Nonfreehold Estates: Definition & Considerations

Instructor: Shawn Grimsley
Many people and businesses rent rather than buy, and they will have property rights significantly different from those that own real estate. In this lesson, you'll learn about nonfreehold estates, including what they are and different types.

Nonfreehold Estate Defined

Matthew is young urban professional who is looking for a new home. He doesn't want to be tied down to a location and a mortgage, so he wants to rent. Matthew finds a nice loft style apartment in the center of his city's hip downtown. Work, dining, shopping and entertainment are all within walking distance, and it has a great view of the city's skyline. He's hooked and submits a rental application, which is approved.

Once Matthew inks the lease, he will obtain a nonfreehold estate in the apartment. A nonfreehold estate is an interest in real estate that is less extensive than a freehold estate. Mathew's landlord has a freehold interest, which is an interest in real estate that is indefinite in length and can be inherited. In a nutshell, holding a freehold estate amounts to what you would consider 'ownership.' Nonfreehold estates are not inheritable, and there are no ownership rights.

Matthew's nonfreehold estate is created through a lease or rental agreement. In fact, a nonfreehold estate is often referred to as a leasehold estate. The person that holds the leasehold is known as the tenant or lessee, while the person that maintains ownership of the land being leased is known as the lessor or landlord. There are different types of leaseholds so let's take a quick look.

Tenancy for Years

Matthew's lease gives him a tenancy for years, which is also known as a tenancy for a definite time. A tenancy for years does not actually require a lease period of years but only that the leasehold end at a definite time. Since the lease automatically terminates on a particular date, no notice of termination is required because the lessor and lessee already know when the lease is up. For example, Matthew entered into his lease on August 1, 2015, and it will expire on July 31, 2016.

Periodic Tenancy

A periodic tenancy is one where the tenancy is for a specific period of time and will continue through successful periods until either the tenant or landlord gives notice that the tenancy will be terminated. For example, a typical periodic tenancy may run month-to-month. You generally must give notice equal to one period so in a month-to-month periodic tenancy, you'll have to give a one-month notice to terminate.

A periodic tenancy can be created by express agreement (e.g., a written lease) or by implication. For example, let's say that Mathew decides to stay past July 31, 2016 and his landlord is okay with it so long as Matthew keeps paying his monthly rent even though a new lease is not executed. We can say Matthew now has a periodic tenancy by implication.

Tenancy at Sufferance

Matthew has had a bit of bad luck and has been laid off. He can no longer afford the rent on his periodic tenancy. His landlord gives him notice that the lease is being terminated and demands that Mathew vacate the premises within 30 days. Matthew fails to leave and has entered into a tenancy at sufferance, which is a tenancy that is created when a lessee wrongfully stays past the expiration of his tenancy. Matthew is now considered a holdover tenant. The landlord has a right to collect rent during this period, which is not an admission that the tenant is occupying the premises legally.

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