Leases

Nondisturbance Clause

A mortgage clause stating that the mortgagee agrees not to terminate the tenancies of the lessees in the event the mortgagee forecloses on the mortgagor-lessor's building.

Estate at Will

An estate that gives the lessee the right to possession until the estate is terminated by either party; the term of this estate is indefinite. It continues until it is terminated by either party giving proper notice. No initial period of occupancy is specified, as is the case in a periodic tenancy. An estate at will is automatically terminated by the death of either the landlord or the tenant. It may be created by express agreement or by operation of law. During the existence of a tenancy at will, the tenant has all the rights and obligations of a lessor-lessee relationship, including the duty to pay rent at regular intervals. As a practical matter, tenancy at will is rarely used in a written agreement and is viewed skeptically by the courts.

Lessor

Property Owner

Lessee

Tenant

Sale-and-Lease-Back

The property owners sell the property and then lease it back for an agreed period and rental. The original owners pull out their equity to use on other projects and are also able to reduce their taxable income when they pay rent to the new owner. The new owner has a reliable source of rental income for an extended time. IN PRACTICE- The sale-and-leaseback is often used by a company that owns its own office building but is in need of capital, perhaps for business expansion. The building can be sold to obtain funds, but the company will be allowed to remain in the building as a tenant and pay rent to the new owners.

Different types of Lease Hold Estates

- Estate for Years - Estate from Period to Period - Estate at Will - Estate at Sufference

Types of Leases

- Net - Gross - Percentage (can be a gross or net lease) - Variable - Ground Lease - Oil and Gas Lease (subsurface lease)

Sale Clause

A lease agreement may contain language that permits a new landlord to terminate existing leases, although this is much more common in commercial properties than in residential properties. The clause, known as a sale clause, requires that the tenant be given some period of notice before the termination. Because the new owner takes title subject to the rights of the tenant, the sale clause enables the new landlord to claim possession and negotiate a new lease under new terms and conditions.

Variable Lease

A lease may allow for increases in the rental charges during the lease term. A graduated lease provides for specified rent increases at set future dates. An index lease allows rent to be increased or decreased periodically based on changes in the consumer price index or some other indicator.

Options

A lease may contain a clause that grants the lessee the privilege of renewing the lease (called a renewal option). The lessee must, however, give notice of intent to exercise the option. Some leases grant the lessee the option to purchase the leased premises (called a purchase option). This option normally gives the tenant the right to purchase the property at a predetermined price within a certain period, possibly the lease term. The lease might also contain a right of first refusal that allows the tenant the opportunity to buy the property before the owner accepts an offer from another party. The lease option may stipulate that the tenant is to be given credit toward the purchase price for some percentage of the rent paid, as the parties negotiate.

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. 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.

Gross Lease

A lease of property according to which a landlord pays all property charges regularly incurred through ownership, such as repairs, taxes, insurance, and operating expenses. Most residential leases are gross leases.

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.

Use of Premises

A lessor may restrict a lessee's use of the premises through provisions included in the lease. For example, the property is leased only to the lessee "and shall be used strictly as a residence and for no other purpose." Use restrictions are particularly common in leases for stores or commercial space. For example, a lease may provide that the leased premises are to be used only as a real estate office and for no other purpose. In the absence of such clear limitations, a lessee may use the premises for any lawful purpose.

Security Deposit

A payment by a tenant, held by the landlord during the lease term, and kept (wholly or partially) on default or on destruction of the premises by the tenant. Real estate professionals should be aware of state laws that govern security deposits: how they may be held, maximum amounts, whether interest must be paid, and how and when they are returned.

Month to Month Tenancy

A periodic tenancy under which the tenant rents for one month at a time. In the absence of a rental agreement (oral or written), a tenancy is generally considered to be month to month.

Hold Over Tenancy

A tenancy in which a lessee retains possession of leased property after the lease has expired and the landlord, by continuing to accept rent, agrees to the tenant's continued occupancy as defined by state law.

Sublease

A tenant transfers less than the entire leasehold interest by subletting the premises to a new tenant. The original tenant remains responsible for rent being paid by the new tenant and for any damage done to the rental during the lease term. The new tenant is responsible only to the original tenant to pay the rent due. The sublessor's (original lessee's) interest in the real estate is known as a sandwich lease. Subleasing is allowed only when a lease specifically permits them. In a sublease, details of the arrangement should be in writing. In most cases, the sublease of does not relieve the original lessee of the obligation to pay rent. The landlord may, however, agree to waive the former tenant's liability. Most leases prohibit a lessee from subletting without the lessor's consent. This permits the lessor to retain control over the occupancy of the leased premises. As a rule, the lessor must not unreasonably withhold consent.

Leasehold Estate - Less than Freehold

A tenant's right to occupy real estate during the term of a lease, generally considered a personal property interest, although a long-term lease may be eligible for treatment as real property for financing purposes. . A leasehold is generally considered personal property. When the tenant assumes many of the landowner's obligations under a lease for life or for more than 49 years, certain states give the tenant some of the benefits and privileges of ownership, such as the right to use the leasehold interest as security for a loan.

Lease

A written or oral contract between a landlord (the lessor) and a tenant (the lessee) that transfers the right to exclusive possession and use of the landlord's real property to the lessee for a specified period of time and for a stated consideration (rent). By state law, leases for longer than a certain period of time (generally one year) must be in writing to be enforceable. - The foundation of the relationship between a property owner and tenant is the lease.

Estate for Years

An interest for a certain, exact period of time in property leased for a specified consideration. That period may be years, months, weeks, or even days. An estate for years (sometimes called an estate for term) always has specific starting and ending dates. When the estate expires, the lessee is required to vacate the premises and surrender possession to the lessor. No notice is required to terminate the estate for years because the lease agreement states a specific expiration date. When the date comes, the lease expires, and the tenant's rights are extinguished. If both parties agree, the lease for years may be terminated before the expiration date. Otherwise, neither party may terminate without showing that the lease agreement has been breached. Any extension of the tenancy requires that a new contract be negotiated. As is characteristic of all leases, a tenancy for years gives the lessee the right to occupy and use the leased property according to the terms and covenants contained in the lease agreement. A lessee has the right to use the premises for the entire lease term and that right is unaffected by the original lessor's death or the sale of the property, unless the lease states otherwise. If the original lease provides for an option to renew, no further negotiation is required; the tenant merely exercises the option.

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 (indefinite). This has non specific end date. The lease ends when either party gives notice to terminate. An Estate for Years lease can convert to an Estate from Period to Period by the tenant holding over or not vacating after the lease has expired. The lessor accepting rent is confirmation of the lease agreement. To end the contract propert notice must be given. Typically on term in advance. If it is a week to week agreement, then a week's notice is required. If it is month to month, a month's notice must be given. A year to year could require anything from 6 to 3 months notice.

Recording a Lease Agreement

Anyone who inspects a leased property receives actual notice of the tenant's occupancy. For this reason, it is usually considered unnecessary to record a lease, although most states allow a lease to be recorded in the county in which the property is located. Furthermore, leases of three years or longer often are recorded as a matter of course. Some states require that a long-term lease be recorded, especially when the lessee intends to mortgage the leasehold interest. A lease will typically run with the land; a change in the ownership of the leased fee estate doesn't affect the leasehold unless there is a provision in the lease providing for termination of an existing tenancy under specified circumstances or as provided by state law. Existing tenants usually have the right to remain in possession until the lease expires. A prospective buyer of property, especially an occupied single-family home, should inquire about the status of the occupants. The title records are searched for any recorded leases as part of the purchase transaction.

Percentage Lease

Can be a gross or net 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.

Constructive Eviction

If a landlord breaches any clause of a lease agreement, the tenant has the right to sue and recover damages against the landlord. If the leased premises become unusable for the purpose stated in the lease, the tenant may have the right to abandon them. The tenant must prove that the premises have become unusable because of the conscious neglect of the landlord. To claim constructive eviction, the tenant must leave the premises while the conditions that made the premises uninhabitable exist.

Maintenance of Premises

Most states require a lessor of residential property to maintain dwelling units in a habitable condition. The landlord must make any necessary repairs to common areas, such as hallways, stairs, and elevators, and maintain safety features, such as fire sprinklers and smoke alarms. Residential tenants do not have to make any repairs, but they must return the premises in the same condition they were received, with allowances for ordinary wear and tear. Lessees of commercial and industrial properties usually maintain the premises and are often responsible for making their own repairs.

Improvements

Neither the landlord nor the tenant is required to make any improvements to the leased property. The tenant may, however, make improvements with the landlord's permission or as required to make the rented premises accessible. In most residential properties, any alterations become the property of the landlord. In many commercial leases, however, the tenant is permitted to install trade fixtures, those articles attached to a rental space that are required to conduct the tenant's business. Trade fixtures may be removed before the lease expires, provided the tenant restores the premises to the previous condition, with allowance for the wear and tear of normal use.

Requirements for a Valid Lease

Same as requirements for a valid contract: -Capacity to contract. The parties must have the legal capacity to contract; that is, be of legal age and sound mind. -Legal objective. The objective of the lease must be legal. -Offer and acceptance. The parties must reach a mutual agreement (meeting of the minds) on all the terms of the contract. -Consideration. The lease must be supported by valid consideration, an exchange of promises. The landlord promises to provide occupancy and the tenant promises to pay rent. Rent is typically monetary, although the tenant could provide agreed-upon labor in maintaining or fixing up the property. Because a lease is a contract, the rent and other terms may not be changed unless both parties agree to the changes in a writing that is executed in the same manner as the original lease. Leases need to be as specific as possible.

Accessability

The federal Fair Housing Act makes it illegal to discriminate against a prospective tenant on the basis of the tenant's real or perceived disability. A tenant with a disability must be permitted to make reasonable modifications to a property at the tenant's own expense. If the modifications would interfere with a future tenant's use, the landlord may require that the premises be restored to their original condition at the end of the lease term. The Americans with Disabilities Act (ADA) will also affect a landlord's obligations when a commercial property or place of public accommodation is being leased.

Actual Eviction

The legal process that results in a tenant's being physically removed from leased premises. The landlord must serve notice on the tenant before commencing the lawsuit. Most lease terms require at least a 10-day notice in the case of default. In many states, however, only a five-day or three-day notice is necessary when the tenant defaults in the payment of rent. When a court issues a judgment for possession to a landlord, the tenant must vacate the property. If the tenant fails to leave, the landlord can have the judgment enforced by a court officer, who forcibly removes the tenant and the tenant's possessions. The landlord then has the right to re-enter and regain possession of the property. In some states, in cases of nonpayment of rent, a landlord also has the right to distrain, that is, to seize the tenant's property for rent in arrears, generally by changing the locks and giving notice. Most states require a court order to pursue the remedy of distrain.

Possession of Premises

The lessor, as the owner of the real estate, is usually bound by the covenant of quiet enjoyment that the lessee can occupy the premises without interference from the owner or anyone else. Quiet enjoyment does not have anything to do with barking dogs or late-night motorcycles. The lease usually stipulates the conditions under which the landlord may enter the property to perform maintenance, to make repairs, or for other stated purposes. Except in emergencies, the tenant's permission is usually required, which may be stipulated in the lease or by state law.

Destruction of Premises

The obligation to pay rent for damaged or destroyed premises differs depending on the type of property and the lease. Usually, residential tenants are permitted to reduce their rent payments in proportion to the amount of space they are unable to use. Likewise, tenants who lease only part of a building, such as office or commercial space, generally are not required to continue to pay rent after the leased premises are destroyed. In some states, if the property was destroyed as a result of the landlord's negligence, the tenant can recover damages. On the other hand, tenants who have constructed buildings on leased land, often agricultural or industrial land, are still obligated for the payment of rent even if the improvements are damaged or destroyed. If the buildings are destroyed, these tenants must turn to their insurance companies to deal with their loss of the improvement.

Reversionary Right

The return of the rights of possession and quiet enjoyment to the lessor at the expiration of a lease.

Estate at Sufference

The tenancy of a lessee who lawfully comes into possession of a landlord's real estate but who continues to occupy the premises improperly after the lease rights have expired. This estate can arise when a tenant for years fails to surrender possession at the lease's expiration. When a tenant fails to surrender possession, or holds over, the tenant is responsible for the payment of monthly rent at the existing terms and rate. A lease may contain a holdover clause, in which case that provision will govern the rights of both the landlord and the tenant. If a lease does not contain such a clause, then state law will govern and will typically offer three options: -The landlord can accept rent offered by the tenant, thereby creating a new tenancy under conditions of the original lease, a holdover tenancy. If the original lease term was greater than one year, generally the new tenancy is limited to one year. -The landlord can treat the tenant as a tenant at sufferance by either objecting to the tenant holding over or informing the tenant of such treatment, thus creating a month-to-month or periodic tenancy. The landlord receives rent, and both parties have to provide notice within a certain period of terminating the arrangement. -The landlord can treat the tenant as a trespasser and proceed with an eviction and damages action. Under this situation, the landlord must comply with the notice to quit requirements in the lease as well as state law regarding the landlord-tenant relationship.

Term of Lease

The term of a lease, the period for which the lease will run, should be stated precisely, including the beginning and ending dates together with a statement of the total period of the lease. For instance, a lease might run "for a term of 30 years beginning June 1, 2010, and ending May 31, 2040." A perpetual lease for an inordinate amount of time or an indefinite term usually will be ruled invalid, but if the language of the lease and the surrounding circumstances clearly indicate that the parties intended such a term, the lease will be binding on the parties. Some states prohibit leases that run for 100 years or more.

Assignment

The transfer in writing of interest in a bond, mortgage, lease, or other instrument. In an assignment of a lease, a tenant transfers the entire leasehold interest to another person. The new tenant is legally obligated to comply with all of the promises the original tenant made in the lease. In most cases, the assignment of a lease does not relieve the original lessee of the obligation to pay rent. The landlord may, however, agree to waive the former tenant's liability. Most leases prohibit a lessee from assigning without the lessor's consent. This permits the lessor to retain control over the occupancy of the leased premises. As a rule, the lessor must not unreasonably withhold consent. Assignment is allowed only when a lease specifically permits them. In an assignment, details of the arrangement should be in writing.

Lease Purchase

Used when a tenant wants to purchase the property but is not yet able to do so. Perhaps the tenant cannot obtain favorable financing or clear title, or the tax consequences of a purchase are currently unfavorable. The terms of the sale are negotiated and agreed to at the time that the lease is signed. A down payment is paid, which may or may not be refundable, and part of the periodic rent may be applied toward the purchase price of the property. Both parties hope that, by the time the lease expires, the tenant's issues have been resolved and financing can be obtained or the tenant can purchase the property outright.

Oil and Gas Lease

When an oil company leases land to explore for oil and gas, a special lease agreement must be negotiated. Except for enough surface space to conduct extraction operations, the lease covers subsurface rights. Usually, the landowner receives a cash payment for executing the lease. If no well is drilled within the period stated in the lease, the lease expires, although most oil and gas leases permit the oil company to continue its rights for another year by paying another flat rental fee. Such rentals may be paid annually until a well is produced. If oil or gas is found, the landowner usually receives a percentage of its value as a royalty. As long as oil or gas is obtained in significant quantities, the lease continues indefinitely. Oil and gas leases, even after they have expired, are often listed as exclusions in title insurance policies.