The Leaseholds

Terms:


Leasehold:
A non-freehold estate; a term of years, a periodic tenancy or a tenancy-at-will.

Possession:
The right and ability to exercise dominion and control over property.

Ownership:
The rights allowing a person the use and enjoyment of property; including the right to convey the property to a third party

Term of Years:
A non-freehold estate that is scheduled to last for a specific period of time.

Periodic Tenancy:
A non-freehold estate that lasts only from period to period without having any definite duration that is longer than one period.

Tenancy-at-Will:
A non-freehold estate that can be terminated by any party, at any time, for any reason; Under the modern rule, terminating a tenancy-at-will does require reasonable notice.

Tenancy-at-Sufferance:
The status of a tenant who has wrongfully overstayed his or her lease in property, before the landlord makes the decision to hold the tenant over for a new term or to evict the tenant.


Landlord-tenant law deals with the rights and responsibilities inherent in the ownership of the non-freehold estates, which are also known as “leasehold estates.” Recall from Chapter 2 that the freehold estates consist of the fee simple, the fee tail and the life estate, while the non-freehold estates consist of the term of years, the periodic tenancy and the tenancy-at-will (which also includes the tenancy-at-sufferance).

Also recall that, with a freehold estate, only the present interest holder is considered the present “owner” of the property. In contrast, with a non-freehold , or “leasehold” estate, the future interest holder is considered to be the present “owner” of the property. The holder of the non-freehold estate is the holder of mere possession of the property, not ownership.

Therefore, the future interest holder of a leasehold estate is known as the “landlord,” while the holder of the leasehold estate is known as the “tenant.” It is important to keep in mind throughout this chapter that the landlord is considered the present owner of the property, while the tenant is the possessor of the property. For example:

Howard and Fonzie agree that Fonzie will live in an apartment above Howard’s attic for two years. In exchange, Fonzie will pay Howard $1,200 per month. Fonzie has a term of years in the attic. Howard is considered the owner of the attic even during the two years, while Fonzie is merely in possession of it.

There are three basic types of leaseholds: the term of years, the periodic tenancy and the tenancy-at-will (which includes the tenancy-at-sufferance). For a review of the definitions and rules of these estates, see the subchapter on the non-freehold estates in Chapter 2 of this course. At this point, before we get into the details of the rights and responsibilities of the landlord and the tenant, it is important to discuss a few issues regarding these estates.

Issues Regarding the Term of Years

The term of years is considered the “greatest” of the leasehold estates because it lasts for a definite period of time. For a term of years to exist, the parties must know when the tenancy will end. For example.

  1. Mr. Twinkacetti conveys an apartment “to Larry for 5 years.” Clearly, Larry has a term of years because it is obvious exactly how long the tenancy will last.
  2. Mr. Twinkacetti conveys an apartment “to Larry for 5,000 years.” This is a term of years even though it is obvious that no party involved in the arrangement will live to see the tenancy end. Since there is a definite duration to the tenancy, it is still a term of years.

However, it is also possible to have a term of years that has the potential to end sooner than the maximum duration of the tenancy. For example:

Mr. Twinkacetti conveys an apartment “to Larry for 5 years, as long as Balky does not come to live with him.” In this case, Larry has a “determinable” term of years. That is, he still has a term of years, because the maximum duration of the tenancy is spelled out at the outset. However, the term of years can be cut short by an event other than the expiration of the term.

An interesting problem arises when a lease is set to run out at the occurrence of an event, but it is uncertain when that event will happen. If it is reasonably clear exactly when the event will happen, then the estate will generally be considered a term of years.

If it cannot be determined with any precision when and if the event will occur, that can present a problem. Technically, such a situation should create a fee simple determinable because it is an interest that has the potential to last forever, but can be cut short. However, since, in these situations, it is often obvious that the intent of the parties was to create a leasehold, not a freehold estate, some courts will consider the estate to be a term of years in spite of the uncertainty of the duration. See Smith’s Transfer and Storage Co. v. Hawkins, 50 A.2d 267 (D.C. 1946). Still other courts will find that these situations give rise to a tenancy-at-will, since that is a non-freehold estate that has an indefinite duration. Of course, determining that a tenancy-at-will exists inherently nullifies the condition since either party can terminate the tenancy at his or her will. See National Bellas Hess, Inc. v. Kalis, 191 F.2d 739 (8th Cir. 1951). These examples illustrate the point:

  1. Mr. Twinkacetti leases an apartment “to Larry, until the next total solar eclipse in Chicago.” Since it can be determined with scientific precision when it will happen, this will result in a term of years.
  2. Mr. Twinkacetti leases an apartment “to Larry until U.S. troops leave Iraq, at a rate of $1,200 per month.” It is obvious that the two parties meant for this estate to be a leasehold, and not a fee simple. Therefore, although it cannot be determined exactly when the estate will terminate, some courts will infer the existence of a term of years that will terminate at the time that U.S. troops leave Iraq. Other courts will assume this to be a tenancy-at-will (meaning that the stipulation about the tenancy being ended when U.S. troops leave Iraq will be nullified and that the tenancy can be ended by either party at will).

Issues Regarding the other Leaseholds

A key distinction between the term of years and the other leaseholds is that the term of years requires no notice to terminate. The term of years simply expires when the term ends. The other leaseholds, since they are, by nature, of indefinite durations, require notice to terminate. As we discussed in chapter two, the periodic tenancy requires notice of at least one full period and it can only be terminated at the end of a period. Historically, the tenancy-at-will required no notice whatsoever to terminate. However, the modern rule is to require reasonable notice before evicting a tenant-at-will.

The Tenancy-at-Sufferance

We briefly touched on the tenancy-at-sufferance in Chapter 2. As we discussed, if a tenant overstays his or her tenancy (whether that be a term of years or a periodic tenancy for which timely notice of eviction was given), the tenant is considered a “holdover.” The holdover is not really a “tenancy” in the classical sense in that the “tenant” does not have rightful possession of the property. It is more like a one-way tenancy-at-will because, as we will discuss, the landlord has the option of evicting the tenant or keeping the tenancy going under the same terms as existed before the end of the original term.

At common law, the tenant was a holdover even if he or she stayed one second after the term expired, and even if the tenant stayed through no choice of his or her own. However, the modern rule is that a tenant is only considered a holdover if he or she stays in possession of the house voluntarily. For example:

Lisa owns an apartment building. Mrs. Jones, an 80-year-old woman, has a month-to-month periodic tenancy. Rent is due on the first of each month On August 15, 2013, Lisa gives notice to Mrs. Jones that she must leave the apartment no later than October 1, 2013. On September 30, Mrs. Jones falls and sustains a broken hip. Because of the injury, she is unable to move out of the apartment until she gets a friend to come and help her move. By the time she actually does move, it is October 3rd. Under the common law rule, Mrs. Jones would be considered a holdover, even though she was not at fault in remaining in the apartment. However, under the modern rule, she would not be considered a holdover because she did not “voluntarily” overstay her term. See Herter v. Mullin, 159 N.Y. 28 (1899).

If a tenant does overstay his or her term and is considered a holdover tenant, the tenancy is deemed to be a “tenancy-at-sufferance.” In such a case, the landlord has two options:

  1. The landlord may bring an action against the tenant to evict the tenant and to recover the reasonable rental value for the period of time that the tenant stayed there without authorization; or
  2. The landlord may elect to “hold over” the tenant and bind the tenant to a new term. The length of this new term varies from state to state. Some states simply treat the new term as a month-to-month periodic tenancy. Other states will treat it as a term of years if the original tenancy was a term of years, although the duration of the “new” term of years is usually capped at one year. Still other states consider the new tenancy to merely be a tenancy-at-will.

The landlord must make this decision within a reasonable period of time. The definition of a reasonable period of time varies, depending on the situation. In fact, in one case, a decision made by a landlord two years after the term expired was found to be reasonable. See Kilbourne v. Forester, 464 S.W.2d 770 (Mo. App. 1970). For example:

George leases his ranch in Texas to Dick for a 5 year term, to expire on January 1, 2017. Dick stays on the ranch until January 15, 2017. At that point, George has two options. He can sue in court to evict Dick and to collect the reasonable rent for the amount of time between January 1 and the date Dick is actually forced off the ranch. Or, George can hold over Dick and thus bind him to a new term at the same rental price, although this new term of years will probably be limited to one year.

Incidentally, we just discussed how one of the landlord’s options in dealing with a holdover tenant is to bring an eviction action against the tenant. The reason that such an action is necessary is that, in general, self help repossessions of real property are not allowed. That is, in most states, a landlord may not physically evict a tenant that came into possession of the property legally without a court order, even if the tenant has overstayed his or her term. Self-help repossession includes even non-violent actions taken by the landlord (such as changing the locks when the tenant is not home so that the tenant can’t get back in).

Some states even impose civil and/or criminal penalties on landlords who engage in self-help repossession of real property. The theory behind this is that throwing people out of their “homes” is an activity that tends to produce violent clashes. Therefore, it is better to require that a landlord get judicial approval and/or help from law enforcement before engaging in such behavior. The states that disallow self-help repossession often provide for expedited legal proceedings so that a landlord can quickly evict a tenant who has remained illegally.

A Note about the Statue of Frauds

Under the Statute of frauds, which has been enacted, in one form or another, in all 50 states, any contract for the transfer of an interest in real estate must be in writing to be enforceable. However, this only applies to transfers of interests that are to last for more than one year. An oral agreement to transfer real property for a period of one year or less is fully enforceable.

Therefore, a term of years needs to be in writing if the term is for more than one year. A transfer of periodic tenancy must be in writing on if the periods are longer than one year. The creation of a tenancy-at-will never needs to be in writing, because it does not have a specific duration, and thus is not a transfer for more than one year. Note that the transfers of freehold estates are always considered to be for more than one year, even though the transfers of an interest such as a life estate or a fee simple determinable need not necessarily last more than one year. Therefore, a contract for the transfer of a freehold estate in real property always needs to be in writing to be enforceable.