real estate principles and practices chapter 14 leases © 2014 oncourse learning
TRANSCRIPT
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Real EstateReal Estate Principles and Practices Principles and Practices
Chapter 14Chapter 14
LeasesLeases
© 2014 OnCourse Learning
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Key TermsKey Terms
Assignment
Constructive eviction
Demise
Gross lease
Ground lease
Lease
Lessee
Lessor
Net lease
Option clause
Percentage lease
Periodic tenancy
Reversionary interest
Sale-leaseback
Security deposit
Sublet
Surrender and acceptance
Tenancy at sufferance
Tenancy at will
Tenancy for years
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OverviewOverview
Leasing advantages for businesses
Types of leases
Rights and conditions imposed by a lease
Residential
Commercial
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The LeaseThe Lease
Lease: Lease: contract and a conveyance of real property
Lessee: Lessee: tenant
Lessor: Lessor: landlord
Demise: Demise: conveyance of an estate under lease
“to grant, demise, and let.”
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The LeaseThe Lease
Reversionary interest: Reversionary interest: property reverts to lessor when lease is terminated
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Leasehold InterestsLeasehold Interests
1. Tenancy for years:1. Tenancy for years:Definite period of time
Stated expiration dateStated expiration date
Not terminated upon death of either party
2. Periodic Tenancy2. Periodic TenancySpecified period to period
No set termination dateNo set termination date
Requires notice30 days
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Leasehold InterestsLeasehold Interests
3. Tenancy at will:3. Tenancy at will:Either party may terminateEither party may terminate
Most states require notice
Death terminates the lease
4. Tenancy at sufferance4. Tenancy at sufferanceHoldover tenant: Holdover tenant: remains in possession after lease expires
Lessor may evict or create a periodic tenancy
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Lease ContentsLease Contents
1. Names 1. Names
2. Description2. Description
3. Duration of the lease3. Duration of the lease
4. Amount of rent4. Amount of rent
5. Possession, maintenance, 5. Possession, maintenance, improvementsimprovements
6. Liability of the parties6. Liability of the parties
7. Transfer by the lessee7. Transfer by the lessee
8. Special covenants, 8. Special covenants, conditions, & provisionsconditions, & provisions
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Termination of a LeaseTermination of a Lease
1. Expiration of the lease: 1. Expiration of the lease: term expires
Tenancy at will and periodic tenancy: written notice
Tenancy for years: expires on termination date
Tenancy at Sufferance: at any time
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Termination of a LeaseTermination of a Lease
2. Agreement between the 2. Agreement between the parties: parties: mutual agreement
Surrender and acceptanceSurrender and acceptance
3. Breach of condition: 3. Breach of condition: either party breaks the terms of the lease
Injured party may cancel
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Termination of a LeaseTermination of a Lease
4. Condemnation: 4. Condemnation: Eminent domain
Compensation to the tenant
Value is the difference between contract rent and economic rent
5. Notice: 5. Notice: if proper notice is not given, lessee may be held for another term
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Termination of a LeaseTermination of a Lease
6. Eviction6. Eviction
Actual eviction: Actual eviction: tenant is dismissed, lessor regains possession
Unlawful detainer: Unlawful detainer: tenants failure to move
Distraint: owner’s right to seize lessee’s personal property
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Termination of a LeaseTermination of a Lease
6. Eviction6. Eviction
Constructive eviction: Constructive eviction: tenant may terminate if owner interferes with lessee quiet enjoyment
Rent abatement: tenant withholds rent
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Lease ProvisionLease Provision
Statue of Fraud: lease for more than one year must be in writing
Rent customarily paid in advance
Lessee may enjoy without interruption or invasion by lessor
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Lease ProvisionLease Provision
Unexpired portion of lease in reconveyed and accepted
Lessee remains liable if property is abandoned
Surrender and AcceptanceSurrender and Acceptance
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Lease ProvisionLease Provision
Assign: Assign: gives remainder of lease entirely
Assignee: new lessee
Assignor remains liable unless released by owner
Assignment & SublettingAssignment & Subletting
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Lease ProvisionLease Provision
Sublet: Sublet: retains interest and responsibility
Sublessor: original tenant
Subtenant: new lessee
May sublet all or part
Assignment & SublettingAssignment & Subletting
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Lease ProvisionsLease Provisions
Allows the lessee the Allows the lessee the right to renew upon right to renew upon expirationexpiration
Option ClauseOption Clause
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Lease ProvisionsLease Provisions
Tax participation clause: Tax participation clause: lessee agrees to pay all lessee agrees to pay all or stated portion of any or stated portion of any increaseincrease
Tax AdjustmentTax Adjustment
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Lease ProvisionsLease Provisions
Landlord is not required to make improvements or alterations
Lessee must have approval
Trade fixturesTrade fixtures
ImprovementsImprovements
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Lease ProvisionsLease Provisions
Uniform Residential Landlord and Tenant ActUniform Residential Landlord and Tenant Act
Tenant responsibilities
Obligations of the PartiesObligations of the Parties
Keep property in clean and good condition
Normal wear and tear
May not destroy or damage
May not disturb other tenants
Pay rent as agreed
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Lease ProvisionsLease Provisions
Uniform Residential Landlord and Tenant ActUniform Residential Landlord and Tenant Act
Landlord responsibilities
Obligations of the PartiesObligations of the Parties
Minimum housing codes
Good repair, safe, livable condition
Quiet enjoyment
Notice
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Lease ProvisionsLease Provisions
Returned upon expiation with deductions for repairs
One month rent
Ceiling on rent charges
Burden on landlord
Security DepositsSecurity Deposits
Rent ControlRent Control
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Types of LeasesTypes of Leases
Net lease: Net lease: rent includes all or a portion of the property expenses
Long term commercial or industrial
Triple net lease
Gross lease: Gross lease: Rent includes each tenant’s portion of expenses
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Types of LeasesTypes of Leases
Percentage lease: Percentage lease: flat fee plus a % of gross income
Common in shopping malls
Straight, gross, or flat Straight, gross, or flat lease: lease: lessee’s responsibility limited to the rental payment
Apartment lease
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Types of LeasesTypes of Leases
Ground lease: Ground lease: leasing of unimproved land
Tenant erects the building
Long term
Recreational area
Oil and gas leaseOil and gas leaseRight to explore
Royalties belong to landowner
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Types of LeasesTypes of Leases
Sandwich lease: Sandwich lease: Lessor – top
Lessee – middle
Sublessee – bottom
Reappraisal lease: Reappraisal lease: protects the lessor in a long term lease
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Types of LeasesTypes of Leases
Sale-leaseback: Sale-leaseback: property is sold on the condition the seller can lease it back
Buyer: lessor
Seller : lessee
Graduated lease: Graduated lease: stepped-up lease
Rent increases at stated intervals
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Types of LeasesTypes of Leases
Index lease: Index lease: Periodic increase or decrease in rent based on a national index
Air lease: Air lease: right to occupy space over a property