Real Property: Leasehold Estates

Leasehold definition

A leasehold is an estate in land under which the tenant has a present possessory interest in the leased premises and the landlord has a future interest (reversion).

Four Types of Leasehold Estates

(1) tenancy for years; (2) periodic tenancy; (3) tenancy at will; (4) tenancy at sufferance

Tenancy for Years

AKA estate for years or term of years. Runs for a fixed, determined period of time, and can be for less than a year

Tenancy for years Termination

A tenancy for years terminates automatically at the end date. No notice is necessary to terminate in this scenario

Tenancy for year Termination upon Breach

Usually, the landlord reserves a right of entry, which allows them to terminate the lease if the tenant breaches any of the lease’s covenants. In many Jxs, a landlord may, by statute, terminate the lease upon tenant’s failure to pay the promised rent, even in the absence of a reserved right of entry

Tenancy for Years: Termination upon Tenant Surrender

A tenancy for years may also terminate if the tenant surrenders the tenancy and the landlord accepts. The same formalities required for creation of the leasehold are required for surrender. For example, if the unexpired term exceeds one year, the surrender must be inwriting

Tenancy for Years Writing

A tenancy for years that is longer than one year requires a writing to be enforceable as per the SoF

Period Tenancy

A periodic tenancy is a lease which continues for successive intervals (e.g. month to month) until either the landlord or the tenant gives proper notice of termination. It is continuous until properly terminated

Express Creation of a Periodic Tenancy

A periodic tenancy can be created expressly if there is no end date and the lease is “month to month” or “year to year”

Implied Creation of Periodic Tenancy

A periodic tenancy can arise by implication in any one of three ways: (1) the land is leased with no mention of duration, but provision is made for the payment of rent at set intervals; (2) an oral term of years violates the SoF but still creates a periodic tenancy measured by the way rent is tendered; OR (3) in a residential lease, if a landlord elects to hold over a tenant who has wrongfully stayed on past the conclusion of the original lease, an implied periodic tenancy arises measured by the way the rent is now tendered

Termination of a Periodic Tenancy

Notice, usually written, must be given. At common law, notice must be at least equal to the length of the period itself unless otherwise agreed. Usually, the notice must also be timed to terminate the lease at the end of a period. If a periodic tenancy has periods of one year or greater, the common law requires six months’ notice, but the modern (and bar) approach is one month’s notice

Tenancy at Wil

No fixed period of duration and is terminable at the will of either the landlord or the tenant. For example: “To T for as long as L or T desires”

Creation of a Tenancy at Will

A tenancy at will usually must be created by an express agreement that the lease can be terminated at any time. Otherwise, the payment of regular rent will be construed as a periodic tenancy. If the lease only expressly gives the landlord the right to terminate, a similar right will be implied in favor of the tenant. However, if only the tenant has a right to terminate, no corresponding right is implied in favor of the landlord

Termination of Tenancy at Will

A tenancy at will in theory can be terminated by either party at any time. Today, most states require notice and a reasonable time to quit (vacate). Alternatively, a tenancy at will can be terminated by operation of law, such as a death or through commission of waste

Tenancy at Sufferance

A tenancy at sufferance is created when a tenant wrongfully holds over. In such cases, the wrongdoer is given a leasehold estate to permit the landlord to recover rent.

Termination of a Tenancy at Sufferance

It lasts only until the landlord either evicts the tenant or elects to hold the tenant to a new tenancy. No notice of termination is required

Hold-over Doctrine

If a tenant continues possession after their right to possession has ended, the landlord may: (1) evict the tenant; or (2) bind the tenant to a new periodic tenancy. The length of the new tenancy depends on the lease that has ended, but the maximum period is year-to-year. Various promises made by the landlord and the tenant in the original lease become party of the new tenancy

Holdover Doctrine Commercial Tenants

Commercial tenants may be held to a new year-to-year periodic tenancy if the original lease term was for one year or more.

Holdover Doctrine Residential Tenants

Residential tenants are generally held to a new month-to-month tenancy regardless of the original term. If the landlord notifies the tenant before the lease expires that occupancy after termination will be at an increased rent, the tenant is held to have acquiesced to the higher rent by holding over.

Exceptions to the Holdover Doctrine

The landlord cannot bind the tenant to a new tenancy when: (1) the tenant remains in possession for only a few hours after termination or leaves a few articles of personal property; or (2) the delay is not the tenant’s fault, such as in the case of a severe illness

Lease definition

A lease is the contract that governs the landlord-tenant relationship

Dependence of Lease Covenants

At common law, covenants in the lease were independent such that if one party breached one covenant, the other party could recover for that breach only and the overall relationship endured. Today, the landlord can terminate the lease for nonpayment of rent and tenant can terminate when the landlord breaches the covenant of quiet enjoyment or implied warranty of habitability

Leases: Options to Purchase

Leases sometimes include options to purchase. An option to purchase real property is a separate contract supported by consideration that is a continuing offer to sell the land at a specified price. As long as the option is contained within the lease itself, the consideration for the lease supports the option. The option must satisfy the SoF to be enforced.

Exercising an Option to Purchase

Absent a contrary provision, the option lasts as long as the lease. The method of exercise is determined by the agreement. Generally, the party granting the option may keep the consideration regardless of whether the option is exercised; the consideration is for the continuing offer and not money for the purchase.

Enforcement of Options to Purchase

RAP has an exception for options attached to leases, so an option to purchase in a lease is enforceable even if it would otherwise violate RAP. The usual remedy for enforcement of an option to purchase is specific performance, but damages are also available