Leases Flashcards
privity of estate
(a legal relationship between two people with interests in the same property). The longest a lease can legally last is 99 years, and leases that last longer than 7 years must be recorded (made public record) in Massachusetts. Leases are non- freehold interests.
certificate of no defense or estoppel certificate
is often used to confirm the lease when the property is sold. The doctrine of estoppel states that once you cause another to rely on your words, you cannot go back on your promises. This prevents the tenant from attempting to renegotiate or defraud the new property owner.
leases can be terminated by
Performance – Leases automatically terminate at the end of their term.
• Surrender – Cancellation of the lease prior to expiration.
• Action of Law – Eminent domain taking, tax sale, bankruptcy, etc.
• Destruction – The property is destroyed.
• Foreclosure – Banks often have the right to cancel the lease in the event of foreclosure.
• Actual Eviction (Eviction) – Occurs when the lease has been breached by the tenant by non-
payment of rent, violation of the lease, holding over, or some unlawful use of property, the lessor may evict in Massachusetts by giving the tenant 14 days’ notice to vacate. If the tenant does not vacate, the landlord must file an unlawful detainer complaint. The complaint will go to housing court, where there will be a hearing. If the landlord is permitted by the court to evict the tenant, they must send a constable to remove the tenant from the property. The landlord may not simply lock the tenant out.
• Constructive Eviction – Occurs when the landlord has violated the covenant of quiet enjoyment that renders the leased property unfit for occupancy by the tenant. This permits the tenant to vacate the premises, and ends their obligation to pay the rent.
Lease Types
Gross Lease – A lease where the tenant pays a fixed amount of rent, and the landlord pays any operating expenses of the building. The landlord thus receives gross income.
Sublease (Sandwich Lease) – Any lease between a sub-letter and the original tenant.
Net Lease – A lease where the tenant pays some or all of the leased property’s operating expenses (taxes, maintenance costs, management fees, etc.) on top of their normal rent. The landlord thus receives net income.
Modified Gross Lease – A lease where the tenant pays a fixed rental amount on year one, and any increases in operating expenses that the landlord incurs over the 1st year’s expenses (called the base year) are paid for by the tenant.
Percentage Lease – A lease where most of the rent is paid as a percentage of the tenant’s receipts (sales) or profits. It is something that is often given to anchor tenants (e.g. large department stores), so as to align the landlord’s interests with the tenant’s.
Ground Lease – A lease where the tenant rents the land, and can build whatever they want on it. When the lease expires, any improvements built by the tenant are owned by the landlord. Frequently seen with fast food franchises, cell towers, and in areas with sales limitations. Often the ground lease is a 99-year lease.
Graduated Lease – A lease whose rent increases on some pre-agreed on schedule (e.g. $1/sq. ft. per year). An escalator clause increases or decreases the rent.
Index Lease – A lease whose rent is tied to some index (usually the consumer price index or CPI, which is meant to reflect inflation in the economy). When the index increases the rent increases, and vice versa.
Reappraisal Lease – A lease whose rent is based on an appraiser’s opinion of the rent, rather than negotiation between the tenant and landlord.
Sale-Leaseback – A sale-leaseback occurs when a property owner sells their property to an investor, and simultaneously rents it back (usually for a long term). This mostly happens with businesses, because it allows the business to pull their equity out of the property without giving up use and enjoyment of the property, and because rent is tax deductible for businesses
