Leasehold estates and types of leases

Possession without ownership

A lease gives the tenant, or lessee, a leasehold right to possess and use property under the lease. The landlord, or lessor, retains ownership and a reversion: the right to regain possession when the tenancy ends. A leasehold is a nonfreehold estate, unlike a fee simple or life estate.

Classify the duration

An estate for years has a definite beginning and ending. It can last ten days, six months, or several years; the name does not require a full year. A periodic tenancy continues for successive periods, such as month to month, until properly terminated. Paying rent monthly does not by itself make a fixed one-year lease periodic.

An estate at will continues with the parties' permission without a definite term or recurring rental period. An estate at sufferance describes a tenant who entered lawfully but remains after the right to possession ends, without the landlord's consent. Consent to a new tenancy can change that classification. Actual notice requirements, termination rights, and eviction procedures depend on applicable law and the agreement; these categories are not permission for self-help removal.

Two columns classify one lease independently. Duration can be a fixed estate for years, a repeating periodic tenancy, an estate at will with permission, or an estate at sufferance after lawful entry but holding over without consent. Payment terms can allocate operating expenses to the landlord in a gross lease or specified expenses to the tenant in a net lease. Rent can depend on sales, a predetermined schedule, or an index. A lease may have both a duration label and payment labels. — Identify duration separately from rent and expense provisions.

Classify the payment arrangement

A gross lease generally places property operating expenses on the landlord while the tenant pays agreed rent. A net lease shifts specified property expenses to the tenant in addition to rent. Under a typical triple net lease, the tenant bears property taxes, insurance, and maintenance expenses. Read the expense clauses to determine the actual allocation.

A percentage lease ties some rent to the tenant's business sales, often adding a percentage to base rent. A graduated lease sets predetermined rent changes. An index lease adjusts rent using a named index. A ground lease leases land, commonly allowing the tenant to build improvements; ownership and disposition of improvements depend on its terms. These labels can overlap: a ground lease can have a fixed term and net expense provisions.

Follow the transferred interest

An assignment transfers the tenant's entire remaining leasehold interest. A sublease transfers less than that entire interest, leaving the original tenant an interest as sublessor. Neither transaction alone necessarily releases the original tenant from obligations to the landlord. A release must be established separately.

For exam questions, identify the issue first: duration, expense allocation, rent calculation, property leased, or transfer of the tenant's interest. A six-month store lease with base rent plus a share of sales is both an estate for years and a percentage lease.