Assume you’re a real estate investor who is asked what a leasehold estate is. Are you likely to understand what it means? What if you are asked what a periodic estate means too? Do you have any clue? You see, it’s easy to fake while conversing with someone, but it doesn’t work when your money and time are at stake due to a contract.
Real estate investing success is dependent on your understanding, knowledge, and willingness to learn more. This allows you to increase profitability while decreasing risks. You can detect red flags more clearly, determine how expensive they could be, and choose a better or more profitable home.
In this article, we’ll describe periodic estates as part of leasehold estates as well as other types of leasehold estates.
When there is no set end date for a lease but an agreed-upon term, such as month-to-month occupancy, this is referred to as a periodic tenancy or estate from period to period. This is a sort of leasehold estate in real estate.
The owner or landlord and tenant agree to specific rights and obligations during these periods but do not designate a period date, hence the tenancy is endless. Because no end date is mentioned, termination and vacancy must be notified in accordance with the terms of the agreement.
What is a Periodic Estate?
A periodic estate (also known as a tenancy) is a sort of leasehold estate. It is a tenancy that lasts for an indefinite period of time but has no set expiration date. Terminating the agreement necessitates proper notification from either the renter or the landlord. In other words, it’s a situation in which someone can lease a residence on a weekly or monthly basis and have the option to move (with adequate notice) that a long-term lease does not allow.
Another name for the periodic estate is estate from period to period.
Example of Periodic Estate
Jimmy and Bella got married right after high school, and Jimmy joined the Air Force to support his new family. Jimmy’s Air Force career spanned two decades, causing his little family to move several times. As the years went by, they had two sons. By the time Jimmy retired, they had lived in four different states and three different countries. Between a few of their moves, they needed a place to stay for a few months until housing on the military base became available. For Jimmy and Bella, a periodic estate was the perfect solution. They found apartments or houses they could lease on a month-to-month basis.
Advantages and Disadvantages of a Periodic Estate
Most experienced landlords would initially rent out their houses for a 6-month period. Unless there are extraordinary circumstances, most people believe it is not prudent to let for longer than this minimum period until the tenant (often a complete stranger and unknown quantity) has shown herself. Only after that will the seasoned landlord contemplate a longer-term lease, perhaps 12 months or more.
This also benefits the renter: landlords with long-term tenants frequently retain the rent at the original sum for extended periods of time, again under the mistaken belief that raising the rate will result in a good tenant leaving them. Landlords frequently believe that losing a little money each month on a lower rent not only encourages the good renter to stay long-term, but it is also significantly less of a loss than the loss, expense, and danger of finding a new unknown quantity tenant.
The biggest disadvantage for landlords with tenants on periodic tenancies is that the renter can up and leave pretty quickly; the landlord has no longer-term certainty of revenue.
With a periodic tenancy that has been in place for a number of years, the conditions of the initial agreement, which may have been modified by subsequent laws, such as deposit protection rules that have changed multiple times, may be out of date.
Other Types of Leasehold Estates
Estate for Years
Estate for years has a definite beginning and a definite end. When you rent an apartment for two years, commencing September 1 and ending August 31 of the second year, you own an estate for years. Although it is referred to as an estate “for years,” it can endure as little as one day or as long as a thousand years. Some statutes stipulate that any estate that lasts more than a certain number of years. —for example, one hundred years in Massachusetts—is a fee simple estate.
Unless otherwise indicated in the lease—the agreement that creates the leasehold interest—the estate for years ceases immediately at midnight on the last day specified in the lease. Calendar dates do not have to be included clearly in the lease. It may say something like, “the tenant may occupy the premises for six months beginning one week from the date of signing”. Assume the landlord and tenant both sign on June 23. The lease term thus begins on July 1 at 12:00 a.m. and concludes just before midnight on December 31. Unless otherwise required by law, the landlord is not required to issue the tenant a notice of termination. If the tenant dies before the lease period expires, her property interest can be inherited under her will, along with her other personal property, or under the laws of intestate succession.
Estate at Sufferance
A tenancy at sufferance (or estate at sufferance) occurs when the initial lease expires but the renter refuses to leave the property. As a result, he is residing without the permission of the owner or landlord.
An estate at sufferance usually means that the owner must initiate eviction procedures. A month-to-month lease, on the other hand, is one in which the landlord collects payment once the lease expires.
As a result, the renter has the right to occupy the property and has obtained authorization from the landlord through payment.
Having said that, a leasehold estate at sufferance means that the landlord cannot be paid in order for him or her to reclaim control of the property afterward.
Estate At Will
If the landlord and tenant agree that the lease will only run as long as both parties want it to, they have created an estate at will. Most states’ laws demand some sort of notification of intent to terminate. Simone comes to the university to study, and Anita provides her with a free place to stay in. The arrangement is a tenancy at will, and it will last as long as both parties desire. Simone decides to move in with Bob one Friday night after dinner with classmates. She returns to her flat, prepares her luggage, and informs Anita that she is leaving. That day, the tenancy at will ends.
Establishment of Leasehold Estates
Unless the term of the lease exceeds the period provided by the Statute of Frauds, leases can be created orally. In the majority of states, such a period is one year. Any oral lease for a period longer than the authorized period is void. Assume Jack verbally agrees with Jane to rent Jane’s flat for two years at a monthly fee of $250 in a state having a one-year Statute of Frauds period. The lease is null and void, and either party may terminate it.
The following features or clauses must be included in a lease that is obliged to be in writing under the Statute of Frauds:
- It must identify the parties
- It must identify the premises,
- The length of the lease must be indicated
- It must state the rent to be paid, and
- It must be signed by the party seeking enforcement (known as “the party to be charged”).
The provisions do not have to be fully specified. They will be sufficient to justify the lease under the Statute of Frauds as long as they meet the five requirements. For example, the parties do not have to be mentioned in the lease. Assume that the prospective tenant pays the landlord a month’s rent in advance and that the landlord provides the tenant with a receipt that lists the property and the terms of the lease but does not include the tenant’s name.
Following that, the landlord refuses to allow the tenant move-in. Who would win in court? Because the renter had the receipt in her hands, she could be identified as the tenant to whom the lease provisions were intended to apply. Similarly, the lease does not have to describe every feature of the premises to be enjoyed. Thus, even if the lease is silent on these matters, a tenant who rents an apartment in a building will be entitled to use of the common stairwell, the roof, and so on. And, as long as a definite sum can be determined, the rent can be stated in terms other than absolute dollar ones. It may, for example, be stated as a percentage of the tenant’s dollar business volume or as a cost-of-living index.
Leasehold Lease Agreement Improvements
After the lease is signed, the lessee (tenant) uses the space for the purposes specified in the lease. They could work on ceilings, floor space, plumbing, and anything else that contributes to leasehold improvements. These are documented as fixed assets on the landlord’s or lessor’s balance sheet.
The tenant and landlord must both agree on what should be included in the lease for leasehold estate improvements on the property. Depending on the terms of the lease, the landlord or tenant may be required to pay for the modifications. Landlords may offer to pay to persuade prospective tenants to sign a lease.
Example Of A Leasehold Estate
Leasehold estates are common for traditional merchants. Best Buy is a good example. It rents the majority of its buildings in order to make renovations that are appropriate for the property’s visual design and functionality.
To terminate the initial period of the lease term, rent expense is calculated on a straight-line basis. Any difference between rent payable and straight-line costs is postponed as rent.
A periodic estate is a tenancy that has no set end date for a lease. The owner or landlord and tenant agree to specific rights and obligations during these periods but do not designate a period date, hence the tenancy is endless. Because no end date is mentioned, termination and vacancy must be notified in accordance with the terms of the agreement.
Generally, it’s critical to comprehend what a leasehold agreement is and how it affects the estate you buy or sell.
Periodic Estate FAQs
What is a periodic tenancy?
A periodic tenancy is known legally as a rolling tenancy with no specified termination date. Unless you agree to another fixed term, an assured shorthold tenancy becomes periodic when a fixed term expires.
What is the most common form of ownership of periodic estate?
The month-to-month lease is the most common type of periodic tenancy, and it can exist without any written agreement. A periodic tenancy may be terminated by either party by providing adequate notice to the other party. State law defines proper notice.
Is a periodic tenancy good?
A periodic tenancy is far more flexible than a fixed-term tenancy, especially if the tenancy runs on a monthly basis. There is a significantly shorter notice period and no need to wait until the term expires for either partner to discontinue the connection. It also eliminates the necessity for a tenancy agreement renegotiation.