Leasehold estates, or tenancies, are the result of rights conveyed to a tenant by a fee owner (or by the life estate tenant or master lessee) to use and possess a parcel of real estate.

Tenancies are created when the landlord and the tenant enter into a rental or lease agreement which conveys a possessory interest in the real estate to the tenant.

The tenant becomes the owner of a leasehold interest in the property with the right to possess and use the entire property until the lease expires. The ownership and title to the fee interest in the property remains with the landlord throughout the term of the leasehold. The landlord’s fee interest is subject to the tenant’s right of possession, which is carved out of the fee by the lease agreement.

Related video: Leasehold Estates by Tenants

In exchange for the right to occupy and use the property, the landlord is entitled to rental income from the tenant during the period of the tenancy.

Periodic and fixed-term tenancies distinguished

Residential landlords and tenants either enter into a:

  • periodic rental agreement; or
  • fixed–term lease agreement.

Residential periodic tenancies take the form of month-to-month rental agreements. [See RPI Form 551]

When leasing a residential property on a fixed rental-rate basis for a specific period of time, a lease agreement is used. [See RPI Form 550]

Both residential and lease agreements grant and impose on the landlord and tenant the same basic rights and obligations. Their differences lie in the expectation of continued occupancy and the obligation to pay future rent.

A month-to-month rental agreement runs for an indefinite period of time. The tenant’s right to occupy the property on the same terms automatically renews monthly, until modified by the landlord or terminated by either the tenant or the landlord. [See RPI Form 551 §3]

Periodic tenancies may be terminated by either the landlord or tenant on 30 days’ written notice. As an exception, when a residential tenant’s occupancy of a unit exceeds one year, the landlord needs to serve the tenant with at least 60 days’ written notice. [Calif. Civil Code §1946; see RPI Forms 569 and 569-1]

On the other hand, a lease agreement creates a tenancy that continues for a fixed period of time. At the end of a fixed-period tenancy, the tenant’s right of possession expires as agreed. The termination of the tenancy is set by the expiration date in the lease agreement. No further notice is required by either the landlord or tenant to terminate the tenancy. [See RPI Form 550 §3]

Editor’s note – If the rental period is longer than one year, a lease arrangement needs to be in writing and signed by the landlord and tenant to be enforceable under the Statute of Frauds.

Unlike a periodic tenancy, the lease agreement does not automatically renew, unless:

  • the landlord accepts rent for the tenant’s continued occupancy after expiration of the lease term, which creates a month-to-month tenancy [See RPI Form 550 §3.3]; or
  • an option to renew or extend the lease has been provided in the lease agreement and exercised. [See RPI Form 550 §1.3]

The Residential Lease Agreement created by Realty Publications, Inc. (RPI) for both fixed-term lease agreements and month-to-month lease agreements:

  • sets the amount of rents to be paid;
  • identifies who will provide and pay for utilities; and
  • allocates the maintenance responsibilities and their costs between the landlord and the tenant. [See RPI Form 550]

Conditions imposed on residential occupancy

Residential tenants typically provide a security deposit to the landlord to cover any cost to clean the unit or remedy any damage caused to the unit beyond reasonable wear and tear. [See RPI Forms 550 §2 and 551 §2]

In return for the use and possession of the premises, the tenant pays the landlord rent until expiration of the lease. The tenant agrees to pay a late charge if rent is not paid on the due date, or within the established grace period. [See RPI Forms 550 §4 and 551 §4]

Also, a list of occupants who will reside in the property in addition to the named tenants is provided in the rental and lease. Occupants are treated differently than guests. The number of guests the tenant may have in their unit, and the period of time over which their guests may visit, is limited. [See RPI Forms 550 §5.4 and 5.6 and 551 §5.4 and 5.6]

The tenant agrees to comply with all building or project rules and regulations established by existing covenants, conditions and restrictions (CC&Rs) or the landlord. [See RPI Forms 550 §6.1 and 551 §6.1]

The landlord and tenant agree who will pay or how they will share the financial responsibility for the unit’s utilities. Landlords of apartment buildings or complexes often retain the responsibility of providing water to the units. [See RPI Forms 550 §6.2 and 551 §6.2]

The tenant also agrees to hold the landlord harmless from all liability for damages caused by the tenant or their guests. For this purpose, the tenant is often required to provide insurance coverage. [See RPI Forms 550 §7.1 and 551 §7.1]

Existing statutory rights and duties restated

Residential rental and lease agreements often contain provisions that restate the landlord’s and tenant’s statutory rights and duties which are not well understood. RPI’s residential lease and rental agreements reiterates the landlord’s statutory obligation to furnish a tenant with:

  • a security deposit refund;
  • notice of the tenant’s right to a joint pre-expiration inspection of the unit and delivery of an itemized statement of repairs and needed cleaning [CC §1950.5(f)]; and
  • a statement of security deposit accounting and an itemization of any deductions. [CC §1950.5(g)(1); see RPI Forms 550 §2.4 and 551 §2.4]

Further, lease and rental agreements advise tenants of their limited statutory right to make necessary repairs to the premises and deduct the cost from the rent when the landlord fails to make the repairs the tenant has brought to the landlord’s attention. [CC §1942; see RPI Forms 550 §5.8 and 551 §5.8]

Lease and rental agreements prohibits a tenant from:

Even if a lease agreement does not restate these statutory prohibitions, a tenant who conducts any of these prohibited activities may be evicted by the landlord. [Calif. Code of Civil Procedures §1164(4)]

Editor’s Note – California legislators passed the Tenant Relief Act (TRA) in August 2020 putting a moratorium on evictions through January 31, 2021. Tenants who experienced COVID-19 related financial hardship between March and August 2020 may not be evicted from their homes as long as they sign and return a Declaration of COVID-19-related financial distress. For tenants who experience COVID-19 related hardship between September 2020 and January 2021, they may not be evicted if they sign and return the declaration and pay at least 25% of each rental payment that became due and payable during that time period. You can read our full article on the TRA here.

In the event the premises is totally or partially destroyed and becomes inhabitable, either the landlord or tenant may terminate the lease by giving written notice. When the lease is not terminated, the landlord needs to repair the premises and prorate the rent for the period of time the premises is uninhabitable by the tenant. [See RPI Form 550 §8]

Lease negotiations on expiration

A landlord may not alter the terms of a lease agreement during the life of the lease without the tenant’s consent and likely consideration.

To extend a soon-to-expire lease agreement, the landlord may contact the tenant and offer to enter into:

  • another lease agreement; or
  • a month-to-month rental agreement.

Often, a residential tenant wants to remain in possession on expiration of their lease. The amount of rent a landlord may demand and receive to extend a lease is limited only by negotiations and economic forces existing in the local rental market.

An exception to negotiations over the amount of rent to be charged exists in rent control communities, unless market rents have dropped below the maximum set by local ordinance. [See RPI Form 550 §1.3]

As an alternative, a proactive and forward-looking landlord openly negotiates and grants options to renew or extend when initially entering in a lease agreement. The right to extend the occupancy may be all that is needed to induce the tenant to remain a tenant on expiration of the lease. [See RPI Form 565]

The Tenant Protection Act of 2019 enacts a limitation on rent increases for non-exempt residential rental properties. For rent increases occurring on or after March 15, 2019, an owner of a residential property may not, over the course of any 12-month period, increase the gross rental rate for a unit more than the lesser of:

  • 5% plus the percentage change in the applicable Consumer Price Index (CPI); or
  • 10% of the lowest gross rental rate charged for that dwelling or unit at any time during the 12 months prior to the effective date of the increase. [CC §1947.12(a)(1); CC §1947.12(h)(1)]

Related Article: 2020’s Tenant Protection Act Part II: Rent Caps

Notice to change in rental terms

All conditions in a residential month-to-month rental agreement may be changed on written notice by the landlord. This notice is commonly referred to as a Notice of Change in Rental Terms. The most common notice of change in rental terms requires a 30-day notice period. [See RPI Form 570]

However, a 60-day notice period is required for rent increases greater than 10%. [See RPI Form 574]

For example, a residential landlord under a month-to-month rental agreement can increase the rent or shift repair and maintenance obligations to the tenant by properly serving a 30-day Notice of Change in Rental Terms. [See RPI Form 570]

Only the landlord may unilaterally change the terms in a rental agreement. [CC §827]

A month-to-month tenant has no ability to alter the terms of the rental agreement, other than to terminate the tenancy and vacate. [CC §1946]

This article was originally posted in July 2015 and has been updated.