Classification Of Lease in United States
Practical Information
Note: Some of this information was last updated in 1982
Duration
Leases may be classified according to their duration as short-term or long-term leases. Although there is no definite duration that takes a lease out of the short-term class and puts it into the long-term class, a lease of ten or more years is generally considered a long-term lease. The fundamental distinctions are in the responsibilities assumed by the lessee and in the bond and security requirements. Under a short term lease, the lessor usually requires the lessee to deposit with him one, three, or six months’ rental at the time the lease is executed, whereas under a long term lease the lessee is required to furnish a bond or collateral in an amount equal to about three years’ rental. The most common practice is for the lessee to deposit with a bank or other financial institution negotiable securities of the required amount.
A special type of long-term lease is the 99-year lease, which has been used extensively for the purpose of developing business districts in large cities. These leases are made on parcels of valuable real estate strategically located for business expansion. They contemplate the erection or improvement of buildings upon the property by the lessee.
Type of property
Leases may be classified as commercial or residential, according to the type of property covered by the lease. (See commercial lease (in U.S. law); residential lease (in U.S. law).) The secretary in a law office is more likely to prepare commercial leases than residential leases. Short-term leases may be either commercial or residential leases, but long-term leases are almost exclusively commercial leases.
Rental
The majority of leases call for the payment of a definite amount of rental, which continues at a uniform rate throughout the term of the lease. The amount is called a flat rental. Other leases, especially long-term leases, provide that the rental will start at a comparatively low figure and gradually increase. A rental provision of this type is called a graded rental. Another method of fixing the amount of rental is to require the tenant to pay a specified percentage of the gross income from sales made upon the premises. A lease with this requirement is called a percentage lease. These leases generally cover premises occupied by retail businesses, such as chain stores and department stores. Percentage leases generally run for ten or more years.
What is Classification Of Lease?
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