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What Is Leasehold Interest?

If an owner has a questionable credit history, a bank may not accept the leasehold interest as an asset.
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  • Written By: Alex Newth
  • Edited By: Angela B.
  • Last Modified Date: 21 August 2014
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A leasehold interest is an element of renting real estate that involves ownership of the property. Whoever holds it is the exclusive owner of the property. If the property is leased out, the holder of the interest is the person paying for the lease. When the lease is up, the interest returns to the original owner. Some regions consider leasehold interest to be personal property and, if the lease is long-term, this allows the holder of the interest to mortgage it as an asset.

Leasehold interest is concerned with the current owner of a piece of property. When a lease is made, money is paid for an agreed on amount of time, and both the owner and the renter sign a lease. At this point, the interest transfers to the renter, and he or she effectively holds exclusive possession of the property. A lease is considered long-term if it is for 10 years or more.

Some regions consider the property to be personal property. This can have some positive and negative side effects. It allows the holder of the leasehold interest to be guarded by some laws and to leverage the property at tax time. At the same time, this makes the owner more responsible for any damages that occur to people on the property, which can incur fines and penalties. This differs from region to region and should be checked out before leasing a property.

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When leasehold interest is long-term, the current owner of the property can use the property for mortgage or as an asset. This gives the owner more opportunity to make money through the property or get money from a bank loan. If the current owner has a poor or limited credit history, the bank may not accept the leasehold interest as an asset. As long as the interest and loan are paid before the lease is up, there will be no problems between the lease holder and the property’s original owner.

Leasehold interest, after the fixed time is up, will transfer ownership. After the lease expires, the property’s ownership will transfer from the renter back to the original owner. At this point, the original owner can lease the property out to another renter or the renter can renew his or her lease contract. Until the lease is up, the original owner cannot lease the property to any other parties, because the property does not legally belong to the original owner until the lease expires.

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