What Does “Estate for Years” Mean in Real Estate? Definition and Examples
JD
Summary:
“Estate for years” is one of several less-than-freehold estate leasing terms used in real estate. This type of lease classification specifies tenancy with a definite start and end date. This term is also referred to as “estate for term” or “tenancy for years.”
Are you a homeowner and interested in leasing your home? Are you looking to rent a house and want to understand the different types of leasing terms? Or maybe you’re prepping for a real estate exam? If so, you’ve likely come across the term “estate for years” before.
Don’t let this real estate term fool you. Estate for years doesn’t refer to a homeowner’s primary residence, nor does it describe how long they’ve been living there. Let’s take a look at the definition, with examples, of what an estate for years is (and what it isn’t).
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What is an estate for years in real estate?
In real estate law, an estate for years is a type of leasehold estate, or leasehold interest, that allows a tenant to use real property for a specific amount of time. The holder of an estate-for-years lease doesn’t actually own the property or land.
This type of lease has a defined beginning date and ending date written in the lease agreement. Once the lease expires, the tenant is expected to move out. An estate for years agreement also generally includes the responsibilities of the tenant and landlord, accepted uses of the property or land, fees for early termination, terms for how often the tenant must pay rent, and the amount of rent the tenant must pay the owner/landlord.
Interestingly, an estate for years can give much flexibility to the lessee. Subject to the agreed-upon terms, the tenant can erect a building upon the property being leased. The terms may also state that a tenant can make income by renting a building, room, or piece of land on the property.
Does a lease agreement for more than one year become classified as an estate for years?
Although the term “estate for years” has the word “years” in it, this description doesn’t actually refer to the length of the lease. Estate-for-years leases can have varying lengths, including time frames that are less than a year.
Let’s compare two examples of leases to illustrate what constitutes an estate for years.
Example #1: Estate for years
A tenant signs a lease to live on the property for a specified period of nine months. The lease has a designated start date, as well as an end date for when the lease will be terminated.
This type of lease would be classified as an estate for years, even though it’s for less than one year. Despite the short period of tenancy, a clear end date is outlined in the agreement, so it can be considered an estate for years.
Example #2: Periodic tenancy
A tenant signs a one-year lease agreement. At the end of the year, the lease is automatically renewed. This continues for an extended period of time, potentially several years, until the lease is terminated by notice.
Interestingly, despite lasting for such a long period of time, this lease would not be classified as an estate for years. Since there is no end date in the agreement, this type of lease would instead be classified as a periodic tenancy lease.
Is a termination notice required at the conclusion of an estate-for-years lease?
Contrary to a periodic tenancy lease, an estate-for-years agreement doesn’t require a termination notice. Since a specific period is outlined on the lease, complete with a definite beginning and termination date, there is no need for notice by either the lessee or the lessor (tenants or owner/landlord).
Is an estate for years a type of real property?
This is an important question to answer right on a real estate exam. The term “real property” refers to land and any improvements made to that land. But what exactly does that mean? Let’s start by defining land and its improvements.
Land includes water and air space superjacent to the land. It also includes any natural products and deposits that are unsevered from the land. Natural products like crops, water, ores, and minerals cease to be real property when they are extracted (removed from the land). The storage of natural products or deposits upon real property does not constitute recharacterizing the stored property as real property.
Improvements to the land would be permanent structures and their structural components. These could be houses, apartments, hotels, motels, enclosed stadiums and arenas, enclosed shopping malls, factory and office buildings, warehouses, barns, enclosed garages, enclosed transportation stations and terminals, and stores.
Improvements could also include inherently permanent structures affixed to buildings or other permanently affixed structures. Affixation may also be to the land. If the affixation is reasonably expected to last indefinitely, the affixation is considered permanent. An asset that serves an active function, such as an item of machinery or equipment, is not considered a building or other inherently permanent structure.
The above definitions apply to real property. Real property can be used in a variety of ways, including being leased to other parties. So, returning to the previous question, the short answer is that yes, an estate for years is a type of real property. That said, not every type of real property can be considered an estate for years.
FAQ
What type of estate lasts for an indefinite period of time?
The type of leasehold estates that could last for an indefinite duration would be estates at will or periodic estates. There is no period of time specified for the right to possession of the property.
Although not lease-based, freehold estates, such as a fee simple estate, can also last for an indefinite period of time.
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What is the difference between a freehold estate and a leasehold estate?
Freehold estates are estates with indefinite duration, meaning they can last for a lifetime. The holder of this type of estate can grant the property to an heir upon death, as specified by a will or state laws. This would amount to owning property outright. Examples of types of freehold estates include a fee simple estate, a conditional fee estate, a fee simple absolute estate, and a life estate.
With a leasehold estate, on the other hand, the leaseholder does not own the property. Instead, they only have the right to occupy or use the premises. This is akin to a tenant entering into a rental agreement and renting the property on a month-to-month basis. Examples of leasehold estates include estate for years, periodic tenancy, estate at will, and estate at sufferance.
What does TAW mean in real estate?
TAW is short for “tenancy at will.” Tenancy at will, also known as “estate at will,” refers to a property or land tenure that can be terminated at any time by either the tenants or the owners/landlords with proper notice.
Although a tenancy at will can end at any time, the term of the estate is indefinite. Tenancy at will gives the lessee right to possession until the estate is terminated. This allows for greater flexibility on the part of both the tenant and the landlord.
What is the major difference between an estate for years and other types of less-than-freehold estates?
In most cases, less-than-freehold estates refer to cases in which a tenant rents a property. The major difference between estates for years and other types of less-than-freehold estates is the establishment of a time frame, including a specified date when the agreement will be terminated.
Estates for years have a defined tenancy period that does not automatically renew and does not require any notice to be terminated. All other less-than-freehold estates do not have a defined time frame before a tenant must vacate the premises; they are only terminated by notice by either the tenants or the landlord.
Is a long-term lease attractive for a prospective homebuyer?
It all depends on how soon you’re looking to buy a home and the fees required to terminate the contract. Some leases have very high fees to terminate early, whereas others leases have more affordable fees.
On the other hand, if you are looking at leases classified as tenancy at will, then you will have much more flexibility. Tenancy at will would allow you to have a long-term contract that could be ended by notice when you’re ready to move into your new home.
If you’re looking to buy a home, keep in mind that you also need to consider federal estate tax.
Key Takeaways
- An estate for years is a lease agreement with a specific start and end date.
- Unlike the name suggests, an estate for years can last for any period of time, including less than a year, so long as a beginning and end date are clearly outlined in the agreement.
- Contrary to other types of leasehold estates, an estate-for-years agreement does not require a termination notice, since the end date of the tenancy is already specified.
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