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Relationship of Landlord and Tenant Learning Objectives  Describe the basic concepts and terminology of the relationship between landlord and tenant 

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Presentation on theme: "Relationship of Landlord and Tenant Learning Objectives  Describe the basic concepts and terminology of the relationship between landlord and tenant "— Presentation transcript:

1 Relationship of Landlord and Tenant Learning Objectives  Describe the basic concepts and terminology of the relationship between landlord and tenant  List and define the non-freehold estates  List the essential provisions of the North Carolina Residential Rental Agreements Act  List the essential provisions of the North Carolina Tenant Security Deposit Act  List the types and characteristics of leases  Describe the essential and common provisions of leases  Describe the application of the Statute of Frauds to leases  Define the rights of the parties to a lease  Describe the requirements for recording leases © OnCourse Learning. All Rights Reserved.

2 Relationship of Landlord and Tenant Definitions  A lease: Contract in which a tenant receives the right to use and possess property for a specific period of time in exchange for rent  Lease, let, and demise: All describe the conveyance of a possessory interest in property by a lease  Landlord: Owner of the property  Lessor: One who gives the lease  Lessee or tenant: One who receives the lease

3 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Estates and Contracts  In the creation of a rental estate, two concepts are involved: Concept of estates: An essential part of understanding rental estates Can vary widely in the quantity and quality of interest conveyed in a real estate transaction Contractual law: Duty of each party is related to the other party’s performance

4 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Residential Rentals Agreement Act  Establishes duties of landlord & tenant: Allows private (non-real estate licensees) landlords certain options not available to agents  Obligations of landlord and tenant: Mutually dependent: One party fails to fulfill his duties, the other is excused from responsibility. Constructive eviction - tenant is excused from his responsibility: If the landlord fails to perform his duty, tenant may vacate the premises and withhold rent, regardless of the remaining term Tenant cannot remain in property and withhold rent

5 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Residential Rentals Agreement Act  Landlord’s major duty is to provide premises that are fit for human habitation including: Complying with building codes Maintaining and repairing common areas Repairing utilities Maintaining and repairing provided appliances  Tenant’s primary statutory duties are to: Maintain the individual living unit by keeping the unit safe and clean Properly dispose of trash Keep plumbing fixtures clean Be financially responsible for any destruction, defacement, or damage

6 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Residential Rentals Agreement Act  Tenant remedies for breach by landlord: If a landlord fails to provide a habitable rental unit, a tenant can: Bring action against the landlord in court for damages, including the recovery of rent paid while the property was uninhabitable Bring action to require the correction of defects in the property May NOT withhold rent while remaining in property Constructive eviction: They are excused from completing the term of the lease May move out and withhold rent

7 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Residential Rentals Agreement Act  North Carolina has typically applied the law of negligence differently to the occupied premises and common areas: Landlord is responsible for maintaining the common areas Potentially liable for injury occurring in these areas, especially if negligence can be shown Traditionally, the landlord was not liable for the interior of the rental unit but recent changes in the law may expose the landlord to more liability

8 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Residential Rentals Agreement Act  Retaliatory eviction statute: Protects tenants in asserting their rights, such as requesting repairs or joining a tenant’s union Provides an automatic defense from eviction for up to one year from any such event

9 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant North Carolina Tenant Security Deposit Act  Sets limitations upon the holding of security deposits  Only applies to residential property  Handling of deposits in accordance with the Act: Place funds in a North Carolina bank or savings and loan trust account and notify the tenant of the bank’s location or Guarantee the return of the funds with a performance bond and notify the tenant of the bonding company’s name (only non-real estate licensee may use) Real estate agents who are landlords are only allowed to use the trust account method

10 Relationship of Landlord and Tenant North Carolina Tenant Security Deposit Act  Permitted used of the deposit money are limited to: Damage to the unit Non-fulfillment of the rental period Unpaid rent Court costs of eviction Costs of re-rental IF the tenant breaches the lease  Landlord or broker must account for and/or refund the funds within 30 days of the end of the lease  Landlord or broker may not use Security Deposit in the trust account while tenant still occupies property  Non-licensed landlord may use funds secured by bond in any way he chooses at any time he chooses since tenant’s deposit is protected by a bond © OnCourse Learning. All Rights Reserved.

11 Relationship of Landlord and Tenant North Carolina Tenant Security Deposit Act  Deposit Amounts: Amounts that can be collected for security deposit are related to the period of the lease: Weekly, the maximum deposit is two weeks’ rent Monthly, a month and a half’s rent Greater than one month, two month’s rent may be collected Landlords may also require a reasonable non-refundable pet deposit Disagreements about what is normal wear and tear are common, but may be minimized by: Explaining what is expected of tenants before occupancy Providing written explanation of expectations Having property condition report completed before or at time of occupancy © OnCourse Learning. All Rights Reserved.

12 Relationship of Landlord and Tenant North Carolina Tenant Security Deposit Act  Residential eviction remedies for landlords are limited in the following ways: Prohibited from peaceable self-help, which includes: Locking tenants out Shutting off their utilities Seizing the tenant’s personal property Only available remedy is to seek judicial eviction, otherwise known as actual eviction or summary ejectment  Discrimination and sexual harassment: Federal and state laws prohibit discrimination against tenants based on race, color, religion, sex, handicap, familial status, or national origin North Carolina also prohibits sexual harassment of a lessee or prospective tenant by a lessor or lessor’s agent

13 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant North Carolina Tenant Security Deposit Act  Rights of tenants in public housing: Tenants in public housing have a special entitlement to continued occupancy, which may not be suddenly terminated Tenants are entitled to due process under federal and state constitutions

14 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Law Protecting Tenant in a Foreclosure Situation  Pertains to foreclosures involving federally related mortgages or any residential rental property: The purchaser must honor bona fide lease of the tenant If the purchaser intends to occupy as a primary residence the lease can be terminated by giving tenant at least 90 days notice to vacate  North Carolina law allows the tenant of residential property of less than 15 units to terminate lease with 10-day notice after receiving notice of foreclosure

15 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Vacation Rental Act  Applies to any landlord or agent who rents vacation, recreation, or leisure property for periods of less than 90 days: Exempts hotels, motels, business purposes, or short-term temporary residences for individuals with no other permanent residence

16 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Vacation Rental Act  Vacation rental agreements must be in writing: Oral agreements are not enforceable  A tenant must accept a vacation rental agreement in one of the following ways: By signing the agreement By paying the landlord or broker a part of the consideration or security deposit AFTER the tenant receives a copy of the written agreement By taking possession of the property AFTER receiving a copy of the agreement

17 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Vacation Rentals Act  Failure to get the agreement in writing is considered an unfair trade practice: The broker’s penalties can be steep Damages may include: Treble damages Civil penalties Attorney fees

18 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Vacation Rentals Act  Procedures for rents and deposits: The landlord must hold deposit in a trust account Bond option is not permitted May collect advance payments from the tenant May disburse up to 50% of these advance payments (Excluding Security Deposit) prior to occupancy Has 45 days to account for deposit funds after the end of the vacation rental Deposit funds can be used for long distance telephone or cable charges which are the tenant’s responsibility The landlord may charge tenant reasonable fees for making, transferring, or canceling the tenancy No other fees may be charged

19 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Tenant Protection When Property is Sold  A landlord who cannot make the property available to a tenant in a fit and habitable condition must: Substitute a reasonably comparable property or Refund the tenant’s payment  Landlords voluntarily selling or transferring property: Must disclose to purchasers the existence of any leases ending within 180 days after transfer of title The grantee takes the property subject to these leases Inform tenants of their rights under the Act after the sale

20 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Tenant Protection When Property is Sold  Tenants not protected by the Act: One whose lease ends after 180 days One whose tenancy is due to involuntary transfer Receive full refund minus some allowable expenses  New owners of transferred properties must: Honor all leases ending within 180 days Notify each tenant of property transfer in writing Inform each tenant of his rights: To occupy or not occupy property To receive or not receive refund

21 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Expedited Eviction  The act provides for expedited eviction for tenancies of 30 days or less when such tenants have breached the agreement. A 4-hour minimum notice is required. Examples of such a breach include: Destroying property Exhibiting loud and disruptive behavior Holding over beyond the end of the agreement  This expedited eviction procedure must not be abused: Abuse can result in severe penalties including: Civil penalties Treble damages Possible criminal prosecution

22 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Mandatory Evacuation  The act entitles a tenant forced to evacuate a vacation rental by proper state or local authorities to a prorated refund: Exception: Landlord/agent has offered “interruption” insurance meeting these requirements: North Carolina Department of Insurance approved Policy cost 8% or less of the total rental amount

23 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Payment of Commission to Travel Agents  Travel agents must only introduce the tenant to the property manager  Such commissions may only be paid to a travel agent within the normal practice of their duties  They cannot be paid the commission until after the lease is completed

24 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Non-Freehold Estates  Estate for years: Must be for a definite period of time Expires automatically  Estate from period to period: Also called a periodic tenancy Automatic renewals at the end of each period Estate will renew automatically if neither party gives notice to terminate during the prescribed time period  Estate at will: Possession for the tenant is with permission Estate can be terminated at will by either party by simply giving the other party notice Payment of rent converts this to a periodic estate

25 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Non-Freehold Estates  Estate at sufferance: Lowest estate in real property Tenant originally had lawful possession Right to possession was terminated Tenant at Sufferance (holdover tenant) differs from trespasser as he entered legally The only reason the tenant is still in possession is that he/she has not yet been evicted

26 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Types of Leases Primary classification is determined by which party pays expenses  Gross lease : Lessor pays all costs of operating and maintaining the property Lessor pays real property taxes, insurance, maintenance, etc. Most residential leases are gross leases  Net lease: Lessee agrees to pay some or all costs and expenses associated with the property including such things as real estate taxes and assessments, maintenance, insurance, and utilities

27 Relationship of Landlord and Tenant Types of Leases Other methods of classifying leases  Fixed rental (flat or gross): Rent amount does not change during rental period  Percentage lease: Fairly low fixed rent plus amount based on percentage of lessee’s gross sales volume Often used with leases for retail businesses  Graduated lease: Rental amount changes (usually increases) periodically Amount of change is specified in contract  Index lease: Rental amount is changed in proportion to changes in the Consumer Price Index (CPI) or other similar indexes © OnCourse Learning. All Rights Reserved.

28 Relationship of Landlord and Tenant Types of Leases Other methods of classifying leases  Full service leases: Common in office buildings and shopping centers Each tenant pays: A base rent A portion of the operating expenses for the building and common areas  Ground lease: Lease of unimproved land Normally contains a provision that a building will be constructed on the land by the lessee Lease should always address the disposition of the improvements at the lease’s termination © OnCourse Learning. All Rights Reserved.

29 Relationship of Landlord and Tenant Types of Leases Other methods of classifying leases  Mineral lease: Right to search for and mine minerals during the lease period Must be in writing, regardless of the duration, to comply with the Statute of Frauds

30 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Types of Leases Other methods of classifying leases  Sale and leaseback: Property owner sells a property to an investor Investor agrees to immediately lease the property back to the seller Frees seller’s capital while allowing his continued possession of property Another advantage to the seller is that lease payments are fully deductible

31 Relationship of Landlord and Tenant Common Lease Provisions  Essential provisions: Mutual agreement to the terms of the contract Legal capacity to contract The land identified clearly Essential aspects of the agreement (rent, occupancy dates, terms, etc.) Supported by legal consideration Lawful objective  Other optional but common provisions: Landlord may restrict the use of a rental unit Lessee may want to make a specific use a condition of the lease Prohibit the use, storage, or discharge of hazardous substances Removal of certain fixtures and the return of the premises to its original condition © OnCourse Learning. All Rights Reserved.

32 Relationship of Landlord and Tenant Common Lease Provisions  Other optional but common provisions: Landlord may restrict the use of a rental unit Lessee may want to make a specific use a condition of the lease Prohibit the use, storage, or discharge of hazardous substances on the premises Removal of certain fixtures and the return of the premises to its original condition Responsibility for repairs on commercial or industrial property depends on the type of property and specific lease provisions Upkeep should be specifically addressed Up fitting improvements © OnCourse Learning. All Rights Reserved.

33 Relationship of Landlord and Tenant Common Lease Provisions  Other optional but common provisions Assignments and subleases: Assignment is the total transfer of the lessee’s entire remaining interest in the lease Subletting is essentially the making of a new lease in which the lessee also becomes a “sublessor” who has rented the premises to a “sublessee” Allowable if not prohibited by lease Default Renewal of lease Option to purchase Right of first refusal Landlord’s right to enter premises © OnCourse Learning. All Rights Reserved.

34 Relationship of Landlord and Tenant Common Lease Provisions  Major aspects of NCAR’s Residential Rental Contract: The names of the lessor and lessee appear at the top of the form The duration of the initial term of the contract is given The period of the contract and specific starting and ending dates are given The due dates of the first and subsequent rental payments are set forth The amount of rent and the period for paying rent (yearly, monthly, weekly) are specified Late payment fees are specified

35 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Common Lease Provisions  Major aspects of NCAR’s Residential Rental Contract: The amount of security deposit and the name of the bank that will hold the deposit are specified Tenant responsible for paying the returned check fees for his checks returned for insufficient funds Number and type of allowed pets and the non-refundable pet deposit is specified Permitted occupants in addition to the tenant are named Landlord’s right to enter premises

36 Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 1.This paragraph describes what is to happen at the end of this initial term. The lessor or lessee can give notice to terminate. If notice is not given, the initial term is then modified to a shorter period-to-period tenancy 2.Informs the tenant when the first and subsequent rental payments will be due and that the tenant shall pay the rent on those days without notice, demand, or deduction 3.Informs the tenant that a late payment fee will be due if rent is not paid by midnight on the fifth day after it is due. Tenants will also be responsible for paying returned check fees for each check returned for insufficient funds 4.Clearly explains how the tenant security deposit must be handled and how and when it may be used or disbursed as dictated by the North Carolina Tenant Security Deposit Act © OnCourse Learning. All Rights Reserved.

37 Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 5.Tenant’s obligations include: Using the premises for lawful residential purposes Refraining from disturbing other tenants or creating a nuisance Keeping the premises clean, safe, and sanitary Disposing of all waste in compliance with all ordinances Using all systems and appliances properly and safely Avoiding defacing or destroying the property Paying all utility bills billed directly to him Remaining in property for the lease term

38 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 6.Landlord’s obligations include: Complying with building and housing codes Providing and maintaining fit and habitable premises by making appropriate repairs Maintaining safe and clean premises Promptly repairing all systems and appliances after receiving actual written notification from tenant

39 Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 7.Utilities bills/service contracts: Stipulates who will pay the utilities and other service obligations 8. Smoke detectors and carbon monoxide alarms: Landlord will provide operable smoke/carbon monoxide detectors Landlord will replace batteries in smoke/carbon monoxide detectors at beginning of the lease term Tenant will be responsible for replacing batteries during the term Landlord shall replace/repair within 15 days of notification 9.Tenant agrees to comply with reasonable rules and regulations as established by the landlord through his agent © OnCourse Learning. All Rights Reserved.

40 Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 10.Landlord may enter property: To inspect the premises To ensure tenant’s compliance with the terms of the rental contract Make repairs or improvements: At reasonable times After making an appointment, if required 11. Tenant’s responsibility for damages and restitution for damages beyond normal wear and tear are set forth

41 Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 12.Pets: May be allowed for a reasonable pet fee. Pet fee is non-refundable May not be allowed at all Pet fee not subject to trust account regulations 13.Alterations: Done only with the landlord’s written consent Done at the tenant’s expense 14.Only the tenant and any named occupants can use the premises as a residence 15.The tenant warrants the truth of facts provided on rental application © OnCourse Learning. All Rights Reserved.

42 Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 16. Tenant duties upon termination: Must leave property cleaned, swept, and in the same condition as when he took possession Shall remove all personal property, secure doors and windows, disconnect any utility services and pay outstanding utility bills Must return the keys and provide the landlord an address where the security deposit may be returned if there are no damages or other legitimate reasons for keeping the security deposit

43 Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 17.Tenant Default: In event of tenant fails to pay the rent or fails to perform any other obligation Landlord is entitled to possession: Through the summary ejectment process or If tenant relinquishes the right voluntarily Landlord is entitled to recovery of legal fees Landlord can accept partial rental payment Default shall terminate the lease and the tenant’s right to possession Landlord can dispose of the tenant’s personal property. State law and the value of these personal possessions often dictates the landlords options © OnCourse Learning. All Rights Reserved.

44 Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 18.Landlord Default: Tenant must notify landlord in writing of alleged default by the landlord Tenant must give the landlord a reasonable time to correct default Absent willful negligence: Is prohibited from collecting secondary or consequential damages

45 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 19.Landlord has the right to terminate the tenancy subject to provision of the bankruptcy code 20.It is the tenant’s responsibility to insure his personal property and the landlord is released of liability for injury of tenant and other occupants unless such injury is caused by landlord’s or his agent’s negligence 21.Landlord can engage an agent to manage the property 22.Landlord and tenant acknowledge that there may be minor inaccuracies in the form 23.Landlord is given the authority to comply with changes in laws or statues that occur after execution of the lease

46 Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 24.Landlord has the option to terminate the lease in the event of condemnation or damage by fire or other casualties 25.Assignment or Subletting of the lease by the tenant: Assignment: Remainder of the term is transferred without reversion to the original lessee Subletting: Lease is transferred but the remainder of term reverts to the original lessee Both are prohibited by this provision unless contract modified and agreed to by both parties © OnCourse Learning. All Rights Reserved.

47 Relationship of Landlord and Tenant Provisions of NCAR’s Residential Rental Contract 26.A waiver of any breach of this contract cannot be construed as a waiver of any future breaches 27.All parties listed as tenants shall be held jointly and severally liable 28.Itemizes addenda, any additional provisions, and provides for lead-based paint disclosure and disclosure that the agent represents the landlord 29.Tenant acknowledges having inspected property or having the right to inspect before occupancy 30.Requires notices to be sent to tenant at property address and to landlord at address where rental payment is delivered 31.Lease is signed by the tenant and the agent representing the landlord. The tenant, the landlord, and the agent each receive a counterpart 32.This document represents the entire agreement between the parties © OnCourse Learning. All Rights Reserved.

48 Relationship of Landlord and Tenant Landlord’s Implied Covenant of Quiet Enjoyment  Promise that the lessee will not be disturbed in his use of the property because of a defect in the lessor’s title  Every lease implies such a covenant  The covenant protects the tenant against claims arising from the landlord, the landlord’s agents, and/or anyone whose title is superior to that of the landlord  Actual or constructive eviction of the tenant by any of the parties breaches this covenant © OnCourse Learning. All Rights Reserved.

49 Relationship of Landlord and Tenant Termination of Leases  Expiration of lease term in an estate for years is automatic. No notice is required by the lessor to the lessee or vice versa.  A lease, just as any executory contract, can be terminated by the agreement of the parties. The release by each party of the other provides the consideration for the agreement to terminate.  If the lessor or lessee fails to live up to their respective duties, a breach of condition will terminate the lease  Condemnation under the power of eminent domain can cause a lease to terminate: Under total condemnation, lessee is entitled to compensation from the lessor for the remaining value of their interest Partial condemnation will provide the lessee with the option of terminating the lease or possession of the remainder of the premises at a reduced rent © OnCourse Learning. All Rights Reserved.

50 Relationship of Landlord and Tenant Termination of Leases  Judicial eviction (also known as actual eviction and summary ejectment): Lessee fails to adhere to the conditions of the lease Process by which lessor can obtain possession of the premises through court actions  Constructive eviction results from some action or inaction by the lessor that renders the premises unfit for habitation. The lessee is entitled to abandon the premises, terminate the lease, and sue for damages.

51 © OnCourse Learning. All Rights Reserved. Relationship of Landlord and Tenant Application of the Statue or Frauds/Recordation of Leases  The N. C. Statute of Frauds requires certain contracts to be in writing to be effective. This includes leases with terms of more than three years  In N. C., the Conner Act requires a lease that extends for a period of more than three years from the date of making to be recorded to be enforceable against third parties


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