Chapter 7

Jack and Chrissy want to rent an apartment while their new house is being built. Ralph has an open unit in a building he owns, so he offers them a month-to-month lease with an initial rent amount of $1,200. Jack and Chrissy decide to sign the lease and they move in on July 1. They pay $1,200 in rent for July and on August 1, they pay $1,200 in rent for August. That same day, Ralph informs them that the rent is going up effective September 1. If they want to continue living there, the rent will be $1,250/month. Ralph has the

Right to raise the rent in this manner because the lease term is month to month. Jack and Chrissy would have the right to terminate the lease with notice to Ralph If Ralph found someone else willing to rent the space for a longer period of time, he may decide to terminate the periodic estate, with notice to Jack and Chrissy

If you have heard of (or been a party to) a month-to-month lease, that is a great example of

A periodic estate If the landlord and the tenant have not expressly included another type of arrangement in the lease, many states say that the lease is automatically a periodic estate - Periodic Estate: An interest in land where there is no definite termination date but the rental period is fixed at a certain sum per week, month, or year. Also called an estate from period to period

As mentioned earlier, the lease should also specify whether there will be a security deposit required, and what the amount of the security deposit will be The security deposit is

An amount of money the tenant pays to the landlord up front. If the tenant meets their requirements under the lease during the lease period and returns the unit to the landlord in substantially the same condition it was leased to them, they should receive their security deposit back In some states, landlords must also include interest when they repay the deposit

Estate at Sufferance

An estate arising when the tenant wrongfully holds over after the expiration of the term. The landlord has the choice of evicting the tenant as a trespasser or accepting such tenant for a similar term and under the condition of the tenant's previous holding. Also called a tenancy at sufferance

An Estate for Years is

An interest in land that arises by contract for possession for a definite, but limited, period of time. Although the word "years" is in the name, an estate for years can actually be for any period of time, even if it is shorter than one year - An interest in lands by virtue of a contract of a contract for the possession of them for a definite and limited period of time. May be for a year or less. A lease may be said to be an estate for years

Under an estate at will, the occupation of the land or apartment unit is for

An undefined period of time, and can be terminated by either the landlord or the tenant, or both of them

Constructive Eviction

Any disturbance of the tenant's possession of the lease premises by the landlord whereby the premises are rendered unfit or unsuitable for the purpose for which they were leased.

Because of its informal nature, an estate at will can be risky for

Both the landlord and the tenant

Under an estate for years, the lease spells out a specific time period at which point the lease will terminate. A periodic estate is different. With a periodic estate, there is a

Rental period defined by the lease, but there is not a pre-determined lease termination date. The rental period might be a week, month or a year. The amount of rent is fixed for that rental period This type of leasehold estate is also known as an estate from period to period, or a periodic tenancy

Some examples of restrictions landlords often include in residential lease agreements are:

- Not using the rented property (or unit) for commercial activities (so, the tenant could not run a business out of an apartment unit.) - No pets allowed, or if pets are allowed, the lease should provide clear language identifying what kind of pets are - and are not- allowed, how many pets are allowed, etc. Landlords who do allow their tenants to have pets on the premises often include an additional security deposit designed to cover any damage to the carpet, floors or walls caused by such pets. - Occupancy controls. Landlords are responsible for making sure the property they are leasing is in compliance with local ordinances about occupancy, so leases may include language specifying the maximum number of adults who can lawfully reside in the unit. - Sublease provisions. If a tenant has to break their lease before it would otherwise end, some landlords are OK with the tenant subleasing the property. This means that the tenant would find someone else to take over the remainder of the lease, and would enter into their own agreement with the sub-lessee. However, many landlords may not be comfortable with sublease arrangements. Their lease contracts can spell out whether or not the tenant is allowed to sublease the unit or space.

There are a few different ways a tenancy at will can come about

- The landlord and the tenant agree that there does not need to be a formal lease - The landlord and the tenant agree that no rent or other consideration needs to be paid for the tenant to occupy, possess and use the landlord's real estate - The tenant has an urgent need or desire to occupy the property but there hasn't been time to formalize the terms in a lease yet. When the lease is finally inked, in this case the "estate at will" is going to terminate.

An estate at will can generally be terminated in the following ways:

- The landlord transfers the property to someone else - The landlord dies - The tenant dies - The tenant tries to assign his or her tenancy (for example, by trying to sublet the space to someone else) - The tenant causes some change or damage to the property, whether intentional, voluntary or not, without the permission or direction of the landlord. This is also sometimes referred to as "committing waste" against the property

What information should be included in a lease contract or agreement:

1. The lease should clearly define who the lessor and the lessee are (the parties to the contract), and it should include contact information for each party. Every adult who will be occupying the property should be identified as a party on the lease agreement 2. The lease agreement or contract should also clearly spell out the legal objective of the contract (that is to say, it should say something to the effect of "lessor and lessee intend to enter into a valid rental agreement...") 3. Next, the lease will clearly define exactly what space is being leased. In the case of an apartment, the lease will provide the address and the unit number. If garage or storage space is included or is being contracted for, the lease should also clearly define those types of extras. 4. As mentioned earlier, the lease contract must include consideration in order to be valid. The agreement should clearly spell out the amount of rent, the frequency of rent payments, how they should be made, the date rent is due, and the consequences of not paying rent on time as agreed. 5. Lease agreements usually spell out what is included with the monthly rent, and what is not included (what is the responsibility of the tenant.) For example, an apartment lease might include some utilities like electricity and water, but the tenant may be on their own for things like telephone, internet and cable TV. 6. The lease should spell out how the lease might end, and what happens when the lease ends. For example, a lease can include provisions saying what happens if the tenant breaks the lease early, or what happens at the end of the original lease term.

Lease

A contract between an owner and tenant, setting forth conditions upon which the tenant may occupy and use the property and the term of the occupancy

A tenancy at will can even be created when

A family member is allowed to stay at home without any kind of formal written agreement, although this may require them to pay some sort of nominal amount of rent or other consideration for the arrangement

A leasehold estate is created through

A lease for real property (real estate.)

Sublease

A lease given by a lessee.

Gross Lease

A lease in which the lessor pays all costs of operating and maintaining the property and real estate taxes. A lease where the landlord (also called the "lessor") is responsible for paying all of the costs that come up related to operating and maintaining the property. Under a gross lease, the landlord also pays all of the real estate taxes. While a standard gross lease says the landlord pays for everything, a gross lease could also be modified to say that the tenant would pay utility bills. Most often, residential leases are gross leases and some commercial leases are gross leases.

Net Lease

A lease requiring a lessee to pay charges against the property such as taxes, insurance and maintenance costs in addition to rental payments. The opposite of a gross lease. Under a net lease, the tenant (also called the "lessee") is responsible for paying their agreed-upon rent PLUS additional expenses like taxes, insurance, and maintenance costs. Net leases are very common for some office tenants and other companies leasing commercial space to run their businesses.

Remember that

A lease where the landlord pays all expenses is considered a "gross lease" and a lease where the tenant is responsible for some or all of the property taxes, insurance, or maintenance is considered a "net lease." Beyond that, the various types of leases will depend largely on the type of business leasing the property or land, and what their intended use is.

Graduated Lease

A lease which provides for a varying rental rate, often based upon a future determination; sometimes rent is based upon the result of periodic appraisals; used largely in long-term leases. Also called "graded", "index", or "step-up" leases. With a graduated lease, rent payments are not fixed. Instead, they can vary periodically. Graduated leases are common for long-term lease arrangements, protecting a landlord lessor by adjusting the amount of rent due every one, five, or even ten years. For shorter-term leases, graduated leases can help entice business owners to lease space by requiring a smaller outlay of funds in the early years, while the business establishes itself and gets up and running. There are different types of graduated leases. In some, the rent payment due "graduates" upward each month, every quarter, every year, or on some other pre-defined basis. In other graduated leases, the monthly rent may go up or down, based on the consumer price index, based on periodic appraisals of the property rented, or by some other factor the landlord and tenant agree to ahead of time.

Three types of leases under the Net Lease umbrella

A single net lease is an agreement where the tenant pays the rent plus the property taxes. The landlord is still responsible for paying the costs of insurance and maintenance for the space rented to the tenant. If a tenant signs a double net lease, they are agreeing to pay the rent, the property taxes and insurance premiums for insuring the building or space rented. For a tenant in a multi-unit building or mall, these costs are usually prorated based on the percentage of the building a tenant is occupying or leasing. Under a double net lease, the landlord still pays the costs associated with maintaining the property. A triple net lease is a lease contract where the tenant is agreeing to pay the rent plus the property taxes, insurance, and maintenance including repairs. In recognition of the fact that the tenant is responsible for paying those expenses, the monthly rent is typically lower than what a tenant would pay for a single net lease or a double net lease.

A leasehold estate refers to

A tenant's exclusive, but temporary, right to possess, occupy and use real estate (land or property) during the term of a lease Rather than being considered an interest in real property itself, a leasehold estate is considered to be a personal property interest - A tenant's right to occupy real estate during the term of the lease. This is a personal property interest

Example illustrating habitability:

Adam owns a dozen single-family rental homes on the city's South side, which he rents to families. Adam opted not to hire a property management company, thinking he can save money by handling any repairs or maintenance needs when they arise. Bob and Cindy are renters in one of Adam's homes and they faithfully pay their rent on time every month. The water heater in the home they are renting is 15 years old and it finally gives out. Although Bob and Cindy called and reported the broken water heater to Adam as soon as they became aware of it, he didn't take any action on it. When they finally got a hold of him, he said he was on vacation and would look into it in a couple of weeks. In this scenario, Adam is violating the implied covenant of habitability by not keeping the dwelling in a habitable condition.

A well-written lease will always have a start and end date, and a tenant has a responsibility to the landlord to keep the commitment of the lease from the time the lease begins until it ends, just as the landlord is required to allow the tenant to make use of the property as long as they pay the rent and follow the rules of the lease. While the tenant may be released from the lease if a suitable replacement tenant assumes responsibility for the lease, the tenant cannot just walk away from a lease, they will continue to be financially responsible. However, the Michigan Landlord Tenant Act outlines a couple of specific situations where a tenant is legally allowed to terminate the lease without special permission from the landlord or having any responsibility of finding a replacement.

Almost all of the provisions that allow a tenant to cancel a lease that would otherwise remain in effect are only applicable in cases where the tenant has occupied their residential rental for a minimum of 13 months. This means that these situations do not apply when a tenant has signed a one-year lease and has not ever renewed that lease. However, if the tenant has signed an original lease for longer than 13 months, or has subsequently renewed their lease after having lived there for more than a year, then these situations could apply.

Ground Lease

An agreement for the use of land only, sometimes secured by improvements placed on the land by the user. An agreement to use land (not a structure or unit of a building,) although sometimes that lease is secured by improvements the tenant makes to the land. Typically, ground leases cover a long time period - often between 50 and 99 years. With a ground lease, ownership of the land itself is separated from ownership of the buildings, or improvements the tenant builds on that land. Ground leases are commonly used by well-known corporate tenants - many fast-food and retail stores corporations will enter into ground leases instead of trying to purchase the land where they build their stores and restaurants. The tenant doesn't have to come up with funds to buy the land; they just need to come up with funds to lease it, significantly lowering the initial out-of-pocket expense so they can put that money toward constructing and running their new stores. Landowners may like ground leases because they can provide a predictable, steady income stream. These types of leases often include features similar to those we discussed earlier when we explored graduated leases, so the tenant in a ground lease can expect their rent to rise over time.

First, let's start at the beginning, by defining what a lease is. Simply put, a lease is

An agreement that a property owner enters into with someone else (called a tenant), giving the tenant permission to occupy and use the property, subject to certain terms and conditions

Let's look at examples to help illustrate the difference:

Daniel is renting a duplex from Simon, and there are still eight months left out of the twelve-month lease. Daniel has decided he wants to live on the other side of town, closer to his job. If he simply breaks the lease, Daniel will be responsible for paying any lease termination fees or other remedies specified in the lease he signed. He consulted his lease and saw that it allows for assignment. So, Daniel found a new renter, James, to take over the remaining eight months of the lease. When he assigned the lease to James, James is now on the hook for complying with the requirements of the lease. If James doesn't pay his rent, it doesn't have any impact on Daniel, who had assigned the lease obligations to James. If instead of assigning the lease to James, Daniel entered into a sublease with him, Daniel is still on the hook until the original lease ends. So, if James stops paying rent, Daniel is responsible. James would be responsible to Daniel, under the terms of the sublease, however Daniel is the one that the landlord will pursue in court.

Example of the principle of possession, and the covenant of quiet enjoyment:

Debra got a new job and is moving to a new town. She wants to find an apartment to rent near her new job. Fortunately, she is in luck, and finds what she thinks is the perfect space in her price range, offered for rent by Barbara. Both Debra and Barbara sign a residential rental lease agreement, effective at noon on June 1st. The implied covenant of possession under real estate law means that, beginning at noon on June 1st, Debra has the right to possess and use the apartment she has rented, assuming she has paid the required amount of rent specified in her lease. Similarly, the implied covenant of quiet enjoyment means that once Debra takes possession of the apartment and uses it as agreed in the lease, she should not have to worry about Barbara entering the premises except for repairs, maintenance or other legal reasons spelled out in the lease. If Barbara starts coming into the apartment several times a week without a valid reason to do so, she is violating the covenant of quiet enjoyment. Debra may have legal or equitable remedies.

If a landlord uses a template from a lease for another state, or innocently adds a clause that seems reasonable, it can mean that the Truth in Renting Act has been violated. What happens then?

First of all, any clause that is prohibited by the Truth in Renting Act cannot be enforced in a court of law. In terms of remedying violations, if the landlord realizes their error, they should immediately send a notice to all tenants affected by the clause, stating that the clause is void and cannot be enforced and effectively nullifying the problematic clause from the lease. If the tenant notices the problematic clause, the tenant must send a written notice to the mailing address, and the landlord then has 20 days to send a written notice to affected tenants nullifying the clause. If they fail to do this, then the tenant may void the lease entirely and end the tenancy. The tenant can require the landlord to properly fix the information in the lease, and they are entitled to $250.00 in damages, or any actual damages incurred, whichever is more. If the landlord has violated the Truth in Renting Act by omitting their name and mailing address then the procedures and penalties remain the same, except that instead of $250.00 as minimum damages, the tenant is entitled to $500.00. These are quite serious consequences for something as simple as failing to use the wrong font size in a specific clause. This is why it's so important for you to understand this law, so you can help your clients properly navigate renting their property, and protect their interests.

The remainder of the Michigan Landlord Tenant Act that is important for you to understand is concerning the security deposit. This includes all aspects concerning how much to charge, how the money is kept, under what conditions, and also determines the cases in which a tenant has forfeited the return of a part, or all, of their security deposit.

First off, a landlord is allowed to charge a security deposit for each individual rental unit. The security deposit cannot be greater than one and a half times the monthly rent. So, for a $1,000/month one-bedroom apartment, a landlord may charge a maximum of a $1,500 security deposit. Though it is the landlord's right to charge a security deposit (and as a real estate salesperson you should always advise your clients that it is in their best interest to do so, as it protects their property from damage from tenants) with the decision to charge a security deposit, the landlord also assumes several responsibilities, and one of them is providing the tenant notice. Within fourteen days of a tenant taking possession of the rental property, the landlord must provide the tenant, in writing, with the name and address of the landlord for all communications regarding the security deposit, as well as the financial institution's name and address where the security deposit is held or the way in which the security deposit has been guaranteed or insured.

Example of Percentage Lease

Frannie wants to open a smoothie shop, and is looking at leasing some prime space in a strip mall near a busy intersection in her town. She thinks the location is perfect, as it is in the same strip mall as a fitness center, a bookstore and a coffee shop. When she reviews the terms of the lease, she notices that the lease provides for the following payments: - Minimum/base rental amount: $4,000/month ($48,000/year) - Natural breakpoint amount of 7% ($57,142.86.) This means that when Frannie's sales go over $57,142.86, she will have to pay her landlord an additional 7% of her business sales, in addition to the $4,000/month she is already paying. This is what is known as a percentage lease. Frannie may be able to negotiate a higher breakpoint amount in an attempt to fix her monthly expenses.

For an example of a holdover tenancy, let's go back to the original example we used earlier in this lesson:

George is looking for somewhere to live and Carla needs a tenant while she is out of the country for the school year, teaching Let's say that George and Carla signed a one-year lease. Carla has accepted an offer to stay on as a teacher in Europe for one more year, so at the ten-month point in the lease, she notifies George that he can renew the lease for another one-year period, but at a rent amount that is five percent higher than what he has been paying George never responds to Carla. The original lease ends at the one-year mark. If George continues living in Carla's house, he is a holdover tenant and an estate at sufferance has been created. Carla can charge him the new, higher monthly rental amount, however she could also choose to take George to court to have him evicted since there is no lease in place giving him the right to continue possessing, occupying or using her property

Under a periodic estate, if the landlord wants to end the lease, they must

Give notice to vacate. Similarly, if a tenant wants to end the lease, he or she must also provide notice as specified in the lease

Here's an example of an estate at will:

Helen owns her home and a condo, which is vacant. Her adult son, Bill, has fallen on hard times, so Helen decides to let Bill move into the condo. Because she knows that money is tight for Bill right now, she says he does not need to pay her any rent while he gets back on his feet. Neither of them thinks about writing any kind of formal lease agreement for the arrangement Helen has created an estate at will with Bill Unfortunately, their relationship sours over the course of the next couple of months. Helen decides she does want to start receiving rent for the condo. Bill stubbornly refuses to pay rent and says he's going to keep living there Helen, will likely need to go to court to start eviction proceedings in order to get Bill removed from the condo

Within 30 days from the tenant leaving, the landlord is then required to mail the tenant an itemized list of all the damages they are claiming were caused by the tenant. The list will include the amount of money that each repair or replacement cost will be. The landlord must also include a check or money order for the remaining balance of the security deposit, based on the damages they are claiming from the tenant. Once again, a notice is required, in 12-point boldface type that is 4 sizes larger than that used in the rest of the letter: "You must respond to this notice by mail within 7 days after receipt of same, otherwise you will forfeit the amount claimed for damages."

If the landlord fails to do any of this, then they must return the security deposit immediately. The landlord should be mailing this to the forwarding address that the tenant had provided within four days of leaving the property. If the tenant failed to provide this forwarding address in that time, then the landlord no longer has to provide this notification regarding itemized damages, but the tenant may still claim that the security deposit should be returned. After the tenant receives the notice, itemizing damages, they then have seven days to respond, by regular mail, stating whether they agree or disagree with the amount of the damages.

The landlord must include in this notice the following statement that must be in bold type, at least 12-point size, and four points larger than the type in the notice, and it must state: "You must notify your landlord in writing within 4 days after you move of a forwarding address where you can be reached and where you will receive mail; otherwise your landlord shall be relieved of sending you an itemized list of damages and the penalties adherent to that failure."

If the landlord fails to provide this notice properly, then the tenant is no longer required to provide the landlord a forwarding address within four days to maintain all of their rights regarding the return of their security deposit. It is extremely important that you make sure that this seemingly minor detail is carried out for all of your landlord clients. While the security deposit remains in the possession of the landlord during the entire time that the tenant remains in the rental unit, the security deposit is considered to be the property of the tenant and not the landlord. The landlord is allowed to use the security deposit in whatever way they choose, while it is in their possession, however, in that case they must guarantee the amount by using bonds as insurance. If the landlord wants to avoid worrying about this, it is best to place the security deposits into a designated bank account or escrow account, and then provide the tenant with the name and address of the bank.

Lease contracts, particularly those for commercial real estate, may also include provisions referred to as "confession of judgment clauses." This clause says that

If the tenant defaults on their obligations under the lease, the landlord can "confess judgment" without requiring notice or a hearing The confession of judgment clause specifies whether that judgment means evicting tenants, collecting monetary damages, or both. These clauses can make things significantly faster, cheaper and easier for a landlord when a tenant isn't holding up their end of the bargain, because the tenant has essentially waived the right to notice and court hearings

A breach of the lease can occur by either the landlord or the tenant's actions. The most common cause for breaching a lease is the tenant not paying the rent as agreed.

If this occurs, lease principles give the landlord the right to sue for possession and actual eviction of the tenant. Actual eviction means that the tenant is removed by the landlord, because the tenant did not meet the obligations under their lease or other rental contract. Actual eviction is different from what is known as "constructive eviction." Constructive eviction means that the landlord hasn't upheld their end of the agreement, ultimately disturbing the tenant's possession of the leased premises because the premises are uninhabitable, unfit, or are unsuitable for the purpose for which the space was leased in the first place.

Example of options

Jane and Todd are a young couple just starting their family. They are not ready to buy a house of their own yet, but they found a home to rent in a desirable neighborhood with good schools, parks, and in close proximity to their jobs. They decided to ask their landlady, Sandy, about whether she planned to sell the home at some point in the future and if she would be willing to sell it to her tenants sometime in the future. Sandy does not have any immediate plans to sell the home she is renting to Jane and Todd, but she agrees to insert options into the lease giving Jane and Todd the right of first refusal for any future sale. This says that if Sandy decides to put her home up for sale in the future, she has to first offer it to Jane and Todd before selling it on the open market. If, when they asked her, Sandy had already been thinking about selling the home, she might have considered including a rent-to-own option in the lease instead of the right of first refusal. Under the rent-to-own option, Jane and Todd would pay rent to Sandy for a period of years, at the end of which they would have the option to purchase the house for a previously agreed-upon price. This is advantageous for Jane and Todd, who don't need to find somewhere else to live if they are enjoying living in the home they've been renting. It's also advantageous for Sandy as their landlady, because she doesn't need to go through the cost or hassle of listing and selling the home (assuming her tenants decide they want to exercise the option to purchase the house at the end of the pre-determined term.)

Examples of legal capacity to contract:

Jennifer is a mature, college-bound 17-year old who just graduated from high school. She and her best friend, Amy, who is 18-years old, have decided to rent an apartment together for the summer near their new college campus, so they can get to know the neighborhood and get settled in before classes start. They look at several properties, and finally find the perfect 2-bedroom apartment at a rental price they can afford to pay. Jennifer and Amy sign a lease agreement with Big College Apartment Company, Inc. Amy is 18-years old and has the legal capacity to sign a lease contract, however Jennifer does not, because she is only 17-years old. If the young women stopped paying rent or otherwise violated the lease, it's unlikely that the lease contract would be enforceable Let's change the facts a little bit, and assume that Jennifer and Amy are both 18-years old and mentally competent to sign a lease contract. On the day they plan to sign the lease for their new apartment, the normal property manager is out of the office unexpectedly. The administrative assistant decides to sign the lease agreement for her employer, Big College Apartment Company, Inc., thinking she's doing everyone a favor so Jennifer and Amy won't have to make another appointment to come back for the lease signing. Unfortunately, the administrative assistant has not been authorized to enter into contracts on behalf of the corporation. So, the lease agreement she signed is not valid

Example of a Triple Net Lease

John and Jane want to open a corner convenience store in their neighborhood. Working with their real estate agent, they found a perfect spot. Their realtor quotes them a very attractive rental price, which will help them get their store going faster. However, when they review the lease, they learn that they are also going to be responsible for arranging for, and paying for any maintenance or upkeep to the building while they are leasing it. They also need to pay the property taxes to the county twice a year, and they will be responsible for obtaining and maintaining a sufficient amount of commercial property coverage for the building. If they sign the lease, John and Jane will be entering into a triple net lease.

In exchange for rent payments from the lessee, the lessor agrees to provide a specific habitable unit to the lessee for a specific time period For example

John wants to rent an apartment in a building owned by Big Apartment Company, Inc. In order to be able to rent the apartment, he will need to sign a lease contract agreeing to pay a certain amount of rent every month in exchange for the keys and permission to live in and use the apartment Lease contracts are also used for commercial real estate leases, where a business owner wants to rent out office space or retail space to conduct their business

If the tenant damages the property during the term of the lease, or leaves it in such a condition that the landlord must clean it before renting it out again, the landlord can

Keep some or all of the security deposit

Michigan Truth in Renting Act

Lays out what must be included in a lease for it to be legally valid. In fact, in Michigan, there is a specific phrase that must be included in every lease for it to be valid, and it can't be relegated to the fine print, even the small print that is used in many other states to fit all the information on a single piece of legal size paper. No, the Truth in Renting Act requires that every Michigan lease includes the following phrase, placed in a prominent space and printed in at minimum a 12 point, bold, font type: "NOTICE: Michigan law establishes rights and obligations for parties to rental agreements. This agreement is required to comply with the Truth in Renting Act. If you have a question about the interpretation or legality of a provision of this agreement, you may want to seek assistance from a lawyer or other qualified person."

Percentage Lease

Lease on the property, the rental for which is determined by the amount of business done by the lessee; usually a percentage of gross receipts from the business with provisions for a minimum rent. A percentage lease is a lease on the property where the amount of rent is based on how much business the tenant brings in at that location on a monthly or annual basis. This is typically expressed as a percentage of gross receipts, although smart landlords will include a minimum, base rent amount. Percentage leases are commonly used by retail stores that lease space in shopping malls, strip malls, or other multi-tenant spaces. The owner can negotiate a percentage of the store's sales by attracting and leasing other tenants for nearby storefronts, with the idea being that customers of one store will be likely to visit another store/business while they're there shopping anyway.

A lease contract is a

Legal agreement, so it must be in writing, signed by both the lessor and the lessee (or their agents.) In the example above, John would sign the lease contract as the lessee and the apartment manager would sign on behalf of Big Apartment Company, Inc. as the company's authorized agent The parties must have the legal capacity to contract. In the case of the rental agent signing a lease contract on behalf of the corporation, he or she must be legally authorized to act in that capacity

George is new to town and is looking for somewhere to live. Carla is a homeowner who just accepted a ten-month position teaching English in Germany. If George decides to enter into a lease with Carla to live in her home while she is out of the country for that ten-month period, Carla is the "_____", and George is the "_____."

Lessor Lessee

In the language of leases, the property owner is called the _____, and the tenant signing the lease is referred to as the _____

Lessor Lessee

Example illustrating habitability #2:

Let's change the scenario a little bit now though, and assume that Adam is an attentive landlord and addresses any repairs or maintenance needed that his tenants report. Bob and Cindy have a leaky toilet in the upstairs bathroom of the home they are renting. They noticed the slow leak almost right away after it started, but they didn't call their landlord, Adam. Over the next several weeks, the leaking water caused significant damage to the floor of the bathroom and the ceiling below, which has started to crumble. Mold is also forming in the walls. Bob and Cindy's friend tells them about the covenant of habitability, and says they don't need to pay their rent because their landlord, Adam, isn't keeping the rental home in reasonable repair or in a habitable state. Do you think their friend is right? It would be one thing if they had reported the leaky toilet to Adam right away (or at any point) and he refused to fix it or simply ignored their request. However, Bob's and Cindy's own negligence caused the problem to render the home uninhabitable. Therefore, they do not have a legal claim and they are not within their right to withhold their rent payments.

Example of Graduated Leases

Let's say your city ended up closing one of its elementary schools last year due to low enrollment. As luck would have it, a local arts cooperative has outgrown its current space and is interested in leasing the now-vacant elementary school building to use for arts classes and performances. Having just received a major grant from a donor and being confident that they can continue to grow the arts community in the city, the cooperative decides to enter into a 20-year lease with the city for the space. Their lease provides that every five years, the rent will be increased by any corresponding increase in the Consumer Price Index.

The language of an "at will" lease or oral agreement can be very important. If an estate at will specifies that the lease continues at the will or desire of the tenant, the landlord

May not be able to terminate the lease, even for cause

Example of a Ground Lease

Mega Department Stores is expanding into your city and wants to find a spot to open their newest Mega Store. They explored available existing retail space, but did not find anything that would suit their needs. So, they began looking for land where they could build a new store. When they found a suitable plot of land on the edge of town, they negotiated with the landowner and ultimately ended up signing a lease rather than buying the property from her. The lease gives them the right to use the land they are leasing for the next 99 years, and to build on and improve the land with their new retail establishment. Mega Department Stores, as the lessee, is entirely responsible for the cost of construction, maintenance, upkeep, hazard insurance, and property taxes. In exchange, they pay a fixed rental amount to the lessor landowner. The lease provides that, every five years, the amount of rent will be adjusted for inflation. This provides protection to the landowner. Mega Department Stores has signed a ground lease to lease what will be the site of their newest store.

Under an estate for years, rent may be paid

Monthly, quarterly, annually, or in any other kind of installments spelled out in the lease Sometimes, the terms "fixed term tenancy" or "tenancy for years" are used interchangeably with "estate for years."

In order to be valid, legal contracts and agreements, like lease contracts, must include some other key components, including

Offer and acceptance, and consideration

There are a couple of instances when a landlord may keep a portion or all of the security deposit.

One of the reasons entitling a landlord to use the security deposit is for reimbursement for repairing damages caused by the tenant to the rental unit or common areas, due to inappropriate behavior that is not what one would reasonable expect in the course of regularly living in an apartment or house. The landlord can also use the security deposit to pay for unpaid rent from the lease, rent unpaid due to early termination of the lease, and for unpaid utility bills. In order to be able to charge the tenant for damages to the property the landlord must use an inventory checklist, and this must be carried out at the start of the tenant's occupancy of the rental unit and not just when they are leaving. The checklist needs to include all of the property in the rental unit that is owned by the landlord, such as carpeting, draperies, appliances, windows, furniture, walls, closets, shelves, paint, doors, plumbing fixtures and electrical fixtures, as well as anything else the landlord owns in the rental. The landlord has to give two copies of this checklist to the tenant, and the tenant then has 7 days to sign it and return it to the landlord. The checklist also has to have this notice written in a 12-point boldface font: "You should complete this checklist, noting the condition of the rental property, and return it to the landlord within 7 days after obtaining possession of the rental unit. You are also entitled to request and receive a copy of the last termination inventory checklist which shows what claims were chargeable to the last prior tenants." When the tenant leaves the rental unit, the landlord must provide an identical checklist inventory to the tenant that itemizes any damages that the landlord wishes to claim are the tenant's responsibility.

Example of an Oil and Gas Lease

Patty owns land in North Dakota that has been in her family for generations. When she is approached by Oil & Gas R Us, Inc., she isn't sure what kind of lease she should enter into with them to allow them to drill on her land. After researching her options and talking to her real estate and legal professionals, she decides to enter into an oil and gas lease with the company. The lease has a primary duration of five years, specifying that Oil & Gas R Us, Inc. must drill a well within that primary lease period. If they do follow through by drilling the well, then the lease will continue for a secondary period of ten years, or as long as the well continues to produce oil or gas, whichever is longer. In exchange for letting Oil & Gas R Us, Inc. drill and use a well on her property, Patty will receive an initial bonus payment up front and an annual, fixed payment during the lease term. She will also receive periodic royalty checks from what the well is actually producing from her land. She might also be able to negotiate for free gas for household use, during the term of the lease.

It's also important to note that, in most cases, an estate for years will automatically become a

Periodic estate when the first lease ends

The Michigan Landlord-Tenant Relationships Act. Popularly referred to as the Michigan Landlord-Tenant Act.

Primarily this law covers specific incidences when a tenant may terminate a lease early, as well as all of the rules regarding security deposits. The Michigan Landlord Tenant Act only applies to renting residential properties, and it does not seem to cover very complex topics. This law does place an enormous number of very specific rules on every aspect of the landlord tenant relationship.

The term of the lease may start on the day the lease is signed, but it could also be another day. If the lease is for a one-year period, the term of the lease will expire at the end of that one year. Typically, leases include

Provisions addressing whether and under what circumstances a lease term can be extended for another period Ex. Let's go back to our college students, Jennifer and Amy, and let's assume that everyone has legal capacity to enter into the lease agreement. They meet at the rental office on June 15 to sign their lease agreement. The lease term is for a one-year period, beginning at noon on July 1. This means that they can get the apartment keys and move in at noon on July 1, and they will have the right to live in and use the apartment space until June 30 of the following year, assuming they pay rent and otherwise meet the terms of the lease during that time period

Improvement example (ADA):

Remember that Debra signed a lease agreement to rent an apartment from Barbara, the owner of the property. While the apartment is clean and there are no obvious defects, Debra doesn't like the color of the paint on the walls. She also wants to replace the carpeting with laminate flooring. The principle of improvements says that Debra can make these modifications at her own expense, and with Barbara's permission to do so. Remember that Barbara is the property owner, so she holds veto power over making such cosmetic modifications or improvements. Assuming that Barbara agrees to allow Debra to make the improvements and recognizes that doing so may improve the market value of the unit, she may decide to give Debra a discount on her rent or some other type of concession. If Debra becomes disabled and is confined to a wheelchair, she can also make modifications such as installing a wheelchair ramp, modifying the bathroom, or widening doorway entries to accommodate the wheelchair, at her own expense.

Actual Eviction

The removal of a tenant by the landlord because the tenant breached a condition of a lease or another rental contract.

How landlord-tenant legislation is impacting real estate lease agreements, their principles, and their enforceability.

Some states have adopted the Uniform Residential Landlord and Tenant Act (URLTA), or some variation of it. The URLTA addresses issues including the landlord's right to enter leased property, as well as their right to use and maintain the property. The provisions of the act, where enacted, also give tenants some statutory protection against retaliatory actions by the landlord, and provide for legal remedies for each party in the event either the landlord or tenant defaults on their contractual obligations.

Landlord/tenant law is

State-driven so there are some state-specific nuances in certain cases

Let's go back to George and Carla in our example. If the lease they sign says that George can possess, occupy and use the real estate for ten months, this is an estate for years. If, after six months, George no longer wants to continue with the lease, he can

Surrender it and move out. However, the lease may provide Carla with legal remedies in this case

One of the most important components of a real estate lease contract is the

Term of the lease Simply put, the term of the lease is the period when the lessee (the tenant) has the right to occupy, possess and use the apartment, home or other space being rented

Example of a Gross Lease

Terry is an insurance agent and wants to rent out some office space in his neighborhood to set up his insurance agency. He works with a commercial real estate agent to find and tour several possible spaces that might meet his needs. His agent tells him that all of the office space in the area he is looking at renting is offered on a "gross lease" basis. When Terry finds the perfect space at the perfect monthly price, he is ready to sign the lease. Sure enough, the lease says that the landlord will pay for property taxes, property insurance, and ongoing maintenance/upkeep. The landlord will pay for the costs of heating and cooling the building, as well as the water bills, cleaning the building's common areas and parking lot, and paying for keeping the buildings facilities in good working order. Terry's insurance agency will be responsible for paying its own internet and telephone expenses, and for purchasing business insurance to cover the business property inside the leased space.

In the case of individual lessors and lessees, legal capacity to contract means

That the parties are at least 18 years old and have the mental capacity to understand what they are signing, and the implications of doing so

The customer will be the tenant. This means

That your fiduciary responsibility lies with the landlord. It is their interests that you must concentrate most on protecting. In general, a lease is a contract that is meant to protect the interests of both signing parties, the landlord and the tenant. That is true in Michigan however; the Truth in Renting Act primarily serves to protect the interest of the tenant, and not the landlord. The majority of the provisions that must be included, and those that are prohibited, overwhelmingly protect the interest of the renter. This is why it's your responsibility to really understand what this means, so that you can best protect the interests of your client, the landlord. By fully understanding the Truth in Renting Act, you'll be able to explain what the responsibilities a landlord has to their tenant, the rights a tenant has when they rent a property in Michigan, and you'll be able to make sure that the lease that your client uses meets the regulations set forth by the Truth in Renting Act, ensuring that it will also protect all of the landlord's rights that are guaranteed under Michigan law. In addition to the notice, the Truth in Renting Act also requires that the lease lists the name and mailing address of the landlord. While creating a lease that properly follows the guidelines of the Truth in Renting Act means including a number of additional elements. The actual elements focus more on what cannot be included in the lease.

The two main situations you should be aware of still require a 60-days written notice to the landlord. This would provide the landlord a fair amount of lead time to try and find a replacement tenant, however, even if they are unable to, the departing tenant will not be responsible for the remainder of the lease. There are two instances when a tenant may terminate their lease.

The first one is if a tenant has become eligible to move into an apartment in senior citizen housing that is subsidized by the government (be it with local, state, or federal funds). In this instance, the tenant must provide the landlord with written proof that they are eligible for this housing. The second instance is if a tenant becomes incapable of living independently and a notarized statement from a doctor is provided to the landlord stating the aforementioned fact. There is one other situation in which a tenant may terminate a lease early, and this situation does not require that the tenant have occupied the rental unit for at least 13 months. If a tenant "has reasonable apprehension" that they, or their children, are in present danger from domestic violence, sexual assault, or stalking, then they may terminate the lease. All of the legal implications and procedures of this possibility are quite complex, and it's best to consult the specific section, 554.601b of the Michigan Landlord Tenant Relationships Act if you ever find yourself with a client or customer facing this situation. However, it's good to note, that a Michigan lease should contain the following clause in reference to this possibility: "A tenant who has a reasonable apprehension of present danger to him or her, or his or her child, from domestic violence, sexual assault, or stalking may have special statutory rights to seek a release of rental obligation under MCL 554.601b." If this is not contained in the lease, then this statement must be posted so it is easily visible in the property management office, or given as a written notice at the time the lease is signed.

The next principle or covenant of residential leases we will examine in this lesson is known as "habitability."

The implied covenant of habitability means that the landlord leasing space to a tenant is expected to take whatever action is necessary, at the landlord's own expense, to provide their tenants with a habitable dwelling unit. This means that the landlord is required to keep the premises in reasonable repair, and must comply with all health and safety codes. One exception to this obligation is if the tenant is somehow responsible for damage through malicious, willful or simply irresponsible actions. It doesn't matter what the landlord (or the tenant) includes in the lease; the parties cannot agree to do away with the covenant of habitability. The landlord is also not absolved of their responsibility to provide a habitable dwelling unit simply because they allow the tenant to inspect the premises before taking possession.

Michigan law requires that a rented residential property must be habitable, and the Truth in Renting Act forbids a clause that shifts responsibility for making sure a property is habitable from the landlord to the tenant. It also prohibits the landlord for setting their own conditions for a security deposit which contradicts any of the specific Michigan laws which regulate this.

The lease may not require a tenant to waive their right to legal proceedings against the landlord, nor can it make them responsible for the landlord's court costs. The landlord may not require the tenant give them power of attorney or declare they have a right to seize personal property for outstanding payments. The lease must follow legal eviction procedures, and it lays out in what ways rent can be collected at an accelerated rate or the circumstances and procedures by which it can be increased. The law does not allow the landlord to make any changes to the terms of the lease without the written consent of the tenant. It cannot violate any Michigan laws, such as federal laws or consumer protection laws.

The Truth in Renting Act by examining what a strong Michigan lease should include in addition to the notice stating that the lease is subject to the Truth in Renting Act and mailing address of the landlord.

The lease should include the address of the property that is being rented, the landlord and tenant's name and signatures. It should state the details of the rent: how much, the frequency and location of payment. It should state who is responsible for the utilities, maintenance and repairs. It should run through the details for potential eviction procedures. It should also include a start and end date of the lease. It must let the tenant know that they are required to provide the landlord with a forwarding address within four days of ending the tenancy to follow Michigan security deposit procedures, as well as any other terms of a security deposit such as: how much the deposit is and the name and address of the bank where the security deposit is held. It should include any other additional terms that the landlord and tenant agree to, that have been carefully checked to make sure that they do not violate the Truth in Renting Act in any way.

The offer and acceptance simply means that

The lessor (the landlord) is offering to rent the apartment, home or other space to the lessee (the tenant), on the terms spelled out in the agreement The acceptance is the lessee's (or tenant's) signing the lease contract, agreeing to be bound by its terms

Estate at Will

The occupation of lands and tenements by a tenant for an indefinite period, terminable by one or both parties

The "Lessor" is the landlord

The person who is actually allowing someone else to possess, occupy and use his or her real property - One who contracts to rent, occupy, and use property under a lease agreement; a tenant

Consideration for a legal agreement like a lease contract refers to

The rent for the apartment or other space. There may also be a security deposit required as part of the agreement's term So, if Jennifer and Amy in our above example enter into a lease contract with Big College Apartment Company, Inc. to rent apartment number 101, the lease would begin with something similar to the following language: "This lease agreement is entered into between Jennifer Sample and Amy Example ("tenants") and Big College Apartment Company, Inc. ("landlord.") Landlord owns real property situated in College City, CA with a street address of 1234 College Lane, College City, CA 12345. Landlord intends to lease unit #101 to tenants on the terms and conditions of this agreement. For valuable consideration, the receipt of which landlord acknowledges, the parties agree to the following..."

Leases generally give the tenant certain options. The most common of these is

The right to renew the lease for another, similar term, or to extend the original lease term with a periodic tenancy (such as a month-to-month rental arrangement.) Leases for real estate may also give the tenant an option to purchase the property. If they choose to exercise that option within the time period specified in the lease, they can do so at a pre-determined purchase price. Another common option in a residential real estate contract for single-family homes is a right of first refusal. This means that if the landlord decides to put the house up for sale on the market, the tenant will have the first right to purchase the property before the general public has that chance.

"Estate at Sufferance." Sometimes, this is also referred to as a "tenancy at sufferance" or a "holdover tenancy." An estate at sufferance arises when

There was a lease in place, but the tenant did not renew the lease and did not move out when the lease expired. Instead, he or she continued occupying the space and continued paying the same rent as before

The final point is regarding instances when the interest the landlord has in the security deposit must be terminated. This would happen if the landlord died, sold the property, assigned a guardian, or various other circumstances. In such cases, one of three things must happen. The security deposit is transferred to the landlord's successor, and the tenant is notified of this, along with the new landlord name and address. The new landlord or representative can follow all of the rules regarding notification.

These are a whole lot of rules, and as you can see it is very dry material. However, that also means that there are a whole lot of nitpicky requirements, and if they are not followed precisely, down to the proper size of the font, then it is a very real possibility that your clients will find themselves footing the bill for damages that their tenants caused, or worse, they may even be financially responsible for additional damages, such as a doubled security deposit.

Under an estate at sufferance, the landlord has a couple of choices

They could decide to treat the tenant as a trespasser and go to court to have the tenant evicted. However, another option is to simply accept the tenant for another similar term (i.e. another month or another year), under the same conditions as specified under the original lease. If the landlord had told the tenant that the rent was going up before the original lease expired, the landlord can charge the higher rent for the holdover tenant

Oil and Gas Lease

Under an oil and gas lease, the lessor (landowner) and the lessee (the oil and gas company) agree that the lessee will have access to the oil and gas on the lessor's property. These types of leases are usually for a set time period. Leases should clearly spell out the description of the property, what the lease allows the lessee to do, how much the lessee will pay the lessor, and how long the lease will remain in force. When it comes to payments and compensation, oil and gas leases typically provide for three types of payment. First, the lessee might pay the landowner a "bonus payment" up-front. Second, oil and gas leases generally provide for an annual, fixed rent payment. Finally, oil and gas leases often include "royalty clauses", which say that the landowner will get a percentage of the profits from the lessee's drilling on their land. Usually, if drilling is underway when the lease period is set to expire and oil or gas is being produced, the lease will remain in effect.

Example of Single Net Lease

Using our example from earlier, Terry's lease would have been a single net lease if his rent included a fixed monthly rental amount plus a prorated amount for property taxes based on the square footage of the office space Terry rented.

Typically, an estate for years lasts at least one year. At the end of the pre-determined time period, the lessee (the tenant) must

Vacate the property. In some cases, the tenant may be able to surrender their lease, which means voluntarily giving up their rights to occupy, possess and use the land, before the end of the lease

Landlords should make sure that lease agreements include other limitations and restrictions, if there are things they don't want their tenants to do in the rented space. If there are no restrictions specified, tenants are

Well within their legal rights to use the leased property for any lawful purpose

A tenant's rights and responsibilities for the property can also be terminated or modified through the process of assignment or by subleasing the rental home or unit. Let's spend a moment exploring these concepts, as they are similar, but have some key differences.

When a tenant assigns their obligations and rights under a real estate lease to someone else, they are effectively terminating their own involvement in the lease. The assignee, or the new tenant, becomes responsible for upholding the tenant's end of the lease. If the new tenant defaults, the landlord will pursue action against the new tenant. In contrast, subleasing real estate, works a little bit different. With a sublease, the original lease between the landlord and original tenant remains in effect. A sublease allows the tenant to enter into their own lease agreement for the space with another tenant (called the sublessee), often for a short period of time. The sublessee pays the original tenant. The original tenant is the one who is still responsible for making rent payments to the landlord, and for ensuring the use of the space complies with the requirements of the lease. If the rent isn't paid, or if the sublessee damages the space, the original tenant (the sublessor) will be responsible under the terms of the original lease.

The first principle that comes with leasing real estate is possession, which is

When someone contracts with a property owner to lease the real estate from them, one of the benefits they are getting is the right to possess the unit or parcel being leased. Possession also entitles the tenant to what is known as the "covenant of quiet enjoyment." This covenant essentially says that the tenant has the lawful right to possess the land, and that the landlord cannot substantially interfere with the tenant's right during the term of the lease. If this right is violated, the tenant may have legal standing to claim damages. Of course, there are always situations where the landlord will need to be able to enter the premises. For example, making needed repairs, performing maintenance, conducting inspections required or permitted by law, or showing the property or unit to other prospective tenants. The lease should clearly spell out how, and under what kind of circumstances, the landlord is authorized to enter the premises being leased by the tenant.

A tenant has an implied right to make improvements to the property, with the landlord's permission:

When specific improvement provisions are included in the lease, they are sometimes referred to as "leasehold improvements" or "tenant improvements." This is common in commercial leases, under which business tenants may also install trade fixtures or otherwise customize the space to suit their needs, with their landlord's permission. The terms of the lease agreement may be used to allow the tenant some sort of concession, such as a reduction in rent, for making improvements. Tenants with disabilities are also allowed to make reasonable accommodations to the property at their own expense, in order to make the property handicapped-accessible. Note that in the case of commercial property, the landlord may be required by law to make certain improvements to bring the property into compliance with the Americans with Disabilities Act (ADA.)

Why is it so important to be familiar with Michigan Truth in Renting Act

When you are learning to be a real estate salesperson, a lot of the focus of lessons is on the sale of real property. And this is a large part of what people think of when they think of the role of a real estate agent. However, rentals are also an important part of the job. Whatever you end up specializing in, it is important to know how to properly make a rental lease. Plus don't forget that rentals are a lucrative, common way, for new real estate salespeople to get started. When you are working to rent an apartment, most often your client will be the landlord, the property owner, who wants to rent an apartment or house to a tenant.

The "Lessee" is the tenant

Who contracts with the lessor for the right to possess, occupy and use the real estate - An owner who enters into a lease agreement with a tenant; a landlord

Even if the landlord has followed all of the rules (including the correct font size and boldness) they still are not necessarily entitled to keep any of the security deposit. In the case of security deposit that has been withheld for damages, they will still have to file an action in a court, and they have 45 days from the time the tenant leaves the property to do this.

You should note, that if the tenant waits the full 4 days to provide a forwarding address, and then the landlord waits the full 30 days to provide an inventory, and then there is the wait for a tenant's response letter to be delivered, then it is very likely that the full 45 days could expire. For that reason, you should urge you clients to submit itemized damages along with remaining portions of the security deposit as soon as possible so as to be able to make a claim, should they wish to file for damages. If the landlord keeps part, or all, of the security deposit, but does not follow all of the rules, then the landlord could find themselves owing the tenant double the amount of the security deposit! However, there are circumstances when the landlord will not need to file the court action within 45 days to be entitled to the security deposit that they state they are owed. Such circumstance are: if the tenant does not provide a forwarding address, if the tenant does not respond to the notice of damages, if the tenant and the landlord agree to what portion of the security deposit the landlord will keep and what will be returned to the tenant, or if the amount of the security deposit that the landlord withheld is entirely in payment of due rent from when the tenant had possession of the unit.