Rental Lease
A lease is a contract conferring a right on one person (called a tenant or lessee) to possess property belonging to another person (called a
landlord or lessor) to the exclusion of the owner landlord. It is a rental agreement between landlord and tenant.[1] The relationship
between the tenant and the landlord is called a tenancy, and the right to possession by the tenant is sometimes called a leasehold interest.
A lease can be for a fixed period of time (called the term of the lease) but may be terminated sooner. The consideration for the lease is
called rent or the rental.
A lease should be contrasted to a license, which may entitle a person (called a licensee) to occupy property, but which is subject to
termination at the will of the owner of the property (called the licensor).
Under normal circumstances, owners of property are at liberty to do what they want with their property, including dealing with it or
handing over possession of the property to a tenant for a limited period of time. However, if an owner has surrendered possession to
another (ie the tenant) then any interference with the quiet enjoyment of the property by the tenant in lawful possession is itself unlawful.
Similar principles apply to real property as well as to personal property, though the terminology would be different. Similar principles
apply to sub-leasing, that is the leasing by a tenant in possession to a sub-tenant. The right to sub-lease can be expressly prohibited
by the main lease.
Fixed-term tenancy or tenancy for years:
A fixed-term tenancy or tenancy for years lasts for some fixed period of time. Despite the name tenancy for years, such a tenancy can last for
any period of time — even a tenancy for one week would be called a tenancy for years. At Common law the duration did not need to be certain,
but could be conditioned upon the happening of some event, (e.g. "until the crops are ready for harvest", "until the war is over"). In many
jurisdictions that possibility has been partially or totally abolished.
A fixed term tenancy comes to an end automatically when the fixed term runs out, or, in the case of a tenancy that ends on the happening of
an event, when the event occurs.
Periodic tenancy:
A periodic tenancy, also known as a tenancy from year to year, month to month, or week to week, is an estate that exists for some period of
time determined by the term of the payment of rent. An oral lease for a tenancy of years that violates the Statute of Frauds (by committing
to a lease of more than—depending on the jurisdiction—one year without being in writing) may actually create a periodic tenancy, the construed
term being dependent on the laws of the jurisdiction where the leased premises are located. In many jurisdictions the "default" tenancy,
where the parties have not explicitly specified a different arrangement, and where none is presumed under local or business custom, is a
month-to-month tenancy.
The landlord may terminate a periodic tenancy at any time by giving the tenant notice as required by statute. Typically, the landlord must
give six months' notice to terminate a tenancy from year to year. Tenants of lesser durations must typically receive notice equal to the
period of the tenancy - for example, the landlord must give a month's notice to terminate a tenancy from month to month. However, many
jurisdictions have varied these required notice periods, and some have reduced them drastically.
The notice must also state the effective date of termination, which, in many jurisdictions, must be on the last day of the payment period.
In other words, if a month-to-month tenancy began on the 15th of the month, in such a jurisdiction the termination could not be on the 20th
of the following month, even though this would give the tenant more than the required one month's notice.
Tenancy at will:
A tenancy at will is a tenancy which either the landlord or the tenant may terminate at any time by giving reasonable notice. It usually
occurs in the absence of a lease, or where the tenancy is not for consideration. Under the modern common law, tenancy at will is very rare,
partly because it can only come about if the parties expressly agree that the tenancy is at will and not for rent. However, tenancy at will
is common where a family member is allowed to live in the home (a nominal consideration may be required) without any formal arrangements.
In most residential tenancies for consideration, the tenant may not be removed except for cause, even if there is no written lease.
Alternatively, a tenancy at will may be used for a temporary period where a tenant wishes to take possession of a property urgently,
but there is insufficient time in which to negotiate and complete a new lease. In this case, the tenancy at will is terminated as soon
as the new lease is completed and is usually agreed on the basis that if the new lease fails to complete within a reasonable time period,
then the tenant must vacate the premises.
If a lease exists at the sole discretion of the landlord, it grants the tenant by operation of law a reciprocal right to terminate the
lease at will. However, a lease that explicitly exists at the will of the tenant (e.g. "for as long as the tenant desires to live
on this land") does not imply that the landlord may terminate the lease, even for cause; rather, such language may be interpreted
as granting the tenant a life estate or even a fee simple.
A tenancy at will is broken, again by operation of law, if the:
- Tenant commits waste against the property;
- Tenant attempts to assign his tenancy;
- Landlord transfers his interest in the property;
- Landlord leases the property to another person;
- Tenant or landlord dies.
Subject to any notice requirements, a tenancy at will also comes to an end when either the landlord or tenant act inconsistently with a tenancy.
For example, the changing of locks by the landlord is an indication of the end of the tenancy, as is the vacation of the premises by the tenant.
Tenancy at sufferance:
A tenancy at sufferance (sometimes called a holdover tenancy) exists when a tenant remains in possession of a property after the expiration of
a lease, and until the landlord acts to eject the tenant from the property. Although the tenant is technically a trespasser at this point,
and possession of this type is not a true estate in land, authorities recognize the condition in order to hold the tenant liable for rent.
The landlord may evict such a tenant at any time, and without notice.
The landlord may also impose a new lease on the holdover tenant. For a residential tenancy, this new tenancy is month to month.
For a commercial tenancy of more than a year, the new tenancy is year to year; otherwise it is the same period as the period before
the original lease expired. In either case, the landlord can raise the rent, so long as the landlord has told the tenant of the higher
rent before the expiration of the original lease.
Formalities of a lease:
The formal requirements for a lease are determined by the law and custom of the jurisdiction in which real property is located.
In the case of personal property, it is determined by the law and custom of the jurisdiction in which the rental agreement is made.
A tenancy for years greater than 1 year must be in writing in order to satisfy the Statute of Frauds.
Term of a lease:
The term of the lease may be fixed, periodic or of indefinite duration.
If it is for a specified period of time, the term ends automatically when the period expires, and no notice needs to be given, in the absence
of legal requirements.
The term's duration may be conditional, in which case it lasts until A specified event occurs, such as the death of a specified individual.
A periodic tenancy is one which is renewed automatically, usually on a monthly or weekly basis.
A tenancy at will lasts only as long as the parties wish it to, and may be terminated by either party without penalty.
It is common for a lease to be extended on a "holding over" basis, which normally converts the tenancy to a periodic tenancy on a month by month basis.
It is also possible for a tenant, either expressly or impliedly, to give up the tenancy to the landlord. This process is known as a surrender
of the lease.
Lease History:
Over the centuries, leases have served many purposes and the nature of legal regulation has varied according to those purposes and the social
and economic conditions of the times. Leases, for example, were mainly used for agricultural purposes until the late 18th century and early
19th century when the growth of cities in industrialised countries had made leases an important form of landholding in urban areas.
The modern law of landlord and tenant in common law jurisdictions retains the influence of the common law and, particularly, the laissez-faire
philosophy that dominated the law of contract and property law in the 19th century. With the growth of consumerism, consumer protection
legislation recognised that common law principles, which assume equal bargaining power between the contracting parties, create hardships
when that assumption is inaccurate. Consequently reformers have emphasised the need to assess residential tenancy laws in terms of
protection they provide to tenants. Legislation to protect tenants is now common.
Real estate rental:
A rental agreement is often called a lease, especially when real estate is rented. In addition to the basics of a
rental
(who, what, when, how much),
a real estate rental may go into much more detail on these and other issues. The real estate may be rented for housing, parking a vehicle(s),
storage, business, agricultural, institutional, or government use, or other reasons.
Who: The parties involved in the contract, the lessor (sometimes called the owner or landlord) and the lessee (sometimes called the renter or
tenant) are identified in the contract. A housing lease may specify whether the renter is living alone, with family, children, room-mate,
visitors. A rental may delineate the rights and obligations of each of these. For example, a "sub-let" to a stranger might not be permitted
without permission of the landlord. This also applies to whether or not pets may be kept by the renter. On the other hand, the renter may
also have specific rights against intrusions by the landlord (or other tenants), except under emergency circumstances. A renter is in
possession of the property, and a landlord would be trespassing upon the renter's rights if entry is made without proper notice and
authority (e.g., 24 hours' notice, daytime, knock first, except for emergency repairs, in case of fire, flood, etc).
What: Rented real estate may include all or part of almost any real property, such as an apartment, house, building,
business office(s)
or suite, land, farm, or merely an inside or outside space to park a vehicle, or store things. The premises rented may include not
only specific rooms, but also access to other common areas such as off-street parking, basement or attic storage, laundry facility,
pool, roof-deck, balconies, etc. The agreement may specify how and when these places may be used, and by whom. There may be detailed
description of the current condition of the premises, for comparison with the condition at the time the premises are surrendered.
When: the term of the rental may be for a night (e.g., a hotel room), weeks, months, or years. There may be statutory provisions
requiring registration of any rental that could extend for more than a specified number of years (e.g., seven) in order to be
enforceable against a new landlord.
A typical rental is either annual or month-to-month, and the amount of rent may be different for long-term renters (because of
lower turnover costs). Leaving a long-term lease before its expiration could result in penalties, or even the cost of the entire
agreed period (if the landlord is unable to find a suitable replacement tenant, after diligent pursuit). If a tenant stays beyond
the end of a lease for a term of years (one or more), then the parties may agree that the lease will be automatically renewed,
or it may simply convert to a tenancy at will (month-to-month) at the pro-rated monthly cost of the previous annual lease.
If a tenant at will is given notice to quit the premises, and refuses to do so, the landlord then begins eviction proceedings.
In many places it is completely illegal to change locks on doors, or remove personal belongings, let alone forcibly eject a person,
without a court order of eviction. There may be strict rules of procedure, and stiff penalties (triple damages, plus attorneys' fees) for violations.
How much: Rent may be payable monthly, annually, or in advance, or as otherwise agreed. A typical arrangement for tenancy at
will is "first and last month's rent" plus a security deposit. The "last month's rent" is rent that has yet to be earned by the landlord.
Deposit:
The security deposit is often handled as an escrow deposit, owned by the tenant, but held by the landlord until the premises are
surrendered in good condition (ordinary wear and tear excepted). In some states, the landlord must provide the tenant with the name
and account number of the bank where the security deposit is held, and pay annual interest to the tenant. Other regulations may
require the landlord to submit a list of pre-existing damage to the property, or forfeit the security deposit immediately
(because there is no way to determine whether a prior tenant was responsible).
In the field of taxation, a deposit is not included as gross income to the receiving party until the depositing party chooses to apply the
funds to purchase services. A 1990 ruling[1] provides that a deposit differs from an advance payment because the depositing party has
dominion over the funds and retains the right to insist upon repayment in cash. On the other hand, the party making an advance payment
retains no right to insist upon the return of the funds as long as the recipient fulfills the contractual agreement.
The rationale behind the court’s decision is that the recipient of the deposit does not enjoy “complete dominion” over the funds and is
subject to an express obligation to repay so long as the customer fulfills his or her legal obligations. Additionally, both the timing
and the method of refund are largely within the control of the depositing party, as he or she can choose to insist upon repayment in cash
or apply the deposit to purchase services. The recipient’s right to retain the funds of the deposit is contingent upon events that are
outside of his or her control.
An important note is that although the recipient may receive an economic benefit from the deposits – i.e. interest – the prospect that
income will be generated provides no ground for taxing the principal. However, any income that the recipient may earn through the use of
the deposit money is, of course, taxable.
Security deposits are required most often by lessors of automobiles, apartments, and commercial real estate.
The security deposits required by many residential landlords of their tenants are the source of much dispute and litigation. Many states
and municipalities have enacted laws that specifically regulate the landlord's ability to withhold tenant security deposits after a tenant
moves out. Some states and cities require that interest be paid to the tenant as it is earned on the security deposit. Washington DC,
Alaska, Illinois, and Wisconsin have notably more tenant-friendly legislation in place than states like Indiana or Michigan, for example.
Within Illinois and Wisconsin, the cities of Madison, Wisconsin and Chicago, Illinois have in place substantially greater protection of
tenants' security deposit rights than the surrounding areas.
Insurance:
In order to rent or lease in many apartment buildings, a renter (also referred to as a “lessee") is often required to provide proof of
renters insurance before signing the rental agreement. There is a special type of the homeowners insurance in the United States
specifically for renters — HO-4. This is commonly referred to as renter’s insurance or renter's coverage. Similar to condominium coverage,
referred to as a HO-6 policy, a renter's insurance policy covers those aspects of the apartment and its contents not specifically covered
in the blanket policy written for the complex. This policy can also cover liabilities arising from accidents and intentional injuries for
guests as well as passers-by up to 150' of the domicile. Renter’s policies provide "named peril" coverage, meaning the policy states
specifically what you are insured against. Common coverage areas are:
References
- Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 523. ISBN 0-13-063085-3. http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.
- For example in England and Wales the Law of Property Act 1925 s149(6) abolishes lease for lives, and lease expressed to be for a life is converted into a lease for 90 years.
- For examples of what typical leases contain: , http://www.documatica-forms.com/usa/residential-rental-lease/more-info.php
- Wikipedia.org
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