Real Estate Principles and Practices Chapter 14 Leases © 2014 OnCourse Learning.

Real EstateReal Estate Principles and Practices Principles and Practices

Chapter 14Chapter 14

LeasesLeases

© 2014 OnCourse Learning


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


OverviewOverview

Leasing advantages for businesses

Types of leases

Rights and conditions imposed by a lease

Residential

Commercial


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.”


The LeaseThe Lease

Reversionary interest: Reversionary interest: property reverts to lessor when lease is terminated


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


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


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


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



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



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



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



6. Eviction6. Eviction

Constructive eviction: Constructive eviction: tenant may terminate if owner interferes with lessee quiet enjoyment

Rent abatement: tenant withholds rent


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



Unexpired portion of lease in reconveyed and accepted

Lessee remains liable if property is abandoned

Surrender and AcceptanceSurrender and Acceptance



Assign: Assign: gives remainder of lease entirely

Assignee: new lessee

Assignor remains liable unless released by owner

Assignment & SublettingAssignment & Subletting



Sublet: Sublet: retains interest and responsibility

Sublessor: original tenant

Subtenant: new lessee

May sublet all or part

Assignment & SublettingAssignment & Subletting


Lease ProvisionsLease Provisions

Allows the lessee the Allows the lessee the right to renew upon right to renew upon expirationexpiration

Option ClauseOption Clause



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



Landlord is not required to make improvements or alterations

Lessee must have approval

Trade fixturesTrade fixtures

ImprovementsImprovements



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



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



Returned upon expiation with deductions for repairs

One month rent

Ceiling on rent charges

Burden on landlord

Security DepositsSecurity Deposits

Rent ControlRent Control


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



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



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



Sandwich lease: Sandwich lease: Lessor – top

Lessee – middle

Sublessee – bottom

Reappraisal lease: Reappraisal lease: protects the lessor in a long term lease



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



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

Real Estate Principles and Practices Chapter 14 Leases © 2014 OnCourse Learning.

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