Real Estate
Principles and Practices
Chapter 14
Leases
© 2010 by South-Western, Cengage Learning
Key Terms
Assignment
Constructive eviction
Demise
Gross lease
Ground lease
Lease
Lessee
Lessor
Net lease
Option clause
Percentage lease
Periodic tenancy
Reversionary interest
Sale-leaseback
Security deposit
Sublet
Surrender and acceptance
Tenancy at sufferance
Tenancy at will
Tenancy for years
© 2010 by South-Western, Cengage Learning
Overview
Leasing advantages
for businesses
Types of leases
Rights and conditions
imposed by a lease
Residential
Commercial
© 2010 by South-Western, Cengage Learning
The Lease
Lease: contract and a
conveyance of real
property
Lessee: tenant
Lessor: landlord
Demise: conveyance of
an estate under lease
“to grant, demise, and
let.”
© 2010 by South-Western, Cengage Learning
The Lease
Reversionary interest:
property reverts to
lessor when lease is
terminated
© 2010 by South-Western, Cengage Learning
Leasehold Interests
1. Tenancy for years:
Definite period of time
Stated expiration date
Not terminated upon death of either party
2. Periodic Tenancy
Specified period to period
No set termination date
Requires notice
30 days
© 2010 by South-Western, Cengage Learning
Leasehold Interests
3. Tenancy at will:
Either party may terminate
Most states require notice
Death terminates the lease
4. Tenancy at sufferance
Holdover tenant: remains in possession
after lease expires
Lessor may evict or create a periodic
tenancy
© 2010 by South-Western, Cengage Learning
Lease Contents
1.
2.
3.
4.
5.
Names
Description
Duration of the lease
Amount of rent
Possession, maintenance,
improvements
6. Liability of the parties
7. Transfer by the lessee
8. Special covenants,
conditions, & provisions
© 2010 by South-Western, Cengage Learning
Termination of a Lease
1. Expiration of the lease:
term expires
Tenancy at will and periodic
tenancy: written notice
Tenancy for years: expires
on termination date
Tenancy at Sufferance: at
any time
© 2010 by South-Western, Cengage Learning
Termination of a Lease
2. Agreement between the
parties: mutual agreement
Surrender and acceptance
3. Breach of condition:
either party breaks the terms
of the lease
Injured party may cancel
© 2010 by South-Western, Cengage Learning
Termination of a Lease
4. Condemnation: Eminent
domain
Compensation to the tenant
Value is the difference
between contract rent and
economic rent
5. Notice: if proper notice is
not given, lessee may be
held for another term
© 2010 by South-Western, Cengage Learning
Termination of a Lease
6. Eviction
Actual eviction: tenant is
dismissed, lessor regains
possession
Unlawful detainer: tenants
failure to move
Distraint: owner’s right to
seize lessee’s personal
property
© 2010 by South-Western, Cengage Learning
Termination of a Lease
6. Eviction
Constructive eviction:
tenant may terminate if
owner interferes with lessee
quiet enjoyment
Rent abatement: tenant
withholds rent
© 2010 by South-Western, Cengage Learning
Lease Provision
Statue of Fraud: lease for
more than one year must
be in writing
Rent customarily paid in
advance
Lessee may enjoy without
interruption or invasion by
lessor
© 2010 by South-Western, Cengage Learning
Lease Provision
Surrender and Acceptance
Unexpired portion of lease
in reconveyed and
accepted
Lessee remains liable if
property is abandoned
© 2010 by South-Western, Cengage Learning
Lease Provision
Assignment & Subletting
Assign: gives remainder
of lease entirely
Assignee: new lessee
Assignor remains liable
unless released by
owner
© 2010 by South-Western, Cengage Learning
Lease Provision
Assignment & Subletting
Sublet: retains interest
and responsibility
Sublessor: original
tenant
Subtenant: new lessee
May sublet all or part
© 2010 by South-Western, Cengage Learning
Lease Provisions
Option Clause
Allows the lessee the
right to renew upon
expiration
© 2010 by South-Western, Cengage Learning
Lease Provisions
Tax Adjustment
Tax participation clause:
lessee agrees to pay all
or stated portion of any
increase
© 2010 by South-Western, Cengage Learning
Lease Provisions
Improvements
Landlord is not required to
make improvements or
alterations
Lessee must have
approval
Trade fixtures
© 2010 by South-Western, Cengage Learning
Lease Provisions
Obligations of the Parties
Uniform Residential Landlord and Tenant Act
Tenant responsibilities
Keep property in clean and
good condition
Normal wear and tear
May not destroy or damage
May not disturb other tenants
Pay rent as agreed
© 2010 by South-Western, Cengage Learning
Lease Provisions
Obligations of the Parties
Uniform Residential Landlord and Tenant Act
Landlord responsibilities
Minimum housing codes
Good repair, safe, livable
condition
Quiet enjoyment
Notice
© 2010 by South-Western, Cengage Learning
Lease Provisions
Security Deposits
Returned upon expiation
with deductions for repairs
One month rent
Rent Control
Ceiling on rent charges
Burden on landlord
© 2010 by South-Western, Cengage Learning
Types of Leases
Net lease: rent includes all
or a portion of the property
expenses
Long term commercial or
industrial
Triple net lease
Gross lease: Rent includes
each tenant’s portion of
expenses
© 2010 by South-Western, Cengage Learning
Types of Leases
Percentage lease: flat fee
plus a % of gross income
Common in shopping
malls
Straight, gross or flat
lease: lessee’s
responsibility limited to the
rental payment
Apartment lease
© 2010 by South-Western, Cengage Learning
Types of Leases
Ground lease: leasing of
unimproved land
Tenant erects the building
Long term
Recreational area
Oil and gas lease
Right to explore
Royalties belong to
landowner
© 2010 by South-Western, Cengage Learning
Types of Leases
Sandwich lease:
Lessor – top
Lessee – middle
Sublessee – bottom
Reappraisal lease:
protects the lessor in a
long term lease
© 2010 by South-Western, Cengage Learning
Types of Leases
Sale-leaseback: property
is sold on the condition the
seller can lease it back
Buyer: lessor
Seller : lessee
Graduated lease: steppedup lease
Rent increases at stated
intervals
© 2010 by South-Western, Cengage Learning
Types of Leases
Index lease: Periodic
increase or decrease in
rent based on a national
index
Air lease: right to occupy
space over a property
© 2010 by South-Western, Cengage Learning