Real property can be separated into a “fee estate” and a “leasehold estate” by an instrument called a “a lease.” The land is the fee estate and the owner of the land is the Lessor under the lease. The leasehold estate is the exclusive right to the use of the land and the holder of this right is the Lessee under the lease. Under the lease, the Lessor, in return for contract rent and the right to regain the use of the real property at the termination of the lease, gives the Lessee the use of the real property for the term of the lease.
Where the property on which the Bank takes a lien or may in the future be leased the Bank should also receive an Assignment of Leases and Rents on and profits derived from the real property. See Chapter 10, “Leases and Leasehold Improvements” for a more detailed discussion of Assignment of Rents and Leases. A security interest in rents is not covered by the UCC. The assignment may be contained in the Deed of Trust or in a separate document. It should be filed in the Real Property Records in the office of the county clerk in which the leased property is located. A sample form Assignment of Rents and Leases is located at the end of Chapter 8.
If the Lessee is the Bank’s borrower or guarantor the Bank can take a lien on the leasehold estate and the leasehold Improvements. See Chapter 10, “Leases and Leasehold Improvements.”