ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Leasehold Definition

Updated on February 18, 2012

Rents provide a steady and guaranteed income

Updated August 27, 2011

A leasehold is a form of real estate ownership.

When we speak of a lease, most people have the image of a standard rental agreement for an apartment or business property.

This type of lease is for a short term – usually a year or less and usually provides for a fixed monthly rental fee (although this can be variable, especially with some types of business property) for the duration of the lease.

Unlike a short term apartment or small business property lease, leaseholds are usually for a much longer term, frequently going for periods of up to 99 years.

Ninety-nine years seems to be the maximum term of this type of lease.

The 99 year limit appears to be based upon the common law concept known as the Rule Against Perpetuities. This legal concept is designed to prevent property from being tied up and controlled for too long from beyond the grave.

While it is true that a person cannot take their property with them after death, vehicles such as leaseholds and trusts, can be a way for a deceased person to continue to control, after death, the actions of their survivors.

An example of this is the Disney Corporation where, some four decades after the death of founder Walt Disney, the directors of the Disney Corporation still find their hands tied in certain business dealings because of stipulations in the will and other legal devices crafted by Walt Disney before his death in 1966.

These legal arrangements enable Disney to continue to exercise some influence over the company despite his no longer being alive and physically participating in the affairs of the company.

By limiting the maximum time the terms of a contract can remain in force prevents descendants from being bound by rules and restrictions laid out generations earlier.

Hong Kong - No longer leased by Britain from China

Most land on Hawaii is leasehold

How Leaseholds are Used

In a leasehold the owner of the land and his heirs still hold title to the land but rent it out to tenants for a period of up to 99 years.

The leasehold agreement states the term of the lease, the monthly or annual rental payment (which is usually fixed for the term of the lease) and various other conditions. The tenant, in exchange for the payment of the rent, is able to use the land as if he/she owned it subject to any restrictions in the lease.

In addition to having use of the land and the income produced by it, the tenant can obtain a mortgage based upon the lease (the lender, of course, can only take the lease in foreclosure, not title to the land as in a mortgage on land owned outright by the borrower) and sell the leasehold property.

The buyer of the leasehold property is subject to the terms of the lease and has to pay the stipulated rent but that person too can mortgage, develop, sell, etc. the property, again subject to the terms of the lease.

All improvements, such as buildings, infrastructure such as irrigation systems for agriculture, clearing for agriculture, mines dug, oil wells drilled, etc. revert to the owner of the property upon the expiration of the lease. Basically, being the holder of a long term lease, in its early years, is not much different than being the owner of a property.

During the later years of the lease things become a little more complicated due to the fact that the term of the lease is getting progressively shorter.

It becomes more difficult to sell the leasehold since buyers are reluctant to purchase a property that will revert to its owner in a few years.

Getting a mortgage to purchase the leasehold or finance improvements is also difficult as lenders are reluctant to make a loan when the leasehold securing the loan is about to expire.

HRH Prince Charles, Prince of Wales & Duke of Cornwall - Has substantial income form lands he leases to tenants in Duchy of Cornwall

Leasholds are Not Uncommon

Surprisingly, leaseholds are not that uncommon.

The most famous leasehold in recent years was the 99 year lease the Great Britain had on Hong Kong. The island of Hong Kong was a colony of Great Britain like the Rock of Gibraltar and could legally be held by the British as long as they could defend it and maintain control.

However, a century ago the island outgrew its water supply and also needed additional space to continue its expansion. In 1900 the British government entered into a 99 year lease, on land on the mainland adjoining the island of Hong Kong, with China.

When the lease expired in 1999 the entire colony reverted to China along with the improvements which had made it one of the leading economies in the world (Great Britain could have kept the island but it was so interconnected with the so called New Territories which had been leased opposite it on the Chinese Mainland that it would not have been economically viable alone).

There are also a number of leaseholds in the United Kingdom itself. The British Royal Family and other wealthy people derive good incomes from rents on lands they have inherited and which have been leased on a long term basis.

In recent years Prince Charles and others have seen their incomes increase substantially as some of the 99 year leases on lands they own have expired, enabling them to enter into new lease agreements with rents greatly increased due to increases in land values during the past century.

In the United States, much of the land in the State of Hawaii is owned by descendants of the original missionaries who lease it to the occupants of the land. These occupants have long term leaseholds and pay a fixed rent to the holders of the lease while having the right to sell the lease, improve the property and obtain mortgages on the property much the same as their counterparts in the other forty-nine states who own, rather than lease their homes, farm and business lands.

Changes are being made to the land ownership system in the state of Hawaii and some lands are being sold outright rather than being leased out by their owners, however, a good portion of land in Hawaii is still held as leaseholds.

From a landowners point of view leaseholds are a means by which large tracts of land can remain in the family without the family having to work and manage it. Instead, the long term leases act like bonds which yield a steady fixed income with the rents being periodically increased as leases expire and are renewed at new, and often higher, rates.

Comments

    0 of 8192 characters used
    Post Comment

    • profile image

      BruceRamage 

      6 years ago

      In Canada Quebec has an exploitive lease with Newfoundland dealing with Labrador hydro power for 99 years with a 99 year option to extend and a second 99 year option to extend. It was the only way Newfoundland could get its power to markets. No wonder Newfoundland wants to have a power sea link from Labrador to Newfoundland, and from Newfoundland to the Nova Scotia on the mainland.

    • profile image

      blocker 

      6 years ago

      Lease are far more technical than meets the eye and many are long term contracts, so a specialist lawyer is always advisable. For a niche site on leases check out http://www.beingaleaseholder.co.uk

    • Chuck profile imageAUTHOR

      Chuck Nugent 

      6 years ago from Tucson, Arizona

      Graham - this sounds like a question for a lawyer.

    • profile image

      Graham 

      6 years ago

      can you tell me the owner died. who leased his farm to my nabiour the land owners son took over the farm can he sell some ground if he wants to although he as a tenant who had a 99 year lease taken out in 1974

    • profile image

      Darshan Zenith 

      6 years ago

      I'm very grateful to have found what you have posted!

      Thanx a million!!!

    • profile image

      Tony 

      7 years ago

      Predatory lending is also a threat to deal with now a days. I am happy you wrote something worth reading about foreclosures. Foreclosure freeze for a wrongful foreclosure is a must. Lenders should explain terms and conditions in a simple manner to home owners. This would certainly decrease the amount of foreclosure fraud

      .

    • kartbahnfan profile image

      kartbahnfan 

      8 years ago from Dusiburg, Germany

      That's explaining "leasehold" perfectly!

    • profile image

      EnTrust 

      11 years ago

      The thing to be careful of is cash flowing the owned property and not getting over one's head in debt.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)