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What is a “leasehold estate” in real property?
A leasehold estate, commonly called a lease, is the property right granted to a tenant by a landlord. The lessor has limited rights similar to that of an owner, but for a limited term. The renter cannot materially change the property without the landlord’s consent. Any material changes to the property (such as installation of fixtures) become the property of the landlord upon termination of the lease.
Discussion: Should a lease be considered a form of ownership interest in property? At what point do you think the right of use turns into rights of ownership?
Practice Question: Gayle has a house that she generally rents to tenants. Juliet comes into town and asks Gayle if she can stay with her for a few days. Gayle agrees to allow Juliet to stay in her rental house. After a couple of days, Juliet offers to clean up the house as a thank you for letting her stay in the house. Gayle agrees without any talk of compensation or rent. Juliet proceeds to paint the walls, install curtains, and replace some of the faucets. What is the relationship between Gayle and Juliet? Did Juliet have the right to undertake the aforementioned changes to Gayle’s house?
- There is an argument that the relationship between Gayle and Juliet is a leasehold. A leasehold estate refers to a legal interest allowing a person or company temporary ownership of another person’s land to use for agriculture, business, or dwelling. In a leasehold estate, the landlord holds the title to the property, while the tenant has the right to use the property and often to use the property according to the terms of the leasehold agreement. A leasehold estate offers a tenant the exclusive right to occupy or use someone’s property for a certain period of time.an underlying feature that distinguishes a leasehold agreement from other property agreements is that there is a termination date. The renter is prohibited from selling the property or making any major changes. In the practice question, Juliet, as a lessee, is not obligated to clean the property, paint, or make any decorations if the same is not mentioned in the leasehold agreement. Likewise, Gayle is not obligated to compensate Juliet for these improvements. https://finance.zacks.com/leasehold-estate-1898.html
Dixon, Martin John, Leasehold Covenants and Equitable Set-Off (September 5, 2006).  Conveyancer & Property Lawyer 460. Available at SSRN: https://ssrn.com/abstract=2275038