🏢 What Is a Leasehold Interest in Real Estate? Definition & Examples

A leasehold interest is a tenant’s legal right to use and occupy real estate for a set period under a lease agreement. The tenant has possession, but the landlord retains ownership of the property and the land.

How a Leasehold Interest Works

A leasehold interest is created when a landlord (lessor) grants a tenant (lessee) the right to occupy property for an agreed period. This interest is temporary and ends when the lease expires, unless renewed.

Key characteristics of a leasehold interest:

  • The tenant gains possession and use of the property
  • The landlord keeps legal ownership
  • Rights last only for the lease term
  • The tenant must follow lease conditions and pay rent
  • Improvements may revert to the landlord at lease end

Leasehold interests are common in residential rentals, commercial spaces, and properties built on leased land.

Types of Leasehold Interests

Real estate law recognizes four main types of leasehold interests:

  • Estate for Years: Fixed start and end dates (e.g., 1-year lease)
  • Periodic Tenancy: Automatically renews month-to-month or year-to-year
  • Tenancy at Will: Ends at any time by landlord or tenant
  • Tenancy at Sufferance: When a tenant remains after the lease expires without permission

Example of a Leasehold Interest

A business signs a 10-year lease for a retail storefront. During the lease term, the business has a leasehold interest: the right to legally occupy and operate within the space. However, the landlord still owns the building and land. When the 10 years end, the leasehold interest expires unless renewed.

Why Leasehold Interests Matter for FSBO Sellers

  • Lease terms affect financing, resale value, and buyer eligibility
  • Short lease durations may lower property value
  • All lease obligations must be disclosed to buyers
  • Leasehold interests determine which improvements stay or revert

FSBO sellers should review their lease carefully and communicate any restrictions, fees, or renewal options to potential buyers.

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