Chapter 14
Relationship of Landlord and Tenant
Learning Objectives
 Describe the basic concepts and terminology of the relationship between
landlord and tenant
 List and define the non-freehold estates
 List the essential provisions of the North Carolina Residential Rental
Agreements Act
 List the essential provisions of the North Carolina Tenant Security Deposit
Act
 List the types and characteristics of leases
 Describe the essential and common provisions of leases
 Describe the application of the Statute of Frauds to leases
 Define the rights of the parties to a lease
 Describe the requirements for recording leases
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Chapter 14
Relationship of Landlord and Tenant
Definitions
 A lease:
• Contract in which a tenant receives the right to use and possess
property for a specific period of time in exchange for rent
 Lease, let, and demise:
• All describe the conveyance of a possessory interest in property by a
lease
 Landlord:
• Owner of the property
 Lessor:
• One who gives the lease
 Lessee or tenant:
• One who receives the lease
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Chapter 14
Relationship of Landlord and Tenant
Estates and Contracts
 In the creation of a rental estate, two concepts are involved:
• Concept of estates:
• An essential part of understanding rental estates
• Can vary widely in the quantity and quality of interest conveyed in
a real estate transaction
• Contractual law:
• Duty of each party is related to the other party’s performance
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Chapter 14
Relationship of Landlord and Tenant
Residential Rentals Agreement Act
 Establishes duties of landlord & tenant:
• Allows private (non-real estate licensees) landlords certain options not
available to agents
 Obligations of landlord and tenant:
• Mutually dependent:
• One party fails to fulfill his duties, the other is excused from
responsibility.
• Constructive eviction - tenant is excused from his responsibility:
• If the landlord fails to perform his duty, tenant may vacate
the premises and withhold rent, regardless of the remaining
term
• Tenant cannot remain in property and withhold rent
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Chapter 14
Relationship of Landlord and Tenant
Residential Rentals Agreement Act
 Landlord’s major duty is to provide premises that are fit for human
habitation including:
• Complying with building codes
• Maintaining and repairing common areas
• Repairing utilities
• Maintaining and repairing provided appliances
 Tenant’s primary statutory duties are to:
• Maintain the individual living unit by keeping the unit safe and clean
• Properly dispose of trash
• Keep plumbing fixtures clean
• Be financially responsible for any destruction, defacement, or damage
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Chapter 14
Relationship of Landlord and Tenant
Residential Rentals Agreement Act
 Tenant remedies for breach by landlord:
• If a landlord fails to provide a habitable rental unit, a tenant can:
• Bring action against the landlord in court for damages, including
the recovery of rent paid while the property was uninhabitable
• Bring action to require the correction of defects in the property
• May NOT withhold rent while remaining in property
• Constructive eviction:
• They are excused from completing the term of the lease
• May move out and withhold rent
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Chapter 14
Relationship of Landlord and Tenant
Residential Rentals Agreement Act
 North Carolina has typically applied the law of negligence differently to
the occupied premises and common areas:
• Landlord is responsible for maintaining the common areas
• Potentially liable for injury occurring in these areas, especially if
negligence can be shown
• Traditionally, the landlord was not liable for the interior of the rental
unit but recent changes in the law may expose the landlord to more
liability
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Chapter 14
Relationship of Landlord and Tenant
Residential Rentals Agreement Act
 Retaliatory eviction statute:
• Protects tenants in asserting their rights, such as requesting repairs or
joining a tenant’s union
• Provides an automatic defense from eviction for up to one year from
any such event
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Chapter 14
Relationship of Landlord and Tenant
North Carolina Tenant Security Deposit Act
 Sets limitations upon the holding of security deposits
 Only applies to residential property
 Handling of deposits in accordance with the Act:
• Place funds in a North Carolina bank or savings and loan trust account
and notify the tenant of the bank’s location
or
• Guarantee the return of the funds with a performance bond and notify
the tenant of the bonding company’s name (only non-real estate
licensee may use)
• Real estate agents who are landlords are only allowed to use the trust
account method
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Chapter 14
Relationship of Landlord and Tenant
North Carolina Tenant Security Deposit Act
 Permitted used of the deposit money are limited to:
• Damage to the unit
• Non-fulfillment of the rental period
• Unpaid rent
• Court costs of eviction
• Costs of re-rental IF the tenant breaches the lease
 Landlord or broker must account for and/or refund the funds within 30
days of the end of the lease
 Landlord or broker may not use Security Deposit in the trust account
while tenant still occupies property
 Non-licensed landlord may use funds secured by bond in any way he
chooses at any time he chooses since tenant’s deposit is protected by a
bond
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Chapter 14
Relationship of Landlord and Tenant
North Carolina Tenant Security Deposit Act
 Deposit Amounts:
• Amounts that can be collected for security deposit are related to the period
of the lease:
• Weekly, the maximum deposit is two weeks’ rent
• Monthly, a month and a half’s rent
• Greater than one month, two month’s rent may be collected
• Landlords may also require a reasonable non-refundable pet deposit
• Disagreements about what is normal wear and tear are common, but may
be minimized by:
• Explaining what is expected of tenants before occupancy
• Providing written explanation of expectations
• Having property condition report completed before or at time of
occupancy
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Chapter 14
Relationship of Landlord and Tenant
North Carolina Tenant Security Deposit Act
 Residential eviction remedies for landlords are limited in the following
ways:
• Prohibited from peaceable self-help, which includes:
• Locking tenants out
• Shutting off their utilities
• Seizing the tenant’s personal property
• Only available remedy is to seek judicial eviction, otherwise known as
actual eviction or summary ejectment
 Discrimination and sexual harassment:
• Federal and state laws prohibit discrimination against tenants based on
race, color, religion, sex, handicap, familial status, or national origin
• North Carolina also prohibits sexual harassment of a lessee or
prospective tenant by a lessor or lessor’s agent
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Chapter 14
Relationship of Landlord and Tenant
North Carolina Tenant Security Deposit Act
 Rights of tenants in public housing:
• Tenants in public housing have a special entitlement to
continued occupancy, which may not be suddenly
terminated
• Tenants are entitled to due process under federal and state
constitutions
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Chapter 14
Relationship of Landlord and Tenant
Law Protecting Tenant in a Foreclosure Situation
 Pertains to foreclosures involving federally related mortgages or any
residential rental property:
• The purchaser must honor bona fide lease of the tenant
• If the purchaser intends to occupy as a primary residence the lease can
be terminated by giving tenant at least 90 days notice to vacate
 North Carolina law allows the tenant of residential property of less than
15 units to terminate lease with 10-day notice after receiving notice of
foreclosure
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Chapter 14
Relationship of Landlord and Tenant
Vacation Rental Act
 Applies to any landlord or agent who rents vacation, recreation, or leisure
property for periods of less than 90 days:
• Exempts hotels, motels, business purposes, or short-term temporary
residences for individuals with no other permanent residence
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Chapter 14
Relationship of Landlord and Tenant
Vacation Rental Act
 Vacation rental agreements must be in writing:
• Oral agreements are not enforceable
 A tenant must accept a vacation rental agreement in one of the following
ways:
• By signing the agreement
• By paying the landlord or broker a part of the consideration or security
deposit AFTER the tenant receives a copy of the written agreement
• By taking possession of the property AFTER receiving a copy of the
agreement
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Chapter 14
Relationship of Landlord and Tenant
Vacation Rentals Act
 Failure to get the agreement in writing is considered an unfair trade
practice:
• The broker’s penalties can be steep
• Damages may include:
• Treble damages
• Civil penalties
• Attorney fees
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Chapter 14
Relationship of Landlord and Tenant
Vacation Rentals Act
 Procedures for rents and deposits:
• The landlord must hold deposit in a trust account
• Bond option is not permitted
• May collect advance payments from the tenant
• May disburse up to 50% of these advance payments (Excluding Security
Deposit) prior to occupancy
• Has 45 days to account for deposit funds after the end of the vacation
rental
• Deposit funds can be used for long distance telephone or cable charges
which are the tenant’s responsibility
• The landlord may charge tenant reasonable fees for making, transferring,
or canceling the tenancy
• No other fees may be charged
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Chapter 14
Relationship of Landlord and Tenant
Tenant Protection When Property is Sold
 A landlord who cannot make the property available to a tenant in a fit and
habitable condition must:
• Substitute a reasonably comparable property
or
• Refund the tenant’s payment
 Landlords voluntarily selling or transferring property:
• Must disclose to purchasers the existence of any leases ending within 180
days after transfer of title
• The grantee takes the property subject to these leases
• Inform tenants of their rights under the Act after the sale
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Chapter 14
Relationship of Landlord and Tenant
Tenant Protection When Property is Sold
 Tenants not protected by the Act:
• One whose lease ends after 180 days
• One whose tenancy is due to involuntary transfer
• Receive full refund minus some allowable expenses
 New owners of transferred properties must:
• Honor all leases ending within 180 days
• Notify each tenant of property transfer in writing
• Inform each tenant of his rights:
• To occupy or not occupy property
• To receive or not receive refund
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Chapter 14
Relationship of Landlord and Tenant
Expedited Eviction
 The act provides for expedited eviction for tenancies of 30 days or less when
such tenants have breached the agreement. A 4-hour minimum notice is
required. Examples of such a breach include:
• Destroying property
• Exhibiting loud and disruptive behavior
• Holding over beyond the end of the agreement
 This expedited eviction procedure must not be abused:
• Abuse can result in severe penalties including:
• Civil penalties
• Treble damages
• Possible criminal prosecution
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Chapter 14
Relationship of Landlord and Tenant
Mandatory Evacuation
 The act entitles a tenant forced to evacuate a vacation rental by proper state or
local authorities to a prorated refund:
• Exception: Landlord/agent has offered “interruption” insurance meeting
these requirements:
• North Carolina Department of Insurance approved
• Policy cost 8% or less of the total rental amount
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Chapter 14
Relationship of Landlord and Tenant
Payment of Commission to Travel Agents
 Travel agents must only introduce the tenant to the property manager
 Such commissions may only be paid to a travel agent within the normal
practice of their duties
 They cannot be paid the commission until after the lease is completed
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Chapter 14
Relationship of Landlord and Tenant
Non-Freehold Estates
 Estate for years:
• Must be for a definite period of time
• Expires automatically
 Estate from period to period:
• Also called a periodic tenancy
• Automatic renewals at the end of each period
• Estate will renew automatically if neither party gives notice to terminate
during the prescribed time period
 Estate at will:
• Possession for the tenant is with permission
• Estate can be terminated at will by either party by simply giving the other
party notice
• Payment of rent converts this to a periodic estate
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Chapter 14
Relationship of Landlord and Tenant
Non-Freehold Estates
 Estate at sufferance:
• Lowest estate in real property
• Tenant originally had lawful possession
• Right to possession was terminated
• Tenant at Sufferance (holdover tenant) differs from trespasser as he
entered legally
• The only reason the tenant is still in possession is that he/she has not yet
been evicted
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Chapter 14
Relationship of Landlord and Tenant
Types of Leases
Primary classification is determined by which party pays expenses
 Gross lease :
• Lessor pays all costs of operating and maintaining the property
• Lessor pays real property taxes, insurance, maintenance, etc.
• Most residential leases are gross leases
 Net lease:
• Lessee agrees to pay some or all costs and expenses associated with the
property including such things as real estate taxes and assessments,
maintenance, insurance, and utilities
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Chapter 14
Relationship of Landlord and Tenant
Types of Leases
Other methods of classifying leases
 Fixed rental (flat or gross):
• Rent amount does not change during rental period
 Percentage lease:
• Fairly low fixed rent plus amount based on percentage of lessee’s gross
sales volume
• Often used with leases for retail businesses
 Graduated lease:
• Rental amount changes (usually increases) periodically
• Amount of change is specified in contract
 Index lease:
• Rental amount is changed in proportion to changes in the Consumer Price
Index (CPI) or other similar indexes
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Chapter 14
Relationship of Landlord and Tenant
Types of Leases
Other methods of classifying leases
 Full service leases:
• Common in office buildings and shopping centers
• Each tenant pays:
• A base rent
• A portion of the operating expenses for the building and common areas
 Ground lease:
• Lease of unimproved land
• Normally contains a provision that a building will be constructed on the
land by the lessee
• Lease should always address the disposition of the improvements at the
lease’s termination
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Chapter 14
Relationship of Landlord and Tenant
Types of Leases
Other methods of classifying leases
 Mineral lease:
• Right to search for and mine minerals during the lease period
• Must be in writing, regardless of the duration, to comply with the Statute
of Frauds
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Chapter 14
Relationship of Landlord and Tenant
Types of Leases
Other methods of classifying leases
 Sale and leaseback:
• Property owner sells a property to an investor
• Investor agrees to immediately lease the property back to the seller
• Frees seller’s capital while allowing his continued possession of property
• Another advantage to the seller is that lease payments are fully deductible
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Chapter 14
Relationship of Landlord and Tenant
Common Lease Provisions
 Essential provisions:
• Mutual agreement to the terms of the contract
• Legal capacity to contract
• The land identified clearly
• Essential aspects of the agreement (rent, occupancy dates, terms, etc.)
• Supported by legal consideration
• Lawful objective
 Other optional but common provisions:
• Landlord may restrict the use of a rental unit
• Lessee may want to make a specific use a condition of the lease
• Prohibit the use, storage, or discharge of hazardous substances
• Removal of certain fixtures and the return of the premises to its original
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condition
Chapter 14
Relationship of Landlord and Tenant
Common Lease Provisions
 Other optional but common provisions:
• Landlord may restrict the use of a rental unit
• Lessee may want to make a specific use a condition of the lease
• Prohibit the use, storage, or discharge of hazardous substances on the
premises
• Removal of certain fixtures and the return of the premises to its original
condition
• Responsibility for repairs on commercial or industrial property depends
on the type of property and specific lease provisions
• Upkeep should be specifically addressed
• Up fitting improvements
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Chapter 14
Relationship of Landlord and Tenant
Common Lease Provisions
 Other optional but common provisions
• Assignments and subleases:
• Assignment is the total transfer of the lessee’s entire remaining interest
in the lease
• Subletting is essentially the making of a new lease in which the lessee
also becomes a “sublessor” who has rented the premises to a
“sublessee”
• Allowable if not prohibited by lease
• Default
• Renewal of lease
• Option to purchase
• Right of first refusal
• Landlord’s right to enter premises
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Chapter 14
Relationship of Landlord and Tenant
Common Lease Provisions
 Major aspects of NCAR’s Residential Rental Contract:
• The names of the lessor and lessee appear at the top of the form
• The duration of the initial term of the contract is given
• The period of the contract and specific starting and ending dates are given
• The due dates of the first and subsequent rental payments are set forth
• The amount of rent and the period for paying rent (yearly, monthly,
weekly) are specified
• Late payment fees are specified
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Chapter 14
Relationship of Landlord and Tenant
Common Lease Provisions
 Major aspects of NCAR’s Residential Rental Contract:
• The amount of security deposit and the name of the bank that will hold the
deposit are specified
• Tenant responsible for paying the returned check fees for his checks
returned for insufficient funds
• Number and type of allowed pets and the non-refundable pet deposit is
specified
• Permitted occupants in addition to the tenant are named
• Landlord’s right to enter premises
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
1.
2.
3.
4.
This paragraph describes what is to happen at the end of this initial term. The
lessor or lessee can give notice to terminate. If notice is not given, the initial term
is then modified to a shorter period-to-period tenancy
Informs the tenant when the first and subsequent rental payments will be due and
that the tenant shall pay the rent on those days without notice, demand, or
deduction
Informs the tenant that a late payment fee will be due if rent is not paid by
midnight on the fifth day after it is due. Tenants will also be responsible for
paying returned check fees for each check returned for insufficient funds
Clearly explains how the tenant security deposit must be handled and how and
when it may be used or disbursed as dictated by the North Carolina Tenant
Security Deposit Act
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
5. Tenant’s obligations include:
• Using the premises for lawful residential purposes
• Refraining from disturbing other tenants or creating a nuisance
• Keeping the premises clean, safe, and sanitary
• Disposing of all waste in compliance with all ordinances
• Using all systems and appliances properly and safely
• Avoiding defacing or destroying the property
• Paying all utility bills billed directly to him
• Remaining in property for the lease term
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
6. Landlord’s obligations include:
• Complying with building and housing codes
• Providing and maintaining fit and habitable premises by
making appropriate repairs
• Maintaining safe and clean premises
• Promptly repairing all systems and appliances after receiving
actual written notification from tenant
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
7.
8.
9.
Utilities bills/service contracts:
• Stipulates who will pay the utilities and other service obligations
Smoke detectors and carbon monoxide alarms:
• Landlord will provide operable smoke/carbon monoxide
detectors
• Landlord will replace batteries in smoke/carbon monoxide
detectors at beginning of the lease term
• Tenant will be responsible for replacing batteries during the
term
• Landlord shall replace/repair within 15 days of notification
Tenant agrees to comply with reasonable rules and regulations as
established by the landlord through his agent
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
10. Landlord may enter property:
• To inspect the premises
• To ensure tenant’s compliance with the terms of the rental
contract
• Make repairs or improvements:
• At reasonable times
• After making an appointment, if required
11. Tenant’s responsibility for damages and restitution for damages beyond
normal wear and tear are set forth
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
12. Pets:
• May be allowed for a reasonable pet fee.
• Pet fee is non-refundable
• May not be allowed at all
• Pet fee not subject to trust account regulations
13. Alterations:
• Done only with the landlord’s written consent
• Done at the tenant’s expense
14. Only the tenant and any named occupants can use the premises as a
residence
15. The tenant warrants the truth of facts provided on rental application
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
16.
Tenant duties upon termination:
• Must leave property cleaned, swept, and in the same
condition as when he took possession
• Shall remove all personal property, secure doors and
windows, disconnect any utility services and pay
outstanding utility bills
• Must return the keys and provide the landlord an
address where the security deposit may be returned if
there are no damages or other legitimate reasons for
keeping the security deposit
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
17. Tenant Default:
• In event of tenant fails to pay the rent or fails to perform any
other obligation
• Landlord is entitled to possession:
• Through the summary ejectment process
or
• If tenant relinquishes the right voluntarily
• Landlord is entitled to recovery of legal fees
• Landlord can accept partial rental payment
• Default shall terminate the lease and the tenant’s right to
possession
• Landlord can dispose of the tenant’s personal property. State
law and the value of these personal possessions often dictates
the landlords options
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
18. Landlord Default:
• Tenant must notify landlord in writing of alleged default by the
landlord
• Tenant must give the landlord a reasonable time to correct
default
• Absent willful negligence:
• Is prohibited from collecting secondary or consequential
damages
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
19. Landlord has the right to terminate the tenancy subject to provision of
the bankruptcy code
20. It is the tenant’s responsibility to insure his personal property and the
landlord is released of liability for injury of tenant and other occupants
unless such injury is caused by landlord’s or his agent’s negligence
21. Landlord can engage an agent to manage the property
22. Landlord and tenant acknowledge that there may be minor inaccuracies
in the form
23. Landlord is given the authority to comply with changes in laws or
statues that occur after execution of the lease
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
24. Landlord has the option to terminate the lease in the event of
condemnation or damage by fire or other casualties
25. Assignment or Subletting of the lease by the tenant:
• Assignment:
• Remainder of the term is transferred without reversion
to the original lessee
• Subletting:
• Lease is transferred but the remainder of term reverts to
the original lessee
• Both are prohibited by this provision unless contract modified
and agreed to by both parties
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Chapter 14
Relationship of Landlord and Tenant
Provisions of NCAR’s Residential Rental Contract
26. A waiver of any breach of this contract cannot be construed as a waiver
of any future breaches
27. All parties listed as tenants shall be held jointly and severally liable
28. Itemizes addenda, any additional provisions, and provides for lead-based
paint disclosure and disclosure that the agent represents the landlord
29. Tenant acknowledges having inspected property or having the right to
inspect before occupancy
30. Requires notices to be sent to tenant at property address and to landlord
at address where rental payment is delivered
31. Lease is signed by the tenant and the agent representing the landlord.
The tenant, the landlord, and the agent each receive a counterpart
32. This document represents the entire agreement between the parties
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Chapter 14
Relationship of Landlord and Tenant
Landlord’s Implied Covenant of Quiet Enjoyment
 Promise that the lessee will not be disturbed in his use of the property
because of a defect in the lessor’s title
 Every lease implies such a covenant
 The covenant protects the tenant against claims arising from the landlord,
the landlord’s agents, and/or anyone whose title is superior to that of the
landlord
 Actual or constructive eviction of the tenant by any of the parties breaches
this covenant
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Chapter 14
Relationship of Landlord and Tenant
Termination of Leases
 Expiration of lease term in an estate for years is automatic. No notice is
required by the lessor to the lessee or vice versa.
 A lease, just as any executory contract, can be terminated by the
agreement of the parties. The release by each party of the other provides
the consideration for the agreement to terminate.
 If the lessor or lessee fails to live up to their respective duties, a breach of
condition will terminate the lease
 Condemnation under the power of eminent domain can cause a lease to
terminate:
• Under total condemnation, lessee is entitled to compensation from the
lessor for the remaining value of their interest
• Partial condemnation will provide the lessee with the option of
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Chapter 14
Relationship of Landlord and Tenant
Termination of Leases
 Judicial eviction (also known as actual eviction and summary ejectment):
• Lessee fails to adhere to the conditions of the lease
• Process by which lessor can obtain possession of the premises through
court actions
 Constructive eviction results from some action or inaction by the lessor
that renders the premises unfit for habitation. The lessee is entitled to
abandon the premises, terminate the lease, and sue for damages.
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Chapter 14
Relationship of Landlord and Tenant
Application of the Statue or Frauds/Recordation of Leases
 The N. C. Statute of Frauds requires certain contracts to be in
writing to be effective. This includes leases with terms of
more than three years
 In N. C., the Conner Act requires a lease that extends for a
period of more than three years from the date of making to be
recorded to be enforceable against third parties
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