When you are investing in rentable real estate you are going to need to have an understanding of the types of leases available to you so you can be confident in choosing what you are offering. A leasehold estate is an estate that is less than free hold. Free hold Estates are owned Estates, while leasehold Estates are leased. In a leasehold estate the owner owns the leased fee which is the estate minus the rights conveyed in the lease, while the tenant or lessee is provided with the right the use and occupy the land without ownership.
As the owner, you are going to use different types of leases depending on if you are interested in vacation rentals, apartments, helping out a family or friend, or maybe you're looking at commercial leases. So, before you decide whether or not to invest in the property, let's talk about some of the ways you can lease it. This blog will specifically go over residential leases, for commercial lease options check the blog.
1. ESTATE FOR YEARS
The name of this is a bad indicator of how this lease is used because most estate for years are short term. Very short term, think vacation rentals: a week at the beach, a night in the city, that sort of thing.
Being a short-term rental though is not a key identifier to this type of lease. The 3 identifiers are:
1. Has a fixed term. Before the lease is agreed to the move in and move out dates are agreed to.
2. Does not automatically renew. When the lease is over, be it a night, a week, or a month, it does not renew automatically.
3. Does not require a termination notice. When the lease is up, the tenant moves out without notifying the owner.
2. ESTATE FROM YEAR TO YEAR
This is also known as a periodic estate; this is your typical apartment style lease agreement. These agreements can be month to month or by the year. Again, with this type of lease though the amount of time that the tenant occupies the property is not a key identifier. The 3 identifiers for this lease are:
1. Has a fixed term. Before the lease agreement is signed the length of the lease and the move in date are agreed upon.
2. Automatically renews if not terminated. If no action is taken, when the last day of the lease is up, the lease will automatically renew. This is why in this lease only the move out date and length of the lease are agreed upon.
3. Requires a termination notice. If the tenant would like to terminate the lease, a letter of termination or termination noticed must be prepared and delivered to the owner by the agreed upon date. If the termination notice is submitted, the lease will terminate and the tenant will move out on the last day of the lease agreement, if no notice is submitted, the lease will renew. The owner can also issue a termination notice if they wish to terminate the lease.
3. ESTATE AT WILL
This is not a typical lease. It is a conditional lease contingent on the tenant meeting certain objectives. This is often seen in sober housing, or income-based housing. It is also seen among relatives like when a son or daughter can use a parent's rental property while in school as long as they keep a certain grade point average, or when your niece or nephew move into the rental property for a lower price until the raise, they find a new job. Key identifiers of this type of lease are:
1. Has no fixed term. Because the lease is dependent on the tenant meeting an objective the term is not set beforehand. The lease can go on for as short or as long as the objectives are being met. Both parties do however agree to the fact that the lease can be terminated by either party at any time.
2. Lasts until one of the parties provides a termination notice. Because there is no fixed term to this lease, there does need to be a termination notice to end the lease. The notice can come from the owner or the tenant.
4. TENANCY AT SUFFERANCE
This is also known as a holdover tenant. Not to be confused with a squatter or someone trespassing on your property, a holdover tenant is one who entered onto your property legally. In most cases they had a lease for the property at one point but upon termination of the lease, failed to vacate the property. This type of tenant can create problems with using or renting your property for months depending on what the laws around tenants and landlords are where your property is located.
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