CHAPTER 3.03. Leasehold

• Jurisdiction: United States

3.03. Leasehold

Under the traditional common law, a leasehold estate is a type of personal property, often referred to as a chattel real, that represents a right of exclusive possession of certain real estate for a term measured by years or other duration (e.g., the life of the tenant).²³ Because the leasehold estate is for a finite term, upon its termination, there is no more estate and the unencumbered estate of the landlord reverts to the landlord.

The technicalities and details of leases and leasehold estates are beyond the scope of this chapter; however, there is one feature of leasehold estates that is important to commercial real estate financing. As a leasehold has a limited duration, under the traditional common law it could not be the subject of a mortgage; however, by the end of the nineteenth century that position seems to have eroded, particularly by statutory enactment. In Delaware a leasehold may be mortgaged under the terms of a statute that authorizes the mortgaging of a leasehold having a term of at least 10 years.²⁴ Of course, because a leasehold is largely governed by the terms of the lease, mortgaging a leasehold poses many issues not encountered in a mortgage of a fee simple absolute estate.²⁵

--------

Notes:

^[23] 1 Tiffany on Real Property § 25, at 34 (1939); A. Reeves, A Treatise on the Law of Real Property 587, 791 (1909). Residential real estate leases in Delaware are governed by the Residential Landlord-Tenant Code, which is found at Part III of Title 25 of the Delaware Code. Commercial real estate leases in Delaware are governed by the Commercial Landlord-Tenant Code, which is found at Chapter IV of Title 25 of the Delaware Code. The Commercial...