Chapter 7

Default by tenant

-Maintain the premises -failure to pay rent -cancellation; -damages; - suit for possession; must give proper notice

Ground lease is primarily used in three circumstances

-an owner wishes to leave raw land to an agricultural or mining interest -unimproved property is to be developed and either the owner wants to retain ownership of the land, or the developer or future users of the property do not want to own the land -the owner of an improved property wishes to sell an interest in the improvements while retaining ownership of the underlying land.

Four principal types of leasehold estate

-estate for years -estate from period-to-period -estate at will -estate at sufferance

Tenants Rights

-exclusive possession and occupancy -exclusive use -quiet enjoyment -profits from use

Differences between residential and commercial + other types of leases in that:

-lease terms are shorter, typically one or two years -lease clauses are fairly standard from one property to the next, in order to reflect compliance with local landlord-tenant relations laws -lease clauses are generally not negotiable, particularly in larger apartment complexes where owners want uniform leases for all residents.

Important features of commercial leases:

-long term, ranging up to 25 years -require tenant improvements to meet particular usage needs -virtually all lease clauses are negotiable due to the financial magnitude of the transaction. -default can have serious financial consequences: therefore, lease clauses must express all points of agreement and be very precise.

general contract requirements for a valid lease: Parties

-parties must be able to enter agreements and meet certain requirements -

Tenants Obligations

-pay rent on time -maintain the property's condition -comply with the rules and regulations of the building

Landlord's obligations

-provide the necessary building support and services -maintain the condition of the property

Landlord's rights

-receive rent -re-possess the property following the lease term -monitor the tenant's obligations to maintain the premises

Default by landlord

-suit for constructive eviction; -must vacate premises to uphold -failure to provide services and maintain property condition -constructive eviction

general contract requirements for a valid lease: Consideration

-the lease contract must be accompanies by consideration to the landlord for the rights conveyed.

Examples of a rights lease

-where a railroad wants to erect a bridge over a thoroughfare owned by a municipality. The railroad must obtain an air rights agreement of some kind, whether it be an easement, a purchase, or a lease, before it can construct the bridge. -an owner of land that has deposits of coal might lease the mineral rights to a mining company, giving the mining company the limited right to extract the coal. The rights lease may be very specific, stating how much of a mineral or other resource may be extracted, how the rights may be exercised , for what period of time, and on what portions of the property.

Constructive eviction

Actions of a landlord that so materially disturb or impair a tenant's enjoyment of the leased premises that the tenant is effectively forced to move out and terminate the lease without liability for any further rent.

Causes for lease termination: property destruction

Destruction of property is grounds for terminating

Lease term

In the absence of an explicit term with beginning and ending date, a court will generally construe the lease to be a tenancy at will, cancelable upon proper notice.

Repairs and mainenance

Repairs and maintenance provisions define the landlord's and tenant's respective responsibilities for property repairs and maintenance. Generally the tenant is responsible for routine maintenance of the premises while landlord is responsible for general repairs. in residential leases, landlord is responsible for major repairs and capital improvements. payment of repairs and maintenance costs, however, is entirely negotiable between the two.

Exemptions

State laws based on URLTA generally do not apply to transient occupancies, such as hotel and motel rentals, proprietary leases in cooperatives, or to occupancy in a residence that is under a contract for deed.

Subletting and assignment

Tenant transfers to a third party all the property for a period less than the remaining time of the lease or part of the property for part or all of the remaining term of the lease. Also known as assignment.

general contract requirements for a valid lease: property description

The lease must identify the property by legal description or other locally accepted reference

Leasing of rights

The practice of leasing property rights other than the rights to exclusive occupancy and possession occurs most commonly in the leasing of water rights, air rights, and mineral rights. an owner of land that has deposits of coal might lease the mineral rights to a mining company, giving the mining company the limited right to extract the coal. The rights lease may be very specific, stating how much of a mineral or other resource may be extracted, how the rights may be exercised , for what period of time, and on what portions of the property.

Access

URLTA attempts to balance the landlord's right to access the premises with the tenant's right of quiet enjoyment. The landlord has the right to enter the premises at any time when acting to prevent damage or destruction

Default and eviction

URLTA attempts to establish equitable procedures for dealing with lease defaults. If the landlord defaults, a tenant may sue for damages, terminate the agreement, or negotiate a rent abatement.

Lease agreements: URLTA

URLTA sets standards for improving oral, vague, or unbalanced lease agreements. The law's positions on these issues are: -unclear lease term; becomes a periodic tenancy -rent amount; fair market value or court's opinion -waiving of rights: certain rights cannot be waived

commercial lease

a commercial lease may be a net, gross, or percentage lease, if the tenant is a retail business. As a rule, a commercial lease is a significant and complex business proposition. It may involve hundreds of thousands of dollars for improving the property to the tenant's specifications. Since the lease terms are often long, total rent liabilities for the tenant can easily be millions of dollars.

damage and destruction

a damage and destruction provision defines the rights and obligations of the parties in the event the leased premises are damaged or destroyed. state laws regulate such provisions.

Causes for lease termination: foreclosure

a foreclosure extinguishes all prior interests in a property, including a leasehold

gross lease

a gross lease, or full service lease, requires the landlord to pay the property's operating expenses, including utilities, repairs, and maintenance, while the tenant pays only rent. rent levels under a gross lease are higher than under a net lease, since the landlord recoups expense outlays in the form of added rent.

Ground lease

a ground lease, or land lease, concerns the land portion of a real property. The owner grants the tenant a leasehold interest in the land only, in exchange for rent

Landlord's obligations: URLTA

a landlord must -bargain in good faith -provide required maintenance -make repairs -comply with local building codes -provide access and safety services; elevator; fire escapes; etc. -provide a procedure for delivery of official notices

Remedies for default

a landlord or tenant who violates any of the terms and covenants of the lease has breached the contract and is in default. In the event of a default, the damaged party may pursue court action, including suing for -damages -cancellations of lease -specific performance ex: tenant says he will replace carpet, doesnt, gets "sued", new carpet placed

improvements and alterations

a landlord typically wants to prevent a tenant from making alterations that later tenants may not desire. a tenant who pays for an improvement wants to know who will own it at the end of the lease term.

Uniform Residential Landlord and Tenant Act (URLTA)

a model law enacted as a blueprint for state laws to regulate leasing and management practices of landlords with residential properties. The act aims to: -equalize and standardize rights of landlord and tenant -protect tenants form unethical practices -prevent unfair, complex leases and their enforceability One important effect is that it prompted legislation at the state level that empowered the courts to nullify residential leases that violated URLTA guidelines, particularly where a lease gave unfair advantage to the landlord.

net lease

a net lease requires a tenant to pay for utilities, internal repairs, and a proportionate share of taxes, insurance, and operating expenses in addition to rent. in effect, the landlord "passes through" actual property expenses to the tenant rather than charging a higher rent level. it varies. common for office and industrial properties.

Proprietary lease

a proprietary lease conveys a leasehold interest to an owner of a cooperative. The proprietary lease does not stipulate rent, as the rent is equal to the owner's share of the periodic expenses of the entire cooperative. The term of the lease is likewise unspecified, as it coincides with the ownership period of the cooperative tenant: when an interest is sold, the proprietary lease for the seller's unit is assigned to the new buyer.

Lease clauses: rent and security deposit

a rent clause stipulates the time, placement manner and amount of rent payment

Residential lease

a residential lease may be a net lease or a gross lease. Usually, it is a form of gross lease in which the landlord pays all property expenses except the tenant's utilities and water. Since residential leases tend to be short in term, tenants cannot be expected to pay for major repairs and improvements. The landlord, rather absorbs these expenses and recoups the outlays through higher rent.

Causes for lease termination: condemnation

a taking by eminent domain proceedings generally terminates a lease

Tenant's obligations: URLTA

a tenant must -bargain in good faith with the tenant -maintain the condition of the leased premises -abide by (legitimate) rules and regulations of the building -refrain from abusing or causing destruction to the property -limit uses to those approved -avoid unduly disturbing other tenants

rules and regulations

a tenant must abide by all usage restrictions imposed by the lease's rules and regulations for the property. These rules aim to protect the property's condition as well as the rights of other tenants.

Death of tenant or landlord

a tenants estate remains liable for payment of rent if the tenant dies; the landlord's estate remains bound to provide occupancy despite the landlord's death.

Percentage lease

allows the landlord to share in the income generated from the use of the property. a tenant pays percentage rent, or an amount of rent equal to a percentage of the tenants periodic gross sales. The percentage may be: - a fixed percent of gross revenue without a minimum rent -a fixed minimum rent plus an additional percent of gross sales -a percentage rent or minimum rent, whichever is greater *only used for retail properties*

Causes for lease termination: Voluntary agreement

both parties can agree to terminate a leased at any time

Causes for lease termination: Breach or default

breach of contract or default, as previously discussed, may terminate a lease

Conveyance of leased property

buyers and creditors must take their respective interests subject to the terms of the lease

Causes for lease termination: death of tenant or landlord, with qualifications

death of either tenant or landlord

general contract requirements for a valid lease: oral versus written form

generally, a lease for a period exceeding one year, cannot be oral but must be in writing to be enforceable because of the statute of frauds

estate for years

has a specific lease term

estate at will

has no specified lease term

Causes for lease termination: abandonment

if a tenant abandons a leased property and demonstrates no intention of fulfilling the obligations of the lease, the landlord may re-take possession and pursue legal resources for default. In such a case, tenant remains liable for payment of rent.

Causes for lease termination: term expiration

in a tenancy for years the lease automatically terminates at the end of the lease term

options

option clause offers a tenant the opportunity to choose a course of action at some time in the future under certain terms. typical options are the right to renew the lease, buy the property, and lease additional adjacent space. a tenant does not have to exercise an option, but the landlord must comply if the tenant does exercise it.

URLTA legislation

primarily addresses the lease contract, deposits and advances, obligations of landlord and tenant, the landlord's rights of access, and standards for eviction

Causes for lease termination: notice

proper notice by either party may terminate a periodic leasehold, or a tenancy at will

Deposit and advance: URLTA

requires leases to be clear about: -maximum deposit amount -the tenant's right to earn interest on the deposit -commingling deposit or advance with other monies -deadline for returning deposits -procedures and criteria for return of the deposit to the tenant

estate at sufferance

tenancy without consent

general contract requirements for a valid lease: legal and permitted use

the intended use of property must be legal. a use that is legal but not permitted does not invalidate the lease but constitutes grounds for default.

general contract requirements for a valid lease: exclusive possession

the landlord must provide an irrevocable right to exclusive possession during the lease term, provided the tenant meets all obligations

general contract requirements for a valid lease: signatures

the landlord must sign the lease to convey the leasehold interest.

estate from period-to-period

the lease term automatically renews

general contract requirements for a valid lease: offer and acceptance

the parties must ac kept the lease, and communicate the acceptance to the other party.