Section 7: Contracts Used in Texas Real Estate
Marissa has agreed to represent Shelby in the sale of his home. If Marissa finds the buyer for Shelby's home, currently listed at $225,000, she gets to keep any amount above $220,000. If another licensee finds the buyer, or if Shelby finds a buyer, Marissa earns nothing. What types of agreements are in place?
-Open listing -Net listing
What five pieces of information are generally covered in a residential sales contract?
-The amount of the purchase offer -The amount of the earnest money deposit -Any buyer financing contingencies -Special provisions -Broker's fees and compensation
Specific performance
One party did not meet the terms of the contract in the specified time frame, and must now do exactly what was agreed to in the contract.
Andy agrees to help Sandy sell her home. However, Sandy has also asked April, Wayne, Daniel, and Benjamin—real estate licensees from four different firms—to help her sell her home. Only the licensee who brings Sandy a buyer will earn a commission. What type of agreement is in place?
Open listing
When Bobby, a joint tenant with Robby, died, Robby became sole owner of the entire property.
Operation of law
Legal title
Ownership interest in the property that is enforceable by law
When the Blakes entered their new home for the walk-through just prior to closing, they noticed that all the terms of the contract had been met with one exception—the freestanding refrigerator that was supposed to come with the house, was missing. However, Mrs. Blake decided she'd rather have a side-by-side anyway, so they decided not to make an issue of it. What is the seller guilty of?
Substantial performance
Which of the following is an example of a reverse exchange?
An investor finds and closes on an investment property and then decides to immediately sell another investment property.
A like-kind exchange, or 1031 exchange, is also referred to as a ______.
tax-deferred exchange
Client's Obligations
-Agree to exclusive representation during the term of the agreement -Notify other real estate professionals with whom they may have been working that they're now under an exclusive agreement
Working as a Landlord Representative
-List and market the property -Negotiate leases -Locate and qualify potential tenants
Broker's Obligations
-Locate a property that meets the specified criteria and is within the market area -Once a property has been found, negotiate the deal
Elements of a Commercial Lease Contract
-Rent and Expenses -Leased Premises -Term -Use and hours -Default -Utilities
Under Section _______ of the Internal Revenue Code, an investor in real property can sell that property, reinvest the proceeds in a "like-kind" property, and defer paying capital gains taxes.
1031
A lease is an agreement between __________.
A landlord and tenant
Harvey is an investor who found and closed on an investment property, then decided to sell a property other than the one originally marked for the exchange. What is this an example of?
A reverse tax-deferred exchange
Which of the following is an example of constructive eviction?
A tenant moves out of the apartment after repeated unsuccessful requests to the landlord to repair the broken water heater.
Matt decided to leave his lease four months before its expiration. His landlord found a new tenant who began paying within a month, so Matt was only responsible for one additional month's rent after leaving.
Abandonment
Belinda learned that the home she was about to buy was on an old graveyard. She tried to terminate, but the seller wouldn't let her. She walked away anyway, and the seller was happy to keep her earnest money and put his home back on the market.
Accept liquidated damages
The Billings were buying the Stratfords' house. But just before they closed, Mr. Billings lost his job, and Mrs. Billings decided they should move in with her parents. They lost $10,000 of earnest money, but it was better than being saddled with a mortgage they could no longer afford.
Accept liquidated damages
Bonnie and Connie, buyer and seller, respectively, were able to close on their sales transaction even though Connie's repair crew had botched the job, and Bonnie would have to pay another contractor to set things right.
Accept partial performance
Dan, a buyer, and Stan, a seller, closed on a sales transaction, even though Dan hadn't met his deadline for converting the promissory note into a check.
Accept partial performance
Ken had breached his lease, and his landlord filed a forcible detainer suit with the local justice of peace. Ken ignored the notice he received, and three days later, the police were at his door, ready to remove him and his possessions from the premises.
Actual eviction
Non-freehold estate
An estate that conveys possession and control. Also known as a leasehold estate.
Freehold estate
An estate that conveys possession, control, and title (ownership). Also known as ownership.
95% Rule
An investor can exchange multiple properties as long as the properties total at least 95% of the value of the relinquished property.
Which of the following statements best describes the three-property rule as it relates to tax-deferred exchanges?
An investor can identify up to three replacement properties and not encounter a restriction as to fair market value as long as debt load requirement is met.
Three-Property Rule
An investor can identify up to three replacement properties with no fair market value restriction, provided they meet the debt load requirement.
What Is an Option Agreement?
An offer to purchase a specific piece of real estate without the obligation to buy it.
Novation
An original party is replaced with a new party, and all rights and obligations belong to the new party.
Anna May wants out of her contract because she doesn't believe her buyer agent is working hard enough to find her a property that meets her criteria. What must happen before the buyer agency agreement can be terminated?
Anna May and her agent must mutually agree in writing to terminate their agreement.
All commercial leases should contain the conditions under which the lease can be terminated; the names and signatures of all parties; and ______.
Any additional information based on negotiations and specific situations
What happens if the investor fails to reinvest all the proceeds from one property into the next when doing a tax-deferred exchange?
Any cash proceeds the investor retains will be taxable.
Before the transaction closed, Beauford substituted his cousin, Sylvester, as the buyer. He reserved his right to do so in the offer. Unless the contract between Beauford and the seller releases Beauford from his obligations, if Sylvester fails to perform, Beauford is obligated to do so. Is this an example of performance, assignment, or novation?
Assignment
Ezra's lease on his condo includes an option to purchase. He told his landlord, Sherm, that he's ready to purchase the condo, and they've negotiated a purchase price and closing date. What kind of contract is this?
Bilateral
Performance
Both parties have met all the terms agreed to in the contract.
"Enough with the rats, already!" Willard thought. Hadn't he given his landlord plenty of notice and time to address the situation? Fed up, he sent his landlord a letter, removed himself and his belongings, and moved in to the local YMCA. What type of remedy is the tenant using for this breach of lease situation?
Constructive eviction
The right to determine how the property is used, and who may enter the property is known as _____________.
Control
Which section of the TAR buyer representation agreement states what occurs if either party is in breach of contract?
Default
Which section of the TAR exclusive right to sell listing agreement states what occurs if either party is in breach of contract?
Default
In which of the following scenarios is impossibility of contract performance occurring?
Due to circumstances beyond their control, the parties can't legally or practically do what they've agreed to do.
Impossibility of performance
Due to circumstances out of their control, the parties cannot legally or practically do what they've agreed to do.
Which of the following is an example of reversionary right?
During a lease transaction, the lessor retains the rights to possession of the property after the lease term has expired.
Samantha is the buyer in a contract for deed arrangement. What type of rights to the property does she have during the contract for deed process?
Equitable title rights
Maury has signed a listing agreement with Ralph to sell his townhome. If Ralph finds a buyer, Maury earns nothing. But if another licensee, even from another brokerage, finds the buyer, Maury still earns his commission. What type of agreement is in place?
Exclusive agency
Bart's listing agreement with his seller client prohibits the seller from listing the property with another brokerage prior to the expiration of the listing contract. What type of listing agreement do Bart and his client have?
Exclusive right to sell
Connie has signed a listing agreement with Bret. If Connie finds Bret a buyer, she earns her listing commission. If another licensee, or Bret himself finds the buyer, Connie still gets her commission. What type of agreement is in place?
Exclusive right to sell
Bob signed a lease through May 30. When May 30 came, he left, and because his rent was paid up to date, he owed his landlord nothing.
Expiration
Equitable title
Financial or "equitable" interest in the property
When Sheila rented commercial space in the old Dunthorpe building, she was surprised to hear that all utilities, taxes, maintenance, and insurance were included in her rent.
Gross lease
Addenda and Other Docs
Identifies which attachments are part of the agreement.
Which of the following statements about the contract for deed default process in Texas is true?
If the buyer is in default, the seller must provide the buyer with a notice before taking further action.
Seller pro/buyer con
If the buyer is unable to make the payments, the seller can keep all the proceeds received up until that point and repossess the property.
Buyer Representation Agreement Facts
If, shortly after the buyer agency agreement's termination, the client purchases a property directly with the seller or through another broker (that the sales agent had identified during the term of the contract), the sales agent is still owed a commission.
Barney and Betty signed a sales contract where Barney would purchase Betty's townhome. Three days before closing, a cyclone wiped out the townhome, leaving only rubble behind. What is the reason for the discharge of contract in this scenario?
Impossibility of performance
Janice is meeting with a prospective seller client. In Texas, which of the following documents are license holders required to present to consumers prior to entering into a listing agreement with them?
Information About Brokerage Services
You have an investor client who's interested in learning more about the advantages of a 1031 tax-deferred exchange. What might you tell him?
It allows investors to defer capital gains taxes when selling a property, provided they buy a like-kind property within a set amount of time.
Jackson is leasing a small store front. He has signed a lease in which he gives a percentage of his sale proceeds to his landlord. Why would he choose to enter into such an arrangement?
Jackson wants to reduce the base rent
Listing Agreement
Katy's neighbor, Brady, approached her, as a real estate licensee, for help marketing and selling his home. After Katy provides Brady with an Information About Brokerage Services form, what type of agreement will the two of them sign?
Lessor
Landlord
Who is the lessor in a lease agreement?
Landlord/owner
The contract that allows a tenant to live on the property is a(n) __________.
Lease
Sandwich lease
Lease between the original tenant who has subleased to a new tenant and the landlord
A _____________ is the term used for an estate that conveys possession and control, but not title.
Nonfreehold estate
Brad has accepted an offer in a new town. He gets his lender to allow him to substitute a new borrower for the loan. With everyone in agreement, Brad is relieved of his responsibility for the loan. Is this an example of performance, assignment, or novation?
Novation
The Actual Eviction Process
Once a landlord has given the required notice to vacate to a tenant who's staying on the property illegally, that landlord can file a suit for possession to force the tenant from the property.
At what point in the Texas contract for deed process does the buyer receive the deed from the seller?
Once the contract is paid in full
When Is the Option Agreement Binding to Both Parties?
Once the optionee exercises the option.
Assignment
One of the original parties transfers rights to a different party, but may still be liable for obligations.
Springs and Things water landscaping store opened up in the strip mall. To keep rents low, Bob, the store owner, agreed to pay the building owner 5% of his gross sales above $20,000 per quarter.
Percentage lease
The music store that opened in the city's shopping center was slow getting off the ground, but luckily the owner didn't have a hefty rental payment. Instead, she shared some of her gross sales with the building owner.
Percentage lease
Charles runs a small vacuum cleaner repair business. His commercial property ____________ lease agreement has him paying a base rent plus an allocated amount of gross sales above a certain threshold.
Percentage.
Millicent and her neighbor, Tommy, agree to swap houses. Because they both hate to move, they also agree to leave all of their furnishings behind, but take their personal belongings. Both parties do exactly what they say, and they don't even have to do a change of address—they simply install a vacuum mail chute between the two houses.
Performance
Ezekiel owns a commercial building that he wants to keep, but he needs capital. He has a plan to recoup 100% of the current equity in the building without having to move business locations by entering into a lease agreement with an investor. What type of commercial lease can Ezekiel use to achieve his goals?
Sale and leaseback
Texas licensee Janice is working with a buyer who's decided to use seller financing to purchase the property. To which type of contract will Janice attach the seller financing addendum?
Sales contract
Sale and leaseback
Situation in which a building owner will sell the building to an investor, and lease it back
Oil and gas lease
Special lease agreement with an oil or gas company in which the land owner receives a cash payment for executing the lease
Randy and Candy entered into a contract for Randy to purchase Candy's lakeside property, with acreage. Prior to closing, Candy received a better offer, and told Randy she was terminating. Randy sued her to retain the rights he was promised in the contract. What is the reason for the discharge of contract in this scenario?
Specific performance
Intermediary
Specifies whether the seller agrees to allow their broker to act as an intermediary.
Access to the property
Specifies who the seller authorizes to access the property.
Brady did everything he could to get Gail to terminate, given that he had a backup buyer waiting in the wings, and that buyer was willing to pay more. Finally, he told Gail he would not sell to her. Gail pursued remedy in court—she wanted that house, and she would get that house!
Sue for specific performance
Lessee
Tenant
Which of the following statements about term provisions in lease agreements in Texas is true?
The beginning and end dates of the lease must be clearly stated.
Advantage for buyer
The buyer doesn't have enough money saved for a traditional down payment.
Disadvantage for buyer
The buyer doesn't have ownership in the property until it's completely paid off.
Your buyer client is considering a contract for deed. Which of the following is an advantage of such an arrangement for the buyer?
The buyer doesn't have to have the money for a traditional down payment.
Which of the following statements best describes the 200% rule as it relates to tax-deferred exchanges?
The combined fair market value of the property (or properties) selected can't be more than 200% of the relinquished property.
Lease
The contract that allows a tenant to live on the property and establishes the rights and obligations of the tenant.
Operation of law
The court determines through prior cases the party's intent to terminate.
Which of the following statements is true about constructive eviction in Texas?
The court may award damages to the tenants and order the landlord to make repairs.
How does the "break-even point" relate to percentage leases?
The landlord doesn't charge a percentage of sales until the tenant's sales exceed a break-even point.
Gross lease
The landlord pays all expenses related to the property (not the tenant).
Commercial leases may contain an automatic renewal clause. If this is the case, what happens after the lease's original term has come to an end?
The lease continues on a month-to-month basis.
Mason was leasing lakeside property when his one-person sailboat capsized, and he drowned. Under Texas law, which of the following occurs if a tenant dies during the term of lease?
The lease doesn't terminate and becomes the responsibility of the tenant's heirs.
In a 1031 exchange, there are rules governed by Section 1031 of the Internal Revenue Code. The rules include _______.
The property in an exchange must be like-kind
In addition to the property address, the lease agreement start and end dates, and the monthly rent and deposit amounts, which of the following pieces of information should all commercial leases contain?
The purpose for which the space is being rented
Benefits of commercial lease
The requirement for excellent credit is less of an issue
Leasehold estate
The right that allows a tenant to live on the property.
Control
The right to determine how the property is used, and who may enter the property.
Possession
The right to use the property; to live or work there.
If you had to describe the purpose of a sales contract to a Texas client, which of the following statements would you use?
The sales contract identifies the terms of a real estate sales transaction between the seller and the buyer.
If an automatic lease renewal clause is included in a commercial lease in Texas, which of these statements is true?
The tenant's lease agreement will be automatically renewed on a month-to-month basis with the landlord's consent.
Which of the following statements best describes the 95% rule as it relates to tax-deferred exchanges?
The total value of the property (or properties) selected as exchanges must be at least 95% of the value of the property being sold.
There is a standard promulgated (published) contract for deed form in Texas that every licensee is required by law to use.
This statement is false. There's no standard contract for deed form in Texas. Instead, the agreement would use the residential sales contract, with a seller financing addendum attached to it.
Thomas wants out of his contract, because he doesn't believe his agent is doing enough to market the property. Thomas is convinced that if more and better marketing were being done, more buyers would be coming to look at the house and the property would be under contract by now. What must happen before the listing agreement can be terminated?
Thomas and his agent must mutually agree in writing to terminate their agreement.
Gail was supposed to close on her new home by the end of May, but she kept asking the sellers if they could push the closing date back. Soon the summer was over and she still hadn't closed. Gail was guilty of not adhering to which aspect of the contract?
Time is of the essence
Garrett wanted to move his real estate closing so that he can get through his wedding first. His broker and attorney encouraged him not to do it because of which contract clause?
Time is of the essence
In order for performance of contract to occur, the parties to the contract must meet the terms of the contract in a timely manner. What phrase is often used in contracts to convey the need for the parties to proceed in good faith and not unduly delay the process?
Time is of the essence
Many real estate contracts contain the phrase ________, reminding the parties to avoid unnecessary delays to the transaction, and to adhere to all contract dates.
Time is of the essence
What is the purpose of a residential sales contract?
To identify the terms and conditions under which a property will be transferred from the seller to the buyer
What's the purpose of the buyer agency agreement?
To identify the terms of the buyer agent / buyer agency relationship
What is the purpose of the listing agreement?
To identify the terms of the listing agent / seller agency relationship
Barry is buying Katherine's investment property, a triplex. Katherine is using a 1031 tax-deferred exchange and will be using the proceeds from the sale of her triplex to purchase a four-plex. Is the following statement true or false? Katherine has to disclose she's doing an exchange to Barry.
True
200% Rule
When exchanging more than one property, the combined fair market value of the properties can't be more than 200 percent of the value of the relinquished property.
When would an investor who's involved in a 1031 tax-deferred exchange consider entering into a reverse exchange?
When the investor closes on the replacement property before selling the original property
A Texas sales contract is a legally binding ______.
Written contract between a potential buyer of property and the seller of the property
The Rooty Tooty Ballet School was undergoing construction, so it leased a portion of a commercial building through the construction end date, in seven months. When the work was complete, the ballet school returned to its original space and didn't even give notice to its temporary landlord. What type of tenancy did the ballet school have?
Written estate for years
Option Agreements and Leases
-An option agreement attached to a lease gives the lessee the option to purchase the property at the end of the lease term or as agreed. -An option agreement that is attached to a lease is known as a lease option, or a lease with an option to buy.
Key Points in the Residential Lease Agreement
-If a tenant leaves before their lease is up, they are still obligated to pay the rent through the remainder of their lease term. -Landlords can use a tenant's security deposit to cover the costs to bring the unit up to its original, rentable condition, and require the tenant to make up any deficit in the cost. The landlord can also deduct from the tenant's deposit the cost to remove and dispose of any belongings the tenant might leave behind. -If a tenant doesn't comply with the lease, the landlord can terminate the lease with one day's notice to vacate, accelerate any unpaid rents, confiscate the tenant's property for unpaid rent, and charge the tenant for any expenses. -Assignment and subletting aren't allowed without the landlord's written consent. If a tenant substitutes someone without the landlord's permission, the sublet is void, and the original tenant is still under obligation to pay the rent. -All tenants who occupy the premises are jointly and individually bound by the lease.
Key Points in the Commercial Lease Agreement
-In a holdover situation, the tenant's rent automatically escalates to 150% of the base rent, plus additional rent payable daily. Moreover, the tenant can't hold the landlord and the incoming tenant liable for damages that occur due to the holdover. -The security deposit is only refunded after the tenant has vacated for at least 60 days, and only after giving appropriate notice and providing a forwarding address. -The tenant is responsible for obtaining a certificate of occupancy for the lease premises. -Even if a tenant has the landlord's written consent to sublet or assign any part of the leased premises, the tenant remains liable for all the obligations stated in the lease. -The TAR Commercial Lease agreement is binding on both parties and their heirs, executors, administrators, successors and assigns as stated in part B of the Agreement of the Parties section.
Indemnity
-Indemnity provisions in the lease usually require that a tenant pay (indemnify) a landlord for damages in the event a claim is filed against the landlord in connection with matters arising in the leased areas of the building. -A tenant's indemnity is usually limited to matters arising in the demised (leased) premises and doesn't include those claims or losses that arise from the landlord's or the landlord's agents' negligence or willful misconduct. -Landlords usually agree to these requests from a tenant, because the landlord's insurance covers the common areas and the tenant's insurance covers the demised premises.
Why the Commercial World Likes Leases
-Lease arrangements allow new or financially strapped businesses to divert their capital to other business needs. -Business owners can often make more money on their business than they can on the appreciation of the building in which that business is conducted. -easing doesn't require a lot of cash up front. This leaves the business owner with more cash to invest in the business.
Once you've discussed agency with your potential client, provided them with the mandatory Information About Brokerage Services form, and the two of you have entered into an agency agreement, is there anything else for you to do in a lease transaction?
-List and market the property for an owner client. -Assist the client in reviewing and filling out the lease agreement. -Represent the client's interest in all negotiations and transactions regarding the lease of the property. -Assist a tenant client in locating a suitable place to lease.
Landlord remedy
-Lockout -Actual eviction
Insurance
-Many times, the amount of insurance specified in the lease is higher than the amount a tenant actually carries and higher than the amount the landlord actually requires. -Landlords aren't required to specify the amount of insurance they carry on the building. -Tenants may ask the landlord to lower the insurance requirement amount to meet the amount the tenant already carries.
At a minimum, which of these components should all commercial leases contain?
-Monthly rent and deposit amount -Lease agreement start and end dates -Names and signatures of all parties -Purpose for which the space is being rented -Conditions under which the lease can be terminated
Lease Termination and Unforeseen Circumstances
-Norton's lease still had five months on it when he died of a heart attack. His estate was still responsible for payment of rent until his lease was up. -When her apartment building was foreclosed on, Rhonda's landlord had 30 days to provide her with a notice to vacate before terminating her lease.
Valid Contract Requirements
-Offer -Acceptance -Legal capacity -Legal purpose -Mutual assent -Consideration
Automatic Renewal and Notice of Termination
-Once the term of the initial lease has expired, the lease is automatically renewed on a month-to-month basis. -Unless otherwise agreed to by the landlord and tenant, notice of termination must be provided not less than 30 days prior to the lease expiration date. -. Oral notice of termination is not sufficient under any circumstances. The notice must be provided in writing. -The automatic month-to-month lease renewal remains in effect until either party provides written notice of termination to the other party.
Now switch hats and assume you are representing tenants in a commercial lease transaction. What three things can they expect you to do for them?
-Represent their interests in all negotiations and transactions regarding the lease of the property. -Assist them in locating a suitable space to lease. -Assist them in reviewing and preparing the lease agreement.
Tenant remedy
-Right to sue -Constructive eviction
Because the moisture issues were worse than the seller had disclosed, and the seller knew they were worse, the buyer sought the court's help in getting the seller to pay for the repairs. The court can offer two remedies in this scenario.
-Sue for monetary damages -Sue for specific performance
Month-to-Month Tenancy
-Tenants who do not have one of the more common lease types and who pay rent on a monthly basis are called month-to-month tenants. -In a month-to-month tenancy situation, the tenant's lease agreement will specify the month-to-month arrangement. -If a holdover tenant continues to pay rent and the landlord continues to accept it, the holdover tenant is considered to have a month-to-month lease.
Lockout as a Remedy
-Texas law permits landlords to change the locks on tenants who are late in paying some or all of their rent. -After the locks have been changed, the landlord must give residential tenants the new keys to the property even if the tenants don't pay the rent due.
What's required for a lease of a year or more to be enforceable in a court of law in Texas?
-The lease must be in writing. -The lease must be signed by both the lessee and lessor.
Key Points in the Lease Agreement
-The proprietary lease holder doesn't own the apartment, but holds a proprietary lease to the residential unit. -An oil or gas lease typically gives the oil or gas company time to determine whether oil or gas exists, and a deadline by which drilling must begin. -The purchase contract is the primary consideration and their lease is secondary. -With a ground lease, when the lease expires, any improvements to the property belong to the land owner.
Is Termination Allowed
-When the landlord for Olmstead Arms learned that Jack was turning tricks in his apartment, Jack's lease was terminated three months before it was to expire. -Rochelle has been called up for active duty one month into her one-year lease. She'll be stationed overseas for four months.
Buyer Agency Agreement
-You're showing a home to your client, Dave, who's interested in purchasing a condo listed by a competing brokerage. You don't mind writing the offer for Dave, because you have an agency agreement with him, and the seller, through his listing firm, is offering a nice cooperating agent commission. -You represent Sheila, who wants to buy a For Sale By Owner house. When touring the house, the seller begins to ask you questions about negotiation strategies. You tell the seller you can't answer these questions due to your relationship with Sheila.
Hiram plans to do a 1031 tax-deferred exchange. He just sold his property. How many days does he have to close on a new property?
180
The tenants in 6B are late with the rent again. They are now officially three months behind. Texas landlord Mia Landers is tired of playing the understanding landlord and is going to start playing the demanding landlord. She's going to give the tenants ______ advance written notice and then she's going to change the locks.
3 to 5 days
In Texas, a party to a contract has ______ from a contract breach to sue the other party.
4 years
What is the statute of limitations in Texas for a party to a contract to sue the other party for breach of contract?
4 years
You and your new buyer client have just signed a buyer agency agreement. Per Texas law, how long must your broker keep a copy of the agreement on file?
4 years
How many days does an investor who wants to do a 1031 tax-deferred exchange have from the day of closing on one property to identify and commit in writing to the next property?
45 days
A Little Story About Commercial Leases
A commercial lease, like any other lease, is a contract between a property owner and user, and therefore is legally binding. In commercial lease agreements, the tenant pays the owner in exchange for the right to operate their business on the property. In these types of agreements, the tenant is the lessee, and the owner is the lessor.
Tenancy at sufferance
A holdover tenant (someone who didn't leave when their lease expired) has this kind of possession.
What is the statute of limitations?
A law that states that, if legal remedy is sought against a person, the pursuer must bring a court action within a specified time period
Estate for years
A lease that ends on a specific date, survives the death of either party, and is inheritable.
Periodic estate
A lease that ends on, say, December 31, but will be automatically renewed for another negotiated time period.
Tenancy at will
A lease without an established time period which may be terminated at will by either party and is not inheritable.
If you had to explain to your Texas client what a contract for deed is, which of the following descriptions would you use?
A legally binding, written contract between a buyer of property and the seller that allows the buyer to pay for the property in installments
What type of professional must an investor use to conduct a tax-deferred exchange?
A qualified intermediary
Your clients come to you, asking for help with an option agreement. What do you do?
Advise them to seek the advice of a real estate attorney.
Which of the following statements about the TAR Residential Lease agreement's automatic renewal policy is true?
After the lease term has expired, the lease will be automatically renewed on a month-to-month basis.
Brandy contracted with Gwen to rent a unit in her large apartment building. Gwen hadn't maintained the property well and was an absentee owner, but rent was cheap. And the bonus was that she covered all utilities, garbage, water, and sewer, not to mention taxes, maintenance, and insurance.
Gross lease
Lease purchase
Lease in which a portion of the lease payment may go toward the purchase price of the property
Variable lease
Lease in which the lease payments change at predetermined intervals and may be based on changes to an economic indicator
Ground lease
Lease in which the tenant leases property upon which the tenant intends to build
Marigold is leasing her commercial space with an option to buy the property when the lease expires. What type of commercial lease does Marigold have?
Lease purchase
Proprietary lease
Lease used by owners of cooperative apartments who purchase shares of the corporation that owns the building
Selma and Richard have the temporary right to live at 123 Elm Street. They can come and go and use the property as they see fit, but they can't do so indefinitely. They must vacate the property at the end of next year. What sort of interest do they have in 123 Elm Street?
Leasehold estate
Quentin is the seller in a Texas contract for deed agreement. What type of rights to the property does he have during the contract for deed process?
Legal title rights
The tenant is the ______ in a lease agreement.
Lessee
Drawback of commercial lease
Little or limited control over what the property owner decides to do Lack of equity in the property
Returning from a business trip at 3 a.m., Brent found that that the key to his apartment no longer worked. Sure, he hadn't paid rent in two months, and he'd received a notice from the landlord. But this was illegal—wasn't it? He looked at the paper posted on his door, phoned the number listed, and demanded to be let in. Two hours later, someone hand-delivered him a new key! What type of remedy has the landlord used for this breach of lease situation?
Lockout
Have I Got an Option for You!
Margo Kent wants to make an offer on a specific piece of property owned by Grant Lee, but she doesn't want to be forced to buy the land. Grant is okay with this, so the two enter into an option agreement. Margo is the optionee, and Grant is the optionor. Grant is fully aware that an option agreement is a unilateral contract and that only the seller is bound to carry out his contractual obligations until the buyer decides to exercise the option to buy. However, he also knows that if Margo decides not to purchase the property, he gets to keep the option fee and is free to sell the property to someone else.
After Bill's one-year lease expired, he continued to rent from his landlord for several months. If he decides to leave, he will be required to give a month's notice. What type of tenancy does Bill have?
Month to month
Which of the following is one benefit to business owners for leasing instead of buying real estate for their business?
Monthly rent is a tax deduction as a business expense
When Hank's nephew, who lived with him, caused problems at the pool, Hank and the landlord decided it was time for a change. Hank would be released from his lease, and his landlord could get a new, less troublesome tenant.
Mutual agreement
Jeff, a seller, and Mark, a buyer, couldn't come to terms over a repair issue. They decided to just forget the whole thing and let each other out of their obligations. Besides, Jeff had another buyer in the wings.
Mutually rescind the contract
Just before Fiona, a buyer, and Winchell, a seller, closed on their transaction, they discovered they were in love, and Fiona moved in with Winchell.
Mutually rescind the contract
Which one of the following responsibilities requires the licensee to secure a profitable deal for the landlord that is also affordable for the commercial tenant?
Negotiate leases
Bonita rented a large warehouse space for her art classes. She paid taxes, maintenance, and insurance, as well as her rent. What type of lease is this?
Net lease
Jake leased a commercial building from Tim. Jake was responsible for maintenance, but Tim handled insurance and taxes. What type of lease is this?
Net lease
For which of the following reasons can a Texas real estate sales contract be terminated?
One or both parties are in default
Partial performance
One or both parties have completed only a portion of the terms agreed to in the contract.
Substantial performance
One party completed most of the terms specified in the contract but not necessarily to the letter.
When does substantial performance of a contract occur?
One party has met most but not all of the terms specified in the contract, and may be required to pay damages for the terms not met.
A(n) ______ is an offer to purchase a specific piece of real estate, but without the obligation to buy it.
Option agreement
Grant owns a property that's under an option contract. Grant is the ______.
Optionor
Keri offered to buy Jerry's house. In return, Jerry agreed to include in the sale his Mustang—a rare 65 Shelby GT350. But when Keri opened the garage, after closing on the transaction, she found instead a Hot Wheels version of the car. Not what she had in mind! Sure, she had the house, but she was going to sue Jerry for the car. What is the reason for the discharge of contract in this scenario?
Partial performance
In Texas, what type of leasehold involves a possessory interest that is automatically renewed at the end of each period specified in the lease?
Periodic estate
Cindy thought she'd rent her apartment forever, but, after being there six years, renewing automatically every year, her landlord gave her notice because he'd decided to turn her apartment building into condos. What type of tenancy does Cindy have?
Periodic estate or tenancy at will
Jeb's lease renewed every six months. If he decided to leave, he was required to give his landlord two months' notice. What type of tenancy does Jeb have?
Periodic estate or tenancy at will
The right to use the property and to live or work there is known as _____________.
Possession
Listing services
Provides the seller with the ability to opt out of the property being marketed on the MLS.
Who may legally conduct a 1031 tax-deferred exchange?
Qualified intermediary
Which of these property owners is eligible to take advantage of a 1031 tax-deferred exchange?
Reggie sells an apartment complex and purchases a new complex a month later in a different part of the city.
A Little Story About a Lease
Renting a property is one type of estate holding. It's called a leasehold estate, meaning that the right of possession is what is being transferred, but not title or ownership. This kind of contract is called a lease. With this kind of estate, the right of ownership is not transferred to you. Instead, you receive two other rights: the right of possession, and the right of control, for a specified period of time.
You're representing a tenant client in a lease transaction. Which of the following duties do you owe your client?
Represent the client's interest in all negotiations and transactions regarding the lease of the property
When the buyers didn't get their earnest money in on time, the seller terminated since a better offer was in the wings.
Rescind contract unilaterally
When the seller couldn't provide marketable title, the buyer terminated.
Rescind contract unilaterally
Kyle is meeting with Martha, a prospective tenant client who wants him to negotiate a one-year lease for her. Prior to entering into an agency representation agreement with Martha, what must Kyle do in accordance with Texas law?
Review the Information About Brokerage Services form with her
The purpose of the use statement in a Texas lease agreement is to ______.
Specify how the tenant may use the property, including allowable activities
Limitation of Liability
States that the broker is not responsible for the security of the property should it become vacant during the listing period.
Mediation
States the parties agree to resort to mediation if they can't resolve disputes through negotiation.
After Chester moved into the old house on the hill, he found that it was infested with termites—something his inspector missed, and the seller failed to disclose. He pursued his monetary remedy in court. This is an example of ________.
Suing for monetary damages
When Flip, the buyer, tried to cancel just prior to closing, Wilson, the seller, used the courts to compel him to go through with the purchase. This is an example of ________.
Suing for specific performance
Ann Marie is a tenant with a triple net lease. Per her lease, she pays for which of the following expenses related to the property?
Taxes, maintenance, and insurance
In Texas, what type of leasehold is characterized by possession of a property, such as a situation in which a tenant continues to occupy an apartment after the lease has terminated?
Tenancy at sufferance
In Texas, in what type of leasehold is the duration of the lease unknown at the time it is created?
Tenancy at will
Frank leases his apartment weekly, and if he is going to leave, he'll have to provide one week's notice. What type of tenancy does Frank have?
Tenancy for shorter periods
Irma doesn't like to be tied down, so instead of signing a lease, she and her landlord agreed she could stay as long as she wanted, paying rent each month and giving 30 days' notice when she was ready to leave. What type of tenancy does Irma have?
Tenancy from month to month
Another required provision of a lease agreement is the capacity to contract. What does the "capacity to contract" refer to?
The legal requirement that anyone who signs a lease must be competent enough to do so (e.g., sane and of legal age).
Tenant A is leasing commercial property from the landlord. Tenant A then sublets to Tenant B. Which of the following parties have a sandwich lease?
The original tenant and the landlord
Sylvia is in the process of buying a home in Texas, and her offer is contingent on obtaining financing. Her lender is requiring that certain repairs be made to the home before it will approve the loan. Neither Sylvia nor the seller is willing to pay for the repairs, although the repairs are less than 5% of the sales price. Which of the following statements regarding termination of this contract is true?
The sales contract will be terminated, and Sylvia's earnest money will be refunded.
Who or what determines the listing price for the seller's property that will appear in the Listing Price section of TAR's Residential Real Estate Listing Agreement Exclusive Right to Sell contract?
The seller
Andy is in a contract for deed arrangement in Texas and has been paying the seller for over a year. Unfortunately, Andy lost his job several months ago and can no longer make the payments. What will happen with the contract for deed arrangement now that Andy can no longer meet his financial obligations to the seller?
The seller can keep all of the proceeds received up until that point, and repossess the property.
Percentage lease
The tenant pays a base rent plus a percentage of his gross sales.
Net lease
The tenant pays some or all expenses separately.
Alice lived in a building where the electricity was sub-metered. She was current on her rent but hadn't paid her electric bill in four months. One day she woke up freezing. The landlord had turned off her heat! What type of remedy is the landlord using for this breach of lease situation?
Utility shut-off
Charlotte has a lease in which the amount she owes increases at predetermined intervals. What type of commercial lease does Charlotte have?
Variable
Listing Agreement Facts
-A listing agreement can only be changed with the written consent of all parties. -The seller's obligation to pay the broker's earned compensation is binding upon the seller, their heirs, administrators, executors, successors, and permitted assignees. -The listing agreement is interpreted according to the laws of the state of Texas.
What types of properties qualify for a 1031 exchange?
-A tax-deferred exchange for properties used for investment or business purposes is also referred to as the like-kind or 1031 exchange. -The 1031 tax exchange is used to defer paying taxes when there is an almost immediate repurchase of what's called a "like-kind" property. -Income-producing residential, commercial, and industrial property can qualify for an exchange as well as hotels and motels.
Contract for Deed Default Process
-If a buyer fails to make a payment on a contract for deed, the buyer is in default. -If a buyer fails to comply with the terms of a contract for deed, the buyer is in default. -For contracts of deed signed on or after September 1, 2003, the seller must give a buyer who's in default a minimum of 30 days to make the payment (or comply with the contract's terms). -If the buyer doesn't cure a buyer default within the allowable time frame, the seller may seek any allowable remedy.
What is a sales contract?
A binding, written contract entered into by a potential buyer of a property and the seller of the property
What is a buyer agency agreement?
A binding, written contract entered into by a potential buyer of a property and you, as the buyer's agent (on behalf of your broker)
What is a listing agreement?
A binding, written contract entered into by the seller of a property and the seller's listing agent (on behalf of that agent's broker)
Per TAR's Residential Real Estate Listing Agreement Exclusive Right to Sell contract, what does the broker have the authority to do?
Market the seller's property in an effort to secure a buyer and negotiate a sale.
Buyer Agency Agreement Termination
-Prior to locating a property to buy, your client, Lily Ponds, broke her hip and was sent to a nursing home. -Michael and Melody, were able to locate and lease an apartment with the assistance of their agent, Nancy Nicks. -Herb Daniels and his buyer clients, Cindy and Kurt Danes, entered into a buyer agency agreement with a term of 90 days. Ninety days passed, and the Danes still hadn't found a property to purchase.
Which five of these are required elements of every listing agreement?
-Term of agreement -Listing price -Marketing activities the agent may perform -Amount of compensation to be paid to the selling agent, sub-agent, or buyer's agent -Limitation of broker's liability
Required Elements in a Buyer Agency Agreement
-Term of agreement -Type of property being sought -Intermediary status options -Type, amount, and other terms of compensation -Obligations of each party
A buyer agency agreement, like any other contract, can be terminated. Termination may occur when:
-The buyer finds and purchases a property (in other words, the purpose for which the agreement was formed has been completed) -The term of the agreement expires -There is a mutual, written agreement by the parties to terminate the agreement -Either party dies or is incapacitated
Residential Sales Contract Termination
-The buyer, Joe Manx, has a financing contingency, and the lender is requiring that the property be treated for wood-destroying insects and that areas of the structure be repaired. The cost of the treatment and repairs exceeds 5% of the sales price. Joe can't afford the repairs, and the seller isn't willing to split the cost. -The buyer, Simon Timmons, failed to pay the earnest money by the date specified in the contract and is now in default. -Five days after signing the sales contract and paying the seller an option fee, Mario and Maria Gomez decide to opt out of the agreement. Per the sales contract, they had seven days after the effective date of the contract to exercise this option.
A Closer Look at the Seller Financing Addendum
-The purpose of the Seller Financing Addendum is to provide the seller with some assurance that the buyer is a good credit risk for the seller to take on. -The addendum clearly states when and how the buyer will repay the seller. -Both the buyer and seller must sign the addendum.
A lot of important information is contained in TAR's buyer representation agreement
-The sales agent may work with other buyers who are interested in the same properties, before, during and after the term of the agreement. -The client must affirm that they have the ability and capacity to make the purchase. -Everyone who has an interest in the purchase of this property (this includes the buyer's brokerage firm) must be identified in the Parties section and must sign the agreement.
Can the Lease Agreement Be Terminated?
-The seller's property was completely destroyed when a flash flood occurred. -The seller and buyer have closed on the sales transaction. -Kim and her client, Suzie, entered into a three-month listing agreement. At the end of the three months, with no buyer at the table, the two agreed to part ways.
Seller's Representations
-Whether the seller is delinquent on any loans or other financial obligations with regard to the property -Whether the seller has legal capacity to convey the property -Any existing encumbrances or liens against the property -Whether there are any other persons or entities with the right to purchase, lease, or acquire the property
How many days does an investor who wants to do a 1031 tax-deferred exchange have from the date of sale of Property #1 on Property #2?
180 days
What is a contract for deed, also known as an installment sales contract or installment land contract?
A contractual agreement in which the buyer pays the seller the purchase price over time in a series of installments until the buyer has paid the contract in full and the seller turns over the deed to the buyer.
Per TAR's Residential Real Estate Listing Agreement Exclusive Right to Sell contract, what option does the seller have with regard to having their property listed on the MLS?
The seller can opt in or opt out of having the property listed on the MLS.
Advantage for seller
The seller can spread payment for capital gains taxes over time.