Leases

Leasing Basics Lessor Lessee Landlord retains a reversionary right In most states, Alabama included, lease agreements for more than one year must be in writing to be enforceable. Lessor Lessee Landlord retains a reversionary right In most states, Alabama included, lease agreements for more than one year must be in writing to be enforceable.

Leasehold Estates A leasehold estate is the interest in real estate that a tenant has. Estate for years – continues for a definite period of time. Lease has a specific expiration. Estate from period to period – indefinite length – requires notice to terminate. month-to-month tenancy holdover tenancy A leasehold estate is the interest in real estate that a tenant has. Estate for years – continues for a definite period of time. Lease has a specific expiration. Estate from period to period – indefinite length – requires notice to terminate. month-to-month tenancy holdover tenancy

Estate at will – tenant possesses property with landlord’s consent for an indefinite period. Estate at sufferance – tenant continues possession after lease end without approval of landlord. Estate at will – tenant possesses property with landlord’s consent for an indefinite period. Estate at sufferance – tenant continues possession after lease end without approval of landlord.

Lease Agreements A lease is a contract so the same requirements are necessary for a lease to be valid. capacity to contract legal objectives offer and acceptance consideration A lease is a contract so the same requirements are necessary for a lease to be valid. capacity to contract legal objectives offer and acceptance consideration

What’s Covered in the Lease Possession of the premises covenant of quiet enjoyment Use of premises – can be for any lawful purpose if use is not limited. Most commercial leases limit use. Term of lease – can be up to 100 years in most states. Security deposit Possession of the premises covenant of quiet enjoyment Use of premises – can be for any lawful purpose if use is not limited. Most commercial leases limit use. Term of lease – can be up to 100 years in most states. Security deposit

Improvements – usually become landlord’s property and must be done with landlord’s permission. Accessibility – tenants with disabilities must be allowed to make reasonable modifications at their own expense. The landlord may require that they be removed when the tenant leaves. Improvements – usually become landlord’s property and must be done with landlord’s permission. Accessibility – tenants with disabilities must be allowed to make reasonable modifications at their own expense. The landlord may require that they be removed when the tenant leaves.

Maintenance of premises – most states require that the landlord maintain the premises in a habitable condition. Destruction of premises – most of the time, destruction of the premises does not negate the liability of the tenant to pay rent. (commercial) Assignment and subleasing – are permitted whenever a lease does not prohibit them. Original tenant is still liable. Maintenance of premises – most states require that the landlord maintain the premises in a habitable condition. Destruction of premises – most of the time, destruction of the premises does not negate the liability of the tenant to pay rent. (commercial) Assignment and subleasing – are permitted whenever a lease does not prohibit them. Original tenant is still liable.

Recording a lease – more common for long term leases. Options lease renewal option to purchase Recording a lease – more common for long term leases. Options lease renewal option to purchase

Types of Leases Gross lease – most common for residential. Tenant pays fixed amount and landlord covers expenses. Net lease – tenant pays some or all of the property expenses. NN NNN Percentage lease – rent based on a fixed base, plus a percentage of gross income. Variable lease – usually graduated or based on an index. Gross lease – most common for residential. Tenant pays fixed amount and landlord covers expenses. Net lease – tenant pays some or all of the property expenses. NN NNN Percentage lease – rent based on a fixed base, plus a percentage of gross income. Variable lease – usually graduated or based on an index.

Ground lease – usually very long term. Oil and gas lease Lease-purchase – the purchase is the primary goal of the agreement and the lease is used to delay the actual closing. Ground lease – usually very long term. Oil and gas lease Lease-purchase – the purchase is the primary goal of the agreement and the lease is used to delay the actual closing.

Discharge of leases giving up possession does not eliminate the obligation to pay the remainder of the rent. property sells subject to existing leases unless there is a sale clause. tenancy may also be terminated by operation of law, e.g., bankruptcy or condemnation. Discharge of leases giving up possession does not eliminate the obligation to pay the remainder of the rent. property sells subject to existing leases unless there is a sale clause. tenancy may also be terminated by operation of law, e.g., bankruptcy or condemnation.

Breach of lease – can be done by either party When a tenant breaches, the landlord takes action to regain possession, known as actual eviction. When the landlord breaches, the tenant can abandon the premises through what is known as constructive eviction. Breach of lease – can be done by either party When a tenant breaches, the landlord takes action to regain possession, known as actual eviction. When the landlord breaches, the tenant can abandon the premises through what is known as constructive eviction.

Fair Housing and Civil Rights Laws We’ll cover this in chapter 20.