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2. 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
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3. 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
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4. 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
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5. 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.
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6. 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
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7. 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”
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8. 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.
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9. 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
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10. 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
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11. 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%
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12. 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.
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13. 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.
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14. 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.
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15. 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.
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16. 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.
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17. 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.
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18. 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.
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19. 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.
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20. 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
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21. 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).
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22. 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)
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23. 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.
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24. 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
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25. 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.
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26. 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.
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27. 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.
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28. 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.
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