LESSON 5: CONTRACTS IN REAL ESTATE Flashcards
What is the Statute of Frauds?
A law that requires real estate contracts to be in writing to be enforceable.
What are the required forms by TREC for real estate transactions?
TREC has 24 promulgated forms, including notices, certificates, and addendums.
What are the key elements required for a real estate contract?
- Identify the parties 2. Identify the real estate 3. Identify the purchase price 4. Include signatures 5. Have a legal purpose 6. Competent parties 7. Meeting of the minds 8. Include consideration.
What is the purpose of a deed in a real estate contract?
A deed is used to convey real estate ownership, and may specify the type of deed to be used, such as a warranty deed or quitclaim deed.
What are contingencies in a real estate contract?
Conditions that must be met for the contract to be performed, such as mortgage, inspection, and appraisal contingencies.
What is the role of earnest money in real estate contracts?
It represents a deposit from the buyer to show commitment, which is held by a third party and applied to the final sales price.
What does “as is” mean in a real estate contract?
It means the property is sold in its current condition without any guarantees or warranties.
What is the significance of the sales contract in real estate transactions?
It defines the agreement between parties, ensuring clarity and helping resolve any disputes, often preventing the need for court involvement.
What is the role of a real estate agent in the contract process?
They help prepare and present the contract, ensuring all required information is included and the contract is legally binding.
What is a “kick-out” contingency in a real estate contract?
It allows the seller to accept another offer if the buyer doesn’t remove a contingency, such as a home sale contingency, within a specified period.
What is the importance of the closing date in a real estate contract?
The closing date is when the property ownership is officially transferred, and the contract may specify who pays for closing costs.
What types of contracts are used in real estate transactions in Texas?
Contracts such as One to Four Family Residential Contract, Unimproved Property Contract, New Home Contract, and more are used.
What is the role of TREC in real estate contracts?
TREC promulgates standardized forms required for most real estate transactions and ensures their compliance with current laws.
What is the difference between promulgated and approved contract forms?
Promulgated forms are required by law for specific transactions, while approved forms are optional unless they become promulgated forms.
Why is it important for real estate professionals to understand contract forms?
Understanding contract forms ensures accurate and legally binding agreements, preventing financial loss or contract disputes.
What happens if a real estate contract has defects?
If not handled correctly, it could lead to an unenforceable contract, risking financial loss and legal complications.
What are the basic elements of a contract at common law?
The basic elements of a contract are offer, acceptance, intention to create legal relations, and consideration.
What is the “mirror image rule” in contract law?
The “mirror image rule” means that for a contract to be formed, the acceptance must not vary the terms of the offer. A change in terms constitutes a counteroffer.
What is the difference between a bilateral and unilateral contract?
A bilateral contract involves mutual promises between both parties, while a unilateral contract involves one party making a promise without requiring a promise in return.
What is an example of a unilateral contract?
An example of a unilateral contract is a reward contract, where someone promises a reward for finding a lost dog.
What is an implied contract?
An implied contract is one that is formed based on the circumstances, even without an explicit agreement. A contract implied in law is a quasi-contract, which remedies unjust enrichment.
What is the significance of intention to be legally bound in a contract?
In commercial agreements, it is presumed that parties intend to be legally bound unless stated otherwise. Domestic and social agreements are typically unenforceable.
What is consideration in contract law?
Consideration refers to something of value exchanged between the parties, which may include money, goods, or an act. It is required for simple contracts but not for special contracts by deed.
What does the case Dunlop v. Selfridge highlight about consideration?
In Dunlop v. Selfridge, the court ruled that there was no contract between Dunlop and Selfridge because Dunlop did not provide consideration to Selfridge.
What is the concept of capacity in contract law?
Capacity refers to the ability of parties to enter into a contract. Minors, mentally incapacitated persons, and errant employees may lack the capacity to form binding contracts.
What is promissory estoppel?
Promissory estoppel allows an injured party to recover based on a promise if they have reasonably relied on it and suffered financial loss.
What is puffery in contract law?
Puffery refers to exaggerated statements in a contract that are not enforceable because they are subjective or promotional.
What is the implied warranty of habitability?
The implied warranty of habitability guarantees that rental properties meet basic living and safety standards.
What are the essential elements required for a valid contract?
A valid contract requires competent parties, mutual agreement, lawful objective, consideration, and proper form. Certain contracts (like real estate contracts) must be in writing to be enforceable.
What does discharge by performance mean in contract law?
Discharge by performance occurs when both parties fulfill their obligations under the contract, and the contract is considered completed.
What is discharge of contract by substituted agreement?
Discharge by substituted agreement happens when the terms of the contract are altered or abandoned with the mutual consent of both parties.
What is Novation in legal terms?
Novation refers to the substitution of a new agreement between the same parties, where the old contract is “dead” and the new agreement specifies the rights and obligations of the parties. It can also involve the introduction of a new party who assumes the obligations of one of the original parties.
Can you give an example of Novation?
Example 1: A party is unable to make monthly payments under a promissory note, and another party agrees to modify the terms to an affordable payment. Example 2: A person’s rich relative agrees to make payments, assuming responsibility for the remaining balance, releasing the original person from their obligation.
What is Rescission?
Rescission refers to the cancellation of all or some material terms of a contract. If both parties agree to terminate the contract, it is called “mutual rescission”.
What is Alteration in contract law?
Alteration involves changing one or more terms of a contract with the consent of all parties. It results in a new contract, but the parties remain the same. The assumption is that both parties will gain a fresh benefit from the new agreement.
What does Waiver mean in legal terms?
A waiver refers to the abandonment or relinquishment of a right. When a party deliberately abandons its rights under a contract, the other party is released from its obligations.
What is Discharge by Lapse of Time?
A contract is discharged if it is not enforced within a specified period, called the ‘period of limitation’. For example, the period of limitation to recover a debt is three years.
What is Discharge by Impossibility of Performance?
This occurs when something prevents the performance of a contract, which was not caused by either party, could not be foreseen, and destroys the basis of the contract. It may lead to the contract being discharged.
What are the types of impossibility that may discharge a contract?
The types of impossibility include: Objective impossibility of performance, Commercial impracticability, Frustration of purpose, and Temporary impossibility.
What is Discharge by Operation of Law?
A contract is discharged by operation of law in the following cases: unauthorized alteration of a written document, statute of limitations, insolvency, and merger of inferior rights into superior rights.
What is Discharge by Accord and Satisfaction?
Accord and satisfaction occurs when the parties agree to accept performance different from the original promise. An accord is an executory contract, and satisfaction is the performance that discharges the original obligation.
What does Discharge by Breach mean?
Discharge by breach happens when one party fails to perform its obligations, or the performance is defective. It does not automatically terminate the contract, but gives the aggrieved party the option to terminate or affirm the contract.
What is Anticipatory Breach?
Anticipatory breach occurs when one party states before the performance date that it cannot or will not perform its obligations. It may also occur if performance is made impossible by the actions of one party.
What is the effect of Anticipatory Breach?
The non-breaching party can either rescind the contract or wait for the performance date. If rescinded, the non-breaching party can sue immediately for damages.
What is Actual Breach?
Actual breach refers to the failure to perform contractual obligations when they are due, such as failing to deliver goods on time or delivering defective goods.
What is the effect of Actual Breach?
Actual breach may lead to a breach of condition or breach of warranty, and can result in termination of the contract and claims for damages.
Does the death of a party end a contract?
Not always. If the contract involves something that only the deceased could perform (e.g., personal services like painting a portrait), the contract is canceled. Otherwise, the contract may continue, and the obligations can be fulfilled by others.
What happens if the subject of a contract is destroyed?
If the subject is destroyed before the contract is completed, the parties are relieved of their obligations. In real estate, if property is destroyed, the contract may be canceled or may continue with certain conditions for repair or insurance compensation.
What is required for most real estate contracts to be binding?
Most real estate contracts must be in writing to be binding on the parties.
What are some of the common real estate contracts used by sales agents and brokers?
Some common real estate contracts include: Amendment to Contract, Farm and Ranch Contract, One to Four Family Residential Contract (Resale), Residential Condominium Contract (Resale), Addendum for Property in a Propane Gas System Service Area, and Buyer’s Temporary Residential Lease.
What is the purpose of a real estate contract?
A real estate contract allows the buyer and seller to: 1) Detail terms like price, financing, inspections, and cost responsibilities, 2) Outline pre-closing responsibilities like title searches and repairs, 3) Provide a basis for recovering damages if a party fails to perform.
What other agreements are considered contracts in real estate besides purchase contracts?
Contracts also exist between sellers and agents, buyers and agents, landlords and agents, tenants and agents, property owners and property managers, and for leases between landlords and tenants.
Why is confidentiality important in real estate contracts?
Confidentiality is important because real estate professionals must protect personal information about clients, such as reasons for selling, legal disputes, or other sensitive matters.
What is “equitable interest” in real estate contracts?
“Equitable interest” refers to a buyer’s legal standing after a signed contract for a property, giving them some rights in the transaction even if they don’t yet own the property.
What is the concept of “assignment” in real estate contracts?
Assignment is the transfer of rights and obligations under a contract to another party. A clause in the contract may require the non-assigning party’s consent, but it must not unreasonably withhold approval.
What does “impracticability” mean in contract law?
Impracticability occurs when an unforeseen event makes it impossible or impractical to perform a contract, and the defaulting party didn’t cause the event.
What is an “Act of God” or “force majeure” in contracts?
An Act of God or force majeure refers to natural events like floods, earthquakes, or fires that prevent performance of a contract and are beyond the reasonable control of the affected party.
What is “unconscionability” in contract law?
An unconscionable act is one that is excessive, unfair, and unreasonable. It involves actions that shock the conscience, such as large businesses taking advantage of consumers.
What is an “adhesion contract”?
An adhesion contract is a non-negotiated contract imposed by a more dominant party on a weaker party, often containing unfair terms. However, it doesn’t mean the contract is automatically unenforceable.
What is the principle of “accord and satisfaction”?
Accord and satisfaction occurs when two parties agree that the contract is fully performed, even if the original terms weren’t completely met. For example, accepting less money as full payment of a debt.
What is “release of co-obligor” in contract law?
Release of co-obligor means that if one person obligated on a contract is released, others also involved in the obligation may be released from their responsibility, unless specified otherwise.
What is a “listing agreement” in real estate?
A listing agreement is a contract between a property owner and an agent, outlining the agent’s responsibilities and commission terms. It includes property details, terms of sale, commission, and signatures.
What are the four possible listing agreements between an agent and principal?
- Open listings 2. Exclusive right-to-sell listings 3. Exclusive agency listings 4. Net listings
Does TREC have a promulgated listing agreement form?
No. A listing agreement is a private contract between a real estate broker and a property owner and is not promulgated by TREC. The Texas Association of Realtors (TAR) provides certain forms to its members.
Can listing agreements be extended?
Yes, listing agreements are private contracts between a real estate broker and a seller. The terms of the contract and/or desires of the parties would determine whether it can be extended.
Can you break your contract with a broker if they haven’t done anything to sell the house?
Yes, you may have grounds to terminate the contract if the broker has not fulfilled their duties. Consult with a private attorney to determine your legal options.
Can another broker solicit a listing from the same seller while the current exclusive listing is active?
Yes, another broker can solicit a listing, but it must not commence until the current listing expires.
Do I get to take my listings with me if I change sponsoring brokers?
No. Listing agreements are contracts between the property owner and the real estate broker, not the sales agent.
Can I switch my listing to a new broker’s office if my agent moves?
No. Listing agreements are between the property owner and the real estate broker, not the sales agent. You can ask the original broker to release you from the agreement.
Can TREC explain terms in a listing agreement that I don’t understand?
No. TREC cannot advise on private contractual matters. You should discuss the terms with a private attorney.
Can TREC help me with filling out a listing agreement form?
No. TREC does not provide assistance with filling out a private contract form. You should contact your sponsoring broker or TAR for help.
What is an Exclusive Agency Listing Agreement?
In this arrangement, the listing broker is almost certain to receive a commission because the broker is the only person or firm authorized to act as the owner’s agent for the sale of the property. However, the owner reserves the right to sell the property herself. If she is successful, there is no commission due to the broker. There is no TREC promulgated form for this agreement.
How does a Buyer Agency Agreement work?
In this agreement, the broker is employed as the principal’s agent to locate and negotiate the purchase of a property. The broker’s sole loyalty and duty are to the buyer. This contract clarifies agent duties and helps avoid conflicts of interest, especially regarding representation of potential buyers who were showing listed properties.
What should be included in a Buyer-Broker Agreement?
The Buyer-Broker Agreement should include: names of parties, start and end dates, general property search characteristics, obligations of both parties, agency relationship, compensation agreement, terms of protection period after termination, fair housing language, and signatures of all parties.
What does an Exclusive Buyer Representation Agreement state about property descriptions?
The agreement grants the broker the exclusive right to act as the client’s real estate agent in a specific market area. Descriptions should outline the market area, such as “City of Austin” or “Dallas County.” The agreement is only valid if the buyer purchases within that area.
What are the broker fees in a Buyer Agency Agreement?
Broker fees can be a percentage of the gross sales price if the client purchases property, or a fee equal to one month’s rent or a percentage of the rent for leasing property. The broker will seek commission from the seller or landlord but if they fail, the buyer will pay the specified amount. Additional compensation, such as marketing incentives or bonuses, can be retained by the broker.
What is the role of an agent in a real estate transaction?
An agent is a licensed representative who facilitates the sale, purchase, exchange, or lease of real property. A broker enters into an agency relationship with the seller, buyer, landlord, or tenant. Salespersons function as general agents under a broker and act on behalf of the broker in real estate transactions.
Who is the principal in a real estate transaction?
The principal is the individual who engages the agent’s services in a real estate transaction, such as a seller, buyer, landlord, or tenant. The principal may also be a property owner seeking management services. Agency laws apply in these cases, but this context focuses on relationships with buyers and sellers.
Who is considered a third party in a real estate transaction?
A third party, or customer, is an individual who expresses interest in a property and is prepared to enter into a contract for the sale, purchase, or rental of real estate.
How do you represent both buyers and sellers in real estate?
It is important to understand agency relationships when representing both buyers and sellers. These relationships are fiduciary in nature, where the agent is trusted to act in the principal’s best interest. Real estate agents must follow ethical guidelines and procedures to ensure they do not have conflicts of interest.
What is the role of a leasing agent vs. a property manager?
A leasing agent’s job ends after securing a lease for the property, whereas a property manager’s role is ongoing, handling rent collection, repairs, maintenance, and tenant management. Property managers are also responsible for evictions and are typically compensated with a percentage of the monthly rent.
What does a property management agreement authorize?
A property management agreement authorizes a broker to handle lease agreements and property management tasks. The broker must ensure leases comply with the Texas Property Code and manage any necessary repairs. If a broker violates the terms, TREC could find it negligent.
What is required by the Texas Property Code for rental properties?
The Texas Property Code requires rental properties to have certain locks and security devices, including window latches, keyed doorknob locks, sliding door locks, and others. It also requires smoke alarms to be tested, and the property must comply with maintenance standards, including repairs affecting tenants’ health and safety.
What are landlord responsibilities regarding property repairs?
A landlord must diligently repair conditions that materially affect the health or safety of a tenant, such as failure to maintain hot water supply. Repairs are required if the tenant has notified the landlord and is current on rent payments. The landlord has no duty to repair conditions caused by the tenant or their guests.
What judicial remedies are available to a tenant for unaddressed property repairs?
Judicial remedies for tenants include an order for the landlord to repair the issue, reduced rent, civil penalties, damages for actual losses, and court costs. The tenant can also sue for damages if the landlord knowingly violates repair duties.
What security requirements must landlords follow under the Texas Property Code?
Landlords must ensure rental properties are equipped with specific security devices such as window latches, keyed locks, sliding door security bars, and rekeying when a new tenant occupies the property. Smoke alarms must also be tested.
What challenges do property managers face under Texas law?
Property managers are responsible for ensuring compliance with safety and security laws, managing repairs and maintenance, and handling tenant issues. They must also ensure they are following all applicable laws to avoid liability, especially when performing tasks outside their scope, like managing leases without proper agreements.
What are the legal consequences of an unlicensed assistant showing a property?
An unlicensed assistant cannot show a property for sale or lease, as it bypasses the legislative requirement for criminal background checks for licensed agents. This rule ensures that individuals with inappropriate backgrounds do not have access to open homes for sale or lease.
What is “trust money”?
“Trust money” refers to client’s money, earnest money, rent, unearned fees, security deposits, or any money held on behalf of another person.
What is a “trust account”?
A “trust account” is an account managed by one party for the benefit of another in a banking institution authorized to do business in Texas.
Who can hold trust money in a trust account?
Only brokers can hold trust money in a trust account. Sales agents must deliver any trust money immediately to their sponsoring broker.
Can a sales agent maintain a trust account?
No, a sales agent cannot maintain a trust account. Any trust money must be delivered immediately to the sponsoring broker.
When must a broker deposit trust money into a trust account or escrow agent?
Trust money must be deposited into a trust account or delivered to an authorized escrow agent within a reasonable time, which is by the close of business on the second working day after receiving it.
Can a broker commingle trust money with their personal money?
No, a broker must not commingle trust money with personal or non-trust money.
What is the evidence of commingling trust money with personal money?
Evidence of commingling trust money with personal money includes placing trust money in the broker’s personal or operating account or paying operating expenses from a trust account.
Does a broker need to maintain separate trust accounts for each client?
A broker may maintain separate trust accounts for each client or type of trust money, but it is not required.
What happens if a broker deposits trust money in an interest-bearing account?
If trust money is deposited in an interest-bearing account, the interest must be distributed to the parties disbursed the money unless otherwise agreed upon.
Can a broker keep a reasonable amount of money in the trust account for bank service fees?
Yes, a broker may deposit a reasonable amount of money to cover bank service fees, including insufficient funds fees, and must keep records for these deposits.
When must trust money be removed from the trust account if the broker acquires ownership of it?
Trust money must be removed from the trust account within 30 days after the broker acquires ownership of the money.
How long must brokers maintain documentation regarding trust accounts?
Brokers must maintain all documentation for four years from the date the document is received or created.
What happens if a check deposited into a trust account is dishonored?
If a check is dishonored, the broker must immediately notify all parties to the transaction in writing.
When can a broker disburse trust money?
A broker can only disburse trust money according to the agreement under which it was received.
How soon must a broker disburse trust money if a demand is made?
If a written demand is made, the broker must disburse the money within 30 days.
What should a broker do if they cannot determine to whom trust money should be disbursed?
If the broker cannot determine who is entitled to the trust money, they may deposit the money into the court registry and interplead the parties.
What is the “Statute of Limitations”?
The Statute of Limitations is a law that sets a time limit on when lawsuits can be filed. If the time expires, the claim is “barred.”
What is the time limit for breach of a real property sales agreement in Texas?
In Texas, claims for breach of a real property sales agreement are governed by a 4-year statute of limitations.
How long do parties have to file a claim under the Texas Deceptive Trade Practices Act (DTPA)?
A claim under the DTPA must be filed within two years of the act that occurred.
What is the Parol Evidence Rule (PER)?
The Parol Evidence Rule excludes oral evidence that contradicts written contracts, preventing changes to a written agreement based on what was said outside of the document.
What is the difference between the Statute of Limitations and Laches?
The Statute of Limitations sets a specific period after which a claim cannot be filed, while Laches considers fairness and overall facts to decide if a claim is allowed after a long delay.
What is the significance of location in real estate?
Location is critical in real estate as it determines the property’s value, suitability, and long-term usability.
How does “Contemplated Use” affect a tenant’s choice of location?
Tenants consider factors like neighborhood condition, safety, schools, and work proximity to decide if the location suits their personal or business needs.
Why is “Expandability” important for tenants?
Tenants need to consider if the property can accommodate growth, especially in commercial leases, to avoid costly relocations.
How does “Encroachment” affect tenants?
Encroachment is less of a concern for residential tenants but important for commercial tenants who face risks from nearby commercial developments or changes in zoning.
What are the basic elements of a lease agreement?
A lease should include property description, term of lease, extension or renewal terms, security deposit, and rent amount.
What is a “leasehold estate”?
A leasehold estate is the tenant’s ownership interest in a leased property, while the landlord’s interest is a leased fee estate plus a reversionary right.
What should the lease specify regarding permitted use and occupancy?
The lease should state what uses are permitted (e.g., residence, retail, custom wood fabrication), limits on the number of occupants or employees, and prohibit uses that violate laws or ordinances. It should also avoid nuisance conduct.
What issue might arise regarding drug cultivation in a lease?
Some states allow marijuana cultivation for personal use, which may conflict with a landlord’s opposition to such use, requiring careful consideration in the lease terms.
What should a lease specify about subletting or assigning the property?
The lease should clearly state whether subletting or assignment is permitted and may require the landlord’s approval, possibly including financial or other criteria for approval of sublessees or assignees.
Under what circumstances can a landlord access the property?
The lease should specify when the landlord can access the property (e.g., for inspections or repairs) and require reasonable notice except in emergencies.
What is a rent acceleration clause in a lease?
Some leases include a rent acceleration clause, allowing the landlord to demand full rent for the entire lease term if the tenant fails to pay on time or violates the lease. State laws may limit this practice.
What information should the lease include about notices?
The lease should provide details for giving notices (e.g., addresses, phone numbers, email) and specify if electronic or facsimile notices are allowed. It should also clarify that no notice is required for monthly rent or utilities.
What is a build-to-suit arrangement?
A build-to-suit arrangement is when a landowner constructs a building to a tenant’s specifications, and the tenant agrees to lease the land and completed building for a pre-determined period. The lease term is usually long to allow the owner to recover costs.
What are the pros and cons of build-to-suit transactions?
Pros: Tailored to tenant needs; Cons: Long-term commitment and the owner’s risk in recovering construction costs.
What is a graduated or step-up lease arrangement?
A graduated lease involves rent increases at agreed intervals, e.g., $10 per sq. ft. in the first year, $11 in the second, etc. Rent could also be adjusted by a percentage or external measurement like the cost-of-living index.
What is an escalation clause in a lease?
An escalation clause allows the landlord to pass along increases in property operating costs (e.g., taxes, utilities) to the tenant or adjust rent based on external indices like the cost-of-living index or CPI.
What is a gross lease?
A gross lease is an agreement where the tenant pays a set amount of rent, and the landlord is responsible for property taxes, insurance, maintenance, and other costs (except utilities or minor items).
What is a triple net lease (NNN)?
A triple net lease requires the tenant to pay the base rent plus a portion of operating expenses (taxes, insurance, maintenance). Variations include double net (NN), where the tenant pays for two of these items.
What is a double-net lease?
A double-net lease requires the tenant to pay base rent plus a share of property taxes and insurance, making these the two “nets” for which the tenant is responsible.
What is a triple-net lease?
A triple-net lease requires the tenant to pay base rent plus a portion of all operating expenses (taxes, insurance, maintenance). It may also include payment for the lessor’s loan interest, with fixed and variable expenses.
What is percentage rent?
A lease where the tenant pays a base rent plus a percentage of the gross sales. The better the tenant’s sales, the higher the rent paid to the landlord.
What is a variable lease?
A lease in which the base rent changes, either through a graduated lease (fixed increases) or an index lease (changes based on an economic indicator like CPI).
What is a graduated lease?
A lease where the rent increases at fixed future dates, generally starting at a lower rate and increasing over time.
What is an index lease?
A lease where rent increases periodically based on an economic indicator, such as the Consumer Price Index (CPI), rather than fixed amounts.
What is a ground lease?
A lease for undeveloped land where the tenant leases the land and potentially builds on it, with the land and improvements reverting to the landlord upon expiry.
What is unique about ground leases in Hawaii?
Many homes in Hawaii are built on leased land, with properties marked as FS (fee simple) or LH (leasehold), where the leaseholder pays lease fees to the landowner.
What is an oil and gas lease?
A lease granting the exclusive right to extract oil or gas from a property, often involving royalty payments to the landowner.
What is a sale-leaseback?
A transaction where an owner sells a property and leases it back, allowing them to raise cash and continue using the property as a tenant.
How can a lease be discharged?
A lease can end by mutual agreement, the lease term expiring, or through a breach by one of the parties.
What should be included in a lease termination agreement?
The termination should specify when the liabilities end, the tenant’s vacating date, and should be signed by both parties to be valid.
What is breaking a lease?
Breaking a lease is when a tenant leaves before the lease term ends, usually without paying the remainder of rent due under the lease.
What are tenant rights when signing a lease in Texas?
In Texas, landlords can’t raise rent or force tenants to move before the lease ends unless there’s a breach, and must follow specific procedures to end tenancy.
What must a landlord do when a tenant breaks a lease?
The landlord must attempt to re-rent the unit, and may only sue for damages after the property has been re-rented.
What is the landlord’s duty when a tenant breaks the lease in Texas?
Under Texas law, a landlord must make reasonable efforts to re-rent the unit after a tenant breaks the lease. The landlord cannot charge the tenant for the full remaining rent but can charge for the amount of rent lost due to the vacancy.
What does “mitigating damages” mean for a landlord?
It means that the landlord must take reasonable steps to minimize their losses when a tenant breaks a lease. This includes re-renting the unit as quickly as possible to reduce the amount of rent owed by the tenant.
Can a landlord refuse to rent to tenants with poor credit when re-renting?
No, the landlord is not required to relax standards for acceptable tenants. They can reject tenants with poor credit, as long as they make reasonable efforts to re-rent the unit.
What costs can a landlord charge to a tenant who breaks the lease?
A landlord can charge for expenses such as advertising costs and any other legitimate expenses related to finding a new tenant, in addition to the lost rent.
How can a tenant minimize financial responsibility when breaking a lease?
The tenant can minimize their responsibility by providing as much notice as possible, writing a sincere letter explaining the situation, and offering a qualified replacement tenant with good credit and references.
What is an option agreement in leasing?
An option agreement is a unilateral contract that gives one party the right to do or not do something without a commitment to act. In leasing, it may allow the tenant or landlord to make changes to the lease, such as extending the term or adjusting the space occupied.
What is the “option to terminate” in Texas contracts?
It is a clause that allows the buyer or tenant to terminate the contract within a specified period by paying an option fee. This fee is non-refundable, and if the option to terminate is exercised, the earnest money is refunded. The option period and conditions are agreed upon in the contract.
What is a contract for deed?
A contract for deed is an installment contract where the buyer makes payments toward the purchase price, and the seller retains title to the property until the price is fully paid. It’s typically used when buyers can’t qualify for traditional financing.
Why are contracts for deed not recommended in Texas?
Contracts for deed can lead to issues such as buyer default, property maintenance problems, legal complications, and the buyer’s equitable title creating a cloud on the property title, which complicates the process of repossession.
What are the risks of using a contract for deed for a seller?
The seller risks legal complications if the buyer defaults, as the process may end up being more costly and time-consuming than a traditional foreclosure. Additionally, the seller may have difficulty reclaiming the property due to the buyer’s equitable title.
What is a great alternative to a contract for deed?
Seller financing is a better alternative, providing the buyer with actual title to the property while allowing the seller to receive monthly payments. This is less risky than a contract for deed and allows for easier foreclosure in case of default.
What is a lease purchase agreement?
A lease purchase agreement allows a tenant to lease a property with the option (or obligation) to purchase it later, with agreed-upon terms. Lease payments may be credited toward the purchase price, and the buyer assumes responsibility for maintenance and repairs.
How does a lease purchase agreement benefit the lessee?
The lessee benefits by having a fixed purchase price for the property and the option to purchase even if the property’s value increases. If the value decreases, the lessee is not obligated to purchase and can continue leasing.
What risks can arise in a lease purchase agreement?
The risk of property value decreasing, and the tenant being locked into a purchase they may no longer want. Additionally, such agreements can have complex legal and tax implications and should be reviewed by competent legal counsel.
