What REALTORS® Need to Know About Residential Leasing
By Seth Weissman
February 2004
Introduction
Imagine for a moment that you are sitting in a conference room negotiating a long-term
residential lease. The REALTOR representing the landlord leans over and quietly asks if
you would consider a “usufruct”? Would you:
a) Tell the other REALTOR to stop being so fresh;
b) Stare blankly at the other REALTOR; or
c) Know that the REALTOR was talking about a type of lease and answer the
REALTOR’S question.
If you answered (a) or (b), you should probably read this article. In this way, you
can not only learn about the basics of residential leasing, but also learn about a usufruct.
Tenancies & Leases
A good place to begin a discussion of residential leasing is with the different types of
"tenancies" that exist in residential leasing transactions. A "tenancy" is created when a
landlord grants a tenant the right to occupy the landlord's property. This is usually done
in a written lease, although as discussed below, a tenancy can also be created without
the necessity of a written agreement. Other ways where a tenancy can arise are
discussed below.
Tenancy at Will
A tenancy at will is a tenancy that has no ending date and is formed ‘by the will’ of the
landlord and tenant. In other words, the tenant takes possession of the property with the
consent of the landlord. To terminate a tenancy at will, a landlord is required under
Georgia law to give the tenant 60 days notice of termination. However, if the tenant
wishes to terminate a tenancy at will, the tenant must give only 30 days notice to the
landlord. Let's look at the example below to better understand a tenancy at will.
Example # 1
A landlord and tenant sign a lease stating that when the lease term ends the lease shall
be automatically renewed on a month-to-month basis. When the lease expires, the
tenant remains in the property and pays rent, which is accepted by the landlord. What is
the legal relationship between the landlord and tenant after the expiration of the fixed
term of the lease? Answer: The tenant’s occupation of the property after the expiration
of the initial lease term is a tenancy at will. This is because a month to month lease has
no fixed ending time.
Tenancy at Sufferance
In contrast to the tenancy at will, a tenancy at sufferance is one where the tenant
occupies the property without the consent of the Landlord. Let’s look at the example
below to better understand what is a tenancy at sufferance.
Example # 2
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A landlord and tenant enter into a lease, which expires on February 1, 2004. The tenant
asks if he can continue to lease the property and the landlord answers with an emphatic
“no.” If the tenant holds over after February 1, 2004, what is the legal relationship
between the parties? Answer: He is now a tenant at sufferance because he remains in
possession of the property without the landlord’s consent.
Does a lease have to be in writing?
A lease of one year or less is enforceable even if it is not in writing. As a general rule, a
lease for more than one year has to be in writing to be enforceable.
However, Georgia courts have created certain limited exceptions to this rule to avoid
undue hardship. For the most part, these exceptions treat that part of the lease in
excess of one (1) year as a tenancy at will to get around the one (1) year requirement.
So for example, if a tenant occupies a property for two (2) years based on a verbal two
(2) year lease, the tenant cannot use the failure of the parties to sign a written lease as
an excuse not to pay back rent.
Is a Temporary Occupation Agreement (TOA) a lease?
A buyer of a home will often allow the seller to occupy the property for a brief period of
time after the closing. Alternatively, a seller may allow a prospective buyer to move into
the property before the closing. Do these situations create a landlord and tenant
relationship? The answer depends on the nature of the agreement between the parties.
If the parties sign a lease, a landlord-tenant relationship is created. Similarly, if the sales
contract provides, for example, that the seller can stay in the house for 7 days after the
closing, a landlord and tenant relationship is created. This is because Georgia law
states that unless the parties otherwise agree, a landlord and tenant relationship is
created when:
“the owner of real estate grants to another person, who accepts such grant, the
right simply to possess and enjoy the use of such real estate either for a fixed
time or at the will of the grantor” (GA ST § 44-7-1).
However, if the parties sign a GAR Temporary Occupancy Agreement no landlordtenant relationship is created. This is because the Agreement specifically provides that
the rights of the temporary occupant of the property are those of a “licensee” who has
been given the mere right to use the property for a short period of time. This was done
to avoid the parties having to comply with numerous statutory requirements applicable to
landlord and tenant relationships that may be burdensome to follow when the occupancy
of the property is only for a short period of time. However, language has been added to
the Temporary Occupancy Agreement making it clear that if the temporary occupant
holds over, he or she becomes a tenant at sufferance. This will allow the new owner to
dispossess the occupant in a matter of weeks rather than having to bring a much more
time-consuming action for eviction.
Buying a Property with Existing Lease
It is not uncommon for residential real estate to be sold while the property is occupied
by a tenant. The most common question that gets asked in this situation is whether this
gives either the landlord or the tenant the right to get out of the lease. As a general rule,
the new owner and the existing tenant are both bound by the existing lease unless the
lease specifically provides that either the landlord or the tenant has the right to terminate
the lease upon the sale of the property.
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However, the new owner will most likely lose the right to terminate if he accepts rent
from the tenant. This is because the new owner must choose between taking the
property subject to the lease or without the lease. Therefore, if the new owner plans on
terminating the lease, he or she should do so quickly. The notice of termination in such
a situation can be sent by either the existing owner prior to the transfer of the property or
by the new owner anytime after the closing.
Marketing the Property During the Term of the Lease
When a property is leased, the landlord gives the tenant exclusive possession and
control over the property. This means that unless the landlord has reserved a specific
right in the lease to come onto the property, such a right does not normally exist.
Therefore, the landlord should evaluate when he or she will need to come onto the
property (and for what purpose), and make sure that a right of access for these
situations has been provided for in the lease.
This is particularly important in the area of marketing the property for sale or for lease.
Landlords should make sure they have the right not only to place marketing signs on the
property but also to enter the property to show it to prospective buyers and tenants.
Such a right is given to landlords in Section 12 of the GAR form residential lease.
Landlord’s Duty to Repair
To protect tenants from unsafe residential housing, Georgia law requires landlords to
keep the premises in good repair. As a general rule, this obligation cannot be waived by
an agreement between the landlord and tenant, nor can the landlord limit his or her
damages arising out of the failure to repair.
However, a tenant can agree to accept the property with conditions that some might
consider to be defects provided that they do not rise to the level of being housing code
violations. For example, let's say that a landlord is leasing an apartment that has old
stained carpet or badly scratched hardwood floors. If the landlord points out these flaws
to a prospective tenant, he or she can agree to accept them. However, if the apartment
has missing floor boards, this is not something that the tenant can waive because it
would be a housing code violation.
What recourse does the tenant have if the landlord fails to make required repairs?
Obviously, such a failure is a breach of the lease. Many leases require the tenant to
notify the landlord of the need to repair and give the landlord an opportunity to take care
of the problem. However, subject to these types of provisions, the tenant can normally
do the repairs and sue the landlord for damages. Depending on how the lease is
drafted, the tenant may also have the right to deduct the cost of the repair from the rent
rather than having to sue to recover the tenant's damages.
In an extreme situation, the tenant can even argue that he or she has been
"constructively evicted" from a rental unit as a result of the landlord's neglect. Proving
constructive eviction is difficult because it requires the tenant to show that the premises
have deteriorated to such an extent that they have become unfit for the use for which
they were rented and cannot be restored without an unreasonable interruption.
Interestingly, it also requires the tenant to abandon or surrender the property within a
reasonable time. This puts the tenant in a difficult position because it requires the tenant
to make a decision to leave the premises without knowing whether their claim for
constructive eviction will be upheld if challenged in court.
Roof leaks (even with puddles on the floor), noisy neighbors, and cockroaches have all
been held not to be grounds for constructive eviction. However, a severe infestation of
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bedbugs originating from a source within the landlord's control and which the tenant first
tried unsuccessfully to eradicate has been held to be a constructive eviction.
Return of Security Deposits
Most leases require the tenant to put up a security deposit to protect the landlord
against the tenant damaging the property or violating the terms of the lease. However,
before a landlord can keep any portion of a tenant's security deposit, the landlord must
follow a state mandated procedure requiring the landlord to:
1. inspect the property within three business days after the lease terminates; and
2. give the tenant an itemized list of deductions from the security deposit and refund
any balance to the tenant.
If the tenant abandons or surrenders the premises, the landlord is not bound by the
three-day rule and can make the inspection within a reasonable time. The landlord may
mail the itemized list of deductions from the security deposit (and the balance, if any, of
the security deposit) to the last known address of the tenant via first class mail. If it is
returned to the landlord undelivered and if the landlord is unable to locate the tenant
after a reasonable effort, the security deposit will belong to the landlord 90 days after the
date the statement was mailed. If the landlord does not provide the list to the tenant, the
landlord cannot claim damages against the tenant and the tenant will be entitled to a full
refund of the security deposit.
Once the tenant receives the list of itemized deductions, the tenant is entitled to inspect
the premises to check the accuracy of the list within five business days after lease
termination. After the tenant’s inspection, both landlord and the tenant must sign the list.
If the tenant disputes the list, the tenant must state his or her objection in writing.
However, the tenant would have to sue to recover any disputed sum.
If the landlord does not refund the undisputed balance of the security deposit within one
month of the lease termination, the landlord becomes obligated to the tenant for three
times the part of the security deposit improperly withheld plus reasonable attorney's
fees. The only exception to this rule is if the landlord can prove that the failure to timely
return the security deposit resulted from a genuine error, which occurred in spite of the
landlord taking reasonable steps to prevent such an error.
Pre-Inspection of the Property and Handling of Security Deposits
In addition to the requirements for retaining a portion of the security deposit, Georgia
law also imposes requirements on landlords who own multiple rental units to
a)
inspect the property with the prospective tenant prior to taking a security
deposit and
b)
placing the security deposit in a trust account.
Specifically, landlords who own more than ten rental units must place the security
deposit in an escrow account established specifically for this purpose (or in the escrow
account of the landlord's real estate broker). The landlord must inform the tenant in
writing of the location and account number of the escrow account. Because of this
requirement, escrow account information is normally written into the lease itself. More
importantly, if the landlord fails to comply with these regulations, the landlord must
refund the entire security deposit to the tenant when the lease terminates, even when
the tenant has defaulted or damaged the property.
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Eviction
The dark side of being a landlord is that tenants sometimes stop paying rent.
Inexperienced landlords often mistakenly think they can use "self-help" to regain
possession of the property. Georgia law requires a landlord to obtain a writ of
possession before the landlord is entitled to dispossess a tenant. Essentially, this
means filing a lawsuit against the tenant. The legal steps necessary to obtain a writ of
possession are set forth below.
Serve a Notice of Termination
When a tenant breaches the lease, the landlord has to first send a notice of termination
to the tenant. This step does not have to be taken if the tenant is a tenant at sufferance.
Serve a Notice to Quit
After terminating the lease, the landlord has to send a letter demanding possession,
which is commonly referred to as a notice to quit. The landlord should give a notice to
quit whenever a tenant holds over, fails to pay rent or is either a tenant at will or a tenant
at sufferance. The landlord is not required to serve a notice to quit if the tenant has
abandoned the property.
Apply for a dispossessory warrant
If the tenant does not comply with the notice to quit, the next step is to file a lawsuit to
dispossess the tenant. The landlord can also file a claim for any sums owing by the
tenant. The landlord will need to set out the reasons for the action in an affidavit and if
the reasons are valid, the court will issue the summons.
The sheriff will personally serve the tenant with a copy of the summons and the affidavit
or post the documents on the door and then also mail them to the tenant at the last
known address if the tenant cannot be located. The tenant has to answer the summons
within 7 days. The landlord need not be present on the date of the tenant's court
appearance. If the tenant does not answer the summons, the court will issue a writ of
possession and enter a judgment for the landlord for any amount claimed. The writ is
then delivered to the sheriff or marshal who accompanies the landlord to the property to
remove the tenant and his or her possessions.
If the tenant answers the summons, a hearing date for a trial will be set and the tenant
is allowed to remain in the property until the final outcome of the litigation. If nonpayment of rent is the reason for the summons, the court will give the tenant an
opportunity to bring his rent payments up to date and cover the cost of the warrant.
Provided these payments are made within seven days after the date of service of the
summons, the tenant will be allowed to stay in the property. However, if the landlord has
to apply for a dispossessory warrant two or more times within a 12-month period, the
landlord can reject payment and the court will issue the dispossessory warrant.
What happens to the rent during the trial?
If there has not been a trial on the merits within two weeks from the date the summons
is served, the tenant must pay rent and any other charges due from the date of issue of
the warrant into the registry of the court. The tenant must also pay all rent and utility
payments owed before the issue of the dispossessory warrant unless the tenant can
show a receipt indicating that payment has been made to the landlord. If the tenant fails
to make any of these payments into the registry of the court, the court will issue a writ of
possession.
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Conclusion
For those of you who have patiently read this article to understand what is a usufruct
(pronounced YOOzə frukt), your time has now come! A usufruct is a temporary right to
possess and enjoy a thing without owning the property. Georgia law defines a tenancy
for less than five years as a usufruct unless the parties agreed otherwise and it is so
stated in the contract. OCGA § 44-7-1(a) states:
When the owner of lands grants to another simply the right to possess and enjoy
the use of such lands ... and the tenant accepts the grant, the relation of landlord
and tenant exists between them. In such case no estate passes out of the
landlord, and the tenant has only a usufruct ...
In other words, a tenancy of less than five years is a usufruct because the
landlord does not convey the property but instead merely grants the tenant the
temporary right to possess and enjoy the property. Hopefully, this and the other
information in this article will make REALTORS more knowledgeable when questions
arise regarding residential leasing.
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