For Neal Graham's Real Estate Class (LEGL 3485) at the University of Memphis. Copyright Cengage Learning.

1. Chapter 18
Leases

2. Objectives
• After reading this chapter, you should be able
to:
– Review a commercial lease and understand its key
provisions.
– Define the various ways to compute rent under a
lease.
– Understand the legal differences between an
assignment of lease and a sublease.

3. Objectives
• After reading this chapter, you should be able
to:
– Recognize a landlord’s remedies for a tenant’s
default under a lease.
– Recognize a tenant’s remedies for a landlord’s
default under a lease.

4. Common Law and Leases
• English common law treated a lease as a
combination of property and contract law
– Property law
• Lease is deemed to be a conveyance of real property
– Contract law
• Lease contains numerous terms and conditions that
involve the use and possession of the property

5. Common Law and Leases
• Under common law lease covenants were
independent (landlord’s promises were
independent from the tenant’s)
– Neither party excused from obligations if the
other fails to perform
– Most states have modified the theory of
independent covenants for residential leases
– Most states still follow a theory of independent
covenants for commercial leases

6. Commercial Lease Provisions
• Parties to lease
– Landlord
• Lessor
– Tenant
• Lessee
• Premises

7. Commercial Lease Provisions
• Use
• Term
• Possession and commencement of the lease
• Rent

8. Commercial Lease Provisions
• Percentage rent
– Percentage of the gross sales sold from the
premises will be the amount of the rent
• Percentage breakpoint—all sales in excess of this
breakpoint amount are subject to percentage rent

9. Commercial Lease Provisions
• Gross versus net lease
– Gross
• Tenant pays rent only
• Ordinary and necessary operating expenses are paid by
the landlord
– Net
• Tenant pays a fixed amount to the landlord
• Tenant is responsible for all expenses of the property

10. Commercial Lease Provisions
• Rent escalation clauses
– CPI clause
• Security deposit

11. Commercial Lease Provisions
• Maintenance and alterations of premises
– Tenant cannot use or modify the premises in any
way that would:
• Violate a certificate of occupancy
• Make void any insurance in effect or make it impossible
to obtain insurance
• Cause structural injury to any part of the premises
• Constitute a public or private nuisance

12. Commercial Lease Provisions
• Insurance
– Subrogation
• Damage or destruction to the premises
• Obligation of repair
• Condemnation and eminent domain

13. Commercial Lease Provisions
• Default
– When the tenant:
• Fails to pay any installment of the rent
• Fails to perform or observe any covenant, term, or
condition under the lease
• Fails to continue its business or abandons the premises
• Fails to maintain certain evidence of financial stability

14. Commercial Lease Provisions
• Landlord’s remedies for tenant’s default
– Sue the tenant for performance
– Terminate the lease and sue for damages
– Dispossess the tenant and sue for damages
• Landlord’s right to perform tenant’s
obligations
• Landlord’s lien

15. Commercial Lease Provisions
• Grace periods
• Tenant’s remedies for landlord’s default
• Quiet enjoyment
• Surrender of the premises
• Estoppel certificate
• Memorandum of lease
• Limitation on the landlord’s liability

16. Assignment, Subletting, or
Mortgaging of the Leased Premises
• Assignment
– Tenant transfers all of his or her interest under
the lease and retains nothing
• Sublet
– Tenant transfers only a portion of his or her
interest under the lease
– Tenant retains some interest

17. Assignment, Subletting, or
Mortgaging of the Leased Premises
• General rule is that a tenant may assign,
sublet, or mortgage his or her interest in the
lease
– Restrictions on assignment or subletting of the
lease are strictly construed

18. Assignment, Subletting, or
Mortgaging of the Leased Premises
• Assignee of a lease has the responsibility for
rent as long as the assignee is in possession
• Subtenant or sublessee has no responsibility
to the original landlord under the lease for
either rent or any of the lease covenants
– Responsible only to tenant

19. Assignment, Subletting, or
Mortgaging of the Leased Premises
• Tenant may mortgage the leasehold interests
or rights under a lease
– Mortgage is subject to the terms of the lease
– Attornment and nondisturbance agreements

20. Assignment, Subletting, or
Mortgaging of the Leased Premises
• Special sublease issues
• Provisions normally contained in a sublease
• Lease guaranty
– Usually is unconditional
• Rejection of leases in bankruptcy

21. Assignment, Subletting, or
Mortgaging of the Leased Premises
• Uniform Residential Landlord and Tenant Act
(URLTA)
– Provides for a comprehensive division of landlord
and tenant responsibilities concerning the use and
occupancy of the premises
– Balances the playing field between the landlords
and the tenants in residential situations
– Requires an obligation of good faith

22. Assignment, Subletting, or
Mortgaging of the Leased Premises
• Protection of residential tenants from eviction
after a foreclosure sale
– Helping Families Save Their Homes Act of 2009

23. Ethics: Legal Needs of the Poor
• Pro bono publico
– Represent the poor in civil and criminal cases
• Rules of professional responsibility and
conduct that govern attorneys in most states
require public service as part of the ethical
requirements of being an attorney
• Can provide the paralegal with an opportunity
to develop and improve skills

24. Summary
• Leasing
– An important aspect of the real estate business
• Although lease negotiations are not
adversarial in nature, it is obvious that a
landlord and a tenant do not have mutual
interests in negotiating the lease

25. Summary
• When reviewing or preparing a lease, the
paralegal should keep in mind the effect of
any lease provision on the client
• Essential ingredients to becoming competent
in the area of lease transactions
– Knowledge
– Experience