Leasehold
Definition and meaning of Leasehold in real estate.
A leasehold is a temporary property interest that allows a tenant to occupy and use land or a building for a specified duration under a lease agreement. In a leasehold arrangement, the tenant does not own the real estate itself, but rather owns the right to use it according to the terms of the lease.
In more detail
The party holding the leasehold interest is called the lessee or tenant, while the owner of the physical property is called the lessor or landlord. When the lease term ends, the right of possession reverts to the property owner, which is known as a reversionary interest.
Leaseholds are common in commercial real estate, where businesses rent space in office buildings or shopping centers, and in ground leases where developers construct buildings on rented land. Financing a leasehold property can be more difficult than financing a traditional fee simple property, as lenders want to ensure the lease term exceeds the mortgage amortization period.
Key facts
| Category | Property Types & Construction |
|---|---|
| Also known as | Leasehold estate |
| Applies to | Commercial properties, apartments, and land leases |
| Watch out for | Declining value as the end of the lease term approaches |
A retailer operates a store under a twenty-year leasehold agreement inside a suburban shopping mall, paying monthly rent to the mall owner.
Frequently asked questions
Can a leasehold interest be sold?
Yes, in many commercial situations, a tenant can sell their leasehold interest to another party, subject to the terms of the lease and the landlord's consent.
What happens when a leasehold expires?
When the leasehold expires, the tenant's right to occupy the property terminates, and all rights of possession revert to the landowner.
Related terms
Sources & references
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