What is a leasehold estate in real estate?

A leasehold estate in real estate refers to an interest in real property that is created by a lease agreement. This type of estate provides the tenant (lessee) with the right to occupy and use the property for a specified period of time according to the terms laid out in the lease. The crucial aspect is that the tenant does not own the property but has a legal right to use it under the conditions established in the lease.

Understanding leasehold estates is key to navigating real estate transactions, as they define the relationship between the property owner (lessor) and the tenant. The lease establishes the duration of the tenant's rights, the rent to be paid, and any rules that might apply to the occupancy and use of the property. This relationship contrasts with ownership interests in property, which involve complete title rights and responsibilities that come with property ownership.

While options such as ownership interest or an agreement to sell imply a transfer of title or ownership rights, a leasehold estate is strictly about the temporary use of property without transferring ownership. An informal rental agreement, meanwhile, does not encapsulate the legal protections and obligations that come with a formal leasehold estate.