TX 122 Real Estate Principles II-Lesson 7 Flashcards
What is a lease?
An agreement under which a tenant acquires temporary possession of property from a landlord
What is the term in a lease?
The time that the tenant may hold possession of the property
What is rent?
The amount to be paid to the landlord
Who is the tenant in a lease agreement?
The party who rents the property, also known as the lessee
Who is the landlord in a lease agreement?
The party who owns the property, also known as the lessor
What is a sandwich leasehold?
An agreement where the original tenant sublets the premises to subtenants
What are the benefits of leasing compared to purchasing property?
No equity investment, lower transaction costs, greater flexibility of location
How does leasing preserve liquidity for businesses?
It allows funds to be retained for business purposes rather than being tied up in real estate
What is Gross Annual Rent?
The total amount of rents paid by the tenant or tenants on the property for one year
What does Vacancy Rate represent?
The total amount of rental income to be subtracted, expressed as a percentage of gross annual rent
What is Adjusted Gross Annual Rental Income?
Gross annual rent minus rental income lost through vacancy
What does T.I.M.M.U.R. stand for in basic rental property expenses?
- Taxes
- Insurance
- Maintenance expenses
- Management fees
- Utility costs
What is Net Rental Income?
Determined by subtracting Basic Rental Property Expenses from Adjusted Gross Annual Rental Income
What is Annual Cash Flow?
Determined by subtracting debt service from Net Rental Income
What should a lease document contain regarding the property description?
A detailed description of the property being leased
What is the Term of Lease?
The exact start and end dates of the lease
What should be included in the Extension or Renewal clause of a lease?
Terms for extending or renewing the lease, including timing and conditions
What is the purpose of a Damage/Security Deposit in a lease?
To specify how and when the deposit is held and returned, and its use
What must be included in the Rent clause of a lease?
Amount of rent, payment due dates, and penalties for late payment
What does the Permitted Use/Occupancy clause specify?
Allowed uses of the property and limitations on occupancy
What is the Subletting/Assignment clause?
A statement on whether subletting or assigning the lease is permitted
What does Access in a lease document refer to?
Conditions under which the landlord may enter the property
What is Rent Acceleration in a lease?
A provision allowing the landlord to declare all rent due if the tenant defaults
What does the Statute of Frauds require?
Certain contracts, including leases over one year, must be in writing
What is the Statute of Limitations?
Sets a time limit for filing lawsuits related to contracts
What is Laches?
A legal principle preventing claims that have been delayed to the point of unfairness
What is the Parol Evidence Rule?
Prevents changes to written contracts based on oral statements not included in the contract
In Texas, what leases must comply with the Statute of Frauds?
Leases that are for more than one year
What must contracts for the sale of real estate include to comply with the statute of frauds?
Contracts must be in writing and signed by the person to be charged with the promise or agreement.
Provisions of the Statute of Frauds applicable to real estate are found in Business & Commerce Code sections 26.01 and 26.02(b).
What does Property Code section 5.021 require for a conveyance of an estate?
It must be in writing and subscribed and delivered by the conveyor or by the conveyor’s agent authorized in writing.
This statute is sometimes referred to as the ‘Statute of Conveyances’.
True or False: Leasing is considered a transfer of property.
False
Leasing is merely a right to use the land, not a transfer.
What is a leasehold interest?
An interest of a tenant, giving the tenant the right to occupy real estate according to the terms in a lease.
The title to the property remains with the owner.
Name the types of leasehold estates.
- Estate for Years
- Periodic Estate
- Estate at Will
- Tenancy at Sufferance
- Sublease
Each type has distinct characteristics and rules.
What is an Estate for Years?
A leasehold estate with a specific beginning date and a specific ending date, with no automatic renewal.
It can be for any period of time, though typically for years.
How does a Periodic Estate function?
It automatically renews until one party acts to prevent the renewal.
The most common example is a month-to-month lease.
Define an Estate at Will.
An estate that continues until the landlord or tenant terminates the agreement, with no minimum period.
Most states require at least a 3-day notice for termination.
What characterizes a Tenancy at Sufferance?
It occurs when a tenant stays beyond the term of the lease without the landlord’s permission.
The tenant is not a trespasser but is subject to eviction.
What happens to a lease when the property is sold?
The lease does not terminate; the new owner must become the landlord.
This ensures continuity for the tenant.
What are the common provisions found in both Residential and Commercial Leases?
- Term
- Names of Lessor and Lessee
- Description of Property
- Use to Which Property can be Put
- Alteration Limitations
- Rent & Due Date & Late Charges
- Security Deposit
- Utility Responsibility
- Insurance Responsibilities
- Maintenance and Repair Responsibilities
- Subletting and Assignment
- Lessor Access
- Default definitions and Remedies
- Notice Requirements
- Time is of the Essence Clause
- No Use for illegal purposes
- Covenant of Quiet possession
- Non-Waiver of Enforcement
- Governing Law Statement
- Options to Extend, if any
These provisions ensure the rights and responsibilities of both parties are clearly defined.
What additional provisions are typically found in Residential Leases?
- Pet restrictions and additional pet deposit
- Number of permitted occupants
- Child Restrictions, if any
- Compliance with HOA rules, as applicable
Child restrictions are seldom used today due to Fair Housing Laws.
List additional provisions usually found in Commercial Leases.
- Property Tax Responsibility
- Signage
- Parking
- Building Rules
- Recourse in the Event of Damage or Destruction
- Eminent Domain/Condemnation
- Subordination to Current and/or Future Financing
- Agreement Not to Record Lease
- Lessor’s Agreement Not to Unreasonably Withhold Necessary Consents
These provisions address specific needs and legal considerations in commercial settings.
What does the term of a lease identify?
The period of time the tenant has the right to possession and quiet enjoyment.
It can include automatic renewals or options for renewal.
What must be obtained for a tenant to transfer their leasehold interest?
The property owner’s permission.
This applies to both assignments and subleases.
What distinguishes an assignment of lease from a sublease?
An assignment transfers the entire remainder of an unexpired lease term, while a sublease does not.
A sublease is a contract between the tenant and sublessee, not with the landlord.
What constitutes a breach of lease contract?
When one party violates the terms or conditions of the contract.
This can occur through failure to fulfill duties or obstructing the other party.
What is constructive eviction?
When the leased premises cannot be used for their proper purpose due to the owner’s failure to provide essential services.
Tenants may have the right to terminate the lease and seek damages.
What is constructive eviction?
Constructive eviction occurs when the leased premises cannot be used for their proper purpose because the owner has failed to provide essential services guaranteed to the tenant in the lease agreement.
This allows the tenant to terminate the lease without the owner’s agreement and seek damages.
What is partial eviction?
Partial evictions occur due to negligence, but the tenant can still use the leased premises. Tenants may sue for damages or withhold rent until the issue is resolved.
Seeking legal counsel is advisable for tenants considering these actions.
What is typically required for a landlord to legally evict a tenant?
Actual eviction requires the legal authority of a court.
Property managers cannot enforce an actual eviction independently.
What are the ways to terminate a lease?
A lease can be terminated by:
* Expiration of the lease term
* Eviction
* Providing proper notice
* Surrender and acceptance
* Abandonment
* Destruction of the property
* Condemnation
Each method has specific legal implications.
What is the purpose of providing proper notice in lease agreements?
Proper notice prevents a periodic lease from automatically renewing.
It typically requires written notice a specific period before leaving.
What does surrender and acceptance in lease termination entail?
Surrender and acceptance occurs when a tenant willingly gives up their leasehold interest and the landlord accepts it before the lease term ends.
Acceptance by the landlord is crucial for this termination to be valid.
What constitutes abandonment of a leased property?
Abandonment occurs when a tenant vacates the property, stops paying rent, and indicates no intention to return.
This often terminates the lease but does not relieve the tenant of contractual obligations.
Under what circumstances can a lease be terminated due to destruction?
A lease is terminated if the property is completely destroyed or sufficiently damaged, preventing its use for the intended purpose.
Legal remedies depend on the cause of destruction.
What is condemnation in real estate?
Condemnation is when a property is declared unusable by a government body, often resulting in lease termination for tenants.
This can also involve the exercise of eminent domain.
What does Chapter 92 of the Texas Property Code cover?
It contains laws regarding the rights and obligations of residential landlords and tenants.
Understanding the basics is important for property management.
What is a security deposit?
A security deposit is money given to a landlord to protect against damages or breaches of the lease agreement by the tenant.
It is not the same as an application deposit or advance rent.
What are the typical requirements for returning security deposits?
Most states require that security deposits be returned within 30 or 60 days or a detailed statement must be provided for any retained amount.
Failure to comply can result in the landlord being liable for up to three times the amount withheld.
Can a tenant use their security deposit as the last month’s rent?
In some states, tenants cannot claim the security deposit as the last month’s rent, and doing so can lead to penalties.
The lease should explicitly state this prohibition.
What happens if a tenant does not take possession of the premises?
The security deposit is refundable if a replacement tenant is found, but the tenant may be responsible for rent until then.
Landlords may charge a cancellation or re-letting fee.
What is the general rule regarding a landlord’s right of entry?
A landlord has no right to enter the property without the tenant’s permission except in emergencies.
Leases can specify rights of entry with tenant consent.
List some possible rights of entry for landlords.
Possible rights of entry include:
* Making repairs
* Pest control
* Inspecting the property
* Emergency situations
* Removing unauthorized items
Leases should clarify the extent of these rights.
What should both the property manager and tenant ensure about the lease they sign?
That it is an accurate statement of the landlord’s right to enter and the tenant’s right to refuse permission for good cause.
What is a good practice for property managers when entering a tenant’s premises?
To leave a notice stating the reason for entry inside the premises.
What device must some landlords provide to tenants according to some state laws?
A keyless bolting device and a door viewer on each exterior door.
What should a property manager consider if a tenant at home refuses entry?
Whether to make entry anyway, especially if the tenant appears to be in distress.
In what situations may a landlord enter a tenant’s premises without express permission?
In cases of physical distress, medical emergencies, or dangerous situations like fires or floods.
How can a lease end?
By its own terms, mutual agreement, or breach of lease.
What happens if a lease expires but the tenant remains in possession?
It may automatically become a month-to-month tenancy on the same terms.
What rights do tenants in Section 8 subsidized housing typically have compared to non-subsidized housing?
More and stronger rights.
What must be documented in writing if a lease is terminated by mutual agreement?
The date of termination and any other agreements reached.
What is the most common reason for a tenant’s eviction?
Nonpayment of rent.
What does an eviction refer to?
A lawsuit filed to remove persons and belongings from the landlord’s property.
What are some common reasons a landlord might start the eviction process?
- Nonpayment of rent
- Holding over past the lease term
- Refusal to renew the lease for non-discriminatory reasons.
What is retaliatory eviction?
When a landlord wrongfully terminates a lease or files for eviction due to a tenant exercising their rights.
What actions are considered retaliation against tenants?
- Wrongfully terminating the lease
- Filing for eviction
- Decreasing services to a tenant
- Increasing rent.
What must a property manager be aware of to avoid improper actions in tenant disputes?
What constitutes retaliation.
What penalties can a landlord face for retaliation?
- One month’s rent plus a statutory penalty
- Reasonable moving costs
- Attorney’s fees and court costs.
What is a percentage lease?
A lease where the tenant pays a base rent plus a percentage of sales.
What is a gross lease?
A lease where the tenant pays a flat rental fee and the landlord pays most ownership expenses.
What is a net lease?
A lease where the tenant pays rent plus some or all operating costs.
What is a ground lease?
A lease where the landlord leases land to a tenant for construction.
What is an oil and gas lease?
A lease that allows a tenant to explore for oil or gas with royalty payments from production.
What is an option agreement in leasing?
A contract giving the tenant the option to purchase the property at the end of the lease.
What does a lease purchase agreement entail?
The tenant agrees to purchase the property at a specified price within a specified period.
What is a sale-leaseback agreement?
An agreement where the owner sells a property and then leases it back.
What is a graduated lease?
A long-term lease that adjusts rent periodically to reflect changes in operating costs.
What is an index lease?
A lease where rent payments increase or decrease based on economic conditions.
What is the most common type of residential lease?
An agreement for the tenant to occupy the property for a specific period at a stated rent.
Why is tenant screening important?
Because the right tenant pays rent, cares for the property, and follows rules.
What has changed in tenant screening due to the internet?
More methods and businesses specializing in background checks are available.
What is one way landlords can evaluate potential tenants today?
Using online criminal background checking services.
