The Landlord-Tenant Relationship 26-2 Landlord: Owner of real property who gives up his or her right of possession. Tenant: The person who agrees to pay for the use of real property. The relationship between the two involves a tenant’s possession, use, and control of real property in exchange for payment of rent. The document in which the terms of the agreement are spelled out is the lease. Lessor: The landlord Lessee: The tenant Learning Outcome 26-1: Discuss the landlord-tenant relationship. Page: 432

Difference between a Lease and a License 26-3 License A license merely gives a person (the licensee) the right to use real property for a specific purpose and can be canceled at the will of the landowner (the licensor). Lease A lease transfers to a lessee the right of possession. A lease creates an estate (interest) in real property Learning Outcome 26-1: Discuss the landlord-tenant relationship. Page: 432

Essential Elements of the Landlord-Tenant Relationship 26-4 The tenant can occupy a landlord’s property only with the consent of the landlord. The tenant’s rights in the property are inferior to those of the landlord. The property must revert (be returned) to the landlord at the termination of the lease. The parties must agree that the tenant has a right of immediate possession. Learning Outcome 26-1: Discuss the landlord-tenant relationship. Page: 432

The Lease Is the Basis of the Relationship 26-5 The landlord tenant relationship can be created by an express or an implied contract. While oral contracts of lease are valid under common law, most state statutes require written leases in instances where the term of the lease is greater than one to three years. Contracts that cannot be completed in less than one year must be in writing to be enforceable. Learning Outcome 26-1: Discuss the landlord-tenant relationship. Page: 432

Covenants, Conditions and the Law Relating to Leases 26-6 PO: 1; Page: 363 Covenants An agreement or promise in a lease to do a particular thing. Example: When a tenant promises to use the property for certain purposes or a landlord promises to make certain repairs and to ensure the tenant’s quiet enjoyment. Conditions Also called a restriction, it is included in a lease and limits the use of the property. Example: If the lease stipulates that the premises will be used as a retail bookstore, opening a nightclub would not be permissible. The Law Relating to Leases Leases are subject to many more legal restrictions than they were in the past. Since leases are now viewed as contracts, commercial leases are subject to certain provisions regarding unconscionability. Learning Outcome 26-1: Discuss the landlord-tenant relationship. Page: 432

The Fair Housing Act 26-7 The Fair Housing Act prohibits discrimination in housing on the basis of: Race, Color, Sex, Familial Status, National Origin, Religion, and Handicap. Under this law, it is generally illegal to refuse to rent property to a member of these protected classes. The law also makes it illegal for a landlord to alter the terms, privileges, or conditions of a lease so that they are unfavorable to protected classes. Learning Outcome 26-1: Discuss the landlord-tenant relationship. Page: 433

Types of Tenant Interests in Real Property 26-8 Periodic Tenancy A possession interest in which the lease continues for successive periods for the same length of time (weekly, monthly, etc.). Tenancy for Years The most common type of lease is for a specific period of time— weeks, months, years, and so on. A tenancy of this type automatically terminates on the stated expiration date. Tenancy at Will A possession interest in which no specific time of lease is agreed upon. The lease continues indefinitely, until one of the parties notifies the other of a desire to terminate the lease. Learning Outcome 26-2: Describe the four types of tenant interests in real property. Page: 433

Example: Tenancy at Will 26-9 Facts: Karen moved from Kentucky to Virginia for a new job, which requires a three-month probationary period before she would be hired as a regular employee. Since Karen wasn’t sure if she would be staying in Virginia for longer than three months, she negotiated a month-to-month lease on an apartment. The lease required an advance notice of 30 days in the event either party wished to quit the lease. This lease is an example of a tenancy at will. Add Special Performance content here . . . Learning Outcome 26-2: Describe the four types of tenant interests in real property. Page: 434

Types of Tenant Interests in Real Property (cont.) 26-10 PO: 2; Page: 364 Tenancy at Sufferance A tenancy at sufferance exists only in one limited situation—when a tenant wrongfully extends his or her tenancy beyond the term agreed upon. Tenancy at sufferance is really not a true tenancy at all, since the status of the tenant in this situation is rather uncertain. The landlord can choose either to evict the tenant and treat him or her as a trespasser or to hold the tenant to another term of the lease. Learning Outcome 26-2: Describe the four types of tenant interests in real property. Page: 434

Rights and Duties of the Parties 26-11 Landlord’s Warranty of Habitability In a landlord-tenant relationship, the law assumes an implied warranty of habitability. This means that the landlord assures the tenant that the premises are reasonably fit for occupancy and that there are no defects that would impair the health, safety, or well-being of the occupants of the premises. Learning Outcome 26-3: Discuss the rights and duties of landlords and tenants. Page: 434

Rights and Duties of the Parties (cont.) 26-12 Landlord’s Right to Rent, to Regain Possession, Evict, to Retain a Tenant’s Security Deposit The landlord has the right to: Collect the agreed-upon rent as provided in the lease. Regain possession of the property in good condition at the end of the lease. Evict a tenant for nonpayment of rent, illegal use of the premises, or other material violations of the terms of the lease. Retain a tenant’s security deposit to offset losses resulting from tenant-caused property damage or nonpayment of rent. A tenant, generally, must receive a written account of any damages and their subsequent repair costs. Learning Outcome 26-3: Discuss the rights and duties of landlords and tenants. Page: 435

Rights and Duties of the Parties (cont.) 26-13 Landlord’s Right to Keep Fixtures and Permanent Improvements A tenant may wish to make improvements by attaching fixtures to the land or to the premises. Two issues raised by such actions are: Does the tenant have the right to make attachments? Does the tenant have the right to remove the fixtures he or she attached at the end of the lease? Generally, the law gives the tenant the right to make reasonable modifications to the leased property in order to make it suitable for use under the circumstances. Learning Outcome 26-3: Discuss the rights and duties of landlords and tenants. Page: 436

Rights and Duties of the Parties (cont.) 26-14 Landlord’s Duty to Mitigate Damages A landlord has a duty to make reasonable efforts to reduce, or mitigate, his or her losses resulting from a tenant’s abandonment (the voluntary surrender of possession of leased premises). A landlord must make a reasonable effort to find a new tenant to occupy the abandoned premises. If the landlord fails to make such reasonable effort, the tenant would be relieved of his or her obligation under the lease to pay the rent for the remaining time of the lease. Learning Outcome 26-3: Discuss the rights and duties of landlords and tenants. Page: 436

Rights and Duties of the Parties (cont.) 26-15 Tenant’s Right of Quiet Enjoyment Most written leases provide covenants (promises) of quiet enjoyment of the premises, and in many states, this is an implied right. The right to quiet enjoyment includes the use of the leased premises without unreasonable interference from the landlord or third parties. While the landlord is not always responsible for the actions of third parties over which he or she has no control, some courts have held that the landlord was responsible for the actions of a tenant who denied another tenant his or her right to quiet enjoyment. Learning Outcome 26-3: Discuss the rights and duties of landlords and tenants. Page: 436

Rights and Duties of the Parties (cont.) 26-16 Tenant’s Right to Acquire and Retain Possession When agreeing to lease property, the landlord promises that the tenant will have possession of the premises on the agreed-upon date. If the premises are occupied by the previous tenant or under construction, the landlord must take reasonable steps to ensure that the premises are available on the specified date. If the landlord interferes with the tenant’s right of possession by evicting him or her without a court order of eviction, the tenant has the right to terminate the lease. Eviction: A legal action that denies the tenant the use of the premises. Actual eviction: Occurs when the tenant is denied the physical use of the premises, whether or not such an eviction was approved by a court. Constructive eviction: Results from excessive noise. Learning Outcome 26-3: Discuss the rights and duties of landlords and tenants. Page: 437

Rights and Duties of the Parties (cont.) 26-17 Tenant’s Right to Assign or Sublease Assignment of lease: A transfer of the tenant’s interest in the entire premises for the entire length of the term of the lease. Sublease: A transfer of the tenant’s interest for a part of the premises or for a part of the term of the lease. Most leases provide that a tenant may not assign or sublease without the landlord’s consent. A provision may be added that a landlord may not unreasonably refuse consent for an assignment or sublease. The landlord is prohibited from refusing consent for reasons that would result in illegal discrimination. Learning Outcome 26-3: Discuss the rights and duties of landlords and tenants. Page: 437

Essentials of Business Law Termination of Leases 26-18 Lease Expiration The most common reason for termination is the expiration of the lease, no matter whether the tenancy is periodic, for years, or at will. When the lease is terminated for this reason, the landlord is required to return to the tenant any security deposit the tenant had paid. Tenant’s Abandonment If the tenant has abandoned the premises, he or she is not relieved of the obligation to pay the agreed-upon rent. If, however, the landlord has violated his or her express or implied duty to provide the tenant with quiet enjoyment, the tenant may abandon the premises under the doctrine of constructive eviction, and this action will terminate the lease. Learning Outcome 26-4: Explain several reasons for termination of leases. Page: 438 Essentials of Business Law

Termination of Leases (cont.) 26-19 Termination by Forfeiture (Breach) Most leases contain a provision that gives the landlord the right to terminate the lease if the tenant fails to pay rent or violates any other material lease provision. However, the tenant’s breach must be material, that is, involve an important matter. Learning Outcome 26-4: Explain several reasons for termination of leases. Page: 439 Essentials of Business Law

Tort Liability 26-20 When a person is injured on leased premises, the question of liability arises. The person in control of the area in which the injury took place is held to be responsible. The landlord remains in control of common areas, such as hallways, stairways, and laundry rooms. A tenant’s own insurance policy will protect himself or herself from injuries within the leased premises. Learning Outcome 26-5: Explain how liability is determined and whether the landlord or tenant is likely to be found liable. Page: 439

Example: Tort Liability 26-21 Facts: Hannah, a new tenant in an apartment owned by Reality Properties, suffered serious injuries when she fell on a broken step in the building’s main stairway. Hannah filed a suit against the landlord of the building for the tort of negligence. The landlord denied responsibility for any injuries. However, Reality Properties will be held liable for the injuries sustained by Hannah, because it is the duty of the landlord to maintain the building’s stairway. Learning Outcome 26-5: Explain how liability is determined and whether the landlord or tenant is likely to be found liable. Page: 439