lifetime.
Owned by life tenant, reversion estate, remainderman estate
Revisionary estate
Here the grantor or person holding the property stipulates that the property will revert back to the grantor at the end of the life of the person who received the estate. The grantor has a future possessory interest in the property. The grantor holds an estate in reversion. Upon the death of the person whose life the estate is measured by, the estate will revert to the grantor or his or her heirs.
