LEASING REAL ESTATE
A lease is a contract between an owner of real estate (the lessor) and a tenant (the lessee). it is a contract to transfer the lessor’s rights to exclusive possession and use of the property to the tenant for a specified period of time. The landlord receives payment for use of the premises and retains a reversionary right to possession after the lease term expires. The lessor’s interest is called a leased fee estate plus reversionary right.
The statute of frauds in Illinois requires that lease agreements be in writing to be enforceable if they are for more than one year. The written rule also applies to leases for one year or less that will not be performed within one year of the contract date. Verbal leases for one year or less that can be performed within a year of their making are enforceable. Written leases should be signed by both lessor and lessee.
LEASEHOLD ESTATES
A tenant’s right to possess real estate for the term of the lease is called a leasehold (less-than-freehold) estate.
A leasehold is generally considered personal property.
Just as there are several types of freehold (ownership) estates, there are different kinds of leasehold estates.
Estate for Years
An estate (tenancy) for years is a leasehold estate that continues for a definite period of time. That period may be years, months, weeks, or even days. An estate for years (sometimes referred to as fixed term tenancy) always has specific beginning and ending dates.
When the estate expires, the lessee is required to vacate the premises and surrender possession to the lessor. No notice is required to terminate the estate for years because the lease agreement states a specific expiration date. When the expiration date comes, the lease expires, and the tenant’s rights are extinguished.
As is characteristic of all leases, a tenancy for years gives the lessee the right to occupy and use the leased property according to the terms and covenants contained in the lease agreement. It must be remembered that a lessee has the right to use the premises for the entire lease term. That right is unaffected by the original lessor’s death or sale of the property unless the lease states otherwise. If the original lease provides for an option to renew, no further negotiation is required: the tenant merely exercises his option.
Tenancy for years = Any definite period
Estate from Period to Period
An estate from period to period, or periodic tenancy, is created when the landlord and tenant enter into an agreement for an indefinite time. That is, the lease does not contain a specific expiration date. A periodic tenancy is characterized by continuity because it is automatically renewable when rent is paid under the original terms of the agreement until one of the parties gives notice to terminate. In effect, the payment and acceptance of rent extend the lease for another period
Periodic tenancy = Indefinite term; automatically renewing
Periodic Tenancy – After Estate For Years Tenancy Expires
An estate from period to period also might be created when a tenant with an estate for years remains in possession, or holds over, after the lease term expires. If no new lease agreement has been made, a holdover tenancy is created. The landlord’s acceptance of rent usually is considered conclusive proof of acceptance of the periodic (holdover) tenancy. The courts customarily rule that a tenant who holds over can do so for a term equal to the term of the original lease, provided the period is for one year or less. For example, a tenant with a lease for six months would be entitled to a new six-month tenancy. However, if the original lease were for five years, the holdover tenancy could not exceed one year. To avoid this situation, Landlords include in their leases language which states that if this type Holdover Tenancy should occur that the Tenancy is converted to a Month-to-Month Periodic Tenancy, which can then be cancelled with a 30 day notice.
In Illinois, a holdover tenancy is for the same term as the estate from period to period.
To terminate a periodic estate, either the landlord or the tenant must give proper notice. Normally, the notice must be given one period in advance.
The following notices are required by Illinois statute:
- Tenancy from year to year – At least 60 days’ written notice is required at any time within the four-month period prior to the last 60 days of the lease period.
- Tenancy from month to month – In any periodic estate having a term of less than year to year but greater than week to week, 30 days’ written notice is required.
- Tenancy from week to week – 7 days’ written notice is required.
- Farm tenancies from year to year- Parties must give at least four months’ written notice to terminate and may do so only at the end of the period. To vacate March 1, farm tenancy notice must be given by November 1.
Estate at Will
An estate (tenancy) at will gives the tenant the right to possess property with the landlord’s consent for an unspecified or uncertain term. An estate at will is a tenancy of indefinite duration; it continues until it is terminated by either party giving proper notice. An estate at will is automatically terminated by the death of either the landlord or the tenant. During the existence of a tenancy at will, the tenant has all the rights and obligations of a lessor-lessee relationship, including the duty to pay rent at regular intervals.
Estate at Sufferance
An estate (tenancy) at sufferance arises when a tenant who lawfully possessed real property continues in possession of the premises without the landlord’s consent after the rights expire.
This estate can arise:
- when a tenant for years fails to surrender possession at the lease’s expiration and continues until the landlord completes the eviction process,
- when a tenant is in breach of the lease.
- A tenancy at sufferance also can occur by operation of law.
A landlord has the option of considering an estate at sufferance (a holdover tenant’s action) as being a willful withholding of possession, in which case the landlord is entitled to charge double rent.
