1. © 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 49 Landlord-Tenant Relationships Chapter 49 Landlord-Tenant Relationships

2. © 2004 West Legal Studies in Business A Division of Thomson Learning 2 Introduction Anyone who rents housing to the public for commercial purposes subjects herself to various state and federal Landlord-Tenant laws. Owner of the property is the LESSOR and Tenant is LESSEE; the contract is called the LEASE. The property interest is called a leasehold estate. Anyone who rents housing to the public for commercial purposes subjects herself to various state and federal Landlord-Tenant laws. Owner of the property is the LESSOR and Tenant is LESSEE; the contract is called the LEASE. The property interest is called a leasehold estate.

3. © 2004 West Legal Studies in Business A Division of Thomson Learning 3 § 1: Creation of the Landlord-Tenant Relationship Lease Agreement can be oral or written (oral may not be enforceable). Lease gives Tenant the temporary right to exclusively possess the property. Sources of Law:  Common Law.  State and Local Statutes, and  The Uniform Residential Landlord and Tenant Act (URLTA) which has been adopted by 1/4 of the states. Lease Agreement can be oral or written (oral may not be enforceable). Lease gives Tenant the temporary right to exclusively possess the property. Sources of Law:  Common Law.  State and Local Statutes, and  The Uniform Residential Landlord and Tenant Act (URLTA) which has been adopted by 1/4 of the states.

4. © 2004 West Legal Studies in Business A Division of Thomson Learning 4 Lease Agreement Form of the Lease:  Must express intent to establish the lease.  Provide for transfer of possession to the Tenant.  Provide for the Landlord’s “reversionary” interest.  Describe the property.  Indicate length of the term, amount of rent, when and where rent paid. Form of the Lease:  Must express intent to establish the lease.  Provide for transfer of possession to the Tenant.  Provide for the Landlord’s “reversionary” interest.  Describe the property.  Indicate length of the term, amount of rent, when and where rent paid.

5. © 2004 West Legal Studies in Business A Division of Thomson Learning 5 Illegality URLTA prohibits clauses requiring Tenants to pay attorney fees in enforcement actions. State statutes prohibit leasing when property is not in compliance with local building codes. Landlords cannot lease in violation of state (gambling) or federal (discrimination) laws. URLTA prohibits clauses requiring Tenants to pay attorney fees in enforcement actions. State statutes prohibit leasing when property is not in compliance with local building codes. Landlords cannot lease in violation of state (gambling) or federal (discrimination) laws.

6. © 2004 West Legal Studies in Business A Division of Thomson Learning 6 Unconscionability The unconscionablity doctrine of the UCC has begun to be followed in some states’ lease laws.  Courts are finding that a clause or even the whole contract may be unconscionable and therefore unenforceable.  Clauses attempting to absolve Landlord from liability for common areas or essential services may be unconscionable. The unconscionablity doctrine of the UCC has begun to be followed in some states’ lease laws.  Courts are finding that a clause or even the whole contract may be unconscionable and therefore unenforceable.  Clauses attempting to absolve Landlord from liability for common areas or essential services may be unconscionable.

7. © 2004 West Legal Studies in Business A Division of Thomson Learning 7 § 2: Parties’ Rights and Duties Trend in the law is to curtail, by contract and real estate law, the immense freedom that Landlords had in the past.  Possession.  Using the Premises.  Maintaining the Premises.  Rent. Trend in the law is to curtail, by contract and real estate law, the immense freedom that Landlords had in the past.  Possession.  Using the Premises.  Maintaining the Premises.  Rent.

8. © 2004 West Legal Studies in Business A Division of Thomson Learning 8 Possession Landlord has a duty to deliver actual physical possession under URLTA or legal right to possession (“American” rule). Tenant’s right to exclusive possession is only subject to Landlord’s limited right to come unto the property. Tenant has a “covenant of quiet enjoyment” by which Landlord promises Tenant’s peace and enjoyment of the property. Landlord has a duty to deliver actual physical possession under URLTA or legal right to possession (“American” rule). Tenant’s right to exclusive possession is only subject to Landlord’s limited right to come unto the property. Tenant has a “covenant of quiet enjoyment” by which Landlord promises Tenant’s peace and enjoyment of the property.

9. © 2004 West Legal Studies in Business A Division of Thomson Learning 9 Eviction Occurs when Landlord:  Deprives Tenant of possession of the leased property; or  Interferes with this use or enjoyment of the property to the extent that Tenant cannot use or enjoy. Constructive eviction occurs when Landlord:  Breaches lease or covenant or quiet enjoyment; and  Makes it impossible for the Tenant to use and enjoy the property. Occurs when Landlord:  Deprives Tenant of possession of the leased property; or  Interferes with this use or enjoyment of the property to the extent that Tenant cannot use or enjoy. Constructive eviction occurs when Landlord:  Breaches lease or covenant or quiet enjoyment; and  Makes it impossible for the Tenant to use and enjoy the property.

10. © 2004 West Legal Studies in Business A Division of Thomson Learning 10 Use of the Premises Tenant’s Duty Not To Commit Waste:  Tenant is liable for destruction or abuse of the property.  Tenant not liable for normal wear and tear or depreciation in value over time. Altering the Premises:  Tenant needs Landlord’s consent to make material alterations.  Installation of fixtures become the property of the Landlord. Whether Tenant can remove depends on state law and consent of Landlord. Tenant’s Duty Not To Commit Waste:  Tenant is liable for destruction or abuse of the property.  Tenant not liable for normal wear and tear or depreciation in value over time. Altering the Premises:  Tenant needs Landlord’s consent to make material alterations.  Installation of fixtures become the property of the Landlord. Whether Tenant can remove depends on state law and consent of Landlord.

11. © 2004 West Legal Studies in Business A Division of Thomson Learning 11 Maintaining the Premises Residential property -- Landlord must furnish premises in habitable condition. Landlord is responsible for maintaining common areas such as stairs, parking lots, elevators and swimming pools. Commercial property -- may still require Tenant to maintain depending on the lease. Case 49.1: Decade 80-1 Ltd v. PDQ Food Stores (1999). Residential property -- Landlord must furnish premises in habitable condition. Landlord is responsible for maintaining common areas such as stairs, parking lots, elevators and swimming pools. Commercial property -- may still require Tenant to maintain depending on the lease. Case 49.1: Decade 80-1 Ltd v. PDQ Food Stores (1999).

12. © 2004 West Legal Studies in Business A Division of Thomson Learning 12 Implied Warranty of Habitability Applies to major (substantial) defects if Landlord knew or should have known about & he had a reasonable time to repair. To determine breach, Courts consider:  Whether Tenant caused damage.  How long defect existed and age of building.  Defects impact on Tenant’s safety and health.  Whether defect contravenes relevant statutes. Case 49.2: Schiernbeck v. Davis (1998). Applies to major (substantial) defects if Landlord knew or should have known about & he had a reasonable time to repair. To determine breach, Courts consider:  Whether Tenant caused damage.  How long defect existed and age of building.  Defects impact on Tenant’s safety and health.  Whether defect contravenes relevant statutes. Case 49.2: Schiernbeck v. Davis (1998).

13. © 2004 West Legal Studies in Business A Division of Thomson Learning 13 Tenant’s Remedies If Landlord breaches the warranty of habitability, depending on state law, Tenant may:  Withhold rent -- put in escrow.  Repair and Deduct -- notify, repair, and deduct repair from rent.  Cancel the Lease -- must be constructive eviction or breach of habitability.  Sue for Damages -- difference between what paid for and what received. If Landlord breaches the warranty of habitability, depending on state law, Tenant may:  Withhold rent -- put in escrow.  Repair and Deduct -- notify, repair, and deduct repair from rent.  Cancel the Lease -- must be constructive eviction or breach of habitability.  Sue for Damages -- difference between what paid for and what received.

14. © 2004 West Legal Studies in Business A Division of Thomson Learning 14 Rent Rent is Tenant’s payment to the Landlord for the Tenant’s occupancy or use of the Landlord’s real property.  Payment based on agreement, custom, state statute, waiver. Security Deposits.  A deposit by Tenant that Landlord may retain for non-payment of rent or damage to premises.  URLTA has specific provisions as to when it may be kept and when it must be returned. Rent is Tenant’s payment to the Landlord for the Tenant’s occupancy or use of the Landlord’s real property.  Payment based on agreement, custom, state statute, waiver. Security Deposits.  A deposit by Tenant that Landlord may retain for non-payment of rent or damage to premises.  URLTA has specific provisions as to when it may be kept and when it must be returned.

15. © 2004 West Legal Studies in Business A Division of Thomson Learning 15 Rent [2] Late Charges.  Legal, if reasonable. Rent Escalation.  Not unless provided in lease, or at termination of lease and beginning of new lease. Property taxes.  Landlord is usually responsible for property taxes. Late Charges.  Legal, if reasonable. Rent Escalation.  Not unless provided in lease, or at termination of lease and beginning of new lease. Property taxes.  Landlord is usually responsible for property taxes.

16. © 2004 West Legal Studies in Business A Division of Thomson Learning 16 Landlord’s Remedies Landlord’s Lien on all Tenant’s personal property. Lawsuit to Recover Possession -- ejectment or unlawful detainer. Landlord’s Duty to Mitigate Damages.  Must make reasonable efforts to re-rent the premises. Landlord’s Lien on all Tenant’s personal property. Lawsuit to Recover Possession -- ejectment or unlawful detainer. Landlord’s Duty to Mitigate Damages.  Must make reasonable efforts to re-rent the premises.

17. © 2004 West Legal Studies in Business A Division of Thomson Learning 17 § 3: Liability For Injuries on the Premises Landlord is liable to Tenants and Licensees (Tenant’s guests) based on who has the right to control the area where the injury occurred. Landlord is liable for injuries caused by defects in common areas. “Attractive nuisance” doctrine for children and an unfenced swimming pool. Landlord is liable to Tenants and Licensees (Tenant’s guests) based on who has the right to control the area where the injury occurred. Landlord is liable for injuries caused by defects in common areas. “Attractive nuisance” doctrine for children and an unfenced swimming pool.

18. © 2004 West Legal Studies in Business A Division of Thomson Learning 18 Liability for Injuries [2] If Landlord makes any repairs, they must be done with reasonable care. LL may be liable for injuries caused by crimes or third persons when reasonably foreseeable. Exculpatory clauses may be unenforceable if injury results from violation of statutory duty. If Landlord makes any repairs, they must be done with reasonable care. LL may be liable for injuries caused by crimes or third persons when reasonably foreseeable. Exculpatory clauses may be unenforceable if injury results from violation of statutory duty.

19. © 2004 West Legal Studies in Business A Division of Thomson Learning 19 Liability For Injuries [3] Tenant’s Liability?  Tenant has a duty to maintain safe conditions in those areas under her control.  In commercial leases, both Landlord and Tenant may be responsible and liable for same area. Tenant’s Liability?  Tenant has a duty to maintain safe conditions in those areas under her control.  In commercial leases, both Landlord and Tenant may be responsible and liable for same area.

20. © 2004 West Legal Studies in Business A Division of Thomson Learning 20 § 4: Transferring Rights to Leased Property Transferring Landlord's Interest.  Landlord may sell any and all of his rights in the real property.  New owner buys “subject to the lease,” if lease is recorded. Transferring Tenant’s Interest.  Landlord’s consent may or may not be required by statute or the lease itself. Transferring Landlord's Interest.  Landlord may sell any and all of his rights in the real property.  New owner buys “subject to the lease,” if lease is recorded. Transferring Tenant’s Interest.  Landlord’s consent may or may not be required by statute or the lease itself.

21. © 2004 West Legal Studies in Business A Division of Thomson Learning 21 Transferring Rights [2] Transferring the Tenant’s Interest (cont’d)  Assignments: Tenant transfers his entire interest in the lease to a third person. Original Tenant is not released from liability under the lease.  Subleases: Tenant transfers all or part of his interest in the lease for a shorter period of time than the lease. Original Tenant is not relieved of liability under the lease. Transferring the Tenant’s Interest (cont’d)  Assignments: Tenant transfers his entire interest in the lease to a third person. Original Tenant is not released from liability under the lease.  Subleases: Tenant transfers all or part of his interest in the lease for a shorter period of time than the lease. Original Tenant is not relieved of liability under the lease.

22. © 2004 West Legal Studies in Business A Division of Thomson Learning 22 § 5: Termination or Renewal of the Lease Leases can be terminated by:  Notice—how much notice depends on lease or term.  Release and Merger—Tenant becomes owner, needs writing.  Surrender By Agreement—Parties agree to terminate early, need writing.  Case 49.3: Brock Enterprises Ltd. V. Dunham’s Bay Boat Co. (2002).  Abandonment—Tenant abandons; automatic termination, no writing required. Leases can be terminated by:  Notice—how much notice depends on lease or term.  Release and Merger—Tenant becomes owner, needs writing.  Surrender By Agreement—Parties agree to terminate early, need writing.  Case 49.3: Brock Enterprises Ltd. V. Dunham’s Bay Boat Co. (2002).  Abandonment—Tenant abandons; automatic termination, no writing required.

23. © 2004 West Legal Studies in Business A Division of Thomson Learning 23 Termination of Lease [2] Termination of Lease (cont’d):  Landlord takes possession -- considered acceptance of surrender.  Forfeiture -- clause in lease which makes termination automatic upon the happening of a condition.  Destruction of the Property -- from some cause outside Landlord’s control. Termination of Lease (cont’d):  Landlord takes possession -- considered acceptance of surrender.  Forfeiture -- clause in lease which makes termination automatic upon the happening of a condition.  Destruction of the Property -- from some cause outside Landlord’s control.

24. © 2004 West Legal Studies in Business A Division of Thomson Learning 24 Renewal of the Lease Lease may provide.  usually requires notification on intent to renew in advance of termination. Parties may agree to renew. Tenant stays on property after lease ends and does not renew – trespasser. Lease may provide.  usually requires notification on intent to renew in advance of termination. Parties may agree to renew. Tenant stays on property after lease ends and does not renew – trespasser.

25. © 2004 West Legal Studies in Business A Division of Thomson Learning 25 Law on the Web Tenant-Net on Landlord-Tenant relationships. Legal Research Exercise on the Web. Tenant-Net on Landlord-Tenant relationships. Legal Research Exercise on the Web.