Leasehold Interest
Definition and meaning of Leasehold Interest in real estate.
A leasehold interest is the legal right of a tenant to occupy, use, and possess a property for the duration of a lease agreement. This interest does not grant actual ownership of the real estate, but it does establish specific rights and duties for both the tenant and the landlord.
In more detail
A leasehold interest has real monetary value and can sometimes be sold, subleased, or used as collateral for a loan, depending on the terms of the lease agreement. The value of this interest typically declines as the remaining term of the lease grows shorter. It is commonly used in commercial real estate where tenants invest substantial capital to customize a leased space for business operations.
In some cases, a ground lease allows a tenant to build a structure on leased land, meaning the tenant owns the building but only holds a leasehold interest in the land.
Key facts
| Category | Legal, Titles & Closing |
|---|---|
| Also known as | Tenant interest, leasehold estate |
| Applies to | Commercial leases, apartment rentals, and ground leases |
| Watch out for | Restrictions on subleasing or transferring the interest |
A restaurant owner has a leasehold interest in a downtown commercial space, allowing them to renovate the dining area and operate their business for the remaining ten years of their lease.
Frequently asked questions
Can a tenant borrow money against a leasehold interest?
Yes, commercial tenants can sometimes obtain a leasehold mortgage, using their interest in the lease and any improvements they made as security for the loan.
Does a leasehold interest include the land?
It only grants the right to use the land for a specific timeframe. The actual ownership of the land remains with the landlord.