Certified Residential Appraiser Practice Exam

What type of interest does a tenant acquire in a leasehold estate?

1. Freehold Interest

2. Possessory Interest

3. Reversionary Interest

4. Future Interest

The correct answer is: Possessory Interest

In a leasehold estate, the tenant acquires a possessory interest. This type of interest grants the tenant the right to occupy and use the property for a specified period as per the lease agreement. Unlike freehold interest, which denotes ownership of the property, a possessory interest reflects the tenant's temporary rights to enjoyment and occupation, essentially allowing them to possess the property but not own it. The essence of a leasehold estate is the agreement between the landlord and the tenant, which defines the parameters of this possessory interest. The tenant does not have a stake in the property's title; therefore, concepts like freehold or reversionary interests do not apply. The tenant's rights are limited by the terms of the lease, and when the lease expires, the possessory interest ends, returning the rights to the landlord. This context clarifies the nature of interests involved in property law and the specific allocation of rights between landlords and tenants within lease agreements.