A leasehold estate is created by a lease agreement and exists for a designated period of time. A lease is an agreement (written or unwritten) by which the owner of the land (the landlord or lessor under the lease) transfers to another party (the tenant or lessee under the lease) the right to the exclusive possession and use of the land for a definite period of time. A leasehold estate is referred to as a possessory estate because the owner of the leasehold estate does not own the land.
Leasehold interests should be insured using ALTA leasehold policy forms, designed for this specific purpose. Item 1(h) of the Conditions and Stipulations of the 1992 ALTA leasehold policy defines leasehold estate as “the right of possession for the term or terms described in Schedule A hereof subject to any provisions contained in the lease which limit the right of possession.” Schedule A, Item 2 describes the estate or interest being insured as being a leasehold estate created by a specifically described lease documents, while Item 3 describes the leasehold term. Items have also been added to the Conditions and Stipulations of leasehold policies, describing the method of valuation of the estate or interest being insured and the miscellaneous items of loss in the event the insured is evicted (Items 13 and 14 of the leasehold loan policy and Items 14 and 15 of the leasehold owners policy). If insuring using a different policy form, an exception must be made, in Schedule B, as to the terms and conditions of the lease.
States that do not use the 1992 ALTA Leasehold Policy may have specific forms or endorsements that must be used. Check with local underwriting counsel for requirements.
Generally, a leasehold estate can be encumbered, and a Leasehold Loan policy can be issued insuring the mortgage covering the leasehold estate. See the underwriting guidelines below, and check with local underwriter counsel for specific requirements or forms that must be used.
Generally, unless prohibited by the terms of the lease agreement, a lessee may assign its interest in the lease to a third party or sublease a portion of leasehold estate to a third party. See the underwriting guidelines below, and check with local underwriter counsel for specific requirements or forms that must be used.
NOTE: In 2002, ALTA promulgated Leasehold Endorsements to be used with the standard 1992 owners and loan policies to insure leasehold estates. Agents National Title is implementing the use of these endorsements and phasing out the leasehold policy forms.