Real Estate Chapter 6

counteroffer

counteroffer is the rejection of an original purchase offer and the submission of a new and different offer. If a seller rejectsthe offer and submits a counteroffer, the original offer automatically terminates.

Tenancy

defined as the interest of a person holding property by any right or title. An arrangement by formal lease or informal agreement in which the owner (landlord) allows another (tenant) to take exclusive possession of land in consideration for rent, is a type of tenancy. Normally, under a lease, the tenant takes possession and use of a property in return for rent payment.

Only one legal remedy to remove a tenant

he eviction processusing an unlawful detainer action or action in ejectment.

Eviction Notice

the landlord must servethe tenant an eviction notice (3-day notice) for cause asking the tenant to conform. A three-day notice instructs the tenant to either leave the rental unitor comply with the terms of the rental agreement within the three-day period.

writ of possession

the legal document issued by the court commanding the tenant to leave the premises within five days. The 5 days begin to run once the sheriff, marshal, or registered process server posts the writ of possession on the property. Upon expiration of the 5 days, the sheriff physically removes the tenant and gives the landlord possession. The landlord must store any belongings left behind by thetenant after the eviction for 30 days, charging the tenant a reasonable storage fee. After that time, a public sale may be held and the proceeds used by the owner to pay costs of storage and sale. Any balance remaining after payment of these costs must be returned to the tenant.

Net lease

the tenant pays an agreed-upon sum as rent, plus certain agreed-upon expenses per month (i.e., taxes, insurance, and repairs). The benefit of a net lease to the lessor is that it creates a fixed income. Netleases are categorized as a single net (N) lease, a double net (NN) lease, or a triple net (NNN) lease.

assignment

the transfer of the entire leasehold estate to a new person, called an assignee. The original lessee (assignor) steps out of primary responsibility for the lease and a new lessee (assignee) becomes responsible tothe landlord for all the terms of the original rental agreement.

A sublease

transfers possession of a leased property to a new person called the sublessee. The original tenant, who is now the sublessor, is still primarily liable for paying the rent to the owner. The sublessee is liable only to the sublessor. This type of lease is called a sandwich lease.

The Main Clauses Included in the Purchase Agreement

• Date of the agreement • Names and addresses of the parties to the contract • Description of the property • The consideration or price • Financing and terms • Date and place of closing • Signatures of buyer and seller

Facts About Leases

• If more than 1 year, must be in writing • Signed by lessor (landlord) • Lessee (tenant) does not have to sign lease • Reversionary right belongs to the lessor • Possessory right belongs to the lessee • A rental is presumed to be month to month unless specified otherwise • Agricultural lease limited to maximum of 51 years • Urban lease limited to maximum of 99 years • Mineral, oil, and gas leases are limited to a maximum of 99 years

Three ways to classify leases

(1) type of real estate, (2) length of term, or (3) method of payment.

Three kinds of leases based on real estate type

1) A ground lease is a lease for only the land. 2)A proprietary lease is used in co-op apartment buildings. The lessee is also a stockholder in the corporation that owns the building. 3)A residential lease is used for all residential property including single-family homes, duplexes, and multiple-family dwellings.

Three steps in the eviction process

1) serving an eviction notice to terminate the rental agreement, (2) obtaining a judgment against the tenant in an unlawful detainer action, and (3) evicting the tenant by the sheriff undera writ of possession.

Tenant's Duties and Responsibilities:

1)A tenant must pay the rent when it is due. 2)A tenant must give proper written notice before moving out, unless there is an agreement stating otherwise. The notice is based on the number of days between rent payments. For example, a tenant who pays monthly must give 30-days written notice or weekly at least 7-days written notice. 3) A tenant may not interfere with the rights of other tenants. 4)If there is a repair problem involving the tenant's health, welfare, or safety, the landlord has a duty to make needed repairs. If the landlord refuses, under the law, a tenant may spend up to one-month's rent to make repairs, and subtract the amount from the rent. The tenant may do this only two times in any 12-month period. A landlord may not retaliate by eviction or raising the rent for 180 days after this rent offset is used by the tenant to make lawful repairs. If the landlord does not correct the problem, the tenant may abandon the premises and break the lease.

Three types of leases based on method of rent payment

1)gross, 2)net, and 3)percentage leases.

RPA-CA: Prorations

Since most real estate offices use the C.A.R. Purchase Agreement and Joint Escrow Instruction contract, this clause tells escrow the buyers' and sellers' wishes regarding the prorations (allocation) of property tax, interest, assessments, and any other charge normally prorated in escrow.

RPA-CA: Allocation of Costs

Since there are many inspections, reports, and tests associated with purchasing a property, it is important for both buyer and seller to agree about who will be responsible for their payment. Also, buyer and seller select the escrow and title provider and allocate the payment responsibility.

handling of residential security deposits

A security deposit must be refundable. The landlord has 21 days after the tenant has moved out to return all unused portions of the security deposit, with a written statement showing how the remainder was used (to clean, repair damage, replace windows, etc.). [C.C. §1950.5(g)]. A landlord may only deduct from the security deposit the cleaning cost "necessary to return the unit to the same level of cleanliness it was in at the beginning of the tenancy." A landlord who keeps deposits without reason for more than 3 weeks after the tenant has moved may be subject to twice the amount of the security deposit in statutory damages in addition to actual damages.

RPA-CA: Statutory Disclosures

A seller is required by law to give a buyer several disclosures about the property and surrounding area, which may affect the buyer's decision to purchase the property.

RPA-CA: Termination of Offer

An offer may be terminated for a number of reasons. The buyer may withdraw the offer before the seller accepts it. Since the seller has not accepted the offer, there is no contract, so the buyer would get his or her deposit back. An offer ends when the time limit given in the offer for acceptance expires. If the buyer dies before the seller accepts the offer, the offer terminates. The original offer expires if the seller gives the buyer a counteroffer.

Rights of the Optionor

An option contract actually restricts the rights of the seller (optionor) becausehe or she cannot sell or lease the property during the option period. If theoptionee decides not to buy the property during the term of the option, the consideration remains with the optionor.

Elements of a Valid Option

An option must be in writing and must have actual monetary consideration paid to the owner (optionor). The consideration may be in the form of cash, a check, or something else of value. In a lease option, payment of rent and the provisions of the lease are acceptable as the consideration.

rental agreement.

Another name for a lease

RPA-CA: Breach of Contract

Breach of Contract: Parties to a contract may decide in advance the amountof damages to be paid, should either party breach the contract. In the event the buyer defaults on the contract, the liquidated damages cannot exceed 3% of the purchase price if the property is a single-family residence.

RPA-CA: Time Periods; Removal of Contingencies

Buyers and sellers are given specific amounts of time to meet the various conditions written in the contract.

most important real estate document

California Residential Purchase Agreement and Joint Escrow Instructions(purchase agreement). This covers more than just the purchase price and closing date. It covers contingencies, various inspections, mandatory disclosures, buyer's rights to investigate the property, how the buyer will take title, damages and dispute resolution, escrow instructions, compensation to the brokers, and acceptance of the offer.

RPA-CA: Title and Vesting

Explain the importance of reviewing the preliminary title report with the buyer. Check for any undisclosed liens or easements that may affect the use of the property. The manner in which a buyer takes title to real property (vesting) can haveunforeseen legal and tax ramifications. Always direct the buyer to an attorneyand/or tax professional to get advice on vesting.

Transfer of a Lease

If the lease does not prohibit it, a lessee (tenant) may assign or sublease his or her interest in the property to another person.

RPA-CA: Expiration of the Offer:

If the offer is not accepted by the seller within the time frame, the offer is revoked and any deposit is returned to the buyer. A deposit may be refunded by agreement, judgment, or arbitration.

Types of three day notice

If the tenant fails to pay rent, the owner gives the tenant a 3-Day Notice to Pay Rent or Quit. For breach of any conditions other than failure to pay rent,the owner uses a 3-Day Notice to Cure or Quit.

RPA-CA: Items Included In or Excluded from Purchase Price

Items Included In or Excluded from Purchase Price: Sometimes sellers plan to take an appliance, window coverings, and light fixtures with them when they sell the property. Unless personal property items are excluded in the listing agreement, buyers may assume that what they see in the propertyis included in the sale.

Law regarding cash for rent

January 1, 2005, a landlord may not require tenants to pay rent in cash except if the tenant has defaulted on the rent. If thelandlord first gives a tenant written notice that the rent must be paid in cash, the landlord can only require up to three payments to be paid in cash.

Landlord's Duties and Responsibilities

Landlord's Duties and Responsibilities 1)A landlord guarantees that health and safety codes are being met. There is an implied warranty of habitability fromthe landlord to the tenant that the property will be maintained to meet bare living requirements. 2)Periodic inspection of the property is allowed by a landlord, who must give reasonable notice of intent to enter, and then only during normal business hours. Twenty-four hours is considered reasonable notice. Some rental agreements only require a four-hour notice of entry to be given by the landlord. 3) A landlord must obey federal and state fair housing laws. 4)California renters under month-to-month leases must be given 30-day notices to move out. The tenant does have recourse if the eviction is unfair, based on fair housing laws, or if the eviction is retaliatory. A retaliatory eviction is an eviction that occurs in revenge for some complaint made by the tenant. 4)Tenants have the right to a Pre-Move-Out Inspection of the rental unit, no earlier than two weeks prior to the termination of the tenancy. The landlord provides to the tenant a written notice of the right to inspect the premises within a reasonable time. The landlord also informs the tenant of his or her right to be present at the inspection. If no agreement can bemade for the inspection time, the landlord must give the tenant writtennotice 48 hours prior of the time of inspection and then may proceed with the inspection whether the tenant is there or not. Based on the inspection, the landlord must give the tenant an itemized statement listing of any proposed repairs or cleaning. The cost of the cleaning and repairs is the basis for deductions taken from the security deposit. 5)The landlord has 21 days after the tenant has moved out to return all unused portions of the security deposit, with a written statement showing how the remainder was used.

Two types of Leases based on length of time

Leases based on length of time would include short-term and long-term leases.An apartment lease is an example of a short-term lease. An example of a long-term lease is a major tenant in a shopping center that has multiple-renewal rights.

leased fee estate.

The lessor's (landlords) interest

Ways to terminate a lease

The majority of leases end by the expiration of the agreed-upon lease term or by mutual agreement between the landlord and tenant. Other ways to terminate a lease are destruction of the premises, breach of conditions by either lessor or lessee, or eviction.

maximum security deposit allowed by law

The maximum allowed on an unfurnished property may not exceed the amount of two months' rent. The maximum allowed on a furnished property is not more than the amount of three months' rent. A security deposit also includes any charges imposed at the beginning of the tenancy to reimburse the landlord for costs associated with processing a new tenant, other than application screening fees.

reversionary right.

The right of the landlord to reclaim the property

lessee

The tenant who has the use, possession and the rightof quiet enjoyment of the property for the duration of the lease.

RPA-CA : Offer

This paragraph shows the name of the buyer, describes the property to be purchased, the offered purchase price, and the closing date for escrow.

RPA-CA : Finance Terms

This section addresses whether the purchase will be an all cash offer or an offer based on obtaining financing. If the buyer must obtain financing to complete the transaction, the finance terms should state if thepurchase of the property is contingent upon the buyer's ability to get financing. The amounts of the initial deposit, any increased deposit and the loans are listed and added to total the amount of the purchase price.

RPA-CA -Closing and Possession

This section covers the intent of the buyer to occupy the property as a primary residence, the date the seller (or tenant) will turn over possession of the property to the buyer, and if the buyer is allowed to take possession of the property prior to close of escrow. In order to protect the rights and obligations of both seller and buyer, an Interim Occupancy Agreement should be used if a buyer wants early possession of the property. The new C.A.R. form contains wording that prohibits a landlord from demanding that rent be paid in cash.

RPA-CA: Time is of the Essence

Time is of the Essence: Time is often significant in a contract; indeed, its performance may be measured by the passage of time. By law, if no time is required by the contract, a reasonable time is allowed. If the act can be done instantly—as in the payment of money—it must be done at once.

RPA-CA: Dispute Resolution

To try to settle any disputes amicably, the contract offersboth mediation and arbitration. Both buyer and seller must agree to be bound by mutual arbitration in order for the clause to be effective.

surrender.

When a tenant voluntarily gives up a lease before the expiration of its term.

lease

a contract between a property owner, (lessor or landlord) and a renter (lessee or tenant) which gives the tenant a tenancy.

Option

a contract to keep open, for a set period of time, an offer to purchase or lease real property. The person who owns the property (seller, lessor) is the optionor. The person who wants to purchase or lease (lessee) the property is called the optionee. The price and all other terms should be stated clearly, as the option may become the sales agreement when the optionee exercises the right to purchase. If the option is exercised by the optionee, it does not necessarily require a separate sales contract. A real estate broker earns commission on an option when it is exercised.

unlawful detainer action

a lawsuit to remove an unlawful holdover tenant (e.g. after the expiration of a 3-day or 30-day notice) and return the rental unit to its owner. This document lists the charges against the tenant, who then has 5 calendar days to respond after being served; otherwise, a default hearing is set.

Percentage lease

a lease in which the tenant pays a percentage of gross monthly receipts in addition to a base rent. Usually the higher the gross receipts, the lower the percentage rate. A percentage lease typically is used for retail stores in shopping centers or malls.

Gross lease:

also called a flat, fixed, or straight lease. The tenant pays an agreed-upon sum as rent and the landlord pays any other expenses, such as taxes, maintenance, or insurance. Residential leases are usually gross leases with fixed, level payments, usually due on the 1st of eachmonth.

demise

another way to say "to rent.

Rights of the Optionee

buyer (optionee) is the only one who has a choice, once the contract is signed and the consideration given. The option does not bind the optionee to any performance—he or she does not have to exercise the option. It merelyprovides the right to demand performance from the optionor, who must sell ifthe optionee decides to buy the property during the course of the option.The optionee may assign or sell the option without the permission of the optionor during the term of the option. The optionee may find another buyer for the property to exercise the option.

Residential Purchase Agreement and Joint Escrow Instructions

commonly known as a purchase agreement or purchase offer because it is an offer to purchase real property. Some licenseesrefer to the purchase agreement as the deposit receipt because it acts as thereceipt for earnest money given by the buyer to secure an offer.

lessor

landlord who owns the property and signs the lease to give possession and use to the lessee (tenant).

security deposit

money given to a landlord to prepay for any damage that might occur to a property during a lease term that is more than just normal wear and tear.

rent

payment for the use of a property, generally under a lease agreement. The rent becomes due at the end of the term, unless otherwise agreed upon in the lease. If the rent is not paid when due, the tenant may be evicted. Rent received by the owner is taxable in the year received.

Illegal actions to force tenant to move

• The landlord cannot turn off utilities, change the locks, remove outside doors or windows, or remove the tenant's personal property. If the landlord does any of the preceding, he or she will be liable for the actual damages of the tenant, plus $100 per day that it continues. [C.C. §789.3]. Under the right of replevin, a tenant has the legal right to recover personal property unlawfully taken by the landlord. • The landlord cannot use threats or menacing conduct to interfere with the tenant's quiet enjoyment of the premises. The landlord is liable for $2,000 for each violation. [C.C. §1940.2].