Georgia Real Estate InfoBase Contents - Chapter 30
The Legal Components of a Lease
Disclaimer regarding the Lease: Even though legal information appears in this chapter it is not intended to be legal advice as per that stated by an attorney. When dealing with a lease the tenant and the landlord are advised to seek legal advise from an attorney.
A written lease is a legal document that specifies the rights of exclusive possession and use that the landlord transfers to the tenant and the consequent responsibilities that each party incurs. The rights of ownership are the rights to use, to possess, to exclude others, and to dispose of the property. The rights of the tenant are the right to use, to possess, and to exclude others. The lease contains the terms and conditions that bind the landlord (the lessor) and the tenant (the lessee) when the landlord transfers those rights to the tenant. In its conceptual form, the lease contains three major components:
(a) the agreement and the consideration between the landlord and the tenant;
(b) the rights and responsibilities of both the landlord and the tenant as stated in the document or as implied in the body of law pertaining to landlord-tenant relationships; and
(c) provisions related to other issues that are important to either the landlord, the tenant, or both of them.
30.02 THE AGREEMENT AND THE CONSIDERATION
The chapter on the sales contract defines and discusses the terms agreement and consideration in relation to the offer and the acceptance in the sales contract. As in the sales agreement, the offer and the consideration (the rent payment) in the lease agreement must be definite and clear, and the acceptance must be unconditional.
The consideration exchanged between the landlord and tenant is the use of space for a financial payment—rent. The rent is a gross rent as presented in the following section. Since the lease is a contract, it must clearly state the consideration. Therefore the lease specifies the amount of the rent payment as well as when, where and how the tenant will make that payment. In most leases, the landlord requires the rent in advance at the first of the month. However, if the lease does not specify the time for rent payment, the rent payment is due the end of the period. Consequently, the landlord must be certain that the lease specifies when the rent is due. The lease must also identify the space so that there is no confusion about its location and extent.
The lease can specify "where and how" the tenant is to pay the rent in a variety of ways. For example, it may specify that the rent is due on the first day of each month and the tenant must deliver it to the landlord by the fifth day of the month. Such a statement gives the tenant the freedom to pay the rent to the landlord or agent in person or to send it by mail. The lease usually requires payment in U.S. dollars, but custom dictates that the tenant can pay by cash or by check. In some instances, the landlord may wish to retain the option of requiring the payment of the rent in cash or accepting checks.
In commercial leases and sometimes in residential leases, rent concessions may be another aspect of the rent payment. The landlord may wish to give some form of free rent or rent concessions to the tenant as an incentive for leasing the property. The lease must clearly state for any such rent concessions both their value and term.
30.03 CONSIDERATION IN A COMMERCIAL LEASE
Unlike residential leases, in which the rent payment is usually a flat fee, commercial leases can stipulate any of a variety of payment schemes. Moreover, commercial leases go by special names that reflect the rent payment arrangements agreed to by the landlord and the tenant. Among those names are the Gross lease, the Net lease, the Percentage lease, the Indexed lease, and the Escalated or Graduated lease.
(a) GROSS LEASE - The gross lease is a commercial counterpart of the flat or fixed rent payment lease for residential property. Under a gross lease arrangement, the tenant pays a predetermined, fixed amount of rent for possessing and using the space. The landlord is then responsible for all the expenses connected with the property. The payment can be an amount per month or a price per unit, $12.00 per square foot for example, of space per year. The tenant is typically responsible for utility payments.
(b) NET LEASE - The net lease breaks the rent payment into components: a fixed component and a variable component. In this arrangement, the tenant promises to pay the landlord a fixed sum periodically and in addition promises to pay some or all of the expenses that the landlord incurs in operating the property. The most typical expenses paid by the tenant under a net-lease arrangement are the real property taxes and/or property insurance premiums. A net lease may provide that the tenant promises to pay a flat fee plus the real property taxes, a flat fee plus the hazard insurance premiums, or a flat fee plus the real estate taxes and the hazard insurance premiums. If the tenant pays two expense items, the parties consider it to be a net-net lease. In such a lease, the tenant might pay a flat fee plus property taxes and insurance.
The lease can require that in addition to paying a fixed amount, the tenant bear all the financial responsibility for maintaining and repairing the structure and for all other costs of operating the property such as the real estate taxes and the insurance premiums. Many people in the real estate industry use the term triple-net lease to describe this type of lease. The landlord in a triple net lease receives a fixed amount of rent which assures his or her yield on the property as long as the tenant makes the payments.
(c) PERCENTAGE LEASE - In a percentage lease, the landlord and the tenant agree that the rent payment will include a specific percentage of the gross sales or gross revenues of the tenant's commercial establishment. The lease defines gross sales revenue. For example, a retail store may sell merchandise directly over the counter to customers on the premises and in addition sell merchandise by mail. In this case, the landlord and tenant may agree to the definition of gross sales as being equal to only the over-the-counter sales or to a combination of the over-the-counter and mail order sales. Obviously the definition of gross sales is important because it directly affects the tenant's rent payment and thereby affects the landlord's actual gross income from the property. In addition, the tenant may have a policy of selling merchandise to employees at cost or a substantial discount. The tenant wants these sales excluded from the calculation of gross sales since the tenant makes little or no profit on them. If the landlord agrees, the lease would exclude these sales.
Since the gross sales of the commercial establishment probably relate to the hours and the days on which the store is open, the tenant and the landlord might agree to a schedule of dates and times during which the tenant will conduct business. The landlord may also rent space to a tenant whose business is seasonal. The tenant's year may start in the early spring and continue through the late fall or the Christmas season, a situation common in vacation communities and concession areas along beaches. The landlord and the tenant could agree to special rent payment provisions that would apply while the business is closed. The agreement might provide for a small fixed sum to defray expenses when the business is not in operation but the tenant still occupies property.
Under a percentage lease, the landlord shares in both the good times and the bad times of the tenant's business. Consequently, the following two provisions often appear in a percentage lease to protect the landlord from the bad times:
(1) a fixed minimum rent in which the tenant pays:
(a) a fixed payment only
(b) a fixed amount plus a predetermined percentage of gross sales; or
(c) a percentage of the gross sales
(2) a recapture clause that enables the landlord to regain the property and find another tenant whose business may be more successful. If, for example, the original tenant has paid only the minimum rent for a predetermined amount of time (twelve consecutive months) the recapture clause takes effect..
The exact percentage applied to the tenant's gross sales to calculate that part of the rent is a point of negotiation, with the tenant desiring the lowest possible rate and the landlord, the highest rate.
(d) INDEXED LEASE - When the parties use an indexed lease arrangement, the landlord and the tenant agree that the first year's rent will be a flat or fixed amount, but an escalator clause in the lease will allow the rent to change on a periodic basis, usually yearly, when some index changes. The index can be the consumer price index, the wholesale price index, or any other index related to commodity prices. The index could be related to a major property expense such as the property tax. The index must be reliable and should be directly related to the tenant's business.
(e) ESCALATED OR GRADUATED LEASE - A graduated lease also contains an escalator clause that allows the rent to increase in the future based upon anticipated increases in the property's value or in the landlord's operating expenses. Initially, perhaps for the first year, the rent payments are a fixed amount. Then at set intervals specified in the lease, the payments increase. The agreement could state that rent increases each period by a predetermined percentage of increases in operating expenses or the agreement may predetermine the amount of the increases by stipulating that the tenant will pay $350 per month for use of the commercial space in the first year of operation, $450 per month in the second and third years of the lease, and $600 per month in the remaining years of the lease. This agreement at the outset of the leasing period remains in force for the remainder of the lease. If the rent increases as the value of the property increases (a step-up lease) the increases might come at specified intervals or after periodic appraisals of the property.
If the lease ties rent increases to a percentage of increases in the landlord's operating expenses, it might stipulate that the landlord is responsible for providing each tenant with an audited statement of the operating expenses incurred by the property. However, a tenant might object if he or she knows that a rent increase was based on an increase in operating expenses that did not benefit the tenant directly. For example, the energy costs for operating the elevator and/or escalators may increase total operating costs and thereby force an increase in the rent of tenants on the first floor of the building. Not only can the disclosure of such information create unhappy tenants, the landlord may not wish to agree to reveal total operating expenses because he or she feels strongly that the operating statement of the property is the landlord's own personal affair.
Another consideration would be each tenant's share of the total increase in the operating expenses. If a single tenant leases the entire property, the calculation is simple; the tenant pays the entire increase. However, if several tenants are renting spaces of different sizes, then the rent increase is apportioned or prorated among those tenants based on the size of the space.
As is true with the index lease, the graduated lease can be an advantage to the tenant and to the landlord. It allows long-term tenants to get established without incurring large rental expenses in the beginning, and it is an effective marketing tool while it also provides the landlord with a hedge against inflation.
30.04 TERM OF THE LEASE
Residential leases are short term with expirations set at one year, six months or monthly. Commercial leases are generally medium-term leases whose expiration date is between three and ten years. Usually the parties set the term of the lease in relation to the rental payment scheme and the anticipated future state of the economy. For example, if the tenant expects inflation to continue into the future, he or she would like a gross lease at the lowest possible rate for the longest possible term. In the same situation, the landlord would prefer either an indexed lease or a percentage lease and might be satisfied with giving a long-term lease.
The longest leases for improved property are those for industrial property. Very seldom do such leases remain in force for less than fifteen or twenty years. Ground leases are the leases having the longest terms. Some states have established a minimum of fifty years for this type of lease.
30.05 LEGAL DESCRIPTION
The lease must contain a clear and accurate description of the leased premises. If the tenant leases an entire property, the mailing address may be sufficient description for the tenant's purposes, but the Commission and common sense require the inclusion of a full legal description in the lease.
If the tenant leases only a portion of a property, an additional unambiguous description of the leased portion of the property is very important. In this situation, the lease must contain a description of the geographic location of the tenant's space within the owner's building. For a commercial tenant, a floor plan showing the space that the tenant is leasing attached to the lease would identify the leased space clearly and unambiguously. In an apartment lease, the addition of the street address and the number of the enclosed unit identifies the tenant's space.
30.06 RIGHTS AND RESPONSIBILITIES OF LANDLORD AND TENANT
The body of law pertaining to landlord-tenant relationship identifies certain rights and responsibilities of the two parties to the lease. If possible, the lease should specify the exact nature and extent of these rights and responsibilities. However, if the lease is not specific, landlord-tenant law has established precedents to arbitrate any disagreement between the landlord and the tenant. There are six major rights and responsibilities of the parties.
(a) DELIVERY OF POSSESSION – Actual Possession or Right of Possession - The first responsibility of the landlord is to deliver possession of the space to the tenant in accord with the period stated in the lease. For example, the lease may state that the landlord promises possession to the tenant beginning with the first day of January. The laws of the states are not in unanimous agreement about the nature of the landlord's promise. In some states the landlord is responsible for giving the tenant actual possession of the premises, whereas in other states the landlord is only responsible for giving the tenant the right of possession. In Georgia there is an implied warranty on the part of the landlord that the premises will be available to the lessee at the time stated in the lease. However, the landlord is not under a duty of giving the tenant actual possession.
In states where the tenant has actual possession, the landlord is responsible for taking whatever action is necessary to put the tenant into the property on the first of January. If a holdover tenant is still in the property, the landlord must initiate action to remove the tenant. In states where the landlord gives only the right of possession, the tenant is responsible for taking whatever action is necessary to obtain actual possession. To avoid problems, the tenant might insist that the lease require the landlord to put the tenant in actual possession of the premises at the beginning of the lease term. In Georgia, the landlord impliedly warrants that the leased premises will be available to the tenant at the time fixed in the lease, but the landlord is not charged with the duty of putting the tenant into actual possession.
If the phrase "actual possession" appears in the lease or if it is part of the legal provisions of the state, the landlord would be in jeopardy for not delivering the property to the tenant on the first day of the stated term of the lease. To protect against a suit for damages that may arise for failure to deliver actual possession on time, the landlord would negotiate a clause that postpones the beginning of the term of the lease until the premises have become available. Such a clause eliminates the landlord's risk of being sued for damages but simultaneously ties up the tenant for an indefinite period. In this situation, the tenant would have to wait until the property becomes available to execute the agreement. To protect against this indefinite wait, the tenant could insist that the obligation to pay rent not start until the day of actual possession and insist on a cutoff date. If actual possession is to be delivered on January 1, the tenant could specify that the lease agreement would become void if the landlord did not deliver possession of the property on or before January 15.
(b) USE OF THE PROPERTY - Unless the lease restricts the tenant's use of the property, the tenant can use the property for any legal purpose. However, the landlord can place a clause in the lease that restricts the tenant's right of use. Apartment leases restrict use to residential purposes. Office leases restrict the use to business activity. The courts strictly interpret such restrictions. If the restriction is in any way ambiguous, the courts interpret it in favor of the tenant and against the landlord.
(c) TENANT'S RIGHT TO EXCLUDE VERSUS LANDLORD'S RIGHT OF ENTRY - The lease transfers the exclusive rights to possess and to use the property from the landlord to the tenant. The tenant's right to use and to possess the property gives the tenant complete control of that property. Anyone who enters the property, including the landlord, without the tenant's consent is trespassing. This rule, however, is subject to two important exceptions:
(1) the landlord's right to enter the property to collect rent and
(2) the landlord's right to enter the property in order to prevent waste (anything that is causing, or could cause, damage to the property) and to stop any nuisance.
(d) REPAIRS AND MAINTENANCE - In general, the landlord has not been responsible under common law to maintain and repair the leased property. The phrase caveat lessee expresses this basic rule which translates "let the tenant beware." The landlord had no duty to maintain or repair the leased premises either before or after its occupancy. The same general principle was applicable to the tenant. The tenant's only responsibility was to prevent deterioration subject to ordinary wear and tear.
In Georgia the landlord has an obligation to keep the rented premises in good repair during the tenancy unless there are specific contractual agreements to the contrary. (O.C.G.A. § 44‑7‑13). In a residential tenancy if the landlord allows the property to fall into such a state of disrepair that it becomes unsuitable for the tenant's purposes, the tenant becomes "constructively evicted" and owes no further contractual obligations to the landlord. Once the tenant notifies the landlord that repairs need to be made, the landlord must inspect the property and make arrangements for the repairs. If the tenant gives the landlord notice of a defect and the landlord fails to repair within a reasonable time, the tenant may make the repairs and deduct the cost of those repairs from rental payments. However, a tenant may not withhold rent merely because the landlord fails to make repairs, unless there is a constructive eviction. If the landlord's failure to make repairs damages the tenant's property, the tenant may recoup the amount of those damages from the rental payments. The tenant has a duty to use ordinary and normal care and diligence to prevent injury or damage to the property. Included is a duty to notify the landlord of any repairs needed and to make it possible for the landlord or the landlord's agents to have access to the property to make those repairs.
(e) LIABILITY TO THIRD PARTIES - The landlord is not liable for injury to the tenant, the tenant's family, or the tenant's guests while on the rented premises unless the landlord (but not the tenant) knew about the defect or unless the tenant notified the landlord of the defect and the landlord failed to repair it. (O.C.G.A. § 44‑7‑14).
When a third party sustains an injury on the property, either the tenant or the landlord is liable for the injury depending on the circumstances created by the lease. There are three categories of third parties--invitees, licensees, and trespassers. An invitee is an individual who enters upon the property with either the express or implied consent of the tenant. The invitee enters the property to conduct business with the tenant. In the case of residential property, delivery persons, mail carriers, and meter readers are invitees. The tenant has a responsibility to keep the property in a reasonably safe condition and to warn the individual of any potentially harmful condition. A licensee also is a person who enters the property with either the expressed or implied consent of the tenant. In the case of residential property, a licensee would be a guest of the tenant. The tenant must warn a guest of dangerous conditions, and the tenant must refrain from any conduct that might injure the guest. Finally, a trespasser is an individual who enters the property without the consent of the tenant. A trespasser takes the property as it is. However, the tenant cannot act to create a harmful situation for a trespasser. If the tenant knows that a trespasser enters the property, the tenant must take reasonable care not to cause the trespasser any injury.
The responsibilities of either the landlord or the tenant to invitees and licensees depend on the lease arrangement. If the tenant has leased the entire property, as is the case with a single-family detached house or with freestanding commercial space, the tenant bears full responsibility under the law. To guard against losses from personal-injury suits, tenants maintain personal-liability insurance. The landlord is responsible only for warning the tenant of any known but hidden dangerous conditions on the property. If the landlord does not warn the tenant of these conditions and the tenant sustains injuries as a result of the landlord's failure, the landlord is liable for the tenant's injury.
If several tenants lease the property and the landlord retains possession of the common areas of the structure used by the tenants, the courts are in uniform agreement about the landlord's liability if the common areas become unsafe because of the landlord's negligence. The landlord will be liable not only to injured tenants, but also to third parties such as guests of tenants or persons making business calls on the tenants if such persons sustain injuries while lawfully using the common portions of the premises. In this situation, the tenant retains responsibility for injuries that occur in the leased apartment or commercial space. Consequently, the tenants in multi-unit buildings carry liability insurance against personal injury that may occur within the leased area.
The landlord's liability to third parties injured as the result of the dangerous or defective condition of the tenant's space depends on the circumstances. If the leased real estate is to be used for public purposes such as entertainment halls, amusement parks, athletic arenas, and wharves, the landlord may be held responsible. However, the landlord's liability does not extend to real estate leased for purposes that require that the premises be open to the public such as retail stores, restaurants, and offices.
(f) RIGHT TO ASSIGN AND SUBLET - Unless a clause in the lease limits this right, the tenant can assign or sublet his or her rights in the property without the landlord's permission. An assignment is a process by which the original tenant transfers his or her entire unexpired rights in the leased property to a new tenant. The new tenant steps into the role of the original tenant. In other words, the new tenant who receives the property through an assignment becomes responsible to the landlord for all of the provisions and obligations specified in the original lease. Under the provisions of the lease, the landlord can require the new tenant to pay the rent, to use the property as specified in the lease, and to conform to all other stipulations in the lease. However, if the new tenant does not make the rent payment, the landlord can legally compel the original tenant to make it. In the law, an assignment of leased property does not free the original tenant from the contractual duties imposed in the lease.
A sublet is the process by which the original tenant enters into a separate and distinct lease arrangement with a new tenant. This arrangement between the original tenant and the new tenant does not involve the landlord. Subletting is a transfer of a portion, but not all, of the original tenant's rights in the leased property. In other words, a sublet presupposes that the original tenant maintains some portion of the property. This portion can either be physical or temporal. The original tenant subleases some part of the original leased space, or the original tenant subleases some portion of the time remaining in the original lease. For example, the original tenant could sublet one of the bedrooms in a two-bedroom apartment to a friend while retaining possession of the other bedroom, or the original tenant could sublet the entire apartment to a friend for three months of a one-year lease. Thus, the process of subletting involves a transfer of only a portion of the original tenant's leased property and does not contain a provision by which the new tenant is directly liable to the landlord.
The distinction between an assignment and a sublet is important for the landlord to understand. It affects the contractual obligations and the landlord's right to sue in case the tenant breaches the rent-payment obligation. If the original tenant assigned the lease, the landlord must first attempt to obtain payment from the new tenant. Only after failing with the new tenant can the landlord sue the original tenant for payment. If the original tenant sublet the property, the original tenant is liable for the rent payment without any interruption in the legal process. If the new tenant, the sublessee, fails to make a rent payment, the landlord can sue the original tenant directly. In either event, the ultimate responsibility for the payment of rent and other relevant contractual arrangements is with the original tenant.
Although the landlord has legal recourse against the original tenant under both the assignment and the sublet, the landlord might like to limit a tenant's right to sublet or assign. A clause in the lease accomplishes this purpose. Typically in an apartment lease the clause absolutely prohibits an assignment or a sublet. Typically in a commercial lease the clause states that the original tenant cannot assign or sublet without the landlord's written permission and thus gives the landlord the opportunity to check the new tenant's creditworthiness.
30.07 OTHER CLAUSES IN A RESIDENTIAL LEASE
In addition to the major rights and responsibilities of the landlord and the tenant, residential leases address other matters of concern to the parties. The following clauses typically appear in a residential lease to resolve matters of common concern.
(a) FIXTURES - The purpose of the fixtures clause in a residential lease is to obtain an understanding at the beginning of the lease that items of personal property belonging to the tenant will not become the landlord's property at the expiration of the lease. If the residential tenant chooses to attach his or her personal property to the improvement owned by the landlord, that property would ordinarily become the landlord's property after the expiration of the lease. On the other hand, these items could remain tenant's fixtures or, more specifically, the tenant's domestic fixtures depending upon the lease. The parties should provide for the disposition of these fixtures. Specifically, the tenant may want a clause in the lease that allows the removal of these domestic fixtures at the expiration of the lease. If the landlord agrees, he or she can obtain some degree of protection through language requiring that the tenant either restore the property to its original condition or not damage the property by the removal.
(b) THE LANDLORD'S RIGHT TO ENTER TO SHOW THE PROPERTY - The landlord does not have the right to enter the property unless the lease allows (except when the landlord is entering to collect the rent or to stop waste against the property). Due to this prohibition on their right to enter, landlords typically insert a clause into the lease that gives them some rights to show the property to a new tenant before the original lease expires. This clause generally comes into effect only after the original tenant has indicated that he or she will not renew the lease. The clause typically asks for written notice from the tenant that the lease will be renewed or not renewed. (See “Notification of Renewal”.)
(c) NOTIFICATION OF RENEWAL - A lease provision commonly desired by landlords requires the tenant to provide written notice of the intention to renew the lease. The clause typically states that the tenant must inform the landlord thirty or sixty days before the expiration of the current lease of an intention to renew the lease. In addition, the clause could state that the landlord has the right to change the conditions of the new lease.
(d) HAZARD INSURANCE - The landlord needs adequate insurance coverage against hazards such as fire and windstorms to protect the investment in the rental property. The landlord who rents an entire structure to a single tenant can insert a lease clause requiring the tenant to carry such insurance and to provide adequate proof of the coverage. In the case of a multi-unit building, the landlord would carry hazard insurance to cover the entire property.
The tenant who rents space in a multi-unit building needs to carry insurance to cover damage to the tenant's personal property within the leased space. If a fire occurs due to the negligence of another tenant, or the negligence of a visitor to the property, the landlord is typically not responsible. Consequently, the landlord will not have to compensate the tenant for losses of personal property.
(e) SECURITY DEPOSITS - Security deposits are a major consideration in leases. The landlord wants to collect an adequate amount of money to cover any physical damage beyond normal wear and tear caused by the tenant. Also the security deposit can be used to defer loss when the tenant breaches the lease. (The chapter entitled Security Deposits For Residential Property includes a detailed discussion of the legal aspects of security deposits)
(f) UTILITY PAYMENTS - The lease assigns responsibility for utility payments. Sometimes, the landlord provides all necessary utilities such as electricity, natural gas, water/sewer, and trash collection. In others, the landlord provides trash collection and water only and requires the tenant to pay for electricity and natural gas to heat the apartment. In still other instances, the landlord expects the tenant to pay for all the utilities.
(g) TRANSFER CLAUSE - The tenant is responsible for fulfilling the provisions of the lease even if the tenant transfers to a new job in a new locality. To avoid this jeopardy, the tenant may insist on a clause providing a release of the lease obligations if a relocation takes place. The transfer clause usually stipulates that the tenant's responsibilities terminate if the tenant takes a new job that is fifty, seventy-five, or some other reasonable number of miles away from the leased property and if the tenant gives the required notice, often thirty days.
The Soldiers and Sailors Relief Act provides that if a person enters the United States military, that person may terminate any lease executed prior to his or her beginning military service upon the giving of thirty days written notice to the landlord. This provision covers property leased by or for the person who later enters the military which is used for dwelling, professional, business, or agricultural purposes or for a combination of such purposes. (50 USC § 534)
(h) MISCELLANEOUS RULES AND REGULATIONS - In addition to the preceding specific clauses, the typical lease contains a section stating various rules and regulations that the landlord wishes to impose. For example, this section of the residential lease might contain the following statements:
(1) No pets allowed on the premises.
(2) Tenants must throw trash into specifically designated containers.
(3) Tenants will refrain from playing stereos, radios, or TV's in a loud manner after 10:00 p.m.
(4) The laundry room is for laundry purposes only, and is open only from 9:00 a.m. to 9:00 p.m.
(5) Each tenant must park in the assigned parking space for the apartment.
(6) Vehicles other than the residents cars are not permitted on the property
These rules and regulations specify the landlord's preferences about the behavior of the individual tenants in an apartment building. The landlord's concern is to establish a code of behavior that maximizes the benefits for all individuals living in the building. Consequently, each individual may have to avoid some activities at certain times that he or she finds beneficial or enjoyable. For example, one tenant may prefer to do the laundry at 2:00 a.m. but in so doing would disturb other tenants. Thus the rule for use of the laundry room facilities benefits the community at some small cost to individual preferences.
30.08 LANDLORD-TENANT RELATIONSHIP
Many consumer-oriented matters affect the residential lease but are not specifically stated as clauses in the lease. This section examines some of these issues.
(a) THE LANDLORD'S RIGHT TO SELECT TENANTS - Under common law, the landlord had the right to rent property to whomever he or she pleased. This rule implied also the right to refuse lease renewals to specific tenants. Today, federal and state fair housing acts expressly forbid the landlord to use race, ethnic or national origin, creed, sex, disability, or familial status as a basis for a decision to issue a lease or renew a lease. However, the landlord still retains the right to make decisions based on creditworthiness, which can reflect employment history, promptness of discharging financial responsibilities, and adequacy of the prospective tenant's income level to meet the rent obligation. Check fair housing legislation both federal and state for an expanded discussion.
(b) THE LANDLORD'S DUTY TO PROVIDE A SAFE ENVIRONMENT - Traditionally, the landlord did not have a responsibility or duty to protect the tenant from criminal acts committed by third parties. However, under the notion that a lease is a contract for the use and possession of space, the courts are placing this responsibility on the landlord. This new rule is especially applicable if the landlord advertises security protection and/or takes inadequate measures for security. Courts have held the landlord liable for security protection when the condition of the property was such that it facilitated the criminal act. For example, a landlord was held liable for losses due to burglary because the landlord did not furnish adequate locks for the apartments. A landlord was held liable for losses due to robbery in a common area of a building because the tenant, who was the victim, showed that the landlord had failed to provide adequate lighting.
(c) IMPLIED HABITABILITY IN THE RESIDENTIAL LEASE - When the law originally devised the basic rule of "let the tenant beware," leases were for a uniquely identified and specified piece of property, generally a parcel of agricultural land to be used and occupied by a single tenant. The major component of the leasehold was the land; the improvement or dwelling was incidental. Moreover, the landlord was absent and the tenant, who was in possession, had the tools and skills to maintain and repair whatever structure was on the property. Today, tenants who inhabit apartment buildings typically have neither the tools nor the skills to even attempt repair and maintenance work. Consequently, no one expects a tenant to repair. This legal view imposes an expressed or at least an implied obligation on the landlord to maintain and repair the leased property. In other words, the current legal view is that the landlord makes an implied warranty of habitability in a lease.
The question of habitability of property is very subjective. At best, the condition of habitability or fitness for living would force the landlord to comply with the housing codes of the locality. However, the specificity of housing codes varies greatly. Depending on the municipality, the codes may require each dwelling unit to have hot and cold running water and private toilet and bath facilities. The housing code might also specifically prohibit exposed electrical wiring and unprotected heights such as stairways and balconies. Some codes require heat during cold weather but do not state the minimum temperature for each dwelling unit. Finally, some codes specify that the landlord must maintain the property in a clean and sanitary manner, which implies the landlord's responsibility for trash and rubbish removal.
To avoid confusion, the lease can specify the obligations of both the tenant and the landlord to maintain and repair the property. In the case of a single-family detached house, the courts tend to view the tenant as being responsible for repair and maintenance of the property under his or her control if the lease does not specify the landlord's responsibility for making repairs. For an apartment building if a lease provision specifying the responsibilities to repair and maintain is lacking, recent court rulings obligate the landlord to make repairs. In addition, the courts usually hold the landlord responsible for the repair and maintenance of the common areas of the apartment building such as its entrances, stairways, and hallways, and any structural components of the building such as floors, ceilings, walls, foundation, and roof. However, the landlord does not have an obligation to improve the property to a condition better than the condition when the tenant took possession. The law requires the landlord only to maintain the premises in the condition they were in at the beginning of the lease term.
(d) TENANT'S RIGHT TO REPAIR - If the lease has a clause stating that the landlord will be responsible for the repairs and maintenance of the property, a landlord's breach of this promise entitles the tenant to make the repairs and to charge the expense of these repairs to the landlord. However, the tenant has this right only after issuing proper notification of the need for repair to the landlord and after the landlord refuses to make such repairs. The tenant cannot repair the property on the landlord's behalf until the landlord has had a reasonable opportunity to make the repairs.
If the landlord fails to fulfill the promise to repair and the tenant has the repairs made by a third party, the third party is an agent of the landlord. If the tenant gives the landlord adequate notice of the intention to have the work done by the third party and the landlord agrees and the third party performs the work in an appropriate manner, nonpayment for the work could result in a mechanic's lien against the landlord's property. The tenant may pay for the repair and deduct it from the rent payment.
If a tenant exercises the right to repair at the landlord's expense, the tenant does so at his or her own risk. The landlord may deny that there was any need for the repair. The landlord may even claim that the need for repair was due to the tenant's negligence. Or the landlord may argue that the repairs went beyond the scope of necessary work--that is, the tenant improved the property above and beyond curing the defect. Therefore, it is up to the tenant to document carefully and completely the conditions that made the repairs necessary, the nature and extent of the repair work, and costs incurred.
In addition to the right to make the repair and deduct the expense from the rent, or to pass the bill to the landlord, the tenant has other options. If the landlord is obligated to make repairs and does not, the tenant can select one of the following remedies:
(1) vacate the property if it is uninhabitable;
(2) occupy the property without repair and reduce the rent payment proportionately (this option may result in litigation if the tenant reduces the rent in an amount in excess of the actual reduction in value of the leased premises.); or
(3) pay the full rent and sue the landlord for a decrease in rent value caused by the defects that the landlord has failed to repair.
In addition to the information in this chapter the reader may wish to consider the concept of “less than freehold estates”, aka “leaseholds” presented in another chapter of this work.