Chapter 24 Property Management 70 Voc and Q

Net Lease

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

Graduated Lease

A lease where the rent will increase periodically in amounts specified in the lease, as contained in the escalation clause.

Percentage Lease

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

resident manager

A manager of a property who lives on-site

property manager

A person or company hired to maintain and manage property on behalf of the property owner; charged with producing the greatest possible net return while safeguarding the value of the investment

how does a constructive eviction occur

A tenant declares a landlord in default and vacates the leased premises

Net Operating Income (NOI)

The income projected for an income-producing property after deducting losses for vacancy and collection and operating expenses

Actual Eviction

The legal process that results in the tenant being physically removed from the leased premises

Depreciated Value

The original value of a property minus depreciation

Effective Gross Income (EGI)

The total annual income the rental property produces after subtracting vacancy losses and adding miscellaneous income

Corrective Maintenance

the repairs and replacements to a building and its equipment that become mandatory to keep the property operational; AC units, elevators, boiler, etc

Landlord rights and responsibilities

the right to enter due to emergency, repair, with tenant consent, tenant abandonment or surrender, court order. The right to retake possession after lease term, in case of tenant breach or default, the right to pursue remedies by law, such as eviction. RESPONSIBILITY to deliver a property that is habitable; pest control, building repairs, good working condition of heating/ cooling, electrical, and plumbing systems

individual property manager

usually a real estate broker who manages properties for one owner or a number of owners

individual building manager

usually manages a single large property, may or may not have a real estate license

what is a gross lease

-tenant pays a fixed base rent and landlord pays all expenses

Workers Compensation

A form of insurance paid by the employer providing cash benefits to workers injured or disabled in the course of employment.

Surety Bond

A guarantee that protects a business when another person or business fails to fulfill the terms of a contract between them

leasing agent

A broker who markets the availability of space to rent and locates and negotiates the terms of a lease with suitable tenants.

tenant improvements

Alterations to the interior of a building to meet the functional demands of the tenant; also called build-outs

Multi-Peril Policy

An insurance policy that provides coverage for several types of commercial policies and may allow special coverage for floods, earthquakes, and terrorism

Tenancy at Will

An occupation of space for an indefinite period which can be terminated by the death of either the lessor or lessee or terminated by proper notice given by either party; rarely if ever used in a written lease; also referred to as a periodic leasehold

variable expenses

Costs that vary in amount, type, and frequency, such as specific repairs or capital expenditures

Fire and hazard insurance

Coverage against loss caused by fire, wind, hail, smoke, civil disturbance, and other causes

contents and personal property insurance

Coverage of personal property and other building contents when they are not on the building premises.

routine maintenance

Day-to-day duties such as cleaning common areas, performing minor carpentry and plumbing adjustments, and providing regularly scheduled upkeep of heating, air-conditioning, and landscaping.

fixed expenses

Expenses that do not change from month to month, such as operating expenses, regular maintenance, and administration

Causes for lease termination

Expiration Performance Agreement Abandonment Default or Breach Notice Destruction Condemnation Foreclosure Death

what agency is commonly created by a management agreement

General

Why does a manager need to keep tenants happy

High tenant turnover increases expenses and reduces profits

Estate for years

Lease for a definite period of time

constructive eviction

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

Estate at Sufferance

Retention of possession without the consent of the landlord after the lease has expired; also referred to as tenancy at sufferance.

Gross Lease

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

Potential Gross Income

The amount of rental income the property could produce with 100% occupancy and with all tenants paying full rent plus revenue from sources as vending services, storage charges, late fees, utilities, and contracts; also called scheduled gross income

Replacement Cost

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.

cash reserves

a cash amount sometimes required of the owner to be held in reserve for variable expenses, such as supplies, redecorating, and repairs

Flood Insurance

a certain type of insurance that protects a home against damage or destruction caused by a flood, heavy rains, snow, drainage failures, and failed public infrastructures such as dams and levies

What is true of a manager's responsibility for security and safety

a court may hold the manager responsible for the physical safety of tenants, employees, and customers in leased premises

expiration of lease

a lease with a term (estate for years) automatically expires at the end of the term

the rights, duties, and liabilities of the landlord and manager are

apportioned under the terms of the management contract

trust funds to be handled by a property manager do not include

cash for the management firm's operating expenses

performance

contract terminates when all parties have performed their obligations

The efficiency of marketing activities can be measured in terms of

cost per tenant prospect generated per lease

consequential loss, use, occupancy insurance

coverage for business losses resulting from disaster, such as loss of rent and other revenue, when the property cannot be used for business

the basic responsibility of the landlord is to

deliver a habitable property

The Americans with Disabilities Act requires property managers to

ensure that disabled employees have the same level of access to facility as all employees have

capital expenditures

expenditures that increase the owner's investment; renovation or expansion; typically budgeted over a period of years

Property managers have a _______ relationship with the property owner

fiduciary

One of the property managers fundamental responsibilities is

financial reporting to the principal

Preventative Maintenance

goes beyond the routine in attempting to deal with situations that can become serious problems if ignored; seasonal replacement of appliances or equipment, painting of exterior and interior areas, repairs and replacement of roof

Casualty Insurance

insurance that covers for losses due to illness and accident, burglary, vandalism, theft, or machinery damage

liability insurance

insurance that provides protection from claims arising from injuries or damage to other people while on property; expenses resulting from owner negligence

Abandonment

landlord may retake possession and pursue the tenant for default if the tenant abandons the premises and fails to fulfill lease obligations

Universal Residential Landlord-Tenant Act

model legislation that had been adopted to a greater or lessor extent in many states; addresses fair and equitable remedies for breaches by both landlord and tenant; prescribes rights and responsibilities for residential landlords and tenants

periodic lease

no definite period; Begins as lease with definite period but continues after lease has expired, as long as lessee continues to pay rent at required date and the lessor accepts it

default or breach

occurs when either the tenant or landlord violates any of the terms or covenants of the lease

agreement to terminate

the parties may agree to terminate the lease before the end of the term

if an apartment contains a refrigerator that is not included in the lease

the property manager does not have to maintain it

If a property's vacancy rate is significantly lower than market rates, it may be a sign that the manager needs to

raise rental rates

Tenant rights and responsibilities

refer problems to small claims court, move out without liability for back rent or the expired portion of lease, after giving written notice of an emergency situation right to call a professional repair person and deduct from the next month's rent; responsibilities to pay rent on time, follow the rules set by landlord, give 30-day notice to terminate month to month lease, return all keys when leaving the property, leave unit clean use fixtures properly, refrain from damage, utilize property for intended use

Avoidance

removing the source of the risk, such as by closing off a dangerous area of the building

commercial fire and hazard insurance policies usually require coverage to equal atleast 80% of the property's

replacement value

Coinsurnace Clause

requires the insured to bear a portion of the loss

Effective gross income is defined as

revenue from all sources minus losses from uncollected rents, vacancies, and evictions.

What are the three types of maintenance a property manager has to carry out for a managed property

routine, preventative, and corrective

Transference

shifting the risk to someone else by purchasing an insurance policy

retention

taking a chance the the event is not likely enough to occur to justify the expense of another risk management strategy; self-insurance

reduction

taking action to forestall the event before it happens, such as by installing fire alarms, sprinklers, and security systems

among the essential elements of a management plan is consideration of

the competitive market for the property

cash flow

the difference between cash received from rent and other sources, subtracting vacancy loss, operating expenses, and cash reserves (outflow for labor, material, overhead, and taxes)