Leasehold estate

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A leasehold estate is an ownership interest in land in which a lessee or a tenant holds real property by some form of title from a lessor or landlord.

Contents

History

The common law of landlord-tenant relations developed in the United Kingdom over hundreds of years, and still retains many archaic terms and principles derived from a time when relationships governing the use of land were centered on the promotion of a feudal agrarian society. Various forms of leasehold estates exist, or have existed in the past. Ancient forms no longer used include socage and burgage. There are four modern leasehold estates - the tenancy for years, the periodic tenancy, the tenancy at will, and the tenancy at sufference.

Tenancy for years

A 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. The duration need not be certain, but may be conditioned upon the happening of some event, (e.g. "until the crops are ready for harvest", "until the war is over"). In either case, the lease expires automatically upon the running of the specified time, or the occurrence of the specified event. If the lease is more than a year, the agreement to create it must generally be executed in writing, to satisfy the Statute of Frauds. If a lease is purported to be a tenancy for years of more than one year, and it is not put in writing, then it automatically becomes a periodic tenancy, with a rental period equal to the period between lease payments, but of no more than a year.

Termination of a tenancy for years

The landlord and tenant can agree to terminate the lease at any time, which is called a surrender of the lease. Like the lease itself, if the term remaining on the lease at the time of the surrender exceeds one year, then the surrender must be executed in writing. A tenancy for years can also be terminated by the tenant's breach of any leasehold covenants, including the failure to pay promised rent, or allowing the land to waste.

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 a year without a writing) actually creates a periodic tenancy, the term being the term paid for in the first payment from tenant to landlord.

Termination of a periodic tenancy

The landlord may terminate the lease at any time by giving the tenant notice as required by statute. Typically, the landlord must give six months' notice to terminate a tenancy from year to year. Tenants of lesser durations must typically receive notice equal to the period of the tenancy - for example, the landlord must give a months' notice to terminate a tenancy from month to month. However, many jurisdictions have varied these required notice periods, and some have reduced them drastically.

The notice must also state the effective date of termination, which must be on the last day of the payment period. In other words, if a month-to-month tenancy began on the 15th of the month, the termination can not be on the 20th of the following month, even though this would give the tenant more than the required one month's notice.

Tenancy at will

A tenancy at will describes any leasehold where either the landlord or the tenant may terminate the tenancy at any time on reasonable notice. It usually occurs in the absence of a lease, or where the tenancy is not for consideration. In modern common law tradition, tenancy at will is very rare, partly because it can only be created by an express agreement by the parties that the tenancy is at will, and not for rent. As in most residential tenancies for consideration, even in the absence of a written lease, the tenant may often not be removed except for cause. However, it is common where a family member is allowed to live in the home (even for payment of nominal consideration) without any formal arrangements.

A lease that exists at the will of the landlord only will be implied by operation of law to grant a similar right to the tenant. However, a lease that exists at the will of the tenant (e.g. "for as long as the tenant desires to live on this land") does not create a similar right in the landlord; instead, such language may be interpreted as granting the tenant a life estate, or even a fee simple.

A tenancy at will is broken, again by operation of law:

  • if the tenant commits waste against the property
  • if the tenant attepmts to make an assignment of his tenancy
  • if the landlord successfully transfers his interest in the property
  • if the landlord leases the property to another person
  • upon the death of either the tenant or the landlord

Tenancy at sufferance

A tenancy at sufferance exists when a tenant remains in possession of property after the expiration of his lease, and until the landlord acts to eject the tenant from the property. Although the tenant is technically a trespasser at this point, and possession of this type is not a true estate in land, authorities recognize the condition in order to hold the tenant liable for rent. The landlord may evict such a tenant at any time, and without notice.

The landlord may also impose a new lease on the holdover tenant. For a residential tenancy, this new tenancy is month to month. For a commercial tenancy of more than a year, the new tenancy is year to year; otherwise it is the same period as the period before the original lease expired. In either case, the landlord can raise the rent, so long as the landlord has told the tenant of the higher rent before the expiration of the original lease.

Duties of the landlord and the tenant

Duties of the landlord

The landlord has two common-law duties. The first is to give the tenant possession of the land; 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 break the lease and move out, or stay and sue the landlord for damages

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 tenant through direct physical invasion by landlord
  2. Partial eviction - when the landlord keeping 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, rent is apportioned. If landlord leases tenant 100 acres of land, but it turns out that 40 of those acres belong to another person, tenant only has to pay 60% of the rent.

Landlord's tort liability

Under the common law, 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, just to disclose.
  2. For a short term lease (3 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 restuarant 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 the tenant

Under the common law, the tenant has two duties to the landlord. These are to pay rent when it is due, and to avoid waste of the 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 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.

A partial taking of the land by the government does not release the tenant from paying full rent, but the tenant may collect a portion of condemnation award equal to the apportioned rent for property taken. For example, suppose a tenant leases land for 6 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. However, 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 which case the tenant can recover the difference. Suppose in the above example that the market value of the land being leased 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

Tenant farmer.

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