Chapter 8 Property Management, Leases and Rentals

net-net-net lease

A commercial lease wherein the tenant pays a base rent plus maintenance, property taxes, and insurance.

Estate for years

A lease for a defined time

Ground Lease

A lease of land only, on which the tenant usually owns a building or is required to build as specified in the lease. Such leases are usually long-term net leases; the tenant's rights and obligations continue until the lease expires or is terminated through default.

Net Lease

A lease requiring the tenant to pay not only rent but also costs incurred in maintaining the property, including taxes, insurance, utilities, and repairs. (most popular lease)

Step-up Lease

A lease with fixed increases at stated intervals, or increases based upon periodic appraisals at stated times; graduated lease; graded lease.

Percentage Lease

A lease, commonly used for commercial property, whose rental is based on the tenant's gross sales at the premises; it usually stipulates a base monthly rental plus a percentage of any gross sales above a certain amount.

Allowable Vacancy Rate

Agreement to termination due to determined allowed vacancy rate

Property Management Agreement

An agency contract between the owner of income property and a management firm or an individual property manager that outlines the scope of the manager's authority.

Estate from Period to Period

An interest in leased property that continues from period to period—week to week, month to month, or year to year.

Estate at will

An occupation of space, for an indefinite period, which can be terminated by either the lessor or lessee at any time. Also referred to as tenancy at will.

Property Manager's Fiduciary

DORAL

Puffing

Exaggerated or superlative comments or opinions.

Leasehold Termination

Expiration, surrender and acceptance, breach and eviction, abandonment

Escalation Clause

In an agreement that provides for the adjustment of a price or rent based on operating expense increase

Property Manager's Duties

Know the maximum profit set by owners, advertise property, evaluate rental market, obtain tenants, screen applicants, tenant complains and conflict with each other, fiduciary responsibility to owner, rate of return follow federal fair housing laws, maintenance and fees, security deposit and rent collection

Constructive Eviction

Occurs when the tenant's use of the premises is substantially disturbed or interfered with by the landlord's actions or failure to act where there is a duty to act. The tenant is effectively forced to move out and terminate the lease without further liability for further rent.

2 types of maintenance

Preventive Maintenance and Routine (Corrective) Maintenance

Property Management Agreement Contains

Property Description, term of agreement, definition of responsibilities, extent of authority, report requirements, management fee

Index Lease (Graduated Lease)

Rent payments are periodically adjusted based on an economic indicator, such as the consumer price index.

Must have 2 escrows or trust accounts

Security escrow and property management escrow

Abandonment

Tenant moves out of leased premises before end of term

Leasehold Estate Rights

Tenant only hold personal property rights. Owner has real property rights

Gross Lease

Tenant pays rents, landlord pays all expenses of property; most common form of residential lease

Estate at Sufferance

Tenant remains on the property, without the landlord's permission, after the lease has expired

Surrender and Acceptance

Termination of a lease by mutual agreement of the parties. Also known as surrender.

Property Manager's Fiduciary Duty

That duty owed by an agent to act in the highest good faith toward the principal and not to obtain any advantage over the latter by the slightest misrepresentation, concealment, duress or pressure.

Contract Rent

The amount of rent stated in a lease agreement.

Market Rent

The rent that could be obtained by renting a property on the open market.

Leasehold Estates Assignment

Unless prohibited on the lease (most lease prohibit this), a tenant can assign the lease to a new tenant

Non-disturbance Clause

a mortgage clause which Requires that tenants cannot be disturbed if the property is foreclosed upon or sold.

Sandwich Lease

a sublet arrangement in which the initial lessee collects rent from the new lessee and pays rent to the landlord under the original lease agreement

Property Manager's are considered as

general agents because of the authority vested in them by the principal

Property management escrow

holds the owner's money, which is where the management is paid from

Security escrow

holds the tenant's money unless forfeited (deposit)

Service to tenants

honesty, accuracy and disclosure

Leases for more than one year

must be in writing to be enforced

How are property manager's pay?

percentage of income, salary or a flat fee

Property Managers

preserve the value of the property and generate income for the owners

Lease must contain

reversionary rights or interest by the lessor

Tenant Selection

size of space the tenant wants, tenant's ability to pay, tenant's business compatibility with the building and other tenants, space is available for tenant's expansion, ADA

Actual Eviction

suit for possession; legal removal of a tenant

net-net lease

the lessee pays not only operating expenses but insurance premiums as well

fraud

wrongful or criminal deception intended to result in financial or personal gain

Functions of a Property Manager

• Budgeting Expenses • Renting the Property • Maintaining Good Relations with the Tenants • Maintaining the Property • Handling Environmental Concerns • Adjusting rates • Showing units