Deeds and Leases Chapter 5

Deeds and Leases Deeds –Written document that transfers title to real estate

Deeds and Leases Necessary Elements of a Deed –Designation of the parties (Grantor/Grantee) –Consideration given by grantee ($10?) –Legal description –Specific interest conveyed (Fee Simple, etc.) –Signature of the grantor and witnesses

Deeds and Leases Additional Elements –Covenant against encumbrances (no liens other than those of record) –Covenant of seisin (seized in fee simple) –Covenant of quiet enjoyment (no claims) –Covenant of further assurances (corrections) –Warranty forever (defend transfer forever)

Deeds and Leases Types of Deeds (Degree of Protection) –General warranty deed (guarantee) –Special warranty deed (only during GO’s term) Grant deed (used in California) –Bargain and sale deed (implied title) –Quitclaim deed (releases implied claim) –Deed for special uses (executor’s deed)

Deeds and Leases Requirements of a Valid Lease –Names of the lessor and lessee –Conveyance of the premises –Description of the premises –Term or duration of the lease –Amount of rent and manner of payment –Duties and obligations of parties –Signatures of the parties

Deeds and Leases Classifications of Leases –Duration of term Tenancy for stated period-conveys the property to the tenant for a stated period of time Tenancy from period to period-indefinite duration (notice given) Tenancy at will-may be terminated by either party at any time Tenancy at sufferance-provides the least protection

Deeds and Leases Ground Lease –Lease involving unimproved land Usually Long-term, greater than 10 years Lease often corresponds with improvement life Tax Advantages (Lease Payments Deductible) Overall Reduction in Needed Capital

Deeds and Leases Methods of Rental Income Payment –Fixed-rent lease-rent is fixed for the term of the lease –Graduated-rent lease (Step Lease)-rent is increased by percentage at graduated intervals –Reappraisal lease-the level of each rent increase is determined by reappraisal of the property –Percentage lease (Overage)-rent is based on some percentage of sales made on the premises –Index lease (CPI index, Porter’s wage index)

Deeds and Leases Methods of Expense Payment –Gross lease-landlord pays real estate taxes, utilities, insurance and all operating expenses Expense Stops (Base Stop) –Net lease-tenant pays the operating expenses (Shifts inflation risk) – usually variable expenses –Modified Net (net-net) Tenant pays some mix of fixed and variable expenses –Triple Net (net-net-net) Tenant pays all expenses to the property (Absolute Net)

Deeds and Leases Landlord-Tenant Relationship –In a residential lease Month-to-month or Fixed Term lease Renewal option Expenses (landlord – structural) Assignment (all rights) and subleasing (part rights), consent required, valuable Security deposits Improvements

Deeds and Leases The Rights and Obligations of Landlord –Covenant of quiet enjoyment (No other owners or tenants have claim) –Implied warranty of habitability –Maintenance of common areas –Protection against criminal acts –Renewal clause Negative renewal clause (automatic- w/o notice) Positive renewal clause (with notice)