Chapter 15 - Leases

Question 1

Leasehold Estate

Answer 1

A tenant’s right to occupy real estate during the term of the lease. This is a personal property interest.

Question 2

Lessee

Answer 2

One who contracts to rent, occupy, and use property under a lease agreement; a tenant.

Question 3

Lessor

Answer 3

An owner who enters into a lease agreement with a tenant; a landlord.

Question 4

What are the 4 kinds of leasehold estate?

Answer 4

1. Estate for years
2. Periodic estate
3. Estate at Will
4. Estate at Sufferance

Question 5

Estate For Years aka Fixed Term Tenancy or Tenancy for Years

Answer 5

An interest in lands by virtue of a contract of a contract for the possession of them for a definite and limited period of time–can actually be for any period of time, even if it is shorter than one year. A lease may be said to be an estate for years. At the end of the term, the lessee must vacate the property.

Question 6

Periodic Estate aka Estate from period to period

Answer 6

An interest in land where there is no definite termination date but the rental period is fixed at a certain rent amount per week, month, or year.
–EX: MTM Lease

Question 7

If the landlord and tenant have not expressly included another type of arrangement in the lease, many states say that the lease is automatically a _________

Answer 7

Periodic lease. Also, in most cases, an estate for years will automatically become a periodic estate when the first lease ends

Question 8

Estate at Will

Answer 8

The occupation of lands and tenements by a tenant for an indefinite period, terminable by one or both parties.

Question 9

How can a tenancy at will come about?

Answer 9

1. Landlord and tenant agree that there does not need to be a formal lease
2. Landlord and tenant agree that no rent or other consideration needs to be paid for the tenant to occupy, possess, and use the landlord’s real estate
3. Tenant has an urgent need or desire to occupy the property but there hasn’t been time to formalize the terms in the lease yet. When the lease is finally put in writing, the estate at will will terminate
4. When a family member is allowed to stay at home without any kind of formal written agreement, although this may require them to pay some sort of nominal amount of rent or other consideration for the arrangement

Question 10

How can an estate at will be terminated?

Answer 10

1. Landlord transfers the property to someone else.
2. Landlord dies
3. tenant dies
4. tenant tries to assign his/her tenancy (i.e., sublease)
5. tenant causes some change or damage to the property, whether intentional or not, without the permission or direction of the landlord (i.e., committing waste against the property)

Question 11

Estate at Sufferance aka Holdover tenancy

Answer 11

An estate arising when the tenant did not renew nor move out after the lease expired. Instead, s/he continued occupying the space and paid the same rent as before. The landlord has the choice of evicting the tenant as a trespasser or accepting such tenant for a similar term and under the condition of the tenant’s previous holding.

Question 12

Lease

Answer 12

A contract between an owner and tenant, setting forth conditions upon which the tenant may occupy and use the property and the term of the occupancy.

Question 13

What does it take to make a lease valid?

Answer 13

1. Must be in writing
2. Signed by both the lessor and lessee (clearly defined)
3. Both parties must have legal capacity to contract (authorized agent, at least 18 years old, & have the mental capacity to understand what they’re signing)
4. Offer & acceptance is spelled out in the agreement (i.e., lessor is offering to rent an apartment and the acceptance would be the lessee signing the contract)
5. Consideration (i.e., rent for the space + SD)
6. Legal objective must be clearly spelled out (i.e., to enter into a valid rental agreement…)
7. Terms must be clear (i.e., unit number, monthly rent, lease end date, what happens if the lease is broken or at the end of the lease)

Question 14

What are some examples of landlord restrictions?

Answer 14

1. To not use the rented property for commercial activities
2. No pets allowed
3. Occupancy controls
4. Sublease provisions

Question 15

Confession of Judgment Clause

Answer 15

this clause states that if the tenant defaults on their obligations under the lease, the landlord can “confess judgment” without requiring notice or a hearing (i.e., tenant waives the right to notice and court hearings). Further specifies whether that judgment means evicting tenants, collecting monetary damages, or both.

Question 16

Covenant of Quiet Enjoyment

Answer 16

tenant’s lawful right to possess the land and that the landlord cannot substantially interfere with the tenant’s right during the term of the lease. If this right is violated, the tenant may have legal standing to claim damages. But there’s also situations in which the landlord will need to enter the premises, i.e., to make repairs, perform maintenance, conduct inspections required or permitted by law, show the property or unit to other prospective tenants, etc.

Question 17

Tenant / Leasehold Improvements

Answer 17

tenant’s right to make improvements to the property, with the landlord’s permission. This usually results in a rent concession since the expenses are out of the tenant’s pocket.
EX: installation of trade fixtures in a commercial lease

Question 18

If ADA modifications are needed, whose expense is this at?

Answer 18

The tenant’s expense

Question 19

Habitability

Answer 19

landlord is expected to take whatever action is necessary, at their own expense, to provide their tenants with a habitable dwelling unit. This means that the landlord is required to keep the premises in reasonable repair and must comply with all health and safety codes. Assumed in every lease.

Question 20

Common Options?

Answer 20

1. Right to renew lease for another term or extend lease with periodic tenancy (aka MTM)
2. Option to purchase (rent-to-own) the property at a pre-determined purchase price
3. Right of First Refusal giving tenant the first option to purchase the property before the public has the chance

Question 21

How are real estate leases discharged or terminated?

Answer 21

1. Lease term has come to an end
2. Premise is destroyed and landlord can no longer provide a habitable dwelling (i.e., natural disaster)
3. Assignment of the lease or Sublease
4. Breach of lease (i.e., not paying rent)

Question 22

What’s the difference between assignment of a lease and a sublease arrangement?

Answer 22

When a tenant assigns their obligations and rights under a real estate lease to someone else, they are effectively terminating their own involvement in the lease; the assignee becomes the new tenant and is responsible for upholding their end of the lease (i.e., if they default, the landlord will pursue action against the assignee); WHEREAS, in a sublease agreement, the original lease between the landlord and the original tenant remains in effect, but instead, the tenant enters into their own lease agreement for the space with another tenant (sublessee). The sublessee pays rent to the original tenant, who is still responsible for making rent payments to the landlord and ensuring the use of the space complies with the requirements of the lease. If the rent isn’t paid or the sublessee damages the space, the original tenant (sublessor) will be liable.

Question 23

Actual Eviction

Answer 23

The removal of a tenant by the landlord because the tenant breached a condition of a lease or another rental contract.

Question 24

Constructive Eviction

Answer 24

Any disturbance of the tenant’s possession of the lease premises by the landlord whereby the premises are rendered unfit or unsuitable for the purpose for which they were leased.

Question 25

Gross Lease

Answer 25

lease where the landlord (i.e., lessor) is responsible for paying all the costs that come up related to operating and maintaining the property as well as all of the real estate taxes. One modification would be that the tenant is responsible for utilities.
EX: residential leases are almost always gross leases

Question 26

Net Lease

Answer 26

lease where the tenant (i.e., lessee) is responsible for paying their agreed upon rent PLUS additional expenses, like taxes, insurance, and maintenance costs
EX: very common for office tenants and commercial leases

Question 27

Single Net Lease

Answer 27

lease agreement where the tenant pays rent plus their prorated amount of property taxes. The landlord is still responsible for paying the costs of insurance and maintenance for the space rented to the tenant.

Question 28

Double Net Lease (“NN”)

Answer 28

lease agreement where the tenant pays rent plus their prorated amount of property taxes and property insurance. The landlord still pays for all the costs associated with maintaining the property

Question 29

Tripe Net Lease (“NNN”)

Answer 29

lease agreement where the tenant pays rent plus their prorated amount of property taxes, property insurance, and maintenance/repairs. The monthly rent is typically lower than what the tenant would pay for a single net lease or double net lease.

Question 30

Percentage Lease

Answer 30

lease on the property where the amount of rent is based on how much business the tenant brings in at that location on a monthly or annual basis. This is typically expressed as a percentage of gross receipts + a minimum base rent amount
EX: commonly used by retail stores that lease space in shopping malls, strip malls, or other multi-tenant spaces

Question 31

Graduated Lease aka Index or Step-up Lease

Answer 31

Lease in which rent payments are not fixed; instead, they vary periodically. Very common for long-term lease arrangements, protecting the landlord by adjusting the amount of rent due every 1, 5, or even 10 years. Adjustments can be based on the CPI, periodic appraisals of the property rented, or some other factor the landlord and tenant agree to ahead of time.

Question 32

Ground Lease

Answer 32

lease agreement to use land (not a structure or unit of a building). Sometimes the lease is secured by improvements the tenant makes to the land. Typically cover a long period of time (often 50-99 years). With a ground lease, ownership of the land itself is separated from ownership of the buildings or improvements the tenant builds on that land (i.e., tenant just needs the funds to lease the land, not buy it, significantly lowering the initial out-of-pocket expense so that they can put that money towards constructions and running their new stores)
EX: commonly used by well-known corporate tenants.

Question 33

Oil & Gas Lease

Answer 33

lease agreement in which the lessor and lessee agree that the lessee will have access to the oil and has on the lessor’s property. These types of leases are usually for a set period of time and the lease should clearly spell out the property description, what the lease allows the lessee to do, how much the lessee will pay the lessor, and how long the lease will remain in force.

Question 34

How are oil and gas lease payments structured?

Answer 34

1. Lessee may pay the landlord an upfront bonus payment
2. Annual, fixed rent payment
3. Royalty Clause - landlord will get a percentage of the profits from the lessee’s drilling on their land

Question 35

What are some lease requirements per Wisconsin law that landlords must abide by?

Answer 35

1. Landlords must give copies of rental agreements as well as any other rules impacting the use of the property to tenants before they can enter into a contract or accept an earnest money or security deposits from tenants
2. Landlord must provide the (prospective) tenant with a written receipt for earnest money, a security deposit, or payment in cash

Question 36

What is the exception to Wisconsin’s receipt requirement?

Answer 36

If the tenant makes a payment via check and there is a notation on it describing the purpose of the payment, the landlord does not need to provide a receipt unless the tenant asks for one.

Question 37

What does a Wisconsin residential contract look like?

Answer 37

2 pages–front and back page. The front page is where all the specific information about the landlord, tenant, and contract terms can be found (i.e., details of the premise, like the building address and apartment number, rent amount, other rentals (like storage or garage spaces), due date for rent, late charges, security deposit, utilities, and pets). The back page is where you will find all of the standard lease provisions, such as repair obligations, security deposit rules, rules about the tenants; use of the property and guests, rules governing maintenance, landlord access, what constitutes abandonment, what happens if the property is sold and rules about lead-based paint disclosures)

Question 38

Time is of the Essence Term

Answer 38

concerns all dates and deadlines in the contract or required by law unless stated otherwise in special provisions. Parties failing to perform by a time is of the essence deadline will be in breach of contract immediately after the deadline passes

Question 39

Does the landlord need to notify the tenant in writing of their agent’s name and address?

Answer 39

YES, this is included in the first page of the WI residential agreement. If the address changes, the landlord needs to notify the tenants within 10 business days.

Question 40

What is the landlord required to disclose regarding habitability?

Answer 40

any building or housing code violations that the landlord has actual knowledge of that may pose a significant threat to the tenant’s health or safety (i.e., lack of hot or cold running water, if heating facilities are not capable of keeping the dwelling 67 degrees during all seasons, & lack of electricity or unsafe electrical wiring, etc.). Must disclose these issues before entering into a rental agreement or accepting any earnest money or security deposit from the tenant.

Question 41

If utility charges are not included in rent, how must the landlord alert the prospective tenant of this?

Answer 41

tenants must be made aware of the fact that they will be required to pay utilities and how the utility billing is structured; Before the landlord can enter into a rental contract, take a security deposit, or earnest money, they must notify the tenant about whether they will or will not be responsible for utilities and what those utilities entail.

Question 42

Earnest Money

Answer 42

money that a tenant pays a landlord upfront for the option of entering into a rental agreement in the future or so the landlord will consider the person’s application.

Question 43

What rules are involved when a landlord handles earnest money?

Answer 43

1. Earnest money must be tied to a specific rental property
2. Once the landlord and tenant enter into a rental agreement, the landlord has to apply the earnest money to rent, security deposit, or return it to the tenant

Question 44

In what situations must the landlord return the prospective tenant’s earnest money in full?

Answer 44

1. if the landlord rejects the tenant’s application or refuses to enter into a rental agreement with the applicant
2. if the applicant withdraws their application before the landlord can decide whether or not to reject or accept it
3. if the landlord does not approve the rental application within 3 days of taking the earnest money deposit

Question 45

In what situations can earnest money be withheld?

Answer 45

if the landlord approves the applicant who gave the earnest money and that applicant decides not to enter in to a rental agreement, the landlord can withhold from the deposit lost rent costs (after making reasonable efforts to re-rent the property) and advertising costs that were actually incurred due to the tenant’s failure to rent the property. Landlord cannot withhold earnest money if the terms of a rental agreement significantly change and the applicant no longer wants to rent the property.

Question 46

What tenant rights must a landlord disclose before accepting a security deposit?

Answer 46

1. Right to check the property and document the property’s condition after move-in (7 days after moving in)
2. Right to request a list of physical damages or defects charged to the previous tenant’s security deposit (landlord does not need to automatically offer this list or tell the tenant the amount s/he retained from the SD). Landlord must provide the list of defects (whether repaired or not) in writing within 20 days of receiving the request

Question 47

How long does a landlord have to return a security deposit to a previous tenant?

Answer 47

21 days after the end of the lease to the last known address provided by the tenant. This holds true even if a tenant leaves early or 21 days from the time that the unit is re-rented.

Question 48

What does Wisconsin law consider a security deposit?

Answer 48

any payment made at the start of the lease that amounts to more than one month of rent

Question 49

What can a landlord withhold from a previous tenant’s security deposit?

Answer 49

Damages to the rental property & unpaid rent and utilities–if landlord does withhold from the SD, they must provide an itemized list stating how much they withheld and why. Cannot withhold routine expenses from a SD (i.e., cleaning, carpet cleaning, painting, and normal wear and tear).

Question 50

Can a landlord withhold normal wear and tear expenses from a security deposit?

Answer 50

Only if this is specified in the tenant’s lease, typically under a “nonstandard rental provision”

Question 51

What are some prohibited provisions in a lease?

Answer 51

1. Any provision allowing retaliation against a tenant for contacting law enforcement, health services, or safety services
2. Any provision allowing an increase in rent, decreased services, or refusal to renew in retaliation for contacting the above services
3. Any provision allowing for evictions other than judicial eviction
4. Any provision allowing for the acceleration of rent payments or waive the landlord’s obligation to mitigate damages if the tenant defaults.
5. Any provision that requires the tenant to pay the landlord’s legal fees in relation to any legal action or dispute related to the rental agreement
6. Any provision waiving any legal obligation or statutory obligation that requires the landlord to deliver the premises in a fit or habitable condition
7. Any provision that allows the landlord to terminate a tenant’s lease solely because the tenant was a victim of a crime on or in the rental property.

Question 52

What are the rules for landlords entering a tenant’s property?

Answer 52

A landlord can enter the premise giving at least 12 hours’ notice and reasonable hours to enter regarding inspection, needed repairs, or to show the property. Without notice, the landlord can enter the property for an emergency, at the tenant’s request, or if a tenant is absent and the landlord needs access for a critical issue. If none of these criteria are met, it is illegal for a landlord to enter a rental.

Question 53

Can a landlord automatically renew a lease?

Answer 53

Not without giving a tenant written notice 15-20 days before the tenant’s last chance to notify the landlord whether or not the tenant intends to stay.

Question 54

How should a landlord handle evictions?

Answer 54

The landlord must go through Wisconsin’s official process in order for it to be legal. A landlord may not evict a tenant without going through official eviction procedures.

Question 55

Can late fees be applied to rent?

Answer 55

Yes, but only if they’re specifically outlined in the rental agreement. If the landlord does not mention late fees, then they are legally not allowed to be charged to the tenant.