Unit 17 Leases Notes

Unit 17: Leases – covers essential provisions of leases and landlord-tenant issues.
Real estate professionals should be knowledgeable about the local rental market to assist prospective buyers/investor-buyers and to manage their own portfolios.

Explain the essential elements of leasehold interests.
Describe the essential terms of a lease agreement.
Distinguish the various types of leases.
Explain the means by which the lease may be terminated and discharged and the remedies available to the parties for its breach.

Estate for years: continues for a definite period.
- Doesn’t have to be for a full year
- Definite beginning and Definite ending
Estate from period to period: indefinite duration (periodic tenancy).
- Automatically self renewing
- This type of lease typically requires a notice period for termination, allowing either party to end the lease without needing to wait for a fixed term to expire.
Estate at will: tenant has the right to possess the property with the landlord’s consent for an unspecified or uncertain term.
- There is no definite initial period
- terminates at the death of either party
- rarely used in a written agreement and is viewed skeptically by the courts
Estate at sufferance: occurs when the tenant remains in possession after lawful lease termination without the landlord’s permission. TQ

Gross lease
- Tenant pays a fix rate
- Typical for residential
Net lease
- Tenant pays all or most expenses associated with the property, including taxes, insurance, and maintenance costs.
- Commercial leases
Percentage lease
- Pay a base rent plus a percentage that is generally gross sales
- The percentage typically ranges from 1% to 10%, depending on the type of business and the lease agreement terms.
Variable lease
- Can be net, gross, or percentage
- Will change over time
- Index lease will be tired to an external economic factor
Ground lease
- Leasing just the dirt
- Usually involves separate ownership of the land and the buildings
Oil and gas lease
- Lease someone the right to drill for oil and or gas on your property
- This type of lease often includes specific provisions regarding royalty payments, duration of the lease, and obligations for site restoration after drilling operations cease.
Lease purchase
- Leasing for a period of time, at the end of that time you promise to purchase it for “X“ amount
- Guaranteed purchase at the end of lease
Sale-and-leaseback
- Primarily commercial
- Property owner sells the property and then lease it back for an agreed period and rental

The lease doesn’t terminate if the party dies or the property is sold. Unless there is specific verbiage in the lease.

Breach
- If a tenant breaches the lease agreement, the landlord may have the right to terminate the lease and seek eviction, depending on the severity of the breach and local landlord-tenant laws.
  - Actual Eviction is the legal process by which a landlord removes a tenant from the rental property, typically after court proceedings have determined the tenant has violated the lease terms.
  - Constructive Eviction is when a landlord fails to maintain a habitable environment, thereby forcing the tenant to leave the premises, despite the lease still being in effect.
Protenant Legislation
Fair Housing and Civil Rights Laws

Leases define and transfer possession rights, create ongoing obligations, and assign remedies for breaches.
Understanding lease types helps in evaluating financial implications, risk, and cash flow for property investments.
Civil rights and fair housing considerations govern allowable terms and enforcement related to tenancy and eviction processes.
Legal controls (e.g., “Protenant Legislation” and Fair Housing laws) influence how leases are drafted, terminated, and enforced.

Property rights: leasehold as a non-ownership but possessory interest controlled by contract.
Contract law: essential elements (capacity, objective, offer/acceptance, consideration) underpin lease formation.
Risk management: lease provisions (possession, maintenance, destruction, assignment) shape responsibilities and risk allocation.
Ethics and policy: civil rights laws affect leasing practices and remedies for breach.

Leasehold estate types define how long and under what conditions a tenant may possess property.
A valid lease requires capacity, a lawful objective, an offer and its acceptance, and consideration.
Core lease provisions govern possession, permitted use, duration, security, improvements, accessibility, maintenance, destruction, and subleasing.
Leases come in several types (gross, net, percentage, variable, etc.), each with different expense allocations and risk profiles.
Discharge of a lease can occur through breach leading to actual or constructive eviction, subject to protective legislation and civil rights laws.

Leasehold: tenant’s right to possess real estate for the lease term.
Estate for years: definite term.
Periodic tenancy (estate from period to period): ongoing term; renews periodically.
Tenancy at will: possession with landlord consent for an indefinite term.
Tenancy at sufferance: possession after lease termination without permission.
Gross lease: landlord covers most if not all operating expenses.
Net lease: tenant covers some operating expenses (e.g., taxes, insurance, maintenance).
Percentage lease: rent based on a percentage of tenant's sales.
Ground lease: lease of land typically for a long term, with the building owner retaining improvements.
Oil and gas lease: lease terms related to extraction rights.
Lease purchase: option or obligation to purchase under lease terms.
Sale-and-leaseback: property sold to an investor and leased back to the seller.
Actual eviction: removal of tenant for breach where court exerts eviction.
Constructive eviction: landlord’s failure to maintain or other conditions that effectively force tenant to leave.
Protenant Legislation: regulatory framework affecting tenant rights (as noted in the material).
Fair Housing and Civil Rights Laws: laws prohibiting discrimination and guiding tenancy practices.