Chapter 11 Concepts

Question 1

lease

Answer 1

is a contract between a landlord, an owner of real estate (known as the lessor), and a tenant (the lessee) that transfers the right of possession and use of the owner’s property to the tenant for a specified period of time.

Since a lease is a bilateral agreement, both parties have rights and obligations under the lease.

Question 2

leased fee estate plus reversionary right

Answer 2

The lessor’s interest in leased property

Question 3

Four most important Leasehold Estates

Answer 3

The four most important are estate for years, estate from period to period, estate at will, and estate at sufferance.

The major difference between the various leasehold estates is the way each is terminated. One parcel of property can be held in both a nonfreehold by a tenant and freehold estate by the landlord at the same time.

Question 4

Estate for years

Answer 4

Automatic termination after a definite period; no notice to terminate required unless written into the lease.

A lease for years may be terminated prior to the expiration date by the mutual consent of both parties, but otherwise neither party may terminate without showing that the lease agreement has been breached.

Question 5

Estate from Period to Period (periodic tenancy)

1. How is this type of lease terminated?
2. How is tenancy created?
3. times of notice for termination of week to week, month to month and year to year?

Answer 5

1) Automatic renewal after a definite initial period, until terminated by either party with required notice

2) Such a tenancy is generally created by agreement or operation of law to run for a certain amount of time, such as week-to-week, month-to-month, or year-to-year.

3)
-For a week-to-week tenancy, the notice period is two days.

-For a month-to-month tenancy, the notice period is seven days.

-For a year-to-year tenancy, the notice period is one month.

Question 6

Estate at will

Answer 6

Terminated by either party at any time with no required notice

Question 7

Estate at Sufferance

Answer 7

Landlord must evict illegal holdover tenant

when a tenant who lawfully came into possession of real property continues, after the tenant’s rights have expired, to hold possession of the premises without the consent of the landlord. An example of an estate at sufferance is when a tenant for years fails to surrender possession at the expiration of the lease.

Question 8

Fixed rental lease

Answer 8

Tenant pays a fixed amount of rent but none of the property charges (mostly residential)

Question 9

Percentage Lease

Answer 9

Tenant pays a percentage of the gross or net income as rent (mostly commercial)

Question 10

Net Lease

Answer 10

Tenant pays rent plus all or some of the property charges (mostly commercial)

TICAM - taxes, insurance, and common area maintenance

Question 11

Graduated Lease (step-up lease)

Answer 11

Tenant pays rent, which increases at predetermined dates (mostly commercial)

Question 12

Ground Lease

Answer 12

Tenant typically pays rent on land and builds on it (mostly commercial)

Ground leases usually involve separate ownership of land and building

Question 13

Index Lease

Answer 13

allows rent to be increased or decreased periodically, based on changes in a stipulated index, such as the government cost-of-living index or some other named index.

Question 14

Oil and Mineral Lease

Answer 14

When oil companies lease land to explore for oil, gas, and other minerals, a special lease agreement must be negotiated.

If minerals are found, the property owner usually receives a portion of the value of the minerals as a royalty.

The North Carolina statute of frauds states that any mineral lease, regardless of duration, must be in writing to be enforceable.

Question 15

Full-service

Answer 15

leases are commercial leases that are often used in large office or multitenant buildings such as shopping centers where the tenants share in overall operating expenses for the common areas and the building(s)

Under a full-service lease, the landlord will provide most or all services related to the lease, such as utilities, cleaning services, grounds maintenance, et cetera. Usually rent is paid as a base amount plus a prorated share of the complex’s operating expenses.

Question 16

Generally, the four essentials of a valid lease are as follows:

Answer 16

Mutual agreement

Consideration

Capacity to contract

Legal objectives

Question 17

Tenant’s use of premises

Answer 17

-A lessor may restrict a lessee’s use of the premises through provisions included in the lease. In the absence of such limitations, a lessee may use the premises for any lawful purpose.

-The tenant may also impose use restrictions in the lease, such as the lease being subject to rezoning approval for specific tenant use.

-The tenant may request use exclusivity, such as being the only restaurant in a small shopping center.

Question 18

Repairs (nonresidential property)

Answer 18

-landlords are generally not obligated to make any repairs to leased premises.

-Landlords may be responsible for repairing hidden, or latent, defects, since a diligent inspection by the prospective tenant would not have revealed the defect.

-Tenants typically are required to make ordinary repairs or be held liable for waste of the property.

Question 19

Assignment and subleases

Answer 19

-The lessee may assign or sublease the lease if the lease terms do not prohibit it

-When a lease is assigned, the original tenant retains secondary liability for paying the rent.

-When a lease is sublet, the original tenant retains primary liability for paying the rent.

-The sublessor’s (original lessee’s) interest in the real estate is known as a sandwich lease. The landlord may offer the original tenant a novation where the landlord signs a new lease with the new tenant thereby releasing the original tenant from further liability.

Question 20

Default

Answer 20

-As with all well-written contracts, a provision should address legal remedies in the case of default by either party

Question 21

Termination of Leases

Answer 21

1. The parties to a lease may mutually agree to cancel the lease.
2. When the lease term expires, the lease is terminated automatically.
3. A tenancy may be terminated by operation of law, as in a bankruptcy or condemnation proceeding.
4. If one of the parties fails to perform a material obligation, such as the tenant fails to pay rent or the landlord fails to maintain habitable condition, the other party can terminate the lease.

If the landlord fails to maintain the premises in habitable condition, the tenant is considered constructively evicted and may move out and stop paying future rent.

Question 22

What happens if a leasor dies?

Answer 22

Note that when the owner of leased property dies or the property is sold, the lease does not terminate. The heirs of a deceased landlord are bound by the terms of existing valid leases. In addition, if a landlord conveys leased real estate, the new landlord takes the property subject to the rights of the tenants.

Question 23

The statute of frauds does not apply to leases? (T/F)

Answer 23

False

The statute of frauds applies to leases of more than three years. An oral lease of more than three years is considered to be unenforceable.

Question 24

Unless specifically provided for in the lease, a lessee typically has no right to renew a lease. (T/F)

Answer 24

True

Lessees typically do not have a right to renew. If they want the right to renew, then lessees should see that a renewal clause is added to the lease.

Question 25

Residential Rental Agreements Act

Answer 25

The primary purpose of this Act is to ensure that only habitable residential units are rented. A failure to comply with the terms of this Act has potentially serious consequences.

The Act does not apply to transient quarters such as hotels or motels, nor does it apply to commercial or rent-free properties.

Question 26

Obligations of landlord and tenant are mutually dependent

Answer 26

The North Carolina Residential Rental Agreements Act makes the obligations of the landlord and the tenant mutually dependent. That is, if either the landlord or the tenant fails to fulfill a duty, the other party is no longer responsible for fulfilling an equivalent duty

Furthermore, the statutory duties of the landlord, according to this Act, cannot be waived or altered by lease provision or other agreement between landlord and tenant. For example, the landlord is not allowed to lease the property for reduced rent in exchange for the tenant accepting the property in an “as is” condition.

If a real estate broker is acting as an agent for a landlord, the court sees the broker as a landlord under the Act.

Question 27

Landlord’s Statutory Duties

Answer 27

implied warranty of habitability—to supply fit and habitable premises to the tenant

The landlord must comply with current building and housing codes; make all necessary repairs to keep the premises in a habitable condition; keep all common areas safe; and maintain all electrical, plumbing, sanitary, heating, ventilating, and other facilities.

The broker who is managing the property for the landlord is defined as “the landlord” under the Act

Question 28

Common law of constructive eviction

Answer 28

-the tenant can invoke the protection of the common-law doctrine of constructive eviction. This doctrine gives the tenant the right, in effect, to cancel the remainder of the lease and vacate the premises without penalties if the landlord repeatedly fails to satisfy habitability requirements.

In effect, the tenant evicts himself or herself by building a case to prove the landlord’s breach of the bilateral lease agreement. Of course, the tenant is responsible for paying rent up to and including the last day of occupancy. Tenant is forbidden to withhold rent while in possession of the unit. The tenant security deposit, if any, is to be returned to the tenant.

Question 29

Common law of negligence

Answer 29

-law of negligence holds that the landlord is liable for injuries that occur in common areas—hallways, stairways, elevators, sidewalks, and parking lots

-In North Carolina, a landlord is not generally liable for criminal acts committed against tenants unless the landlord knew or should have known of a dangerous situation and did nothing to protect the tenants. For instance, if a rental property is in a high crime area and the landlord knows that the security system is grossly inadequate, the landlord may be liable if a tenant is injured in a mugging in a building hallway.

Question 30

Tenant’s Statutory Duties

Answer 30

The Act states that the tenant’s primary duty is to maintain the dwelling unit. This means the tenant must keep the occupied premises clean and safe, dispose of all garbage and other waste, keep the plumbing fixtures clean, comply with the obligations imposed on tenants by current housing and building codes, replace batteries in smoke detectors as needed during the tenancy, refrain from deliberately or negligently damaging the premises, and take responsibility for any damage that does occur.

Question 31

Tenant prohibited from unilaterally withholding rent

Answer 31

Under the Residential Rental Agreements Act, tenants do not have the right to withhold rent before they obtain a court order giving them that right. Thus, even when the tenant has a legitimate complaint against the landlord, the tenant cannot decide to withhold all or a portion of the rent as a remedy.

Note that this provision does not alter the tenant’s right to vacate the premises and stop paying future rent on the basis of constructive eviction. A tenant who withholds the rent but retains possession of the property has violated the rental agreement, giving the landlord the right to evict.

Question 32

Residential eviction laws/procedures

Answer 32

-The only possible legal eviction remedy is through the court system

-For example, the landlord cannot change the locks on the doors to prevent the tenant from entering the premises, cut off the tenant’s utilities, or seize the tenant’s possessions. Instead, the landlord must bring an eviction action in court before a magistrate in district court.

Question 33

Tenant Security Deposit Act

Answer 33

regulates the amount of money that can be required as a security deposit and what the landlord can do with that deposit.

Question 34

Tenant Security Deposit Act

The amount of the security deposit depends on the term of the tenancy. The maximum amount of security deposit is the equivalent of:

(week to week)
(month to month)
(longer than month to month)

Answer 34

-two weeks’ rent if the tenancy is from week to week

-one and one-half months’ rent if the tenancy is from month to month, and

-two months’ rent if the tenancy is longer than month to month.

Question 35

Tenant Security Deposit Act

The landlord may do one of two things with the security deposit:

Answer 35

(1) the security deposit can be placed in a trust account with an insured North Carolina bank or savings institution, or (2) the landlord can obtain a bond as a guarantee for the deposit.

Question 36

The Tenant Security Deposit Act provides that a security deposit on a residential unit may be used only to:

Answer 36

-reimburse the landlord for nonpayment of rent

-damage to the premises (other than ordinary wear and tear)

-nonfulfillment of the rental period

-unpaid bills that may create a lien on the property due to the tenant’s occupancy

-cost of removing and storing tenant’s property

-costs of re-renting after a breach

-or court costs in connection with an eviction action

If a tenant breaches the lease and abandons the property, the landlord is obligated to diligently attempt to find a new tenant as soon as possible. If the property is re-rented, the landlord can withhold only the part of the security deposit that covers the lost rent plus costs of re-renting.

The remainder of the deposit must be returned to the breaching tenant. If the security deposit does not entirely cover the rent lost due to breach, the landlord may retain the entire deposit and employ other legal methods to recoup the loss of rent.

Upon the termination of the lease, the landlord or his agent must account for the tenant security deposit to the tenant in writing within 30 days.

Question 37

North Carolina Vacation Rental Act

Answer 37

-The statute establishes uniform rules for landlords, tenants, and their agents involved in the handling of short-term rentals under 90 days in length where the tenant has a primary residence elsewhere

-It is important to note that a vacation rental property manager, like other types of property managers for others, must be a licensed real estate broker

-A broker may pay a referral fee to an unlicensed travel agent (defined in the statute) for procuring a tenant only for vacation rentals, according to certain guidelines found in NCREC Rule A.0109(e), and provided that no other acts of real estate brokerage requiring a license are performed by the travel agent (motels, hotels, etc., are exempt)

Question 38

The Vacation Rental Act (VRA) also imposes the following obligations when residential property subject to pending but unfulfilled vacation rental agreements is sold. [G.S. 42A-19.]

Answer 38

-Prior to entering into a contract to sell, the seller-owner must disclose to the prospective buyer all time periods during which the property is subject to a vacation lease agreement.

-Within ten (10) days after the transfer, the grantor (seller) must disclose to the grantee (buyer) the name and address of each tenant and provide the grantee with a copy of each lease agreement.

-The buyer must honor all existing lease agreements that will end within 180 days after the transfer, defined as the recording of the deed to the buyer.

-Tenants under signed lease agreements ending more than 180 days after the property transfer may not enforce the lease against the new owner, but they are entitled to a refund of all advance rent and fees paid, subject to permissible deductions, i.e., administrative fee and fees to third parties for goods/services procured for the tenant.

Question 39

Constitutional Rights of Tenants in Public Housing

Answer 39

These tenants have an entitlement to continued occupancy and cannot be evicted unless there is good cause.

There must be a finding of fault on the tenant’s part, not merely circumstances that are beyond the tenant’s control such as loss of a job.

Tenants are entitled to procedural due process before they can be evicted

The landlord must maintain property in habitable condition or risk being suspended from future program participation.

Question 40

The North Carolina Association of REALTORS® Residential Rental Contract

Answer 40

Form 410, the Residential Rental Contract is an agreement between a property owner/landlord and a tenant. North Carolina licensees who are members of the North Carolina REALTORS® may access this form in the North Carolina REALTORS® forms library and may fill in the blanks for consumers.

Form 410 includes provisions regarding the rental payment as well as passages dealing with fees for late payment, returned payment, and summary ejectment fees

The form also reviews the tenants’ and landlords’ obligations, such as the lawful use of the premises and maintenance issues; right of the landlord’s entry; occupants and/or pets; and compliance with rules and regulations. A checklist indicates what services, such as utilities, will be provided and which party shall be responsible for payment of such services

Form 410 also outlines consequences for the tenant’s breach of the agreement and remedies and the landlord’s right to enter the property.