What is a Leasehold?

Katharine Swan

Leasehold is a term that stems from the feudal agrarian society in the United Kingdom, where peasants worked land that belonged to their lord. The modern definition is similar in that the property is owned by the freeholder, but the leaseholder is guaranteed possession of it for an established length of time by a lease or contract. This person is committed to paying for this possession in payments called ground rent.

In feudal England, peasants worked on land that belonged to noble lords.
In feudal England, peasants worked on land that belonged to noble lords.

Also hearkening back to feudal days, the lease is often for extended periods of time, such as 99 years. A term can even be several hundreds of years long. A leasehold can be sold to another person, but will be transferred with the existing terms; for example, if there are 70 years left on the term, that is what the buyer purchases. These terms can be lengthened or renewed, but as they do not renew automatically, the leaseholder must negotiate them with the freeholder.

There are four basic kinds of leasehold used today. The most general kind is also called a tenancy for years or an estate for years. This is simply a lease with a fixed end of tenancy.

Despite its name, a tenancy for years does not need to be for a period measured in years; in fact, it doesn’t have to be for a period measured in standard units of time at all. The contract can state that the tenancy is up when a specific event happens — such as a war ending — just as easily as it can state a predetermined length of time. Despite what the contract says, however, the freeholder and leaseholder can agree to terminate the contract early if they wish.

A periodic tenancy has no specified end date, and may be oral or written. It can be terminated by the freeholder at any time, although they generally must give the tenant a reasonable amount of notice. Tenancy at will is similar, although the tenant has the same right to cancel the agreement as the freeholder. Again, a reasonable amount of notice is required.

Tenancy at sufferance is the period that the tenant stays after the end of the lease. Although the tenant has no legal right to the property, he or she is still responsible for rent for whatever length of time the freeholder cannot reclaim possession of the property. A leasehold is generally treated like a certain degree of ownership of a property, in that it is considered a fixed asset and can be used as such in attaining credit or a loan. The owner can also be expected to pay a leasehold excise tax, which takes the place of property tax.

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