Chapter 8 Property Management, Leases and Rentals
net-net-net lease
A commercial lease wherein the tenant pays a base rent plus maintenance, property taxes, and insurance.
Estate for years
A lease for a defined time
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.
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. (most popular lease)
Step-up Lease
A lease with fixed increases at stated intervals, or increases based upon periodic appraisals at stated times; graduated lease; graded lease.
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.
Allowable Vacancy Rate
Agreement to termination due to determined allowed vacancy rate
Property Management Agreement
An agency contract between the owner of income property and a management firm or an individual property manager that outlines the scope of the manager's authority.
Estate from Period to Period
An interest in leased property that continues from period to period—week to week, month to month, or year to year.
Estate at will
An occupation of space, for an indefinite period, which can be terminated by either the lessor or lessee at any time. Also referred to as tenancy at will.
Property Manager's Fiduciary
DORAL
Puffing
Exaggerated or superlative comments or opinions.
Leasehold Termination
Expiration, surrender and acceptance, breach and eviction, abandonment
Escalation Clause
In an agreement that provides for the adjustment of a price or rent based on operating expense increase
Property Manager's Duties
Know the maximum profit set by owners, advertise property, evaluate rental market, obtain tenants, screen applicants, tenant complains and conflict with each other, fiduciary responsibility to owner, rate of return follow federal fair housing laws, maintenance and fees, security deposit and rent collection
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.
2 types of maintenance
Preventive Maintenance and Routine (Corrective) Maintenance
Property Management Agreement Contains
Property Description, term of agreement, definition of responsibilities, extent of authority, report requirements, management fee
Index Lease (Graduated Lease)
Rent payments are periodically adjusted based on an economic indicator, such as the consumer price index.
Must have 2 escrows or trust accounts
Security escrow and property management escrow
Abandonment
Tenant moves out of leased premises before end of term
Leasehold Estate Rights
Tenant only hold personal property rights. Owner has real property rights
Gross Lease
Tenant pays rents, landlord pays all expenses of property; most common form of residential lease
Estate at Sufferance
Tenant remains on the property, without the landlord's permission, after the lease has expired
Surrender and Acceptance
Termination of a lease by mutual agreement of the parties. Also known as surrender.
Property Manager's Fiduciary Duty
That duty owed by an agent to act in the highest good faith toward the principal and not to obtain any advantage over the latter by the slightest misrepresentation, concealment, duress or pressure.
Contract Rent
The amount of rent stated in a lease agreement.
Market Rent
The rent that could be obtained by renting a property on the open market.
Leasehold Estates Assignment
Unless prohibited on the lease (most lease prohibit this), a tenant can assign the lease to a new tenant
Non-disturbance Clause
a mortgage clause which Requires that tenants cannot be disturbed if the property is foreclosed upon or sold.
Sandwich Lease
a sublet arrangement in which the initial lessee collects rent from the new lessee and pays rent to the landlord under the original lease agreement
Property Manager's are considered as
general agents because of the authority vested in them by the principal
Property management escrow
holds the owner's money, which is where the management is paid from
Security escrow
holds the tenant's money unless forfeited (deposit)
Service to tenants
honesty, accuracy and disclosure
Leases for more than one year
must be in writing to be enforced
How are property manager's pay?
percentage of income, salary or a flat fee
Property Managers
preserve the value of the property and generate income for the owners
Lease must contain
reversionary rights or interest by the lessor
Tenant Selection
size of space the tenant wants, tenant's ability to pay, tenant's business compatibility with the building and other tenants, space is available for tenant's expansion, ADA
Actual Eviction
suit for possession; legal removal of a tenant
net-net lease
the lessee pays not only operating expenses but insurance premiums as well
fraud
wrongful or criminal deception intended to result in financial or personal gain
Functions of a Property Manager
• Budgeting Expenses • Renting the Property • Maintaining Good Relations with the Tenants • Maintaining the Property • Handling Environmental Concerns • Adjusting rates • Showing units