Real Estate National Test Ch 17

Question 1

D: Lease

Answer 1

Is a contract between a lessor (the owner of real estate, or landlord) and a lessee (the tenant).

A lease transfers the lessor’s rights to exclusive possession and use of the property to the tenant for a specified period of time and establishes the consideration the lessee is to pay rent for use of the property.

Rent is a fixed, periodic payment made by a tenant of a property to the owner for possession and use, usually by prior agreement of the parties. Other rights and obligations of the parties are also set forth.

The landlord retains a reversionary right to possession after the lease term expires.

The statute of frauds in most states requires lease agreements for more than one year to be in writing to be enforceable.

In general, oral leases for one year or less that can be performed within a year of their making are enforceable.

A written lease should be executed (signed) by both the lessor and the lessee.

Question 2

D: Lessor

Answer 2

The owner of real estate, that rents it to a tenant.

Question 3

D: Reversionary rights

Answer 3

The return of the rights of possession and quiet enjoyment to the lessor at the expiration of a lease.

Question 4

D: Leasehold Estate

Answer 4

A tenant’s right to occupy real estate during the term of a lease, generally considered a personal property interest, although a long-term lease may be eligible for treatment as real property for financing purposes.

A leasehold is generally considered personal property.

When the tenant assumes many of the landowner’s obligations under a lease for life or for more than 49 years, certain states give the tenant some of the benefits and privileges of ownership, such as the right to use the leasehold interest as security for a loan.

Question 5

What are the different types of Leasehold Estates?

Answer 5

1. Estate for Years
2. Estate from Period to Period
3. Estate at Will
4. Estate at Sufferance

Question 6

D: Estate for Years

Answer 6

AKA: Tenancy for Years, Estate for term

Is a leasehold estate that continues for a definite period.

That period may be years, months, weeks, or even days.

An estate for years (sometimes called an estate for term) always has specific starting and ending dates.

When the estate expires, the lessee is required to vacate the premises and surrender possession to the lessor.

No notice is required to terminate the estate for years because the lease agreement states a specific expiration date.

When the date comes, the lease expires, and the tenant’s rights are extinguished.

If both parties agree, the lease for years may be terminated before the expiration date.

Otherwise, neither party may terminate without showing that the lease agreement has been breached.

Any extension of the tenancy requires that a new contract be negotiated.

As is characteristic of all leases, a tenancy for years gives the lessee the right to occupy and use the leased property according to the terms and covenants contained in the lease agreement.

A lessee has the right to use the premises for the entire lease term and that right is unaffected by the original lessor’s death or the sale of the property unless the lease states otherwise.

If the original lease provides for an option to renew, no further negotiation is required; the tenant merely exercises the option.

Question 7

D: Estate from Period to Period

Answer 7

AKA: Tenancy from period to period, periodic tenancy

Is created when the landlord and tenant enter into an agreement for an indefinite time—that is, the lease does not contain a specific expiration date.

Such a tenancy is created initially to run for a definite amount of time—for instance, month to month, week to week, or year to year—but the tenancy continues indefinitely until proper notice of termination is given.

Rent is payable at definite intervals.

A periodic tenancy is characterized by continuity because it is automatically renewable under the original terms of the agreement until one of the parties gives the notice to terminate.

In effect, the payment and acceptance of rent extend the lease for another period.

Question 8

D: Month-to-Month tenancy

Answer 8

A periodic tenancy under which the tenant rents for one month at a time.

In the absence of a rental agreement (oral or written), a tenancy is generally considered to be month to month.

Question 9

If the original agreement provides for the conversion from an estate for years to a periodic tenancy. Are negotiations needed?

Answer 9

No, negotiations are needed.

The tenant simply exercises the option.

Question 10

D: Holdover Tenancy

Answer 10

A tenancy in which a lessee retains possession of the leased property after the lease has expired and the landlord, by continuing to accept rent, agrees to the tenant’s continued occupancy as defined by state law.

The landlord may evict the tenant or treat the holdover tenant as one who holds a periodic tenancy.

The courts customarily rule that a tenant who holds over can do so for a term equal to the term of the original lease, provided the period is for one year or less.

Some leases stipulate that in the absence of a renewal agreement, a tenant who holds over does so as a month-to-month tenant.

Question 11

How to terminate a periodic estate? And how long is the advanced period for notifications?

Answer 11

Either the landlord or the tenant must give proper notice.

The form and timing of the notice may be established by state statute.

Normally, the notice must be given at least one period in advance.

For example, to terminate an estate from week to week, one week’s notice is required; to terminate an estate from month to month, one month’s notice is required.

For an estate from year to year, however, the notice requirements vary from two months to six months.

Many states have statutory notice requirements.

Question 12

D: Estate at Will

Answer 12

AKA: Tenancy at will,

Gives the tenant the right to possess property with the landlord’s consent for an unspecified or uncertain term.

An estate at will is a tenancy of indefinite duration; it continues until it is terminated by either party giving proper notice.

No initial period of occupancy is specified, as is the case in a periodic tenancy.

An estate at will is automatically terminated by the death of either the landlord or the tenant. It may be created by express agreement or by operation of law.

During the existence of a tenancy at will, the tenant has all the rights and obligations of a lessor-lessee relationship, including the duty to pay rent at regular intervals.

As a practical matter, tenancy at will is rarely used in a written agreement and is viewed skeptically by the courts.

Question 13

D: Estate at Sufferance

Answer 13

AKA: Tenancy at Sufferance

Arises when a tenant who lawfully took possession of real property continues in possession of the premises without the landlord’s consent after the right of possession has expired.

This estate can arise when a tenant for years fails to surrender possession at the lease’s expiration.

Question 14

what are the 3 typical ways state law will work if a lease does not have a hold over clause?

Answer 14

1. The landlord can accept rent offered by the tenant, thereby creating a new tenancy under conditions of the original lease, a holdover tenancy. If the original lease term was greater than one year, generally the new tenancy is limited to one year.
2. The landlord can treat the tenant as a tenant at sufferance by either objecting to the tenant holding over or informing the tenant of such treatment, thus creating a month-to-month or periodic tenancy. The landlord receives rent, and both parties have to provide notice within a certain period of terminating the arrangement.
3. The landlord can treat the tenant as a trespasser and proceed with an eviction and damages action. Under this situation, the landlord must comply with the notice to quit requirements in the lease as well as state law regarding the landlord-tenant relationship.

Question 15

What happens when a tenant fails to surrender possession?

Answer 15

The tenant is responsible for the payment of rent at the existing terms and rate.

A lease may contain a holdover clause, in which case that provision will govern the rights of both the landlord and the tenant.

If a lease does not contain such a clause, then state law will govern.

Question 16

True or False & Why

A one-year lease is an example of an estate from period to period.

Answer 16

Ture

. A periodic tenancy is created initially to run for a definite amount of time, such as month to month, week to week, or year to year, but the tenancy continues indefinitely until proper notice of termination is given.

Question 17

Leasing agreement accessibility

Answer 17

The federal Fair Housing Act makes it illegal to discriminate against a prospective tenant on the basis of the tenant’s real or perceived disability.

A tenant with a disability must be permitted to make reasonable modifications to a property at the tenant’s own expense.

If the modifications would interfere with a future tenant’s use, the landlord may require that the premises be restored to their original condition at the end of the lease term.

The Americans with Disabilities Act (ADA) will also affect a landlord’s obligations when a commercial property or place of public accommodation is being leased.

Question 18

Lease Agreement Maintenance of premises

Answer 18

Most states require a lessor of residential property to maintain dwelling units in a habitable condition.

The landlord must make any necessary repairs to common areas, such as hallways, stairs, and elevators, and maintain safety features, such as fire sprinklers, smoke alarms, and adequate lighting.

Residential tenants do not have to make any repairs, but they must return the premises in the same condition they were received, with allowances for ordinary wear and tear.

Lessees of commercial and industrial properties usually maintain the premises and are often responsible for making their own repairs.

Question 19

Lease Agreement Destruction of Premises

Answer 19

The obligation to pay rent for damaged or destroyed premises differs depending on the type of property and the lease.

Usually, residential tenants are permitted to reduce their rent payments in proportion to the amount of space they are unable to use.

Likewise, tenants who lease only part of a building, such as an office or commercial space, generally are not required to continue to pay rent after the leased premises are destroyed. In some states, if the property was destroyed as a result of the landlord’s negligence, the tenant can recover damages.

On the other hand, tenants who have constructed buildings on leased land, often agricultural or industrial land, are still obligated for the payment of rent even if the improvements are damaged or destroyed.

If the buildings are destroyed, tenants must turn to their property insurer for a covered loss.

Question 20

D: Assignment of Lease

Answer 20

AKA: Assignment

of a lease, a tenant transfers the entire leasehold interest to another person. The new tenant is legally obligated to comply with all of the promises the original tenant made in the lease.

Question 21

D: Sublease

Answer 21

A tenant transfers less than the entire leasehold interest by subletting the premises to a new tenant.

The original tenant remains responsible for rent being paid by the new tenant and for any damage done to the rental during the lease term.

The new tenant is responsible only to the original tenant to pay the rent due.

The sublessor’s (original lessee’s) interest in the real estate is known as a sandwich lease.

Question 22

Explain how Assignment and Subleasing works.

Answer 22

Assignment and subleasing are allowed only when a lease specifically permits them.

In both an assignment and a sublease, details of the arrangement should be in writing.

In most cases, the sublease or assignment of a lease does not relieve the original lessee of the obligation to pay rent.

The landlord may, however, agree to waive the former tenant’s liability.

Most leases prohibit a lessee from assigning or subletting without the lessor’s consent.

This permits the lessor to retain control over the occupancy of the leased premises.

As a rule, the lessor must not unreasonably withhold consent.

Question 23

Explain Recording a Lease

Answer 23

Anyone who inspects a leased property receives actual notice of the tenant’s occupancy.

For this reason, it is usually considered unnecessary to record a lease, although most states allow a lease to be recorded in the county in which the property is located.

Furthermore, leases of three years or longer often are recorded as a matter of course.

Some states require that a long-term lease be recorded, especially when the lessee intends to mortgage the leasehold interest.

A lease will typically run with the land; a change in the ownership of the leased fee estate doesn’t affect the leasehold unless there is a provision in the lease providing for termination of an existing tenancy under specified circumstances or as provided by state law.

Existing tenants usually have the right to remain in possession until the lease expires.

A prospective buyer of property, especially an occupied single-family home, should inquire about the status of the occupants.

The title records are searched for any recorded leases as part of the purchase transaction.

Question 24

D: Nondisturbance Clause

Answer 24

Is included in the financing instrument used to mortgage leased premises.

By accepting this provision, the mortgagee agrees not to terminate the tenancy of the lessee(s), so long as the lessee is current in payment of the required rent, should the mortgagee foreclose on the mortgagor’s building.

Question 25

D: Renewal Option

Answer 25

A clause in a lease that grants the lessee the privilege of renewing the lease.

The lessee must, however, give notice of intent to exercise the option.

Question 26

D: Purchase Option

Answer 26

The right is given by a lease to the tenant to purchase the property at a predetermined price within a certain period, possibly the lease term.

The lease option may stipulate that the tenant is to be given credit toward the purchase price for some percentage of the rent paid, as the parties negotiate.

Question 27

D: Right of First Refusal

Answer 27

A clause allowing the tenant the opportunity to buy the property before the owner accepts an offer from another party.

Question 28

D: Net Lease

Answer 28

Tenant pays all or most of the property expenses, such as hazard insurance, property taxes, and/or common area maintance (CAM) charges, in addition to the rent.

The monthly rental is net income for the landlord after operating costs have been paid.

Leases for entire commercial and industrial buildings and the land on which they are located, ground leases, and long-term leases are usually net leases.

Question 29

D: Variable Lease

Answer 29

A lease that may allow for increases in the rental charges during a lease term.

Question 30

D: Graduated Lease

Answer 30

Provides a specific rent increase at a set future date.

Question 31

D: Index Lease

Answer 31

Allows for the rent to be increased or decreased periodically based on the changes in the CPI or some other indicator.

Question 32

D: Ground Lease

Answer 32

Landowner leases unimproved land to a tenant who agrees to erect a building on the land.

It is most often used in commercial and industrial property development.

Ground leases typically involve separate ownership of the land and the buildings.

These leases must be long enough to make the transaction desirable to the tenant investing in the building.

They often run for terms of 50 to 99 years.

Ground leases are generally net leases: the lessee must pay rent on the ground, as well as real estate taxes, insurance, upkeep, utilities, and repairs.

At the end of the lease term, any tenant-built structures on the property usually become the property of the landlord.

Question 33

D: Oil & Gas Lease

Answer 33

Oil company leases land to explore for oil and gas.

When an oil company leases land to explore for oil and gas, a special lease agreement must be negotiated.

Except for enough surface space to conduct extraction operations, the lease covers subsurface rights.

Usually, the landowner receives a cash payment for executing the lease.

If no well is drilled within the period stated in the lease, the lease expires, although most oil and gas leases permit the oil company to continue its rights for another year by paying another flat rental fee.

Such rentals may be paid annually until a well is produced.

If oil or gas is found, the landowner usually receives a percentage of its value as a royalty.

As long as oil or gas is obtained in significant quantities, the lease continues indefinitely.

Oil and gas leases, even after they have expired, are often listed as exclusions in title insurance policies.

Question 34

D: Sale & Leaseback

Answer 34

The property owner sells the property and then leases it back for an agreed period of time and rental.

Question 35

D: Gross Lease

Answer 35

The tenant pays a fixed rent and some or all of the utility expenses, while the landlord pays all taxes, insurance, repairs, any other utility expenses, and maintenance connected with the property (usually called property charges or operating expenses).

Residential and commercial office leases are most often gross leases.

Question 36

D: Percentage Lease

Answer 36

Often pays property charges (taxes, repairs, insurance, maintenance, some utilities)

Pays basic rent plus a percentage of gross sales (may pay property costs, such as utilities)

Question 37

D: Lease Purchase

Answer 37

Is used when a tenant wants to purchase the property but is not yet able to do so.

Perhaps the tenant cannot obtain favorable financing or clear title, or the tax consequences of purchase are currently unfavorable.

The terms of the sale are negotiated and agreed to at the time that the lease is signed.

A down payment is paid, which may or may not be refundable, and part of the periodic rent may be applied toward the purchase price of the property.

Both parties hope that, by the time the lease expires, the tenant’s issues have been resolved and financing can be obtained or the tenant can purchase the property outright.

Question 38

D: Sale-and-Leaseback

Answer 38

The property owners sell the property and then lease it back for an agreed period and rental.

The original owners pull out their equity to use on other projects and are also able to reduce their taxable income when they pay rent to the new owner.

The new owner has a reliable source of rental income for an extended time.

Question 39

True or False

In a gross lease, the tenant pays a fixed rent and some or all of the utility expenses, and the landlord pays all taxes, insurance, repairs, remaining utility expenses if any, and maintenance connected with the property.

Answer 39

True

Question 40

If the landlord intends to sue for unpaid rent. Most states require the landlord to?

Answer 40

If the landlord intends to sue for unpaid rent, however, most states require an attempt to mitigate damages by re-renting the premises to limit the amount owed.

Question 41

Explain the Discharge of a Lease

Answer 41

Termination can occur either when all parties have fully performed their obligations under the agreement, or when the parties agree to cancel the lease.

If the tenant, for instance, offers to surrender the leasehold interest, and if the landlord accepts the tenant’s offer, the lease is terminated.

A tenant who simply abandons leased property, however, remains liable for the terms of the lease—including the rent.

The terms of the lease will usually indicate whether the landlord is obligated to try to re-rent the space.

If the landlord intends to sue for unpaid rent, however, most states require an attempt to mitigate damages by re-renting the premises to limit the amount owed.

The lease does not terminate if the parties die or if the property is sold.

If leased real estate is sold or otherwise conveyed, the new landlord takes the property subject to the rights of the tenants.

A lease agreement may contain language that permits a new landlord to terminate existing leases, although this is much more common in commercial properties than in residential properties.

A tenancy may also be terminated by operation of law, as in a bankruptcy, foreclosure, or condemnation proceeding in an eminent domain action.

Question 42

What is the exception to

“The lease does not terminate if the parties die or if the property is sold.”

Answer 42

1. The lease from the owner of a life estate ends with the death of the person on whose the life estate is measured.
2. The death of either party terminates a tenancy at will.

Question 43

D: Sale Clause

Answer 43

Requires that the tenant be given some period of notice before the termination.

Because the new owner takes title subject to the rights of the tenant, the sale clause enables the new landlord to claim possession and negotiate a new lease under new terms and conditions.

Question 44

D: Breach Of Lease

Answer 44

When a tenant breaches (violates) any lease provision, the landlord may sue the tenant to obtain a judgment to cover past-due rent, damages to the premises, or other defaults.

Likewise, when a landlord breaches any lease provision, the tenant is entitled to certain remedies.

The rights and responsibilities of the landlord-tenant relationship are governed by state law.

Question 45

D: Actual Eviction

Answer 45

AKA: Suit for possession

The legal process that results in a tenant’s being physically removed from leased premises.

When a tenant breaches a lease or improperly retains leased premises, the landlord may regain possession through a legal process known as actual eviction.

The landlord must serve notice on the tenant before commencing the lawsuit.

Most lease terms require at least a 10-day notice in the case of default.

Question 46

In many states what # of days notice must be given for actual eviction (suit for possession)?

Answer 46

1. 5 days

2. 3 days

Question 47

What happens when a court issues a judgment for possession to a landlord?

Answer 47

When a court issues a judgment for possession to a landlord, the tenant must vacate the property.

If the tenant fails to leave, the landlord can have the judgment enforced by a court officer, who forcibly removes the tenant and the tenant’s possessions.

The landlord then has the right to re-enter and regain possession of the property.

In some states, in cases of nonpayment of rent, a landlord also has the right to distrain.

Question 48

D: Distrain

Answer 48

That is, to seize the tenant’s property for rent in arrears, generally by changing the locks and giving notice.

Most states require a court order to pursue the remedy of distraint.

Question 49

D: Constructive Eviction

Answer 49

AKA: Tenant’s Remedies

Actions of a landlord that so materially disturb or impair a tenant’s enjoyment of the leased premises that the tenant is effectively forced to move out and terminate the lease without liability for any further rent.

The tenant must prove that the premises have become unusable because of the conscious neglect of the landlord.

To claim constructive eviction, the tenant must leave the premises while the conditions that made the premises uninhabitable exist.

Question 50

What issues are addressed by the National Conference of Commissioners on Uniform State Laws, aka Uniform Residential Landlord and Tenant Act?

Answer 50

1. The Landlord’s right of entry
2. Maintenance of the premises
3. The tenant’s protection against retaliation by the landlord for complaints
4. The disclosure of the property owner’s name and the address to the tenant.
5. Specific remedies available to both the landlord and the tenant if a breach of the lease agreement occurs.
6. Cover security deposits, disposition of tenant property, and lease termination in a situation in a situation involving domestic violence or sexual assault.

Question 51

True or False & Why?

Unlike a freehold estate, a leasehold estate is considered personal property.

Answer 51

True

 A tenant’s right to possess the real estate for the term of the lease is called a leasehold, less-than-freehold estate and is generally considered personal property.

A lease for a term of 49 years or more is treated as a real property interest in some states, which means that the leasehold interest can be used as a secured loan.

Question 52

True or False & Why?

A tenant who is leasing only a part of a building is not required to continue paying rent if the lease premises are destroyed.

Answer 52

True

Generally, tenants who are leasing only part of a building, such as offices or commercial space, are not required to continue to pay rent after the leased premises are destroyed.

Question 53

True or False & Why?

To be entitled to constructive eviction, the tenant must show only that the premises have become unusable for the purpose stated in the lease.

Answer 53

False

To be entitled to constructive eviction, the tenant must show only that the premises have become unusable for the purpose stated in the lease due to the landlord’s conscious neglect.