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Chapter 15 Landlord and Tenant Learning Objectives Describe the basic concepts and terminology of the relationship between landlord and tenant List and define the non-freehold estates List the essential provisions of the North Carolina Residential Rental Agreements Act List the essential provisions of the North Carolina Tenant Security Deposit Act List the types and characteristics of leases Describe the essential and common provisions of leases Describe the application of the Statute of Frauds to leases Define the rights of the parties to a lease Describe the requirements for recording leases © OnCourse Learning

Chapter 15 Landlord and Tenant Definitions lease: contract in which a tenant receives the right to use and possess property for a specific period of time in exchange for rent Lease, let, and demise: all describe the conveyance of a possessory interest in property by a lease Landlord: owner of the property Lessor: one who gives the lease Lessee or tenant: one who receives the lease © OnCourse Learning

Chapter 15 Landlord and Tenant Estates and Contracts In the creation of a rental estate, two concepts are involved: Concept of estates: essential part of understanding rental estates can vary widely in the quantity and quality of interest Contractual law: duty of each party is related to the other party’s performance © OnCourse Learning

Chapter 15 Landlord and Tenant The Residential Rental Agreements Act Roles of landlord and tenant are defined Applies only to residential properties Obligations of Landlord and Tenant: Mutually dependent: If one party fails to fulfill his duties, the other is excused from financial responsibility. Constructive eviction - tenant is excused from his responsibility: If the landlord fails to perform his duty, tenant may vacate the premises and withhold rent, regardless of the remaining term Tenant cannot remain in property and withhold rent. © OnCourse Learning

Chapter 15 Landlord and Tenant Residential Rental Agreements Act Landlord’s Statutory Duties: complying with building codes maintaining and repairing common areas repairing utilities maintaining and repairing provided appliances Tenant’s Statutory Duties: maintain the individual living unit by keeping the unit safe and clean properly dispose of trash keep plumbing fixtures clean be financially responsible for any destruction, defacement, or damage © OnCourse Learning

Chapter 15 Landlord and Tenant Residential Rental Agreements Act Tenant’s Remedies for Breach by Landlord: If a landlord fails to provide a habitable rental unit, a tenant can: bring action against the landlord in court for damages, including the recovery of rent paid while the property was uninhabitable. bring action to require the correction of defects in the property. NOT withhold rent while remaining in property. Application of the Law of Negligence: The landlord must maintain all common areas. The landlord is held liable for injury to tenant or guests if any area is not considered “safe and habitable” © OnCourse Learning

Chapter 15 Landlord and Tenant Retaliatory Eviction Protects tenants in asserting their rights, such as requesting repairs or joining a tenant’s union. Provides an automatic defense from eviction for up to one year from any such event. North Carolina Tenant Security Deposit Act Sets limitations upon the holding of security deposits. Only applies to residential property. Landlords must either place funds in NC bank or guarantee return of funds with a bond. In either case, tenant must be notified. © OnCourse Learning

Chapter 15 Landlord and Tenant North Carolina Tenant Security Deposit Act Permitted Use of Tenant Security Deposit: damage to the unit non-fulfillment of the rental period unpaid rent court costs of eviction costs of re-rental IF the tenant breaches the lease Landlord or broker must account for and/or refund the funds within 30 days of the end of the lease Landlord or broker may not use Security Deposit in the trust account while tenant still occupies property Non-licensed landlord may use funds secured by bond in any way he chooses at any time he chooses since tenant’s deposit is protected by a bond © OnCourse Learning

Chapter 15 Landlord and Tenant North Carolina Tenant Security Deposit Act Maximum Amounts for Security Deposits weekly, the maximum deposit is two weeks’ rent monthly, a month and a half’s rent greater than one month, two month’s rent may be collected Landlords may also require a reasonable non-refundable pet deposit Typical Examples of Normal Wear and Tear: worn or dirty carpeting, faded or cracked paint, dirty windows or walls frayed or broken curtain or blind strings, leaking faucets or toilets small nail holes in walls, worn lavatory basin, burned-out range heating elements © OnCourse Learning

monthly rents -late fees cannot exceed $15 or 5% Landlord and Tenant North Carolina Tenant Security Deposit Act Common Examples of “Other Damage”: crayon marks on walls, large holes in walls, broken windows, burned spots or stains on carpeting, bizarre or unauthorized paint colors, broken counter tops, exceptionally filthy premises requiring extraordinary cleaning Limits on Late Payment Fees If tenant is more than five days late with rent: monthly rents -late fees cannot exceed $15 or 5% weekly rentals - fee cannot exceed $4 or 5% © OnCourse Learning

Chapter 15 Landlord and Tenant Residential Eviction Remedies Landlords are prohibited from peaceable self-help, which includes: locking tenants out. shutting off utilities. seizing the tenant’s personal property. Only remedy is judicial eviction (summary ejectment) Discrimination and Sexual Harassment Federal and state laws prohibit discrimination against tenants based on race, color, religion, sex, handicap, familial status, or national origin. North Carolina also prohibits sexual harassment of a lessee or prospective tenant by a lessor or lessor’s agent. © OnCourse Learning

Chapter 15 Landlord and Tenant Rights of Tenants in Public Housing Tenants in public housing have a special entitlement to continued occupancy, which may not be suddenly terminated. Tenants are entitled to due process under federal and state constitutions. Vacation Rental Act Applies to any landlord or agent who rents vacation, recreation, or leisure property for periods of less than 90 days: Exempts hotels, motels, business purposes, or short-term temporary residences for individuals with no other permanent residence. © OnCourse Learning

Relationship of Landlord and Tenant Chapter 14 Relationship of Landlord and Tenant Vacation Rental Act Vacation rental agreements must be in writing: Oral agreements are not enforceable. Failure to get the agreement in writing is considered an unfair trade practice. Could result in steep penalties for broker. The landlord must hold deposit in a trust account. Bond option is not permitted. May collect advance payments from the tenant. © OnCourse Learning

Chapter 15 Landlord and Tenant Vacation Rentals Act May disburse up to 50% of these advance payments (Excluding Security Deposit) prior to occupancy. Has 45 days to account for deposit funds after the end of the vacation rental. Deposit funds can be used for long distance telephone or cable charges which are the tenant’s responsibility. The landlord may charge tenant reasonable fees for making, transferring, or canceling the tenancy. No other fees may be charged. © OnCourse Learning

Chapter 15 Landlord and Tenant Non-Freehold Estates Estate for Years: must be for a definite period of time expires automatically Estate from Period to Period: periodic tenancy automatic renewal at the end of each period Estate at Will: possession for tenant is with permission Estate can be terminated at will by either party by giving the other party notice. Payment of rent converts this to periodic estate. © OnCourse Learning

Chapter 15 Landlord and Tenant Non-Freehold Estates Estate at Sufferance: Lowest estate in real property. Tenant originally had lawful possession. Right to possession was terminated but tenant stayed. “Holdover tenant” differs from trespasser as he entered legally. Tenant is still in possession because he/she has not yet been evicted. © OnCourse Learning

Chapter 15 Landlord and Tenant Types of Leases Primary classification is determined by which party pays expenses: Gross lease : Lessor pays all costs of operating and maintaining the property. Lessor pays real property taxes, insurance, maintenance, etc. Most residential leases are gross leases. Net lease: Lessee agrees to pay some or all costs and expenses associated with the property including such things as real estate taxes and assessments, maintenance, insurance, and utilities. Commercial properties are usually net leases. © OnCourse Learning

Chapter 15 Landlord and Tenant Types of Leases Fixed rental (flat or gross): Rent amount does not change during rental period. Percentage lease: fairly low fixed rent plus amount based on percentage of lessee’s gross sales volume Often used with leases for retail businesses. Graduated lease: rental amount changes (usually increases) periodically amount of change is specified in contract Index lease: Rental amount is changed in proportion to changes in the Consumer Price Index (CPI) or other similar indexes. © OnCourse Learning

Chapter 15 Landlord and Tenant Types of Leases Full service leases: common in office buildings and shopping centers Each tenant pays a base rent and portion of operating expenses. Ground lease: lease of unimproved land Normally contains a provision that a building will be constructed on the land by the lessee. Mineral lease: right to search for and mine minerals during the lease period must be in writing, regardless of the duration, to comply with the Statute of Frauds © OnCourse Learning

Chapter 15 Landlord and Tenant Types of Leases Sale and leaseback: Property owner sells a property to an investor. Investor agrees to immediately lease the property back to the seller. Frees seller’s capital while allowing his continued possession of property. Lease payments are fully deductible (advantage to seller). © OnCourse Learning

Chapter 15 Landlord and Tenant Common Lease Provisions Essential Provisions: mutual agreement to the terms of the contract legal capacity to contract land identified clearly essential aspects of the agreement (rent, occupancy dates, terms, etc.) supported by legal consideration lawful objective See figure 15.1 in text (Residential Rental Contract) © OnCourse Learning

Landlord and Tenant Common Lease Provisions Other Provisions: Landlord may restrict the use of a rental unit. Lessee may want to make a specific use a condition of the lease. Prohibit the use, storage, or discharge of hazardous substances. Removal of certain fixtures and the return of the premises to its original condition. Responsibility for repairs on commercial or industrial property depends on the type of property and specific lease provisions. Upkeep should be specifically addressed. © OnCourse Learning

Chapter 15 Landlord and Tenant Other Provisions Assignments and subleases: Assignment is the total transfer of the lessee’s entire remaining interest in the lease. Subletting is the making of new lease in which the lessee also becomes a “sub-lessor” who has rented the premises to a “sub-lessee” Allowable if not prohibited by lease. Default Renewal of lease Option to purchase Right of first refusal Landlord’s right to enter premises © OnCourse Learning

Chapter 15 Landlord and Tenant Landlord’s Implied Covenant of Quiet Enjoyment Promise that the lessee will not be disturbed in his use of the property because of a defect in the lessor’s title. Every lease implies such a covenant. The covenant protects the tenant against claims arising from the landlord, the landlord’s agents, and/or anyone whose title is superior to that of the landlord. Actual or constructive eviction of the tenant by any of the parties breaches this covenant. © OnCourse Learning

Chapter 15 Landlord and Tenant Termination of Leases expiration of lease agreement of the parties. a breach of condition (lessor or lessee fails to live up to terms of contract) Condemnation under the power of eminent domain can cause a lease to terminate: Under total condemnation, lessee is entitled to compensation from the lessor for the remaining value of their interest. Partial condemnation will provide the lessee with the option of terminating the lease or possession of the remainder of the premises at a reduced rent. © OnCourse Learning

Chapter 15 Landlord and Tenant Termination of Leases Judicial eviction (actual eviction/summary ejectment): Lessee fails to adhere to the conditions of the lease. Process by which lessor can obtain possession of the premises through court actions. Constructive eviction: action or inaction by the lessor that renders the premises unfit for habitation. The lessee is entitled to abandon the premises, terminate the lease, and sue for damages. © OnCourse Learning

Chapter 15 Landlord and Tenant Application of the Statue or Frauds The N. C. Statute of Frauds requires certain contracts to be in writing to be effective. This includes leases with terms of more than three years. Recordation of Leases In N. C., the Conner Act requires a lease that extends for a period of more than three years to be recorded in order to be enforceable against third parties. If lease is not recorded, purchaser of the property does not need to honor lease. If lease is for shorter period of time, purchaser must honor terms of lease even if it is not recorded. © OnCourse Learning