Real Estate Contracts and Leases Review

A complete set of practice flashcards covering basic contract law, specific real estate contracts like purchase agreements and options, and various lease structures including gross, net, and percentage leases.

What is the legal definition of a contract?

A contract is an agreement between two or more parties to do, or not to do, something, serving as a legally enforceable promise with law-provided remedies for breaches.

What is the difference between a bilateral and a unilateral contract?

In a bilateral contract, each party makes a binding promise to the other (a promise for a promise), whereas in a unilateral contract, one party makes a promise to induce a second party to act.

Compare executory and executed contracts.

An executory contract is one in which one or both parties have not yet performed their obligations, while an executed contract is one where both parties have fully performed their contractual duties.

What is the difference between a void and a voidable contract?

A void contract lacks one or more formation requirements or is defective, while a voidable contract can be terminated by one party without liability due to lack of capacity, fraud, or duress.

What are the four essential elements required for a contract to be valid and enforceable?

The essential elements are mutual agreement, contractual capacity (legal ability), lawful and possible objective, and consideration.

What is the contractual status when an adult enters into a contract with a minor?

The contract is voidable by the minor only; the minor can disaffirm the contract at any time before turning $18$ or within a reasonable time thereafter, while the adult cannot disaffirm it.

How are contracts affected if a person is declared incompetent by a court?

Any contract they enter into is considered void and unenforceable by either party; it must be signed by a court-appointed guardian or someone with power of attorney to be enforceable.

What is the purpose of the statute of frauds in real estate?

It requires certain contracts, such as purchase agreements, options, and brokerage agreements stipulating commission, to be in writing and signed to be enforceable.

What is an attorney-in-fact?

An attorney-in-fact is a person authorized via a power of attorney to act as another person's agent to the extent specified in the document.

What does the Uniform Electronic Transactions Act provide?

It provides a legal framework making electronic signatures and records legally equivalent to paper contracts and manual signatures in government or business transactions.

What is a counteroffer?

A counteroffer is a change to the terms of the original offer, which acts as a rejection of the original offer and the creation of a new offer where the roles of offeror and offeree are reversed.

What are the ways a contract can be discharged?

A contract can be discharged through full performance, mutual agreement to rescind, partial performance, impossibility of performance, or abandonment.

Define rescission and restitution.

Rescission is a mutual agreement to terminate all contractual obligations; restitution is the return of any consideration to the respective parties.

What is the legal common remedy for a breach of contract involving unique goods like real property?

Specific performance, which is a court order requiring the breaching party to perform the obligations under the terms of the contract.

What is the difference between assignment and novation?

Assignment involves transferring rights or interests under a contract to another person, while novation is the substitution of a new contract for an earlier one, relieving the original party of liability.

What is equitable title?

Equitable title is a limited ownership interest in property created upon the execution of a valid purchase agreement, with actual legal title transferred later at closing.

What is a binder (or letter of intent)?

A binder is a document that serves as a roadmap for the creation of a purchase agreement but is not legally binding.

Is earnest money required for a valid purchase agreement?

No, earnest money is a pledge to show a buyer is serious, but it is not one of the essential elements necessary to form a valid purchase agreement.

Does an "as-is" clause relieve a licensee of disclosure duties?

No, an "as-is" clause does not relieve the seller or listing agent of the obligation to disclose known material defects about the property.

What is an option contract?

A unilateral contract where the optionor gives the optionee the right to buy or lease property at a specified price within a limited time, without the obligation to do so.

What is a right of first refusal?

A right that gives someone the first opportunity to buy a property only after the owner receives a bona fide offer from a third party, matching those same terms.

Define a gross lease.

A lease common in residential settings where the tenant pays a fixed rent and the landlord pays all ownership expenses, such as taxes, insurance, and repairs.

What are the different types of net leases?

A single net lease requires the tenant to pay one ownership expense; a net-net (double net) lease requires two; a triple net (net-net-net) lease requires the tenant to pay property taxes, insurance, and maintenance/operating expenses.

What is a percentage lease?

A lease used for retail space where the tenant pays a base rent plus a percentage of gross sales over a specific breakpoint.

What is the covenant of quiet enjoyment?

A guarantee that protects a tenant from interruptions by the property owner without the tenant's consent, requiring reasonable notice before entry except in emergencies.

Distinguish between lease assignment and sublease regarding liability.

In an assignment, the assignee has primary liability and the assignor has secondary liability; in a sublease, the original tenant retains full legal responsibility for paying the landlord.