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What is a Leasehold Estate?

Jerry Norton

Mar 14, 2024

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Being a landlord comes with many advantages, from appreciation, to monthly cash flow and even tax benefits.

But being a landlord comes with tremendous responsibility — and that includes understanding real estate terms, including cash on cash return, price to rent ratio, GRM & others. 

Another one of those terms that you as a landlord need to be aware of is a leasehold estate. 

A leasehold estate is a legal term that explains the agreement between you and your tenants.

There are several types of leasehold estates, along with rights and responsibilities for both parties involved. 

In this article, we’ll break down a leasehold estate so that you can understand it and use the concept as a landlord to protect your property and your investment. 

Let’s get started!

What is a Leasehold Estate?

A leasehold estate refers to the right to use and occupy a property for a specified period of time. 

This type of estate is created when you as a landlord (who’s known as the lessor) grants a lease to a tenant (who’s known as the lessee), allowing them to use the property in exchange for rent.

Make sense?

If you’re currently renting a property to a tenant, then there you have it: you are operating in a leasehold estate. 

Keep in mind that within a leasehold estate, the tenant does not own the property outright, but can live in it for a temporary and predetermined duration.

This type of estate is created through a lease agreement, which outlines terms such as:

  • rent amount
  • duration of the lease
  • What happens if the tenant does not pay on time
  • Prorated rent
  • And more

Elements a Leasehold Estate

There are a few elements that make up a leasehold estate. These include:

Temporary Duration

Unlike freehold estates, which dictate permanent ownership rights, leasehold estates have what's known as a limited duration — the tenant can't live there forever.

The lease agreement breaks down the length of time the tenant has the right to occupy the property.

Rental Payments

As part of your lease agreement, the tenant is required to pay you as the landlord rent in monthly installments. 

This rent is the compensation for the right to live in the property.

No Ownership Rights

Unlike freehold estates, leasehold tenants do not have ownership rights in the property itself. 

Types of Leasehold Estates

Now that we’ve broken down what a leasehold estate is and it’s elements, let’s take a look at the different types of leasehold estates that can vary from property to property and state to state. 

Fixed-Term Leasehold

In a fixed-term leasehold estate, the lease agreement explains a specific duration for the tenant.

This means that the tenant has the right to occupy the property for a predetermined amount of time.

Then, the lease will expire.

Fixed-term leasehold estates exist to provide tenants with a sense of security and certainty that they’ll have a place to call home for as long as the lease stipulates without the risk of getting kicked out for reasons that aren’t their own doing. 

Periodic Leasehold

Unlike a fixed-term leasehold, this type of arrangement does not specify a fixed term.

Instead, the lease continues for successive periods, such as:

  • month-to-month 
  • year-to-year

Either the tenant or the landlord can terminate the tenancy by giving proper notice.

Tenancy at Will

Tenancy at Will exists when the tenant has the right to occupy the property with the consent of the landlord, but without a formal lease agreement. 

Unlike fixed-term or periodic leaseholds, tenancy at will does not have a fixed duration and can be terminated by either party at any time.

Tenancy at Sufferance

Tenancy at sufferance is a situation that arises when a tenant stays at the property after the expiration of the lease and without the landlord’s consent. 

In this scenario, the tenant becomes what is known as a holdover tenant and may be subject to eviction. (Always remember a cheaper option than eviction is to offer cash for keys.)

The Bottom Line: Leasehold Estate

There you have it: a leasehold estate. 

While it can be complex at first, remember that it defines the agreement between you as a landlord and your tenants.

It helps you and your tenants be on the same page so that your real estate business can run smoothly — and profitably.