Chapter 16. Georgia Real Estate An Introduction to the Profession Eighth Edition Chapter 16 Real Estate Leases.

Chapter 16

Georgia Real Estate An Introduction to the Profession

Eighth Edition

Chapter 16

Real Estate Leases

Key Terms• assignment• gross lease• leasehold estate• lessee• lessor• net lease

• option clause• quiet enjoyment• reversion• sublessee• sublessor• sublet

© 2015 OnCourse Learning

The Leasehold Estate

The lessee is the tenant.

The lessor is the landlord.



A lease conveys to the lessee the right to possess and use another's property for a period of time.



During this time the lessor possesses a reversion that entitles the lessor to retake possession at the end of the lease.



A lease separates the right to use property from the property’s ownership.

The property owner is denied use of the property but receives rent.



A tenant's right to occupy the land and/or buildings is called a leasehold estate.



The two most commonly found leasehold estates are the periodic estate and the estate for years.



The periodic estate is one for a definite period of time with an automatic renewal if not terminated.

A month-to-month lease is an example of this.



An estate for years is a lease with a specific starting date and a specific ending date.

It can be for any length of time, does not automatically renew itself, and does not require notice to terminate.


The Leasehold EstateAn estate at will is for an indefinite period of time and can be terminated by either the landlord or the tenant giving notice.

In Georgia, the notice requirement for the tenant is 30 days and the requirement for the landlord is 60 days.



A tenancy at sufferance occurs when a tenant stays beyond the legal tenancy without the consent of the landlord.

The tenant is called a holdover tenant.



No advance notice is required for eviction.

A holdover tenant differs from a trespasser in that the original entry onto the property was legal.


Creating a Valid Lease

As a conveyance, the lease conveys rights of possession to the tenant in the form of a leasehold estate.

As a contract, it contains provisions for the payment of rent.



For a valid lease to exist, it must meet the usual requirements of a contract:• The parties must be legally

competent• there must be a mutual agreement• lawful objective• sufficient consideration



The main elements of a lease are: • the names of the lessee and lessor• description of the premises• agreement to convey• provisions for the payment of rent• starting date and duration of the

lease• signatures of the parties



In Georgia, a lease for a term longer than one year must be in writing to be enforceable in a court.


Provisions of the Lease

The lease sets forth the agreement between the tenant and the landlord.

Due to their complexity, commercial and industrial property leases will require legal counsel.



TermThe beginning and ending of the lease should be clearly stated along with rights and methods of termination.



Use RestrictionsThere can be restrictions such as the number of occupants, the right to have pets, operation of the business from the least home, types of vehicles that can be parked, and so on.



MaintenanceThe lease should clearly state who is responsible for the maintenance of the property.



Security DepositThe security deposit is paid by the tenant as security for breach of the lease or damage to the property.


Provisions of the LeaseQuiet EnjoymentThe tenant has the right to use the property for the purposes for which they have leased it.

If that right to use is destroyed by the landlord, the tenant may claim a constructive eviction, leave the property and have no further responsibility to pay rent.



DisrepairThe tenant may not cause undue harm to the property.



Destruction of the premisesA good lease would recommend that the tenant have renters insurance and stipulate that the landlord has no liability for damages out of their control.


Landlord – Tenant Laws

The landlord must maintain the premises in a fit condition for a living, and the tenant is to keep the unit clean and not damage it.


Setting Rents

Under a gross lease, the tenant pays a fixed rent, and the landlord pays all the operating expenses of the property.


Setting Rents

If a tenant wants a longer lease term, the lease may have a step up, or graduated rent.

For example, each year the rent per square foot would increase at predetermined amounts.


Setting Rents

Office and industrial leases often include an escalator or participation clause.

This allows the landlord to pass along to the tenant increases in property taxes, utility charges, and maintenance.


Setting Rents

When a tenant pays for all the property taxes, insurance, repairs, utilities and so on, in addition to the base rent, this is called a net lease.


Setting Rents

Another system for setting rents is the percentage lease, where the owner receives a percentage of the tenant’s gross receipts as rent.


Setting Rents

Another way of setting rents on long-term leases is to create an index lease.

The rent would be indexed to some economic indicator. If there is inflation, rents increase; if there is deflation, rents decrease.


Option Clauses

Option clauses give the tenant the right at some feature time to purchase or lease the property at a predetermined price.


Assignment and Subletting

Unless otherwise provided in the lease contract, a lessee may assign the lease or sublet.

An assignment is the total transfer of the lessee's rights to another person.



The assignor remains liable for the performance of the contract, unless released in writing by the landlord.

To sublet means to transfer only a portion of the rights held under a lease.



The original lessee is the sublessor.

The sublessee pays rent to the lessee who, in turn, remains liable to the landlord for rent on the entire premises.


Lease Termination

Most leases terminate because of the expiration of the term of the lease.

A lease can be terminated if the landlord and the tenant mutually agree.

This should be done in writing.


Eviction

If a tenant fails to live up to the terms of the lease agreement, the landlord has grounds for eviction.

Usually this is for nonpayment of rent, but it can be for violation of some other aspect of the agreement.


EvictionAn actual eviction process begins with the landlord having a notice served on the tenant requiring the tenant to comply with the lease agreement or move out.

If the tenant neither complies nor vacates, the landlord takes the matter to court.


Eviction

The court will terminate the tenant‘s lease rights and authorize a sheriff to go on the premises and force the tenant out.


Eviction

A lease agreement may also be terminated through constructive eviction.

This occurs when the landlord does not keep the premises fit for occupancy.


Eminent Domain

The government, under its right of eminent domain, can also terminate a lease, but must provide just compensation.


Foreclosure

A mortgage foreclosure can also bring about the lease termination unless the mortgage contained a nondisturbance clause.


Foreclosure

A nondisturbance cause is an agreement of a lender to not disturb a performing tenant on a valid lease in the event the lender has to foreclose.


Chapter 16. Georgia Real Estate An Introduction to the Profession Eighth Edition Chapter 16 Real Estate Leases.

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