Ownership Concepts - Part 2 - Chapters 34-36 Flashcards
Differentiate between the different types of tenancies
Leasehold estates, or tenancies, are possessory interests in RE. There are FOUR types of tenancies:
- Fixed Term tenancies
- Periodic Tenancies
- Tenancies-at-Will
- Tenancies at Sufferance also called Holdover Tenancies
To initially establish a tenancy, a landlord transfers to the tenant the right to occupy the real estate. This right is conveyed either in writing, orally, or by a landlord’s conduct, called a grant.
Understand how each tenancy is established and terminated
There are FOUR types of leasehold estates - tenancies:
1. Fixed Term tenancies - is also called a lease or estate for years, and is the result of an agreement between the landlord and the tenant for a FIXED LEASE PERIOD. If lease period is longer than a year, the lease arrangement is required to be in writing and signed by the landlord and tenant to be enforceable under the Statute of Frauds. Without the tenants exercise of any option to renew or extend, a fixed term tenancy automatically terminates on the expiration date, no notice required. During the term of the lease the tenancy can only be terminated and the tenant evicted for good cause. Even then, service of a three day notice to vacate the property is required.
- Periodic Tenancies - If the landlord finds a fixed term tenancy to restrictive or inflexible for their requirements, a periodic tenancy may be more suitable. A periodic tenancy is intentionally created by a landlord and tenant entering into a RENTAL agreement. Periodic tenancy is automatically extended for equal, successive periods of time, such as a week or a month, until terminated by notice. To terminate a periodic tenancy, the notice period is to be at least as long as the interval between scheduled rental payments, but need not exceed 30 days. Residential property requires 60 days if occupied for more than 12 months. ON material breach of the rental agreement a 3 day notice to vacate is permitted.
- Tenancies-at-Will, possession is delivered to the tenant with the landlord’s knowledge and consent for an indefinite and unspecified period, usually without requiring rent. A TatW is automatically terminated if the tenant assigns or sublets their right to occupy the property to another tenant. The new tenant becomes a holdover tenant. Either form of possession is an unlawful detainer and grounds for eviction without notice. Also a TatW terminates on the death of either the landlord or tenant, unless an agreement to the contrary exists.
- Tenancies at Sufferance also called Holdover Tenancies - A TatW is automatically terminated if the tenant assigns or sublets their right to occupy the property to another tenant. The new tenant becomes a HOLDOVER tenant. Either form of possession is an unlawful detainer and grounds for eviction without notice. When a fixed term (LEASE) or periodic term (RENTAL) tenancy terminates by prior agreement or notice, the tenant who remains in possession unlawfully detains the property from the landlord. Likewise, a Tenant at Will who receives the appropriate notice to vacate and who remains in possession of the property also unlawfully detains the property. These scenarios create a Tenancy at Sufferance, commonly referred to a Holdover Tenancy. A holdover tenancy also arises on termination of a resident manager when the res manager’s compensation included the right to occupy a unit rent free. When the landlord terminates the employment and the resident manager fails to vacate immediately, he becomes a holdover tenant.
holdover tenant
A Holdover Tenant is a tenant who retains possession of the rented premises after their right of possession has been terminated, called a tenant at sufferance.
holdover rent
Holdover Rent is rent owed by a holdover tenant for the tenant’s unlawful detainer of the rented premises as a tenant-at-sufferance.
lease agreement
A Lease Agreement is a written document which sets the terms of a FIXED TERM tenancy. A lease agreement is required to have a commencement date and an expiration date.
rental agreement
A Rental Agreement is a written document which sets the terms and conditions of a PERIODIC tenancy.
trespasser
A trespasser is a person who occupies a property without the owner’s transfer of the right to occupy.
unlawful detainer (UD)
A holdover tenancy occurs when a tenant continues in possession of the property after their right to occupy has expired. This holdover of possession without a contractual right is called an Unlawful Detainer (UD). A UD is the unlawful possession of a property.
Identify the different types of tenant improvements
Two types of fixtures exist for classifying improvements installed in a building:
- Real Estate Fixtures - which is personal property that is attached to the real estate and becomes part of the RE it is attached to and is conveyed with the property.
- Trade Fixtures - are improvements that are attached to the RE by the tenant and is unique to the operation of the tenant’s business, not the use of the building.
Understand the landlords rights and tenant obligations regarding tenant improvements on termination of the lease.
When a lease expires, REAL ESTATE FIXTURES are the landlord’s property, not the tenants who installed them. The land lord takes possession of the RE Fixtures as part of the RE forfeited or surrendered to the landlord unless the lease agreement provided for restoration of the property by removal of the Tenant Improvements by the tenant.
Conversely, TRADE FIXTURES do not revert to the landlord on expiration of the lease.
A tenant may at the end or anytime during lease, remove any trade fixtures used for trade purposes if the removal can be done without damaging the premises. Fixtures that are integral part of structure cannot be removed, like toilets, air conditioners, vent conduits, sprinkler systems, and lowered ceilings.
Determine the landlord or tenant obligation to complete or pay for the construction of tenant improvements.
The landlord’s right to improvements added to the property and paid for by the tenant depends upon whether:
- the tenant improvements are permanent (built -ins) or temporary (free standing)
- The lease agreement requires the tenant to remove improvements and restore the premises
Commercial lease agreements typically contain a further-improvements provision allowing the landlord to
- retain tenant improvements and alterations made by tenant
- require restoration of the property to it original condition on expiration of the lease
A landlord under a lease agreement who agrees to make improvements is required to complete the improvements in a timely manner. If they dont, tenant may cancel the lease agreement.
Conversely, lease agreement provision can obligate a tenant to construct or install improvements on the property. The time period to complete is agreed to in lease and if not, then a ‘reasonable’ period is allowed.
further improvements provision
Further Improvement Provision is a COMMERCIAL lease provision which allows a landlord to retain tenant improvements or require the restoration of the property to its original condition upon expiration of the lease. FIP usually include clauses stating:
- who will make construction improvements (landlord or tenant)
- who will pay for the construction of the improvements (landlord or tenant)
- any mechanic’s liens due to improvements contracted by the tenant will be removed by the tenant
- the condition of the premises on expiration of the lease
- whether and on what conditions the improvements are to remain or be removed on expiration of lease.
Further Improvements Provisions typically call for the landlord to approve the planned improvements before construction is commenced.
mechanic’s lien
A Mechanic’s lien is a lien entitling a contractor or subcontractor to foreclose on a job site property to recover the amount due and unpaid for labor and materials they used. Any mechanic’s lien by a contractor for nonpayment initially attaches to the tenant’s leasehold interest in the property. However, the mechanic’s lien for unpaid labor and materials also attach to the fee simple interest held by the landlord if:
- the landlord or property manager acquires knowledge the construction is taking place
- they fail to post and record a Notice of NONresponsibility.
notice of nonresponsibility
A Notice of Non Responsibility is a notice used by an owner to declare they are not responsible for any claim arising out of the improvements their tenant is constructing on their property. A Notice of Non responsibility is to be:
- posted in a conspicuous place on the premises within TEN days after the landlord or their prop manager first has knowledge of the construction
- recorded with the county recorder’s office within the same TEN DAY period.
Note - a landlord aware of the construction and fails to post the Notice of NR does not become personally liable to contractor. rather the contractor can only lien on the landlords interest in the property and foreclose on their mechanic’s lien to collect of unpaid labor and materials that were under contract.
Further if a lease required MANDATORY improvements a mechanic’s lien attaches to landlords interest in property even when the landlord has posted and recorded a Notice of NR
permissive imporvement
Further Improvements Provisions typically call for the landlord to approve the planned improvements before construction is commenced.
Alternatively, some lease agreement provisions allow a tenant to make necessary improvements without the landlords further consent. These improvements are not specifically mandated or required to be completed in exchange for a reduction in rent. This NON-MANDATORY type of improvement is called a permissive improvement. A non-mandatory improvement the tenant is authorized to complete without further landlord consent.
