Glossary

Leasehold Estate

Also known as: Leasehold Interest

A possessory interest in real property held by a tenant for a defined term under a lease, as distinguished from the landlord's underlying fee (reversionary) interest.

A leasehold estate gives the tenant the right to exclusive possession and use of the premises for the lease term, while title remains with the fee owner (the lessor), who holds a reversionary interest that vests in possession again once the lease expires. In ground lease structures common to CRE, a developer may hold a long-term leasehold (commonly 50 to 99 years) and construct improvements it owns during the term, creating a leasehold mortgage that lenders will finance only after confirming the lease is assignable, has a sufficient remaining term relative to the loan, and includes lender-protective provisions such as notice-and-cure rights and a right to a new lease upon tenant default. Appraisers and lenders distinguish leasehold value (the value of the tenant's interest, which can be positive or negative depending on whether contract rent is below or above market) from leased fee value (the landlord's interest, valued as the right to receive rent plus the reversion).