Real Estate Prelicensing Unit 13

Which of the following best describes a landlord's interest in a rented property? Choose only ONE best answer. A A leased fee interest B A leasehold estate C Defeasible fee estate D Estate at Sufferance

A)A leased fee interest The owner gets the fee and therefore has a leased fee interest. The tenant has possession or a hold on the property and therefore has the leasehold interest. A defeasible estate is one that can be defeated - which is either determinable or conditional. An estate at sufferance occurs when the tenant will not vacate after the tenancy has ended. The owner must use judicial means.

Which type of lease would be most likely associated with an apartment rental? Choose only ONE best answer. A Gross lease B Net lease C Percentage lease D Index lease

A)Gross lease The correct answer is 'A' It is common for residential leases to be gross leases - with rent being charged at a fixed rate. A net lease is common in commerical property since the lease term is for a longer period of time and protects the owner from increases in property taxes, insurance and common area maintenance. A percentage lease is common in retail rentals, where the tenant pays a base rent as well as a percentage of sales. An index lease allows the rent to rise or fall based upon changes in the index through an escalation clause.

All of the following would allow a tenant to terminate a residential lease early, EXCEPT: Choose only ONE best answer. A the property management agreement ends. B transfer or base for a service member of the military. C rental properties that are subject to a foreclosure sale. D victims of domestic violence.

A)the property management agreement ends. The owner of the property can hire a new property manager or decide to self manage. The termination of the property management agreement does not terminate the lease. The termination of a lease does not terminate the property management agreement.

Property managers would need to be familiar with federal legislation regulating all of the following, EXCEPT: Choose only ONE best answer. A a tenant using an emotional support dog due to PTSD. B housing built prior to 1978. C persons covered under ADA statutes. D laws emanating from the CFPB under the Dodd-Frank Act.

D) laws emanating from the CFPB under the Dodd-Frank Act. The correct answer is 'D' CFPB - The Consumer Financial Protection Bureau regulates consumer finance transactions, not lease transactions. A landlord renting a residential property built prior to 1978 needs to provide the Lead Based Paint disclosure as well as the pamphlet "Protecting Your Family from Lead in the Home". ADA applies to individuals with a handicap which is also protected under Federal Fair Housing.

A Property Manager has maintenance staff repair a heating system that has failed to operate correctly. This is an example of which of the following? Choose only ONE best answer. A Constructive Maintenance B Preventive Maintenance C Routine Maintenance D Corrective Maintenance

D)Corrective Maintenance Corrective maintenance fixes a problem. Preventative maintenance is planned or scheduled maintenance used to prevent breakdowns by detecting and correcting a problem before it becomes a major failure. Routine maintenance is simple general upkeep of a building or equipment against normal wear and tear.

A Property Manager would be responsible for which of the following activities? Choose only ONE best answer. A Making capital improvements to the managed property B Writing a check for the owners' income tax C Reinvesting the owners' profits into a new laundry facility on the property D Instituting legal action on behalf of the landlord

D)Instituting legal action on behalf of the landlord A property manager can take action to evict a tenant for damage or failure to pay. The manager cannot unilaterally decide to make capital improvements, would not pay income taxes, or reinvest profits.

In what type of lease does a tenant pay a portion of pro-rata expenses of the property as part of the overall lease? Choose only ONE best answer. A Gross B Percentage C Full Service D Net

D)Net Net leases require that the tenant pay a portion of the costs of the property, such as TICAM charges (Taxes, Insurance, Common Area Maintenance). Percentage lease are typical of retail properties and are based on a percentage of sales. Full service leases include all services, often including janitorial, utilities, etc

Which of the following would be a result of the government exercising its right of eminent domain on a property that is subject to a residential lease? Choose only ONE best answer. A The landlord could keep the tenant's security deposit since the tenant will be compensated as a result of the eminent domain action. B The condemnation action would be delayed until the end of the lease term. C A tenant must be given a minimum notice to vacate of 180 days in the event of condemnation. D The tenant's lease would be terminated and the tenant may be compensated moving expenses by the state.

D)The tenant's lease would be terminated and the tenant may be compensated moving expenses by the state. The correct answer is 'D' The lease will be terminated by eminent domain action (operation of law). The tenant has no statutory protection against condemnation however may be compensated for moving expenses.

The Tenant Security Deposits Act would apply to all of the following properties, EXCEPT: Choose only ONE best answer. A rental of a mobile home space within a mobile home park. B rental of an apartment in a 200 unit complex. C rental of a single-family home from an owner with no license. D rental of a retail space.

D)rental of a retail space. The Tenant Security Deposit Act applies to all residential leases. It does not apply to commercial leases.

A tenant dies while in the middle of a 1 year lease. All of the following statements are true, EXCEPT: Choose only ONE best answer. A the personal property of the tenant must be handled in accordance with the Residential Rental Agreements Act. B a tenant's heirs will be bound by the lease. C the tenant's security deposit may be used to settle any damages to the landlord based on the untimely death of the tenant. D the tenant's death will immediately terminate the lease.

D)the tenant's death will immediately terminate the lease. The correct answer is 'D' Death does not terminate a lease, although the tenant is bound to breach the lease unless the heirs complete the lease term. The owner can make a claim against the tenant's estate.

Myron leased a property from Mr. Bigg, an absentee landlord. Mr. Bigg was difficult to reach and often was slow to make repairs. The furnace in Myron's unit broke down during an especially cold spell in February . Although Myron provided Mr. Bigg with a written request for the repair, Mr. Bigg has failed to fix the problem. Which of the following actions by Myron would be acceptable? Choose only ONE best answer. A Myron could remove himself and all of his belongings from the property and vacate the premises, based on the lessor's breach B Myron could withhold rent until Mr. Bigg has remedied the defect and then pay him in full with no late fee C Myron could have the unit repaired, pay the HVAC technician and then tender the remaining rent to Mr. Bigg D Myron could place his rent monies in a trust account to hold for Mr. Bigg when he ultimately makes the repair

A)Myron could remove himself and all of his belongings from the property and vacate the premises, based on the lessor's breach This is an example of constructive eviction and is the common law remedy for the tenant in the event of a landlord's breach. There are no circumstance in NC (short of a court order) which would allow a tenant to stay in the property and withhold rent. The tenant can't make the repair without permission and then reduce the amount of rent by the amount of the bill. Constructive eviction terminates the lease agreement but not the property management agreement.

A property manager would be responsible for assuring compliance with all of the following laws, EXCEPT Choose only ONE best answer. A Real Estate Settlement Procedures Act. B Americans with Disability Act. C Fair Housing Acts. D Tenant Security Deposit Act.

A)Real Estate Settlement Procedures Act. RESPA (Real Estate Settlement Procedures Act) relates to residential real estate purchases. ADA relates to public accommodation and access for persons with disabilities/handicaps. Fair Housing relates to renting residential real estate. The tenant security deposit act relates to residential rentals that limit the amounts to be charged, where the security can be held, the fees that can be charged, the reporting required and release of funds at the end of the lease.

A property was recently purchased and the new owner is unhappy with the cash flow projections of the property. Which of the following would be an acceptable practice? Choose only ONE best answer. A Require the property management company to use vendors who have agreed to give landlord a discount on services B Immediately raise the rents of all current tenants C Convert tenant security deposits to his personal account D Require tenants to pay a percentage of the common area maintenance

A)Require the property management company to use vendors who have agreed to give landlord a discount on services The landlord can seek to control expenses however would not be allowed to alter a lease without the tenants agreement. A lease is a contract and it transfers with the property. Rent amounts cannot be altered until the lease ends. Security deposits cannot be accessed until the lease ends and can only be used for approved damages - above normal wear and tear. The landlord cannot add common area charges without the provision being agreed to in the lease agreement.

A buyer purchases a property with a tenant in place with 9 months remaining on a one year lease. Which of the following is most correct regarding this scenario? Choose only ONE best answer. A The purchaser must honor the existing lease B The purchaser may terminate the lease with 90 days notice since he plans to live in the unit C The lease automatically terminates at the closing of the purchase of the property D The tenant may opt to terminate the lease with as little as 10-days notice

A)The purchaser must honor the existing lease Lease agreements transfer with the property and the new owner must fulfill the term.

In a commercial lease, the landlord agreed to make certain improvements specific to the tenant's use and to amortize these improvements into the lease payment. This is an example of which of the following? Choose only ONE best answer. A Upfit B Sale and lease back C Net lease D Full service lease

A)Upfit Upfit is the customization of a space to fit the tenants needs and the amount is often based on the length of the lease term. A sale and lease back is just that the sale of building to an investor who then leases it back to the seller. A net lease is where the tenant takes on some or all of the taxes, insurance and common area maintenance. A full service lease includes utilities, security or cleaning services, with the landlord responsible for taxes insurance and common area maintenance.

All of the following would be considered an operating expense for a property, EXCEPT Choose only ONE best answer. A debt service. B management fees. C real property taxes. D maintenance expenses.

A)debt service. The correct answer is 'A' Debt service, depreciation and capital improvements are not considered operating expenses. Debt service is used when calculating before tax cash flow. NOTE: Real property taxes are an operating expense. Income taxes would not be an operating expense.

All of the following would be acceptable criteria for a property manager to exclude a potential tenant, EXCEPT: Choose only ONE best answer. A denial of all applicants who have a criminal record. B denial of all applicants who have a credit score below 600, C denial of all applicants who have a work history of less than 1 year. D denial of a tenant whose previous landlord provided a negative reference.

A)denial of all applicants who have a criminal record. A property manager cannot have a blanket exclusion for past criminal convictions as this would violate Federal Fair Housing. An owner or property manager can establish criteria - length of time from conviction, type of offense, etc. The property manager can set a minimum credit score, debt to income ratio, work history requirement, or take into consideration past landlords experience.

In assessing and managing risk, a property manager recommends that the playground equipment be removed from the common area. In regards to risk management, this is an example of: Choose only ONE best answer. A risk avoidance. B risk control. C risk transfer. D risk retention.

A)risk avoidance. Risk avoidance is the elimination of a hazard that can negatively impact an organization by avoiding a compromising event entirely.

A commercial tenant was given a lease for 3 years exactly, with no rights for renewal. This lease would be described best as a(n): Choose only ONE best answer. A tenancy for years. B periodic tenancy. C life estate. D defeasible estate.

A)tenancy for years. The correct answer is 'A' An estate or tenancy for years is defined as a "fixed-term" lease. Periodic tenancies allow for renewals or terminations, with notice. Life estates and defeasible estates are freehold estates.

The Property Manager and landlord agency relationship is most often considered to be which type of agency? Choose only ONE best answer. A Special Agency B General Agency C Universal Agency D Dual Agency

B)General Agency The property manager is generally authorized to bind the owner to lease agreements which is general agency. A general agent has a broad scope of authority that is limited to certain defined tasks. Special agency is common when a broker represent a buyer, seller or tenant - where the broker has no decision making authority. Universal agency is created when a power of attorney is signed. Dual agency occurs when a broker represents both the buyer and seller or tenant and landlord in a transaction.

According to the North Carolina Tenant Security Deposits act, which of the following is TRUE regarding the accounting for a tenant's security deposit? Choose only ONE best answer. A A property manager has 45 days from the termination of the lease to account for the security deposit. B A tenant's security deposit can be used to pay delinquent water and sewer bills at lease termination. C A Property Manager can keep security deposit in a federally insured trust account or in a North Carolina insured performance bond. D Any interest earned on a security deposit in a broker's trust account must be credited to the tenant at the termination of lease.

B)A tenant's security deposit can be used to pay delinquent water and sewer bills at lease termination. The correct answer is 'B' A tenant's security deposit can be used to pay bills that could prevent future service due to non-payment. The property manager has 30 days to provide an accounting for how the security deposit has been used. A property manager must maintain a trust or escrow account and is not permitted to be bonded. The lease agreement and property management agreement may contain a provision allowing for the retention of interest from the security deposit to cover the costs of maintaining the account.

Barb allowed a friend, Carol, to stay in her guest house when she recently lost her job. Due to Carol's misfortune, Barb has charged her no rent on the property. Recently, Barb had an opportunity to rent the guest house but Carol is refusing to leave voluntarily. Which of the following statements is TRUE? Choose only ONE best answer. A Carol is a tenant at will and, as such, she can be forced out at any time B Carol is a tenant at sufferance and will need to be evicted if she refuses to leave. C Barb can call the sheriff's department to have Carol removed as a trespasser since she did not leave when asked D Barb may cut off the utilities to the guest house in an effort to make the property uncomfortable so that Carol will leave

B)Carol is a tenant at sufferance and will need to be evicted if she refuses to leave. Since Carol stayed "beyond" her welcome, she is a tenant at sufferance and her rights can only be severed by an eviction. Once Carol has established residency, she is not considered a trespasser, even if she refuses to leave. Cutting off utilities is known as a self-help eviction and is always illegal.

A Lessor and Lessee enter into a lease agreement that requires the lessee to take care of all repairs in exchange for a reduced rent. Recently, a plumbing issue arose that caused the only toilet in the house to become inoperable. The lessee had been ill and unable to make the repair. Which of the following answers is most accurate in this circumstance? Choose only ONE best answer. A The tenant must make the repair, or hire a contractor to do so, or he will be in breach of the lease terms B The landlord must make this repair despite the fact that the agreement between the parties was for the lessee to make all repairs C The landlord could evict the tenant for breach of lease D Since the lessee agreed to the condition regarding repairs, the landlord can waive his obligation to keep the premises "fit and habitable"

B)The landlord must make this repair despite the fact that the agreement between the parties was for the lessee to make all repairs The landlord can never waive the obligation to keep the property fit and habitable, so to say that the tenant is responsible for "all" repairs would be a violation of public policy, which is known as abrogation. The tenant will not be in breach for having the landlord fulfill his legal obligation. Constructive eviction terminates the lease agreement but not the property management agreement.

A commercial tenant assigns the remainder of his 10 year lease term to another tenant. Which of the following is true regarding this scenario? Choose only ONE best answer. A The new tenant retains all liability to the landlord B The original lessee will remain secondarily liable unless the lease has been novated C This assignment is an example of what is typically referred to as a sublease or sandwich lease D Assignments are always a violation of the lease unless the landlord specifically agrees to it in writing

B)The original lessee will remain secondarily liable unless the lease has been novated Novation releases liability in the event that the new party does not perform. When the lease is assigned the new lessee will be primarily responsible, however if they fail the original tenant is secondarily liable.

A Property Manager has a contract that entitles him to 8% of all rents collected plus a fee from a carpet cleaning company for $25 for each unit cleaning that the cleaner provides. Is this legal? Choose only ONE best answer. A Yes, since it is such a nominal fee, it is completely legitimate. B Yes, as long as the fee is disclosed and reduced to writing at the appropriate time. C No. Kickbacks from 3rd parties are never allowed to agents. D No. Receiving 3rd party compensation would create a conflict of interest.

B)Yes, as long as the fee is disclosed and reduced to writing at the appropriate time. The owner of the property must consent to the payment of additional fees. License candidates often confuse this with the no kickback rule under RESPA - however the RESPA law relates to real estate settlements.

All of the following are examples of non-freehold estates, EXCEPT: Choose only ONE best answer. A an estate for years. B a life estate. C a periodic tenancy. D an estate at sufferance.

B)a life estate. A life estate is a freehold estate (of ownership) that is not inheritable. Non-freehold estates are leasehold estates: tenancy for years, tenancy from year to year, tenancy at will and tenancy at sufferance. Note: tenancy and estate can be used interchangeably.

A lease may be terminated in all of the following ways, EXCEPT: Choose only ONE best answer. A material breach by the lessor or lessee. B death of a residential tenant. C accord and satisfaction. D reaching the end date with no notice in an estate for years.

B)death of a residential tenant. The death of a tenant does not automatically terminate the lease agreement as an heir may be able to perform or a claim can be made against the tenant's estate. Breach may end a lease if not cured. An agreement by the landlord and tenant to take less than what was originally agreed to is known as accord and satisfaction. An estate for years terminates without notice as it has a definite end date - which can be for a week, a month, a year or 10 years.

In reviewing an operating statement, all of the following would represent variable expenses, EXCEPT Choose only ONE best answer. A maintenance costs. B real property taxes. C legal costs. D property management fees.

B)real property taxes. The correct answer is 'B' Property taxes are a set fee each year based upon the assessed value and the tax rate. Maintenance costs and legal costs can vary based upon usage during the year. The property management fee changes based upon rent collected.

Which of the following best describes an operating budget of a property? Choose only ONE best answer. A A snap shot of the current financial position of a property derived from cash flow reports B A monthly statement as to the income and expenditures that reflects cash flow C A projection of likely income and expenses of a property over a specified period D A comparison between projected revenues and actual revenues

C)A projection of likely income and expenses of a property over a specified period A projection of likely income and expenses is know as an operating budget. A cash flow report details the total amount of money transferred into and out of a business which details liquidity. A budget vs actual report details the comparison about projected revenue and actual revenue.

What public official is tasked with hearing and deciding cases of residential evictions? Choose only ONE best answer. A Superior Court Judge B Clerk of Court C Civil Magistrate D Constable

C)Civil Magistrate Summary ejectment is heard by a civil magistrate in small claims court. Judicial means must be used when evicting a tenant. Summary ejectment terminates the lease agreement but not the property management agreement.

For which of the following would a landlord most likely be liable according to the law of negligence as applied to residential tenancies? Choose only ONE best answer. A A tenant who is injured moving a refrigerator within the unit to clean behind the appliance. B A tenant being injured by a criminal who has broken into the apartment. C Injury to the guest of a tenant on the property's playground. D A tenant's child who is injured by the family dog in an apartment that allows for pets.

C)Injury to the guest of a tenant on the property's playground. The correct answer is 'C' A landlord may be liable for injuries that occur on the property or on the amenities provided. The landlord would not typically be liable for injuries that were caused by others or caused by the actions of the tenant. It is best practice to require a tenant to maintain a tenant insurance policy.

Property managers are typically responsible for which of the following duties? Choose only ONE best answer. A Marketing the property to potential tenants and buyers B Re-investing rental income in such a way that it maximizes the clients return on investment C Maintaining the property in accordance with the landlord's obligation of "warranty of habitability" D Paying income taxes generated by the owner's net profits in the property

C)Maintaining the property in accordance with the landlord's obligation of "warranty of habitability" A property manager is commonly tasked with ensuring the property is safe, fit and habitable. They are tasked with locating tenants, but would need the client to sign a listing agreement to find a buyer. A property manager does not have the ability to re-invest profits without the owner's consent. They can make recommendations to the owner/landlord about improvements that can maximize the rate of return, however the owner would need to agree to the changes.

A broker is managing a property that was built in 1973. According to the Lead Based Paint Hazard Reduction Act, the property manager would be required to do which of the following? Choose only ONE best answer. A Provide the tenant a 10-day risk assessment period before the lease is binding B No Lead Based Paint requirements since this is a rental unit C Provide the EPA pamphlet and Lead Based Paint disclosure statement D Remediate any units that show evidence of lead based paint

C)Provide the EPA pamphlet and Lead Based Paint disclosure statement The property manager / landlord should provide the tenant the lead based paint hazard addendum and a copy of the pamphlet Protecting Your Family From Lead in the Home. A tenant does not have the right to test for lead without the owner's permission. The landlord is not required to remediate or certify that the home is lead free.

Which of the following methods may a landlord use to seek relief from a tenant who has breached a lease? Choose only ONE best answer. A Constructive eviction B Self-help eviction C Summary Ejectment D Distraint of chattel

C)Summary Ejectment The correct answer is 'C' Summary ejectment is the same as eviction (also, judicial eviction). Self help evictions (changing locks, cutting out power) are always illegal. Constructive eviction is the tenant's right to get out of the lease based on the landlord's breach and distraint of chattel means to hold the tenant's personal property until he/she pays. Summary ejectment terminates the lease but not the property management agreement.

A Property Manager advertises a unit as being "Perfect for a professional couple." Could this be interpreted as a violation of fair housing acts? Choose only ONE best answer. A No, because it does not specifically discriminate against any protected class. B No, since certain communities have exemptions under the fair housing acts. C Yes. As it would likely discourage families with children from viewing the property. D Yes, since the word "professional" would tend to make one believe that lower-income tenants should not apply.

C)Yes. As it would likely discourage families with children from viewing the property. The correct answer is 'C' A property manager cannot discriminate against families with children or expectant mothers as this violates Federal Fair Housing under familial status. It is recommended that a broker sticks to facts about the property, not the people.

In assessing a property's cash flow, a property manager will take into consideration all of the following, EXCEPT Choose only ONE best answer. A variable expenses. B vacancy and credit losses. C property depreciation. D debt service.

C)property depreciation. Depreciation is an expense taken on an income tax return. It is a non-cash expense. Vacancy and credit losses, variable expenses - utilities, management fees, etc and debt service all impact cash flow. The cash flow statement shows the overall liquidity of a business.

All of the following are considered to be rights of a tenant in a residential lease, EXCEPT: Choose only ONE best answer. A the right of possession. B the right of use for any legal purpose. C the right to renew lease at the end of of lease period. D the expectation of quiet enjoyment.

C)the right to renew lease at the end of of lease period. The landlord does not have to renew the lease at the end of the lease term. A tenancy for years terminates without notice on a definite end date. The tenant has the right of possession and quiet enjoyment to use the property for legal purposes. The tenant has a leasehold interest while the landlord has a leased fee interest.