What Is a Leasehold Estate?

A leasehold estate is an interest in real property that grants a tenant exclusive possession and use of that property for a limited period. The property may be land, a building or other improvement on the land, or both. Actual ownership of the property remains with the landlord. A tenant's possession of the property may be for a fixed period stipulated in advance or continue as long as the tenant and landlord concur. Conditions of the agreement between tenant and landlord are formalized in a lease.

The concept of a leasehold estate derives from early English common law. Typically, the transaction was a transfer of farmland from a landlord to a tenant farmer. The landlord's only obligation was not to intrude on the tenant's use of the land. Much of the terminology of that era has carried into modern times.

There are several forms of leasehold estate, the most common being estate for years. In this agreement, a beginning and ending date are stipulated before the parties enter the lease. The term can be for any period and does not automatically renew. A tenant is expected to leave the property at the end of the term without the need for notice by the landlord. Sometimes such arrangements are called a tenancy for years or an estate for term.

Leasing an apartment or house is an example of such a leasehold estate. The lease will specify the beginning and ending dates for occupancy and compensation due the landlord. In modern usage, the lease usually also specifies the rights of the tenant and obligations of the landlord. Typically, such a lease cannot be terminated early without the mutual consent of both parties.

A periodic estate is a type of leasehold estate that provides for an automatic renewal. Also known as an estate from period to period, no ending date for the lease is given. The period of occupancy and amount of compensation due the landlord is specified, however. Such leases usually run from month-to-month. Since there is no specific ending date, notice to vacate must be given by the landlord.

An estate at will is also a form of leasehold estate that has no fixed ending date. Unlike a periodic estate, the period of tenancy is undefined, as well. This is the most unstructured form of a leasehold estate and continues at the pleasure of the parties involved.

Leasing has become a popular option in business finance. A venture can avoid committing a large portion of its capital in ownership of real estate by leasing the property instead. Often, a company enters a long-term lease on the land while retaining ownership of any buildings that it has constructed on the site. The disposition of the buildings is negotiated upon lease renewal.