Chapter 13 Leasehold Estates 2010©Cengage Learning. All Rights Reserved.

IN THIS CHAPTER Landlord–tenant law. Defines and explains the parties in a lease. The essential elements of lease. Duties, obligations, and rights of the parties to the lease agreement. Leaseholds. 2010©Cengage Learning. All Rights Reserved.

LANDLORD–TENANT RELATIONSHIP A lease is a contract between the owner of the property and the tenant. The owner transfers to the tenant a property interest of possession for a prescribed period of time. The owner is the landlord or lessor. The tenant is the lessee. Possession of the property will go back to the owner at end of lease. 2010©Cengage Learning. All Rights Reserved.

LEASE ELEMENTS Property Description Term Rent Written or Oral Provisions Recordation 2010©Cengage Learning. All Rights Reserved.

Michigan Truth in Renting Act Regulates rental agreements for residential properties. Prevent landlords from using leases to violate tenants’ rights. Tenants cannot waive rights. Excludes certain provisions from being in rental agreement. 2010©Cengage Learning. All Rights Reserved.

Required Notice NOTICE: MICHIGAN LAW ESTABLISHES RIGHTS AND OBLIGATIONS FOR PARTIES TO RENTAL GREEMENTS. THIS AGREEMENT IS REQUIRED TO COMPLY WITH THE TRUTH IN RENTING ACT. IF YOU HAVE A QUESTION ABOUT THE INTERPRETATION OR LEGALITY OF A PROVISION OF THE AGREEMENT, YOU MAY WANT TO SEEK ASSISTANCE FROM A LAWYER OR OTHER QUALIFIED PERSON. 2010©Cengage Learning. All Rights Reserved.

Mutual Obligations The landlord’s consideration is rent. The tenant’s consideration is possession of the premises and the right of quiet enjoyment. The landlord’s obligation to give possession of the premises to the tenant is directly tied to the tenant’s payment of rent. If one party fails in his or her responsibility (consideration), the other party may be relieved of his or her duty. 2010©Cengage Learning. All Rights Reserved.

Landlord’s Duties The landlord is required to put the tenant in possession. The landlord does not have an automatic right to inspect the leased premises. The landlord also has the right to enter the premises in an emergency. The landlord is obligated to have the premises in habitable condition. Allowing tenant a lesser lease estate called a sublease. 2010©Cengage Learning. All Rights Reserved.

Tenant’s Duties Maintain the premises with ordinary wear and tear excepted. The tenant is expected to use the premises only for legal purposes and to conform to all local laws. Pay the agreed-upon rent in a timely fashion. Vacate the premises without the need for legal eviction by the landlord at end of lease. 2010©Cengage Learning. All Rights Reserved.

Law of Negligence The failure to use care that a reasonable person would use in like circumstances. A person is liable for damages that result to another person if the duty is not performed in a reasonable fashion. The duty of care imposed upon the landlord is the care a reasonable and prudent person would exercise under like conditions. 2010©Cengage Learning. All Rights Reserved.

Michigan Security Deposits Act Regulates how a landlord may handle security deposits received from tenants. These laws apply to residential leases only. A security deposit may not exceed one and one-half months’ rent. Tenant must give the landlord a forwarding address within four days after moving. Security deposits must be placed in a regulated financial institution. 2010©Cengage Learning. All Rights Reserved.

Termination and Eviction Remedies At expiration of the lease. The landlord and tenant can mutually agree to cancel a lease. Eviction. Tenant’s claim of constructive eviction. Tenant abandons the premises and the landlord reenters to accept return of possession of the premises. Tenant may terminate a lease with 60-day written notice if they have occupied the premises for longer than 13 months. 2010©Cengage Learning. All Rights Reserved.

TYPES OF LEASES  Gross and Net Leases  Graduated Lease  Escalated Lease  Index Lease  Fixed Lease  Reappraisal Lease  Percentage Lease  Ground Lease  Oil and Gas Leases  Sale and Leaseback 2010©Cengage Learning. All Rights Reserved.

CHAPTER TERMINOLOGY REVIEW 2010©Cengage Learning. All Rights Reserved.  assignment  escalated lease  eviction  fixed lease  graduated lease  gross lease  ground lease  holdover tenant  index lease  lease  lessee  lessor  Michigan Security Deposits Act  Michigan Truth in Renting Act  negligence  net lease  option to renew  percentage lease  quiet enjoyment  reappraisal lease  recapture clause  reversionary interest  sale and leaseback  security deposit  sublease