Contracts are legal agreements in which two or more parties agree to certain obligations. One of the most common contracts that people enter into in their lifetimes is a lease. A lease is a contract for a specified period of time under which the lessee receives the use of the lessor’s property in return for a fee or other concession. For example, a college student may lease a property from a landlord for the period of one year.

There are several types of estate, which exist in regards to a lease. The landlord has a fee simple estate which is a type of freehold ownership. This means that they have the right to do with the property whatever they would like. Under the lease entered into by the landlord and the college student, the lease would create a leasehold estate for the college student. A leasehold estate is an interest in the property for a fixed duration. It gives the lessee the right of possession but does not transfer ownership.

Other types of estates created under a lease include an estate for years, a periodic estate, an estate at will, and an estate at sufferance. An estate for years is a type of leasehold estate that quantifies the period of time over which the right of possession extends. A periodic estate is an estate that automatically renews. An estate in years can simultaneously be a periodic estate, depending on the terms of the contract.

An estate at will is a common typically oral lease under which the tenant has the right to possess the property for an unspecified term, but either party may cancel anytime. This is common in the case of individuals over the age of eighteen living at home. Lastly, an estate at sufferance exists when a tenant has stayed beyond lease length without the landlord’s consent. This tenant becomes known as a holdover tenant once this estate exists.

The terms of the contract are often titled in the landlord’s favor because they are the property owner and suffer the greatest loss exposure. These contracts, although unfair, are legal because they are entered into voluntarily. However, a landlord must keep the property habitable at all times throughout the duration of the lease. This is known as a warranty of habitability.

In leases such as an estate for years, there are several methods for setting rent. Under a gross lease, which is most common in an apartment building, the tenant pays a fixed amount and the landlord pays expenses such as utilities. Under a net lease, which is common in single-family homes, the tenant pays rent and some or all of the expenses depending on the terms of the contract. Under a graduated lease, this is most common in commercial real estate, the amount of rent increases over the course of the lease.

This is helpful for business with periods of higher seasonal income. For more long-term lease contracts, both parties may enter into an escalated or participation lease. Under this contract, the tenant agrees to pay a percentage of increases on property tax or utilities. This is especially helpful for landlords when the contracts extends beyond one or several reassessment periods as it helps ensure a certain profit margin will go unchanged.

In most states, if a lease exceeds twenty-one years, a memorandum of lease must be kept on file in the municipal courthouse. The most important part of entering into any contract is that both parties fully understand the terms of the contract, as well as any estate created inadvertently or intentionally by the lease.