Leases Flashcards
What are leases?
Leases are a non freehold interest in real estate.
Also known as: non-freehold, rental, leasehold, tenancy for years, estate for years, demise, etc.
They are a written conveyance of possession & use of real estate for some specific period of time.
Privity of Estate
Legal relationship between two people w/ interest in the same property.
Leases are subject to the contract essentials, which are…
- offer & acceptance
- consideration
- legal object
- consent
- competence
What are the essentials of a lease?
- Sufficient description of the premises
- Rental amount ($)
- Terms of lease
- Intent to rent
Who are the parties involved in a lease?
The lessor-owner/landlord
The lessee-tenant
How long cant a lease last?
A lease cannot last more than 99 years.
-Leases lasting longer than 7 years, in MA, must be recorded w/ the registry of deeds because it would be considered an encumbrance.
What is the lessor liable for?
The lessor is liable & insures the common areas.
What is the lessee liable for?
The lessee is liable for & insures the lease premises.
What is “useable sq. footage” in terms of commercial leases?
Space that the lessee can occupy & is responsible for (space used exclusively by the tenant).
What is “rentable sq. footage” in terms of commercial leases?
Both the lease premises & a percentage of the common areas used by the lessee, but maintained by the lessor (places like the elevator, lobby, etc.).
What is a build-out?
A big open office space that can be reconfigured easily and quickly. Either party can pay for the reconfiguration.
What type of interest does the lessor hold?
A reversionary interest.
The lessor gets the property back (possession wise) at the end of the lease.
Do leases run w/ the land.
Yes. They are binding on new owners.
Certificate of no defense/estoppel certificate
Used to confirm the lease when the property is sold.
Doctrine of estoppel
Once you cause another to rely on your words, you can’t go back on your promises.
-Prevents the tenant from attempting to renegotiate.
What are the three ways to transfer a lease?
- Sublet
- Assign
- Novate
In MA, how long should someone be living in a place to be able to establish residency?
30 days
What is a sublet?
Transfers a portion of the lease term.
- The original tenant continues to pay full rent to landlord.
- The sub-tenant pays the original tenant.
- Original tenant assumes lease responsibility.
- In MA, subletting can be prevented in lease terms.
What is an assignment?
Transfers the remainder of the lease.
- The original tenant transfers the remainder of the lease term to another tenant. The assignee pays rent directly to landlord.
- If the assignee fails to pay rent, then both the original tenant and the assignee is responsible. (think of co-signing).
- Transfers the rights and responsibilities, but not the obligations.
What is novation?
Cancellation of the lease & creation of a new lease for the remainder of the lease term.
-The original tenant is no longer involved or liable.
How can you terminate a lease?
There are a number of ways to terminate a lease other than novation:
-Performance: Terminates at the end of the lease.
-Surrender: Cancellation prior to expiration (can include a fee).
-Action of law: Eminent domain, tax sale, bankruptcy.
-Destruction: Property is destroyed.
Foreclosure: Banks typically have the right to cancel leases. Residential leases are protected for a time.
Actual eviction
Landlord’s remedy for a lease violation by a tenant (like non payment, violation of lease terms, etc.).
What is the actual eviction process?
- 14 day notice to quit in writing.
- Tenant has the opportunity to cure (fix the issue) during this time. - Unlawful detainer: complaint filed after the 14 period.
- summary process in MA. - Housing hearing court.
- Two possible outcomes:
- Eviction, tenant is removed from the property (by the constable, not the landlord).
- Landlord loses, tenant stays.
What is constructive eviction?
Tenant’s way to remedy for a lease violation by the landlord.
- Usually a violation of the covenant of quiet enjoyment.
- Permits the lessee to vacate premises.
- Ends obligation to rent.
- Always consult an attorney.
What is the covenant of quiet enjoyment?
The landlords obligation to provide undisturbed enjoyment (use) of the property.
- Lessor must not lease to others during your time of occupancy.
- Lessor must not threaten expulsion.
- Lessor must not trespass (they can enter for good cause w/ reasonable notice).
- Serves promised in the lease must be provided.
In MA, the landlord can only collect:
- 1st month’s rent.
- Last month’s rent.
- Security deposit (max of one month’s rent).
- Reasonable lock & key fee.
In MA, if a security deposit is required, the lease must include:
- Statement of condition form (can be amended within 15 days).
- Security deposit receipt.
- Notice of where security deposit is being held (should be in an escrow account).
What must lessors pay the tenant w/ if there was a security deposit?
Lessor must pay 5% interest of current bank rates on security deposit & last months rent each year.
Interest must be paid within 30 days of annual tenancy each year.
What must lessors provide the tenant w/?
Lessor must provide housing that is fit & suitable for occupancy per sanitary codes.
- Units should be inspected prior to occupancy.
- De-lead all units occupied by children under 6 years old or by a pregnant person.
- Pay for heat and hot water unless lease requires lessee to pay (heat & hot water must meet temp minimum requirements).
- Provide kitchen w/ a sink & electricity for a fridge.
- Keep units pest free.
- Maintain property up to building & structural requirements.
- Keep exits free from obstruction (includes snow removal from sidewalks/exits).
How many properties does a special agent handle?
1
How many properties does a general agent handle?
Many
Property managers
Property managers are either special agents or general agents (depends on the scope of their responsibility).
Act in the best interest of the property owner.
Compensation typically based on percentage of gross effective rental income.
-Property managers do not need to be licensed in MA, but you have to be on salary if you’re not licensed.
What is a gross lease?
Lessee pays fixed rent, lessor pays operating expenses of the building.
Lessor receives gross rent.
Typically residential lease.
What is a sublease/sandwich lease?
Lease between original tenant & sub tenant (think sublet).
What is a modified gross lease?
Tenant pays a fixed rent for 1 year.
If lessor expenses increase, lessee will pay a percentage of this increase.
What is a net lease?
Most common commercial lease.
Lessee pays rent & some or all of the property’s operating expenses (single net, double net, triple net)
Lessor received net income.
What is a percentage lease?
Common in malls/department stores.
Most of the rent is paid as a percentage of the lessee’s gross receipts (sales) or profits.
Helps align landlord and tenants interests.
Use of an “anchor tenant” (large tenant that acts to draw people to shopping centers (like Nordstrom)).
What is a ground lease?
Common in food chains.
Lessee rents the land & may build whatever they want on it.
When the lease expires, any improvements are then owned by the lessor.
Often a 99 year lease.
What is a graduating lease?
Rent increases on some pre-agreed upon schedule.
Escalator clause: Increase/decrease rent.
May be best for entrepreneurs or those who need lower expenses at the beginning of their lease term.
What is an index lease?
Lease whose rent is ties to some index (typically the consumer price index).
When index increases, the rent will increase too & vise versa.
What is a reappraisal lease?
Rent is based on appraiser’s opinion of rent, other than a negotiated rent.
Common in lease w/ renewal options or when there is considerable doubt about future maintenance of value.
What is a sale-back lease?
When a property owner sells property & rents is back.
Helps to free up equity w/ out giving up enjoyment & use of the property.
Rent is tax deductible for the business.
