Chapter 9 Leases
URLTA on Exemptions
-URLTA state laws 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
State Contract: Oral versus written lease
-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 -oral lease or rental agreement is legally construed to be a tenancy at will, having no specified term -an oral lease terminates on the death of either principal party -clauses of lease define contractual relationship between landlord and tenant
Percentage lease
-allows landlord to share in the income generated from use of the property -tenant pays percentage rent, or an amount of rent equal to a percentage of the tenant's periodic gross sales -usually for retail properties -percentage rent may be: fixed percent of gross revenue without a minimum fixed minimum rent plus an additional percent of gross sales percentage rent or minimum rent, whichever is greater
URLTA on Access
-attempts to balance the landlord's right to access the premises with the tenant's right of quiet enjoyment -landlord has the right to enter the premises at any time when acting to prevent damage or destruction; to make repairs or show the property, on giving proper notice -if purpose is not arbitrary and time IS reasonable, the tenant may not refuse the landlord entry for acceptable reasons such as emergencies, repairs, inspections, and showings
URLTA Default and Eviction
-attempts to establish equitable procedures for dealing with lease defaults -If landlord defaults, a tenant may sue for damages, terminate the agreement, or negotiate a rent abatement. Tenants generally are not released of liability for rent during a dispute; rents, however, may be paid to a court impound pending judgment -If a tenant defaults, the landlord may terminate and evict, provided proper notice is made and the landlord can justify the cause for the action
ground lease, or land lease
-concerns the land portion of a real property -owner grants the tenant a leasehold interest in the land only, in exchange for rent -primarily used in three circumstances: >owner wishes to lease 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 -ground lease offers owners, developers, and users various financing, appreciation, and tax advantages -ground lease lessor can take advantage of the increase in value of the land due to the new improvements developed on it, without incurring the risks of developing and owning the improvements -Land leases executed for the purpose of development or to segregate ownership of land from ownership of improvements are inherently long term leases, often ranging from thirty to fifty years
Proprietary lease
-conveys a leasehold interest to an owner of a cooperative -proprietary lease does not stipulate rent, as rent is equal to owner's share of the periodic expenses of the entire cooperative -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.
legal essence of a valid lease
-conveys exclusive right to use and occupy property for limited period of time in exchange for rent and the return of the property after lease term is over -lease becomes a binding agreement when the parties accept the terms of agreement and communicate their agreement to the other party
Tenant's rights and obligations
-exclusive possession and occupancy -exclusive use -quiet enjoyment and profits from use -tenant has sole right to occupy and use premises without interference from outside parties/landlord, landlord may enter premises for specified purposes such as inspections, but the interference must be reasonable and limited
Improvements and alterations clause
-identifies necessary permissions and procedures, and who owns improvements - most commonly, tenant improvements become property of landlord in absence of an express agreement beforehand
Termination of Lease: Abandonment
-if tenant abandons leased property and demonstrates no intention of fulfilling obligations of lease, landlord may re-take possession and pursue legal resources for default; -tenant remains liable for payment of rent -landlord has option of terminating lease, which releases tenant from responsibility for rent -landlord may be able to sue for damages and at the same time re-let the property
State Contract: Legal and permitted use
-intended use of the property must be legal. -use that is legal but not permitted does not invalidate the lease but constitutes grounds for default
State Contract: Signatures
-landlord must sign lease to convey the leasehold interest -A tenant need not sign the lease, although it is prudent to do so in order to enforce the terms of the lease. -Multiple tenants who sign a single lease are jointly and severally responsible for fulfilling lease obligations (if one renter abandons an apartment, the other renters remain liable for rent)
default
-landlord or tenant who violates any of the terms and covenants of the lease has breached the contract and is in default -the damaged party may pursue court action, including suing for damages' cancellation of the lease, specific performance
State Contract: Consideration
-lease contract must be accompanied by consideration to the landlord for the rights conveyed. -how consideration is paid does not affect the lease's validity, if parties comply with the terms of the lease
Termination of Lease: Death of tenant or landlord, with qualifications
-lease for tenancy at will terminates on the death of either landlord or tenant; -lease also terminates in death of landlord if landlord held life estate interest in property, since landlord could not have conveyed an interest that extended beyond his or her own interest -Except in circumstances mentioned, a lease does not terminate on the death of the landlord or tenant. -Sale of the property also does not terminate a lease
Leasing of rights
-leasing of exclusive occupancy and possession occurs most commonly in the leasing of water rights, air rights, and mineral rights. -example, an owner of land that has deposits of coal might lease mineral rights to a mining company, giving 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. The lessee's rights do not include common leasehold interests such as occupancy, exclusion, quiet enjoyment, or possession of the leased premises)
Residential lease
-may be a net lease or a gross lease -a form of gross lease, when 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, so landlord absorbs these expenses and recoups the outlays through higher rent
Commercial lease
-may be net, gross, or percentage lease (if the tenant is a retail business) -significant and complex business propositions that may involve hundreds of thousands of dollars for improving the property to the tenant's specifications -when lease terms are often long, total rent liabilities for the tenant can easily be millions of dollars -long term lease, ranging up to 25 years -require tenant improvements to meet particular usage needs -all lease clauses are negotiable due to financial magnitude of transaction -default can have serious financial consequences -lease clauses must express all points of agreement very precisely
Default by landlord and constructive eviction
-most common form is failure to provide services and maintain property condition -tenants may sue for damages and in an instance where landlord's negligence has made property unoccupiable, a tenant may vacate premises and declare the lease "cancelled by default" (constructive eviction, can nullify the tenant's lease obligations if the claim succeeds in court) -In order to obtain judgment, tenant must vacate premises -(example, landlord will not repair roof and will not allow an office tenant to make the repair and deduct the cost from the rent. A thunderstorm soaks the suite and ruins several pieces of office equipment, by refusing to act, the landlord has breached the lease covenant to maintain the premises. The tenant moves out, claiming the lease null and void. The tenant also sues the landlord for damages to the equipment and for recovery of relocation expenses.)
default by tenant
-occurs most commonly from failure to pay rent or maintain premises -the landlord may file a suit for possession/a suit for eviction and if successful, landlord can repossess property and evict the tenant -landlord also has the right to sue for damages -before filing, landlord must give the tenant proper notice to pay monies due or otherwise cure the default before a deadline or else vacate the premises -if deadline passes, landlord may file suit and obtain a judgment for possession, landlord may obtain an order directing the sheriff to complete the eviction, forcibly if necessary
Repairs and maintenance clause
-provisions define the landlord's and tenant's respective responsibilities for property repairs and maintenance -generally, tenant is responsible for routine maintenance of 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 is entirely negotiable between landlord and tenant
full service lease/gross lease
-requires landlord to pay property's operating expenses, including utilities, repairs, and maintenance, whiletenant pays only rent -rent levels are higher since landlord recoups expense outlays in the form of added rent -common for office and industrial properties -residential leases are usually gross leases with exception that tenants often pay utilities expenses
URLTA on Deposit and Advance
-requires leases to be clear about: maximum deposit amount 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 tenant -applies to how landlords can handle deposits and advances, state laws also strictly regulate how brokers and agents may handle tenant monies
Net lease
-requires tenant to pay for utilities, internal repairs, and a proportionate share of taxes, insurance, and operating expenses in addition to rent -landlord "passes through" actual property expenses to tenant rather than charging a higher rent level -vary as to exactly what expenses tenant is responsible for -an extreme net lease requires tenants to cover all expenses, including major repairs and property taxes -common for office and industrial properties, sometimes also used for single family dwellings
Residential Leases vs Commercail Leases
-residential lease terms are shorter, typically one or two years; -residential lease clauses are fairly standard from one property to the next, in order to reflect compliance with local landlord -residential tenant relations laws differ -residential lease clauses are generally not negotiable, particularly in larger apartment complexes where owners want uniform leases for all residents
URLTA in Lease Agreements
-sets standards for improving oral, vague, or unbalanced lease agreements -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
Rent and security deposit clause
-stipulates time, place, manner and amount of rent payment -defines any grace period that is allowed, and states the penalties for delinquency -lease may also call for security deposit to protect against losses from property damage or tenant's default -State law regulates where it is deposited, and whether the tenant receives interest on the deposit. -landlord may require additional financial security from a tenant of dubious creditworthiness in form of personal guarantees, third party guarantees, or pledges of other property as collateral
Subletting (subleasing) clause
-the transfer by a tenant, the sublessor, of a portion of the leasehold interest to another party, the sublessee, through the execution of a sublease. -sublease spells out all rights and obligations of the sublessor and sublessee, including the payment of rent to the sublessor -sublessor remains primarily liable for the original lease with the landlord -subtenant is liable only to the sublessor - Exp. sublessor subleases portion of occupied premises for a portion of remaining term, sublessee pays sublease rent to sublessor, who in turn pays lease rent to landlord -all leases clarify rights and restrictions of tenant regarding subleasing and assigning leaseholds, usually landlord cannot prohibit either act, but tenant must obtain landlord's written approval
assignment of lease
-transfer of the entire leasehold interest by a tenant (assignor), to a third party (assignee) -not a second lease -assignor retains no residual rights of occupancy or other leasehold rights unless expressly stated in assignment agreement -assignee becomes primarily liable for the lease and rent, the assignor remains secondarily liable -assignee pays rent directly to the landlord
URLTA on Landlord's Obligations
A landlord must: bargain in good faith with the tenant 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-
Termination of Lease: Condemnation
A taking by eminent domain proceedings generally terminates a lease.
URLTA on Tenant's Obligations
A tenant must: bargain in good faith 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
Termination of Lease: Voluntary agreement
Both parties can agree to terminate a lease at any time.
Termination of Lease: Breach or default
Breach of contract or default may terminate a lease
Termination of Lease: Property destruction
Destruction of the property is grounds for terminating lease obligations.
State law requirements for valid lease:
Parties, property description, exclusive possession, legal and permitted use, consideration, offer ad acceptance, signatures, rent & security deposits
Termination of Lease: Notice
Proper notice by either party may terminate a periodic leasehold, or a tenancy at will.
estate at sufferance
a tenancy without consent (Nuance: Only time it might not be in landlords interests to accept rent payment.)
Lease
both an instrument of conveyance and a contract between principal parties to uphold certain covenants and obligations. As a conveyance, a lease conveys an interest, called the leasehold estate, but does not convey legal title to the property. For this reason, a leasehold is also called a less-than-freehold estate.
suit for specific performance
compels the defaulting party to perform the contract obligation that was breached (example, if landlord fails to replace carpeting as promised in lease, tenant can sue to obtain landlord's specific performance of installing a new carpet)
URLTA aims to:
equalize and standardize rights of landlord and tenant protect tenants from unethical practices prevent unfair, complex leases and their enforceability
four principal types of leasehold estate:
estate for years, estate from period-to-period, estate at will, estate at sufferance
Termination of Lease: Foreclosure
extinguishes all prior interests in a property, including a leasehold.
estate for years
has a specific lease term (Nuance: Can be for far less than one year. Just has to be defined. (I.E 30 days)
estate at will
has no specified lease term (Nuance: Only lease type terminated by the death of either party.)
Termination of Lease: Term expiration
in a tenancy for years, the lease automatically terminates at the end of the lease term
Lease term clause
in absence of explicit term with beginning and ending date, court will generally construe lease to be a tenancy at will, cancelable upon proper notice
leasehold estate
landlord acquires a leased fee estate, rights to: -receive rent -re-possess the property following the lease term -monitor the tenant's obligations to maintain premises
Conveyance of leased property
landlord may sell, assign, or mortgage the leased fee interest transferring and encumbering leased property do not extinguish obligations and covenants of a lease (Buyers and creditors must take their respective interests subject to the terms of the lease)
State Contract: Exclusive possession
landlord must provide an irrevocable right to exclusive possession during lease term, provided the tenant meets all obligations
In a lease arrangement: owner
landlord, or lessor,
State Contract: Property description
lease must identify the property by legal description or other locally accepted reference
URLTA in Areas of Regulation
legislation primarily addresses the lease contract, deposits and advances, obligations of landlord and tenant, the landlord's rights of access, and standards for eviction.
Uniform Residential Landlord and Tenant Act (URLTA)
model law enacted as a blueprint for state laws to regulate leasing and management practices of landlords with residential properties
Death of tenant or landlord
obligations survive death of the landlord or tenant -A tenant's 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
Options clause
offers a tenant the opportunity to choose a course of action at some time in future under certain terms - Exp. right to renew the lease, buy the property, and lease additional adjacent space. -tenant does not have to exercise an option, but the landlord must comply if the tenant does exercise it
State Contract: Offer and acceptance
parties must accept the lease, and communicate their acceptance to the other party, for the lease to take legal effect
State Contract: Parties
principal parties must be legally able to enter into the agreement; i.e., meet certain age, sanity, and other requirements.
landlord's obligations
provide necessary building support and services and maintain the condition of the property
Damage and destruction clause
provision defines the rights and obligations of parties in the event the leased premises are damaged or destroyed
most important and basic clauses
rent and security deposits lease terms repairs and maintenance
Rules and regulations caluse
tenant must abide by usage restrictions imposed by lease's rules and regulations for property aimed to protect property's condition, as well as rights of other tenants
In a lease arrangement: renter
tenant, or lessee.
estate from period-to-period
the lease term automatically renews (Nuance: Can be for a long time period. (I.E. Renewal every 3 years)