Property: Leaseholds Flashcards
what is a leasehold
A leasehold is a present possessory estate. To qualify as a lease, the lessee must have the right to exclusive possession of a defined area. This is what distinguishes a lease from a license, an easement, or a profit.
There are four leasehold estates:
- Tenancy for Years (a/k/a Estate for Years, Term of Years, or Fixed Term)
- Periodic Tenancy
- Tenancy at Will
- Tenancy at Sufferance
Tenancy for Years:
Duration: a tenancy for any fixed period of time; in such leases, the termination date is known by both parties at commencement of the lease
Examples of Tenancies for Years:
A lease from January 1, 2020 to December 31, 2020
A lease from January 1, 2020 to June 30, 2020
A lease from May 1, 2020 to May 10, 2020
Notice to Terminate:
Is not required by law, because the termination date is known by all parties at commencement
Is a Writing Required?
Yes, but only if the term of the lease is for more than one year from the date of the lease agreement
the Restatement uses the “date of possession” for purposes of the SOF
periodic tenancy
a. duration: a lease based on successive, continuous intervals that lasts until it is terminated: e.g., week-to-week, month-to-month, year-to-year
i. may be created by express language (“To tenant for month-to-month”) or
ii. by implication or construction
if a lease is silent as to its term, but rent is paid on regular intervals (e.g., monthly), this creates an implied (e.g., month-to-month) periodic tenancy
if an oral lease has a term of more than one year from the date of the agreement (and thus is unenforceable under the SOF), but the tenant makes periodic payments (e.g., monthly rent), an implied (e.g., month-to-month) periodic tenancy will exist
prior to acceptance of the first rent payment by the landlord, the parties have a tenancy at will
if the landlord allows the tenant to holdover after the end of a lease (rather than evict) and accepts additional rent payments, an implied periodic tenancy arises
if the original lease called for annual rent (even if payable in monthly installments), the new tenancy is probably a year-to-year periodic tenancy
if the original lease called for monthly rent, the new tenancy is a month-to-month periodic tenancy
b. Notice: notice to terminate is required (and probably must be in writing); unless otherwise agreed by the parties, the notice period must be equal to at least one rent “period” (e.g., one month for a month-to-month), except for year-to-year tenancies, which require only six months’ notice; the tenancy must end at the conclusion of a rent period
Failure to provide proper notice constitutes an automatic renewal
Tenancy at Will
a. duration: there is no fixed duration; with some minor exceptions, a tenancy at will may be created only by an express agreement of the parties
If the agreement is silent as to duration and periodic rent payments are made and accepted by the landlord, this will create an
Implied periodic tenancy
“To T as long as L and T desire” creates a
Tenancy at will
“To T until L sells the premises” creates a
Tenancy at will
b. notice: either party may terminate upon “reasonable” notice (under common law, no advance notice was required)
to qualify as a tenancy at will, both parties must have right to terminate at will
if the lease gives only the landlord the power to terminate, the tenant will have (as a matter of law) an “implied” power of termination
c. tenancies at will terminate automatically if either party dies or the tenant attempts to assign her interest in the lease (in most states, a sublease by the tenant will not terminate a tenancy at will)
Tenancy at Sufferance
a. duration: a tenancy in a party who holds over at the end of a lease; it lasts until the landlord elects to evict or hold the tenant to a new lease
b. If landlord accepts rent payments after the end of the lease, this will create an
implied periodic tenancy
c. If a tenant briefly holds over for reasons beyond her control (e.g., hospitalization), a new tenancy for years or periodic tenancy is not created, but the tenant owes rent for the holdover days.
Tenants duties (3)
A tenant has three major duties:
- tenant is liable for injury to licensees, invitees, and discovered trespassers as determined by the
Owner-occupier laws of tort law
- tenant must keep the premises in reasonably good repair and must not commit waste (same duty as life tenants and co-tenants)
- tenant has a duty to pay rent; if tenant fails to pay rent, landlord’s rights depend on whether tenant is still in possession
Tenants duties in fixtures
A “fixture” is tangible, personal property that has been affixed to realty. To determine whether personal property has become a non-removable fixture:
look for an agreement among the parties as to removal of fixtures; if the parties have reached an agreement, it will control
if no agreement, look to the intent of the annexor of the fixture; if the annexor intended for the fixture to be permanent, it is now real property and the tenant may not remove the fixture without committing waste
if the intent of the annexor of the fixture is unclear, look to how much damage to the realty will result if the fixture is removed; if the damage is substantial, then it is probably a fixture and may not be removed; if not, it may be removed by the tenant, but the tenant must repair any damage to the realty
Frequently Tested Issue: there is a strong presumption that trade fixtures may be removed by the tenant at the end of the lease
trade fixtures are those items installed by a lessee for the purpose of carrying on the lessee’s trade or business
tenant duty (#3) based on whose in possession
a. if the tenant is still in possession, landlord may:
i. Evict tenant using the applicable judicial process (e.g., unlawful detainer)
ii. Continue the lease and sue for damages
BUT THE LANDLORD MAY NOT
Use self-help eviction techniques, such as changing locks, physical removal, calling police, or shutting off utilities
b. if the tenant is no longer in possession, the landlord may:
i. agree to a surrender (i.e., an express or implied agreement to terminate the lease with no further duties or liabilities by either party)
if the unexpired term of the lease is more than one year, the surrender must be in writing (SOF)
a surrender will be deemed to have occurred if the landlord personally occupies the premises after the tenant vacates
ii. ignore the departure and hold tenant liable for entire lease
majority rule: the landlord is required to take reasonable mitigation efforts (e.g., attempt to re-lease) before choosing this option
iii. re-lease the premises and sue for a deficiency
tenant’s duty to pay rent ends where
(1) the entire leased premises are taken by eminent domain
for partial takings, the tenant must continue to pay the full rent but is entitled to a portion of the compensation award, unless the lease agreement provides otherwise
(2) the premises are destroyed through no fault of the tenant
Landlord Duties and Obligations:
- duty to deliver actual, physical possession to tenant at commencement of lease; failure to do so constitutes a breach of the lease
Minority view: landlord is merely obligated to give tenant the legal right to possession (probably limited to commercial leases)
- implied covenant of quiet enjoyment (implied in residential and commercial leases);
- implied warranty of habitability (residential leases only and it is non-waivable): this warranty requires that the premises (as delivered and maintained) are
Fit for basic human habitation (often as set forth in the local housing, building, safety, and health codes)
a. examples of breach of the implied warranty: no water, no heat in the winter, no plumbing, insect infestation.
b. if the warranty is breached, tenant must notify the landlord of the breach and give the landlord a reasonable time to repair; if landlord does not make such repair, tenant has several options:
i. Vacate the premises, terminate the lease, and recover damages
ii. Repair the problem and deduct the cost of repair from rent
iii. Pay reduced rent (i.e., FMV of premises with defect); the withheld rent should be deposited in an escrow account
iv. Remain in possession and sue for damages
4. retaliatory eviction: in most jurisdictions, a landlord may not evict a tenant or take other punitive action (e.g., raise rent, refuse to renew lease) against a tenant for taking certain legal action, such as complaining to housing or building inspectors or asserting a claim (e.g., implied warranty of habitability) against the landlord
in many jurisdictions, retaliation will be presumed if the punitive action occurs within a specified time period (e.g., six months) of the tenant’s complaint
- security deposits: landlords often require security deposits to cover damages (e.g., waste, unpaid rent) to the premises beyond ordinary wear and tear. For residential leases, statutes in many states limit the amount (e.g., one month’s rent) that a landlord may require as a security deposit and require the security deposit be held in an interest-bearing escrow account.
implied covenant of quiet enjoyment is breached by
a. actual, wrongful eviction or exclusion by the landlord from the whole premises or any part thereof; for partial actual evictions by the landlord, the tenant may stay in the property and pay
No rent
b. constructive eviction requires three elements:
i. there must be a substantial, chronic interference that renders the premises unsuitable for occupancy; constructive eviction may arise only as a result of acts (or failures to act) on the landlord’s part (or someone acting on behalf of the landlord)
as a general rule, the landlord is not liable for the acts of third parties, such as other tenants, neighbors, or trespassers, except (1) the landlord has a duty to prevent nuisances on the premises; and (2) the landlord must control common areas. Thus, if the landlord rents to a nuisance (e.g., a tavern in a residential building) or if the interference is taking place in a common area, the landlord is liable.
ii. the tenant must give notice to landlord and landlord must fail to remedy within a reasonable time
iii. tenant must then vacate the premises within a reasonable time (i.e., there can be no constructive eviction claims by tenants in possession)
Assignments/Sub-Lease
- Rules: leases are freely assignable in whole or part by tenants and landlords, unless prohibited by the lease.
A transfer of the tenant’s entire remaining interest in a lease is an assignment; anything less than that is a sublease.
In an assignment (but not a sublease), the current assignee and current landlord are in privity of estate for all promises that run with the land (e.g., the duty to repair, pay rent, pay taxes, etc.), but only for the period for which the assignee remains in privity of estate.
In both an assignment and sublease, the original tenant and landlord continue to be in privity of contract (and thus liable), unless there is a novation (which is never presumed).
If an assignee (or sub-lessee) expressly assumes the original tenant’s (or a prior assignee’s) obligation to make rent payments to the landlord, the landlord may be able to sue the assignee (or sub-lessee) as a third-party beneficiary of the assumption agreement.
If an assignee or sub-lessee agrees to pay rent in excess of that owed by the tenant to the landlord, the excess rent belongs to the tenant, not the landlord.
Restrictions on assigning/subleasing are strictly construed against the landlord
The lease prohibits T “from assigning all or any portion of the leased property.” Nonetheless, T may
sublease the premises
The lease prohibits T “from subletting the leased property.” Nonetheless, T may
assign the lease
The lease prohibits T “from assigning or subletting all or any portion of the leased property without the written consent of the Landlord.” As a result
T may not sublet or assign the premises without the written consent of the Landlord.
Does the Landlord have to act “reasonably” in withholding consent?
Majority view: no, the landlord may arbitrarily withhold consent
Trend: the landlord must act reasonably, particularly in commercial leases
Waivers of restrictions on assigning/subleasing are usually found
(1) where the landlord knows of an assignment but does not object (e.g., accepts rent payments from the assignee) or
(2) where the landlord has agreed to prior assignments (unless—at the time of the prior assignments—the landlord expressly reserved the right to enforce the restriction as to future assignments)
Landlord’s Tort Liability to Tenant and Tenant’s Guests
General Rule: Landlord has no liability for injuries to the tenant or the tenant’s guests caused by defects on premises, except for:
a. dangerous conditions in common areas
b. concealed or latent defects (i.e., hidden defects of which landlord is aware or should be aware)
landlord’s liability ends when he notifies tenant of the defect
c. assumption of duty to repair by landlord (i.e., landlord or landlord’s agent negligently repairs the premises)
d. public admission: short-term rentals of conventional halls, museums, etc.
e. short-term (90 days or fewer) rentals of furnished dwellings
f. landlord contracts to repair premises
