Leases and Property Management

Calculating monthly rent per square foot Total square footage = 2,000 Rent amount - $4,000 per month What is the rent per square foot?

$4,000 per month X 12 months = $48,000 per year $48,000 divided by 2,000 sq. Ft. = $24.00 per sq ft

Since A lease is a contract, it must contain all the elements that are required to make a contract valid. The requirements of a valid contract Are: select all that apply (A) Capacity to Contract (B) Legal Objective (C) Offer and Acceptance (D) Consideration

Capacity to Contract / Legal Objective Offer and Acceptance / Consideration

Requirement of a valid lease; all elements of a valid contract

Capacity to contract Legal objective Offer and acceptance Consideration - Rent

States what will happen if tenant fails to vacate at end of lease. Usually results in a periodic estate.

Holdover Clause

Breach of contract

If tenant breaches any lease provision, landlord can, in addition to evection, Sue to obtain a judgment to cover past due rent and damage to the premise. Tenant can also sue landlord for breaches of lease provisions.

Other elements of a lease premises should be clearly described

Legal description if land involved Apartment - street address, name of complex, building number, apartment number Condominium - Street address, name of complex, building number, unit number Any supplemental space included - Storage area, garage, etc.

Actual evection

Legal process whereby tenant is removed from leased property. If tenant does not vacate property, landlord can have eviction order enforced by court official.

To calculate the area of a rectangle or square

Length times width equals area Length x Width = Area 40 ft X 50 ft = 2,000 sq ft

Tenant

Lessee

In a lease contract the landlord is known as the (a) Lessor (b) Lessee

Lessor

Landlord

Lessor

Sublease - sublessee - the new tenant

Liable only to the original lessee, not the landlord.

Other elements of a lease - Use restrictions

Zoning laws, pets, parking, etc.... Terms of lease

Capital Reserve Budget

Projected budget- improvements expected over the economic life of the property

ADA it is the responsibility_________ _____________ to determine whether a building Meets ADA requirements. If necessary, must prepare a plan for retrofitting a building that is not in compliance if readily achievable.

Property Manager

In the state of Alabama a _______ ________ must have a real estate license (laws vary by state). Institute of real estate management offers additional training. Certified property manager is professional designation.

Property Manager

Strives to be do you's the greatest net return possible for the owner A person who manages properties for owners as their agent Fiduciary relationship Acts an agent for the owner in managing, renting, leasing, and selling property

Property Manager

__________ ____________ principal responsibilities can be as wide or narrow as the owner requires them to be. Financial management; Physical management (structure and grounds); administrative management (files and records)

Property Manager

Sublease - Transfer of LESS THAN ALL leasehold interest Sublease - Transfer of SOME leasehold interest

Referred to as a sandwich lease

Sublease - the original tenant

Remains Solely liable to the landlord Retains some reversionary rights

Other elements of A lease

Responsibility for maintenance and repair Destruction of premises Assignment or subleasing

In a lease, the owner of the property has what is called a ______________ _______________ - possession of the property will go back to the owner at the end of the lease.

Reversionary Interest

_____________ _____________ Is controlling and limiting the risk and property ownership via proper management and insurance policies

Risk Management

Risk Management Property managers must decide whether it is better to

- Avoid it - remove the source - Control it- prepare for in an emergency before it happens - transfer it to a third-party- Buy insurance - retain it - Decide not likely to happen or buy insurance with high deductible

coinsurance clause in property insurance

- Most homeowner policies require property owners to ensure for a face amount that is at least 80% of property value - Face amount on the first page of the policy is maximum of of insurance company's liability

ADA (Americans with Disabilities Act)

1. Employment of qualified job applicants regardless of their disability - applies to any employer with 15 or more employees - employer must make reasonable accommodations to enable disabled employees to perform essential job functions. 2. The disabled must have full and equal access to all commercial properties and public accommodations.

Property managers need to be aware of different types of insurance

Hazard Insurance - Natural disasters, fires Contents and personal property Liability covers injuries to the public while on an owner's property Loss of income rent or revenue Risk management Workers' compensation covers injuries to employees while on the job Casualty - Vandalism, theft, burglary Surety bonds - Financial losses as a result of an employee's criminal acts while performing job.

Management Agreement

A contract which creates an _________ ___________ making the Owner - Principal Property Manager - Agent

Ground Lease

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

Net Lease

A lease requiring the tenant to pay rent PLUS Ownership expenses Utilities Property taxes Special assessment Texas

Leasehold Estates - Periodic Estate

A lease that automatically renews for some period of time Example- Month to month

Leasehold Estate - Estate at will

A lease with no beginning date or ending date and there's no period in which it renews automatically, It's just a lease at the landlord's will and the tenant's will.

Property Management

A real estate specialization. It involves leasing, managing, and overall maintenance of real estate owned by others.

Sale-Leaseback

A transaction in which the owner sells improved property and, as part of the same transaction, signs a long term lease to remain in possession of the premises.

Property management assist with selection of tenants

Ability to pay If commercial, is it a good fit? - is tenet's business compatible with building? - is it complementary to businesses of other tenants? If residential, need to comply with fair housing laws.

Leases and Fair housing and civil rights laws

All persons must have access to housing of their choice without any differentiation of terms and conditions because of race, color, religion, national origin, sex, handicap, or familial status.

Lease does not terminate if parties die or property is sold. ________ of a deceased landlord are bound by terms of an existing lease.

Heirs

operating budget

Annual budget includes income and expense items necessary for week to week operation

An interest in real estate that is of Limited duration and provides the right of possession and control but not title. A ____________ ___________ is personal property.

Leasehold Estate

Quoted monthly rent amount - What is annual rate per square foot? $6,300 per month 3,000 sq ft

Find total annual rent $6,300 per month X 12 months = $75,600 Find rent per square foot $75,600 annual rent divided by 3,000 sq ft = $25.20 per sq ft

Calculating Rent quoted as dollars per square foot What is monthly rent? 3,000 square feet $25.20 per sq ft

First find total annual rent 3,000 sq ft X $25.20 per sq ft = $75,600 Convert annual rent to monthly rent $75,600 annual rent divided by 12 months = $6,300

An interest in real estate that is of limited duration and provides the right of possession and control of the property, but not title is (a) leasehold interest (b) Freehold interest (c) non-freehold interest (d) Life estate

Leasehold Interest

____________ - transfer of all leasehold interest (rights in the lease) to another tenant. ______________ _____________ (___________) Becomes assignor, and is secondarily liable to Lessor. _________________ Becomes new tenant and primarily liable to Lessor.

Assignment / original tenant (lessee) / Assignee

An assignment may be made without the consent of the other party unless contract forbids assignment

Assignment prohibited

How much rent should be charged? Considerations

Current rates of like properties Supply and demand Present vacancy rates

When A holdover tenant is in possession of a property, what kind of estate is this? (A) estate for years (b) periodic estate (C) estate at will (d) Estate at sufferance

Estate at sufferance

What is a property tenure that can be terminated at any time by either the tenant or the owner called? (A) estate for years (B) periodic Estate (c) estate at will (d) Estate at sufferance

Estate at will

Which type of leasehold interest has a beginning date and an ending date? (A) Estate for years (b) periodic estate (C) estate at will (d) Estate at sufferance

Estate for years

The statue of __________ refers to the requirement that certain kinds of contracts be in writing to be enforceable. (A) Frauds (b) Deceit (c) Deception (d) Duplicity

Frauds

_________ _________ - typical for residential leases. _________ _________ - used win entire commercial or industrial buildings & the land are leased Might also be used for long-term commercial leases.

Gross Lease Net Lease

Leasehold estate - Estate for years

Has a beginning and an ending date

Provisions of a typical property management agreement

Inception date and names of the parties Property location and description of the premises Duration of the contract Definition of manager's responsibilities Statement of owner's purpose Extent of agent's authority Reporting Agent's fee Equal opportunity statement

Unoccupied building exclusion insurance

Insurance rates are different for unoccupied and occupied On occupied usually insurers for fire loss only Mini insurance policies cover vacant properties for maximum of 30 days

Insurable interest

Insured must have a legitimate financial interest in the property Buyer and seller in a sales contract Owner Mortgagee would be protected by the court system system also called equitable interest

Constructive evection

Landlord fails to do something that he/she has a legal duty to provide. The landlord fails to keep the property in habitable condition. Landlord has done something or not done something that effectively denies tenant the quiet enjoyment of the premises. Must be due to landlords negligence.

Other elements of a lease - Covenant a quite enjoyment

Landlord's guarantee that he/she will not interfere in tenant's possession and use of the property.

Contract by which one person is given the right to occupy our use the property of another.

Lease

A management agreement is to a property manager like a

Listing agreement is to a broker

Other elements of a lease - Security deposit

Money paid by the tenant that is refunded at the end of the lease if property is in good condition. It is intended to cover any damage to the property caused by the tenant beyond normal wear and tear.

Leases can be written or oral, the statute of frauds says:

More than 1 year- must be written to be enforceable One year or less- which are oral are enforceable

Recording a lease

Most short term leases not recorded Leases of 3 years or more are often recorded

Package policies Insurance

Multi-peril for apartment and commercial buildings Homeowner's insurance coverage of structure and contents

Property manager needs to be familiar with legal actions

Must be familiar with local court rules and procedures Must comply with all terms of lease agreement

ADA readily achievable Depends on

Nature and cost of needed alteration Financial resources of the company and number of persons employed Top of operation New construction and remodeling must meet higher standards- Easier and cheaper from beginning

In a net lease rental income is _____ ___________ for the landlord after operating costs have been paid.

Net Income

___________ ___________ Periodic check of mechanical equipment to minimize wear and tear. ____________ ____________ fix non-functioning Items reported by the tenant.

Preventative maintenance Corrective maintenance

Assignee - the new tenant - is __________ liable Assignor - the original tenant - remains _____________ (ultimately) liable.

Primarily/ Secondarily

Lease and rental agreements owner has specific responsibilities and tenants also have responsibilities

Owner responsibilities state and local building and housing codes; keep property habitable; promises made in the lease. Tenant responsibility - prompt payment of rent; Prohibited acts prohibited acts (drugs and commercial acts); pets; parking.

At closing _________ is transferred from the seller to the buyer. (A) Ownership (b) title insurance policy (C) plats (d) HOA dues

Ownership

Which type of leasehold interest has renews for some period of time? (A) estate for years (B) periodic estate (C) Estate at Will (D) Estate at sufferance

Periodic estate

Graduated (step-up) Lease

Periodic step up of lease payments Payments are increased at an agreed-upon date and by an agreed-upon amount.

Definition of disabilities ADA

Physical or mental impairment that substantially limits one of more of the major life activities Includes individuals with AIDS & Alcoholism

Summary of property manager duties

Produce highest possible net income Maintain and increase value our principal's investment

Pays rent directly to the original tenant. The original tenant is still completely responsible to the landlord for the rent and for any damage, including that caused by the sublessee. Most landlords prohibit sublease is unless they have given prior written consent.

Sublessee

Lease Purchase

Tenant agrees to purchase property at a specified price at end of lease (Sales Agreement)

Lease with option to purchase (Lease Option)

Tenant has option to purchase at a specified price within a certain time.

Double Net - Net Lease

Tenant pays gross rent amount plus ownership expenses Insurance Utilities Property taxes Special assessment Texas

Gross Lease

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

Leasehold Estate - Estate at Sufferance

Tenant was originally in lawful possession but did not leave after his/her possession was terminated. Tenant is not considered a trespasser.

Termination of a lease

The end of a lease caused by expiration of the term, Mutual Agreement- surrender and acceptance, Eviction- breach of lease conditions or eviction. Abandonment by tenant- tenant remains liable for terms of lease. Lee should address whether the landlord has an obligation to re-rent (mitigate damages).

Assignment

Transfer of all rights and/or duties in a contract to another tenant. (Rights in a lease)

Subleasing

Transfer of some of the rights in a contract

Leases for one year or less which are oral are enforceable. True or False

True

Index Lease

The rental is tied to some commonly agreed to price index such as the Consumer Price Index or the Wholesale Price Index.

Assignment is (A) The transfer of all rights in a contract (B) The transfer of some rights in a contract (C) The right of the landlord to re-enter the property in an emergency (D) The right of the tenant to quiet enjoyment of the premises

The transfer of all rights in a contract

Percentage Lease

Used for retail; Fixed Amount + Percentage of Gross Sales Can be percentage of total sales OR Sales in excess of certain amount

Triple Net Lease

the tenant pays the gross rent PLUS Utilities Property taxes Special assessment taxes Insurance Repairs and maintenance

mitigate

to make less severe