California Real Estate Principles, 10.1 Edition Chapter 12 Landlord and Tenant Relations

Chapter 12: Student Learning Outcomes Define a lease and the four types of leasehold estates. Outline the requirements for a valid lease or rental agreement. Explain the difference between a sublease and an assignment of a lease. Discuss the duties and responsibilities landlords and tenants owe each other. Describe how tenants may be lawfully evicted. Explain the role played by professional property managers.

Lease A lease or rental agreement is a legally binding contract between an owner (lessor/landlord) and a tenant (lessee) where a tenant has possession and use in exchange for rent or services.

Types of Leasehold Estates

Leasehold Estates (Less-than-freehold estates) Estate for years Tenancy for years or lease Fixed term (You know when it ends before it begins. Estate from period to period Periodic tenancy or period to period (month-to-month) Unsure when it ends - requires notice by either party. Estate at will Tenancy at will Is a leasehold interest that can be terminated without notice at any time by the landlord. Not in California Insist that advance notice be given prior to termination, usually 30 days. Estate at sufferance Tenancy at sufferance Possession at the end of a lease

Valid Lease Requirements Written, if more than one year (Statute of frauds) Names of lessor and lessee Adequately describe the property Show amount of rent and how paid Give date lease term begins and length of term Be signed by lessor Involve capable parties Renewal provision in boldface type (Residential property)

Maximum Duration- Commit to Memory-- Urban Property 99 years Agricultural Land 51 years

Residential Rental Agreement- Must Include: Utilities Maintenance Tenant improvements Use of the property Maximum number of occupants Security and damage deposits Property taxes and insurance Rules regarding pets, guests, parking, anything else of importance

Security Deposits (Legal Maximums) Total security limits, including pets: Unfurnished = 2 months Furnished = 3 months Legal deposits including: Waterbed* (or insurance), Pet Deposit, Key Deposit, Openers (e.g. garage, gates, etc.) *Waterbed may require additional deposit Unused deposit must be returned or written accounting for expenses within 21 days. Cannot be called-- NON-REFUNDABLE

Assignment A transfer by the lessee (assignor) of All the unexpired interest he holds at the time of the assignment: Who assigns Lease to Leases to Lessor Lessee “A” Assignee “B” Assignee “B” pays directly to Lessor

Sublease A transfer by the lessee of only part of his interest to another (sub-lessee) at the time of the subletting: Leases to Who sublets to Lessor Lessee “A” Sub-Lessee “B” Who pays Lessor $1,000 Pays Lessee $2,000 Lessee “A” Sandwich lease

Types of Leases Gross Lease Landlord pays operating expenses (TIM) (taxes, insurance, maintenance) Net Lease (Triple Net Lease) Tenant pays operating expenses (TIM) Percentage Lease Tenant pays rent based on tenant’s gross income Fixed lease (month-to-month) Tenant pays a fixed rent amount Graduated Lease (Lease) Tenant pays a fixed rent amount for the period with scheduled rent increases at specific times.

Lease Terms- Under Expiration of Contract….. Extension: Upon expiration of rental contract, the rental continues under the original terms. Renewal: Upon expiration of rental contract, the rental continues under new terms. Escalator Clause: During the rental period, the rental agreement allows for rent increases based upon some index.

Landlord Duties and Rights- Fundamental Keep property habitable Periodically inspect the premises Insure outside of living quarters Maintain quiet use and enjoyment Prohibit discrimination by all subordinates

Unlawful Acts by a Landlord Tenant lockout Seizure of tenant property Removal of doors and windows Shutting off utility services Causing uninhabitability Interfering with tenant’s use and quiet enjoyment

TENANT OBLIGATIONS- Fundamental Pay rent when due according to the contract Give minimum 30-day notice for termination Keep the premises occupied, clean and sanitary Liable for negligence to others Dispose of all rubbish, garbage and waste from the unit in a clean and sanitary manner Properly use and operate all electrical, gas and plumbing fixtures and keep them clean and sanitary Not interfere with other tenants rights Refrain from willfully or wantonly destroying, defacing, impairing or removing any part of the structure or appurtenances Occupy and use the premises only for the intended or designed use

Rental Offset-Repair and Deduct Notify landlord of necessary repairs and allow adequate time for repairs to be made If landlord refuses: 1. Abandon the property with no future rent. 2. Spend up to one month’s rent on repairs, send receipts for repairs, offset amount on next month’s rent payment. NOTE: Can only use twice in any 12-month time Cannot be used for decorative purposes, only for habitability.

Unlawful Detainer- Unpaid Rent Landlord must serve 3-Day Notice If tenant fails to respond, landlord files in superior court. If landlord wins a judgment, then will ask for a Writ of Possession. Authorities remove the tenant.

TERMINATION OF A LEASE- Reasons to--- Expiration of the term Mutual agreement (surrender) Violation of terms and conditions Destruction of the premises Or government action: condemnation Eviction Notice Unlawful detainer action Non-payment of rent Illegal use of premises Sheriff serves the eviction

Property Manager: Controls operating expenses to maximize income Obtains tenants and leases Maintains property by keeping it in repair and modernizing or renovating when needed Oversees the on-site resident manager for residential apartments of 16 or more units. CPM = Certified Property Manager

Rent Control Intent is to make property available for rent at reasonable rates when there is a shortage of available space. May not be effective because artificially low rent may increase demand and discourage new construction.