chapter 34

The four principal types of leasehold estate are:

estate for years: has a specific lease term estate from period-to-period: the lease term automatically renews estate at will: has no specified lease term estate at sufferance: a tenancy without consent

Tenant's rights and obligations.

exclusive possession and occupancy exclusive use quiet enjoyment profits from use

The lease defines the tenant's obligations, which principally are to:

pay the rent on time maintain the property's condition comply with the rules and regulations of the building

A lease may terminate for any of the following causes:

-Term expiration - In a tenancy for years, the lease automatically terminates at the end of the lease term. -Notice - Proper notice by either party may terminate a periodic leasehold, or a tenancy at will. Property notice is usually mentioned in a lease agreement and is typically 30 or 60 days. -Voluntary agreement - Both parties can agree to terminate a lease at any time. -Property destruction - Destruction of the property is grounds for terminating lease obligations. -Condemnation - A taking by eminent domain proceedings generally terminates a lease. -Foreclosure - A foreclosure extinguishes all prior interests in a property, including a leasehold.

What is the typical proper termination notice in a lease agreement?

30 or 60 days

Rent Amount and Payment

A rent clause stipulates the time, place, manner, and amount of rent payment. It defines any grace period that is allowed, and states the penalties for delinquency. In most cases, the lease agreement specifies payment in advance on a month-to-month basis.

How should lease and rental funds collected on behalf of the owner be held?

All funds collected on behalf of the owner are to be held in a trust account.

Describe an option to renew clause in a lease agreement.

An option to renew is a lease provision that gives the tenant the right to extend the lease for an additional period of time and sets forth the terms for the renewed lease.

Ground leases are primarily used in three circumstances:

An owner wishes to lease raw land to an agricultural or mining interest Unimproved property is to be developed and either the owner wants to retain ownership of the land, or the developer or future users of the property do not want to own the land The owner of an improved property wishes to sell an interest in the improvements while retaining ownership of the underlying land

In Writing

Any lease for more than one year should be in writing. Generally, a lease for a period exceeding one year cannot be oral but must be in writing to be enforceable because of the Statute of Frauds. An oral lease or rental agreement is legally construed to be a tenancy at will, having no specified term.

the following ten covenants are common in most leases.

Capacity to contract Demising clause Description of the premises Clear statement of term Specification of rent and how it is to be paid Repairs and maintenance Default In writing Signatures Delivery

Reporting Requirements

Detailed property management reports should be sent to the owner to allow him or her to monitor the manager's work and serve as a basis for future plans.

What does it mean if there are no limitations on the use of the property written into the lease?

If no limitations are written into the lease, the tenant may use the property for any lawful purpose, providing the tenant does not violate any deed restrictions.

Landlord duties to Tenant

Maintain the condition of the property. Provide an irrevocable right to exclusive possession during the lease term, as long as the tenant meets all obligations. Provide appropriate building support and services. Allow the tenant to enjoy and use the property exclusively. receive rent ensure the tenant follows the obligations set forth in the lease agreement repossess the property at termination of the lease

Default

One or more clauses address the rights of the landlord and tenant if the other party defaults on the lease terms.

What are the two methods used to allow a third party to take on the responsibility of an existing lease agreement?

Subleasing and lease assignment

The agreement details the responsibilities and obligations of both parties. A property management agreement would contain some or all of the following information.

The beginning date of the contract Identification of the parties Property description Duration of the agreement Definition of manager responsibilities Definition of owner responsibilities Extent of authority Insurance and risk management Accounting responsibilities Reporting requirements Management fee Agreement Termination

Delivery

The landlord must deliver the lease to the tenant and each party must have duplicate originals.

Signatures

The landlord must sign the lease to convey the leasehold interest. A tenant is not required to sign the lease, but it would be best to do so in order to enforce the terms of the lease.

Description of the Premises

The lease must identify the property. This can be done by street address or any description that makes the property identifiable to the parties. It does not have to be a legal description, although that is the best format for a long-term lease.

Capacity to Contract

The principal parties must be legally able to enter into the agreement; i.e., meet certain age, sanity, and other requirements. If not, the lease can be voided.

Net-net-net lease (Triple net lease)

The tenant agrees to pay all taxes, insurance, maintenance, and repairs.

Net Lease

The tenant pays maintenance and taxes only

Clear Statement of Term

The term is how long the lease will last. The lease must indicate the length. Usually the lease is written in annual terms; however, there is no term limit. It's important for both parties to understand when the lease will expire. The parties can shorten the length of the lease by mutual agreement.

Repairs and Maintenance

This clause details the responsibilities of the parties in regards to repairing and maintaining the property. Usually the tenant is responsible for routine maintenance and the landlord is responsible for repairs. The parties can negotiate all matters regarding repairs and maintenance.

Demising Clause

This clause talks about how the landlord is leasing the property and the tenant is taking possession of the property.

Ejectment

This occurs when the owner of the property asks the court to allow the forcible eviction of a person who has wrongfully entered or remained on the property after the termination of a lease.

What are the two ways to repossess a leased property?

Voluntarily or through a court proceedings

What is it called when both parties agree to terminate a lease at any time?

Voluntary agreement

lease assignment

a formal agreement that transfers all the current tenant's rights and obligations to a new tenant

Percentage Lease

a lease whose rental is based on a percentage of the monthly or annual gross sales made on the site. There is usually a minimum rent required in addition to the percentage of the gross.

lease

an instrument of conveyance and a contract between principal parties to uphold certain covenants and obligations.

strict liability

an owner is liable for an injury to a person or damages to a property, without being at fault

Ground Lease

concerns the land portion of a real property. The owner grants the tenant a leasehold interest in the land only, in exchange for rent.

proprietary lease

conveys a leasehold interest to an owner of a cooperative. The proprietary lease does not stipulate rent, as the rent is equal to the owner's share of the periodic expenses of the entire cooperative

Tenant duties to landlord

exclusive possession quiet enjoyment exclusive use of the premises Pay rent on time. Maintain the property's condition. Follow the rules and regulations of the building. Use the property for legal purposes. A use that is legal but not permitted does not invalidate the lease but constitutes grounds for default.

Law of Contracts

governs the making, interpretation, and enforcement of leases. Consequently, the requirements for making a valid lease are the same as for making a valid contract

Rent levels under a

gross lease are higher than under a net lease.

Landlord duties

has the right to receive rent according to the agreement, and to receive the premises in the specified condition at the end of the agreement term may retain or grant the power to enter into contracts, to set rents, and to select tenants. has the right to terminate the management contract according to the terms of the contract. the duty to pay the agreed management fee, and to make other such payments as detailed in the agreement.

Property management

he administration of rental or other property by a person or a team of people who are acting for the owner

Net-net lease

he tenant pays some, but not all, of the maintenance, insurance and taxes

Residential leases differ from commercial and other types of lease in that:

lease terms are shorter, typically one or two years lease clauses are fairly standard from one property to the next, in order to reflect compliance with local landlord-tenant relations laws lease clauses are generally not negotiable, particularly in larger apartment complexes where owners want uniform leases for all residents

Some important features of commercial leases are:

long term, ranging up to 25 years require tenant improvements to meet particular usage needs virtually all lease clauses are negotiable due to the financial magnitude of the transaction default can have serious financial consequences; therefore, lease clauses must express all points of agreement and be very precise

residential lease

may be a net lease or a gross lease. Usually it is a form of gross lease in which the landlord pays all property expenses except the tenant's utilities and water. Since residential leases tend to be short in term, tenants cannot be expected to pay for major repairs and improvements. The landlord, rather, absorbs these expenses and recoups the outlays through higher rent.

commercial lease

may be a net, gross, or percentage lease if the tenant is a retail business

Manager duties

may have the right to hire and fire enter into contracts perform routine management tasks without interference from the owner Maintain financial records and make reports Create and/or follow a budget Find, retain, and collect rent from tenants Maintain and secure the property Meet the owner's objectives

Constructive eviction

occurs when a landlord's actions or inactions cause a tenant to be forced to leave the property. This often occurs when a landlord does not maintain the premises. Since the landlord has not provided the necessary services and obligations, the tenant can legally cancel the lease

Tenancy at Sufferance

occurs when a lease term has expired and the tenant has stayed on the property without the landlord's consent. The tenancy is referred to as a holdover tenancy

Gross Lease

or full service lease, requires the landlord to pay the property's operating expenses, including utilities, repairs, and maintenance, while the tenant pays only rent

Index Lease

provides for the adjustment of rent according to changes in a price index. The most commonly used indexes are the consumer price index and the wholesale price index.

legal essence of a valid lease is that

t conveys an exclusive right to use and occupy a property for a limited period of time in exchange for rent and the return of the property after the lease term is over.

management agreement

the employment contract for a property manager. The owner is the principal and the property manager is the general agent in this agreement, which creates an agency relationship between the parties. As such, the property manager owes fiduciary duties to the owner.

If the landlord dies,

the landlord's estate remains bound to provide occupancy despite the landlord's death.

If the tenant dies

the lease does not terminate. It becomes part of the tenant's estate, which is bound by the terms of the lease. However, sometimes it may be easier to come to a mutual agreement to terminate the lease early and re-lease the apartment

Graduated Lease

the rent payments start at a fixed amount but increase as the lease term matures. The increase could be based on the increased value of the property as determined by periodic appraisals.