What is a Leasehold Estate in Real Estate?

Instructor: Tisha Collins Batis

Tisha is a licensed real estate agent in Texas. She holds bachelor's in legal studies and a master's degree in criminal justice.

In this lesson, a leasehold estate in real estate will be defined. Additionally, different types of leasehold estates will be discussed with examples of each given.

Defining a Leasehold Estate in Real Estate

Patrick leased some real property a few months ago. It was a couple of acres with a small building that could be used as a mechanic's shop. The lease term was for several years, and as soon as the ink was dry on the paper, Patrick got to work. He had a larger shop built and a driveway poured.

Driveway
Driveway

Why would anyone put so much work into property that they had leased? The answer is simple; Patrick's lease was a leasehold estate and he had possession of the real property which allowed him to build on the property. The leasehold estate was for a long enough term to allow Patrick to spend money on building expenses but still make money working as a mechanic on the property.

A leasehold estate in real estate is a lease that allows the tenant to have possession of real property for an extended period of time. The lease specifies the amount of time the tenant will have possession of the property as well as the rights and obligations of both the tenant and the landlord. The tenant has the right to build permanent structures on the real property and make an income from that property.

Garage
Garage

Types of Leasehold Estates

Four main types of leasehold estates exist:

  • estate from period to period
  • estate for years
  • estate at sufferance
  • estate at will

If Patrick has an estate from period to period, he has a leasehold estate where the initial period of tenancy is specified. The length of the agreement between Patrick and his landlord is specified as well, but the agreement doesn't automatically end after the specified period. Instead, it automatically renews at the end of the term. If Patrick or his landlord gives notice, which is usually 30 to 60 days, the agreement will be terminated.

Patrick has another option for a leasehold estate, which is an estate for years. This agreement is for a specific amount of time, but it could be months, weeks, days, or years. The starting and ending dates are specified in the lease. Once the end date arrives, Patrick must leave the property. If Patrick and his landlord enter into a new estate for years agreement, then Patrick can stay. In this situation, neither Patrick nor his landlord has to give notice to terminate the lease because the end date is already specified.

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