Contracts Flashcards
Contract
voluntary agreement between 2 or more parties calling for them to perform certain acts or not to perform certain acts.
examples of contracts
Listing Agreements, Buyer Representation Agreements, Offer to purchase, Purchase and Sale Contracts, Rental Agreements and Property Management Agreements.
Statute of Frauds
Contracts that require a writing
examples of statutes of fraud
- Contracts for the sale of land
- Contracts for surety
- Contracts for the sale of goods $500 or more
- Contracts signed by an executor
- Contracts in contemplation of marriage
- Comtracts with the impossibility of being completed within 1 year.
Offer to Purchase
legal binding contract (McCarthy vs. Tobin). It is the buyer’s proposal to the seller.
Voiding an Offer Contract
If the seller does not respond to the offer before the expiration date. If the seller counters the buyer’s offer with his or her own the contract becomes void.
Earnest Money
deposit money, escrow money, good faith money. They will make a down payment once the purchase and Sale is signed.
Time is of the essence
clause in a contract that requires exact and punctual performance. It is agreed that the parties will abide by the dates in the contract.
Mortgage/Financing Contingency
Clause that calls for the buyer to have an opportunity to secure financing by a particular deadline. Protects the buyer’s deposit.
Inspection Contingency
Provides the buyer an opportunity to inspect the property for insects, lead paint, radon, and overall condition of the property.
Property Sale Contingency
calls for the contract to be subject to the purchaser being able to sell their existing property
Escape Clause
allows the seller an opportunity to continue to market the property until the buyer’s conditions have been met
Amendments
change to an existing content of a contract
Purchase and Sale Agreement
Legal contract that finalizes the agreement. Lawyers construct these and work out all the details.
Equitable Title
When the P+S Agreement is signed, the buyer receives equitable title to the property.
Legal Title
Once the deed is delivered, the buyer receives legal title.
4 Essentials of a valid contract
offer/acceptance
Consideration
Legality of agreement
Reality of Consent
Offer/Acceptance
Meeting of the minds. Buyer agrees to purchase with certain conditions, seller agrees to conditions.
Consideration (Bargain for Legal Detriment)
Consideration is something provided to one party in return for something given by another party.
2 types of Consideration
Valuable consideration: Money, Product, Services
Good Consideration: Love + Affection
Legality of Agreement
The contract cannot call for any party to perform illegal actions.
Reality of Consent
The contract is free from duress, fraud, and error, and the parties entered the agreement under their own free will.
Misrepresentation
misrepresentation of a property can be described as an innocent misstatement about the material fact regarding the condition of the property. Not intentional but could have consequences.
Fraud
When an agent deliberately misleads a buyer or seller.
Duress
when someone conducts an action because they feel under pressure, intimidation or fear of retaliation if they do not comply.
Unilateral Contract
an agreement that calls for one party to act if another person completed a task.
Bilateral contract
when two parties agree to enter into an action that calls for them each to perform. example- purchase and sale contract. executory contract calls for future action to occur.
Assignment of a Contract
allows buyer to assign their right to purchase to someone else. Subject to penalties if the assigned buyer does not purchase.
Expressed Contracts
agreement that the particulars are known or understood
Implied Contracts
when an agreement is created by the conduct and the actions of parties involved
Rescission (reversal)
The parties agree to rescind the agreement and all parties return to the position they were in before the agreement.
Liquidated Damages (Known Penalty)
This is an identified and specific amount that is to be paid if one of the parties defaults on the contract
Forfeiture
the breaching party will forfeit either all or a portion of the deposit because they did not honor the terms of the contract
Option Contract
when one party agrees to sell property to someone else in return for something of value and certain time requirements are met. Unilateral
Estate for years (Demised Premises)
contract for rental of a year or more. The tenant has a leasehold interest while the owner has a leased fee with reversionary interest.
Ways a Lease can be terminated
time, bankruptcy, mutual agreement, and condemnation
Periodic Tenancy
Self extending contract. Runs for month to month, year to year, period to period. Automatically extends for the same period if neither party cancels with proper notice.
Novation
when a new tenant who is referred by an existing tenant to take over the lease signs a new lease with the owner. Old tenant is no longer responsible for payment.
Tenancy at sufferance
when a holdover tenancy occurs.
Constructive Eviction
action a tenant can take to vacate an apartment that is unfit for occupency. Tenant is released from obligation to pay if they vacate through this process.
99 year lease
Lease of 100 years or longer has the effect of a fee simple estate.
Escalator Clause
calls for periodic increases in rent payment
Lease option
Provides the tenant the contractual right to purchase the property they have leased at a predetermined price or formula
Right of First Refusal
Right to purchase a property in the future. Must be specified in a contract to be valid. Allows an individual to match or beat any offers submitted by a particular time frame
Reversionary Interest
right to recover at the termination of the lease period. Owner
Net Lease ( net-net lease, triple net lease)
Commercial property. Tenant pays rent and some fraction of the expenses associated with the property.
Common Area Maintenance
Landscaping, Snow removal, exterior maintenance.
Step-up/Step-down Lease (Graduated Lease)
Lease that can go up over time.
Percentage Lease
Tenant pays a base amount for rent and additional rent payments based on percentage of gross sales generated over a specific amount.
Index Lease
Cost of living to be used to determine future lease payments after the first year of the lease.
Ground Lease
Known as land leases. Owner leases the property to a business that wants to build on it. The buildings are security for the lease. Tenant has leasehold interest
Sale/Leaseback
when someone conveys their property to someone else then agrees to sign a rental agreement.
Primary goal of Property Management
secure the highest possible net income. They are paid a percentage of the effective gross income
Projected Gross Income
Most money that can be collected if the property does not have any vacancies. Potential income.
Effective Gross Income
Income actually collected.
Net Operating Income
Subtracting the operating expenses from the effective gross income.
Debt Service
Principal and Interest on a loan. Tenants never pay this
cash flow
Subtract debt service from the net operating income
