Chapter 16
Georgia Real Estate
An Introduction to the Profession
Eighth Edition
Chapter 16
Real Estate Leases
Key Terms
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assignment
gross lease
leasehold estate
lessee
lessor
net lease
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option clause
quiet enjoyment
reversion
sublessee
sublessor
sublet
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The Leasehold Estate
The lessee is the tenant.
The lessor is the landlord.
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The Leasehold Estate
A lease conveys to the lessee the right to
possess and use another's property for a
period of time.
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The Leasehold Estate
During this time the lessor possesses a
reversion that entitles the lessor to retake
possession at the end of the lease.
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The Leasehold Estate
A lease separates the right to use property
from the property’s ownership.
The property owner is denied use of the
property but receives rent.
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The Leasehold Estate
A tenant's right to occupy
the land and/or buildings is
called a leasehold estate.
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The Leasehold Estate
The two most commonly
found leasehold estates are
the periodic estate and the
estate for years.
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The Leasehold Estate
The periodic estate is one for a definite period
of time with an automatic renewal if not
terminated.
A month-to-month lease is an example of this.
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The Leasehold Estate
An estate for years is a lease with a specific
starting date and a specific ending date.
It can be for any length of time, does not
automatically renew itself, and does not
require notice to terminate.
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The Leasehold Estate
An estate at will is for an indefinite period of
time and can be terminated by either the
landlord or the tenant giving notice.
In Georgia, the notice requirement for the
tenant is 30 days and the requirement for the
landlord is 60 days.
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The Leasehold Estate
A tenancy at sufferance occurs when a tenant
stays beyond the legal tenancy without the
consent of the landlord.
The tenant is called a holdover tenant.
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The Leasehold Estate
No advance notice is required for eviction.
A holdover tenant differs from a trespasser in
that the original entry onto the property was
legal.
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Creating a Valid Lease
As a conveyance, the lease conveys rights of
possession to the tenant in the form of a
leasehold estate.
As a contract, it contains provisions for the
payment of rent.
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Creating a Valid Lease
For a valid lease to exist, it must meet the
usual requirements of a contract:
• The parties must be legally competent
• there must be a mutual agreement
• lawful objective
• sufficient consideration
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Creating a Valid Lease
The main elements of a lease are:
• the names of the lessee and lessor
• description of the premises
• agreement to convey
• provisions for the payment of rent
• starting date and duration of the lease
• signatures of the parties
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Creating a Valid Lease
In Georgia, a lease for a term
longer than one year must be
in writing to be enforceable in
a court.
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Provisions of the Lease
The lease sets forth the agreement between
the tenant and the landlord.
Due to their complexity, commercial and
industrial property leases will require legal
counsel.
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Provisions of the Lease
Term
The beginning and ending of the lease should
be clearly stated along with rights and
methods of termination.
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Provisions of the Lease
Use Restrictions
There can be restrictions such as the number
of occupants, the right to have pets, operation
of the business from the least home, types of
vehicles that can be parked, and so on.
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Provisions of the Lease
Maintenance
The lease should clearly state who is
responsible for the maintenance of the
property.
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Provisions of the Lease
Security Deposit
The security deposit is paid by the tenant as
security for breach of the lease or damage to
the property.
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Provisions of the Lease
Quiet Enjoyment
The tenant has the right to use the property for
the purposes for which they have leased it.
If that right to use is destroyed by the landlord,
the tenant may claim a constructive eviction,
leave the property and have no further
responsibility to pay rent.
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Provisions of the Lease
Disrepair
The tenant may not cause undue harm to the
property.
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Provisions of the Lease
Destruction of the premises
A good lease would recommend that the
tenant have renters insurance and stipulate
that the landlord has no liability for damages
out of their control.
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Landlord – Tenant Laws
The landlord must
maintain the premises in
a fit condition for a living,
and the tenant is to keep
the unit clean and not
damage it.
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Setting Rents
Under a gross lease, the
tenant pays a fixed rent,
and the landlord pays all
the operating expenses of
the property.
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Setting Rents
If a tenant wants a longer lease term, the
lease may have a step up, or graduated rent.
For example, each year the rent per square
foot would increase at predetermined
amounts.
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Setting Rents
Office and industrial leases often include an
escalator or participation clause.
This allows the landlord to pass along to the
tenant increases in property taxes, utility
charges, and maintenance.
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Setting Rents
When a tenant pays for all the property taxes,
insurance, repairs, utilities and so on, in
addition to the base rent, this is called a net
lease.
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Setting Rents
Another system for setting rents is the
percentage lease, where the owner receives a
percentage of the tenant’s gross receipts as
rent.
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Setting Rents
Another way of setting rents on long-term
leases is to create an index lease.
The rent would be indexed to some economic
indicator. If there is inflation, rents increase; if
there is deflation, rents decrease.
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Option Clauses
Option clauses give the tenant the right at
some feature time to purchase or lease the
property at a predetermined price.
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Assignment and Subletting
Unless otherwise provided in the lease
contract, a lessee may assign the lease or
sublet.
An assignment is the total transfer of the
lessee's rights to another person.
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Assignment and Subletting
The assignor remains liable for the
performance of the contract, unless released
in writing by the landlord.
To sublet means to transfer only a portion of
the rights held under a lease.
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Assignment and Subletting
The original lessee is the sublessor.
The sublessee pays rent to the lessee who, in
turn, remains liable to the landlord for rent on
the entire premises.
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Lease Termination
Most leases terminate because of the
expiration of the term of the lease.
A lease can be terminated if the landlord and
the tenant mutually agree.
This should be done in writing.
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Eviction
If a tenant fails to live up to the terms of the
lease agreement, the landlord has grounds for
eviction.
Usually this is for nonpayment of rent, but it
can be for violation of some other aspect of
the agreement.
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Eviction
An actual eviction process begins with the
landlord having a notice served on the tenant
requiring the tenant to comply with the lease
agreement or move out.
If the tenant neither complies nor vacates, the
landlord takes the matter to court.
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Eviction
The court will terminate the
tenant‘s lease rights and
authorize a sheriff to go on
the premises and force the
tenant out.
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Eviction
A lease agreement may also be terminated
through constructive eviction.
This occurs when the landlord does not keep
the premises fit for occupancy.
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Eminent Domain
The government, under its right of eminent
domain, can also terminate a lease, but must
provide just compensation.
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Foreclosure
A mortgage foreclosure can also bring about
the lease termination unless the mortgage
contained a nondisturbance clause.
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Foreclosure
A nondisturbance cause is an agreement of a
lender to not disturb a performing tenant on a
valid lease in the event the lender has to
foreclose.
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