(Lesson 3) Leases (Unit #17)

Question 1

define lease

Answer 1

A lease is a contract between an owner of real estate (the lessor) and the tenant (the lease).

Question 2

Define reversionary right

Answer 2

landlord retains reversionary rights, meaning to have possession after the lease term ends.

Question 3

Define leasehold estate

Answer 3

a tenants right to possess real estate for the term of the lease is called a leasehold estate. aka less-than-freehold estate.

Question 4

leasehold estate vs freehold estate

Answer 4

leasehold estate (less than freehold) is renting the property

freehold state is ownership of the property

Question 5

What forms of leasehold estates are their

Answer 5

Leasehold estate:

• estate for years
• estate from period to period
• estate at will
• estate at sufferance

Question 6

Define estate for years

tenancy for years = any definite period

Answer 6

a leasehold estate that continues for a definite period of time. an estate for years always has a specific beginning and ending date.

Question 7

define estate from period to period (periodic tenancy)

Answer 7

an estate of period to period is characterized as continuity because the agreements continue over and payment period as well until either party gives notice to terminate.

**initially both parties agree to terms and agreements for indefinite time

**estate from period to period = indefinite term; automatically renewing

Question 8

Define holdover tenancy

Answer 8

an estate from period to period might be related when an estate for years expires and the tenant continues to pay for the next month rent. if the landlord accepts the rent no new lease agreement is made, but a holdover tenancy is created. in absence of a renewal agreement, a tenant who holds over does so as a month to month tenant.

Question 9

the following notices are required by Illinois statute:

Answer 9

• Tenancy from year to year. At least 60 days written notice is required at any time within the four-month period before the last 60 days of the lease period
• tenancy from month to month: in any periodic estate having a term of less than a year to year but greater than week to week, 30 days written notice is required.
• tenancy from week to week. Seven days written notice is required
• farm tenancies from year to year. parties must give at least four months to written notice to terminate and may do so only at the end of the period. To vacate March 11, farm tenancy notice must be given by November 1.

Question 10

Define estate at will (aka tenancy at will)

Answer 10

give the tenant to possess property with the landlords consent for unspecified term. It ends when either party decides to terminate the agreement or the lessee or lessor dies.

Question 11

Define estate at sufferance (aka tenancy at sufferance)

Answer 11

arises when a tenant who lawfully possessed real property continues to stay at the premises after the rights have expired.

This estate can arise when a tenant for years fails to surrender possession at the leases expiration and continues until the landlord completes the eviction process.

Question 12

Requirements of a valid lease

Answer 12

A lease is a form of contract. to be valid, a lease must meet essentially the same requirements as any other contract. They are as follows:

• capacity to contract. the parties must have the legal capacity to contract.
• legal objective. the objectives of the lease must be legal
• offer and acceptance. the parties must reach a mutual agreement on all the terms of the contract.
• consideration

Question 13

Use of premises

Answer 13

a lessor may restrict lessee uses of the premises through provisions included in the lease. This is usually for commercial real estate, such a restriction would be “only as a real estate office and no other purpose.”

Question 14

define security deposit as it relates to leasing

Answer 14

most leases require a security deposit to be held by the landlord during the lease term… if the tenant defaults on payment of the rent or damages the premises, the lessor may keep all or part of the deposit to compensate for the loss.

Question 15

Improvements

Answer 15

neither the landlord or the tenant is required to make any improvements with the landlords permission. In most residential properties, any alterations become the property of the landlord

Question 16

accessibility

Answer 16

is a disabled person makes changes to their property to fit their needs and it interferes with a future tenants use the landlord may require then disabled tenant to restore the property back to its original nature at their expense

Question 17

Maintenance and repairs.. Residential vs commercial

Answer 17

Lessors of a residential building are required to maintain the dwelling units in a habitable condition. Landlords must make necessary repairs to common areas such as hallways, stairs, elevators etc. Lessees of commercial buildings however usually maintain the property and are often responsible for making their own repairs.

Question 18

define implied warranty of habitability

Answer 18

what a landlord must deliver and maintain throughout the duration of the lease any residential leasehold free from defects that would render the use of the dwelling “unsafe or unsanitary”.

Generally, a landlord can be in violation by failing to:

• provide access to drinkable water and hot water, heat during the cold weather, working electricity, a smoke detector, and a working bathroom/ toilet
• remediate rodent or insect infestations, or
• correct building code violations

A tenant must give the landlord notice of a defect and reasonable amount of time to fix it as a remedy the tenant may choose too:

• move out and terminate the lease if repairs are not made within a reasonable amount of time (known as constructive eviction)
• stay and repair the problem and deduct the repair costs from the next months rent (repair costs cannot exceed one months unit rent) or
• sue for any damages resulting from the defective condition

Question 19

Define assignment in relating to tenants

Answer 19

lease assignment occurs when a tenant transfers all of his leasehold interest to another person. The new tenant is legally obligated for all the promises the original tenant made in the lease.

Question 20

define subleased in relating to tenants

Answer 20

the original lessee is still responsible for paying the lessor but has leased their dwelling to a new tenant themselves. The original tenant is responsible for all damages and rent being paid.

Question 21

recording a lease

Answer 21

it is usually unnecessary to record a lease

Question 22

define non-disturbance clause

Answer 22

in the event a mortgage foreclosure happens on the lessor, the lessee is safe to occupy if they pay their rent. The mortgagee cannot terminate them.

Question 23

define renewal options

Answer 23

a lease may contain an option that grants the lessee the privilege of renewing the lease(called renewal option).

Question 24

define right of first refusal

Answer 24

right of first refusal clause, allowing the tenant the opportunity to buy the property before the owner accepts an offer from another party.

Question 25

Define gross lease

Answer 25

gross lease means the tenant pays a fixed rent and the landlord pays taxes, assessments, insurance, maintenance and utilities connected to the property

*Gross lease = lessee pays basic rent

Question 26

Define net lease

Answer 26

in a net lease, the tenant pays some or all of the operating expenses in addition to the rent. Leases for commercial and industrial property are usually net leases.

*Net lease = lessee pays basic rent plus all or some property charges

Question 27

define percentage lease

Answer 27

percentage lease may be gross or net leases. In a percentage lease the rent is based on a minimum fixed rental feee plus a percentage of the gross income generated by the tenant doing business on the lease property. Typically for commercial

*percentage lease = lessee pays basic rent plus percentage of gross sales

Question 28

define variable lease

Answer 28

several types of leases allow for increases in the rental charges during the lease period. one of these is called graduated lease, which provides for specified rent increases at set future dates. Another is index lease, which allows rent to be increased or decreased periodically, based on the changes in the consumer price index or some other economic behavior.

Question 29

Define ground lease

Answer 29

when a landowner leases unimproved land to a tenant who agrees to erect a building on the land the lease Is usually called a ground lease. Ground leases usually involve separate ownership of the land and buildings.

Question 30

Define lease purchase

Answer 30

a lease purchase is used when a tenant wants to purchase the property but is unable to do so.

Question 31

define sale and lease back agreements

Answer 31

sale and leaseback agreements, the owners of property sell the property and then lease it back again for an agreed period.

Question 32

agricultural lease

Answer 32

agricultural landowners can lease the land to tenant farmers to produce crop. landowners can be paid in two ways: as an agreed on rental amount in cash advance (cash rent), or as a percentage of the profits or losses from the sale of the crop to when it is sold (sharecropping)