A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset.[1] A rental agreement is a lease in which the asset is tangible property.[2] Leases for intangible property could include use of a computer program (similar to a license, but with different provisions), or use of a radio frequency (such as a contract with a cell-phone provider). A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership from lawnmowers and washing machines to handbags and jewelry.[3]
A cancelable lease is a lease that may be terminated solely by the lessee or solely by the lessor. A non-cancelable lease is a lease that cannot be so terminated. Commonly, “lease” may imply a non-cancelable lease, whereas “rental agreement” may connote a cancelable lease.
The lease will either provide specific provisions regarding the responsibilities and rights of the lessee and lessor, or there will be automatic provisions as a result of local law. In general, by paying the negotiated fee to the lessor, the lessee (also called a tenant) has possession and use (the rental) of the leased property to the exclusion of the lessor and all others except with the invitation of the tenant. The most common form of real property lease is a residential rental agreement between landlord and tenant.[4] 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 (depending on the terms of the lease) may be terminated sooner.
A lease should be contrasted to a license, which may entitle a person (called a licensee) to use property, but which is subject to termination at the will of the owner of the property (called the licensor). An example of a licensor/licensee relationship is a parking lot owner and a person who parks a vehicle in the parking lot. A license may be seen in the form of a ticket to a baseball game. The difference would be that if possession is subject to ongoing, recurrent payments and is generally not subject to termination except for misconduct or nonpayment, it is a lease; if it's a one-time entrance onto someone else's property, it's probably a license. The seminal difference between a lease and a license is that a lease generally provides for regular periodic payments during its term and a specific ending date. If a contract has no ending date then it may be in the form of a perpetual license and still not be a lease.
Under normal circumstances, owners of property are at liberty to do what they want with their property (for a lawful purpose), including dealing with it or handing over possession of the property to a tenant for a limited period of time. If an owner has surrendered possession to another (i.e., 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, sometimes referred to as a "master lease".
Contents |
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 industrialized 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.
A Lease is a legal contract, and thus enforceable by all parties under the Contract Laws of the applicable jurisdiction. But, since it also represents a conveyance of possessory rights to real estate, it is a hybrid sort of contract that involves qualities of a deed. Some specific kinds of leases may have specific clauses required by statute depending upon the property being lease, and/or the jurisdiction in which the agreement was signed or the residence of the parties.
Common elements of a lease include:
All kinds of personal property (e.g.: cars, furniture,...) or real property (raw land, apartments, single family homes, and business property (including wholesale and retail)) may be leased. As a result of the lease, the owner (lessor) grants the use of the stated property to the lessee.
A fixed-term tenancy or tenancy for years lasts for some fixed period of time. It has a definite beginning date and a definite ending date. Despite the name "tenancy for years", such a tenancy can last for any period of time—even a tenancy for one week may 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" or "until the war is over"). In many jurisdictions that possibility has been partially or totally abolished.[5]
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. If a holdover tenant remains on the property after the termination of the lease, s/he may become a tenant at sufferance because the lessor/landlord has suffered (or allowed) the tenant to remain as a tenant instead of evicting him or her. Such a tenancy is generally "at will," meaning the tenant or the landlord may terminate it at any time, upon the providing of proper statutory notice.
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, depending 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.
Either the landlord or the tenant may terminate a periodic tenancy when the period or term is nearing completion, by giving notice to the other party as required by statute or case law in the jurisdiction. Neither landlord nor tenant may terminate a periodic tenancy before the period has ended, without incurring an obligation to pay for the months remaining on the lease. Either party must give notice if it intends to terminate a tenancy from year to year, and the amount of notice is either specified by the lease or by state statute. Notice is usually, but not always, at least one month, especially for the year to year periodic tenancy. Durations of less than a year 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 increased these required notice periods, and some have reduced the capacity of a landlord to use them drastically. For jurisdictions that have local rent control laws, a landlord's ability to terminate a residential tenancy is substantially reduced. For example, in California, the cities of Los Angeles, Santa Monica, West Hollywood, San Francisco, and Oakland have "rent stabilization ordinances" that limit a landlord's ability to terminate a periodic tenancy, among other restrictions.
The notice must also state the effective date of termination, which, in some 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 a jurisdiction with a last day requirement the termination could not be effective on the 20th of the following month, even though this would give the tenant more than the required one month's notice.
A tenancy at will is a tenancy which either the landlord or the tenant may terminate at any time by giving reasonable notice. Unlike a periodic tenancy, it isn't associated with a time period. It may last for many years, but it could be ended at any time by either the lessor or the lessee for any reason, or for no reason at all. Proper notice, as always with landlord/tenant law, must be given, as set forth in the state's statutes. If there is no formal lease, the tenancy at will is the one that usually exists. In rare cases it may occur where the tenancy is not for consideration. Under the modern common law, a tenancy at will without compensation is very rare, partly because it comes about only if the parties expressly agree that the tenancy is for no rent, commonly where a family member is allowed to live in a home (a nominal consideration may be required) without any formal arrangements. In most residential tenancies for a fixed term, for consideration, the tenant may not be removed except for cause, even if there is no written lease. (However, an oral lease for more than 12 months is not enforceable if the statute of frauds in the jurisdiction includes leases of more than 12 months.) Many residential leases convert to "at will" tenancy subject to 30-days notice. Alternatively, a tenancy at will (without a specific time limit) may exist for a temporary period where a tenant wishes to take possession of a property and the landlord agrees, 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 a new lease is negotiated and signed. The parties may also agree on the basis that if the parties fail to enter into a new lease within a reasonable time period, then the tenant must vacate the premises.
If a lease exists at the sole discretion of the landlord, the law of the jurisdiction may imply that the tenant is granted, 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") generally does not imply that the landlord may terminate the lease; 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:
The specifics of these rules differ from jurisdiction to jurisdiction.
Subject to any notice required by law, a tenancy at will also comes to an end when either the landlord or the tenant acts 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. However, in some jurisdictions, such as California, a landlord is prohibited from using a "self help" remedy, such as changing the locks, to terminate a tenancy, particularly a residential tenancy. Doing so may constitute a "constructive eviction" and expose the landlord to civil and criminal liability.
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.
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.[6]
A tenancy for a duration greater than one year must be in writing in order to satisfy the Statute of Frauds.
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.
Rent is a requirement of leases in some common law jurisdiction, but not in civil law jurisdiction. In England it was held in the case of Ashburn Anstalt v Arnold that rent was not a requirement for there to be a lease, however the court will more often construe a licence where no rent is paid as it is seen as evidence for no intention to create legal relationship. There is no requirement for the rent to be a commercial amount. "Pepper corn" rent or rent of some nominal amount is adequate for this requirement.
In addition to the above, a car rental agreement may include various restrictions on the way a renter can use a car, and the condition in which it must be returned. For example, some rentals cannot be driven off-road, or out of the country, or towing a trailer, without specific permission. In New Zealand you may have to specifically endorse a promise that the car will not be driven onto Ninety-Mile Beach (because of the hazardous tides).
There will certainly be a requirement to show a driver's license, and only those drivers appearing on the contract may be authorized to drive. It may include an option to purchase auto insurance (motor insurance, UK), if the renter does not already have a policy to cover rentals—another important consideration for multiple drivers. Some agencies may even require a bond payable if the car is not returned in order, often held in the form of a credit-card authorization—voided if the car is returned per agreement. A renter should be advised that he or she will be responsible for any parking or traffic violations incurred upon the vehicle during the rental period. There should also be advice on handling thefts, accidents, break-downs, and towing.
Further terms may include added fees for late returns, drop-off at a different location, or failure to top up the petrol immediately before the return.
Finally, there may be provisions for making a non-refundable deposit with a booking, terms for payment of the initial period (with discounts, vouchers, etc.), extended periods, and any damages or other fees that accrue prior to the return.
A rental agreement is often called a lease, especially when real estate is rented. Real estate rentals are initiated by a rental application[7] which are used to build the terms of the lease. 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.
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 UK the government has introduced deposit protection scheme by providing Property Inventory Services which is carried out by various Independent Inventory Clerk across the country.
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:
Additional events including riot, aircraft, explosion, smoke, hail, falling objects, volcanic eruption, snow, sleet, and weight of ice may also be covered.[9]
A land lease or ground lease is a lease in which the tenant rents and uses the land, but owns the temporary or permanent buildings and other objects placed upon it.
In real estate law, sublease (or, less formally, sublet) is the name given to an arrangement in which the lessee in a lease assigns the lease to a third party, thereby making the old lessee the sublessor, and the new lessee the sublessee, or subtenant. This means they are renting the property and renting it out at the same time. For example, the owner of an office building may lease the whole building to a management company. This company may then sublease parts of the building to other people. The management company is said to sublet the property to the individual tenants by means of a sublease. In this event, the management company (which was previously the lessee under the original lease) becomes the sublessor, and the individual tenants are subtenants or sublessees.
The sublessor remains liable to the original lessor for any damage to the property and for payment of rent. Often the original lessee requires a lower rent payment from the sublessee than what he or she may have originally paid, leaving a partial amount of the rent left up to the original lessee.
It is sometimes illegal to charge the subtenant more than the original amount in the sublessee's contract (for instance, in a rent control situation where the rental amount is controlled by law). Subletting of social housing is generally illegal, whatever the rent charged to the subtenant; in the UK it is officially described as a category of housing fraud.[10]
A sublease can also apply to vehicles as an alternate type of car rental. In a vehicle sublease, a lessee or vehicle owner can assign a lease to a third party and by way of contractual agreement for specific dates. Although this arrangement is not popular, it is a growing trend in the travel industry as a less expensive alternative for travelers and locals.
A head lease is a lease between a tenant and a landlord in which overall contractual responsibility is given to one identifiable tenant called the head lessee. This form of lease normally relates to an entire building which is multi-tenanted and subleased, and is usually for a longer term than the subleases.[11]