Leasehold estate

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A leasehold estate is an ownership of a temporary right to hold land or property in which a lessee or a tenant has rights of real property by some form of title from a lessor or landlord. [1] Although a tenant does hold rights to real property, a leasehold estate is typically considered personal property.

Contents

Leasehold is a form of land tenure or property tenure where one party buys the right to occupy land or a building for a given time. As a lease is a legal estate, leasehold estate can be bought and sold on the open market. A leasehold thus differs from a freehold or fee simple where the ownership of a property is purchased outright and after that held for an indeterminate length of time, and also differs from a tenancy where a property is let (rented) periodically such as weekly or monthly.

Terminology and types of leasehold vary from country to country. Sometimes, but not always, a residential tenancy under a lease agreement is colloquially known as renting. The leaseholder can remain in occupation for a fixed period, measured in months or years. Terms of the agreement are contained in a lease, which has elements of contract and property law intertwined.

History

Laws governing landlord–tenant relationships can be found as far back as the Code of Hammurabi. However, the common law of the landlord-tenant relationship evolved in England during the Middle Ages. That law still retains many archaic terms and principles pertinent to a feudal social order and an agrarian economy, where land was the primary economic asset and ownership of land was the primary source of rank and status.

The tenancy was essential to the feudal hierarchy after the statute Quia Emptores prohibited subinfeudation (the creation of new feudal estates by existing feudal landholders) in the late 13th century; a lord would own land, and the tenants became vassals. Leasehold estates can still be Crown land today. [2] For example, in the Australian Capital Territory, all private land "ownerships" are leaseholds of Crown land.

Terminology

A distinction may be made between a residential tenancy, offering a person a place to live, and a business tenancy, where premises are occupied for business purposes. There may be different statutory provisions for residential and business tenancies, for example in the UK's Landlord and Tenant Act 1954, Part I (now largely superseded) dealt with residential tenancies and Part II dealt with business tenancies. [3]

Fixed-term tenancy or tenancy for years

A "fixed-term tenancy" or tenancy for years lasts for some fixed period of time. Despite the name, such a tenancy can last for any period of time –even a tenancy for one week would be called a tenancy for years. In common law, the duration did not need to be certain, but could be conditioned upon the happening of some event (e.g. "until the crops are ready for harvest", "until the war is over"). In many jurisdictions that possibility has been partially or totally abolished. [4]

Termination or expiration

The tenancy will end automatically when the fixed term runs out or in the case of a tenancy that ends on the happening of an event when the event occurs. It is also possible for a tenant to give up the tenancy to the landlord, either expressly or implicitly. This process is known as a surrender of the lease. A tenancy may end when and if the tenant accepts a buyout agreement from their landlord. The landlord can offer to repurchase the property from their tenant for a negotiated price as long as both parties agree upon the deal. [5]

Depending on the laws in force in a particular jurisdiction, different circumstances may legally arise where a tenant remains in possession of property after the expiration of a lease.

Periodic tenancy

A periodic tenancy, also known as a tenancy from year to year, month to month, or week to week, is an estate that exists for some period of time determined by the term of the payment of rent. An oral lease for a tenancy of years that violates the statute of frauds (by committing to a lease of more than—depending on the jurisdiction—one year without being in writing) may create a periodic tenancy, the construed term being dependent on the laws of the jurisdiction where the leased premises are located. In many jurisdictions the "default" tenancy, where the parties have not explicitly specified a different arrangement, and where none is presumed under local or business custom, is the month-to-month tenancy.

Tenancy at will

A tenancy at will or estate at will is a leasehold such that either the landlord or the tenant may terminate the tenancy at any time by giving reasonable notice. It usually occurs in the absence of a lease, or where the tenancy is not for consideration. Under the modern common law, tenancy at will can arise under the following circumstances:

In a residential lease for consideration, a tenant may not be removed except for cause, even in the absence of a written lease. If a landlord can terminate the tenancy at will, a tenant by operation of law is also granted a reciprocal right to terminate at will. However, a lease that expressly continues at the will of the tenant ("for as long as the tenant desires to live on this land") does not automatically provide the landlord with a reciprocal right to terminate, even for cause. Rather, such language may be construed to convey to the tenant a life estate or even a fee simple.

A tenancy at will terminates by operation of law, if:

Tenancy at sufferance

A tenancy at sufferance (sometimes called a holdover tenancy) is created when a tenant wrongfully holds over past the end of the duration period of the tenancy (for example, a tenant who stays past the expiration of his or her lease). In this case, the landlord can hold over the tenant to a new tenancy, and collect rent for the period the tenant has held over.

A tenancy at sufferance may exist when a tenant remains in possession of property even after the end of the lease, until the landlord acts to eject the tenant. The occupant may legally be a trespasser at this point, and the possession of this type may not be a true estate in land, even if authorities recognize the condition to hold the tenant liable for rent. The landlord may be able to evict such a tenant at any time without notice. Action to evict will terminate a tenancy at sufferance, because the tenant no longer enjoys possession. Some jurisdictions impose an irrevocable election whereby the landlord treats the holdover as either a trespasser, or as a tenant at sufferance. A trespasser is not in possession; but a tenant at sufferance continues to enjoy possession of the real property.

The landlord may also be able to impose a new lease on the holdover tenant. For a residential tenancy, such new tenancy lasts month to month. For a commercial tenancy of more than a year, the new tenancy is year to year; otherwise, the tenancy lasts for the same length of time as the duration under the original lease. In either case, the landlord can charge a higher rent, if the landlord, before the expiration of the original lease, has notified the tenant of the increase.

Simply leaving property behind on the premises does not constitute possession; thus, a tenancy at sufferance cannot be established. E.g., Nathan Lane Assocs. v. Merchants Wholesale, 698 N.W.2d 136 (Iowa 2005); Brown v. Music, Inc., 359 P.2d 295 (Alaska 1961).

Continuation tenancy

In some jurisdictions, the tenant has a legal right to remain in occupation of the premises after the end of a lease unless the landlord complies with a formal process to dispossess the tenant of the property. For example, in England and Wales, a business tenant has a right to continue occupying their demise after the end of their lease under the provisions of sections 24–28 of the Landlord and Tenant Act 1954 (unless these provisions were formally excluded by agreement before the lease was completed). At the end of their lease they need do nothing but continue payment of rent at the previous level and uphold all other relevant covenants such as to keep the building in good repair. They cannot be evicted unless the landlord serves a formal notice to end the tenancy and successfully opposes the grant of the new lease to which the tenant has an automatic right. Even this can only be done under prescribed circumstances, for example the landlord's desire to occupy the premises himself or to demolish and redevelop the building.

Contemporary practice

Australia

Leasehold land

Leasehold land is a land holding leased to a person or company by the relevant state (as the Crown); however, all mineral rights are reserved to the Crown. There are different types of leasehold tenure from state to state. [6] Pastoral leases cover about 44% of mainland Australia, mostly in arid and semi-arid regions and the tropical savannahs. [7]

There are three types of leasehold tenure in Australia: [6]

  • Term lease – usually 1–50 years, for a specified purpose.
  • Perpetual lease, or lease in perpetuity – may be used only for a specified purpose.
  • Freeholding lease – after approval is granted, convert a lease to freehold, and the lessee pays the purchase price in installments. This is an interim tenure; freehold title is not issued until all purchase costs have been paid.

All land in the Australian Capital Territory (ACT) is leasehold, issued with 99-year leases. The rent on the leases was abolished by the Gorton government in 1970, with the leasehold system now "almost identical in operation" to the freehold tenure typical of residential properties in other Australian jurisdictions. [8]

Residential tenancies

Australian residential tenancies differ from state to state, governed by local legislation. [9] [10]

United Kingdom

Modern leasehold estates in England and Wales can take one of four forms—the fixed-term tenancy or tenancy for years, the periodic tenancy, the tenancy at will, and the tenancy at sufferance. Forms no longer used[ citation needed ] include socage and burgage.

When a landowner allows one or more persons, called "tenants", to use the land in some way for some fixed period, the land becomes a leasehold, and the resident- (or worker-) landowner relation is called a "tenancy". A tenant pays rent (a form of consideration) to the landowner. The leasehold can include buildings and other improvements to the land. The tenant can do one or more of: farm the leasehold, live on it, or practise a trade on it. Typically, leasehold estates are held by tenants for a specific period of time.

In England in recent years, some new homes and apartments have been sold by large housebuilders with a leasehold where the ground rent payable doubles every 10 to 25 years, with consequently a very high price to buy out the lease. This has caused some recently built homes to be complicated to sell. [11] In 2017, the British government launched a consultation on legal reforms to end such exploitative schemes. [12]

Scotland has different laws, and under Scots Law it has been forbidden by statute since 1974 to create a lease of a dwelling lasting longer than 20 years or to grant any other lease of over 175 years.[ citation needed ]

United States

In the US, food co-ops supply tenants with a place to grow their own produce. Rural tenancy is also a common practice. Under a rural tenancy, a person buys a large amount of land, and the rural community uses it agriculturally as a source of income.

The term estate for years appears to be a US term. This refers to a leasehold estate for any specific period of time (the word "years" is misleading, as the duration of the lease could be a day, a week, a month, etc.). An estate for years is not automatically renewed.

Duties of participants

Duties of landlord

The first duty of the landlord is to put the tenant in physical possession of the land at the outset of the lease (the English and majority rule, as opposed to the American rule which only requires the tenant be given legal possession, or the right to possess); the second is to provide the premises in a habitable condition—there is an implied warranty of habitability. If landlord violates either, the tenant can terminate the lease and move out, or stay on the premises, while continuing to pay rent, and sue the landlord for damages (or withhold rent and use breach of implied warranty of habitability as a defense when the landlord attempts to collect rent).

The lease also includes an implied covenant of quiet enjoyment –landlord will not interfere with tenant's quiet enjoyment. This can be breached in three ways.

  1. Total eviction of the tenant through direct physical invasion by landlord.
  2. Partial eviction –when the landlord keeps the tenant off part of the leased property (even locking a single room). Tenant can stay on the remaining property without paying any rent.
  3. Partial eviction by someone other than landlord –where this occurs, rent is apportioned. If landlord claims to lease tenant an area of 1,000 square metres but 400 square metres of the area belongs to another person, tenant only has to pay 60% of the rent.

Landlord's tort liability

Under the common law,[ where? ] the landlord had no duties to the tenant to protect the tenant or the tenant's licensees and invitees, except in the following situations:

  1. Failure to disclose latent defects of which the landlord knows or has reason to know. Note that the landlord has no duty to repair the defect, just to disclose its existence.
  2. For a short-term lease (three months or less) of a furnished dwelling, the tenants are treated as invitees, and the landlord is liable for defects even if the landlord neither knows nor should know of them.
  3. Common areas under landlord's control (e.g. hallways in an apartment building), if the landlord failed to use reasonable care in maintaining them.
  4. Injury resulting from landlord's negligent repairs –even if the landlord used all due care.
  5. Public use, if the following three factors exist:
    1. Landlord knows or should know that the tenant makes public use of the land (e.g. the land is rented for use as a restaurant or a store);
    2. Landlord knows or should know that there is a defect; and
    3. Landlord knows or should know that the tenant will not fix the defect.

Duties of tenant

Under the common law, the tenant has a number of duties to the landlord:

  1. to pay rent when it is due,
  2. to avoid waste of the property.
  3. to inform the landlord of any development that may affect the subject property.

A tenant is liable to third-party invitees for negligent failure to correct a dangerous condition on the premise –even if the landlord was contractually liable.

Effects of condemnation

If land under lease to a tenant is condemned under the government's[ which? ] power of eminent domain, the tenant may be able to earn either a reduction in rent or a portion of the condemnation award (the price paid by the government) to the owner, depending on the amount of land taken, and the value of the leasehold property.[ where? ]

With a partial taking of the land, the tenant may claim apportioned rent for property taken. For example, suppose a tenant leases land for six months for ¤1,000 per month, and that two months into the lease, the government condemns 25% of the land. The tenant will then be entitled to take a portion of the condemnation award equal to 25% of the rent due for the remaining four months of the lease—¤1,000, derived from ¤250 per month for four months.

A full taking, however, extinguishes the lease and excuses all rent from that point. The tenant will not be entitled to any portion of the condemnation award, unless the value of the lease was greater than the rent paid. In this case, the tenant can recover the difference. Suppose in the above example that the land's market value was actually ¤1,200 a month, but the ¤1,000 per month rate represented a break given to the tenant by the landlord. Because the tenant is losing the ability to continue renting the land at this bargain rate (and probably must move to more expensive land), the tenant will be entitled to the difference between the lease rate and the market value – ¤200 per month for a total of ¤800.

See also

Related Research Articles

In English law, a fee simple or fee simple absolute is an estate in land, a form of freehold ownership. A "fee" is a vested, inheritable, present possessory interest in land. A "fee simple" is real property held without limit of time under common law, whereas the highest possible form of ownership is a "fee simple absolute", which is without limitations on the land's use.

In common law and statutory law, a life estate is the ownership of immovable property for the duration of a person's life. In legal terms, it is an estate in real property that ends at death, when the property rights may revert to the original owner or to another person. The owner of a life estate is called a "life tenant". The person who will take over the rights upon death is said to have a "remainder" interest and is known as a "remainderman".

An estate in land is, in the law of England and Wales, an interest in real property that is or may become possessory. It is a type of personal property and encompasses land ownership, rental and other arrangements that give people the right to use land. This is distinct from sovereignty over the land, which includes the right to government and taxation.

<span class="mw-page-title-main">Landlord</span> Owner of a rented building, land or real estate

A landlord is the owner of a house, apartment, condominium, land, or real estate which is rented or leased to an individual or business, who is called a tenant. When a juristic person is in this position, the term landlord is used. Other terms include lessor and owner. The term landlady may be used for the female owners. The manager of a pub in the United Kingdom, strictly speaking a licensed victualler, is referred to as the landlord/landlady. In political economy it refers to the owner of natural resources alone from which an economic rent, a form of passive income, is the income received.

<span class="mw-page-title-main">Eviction</span> Removal of a tenant from rental property by the landlord

Eviction is the removal of a tenant from rental property by the landlord. In some jurisdictions it may also involve the removal of persons from premises that were foreclosed by a mortgagee.

<span class="mw-page-title-main">Lease</span> Contractual agreement in which an assets owner lets someone else use it in exchange for payment

A lease is a contractual arrangement calling for the user to pay the owner for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial or business equipment are also leased. In essence, a lease agreement is a contract between two parties: the lessor and the lessee. The lessor is the legal owner of the asset, while the lessee obtains the right to use the asset in return for regular rental payments. The lessee also agrees to abide by various conditions regarding their use of the property or equipment. For example, a person leasing a car may agree to the condition that the car will only be used for personal use.

As a legal term, ground rent specifically refers to regular payments made by a holder of a leasehold property to the freeholder or a superior leaseholder, as required under a lease. In this sense, a ground rent is created when a freehold piece of land is sold on a long lease or leases. The ground rent provides an income for the landowner. In economics, ground rent is a form of economic rent meaning all value accruing to titleholders as a result of the exclusive ownership of title privilege to location.

A rental agreement is a contract of rental, usually written, between the owner of a property and a renter who desires to have temporary possession of the property; it is distinguished from a lease, which is more typically for a fixed term. As a minimum, the agreement identifies the parties, the property, the term of the rental, and the amount of rent for the term. The owner of the property may be referred to as the lessor and the renter as the lessee.

The assured shorthold tenancy (AST) is the default legal category of residential tenancy in England and Wales. It is a form of assured tenancy with limited security of tenure, which was introduced by the Housing Act 1988 and saw an important default provision and a widening of its definition made by the Housing Act 1996. Since 28 February 1997 in respect of accommodation to new tenants who are new to their landlords, the assured shorthold tenancy has become the most common form of arrangement that involves a private residential landlord. The equivalent in Scotland is short assured tenancy.

A leasehold valuation tribunal (LVT) was a statutory tribunal in England which determined various types of landlord and tenant dispute involving residential property in the private sector. An LVT consisted of a panel of three; one with a background in property law ; one with a background in property valuation generally a qualified surveyor; and a layman, although some decisions of an LVT were decided by a single member. LVTs were non-departmental public bodies.

Landlord harassment is the willing creation, by a landlord or their agents, of conditions that are uncomfortable for one or more tenants in order to induce willing abandonment of a rental contract. This is illegal in many jurisdictions, either under general harassment laws or specific protections, as well as under the terms of rental contracts or tenancy agreements.

<span class="mw-page-title-main">Landlord and Tenant Act 1954</span> United Kingdom legislation

The Landlord and Tenant Act 1954 is an act of the United Kingdom Parliament extending to England and Wales. Part II of the act is a statutory code governing business tenancies. Part I of the act, which dealt with the protection of residential tenancies, is now largely superseded.

<span class="mw-page-title-main">Assured tenancy</span> Type of housing tenancy in the United Kingdom

An assured tenancy is a legal category of residential tenancy to an individual in English land law. Statute affords a tenant under an assured tenancy a degree of security of tenure. A tenant under an assured tenancy may not be evicted without a reasonable ground in the Housing Act 1988 and, where periodic changes in rent are potentially subject to a challenge before a rent assessment committee.

<span class="mw-page-title-main">Landlord and Tenant Act 1985</span> United Kingdom legislation

The Landlord and Tenant Act 1985 is a UK act of Parliament on English land law. It sets minimum standards in tenants' rights against their landlords.

<i>Bruton v London and Quadrant Housing Trust</i>

Bruton v London and Quadrant Housing Trust[1999] UKHL 26 is an English land law case that examined the rights of a 'tenant' in a situation where the 'landlord', a charitable housing association had no authority to grant a tenancy, but in which the 'tenant' sought to enforce the duty to repair on the association implied under landlord and tenant statutes. The effect of the case is to create the relationship of de facto landlord and tenant between the parties.

<i>Street v Mountford</i>

Street v Mountford[1985] UKHL 4 is an English land law case from the House of Lords. It set out principles to determine whether someone who occupied a property had a tenancy, or only a licence. This mattered for the purpose of statutory tenant rights to a reasonable rent, and had a wider significance as a lease had "proprietary" status and would bind third parties.

<span class="mw-page-title-main">Landlord–tenant law</span> Law that details rights and duties of landlords and tenants

Landlord–tenant law is the field of law that deals with the rights and duties of landlords and tenants.

In property law, the American rule of possession states that a landlord is obligated only to deliver legal possession, but not actual possession, of a leased premises to a tenant. Thus, if a tenant arrives at a leased premises only to discover that it is still inhabited by a previous tenant who is holding over, or by squatters, it is the tenant who has standing to sue for eviction and/or damages, and not the landlord. The tenant may not cancel the lease or refuse to pay rent due to the landlord for the time that the tenant is out of actual possession of the lease. The American rule survives in only a minority of jurisdictions.

The history of rent control in England and Wales is a part of English land law concerning the development of rent regulation in England and Wales. Controlling the prices that landlords could make their tenants pay formed the main element of rent regulation, and was in place from 1915 until its abolition by the Housing Act 1988.

Rent regulation in England and Wales is the part of English land law that creates rights and obligations for tenants and landlords.

References

  1. ↑ "Leasehold estate". Practical Law. Retrieved 2023-07-28.
  2. ↑ "Freehold vs Leasehold: Understanding property in England". Vardags. Archived from the original on 2023-12-02. Retrieved 2022-01-17.
  3. ↑ UK Legislation, Landlord and Tenant Act 1954: Original (as enacted), accessed 11 February 2024
  4. ↑ For example in England and Wales the Law of Property Act 1925 s149(6) abolished leases for lives, and a lease expressed to be for life is converted into a lease for 90 years, terminable on the death of the tenant.
  5. ↑ "The New Rules of Seeking a Buyout of a Rent-Regulated Tenant". New York Law Journal.
  6. 1 2 "Leasehold land". Austrade. 26 February 2016. Retrieved 21 July 2020.
  7. ↑ "Pastoral leases". Austrade. 26 February 2016. Retrieved 21 July 2020.
  8. ↑ Taylor, Gordon (4 July 2016). "Can people own land in the ACT?". ABC News. Retrieved 9 October 2021.
  9. ↑ "Tenant protection laws". Rental Agreements. Retrieved 21 July 2020.
  10. ↑ Ballantyne, Adrian (9 June 2020). "Tenant rights: a guide to every Australian state". realestate.com.au. Retrieved 21 July 2020.
  11. ↑ Collinson, Patrick (29 October 2016). "The new-builds catching house buyers in a leasehold property trap". The Guardian . Retrieved 23 April 2017.
  12. ↑ Rudgard, Olivia (11 February 2017). "Government to act on leasehold rip-offs" . The Daily Telegraph . Archived from the original on 2022-01-12. Retrieved 23 April 2017.
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