1. Contracts & leases & property management Flashcards
A required element of a valid contract - When parties have the legal capacity to enter into contracts.
Legally competent parties
A required element of a valid contract - something is being offered by one party and accepted without qualification by the other. AKA mutual assent.
Offer and acceptance
A required element of a valid contract - the payment or promise of something of value, generally money, in exchange for whats being offered.
Consideration
A required element of a valid contract - the contract is not for an illegal purpose
Legal purpose or legality of object
A required element of a valid contract - when both parties acted under their own free will, without duress.
Reality of consent
Requires contracts for the sale/transfer of interest in real estate, or real estate rents for more than one year, to be in writing to be enforceable in court.
Statute of frauds
A contract that includes certain critical elements.
A valid contract
A contract that lacks at least one critical element.
An invalid contract
A contract that has no legal force due to its lack of one or more elements required for validity.
A void contract
A contract in which one party has made a promise to do something.
A Unilateral contract
A contract in which both parties have made promises to do something, and are obligated to follow through on the contract’s conditions or risk being in breach of contract.
A Bilateral contract
A contract that meets the legal requirements for validity, and therefore requires all parties to observe their contractual obligations.
An enforceable contract.
A void contract, or a contract that was valid but made but legally unenforceable due to some technical fine point.
An unenforceable contract
A contract where the understanding has been explicitly set out, typically in writing but can be oral.
An Express contract
A contract that refers to the conduct of the parties, providing sufficient indication that they have a common understanding.
An Implied contract
To sign a contract AND to fulfil the contract’s conditions
To execute
A fully performed/discharged contract
An executed contract
A contract that is in the process of being fulfilled.
Executory
A contract that engages a real estate licensee’s firm to market a property in exchange for receiving compensation, usually in the form of commission, upon the sale and transfer of the property.
A listing contract/agreement
A type of listing which engages a single agency to market a property and entitles that agency to a full commission regardless of who finds the buyer, even if it is the property owner. Gives the greatest protection for the licensee to collect compensation.
A sole listing, exclusive right to sell
A type of listing which engages a single agency to market the property and entitles that agency to a commission if anyone other than the property owner finds the buyer.
Exclusive listing/exclusive agency
A type of listing which allows the property owner to engage any number of agencies to market the property, and only entitles the agency that procures the buyer to a commission.
Open/nonexclusive listing
A type of listing which engages an agency to market a property and receive as compensation all sale proceeds in excess of the owner’s stated “net” for the property”, or amount over the list price.
Net listing
An increasingly widespread way to describe time-honored listing agreements, as well as other representation arrangements, in order to clarify their status as employment contracts that specify the licensee’s duties, obligations, agency relationship, and compensation arrangements.
Agency employment contract
A contract that engages a real estate licensee to search for suitable property on behalf of a potential buyer in exchange for receiving compensation, usually in the form of a commission, upon the purchase of the property.
A buyer agency agreement
- Required signatures
- Property description
- List price
- Definite termination/end date
- Agent compensation
Elements of a listing agreement
To set forth the conditions the prospective buyer proposes to the seller. Not a contract until acceptance.
An offer
If the offeree makes a change of any kind to an offer and returns it to the offeror.
Counter offer
The deposit or downpayment that accompanies an offer to purchase real estate. (Not necessary, not consideration)
Ernest money
Stipulates funds for damages given to the seller in the event of buyer default.
Liquidated damages provision
When an offer or a counteroffer has become a mutually accepted and binding contract.
Purchase agreement/contract, Sales contract, purchase and sale contract, Agreement contract
Identifies the specific property, sets out all of the contractual requirements for its transfer from one party to another and generally serves as the complete agreement between parties.
A property executed purchase agreement
A contract provision that serves to underline and reinforce the importance of meeting contract dates and that the failure, to do so will be considered a contract breach and grounds for cancellation of the contract.
Time is of the essence clause
A contract provision that is most often in commercial property purchase offer and serves to hold a property open for a specified period at a specified price in exchange for some monetary consideration, which is generally 1. applied to the purchase price if all of the conditions are met and go through the sale, 2. kept by the owner if there is no sale.
A type of unilateral contract.
Option
A contract provision that refers to the property being sold in its existing condition without guarantees for its physical condition or title.
Does not protect a seller from liability from known material defects.
“As is” Clause
A contract provision that refers to a seller retaining the mortgage and the liability for payments, but the new owner would pay the mortgage payments.
“Subject to” a mortgage
A contract provision that refers to a clause specifying particular amounts due to an aggrieved party, such as the seller keeping the deposit/earnest money in the event of breach.
Liquidated damages
A contract provision that details who pays for what, such as tax prorations, property repairs, title insurance, and other transaction expenses.
Settlement/closing instructions
- Financing
- Property sale
- Structural Survey
Common contingencies of contracts
A contractural right and responsibility where the buyer, during the executory period of contract fulfilment has a property interest, specifically, the right to acquire formal legal title, which in turn allows the buyer to transfer or assign that right.
Equitable title
A contractural right and responsibility where the buyer may transfer their rights in a property.
Assignment
A contractural right and responsibility where one of the parties may rescind, or cancel, the contract without penalty. It restores the parties to their precontractual position, including the return of all monies.
Also a common remedy for breach of contract where
Recission
A legally unsupportable violation of any of the contract terms by either party, and generally gives rise to legal disputes over how to either pursue or abandon the contract.
Breach of contract
A judicial remedy for breach of contract that requires getting a court order for the party who breached the contract to honor it.
Specific performance
A judicial remedy for breach of contract that means getting a court-ordered payment of financial restitution.
Monetary damages
A nonjudicial remedy of breach of contract that means getting whatever any liquidation damages provision in the contract stipulates, such as forfeiture of earnest money in the case of buyer default.
Liquidated damages
A type of leasehold estate which where there is a definite termination date.
Tenancy for years
A type of leasehold estate where there is no definite termination date, just recurring time periods during which one party or the other may exercise an option to terminate it.
Tenancy from period to period
A type of leasehold estate where it is at the will and discretion of the landlord and may be terminated at any time by either party.
Tenancy at will
A type of leasehold estate where a tenant has refused to vacate at the end of a tenancy for years or periodic tenancy and remains in possession of the property against the will of the landlord.
Tenancy at sufferance
Any tenant who extends an initial lease period whether it is at sufferance or by renewal.
Holdover tenant
A lease where the tenant pays a flat fee out of which the landlord pays all standard property expenses such as taxes, association fees, and in some cases utilities.
Gross lease
A lease where the tenant pays a base rent and some or all of the property expenses beginning with utilities, taxes, and special assessments.
Net lease
A lease where the landlord agrees to pay all maintenance, property taxes, and insurance.
Full-service lease
A lease that has a fixed base rental fee plus a percentage of the gross or net income in excess of a predetermined minimum sales volume.
Percentage lease
A lease which establishes a schedule for rent increases, generally based on a business tenants anticipated growth of gross net income.
Graduated lease
A lease which establishes a schedule for rent increases that go up or down in reference to the consumer price index.
Index lease
A lease with a rent-to-own agreement where an agreed-upon portion of the rent is applied toward the purchase price and either when the tenant can arrange other financing or when the full price is paid.
Lease purchase
A lease that begins as a lease with a clause allowing the tenant to exercise an option to purchase the property.
Lease-option, lease with an option to buy
A long-term commercial or industrial lease of land only, with the tenant typically erecting a building that reverts to the landowner at the end of the rental period, which may be as long as 99 years. Usually structured and paid as some form of net lease.
Ground lease
A common provision of leases which entitles the tenant to undisturbed possession and use of the property.
Covenant of quiet enjoyment
A common provision of leases which gives the start and end dates, and may in the case of periodic residential leases include automatic renewal provisions.
Term of lease provision
A common provision of leases which specifies the terms and conditions of rent increases.
Escalator/escalation/step-up clause
A common provision of leases which gives the tenant the right to review any sales offer the owner receives and either match it or else let the owner proceed with a sale to a different party.
Right of first refusal
A common provision of leases where a tenant leases the property to someone else. The original tenant remains primarily liable to the landlord for rents and property condition
Subletting/subleasing
A common provision of leases where the tenant transfers the lease and some or all of its liability to another person.
Assignment
The reinstatement of the owner’s full ownership and possession rights at the end of the lease period.
Reversionary rights
A tenant vacating the premises prior to the end of the lease term and defaulting on the rent.
Abandonment
The right of a landlord, generally after a court order, to seize a tenant’s personal property for rent in arrears.
Distrain/distress
The landlord’s recourse when a tenant has breached the lease.
Actual eviction
The tenant’s recourse when the landlord breaches the lease by letting the property become uninhabitable through conscious neglect.
Constructive eviction
Determining if a licensee’s efforts were instrumental in leading to a sale of real estate (and is entitled to a commission)
Procuring cause
