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Leasehold Estate Free Information On Leasehold Estate A leasehold estate is a tenant's interest in real estate obtained through a lease. A leasehold estate becomes meaningful when contract rent is substantially lower than market rent. Having the right to use office space for a payment well below market rent has value. In the event of a complete taking (when the government takes the entire office building) the lease needs to address proceeds of the tenant's leasehold estate. Do they belong to the tenant or to the landlord? Partial Taking In any "partial taking", the government only takes a portion of a property. This may or may not include any portion of the building. For the sake of discussion, let's assume a office building with 100,000 ft.² and 350 parking spaces. The 350 parking spaces are along the street in front of the building. The current amount of parking is just barely adequate. The condemnation will "take" 200 parking spaces along the street. This leaves the property with only 150 parking spaces, or less than half of what is necessary. The lease needs to define the rights and responsibilities of both the tenant and the landlord in event of a partial taking. In Event of Foreclosure Foreclosure of a mortgage typically extinguishes all claims to the property. In other words, if you've negotiated a lease and started a business, your right to use the office space is terminated by foreclosure unless there is a separate agreement. Will Lender Cancel? In many cases, depending upon state law, the lender has a defined period of time to reject leases or they are assumed to remain intact. Further, lenders often want to retain the leases and tenants to make the property more salable. However, if the rental rate for a lease is well below market rent, and the tenant is clearly successful, the lender might terminate the lease and require the tenant to negotiate a new lease at market rent. Next Chapter Leasing Office Space - Negotiating From a Position of Weakness
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