Lecture 7 Contracts, Deeds, and Leases

Lecture 7 Deeds

Title and Deeds Title: “Proof of Ownership” Deed: An Instrument of Conveyance – Merchantable Title: Attorney abstracts and opines conveyance histories

Deeds TWO PARTIES TO A DEED: “Grantor”: Owner conveying (selling or giving) right, interest, or title to another party “Grantee”: Receives right, interest, or title from Grantor

Deeds: Validity Requirements Grantor must meet age and mental capacities Grantor must be identified with certainty Grantor’s signature required Consideration required Contain words of conveyance Legal description Signature requirements Deed must be delivered from Grantor to Grantee

Deeds: Warranty Deeds Grantor conveys ALL property rights to Grantee. Seizin: Right to Convey Quiet Enjoyment: Grantee not to be bothered with subsequent claims of ownership Against Encumbrances: Other than specified easements and other encumbrances, Grantor discloses all known

Deeds: Special Warranty Deeds Special Warranty Deed covers only the period AFTER the Grantor assumed ownership.

Deeds: Non-Warranty Deeds Quitclaim Deed – Grantor gives up rights, interests, and title held at transfer Judicial Deed – Given by a court following judicial proceedings

Deeds: Recording After Conveyance Recording: Conveyance instruments become Public Records. - Constructive Notice of Ownership - Northeast Fla: $10.00 for first page, $8.50 for add’l pages Documentary Stamps: State Revenue Department taxes on conveyance of title - Florida: $0.70 per each $100 of the SALE PRICE Example: $100,000 sales price = $100,000 *.007 = $ of Stamps

Lecture 7 Title & Title Insurance

Evidence of Clear (Marketable) Title Abstract and Attorney’s Opinion Certificate of Title Title Insurance

TWO SIGNIFICANT FORMS: Owner’s Standard: Insures rights of new owner Mortgagee’s Title Policy: Insures owner up to amount of mortgage debt ITEMS TYPICALLY INSURED: Duress in execution of Instruments Marital rights of spouse reported incorrectly Undisclosed divorce False representation of true owner Forged documents Deeds written by Grantors who were minors, aliens, or incompetent

Lecture 7 Contracts

Types of Contracts Valid, Voidable, Void, Unenforceable Bilateral, Unilateral

Types of Contracts Valid: Fulfills all legal requirements imposed by law, and therefore enforced by courts of law Voidable: Contract is valid, but one party can exercise right to avoid or set aside contracted obligations Unenforceable: Contract is valid, but not recognized by courts if legal action is sought in courts Void: Contract is NOT valid, and not recognized by courts of law

Types of Contracts Bilateral: Agreement made between two or more people 1. One party makes an offer (promise) to second party 2. Second party accepts 3. Bilateral contract formed Unilateral: Offer (promise) made by one party to another 1. One party makes an offer (promise) to a second party, and second party receives the benefit of the promise contingent upon the performance of the offer (promise) Real Estate Contracts:Bilateral Real Estate Listing Agreements:Unilateral

Contracts: Requirements for Validity and Enforceability Agreement (Offer and Acceptance) Consideration Competent Parties Reality of Consent Legality of Purpose Necessity of Writing in Certain Instances

Contracts: Requirements for Validity and Enforceability AN AGREEMENT Offer: Initial step in the formation of a contract 1. Definite and Certain 2. Complete 3. Communicated to the Seller 4. Intended to create legal obligation between two parties Acceptance: Indication of willingness to be bound by terms of an offer 1. Made only by persons to whom offer was made 2. Unconditional and identical to terms of the offer 3. Communicated to the offeror

Discharge: Complete performance by both parties Nonperformance: One party legally excused from a binding contract Breach of Contract: Failure by a party to perform contracted obligations Liquidated damages, nominal damages, Specific Performance Discharge, Nonperformance, Breach of Contract

Lecture 7 The Lease

Leases LEASE: Written document in which the rights to use and occupancy of land or structures are transferred by the owner (Landlord) to another for a specified period of time in return for a specified rent

Parties to a Lease TENANT: One who holds/possesses real property; commonly, a person who occupies and uses the property of another under a lease (lessee) LANDLORD: The owner of real estate that is leased to others

Rights of Tenancy Fee-Simple/Non-Freehold/ Freehold Interest Less-Than Freehold Use Exclusion Possession Disposition Use Exclusion Possession Disposition

Non-Freehold Interests LEASED-FEE INTEREST: Ownership interest held by a Landlord with the right of use and occupancy conveyed by lease to others LEASEHOLD INTEREST: Rights to use and occupy real estate for a stated term and under certain conditions; conveyed by a lease

Leased-Fee v. Leasehold Leased-Fee Leasehold Rights Conveyed By Lease Contract Rent Use Exclusion Possession Disposition Use Exclusion Possession

Positive and Negative Leasehold Interests Negative Leasehold Positive Leasehold Market Rent CONTRACT RENT

Subletting SUBLEASE: An agreement in which the lessee in a prior lease conveys the right of use and occupancy of a property to another SANDWICH LEASE: A lease in which an intermediate, or sandwich, leaseholder is the lessee of one party and the lessor of another.

Subletting Leased-Fee LeaseholdSub-Leasehold Use Exclusion Possession Disposition Use Exclusion Possession Use Exclusion Possession Lease Contract Rent Contract Rent Sandwich

Characteristics of Commercial Leases Agreement and Consideration – “Meeting of the Minds” – Owner sets asking price, and makes proposal to tenant – Tenant accepts, and lease is commenced Common Lease Clauses – Fixtures Clause – Tenant Improvements Clause – Hours-Of-Business Clause – Use Clause – Signage Clause – Condemnation Clause

Commercial Rental Structures Gross Lease – Landlord pays for all expenses – Expense Stops Net Lease – Tenant pays for “pro-rata” share of determined expenses – Triple-Net (NNN): Tenant pays for pro-rata share of Common Area Maintenance (CAM), Ad Valorem Taxes, Hazard Insurance

Commercial Rental Structures Percentage Rent (Overage Rent) – Portion of Tenant’s rent based on business income – Fixed Rental Portion + Overage Portion – Recapture Clause (helps hedge owner risk of tenant’s poor business performance) Escalated Rents – Flat rent amount over a set period, increases periodically thereafter – Escalators contracted or based on consumer indices

Examples of Rental Structures 1.Tenant pays $50,000, and Landlord/Owner pays all operating expenses. 2.Tenant pays $30,000 annually, PLUS 2% of all retail sales over $750,000. The store’s gross sales were $900, Tenant pays $10,000 annually plus its share of hazard insurance, ad valorem taxes, and CAM totaling $30,000 per year. 4.Tenant pays $24,000 annually for the first year, and the Landlord pays all operating expenses. In years 2 through 6, the rent increases by an amount equal to the respective CPI, or 3.5%.