Definition: Leasehold interest is a legal right acquired by an individual or corporation to use certain property for a limited period of time. It is an official claim obtained through a lease arrangement to use an asset.
What Does Leasehold Interest Mean?
A lease is a legal contract established by two parties over a certain asset where the lessor (the owner) agrees, under certain conditions, to rent his property to a lessee (the person receiving the property). This contract can have a limited time period (a leasehold) or an unlimited one (a freehold). The object of the lease can vary in its nature, from a real estate property to an automobile and in the case of a leasehold the asset must be returned to the owner after the lease period has concluded.
In other cases, a compensation might be established in the contract to allow the lessee to acquire the property after the leasehold is due. These leasehold interests are considered to be an asset itself with certain attached value, since the agreement grants the lessee the privilege to use and enjoy the property as he desires to. This interest, depending on the clauses established within the agreement, can be traded or mortgaged with other parties, normally with the authorization of the owner.
Example
Carl is the owner of a commercial property located in a highly-transited shopping mall. He has been waiting to use the property for a while to open a restaurant but since the project is still being developed he decided to rent the place to a third party. His realtor found him an interested company and they decided a 3-year lease agreement will be the best option for both parties.
The contract was designed to be a leasehold where Carl transfers the right to use the property as the company desires to and after the lease period has concluded the asset will be returned to him in perfect conditions, as stated in the agreement. After a year, the company decided to trade the leasehold interest and sold it, with Carl’s authorization, to another interested company, the agreement still operates under the same conditions they initially agreed to with Carl.
