The Contract of Sales and Leases Flashcards
Lease
A contract whereby, for a consideration, usually termed rent, one who is entitled to the possession of real property transfers such rights to another for life, for a term of years, or at will.
Leasehold Estate
The interest or estate which a lessee of real estate has therein by virtue of the lessee’s lease.
- Leasehold for years = a lease for years (specified period of time)
- fewer of bundle of sticks, you don’t have the deed, no fee simple
Periodic Lease
Also known as a tenancy from year to year, month to month, or week to week, is an estate that exists for some period of time determined by the term of the payment of rent.
-renews on its own after specified period of time
Estate at Will
People can cancel this at anytime. Just give notice (30 days)
Tenancy at Sufferance
When the tenant holds over
-Holdover Tenant: a tenant who remains in possession of leased property after the expiration of the lease term
Covenants
Agreements written into deeds and other instruments promising performance or nonperformance of certain acts, or stipulating certain uses or non-uses of the property. (aka: Promises)
- Capacity of contract: over 18 yrs, must be sane,
- A demising clause - “the demised premises..” (when the property is going to be handed over)
- Description of the premises: property number, unit #
- Clear statement of the “term” (length) of lease
- Consideration (specification of the rent or sales price)
- Penalties for late rent
- Must be in writing (applies for leases longer than one year) Statue of frauds
- Signature (not notarized) unless to be recorded
- “Plain language” requirement for residential leases
- Use provisions: lawful purpose use, common in commercial leases, renewal of lease
- Rent control and rent stabilization laws
Security Deposit
A monetary deposit given to a lender, seller or landlord as proof of intent. Security deposits can be either refundable or nonrefundable, depending on the terms of the transaction.
- required in a lease
- if 6 units or more, the security deposit must be placed in a separate interest bearing, bank account
- landlord can’t co-mingle funds
- liquidating damages at the end
Assignment
The method or manner by which a right or contract is transferred from one person to another
- go to landlord to assign property to someone else
- Privity goes from landlord to signee (new tenant)
- landlord’s consent can’t be unreasonably withheld
Sub-lease
An arrangement in which the lessee (tenant) in a lease assigns the lease to a third party, thereby making the old lessee the sublessor, and the new lessee the sublessee, or subtenant.
- landlord has to consent to sublet
- landlord’s consent can’t be unreasonably withheld
Eviction
A legal proceeding by a lessor landlord to recover possession of real property.
Actual Eviction
Where one is either by force or by process of law, actually put out of possession.
-When landlord goes to property and takes tenant out and changes the locks…self help….it’s illegal. They have to petition the court. (Tenant’s personal property is in the property itself)
Constructive Eviction
Any disturbance of the tenant’s possession of the leased premises by the landlord whereby the premises and rendered unfit or unsuitable for the purpose for which they were leased.
- right to change the terms of the lease and leave the unit
- unit is no longer habitable
Quiet Enjoyment
The right of an owner or a person legally in possession to the use of property without interference of possession.
Possession and Habitability (Warranty of Habitability)
- required in a lease
- insures that the place is habitable
Lease Requirements
- Security Deposit
- Possession and Habitability (Warranty of Habitability)
- Improvement (maintenance and repair)
- Assignment
- Sublet
- Apartment Sharing (can’t say a family member can’t share the unit)
- Termination
Lease Termination
- Lease term ends
- 30 day notice (month to month lease)
- Eviction: actual eviction, constructive eviction
- Unit abandonment
- Sale of property
- Death of one of parties
Ground Lease
An agreement in which a tenant is permitted to develop a piece of property during the lease period, after which the land and all improvements are turned over to the property owner.
- developer doesn’t own the building itself - selling someone the right to live in the building
- see it often in co-ops
Graduated Lease
A lease which provides for a graduated change at stated intervals in the amount of the rent to be paid; used largely in long-term leases.
Gross Lease
A lease of property whereby the lessor is to meet all property charges regularly incurred through ownership
Index Lease
A lease tied to an index such as the Consumer Price Index
Land Lease
A land lease–also called a ground lease–is a lease agreement that permits the tenant to use a piece of land owned by the landlord in exchange for rent.
Net Lease
A lease that requires the tenant to pay, in addition to rent, some or all of the property expenses that normally would be paid by the property owner. These include expenses such as real estate taxes, insurance, maintenance, repairs, utilities, and other items.
Triple Net Lease
A lease in which the tenant or lessee is responsible for paying a portion of or all of the common expenses related to real estate ownership, in addition to base rent.
Option to Renew
A clause in a lease that outlines the terms for renewing or extending an original lease agreement.
Percentage Lease
A lease of property in which the rental is based upon the percentage of the volume of sales made upon the leased premises, usually provides for minimal rental.
Proprietary Lease
A lease given by a corporation to another. It is often used in a co-op context, where the owner is given a certain number of shares in the co-op, along with a proprietary lease for one of the residences in the building.
-get stock share and right to live there
Express Contracts
A contract in which all elements of a contract are specifically stated (offer, acceptance, consideration), and the terms are stated, as compared to an “implied” contract in which the existence of the contract is assumed by the circumstances.
- ex: lease for term of a year
- often bilateral contracts
Implied Contract
A legal substitute for a contract. An implied contract is an agreement created by actions of the parties involved, but it is not written or spoken. This is a contract assumed to have been drawn.
Executed Contract
An agreement that has been fully performed
-signed by both parties and rights get locked in
Executory Contract
A contract which has not yet been fully performed (fully executed)
-before the contract is signed
Unilateral Contract
A one-sided agreement whereby you promise to do (or refrain from doing) something in return for a performance
-ex: renovations
Bilateral Contract
A contract involving mutual promises (each party is both promisor and promisee)
Contract Validity
- properly written
- stated terms
- signatures
Invalid Contract
- unilateral contract
- verbal contract
Essentials of a Valid Contract
- Competent parties
- Mutual Agreement
- Consideration
- Lawful Objective
- In Writing (if exists for longer than a year must be in writing)
Essentials of a Sales Contract
- Date
- Identification of parties (could be LLC)
- Legal Description (unit itself or shares or % of ownership)
- Personal property provision (AC, window treatments, fridge etc)
- Consideration ($)
- Terms of payment (upon execution 10% is due)
- Type of deed
- Closing time and place (on or about a date, then you have 30 days after if they need more time, then time can be of the essence)
- Broker clause (seller pays the broker’s fee)
- Apportionments (portions of maintenance fees, real estate taxes etc.)
- Lien Law (all liens must be cleared against the property)
- Condition of property (seller gives the buyer property as is. Buyer has obligation to inspect the property. Everything needs to be in working order)
- Merger clause (all agreements merge into the deed etc)
- Limit of seller’s liability (deposit 10% = liquidated damages)
- Liquidation of seller’s liability
- Loan contingency clause (giving buyer time to get a loan) If a buyer can’t et financing they must cancel the contract within 45 days of signing in order to receive their down payment back
- Possession paragraph (if they seller has to say for longer, they pay something to buyer for their time there)
- Down Payment (10% standard liquidation)
- No Survival (terms of this contract don’t survive closing table. Everything is settled)
Binders
The provisions stated in a contract are much more prevalent than the binder provisions
-Set out in separate documents before the contract is executed
Installment Sales Contract
Is a contract between a seller and buyer of real property in which the seller provides financing to buyer to purchase the property for an agreed-upon purchase price and the buyer repays the loan in installments
Lease with the option to buy
Option = a right given for a consideration to purchase or lease a property upon specified terms within a specified time; if the right is not exercised the option holder is not subject to liability for damages; if exercised, the grantor of option must perform. Negotiated by both parties.
Contracts affecting Brokers
- Listing Agreements
- Sales Contracts
- Leases
- Employment Contracts
Mortgage Contingency Clause
A clause in a contract that states a mortgage must be obtained in order for the contract to be binding. (must be reasonable)
Data Required for Contract Preparation
- Prior deed
- Prior title insurance policy
- Survey
- Certificate of Occupancy (all permits has signed off on project and is compliant with building codes)
- Personal data (names, addresses, phone etc)
- Downpayment
Closing Steps
- Seller’s Broker sends out the Deal Sheet
- Seller’s attorney drafts the contract
- Contract handed to Buyer’s attorney (negotiation)
-due diligence (2-7 days)
-negotiation - Buyer signs first
-10% deposit (sends to seller’s attorney) - Seller Signs
- Seller’s Attorney gives notice to Buyer’s attorney
-deposit 10% deposit
(properties built prior to 1978 require a lead based paint clause
Mortgage Contingencies
- Purchase Money Mortgage = seller is giving you the loan
- Assumed Mortgages (takes place if inherited piece of property, now you assume debts of dead spouse)
- FHA Financing
- Fannie Mae regulations
Contract Practices
Contract Delivery
-by email
Sit down contact signing
- delivery of down payment
- NY State attorney legal advice
- attorney review clauses
“As Is”
A legal term used to disclaim some implied warranties for an item being sold. Denotes that the seller is selling, and the buyer is buying a property in whatever condition it presently exists.
Caveat
A Latin term that means “let him beware.”. Caveat is usually interpreted as a sort of warning or cautionary expression.
Contingency
A provision in a contract that requires the occurrence of a specific event before the contract can be completed.
Earnest Money Deposit
Down payment made by a purchaser of real estate as evidence of good faith.
Forebearance
A special agreement between the lender and the borrower to delay a foreclosure
Liquidated Damages
A provision in certain legal contracts that allows for the payment of a specified sum should one of the parties be in breach of contract.
Novation
The act of either:
1) replacing an obligation to perform with a new obligation; or
2) adding an obligation to perform; or
3) replacing a party to an agreement with a new party.
Offer and Acceptance
Elements required for the formation of a legally binding contract. The expression of an offer to contract on certain terms by one person (the “offeror”) to another person (the “offeree”), and an indication by the offeree of its acceptance of those terms.
Power of Attorney
A written instrument duly signed and executed by a person which authorizes an agent to act on his/her behalf to the extent indicated in the instrument.
Reformation
A remedy whereby a court orders a change in a written document to reflect what it ought to have said in the first place.
Rescission
The right of an individual involved in a contract to return to a state identical to that before they entered into the agreement, due to courts not recognizing the contract as legally binding. In many cases, rescission may be an option if there is a material error in the contract, among other reasons.
Rider
Aka: addendum, is a writing annexed to an agreement
Special Performance
An order of a court which requires a party to perform a specific act, usually what is stated in a contract.
Statute of Frauds
State law which provides that certain contracts must be in writing in order to be enforceable at law
Statute of Limitations
A statute barring all right of action after a certain period of time from the time when a cause of action first arises
Uniform Commercial Code
A standard set of business laws that regulate financial contracts. The Uniform Commercial Code has been adopted by most states in the U.S. The code itself has nine separate articles. Each article deals with separate aspects of banking and loans. The UCC better enabled lenders to loan money secured by the borrower’s personal property.
Void
To have no force or effect that which is unenforaceable
Voidable
That which is capable of being adjudged void, but is not void unless action is taken to make it so.
Attorney Review Clause
A clause found in real estate contracts that may allow buyers to walk away from an agreed upon sale for any reason.
Down Payment
The portion of a home’s purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. Mortgage insurance is required when a down payment less than 20 percent is made.
Lawyer’s Fund for Client Protection
Setup to protect consumers from dishonest attorneys
Option
A right given for a consideration to purchase or lease a property upon specified terms within a specified time
