Lease and Property Management Flashcards
LEASE
A lease transfers possession but does not transfer ownership.
It is both a conveyance and a contract.
As a conveyance, it does not convey ownership, but it does convey a leasehold estate to the tenant.
As a contract, it gives the right to exclusive possession of the property against all other parties, including the owner for specific consideration.
TYPES OF LEASES
Residential Leases Commercial leases Rooftop or Sky Leases Oil and Gas leases Farm and Crop leases Ground Leases are leases of land on which tenants own the buildings they have constructed or purchased.
RENT
leases are classified based on what is included in the rent and how the rent amount is determined.
GROSS RENT VS. NET RENT
A gross lease is the type of lease used for apartments and other residences.
A net lease provides for the tenant to pay a rent amount that is net income to the landlord. In addition to the rent the tenant would also pay some or all of the property expenses, property taxes and property insurance premiums separately. The property expense would not include the debt service (the mortgage payments) of the lessor.
This is the type of lease used in sales-leaseback arrangements, ground leases and long term leases for office space, retail space, and industrial property. It helps protect the lessor against increases in expenses and property taxes during the term of the lease.
Some persons will categorize net leases as single net, double net, or triple net.
Under a single-net lease, the tenant pays operating expenses.
Under a double-net lease, the tenant pays operating expenses and property taxes.
Under triple-net lease, the tenant pays operating expenses, property taxes, and property insurance.
RENT AMOUNT can be fixed or vary.
A FLAT LEASE (fixed lease or straight lease) provides for fixed rental amount to be paid periodically throughout the lease term.
A GRADUATED RENTAL LEASE provides for rent to gradually step up at regular specified intervals.
INDEX LEASE (escalation lease) contains an escalator clause that’s used to compensate for inflation and rising operating costs.
A PERCENTAGE LEASE is a lease which the rent depends upon the volume of the tenant’s gross business. It is most often used for retail space.
It provides that some or all of the rent will be a percentage of the lessee’s gross sales or income.
The result is that the landlord will have an interest in the tenant’s business.
Therefore the lease may require landlord approval of certain aspects of the operation of the business such as hours of operation.
The lease may include a “recapture clause”, providing for termination if the tenant does not realize a specified minimum level of business.
In providing for rent, percentage leases might express an amount in various ways.
A fixed dollar amount plus a percentage of sales. ( ie. $5000.plus 2% of gross)
A dollar amount or a percentage of sales, whichever is greater (ie. $1,000. Or 2% of sales)
A percentage of sales ( ie 3% of gross)
IMPLIED COVENANTS
Certain covenants or promises are implied in every lease.
The lessor gives the lessee a covenant of quiet enjoyment. The lessor cannot evict the lessee unless eviction is performed by legal process as a remedy for breach of conditions or default by lessee.
EVICTION is a process by which tenant is deprived of the possession, use and enjoyment of the premises.
EVICTION may be actual or constructive.
ACTUAL EVICTION is court enforced order removing a lessee from the property.
CONSTRUCTIVE EVICTION occurs whenever any act or omission of the landlord
Deprives the tenant of the use and enjoyment of the premises.
It would be justification for the tenant abandoning the premises and terminating the rental agreement.
COMMERCIAL LEASES
A commercial lease should specify the obligations the landlord wishes to impose on the tenant’s use of the property.
OPTIONS
A lease may include one or more tenant options ( all of which favor the tenant)
An OPTION TO RENEW in a lease gives the tenant the option to renew the lease at a preset rent amoun at the expiration of the term.
AnAUTOMATIC. EXTENSION CLAUSE provides that the lease will automatically renew at the same terms unless either party decides not to renew.
An EXPANSION OPTION would give the lessee the option to expend the amount of space leased.
A LEASE WITH OPTION TO PURCHASE ( lease-option) gives the tenant the right to buy the property he is leasing at present terms prior to the end of the lease term. If tenant exercises the option, the landlord must sell.
A LEASE PURCHASE AGREEMENT is a contract to purchase real property coupled with a rental agreement. The closing date is usually much further out than on a straight purchase agreement. The lease purchase includes a fully executed purchase and sale agreement and there are penalties, if the buyer defaults.
A RIGHT OF FIRST REFUSAL gives the lessee the first opportunity to lease additional space or to purchase the property if the landlord decides to offer add’l space for lease or the property to purchase. Unlike, an option to purchase, the right of first refusal does does not give the tenant the power to force an unwilling owner to sell.
TRANSFER
AN ASSIGNMENT is a transfer by the tenant of his entire interest in the property to a third party.
Unless the landlord agrees to a “Novation” by releasing the original tenant of all liability, an assignment still leaves the original tenant with secondary liability, if assignee fails to perform.
TERMINATION
Leases may be terminated in a number of ways
A periodic tenancy can be terminated by giving proper notice
An estate for years will terminate without notice upon expiration of the lease term. Once the lease terminates, if tenant does not agree to a new lease at proposed terms, he is subject to eviction.
Prior to expiration, a lease may be terminated by mutual consent of the lessor and lessee. This is called SURRENDER. A SURRENDER is an agreement by which the tenant terminates the lease and surrenders possession of the premises to the landlord which the landlord accepts. A surrender clause spells out the terms of the surrender.
A lease may be terminated by foreclosure of a prior lien. To avoid this, with the consent of the mortgagee, the lease may contain a SUBORDINATION CLAUSE making a prior mortgage subordinate to the lease or a NONDISTURBANCE CLAUSE
providing foreclosure of a prior mortgage would not terminate the lease.
