Chapter 7- Leasing and Property Management

Elements of a Valid Lease

The four components required for a lease to be legally binding: Legal Capacity, Legal objective, Offer and acceptance, and Consideration.

Possession

A tenant's right to quiet enjoyment of the rented premises.

Recording Requirement

Leases are typically not recorded unless they run for three years or more, depending on specific state requirements.

Running with the Land

A principle meaning that if an owner sells a property, the new owner must honor the current lease until it expires.

Operation of Law

A reason for discharging a lease without a breach, including instances of bankruptcy, foreclosure, or eminent domain.

Termination by Death

While leases typically do not terminate upon death and are bound by heirs, exceptions include a life estate or tenancy at will.

Termination by Sale

Typically, a lease does not end when a property is sold; the new owner takes over and honors the lease, and the previous owner owes a prorated credit for rent accepted.

Breach of Lease

When a tenant or landlord fails to fulfill lease obligations, which may result in a judgment for past-due rent, damages, or defaults.

Actual Eviction

The legal process a landlord starts when a tenant breaches the lease, becomes an estate at sufferance, and stays beyond the lease terms.

Constructive Eviction

When a landlord breaches the lease, typically by allowing unlivable conditions, enabling the tenant to sue for damages or abandon the lease.

Estate at Sufferance

The status of a tenant who has breached their lease and remains on the premises beyond the agreed terms.

General Agent

A classification typically applied to a property manager who is accountable for fiduciary responsibilities when representing a property owner.

Fiduciary Responsibilities

The legal obligations a property manager owes to a property owner, specifically: care, obedience, loyalty, disclosure, accounting, and confidentiality.

Property Manager

An agent who manages properties on behalf of an owner for compensation, with duties including rent collection, marketing, property maintenance, and accounting.

Property Management Agreement

A contract defining a manager's duties, authority, and responsibilities, including the property description, contract period, owner's responsibilities, compensation, and nondiscrimination policies.

Management Plan

A strategy prepared to address occupancy and rental rates based on the owner’s goals, local real estate market conditions, and the actual property managed.

Financial Reports

Standard accounting documents a property manager may prepare, such as an operating budget, cash flow report, expense report, or profit and loss statement.

Risk Management

The ongoing evaluation of factors such as covering expenses during late rental payments, maintaining a non-discriminatory process, and ensuring insurance against catastrophe.

Lease

An agreement between a property owner (landlord) and a tenant where the owner allows exclusive possession of the property in exchange for rent.

Leasehold estate

The tenant’s right to possess the property for the term of the lease.

Estate for Years

A leasehold estate that contains a defined period with no need to give notice to terminate.

Estate from Period to Period

An indefinite period with no specific expiration date that automatically renews (week to week, month to month, or year to year) unless proper notice is given.

Estate at Will

A leasehold estate for an indefinite period that runs until either the landlord or tenant gives proper notice.

Estate at Sufferance

A situation where a tenant continues possession of the property without the landlord’s permission after a valid lease has ended.

Ground Lease

A lease of the ground with an agreement for the tenant to construct a building on the property; often used in long-term commercial and industrial developments.

Oil and Gas Lease

A lease that allows an oil company to explore resources and typically involves renting the subsurface rights.

Lease Purchase

An arrangement that allows a tenant to rent a property until they are able to purchase the property outright.

Sale and Lease-Back

Allows a property owner to cash out their equity by selling the property and then leasing it back from the new owners.

Gross Lease

A lease where the tenant pays a fixed rent plus utilities while the landlord pays property taxes, insurance, and maintenance.

Net Lease

A lease where the tenant pays all expenses of property taxes, insurance, and maintenance in addition to rent; often used for long-term commercial or industrial leases.

Percentage Lease

Generally used for retail, where the tenant pays a percentage of their gross income as rent in connection with a gross or net lease format.

Variable Lease

A lease that allows for rent increases by the landlord which can be set by future dates.

Covenant of quiet enjoyment

A provision that dictates how and when the property owner may enter the premises to make repairs, respond to emergencies, or show the property to future tenants.

Improvements

Alterations to a property that tenants can only make with the landlord's permission; however, neither the landlord nor the tenant are required to make them.

Security deposits

Funds often required from a tenant to allow the owner to recover losses if the tenant defaults on rent or destroys the property.

Iowa security deposit regulations

Funds must be held in an interest-bearing escrow (trust) account.

Sublease

A transfer to a new tenant where the original tenant remains responsible for the property and the payment of rent; this is only allowed if permitted in the lease.

Assignment

A transfer of all responsibility for the property from one tenant to another tenant, allowed only if stated in the lease.