All questions are to be answered in a short essay form. Structure your answers around the factual basis. 1. Landlord-tenant relationship is a peculiar one. Please discuss legal aspects of this relationship, and effect - various statutory enactments have made in this respect. 2. Whether one acquires real estate through purchase, lease, death or otherwise, person's ability to develop and use the property comes under operation of various rights and duties attached to the ownership of real estate. Please discuss in brief. CHAPTER 11 Landlord and Tenant \" A house she hath, 'tis made of such good fashion, The tenant ne'er shall pay for reparation, Nor will the landlord ever raise her rent Or turn her out of doors for non-payment: From chimney tax this cell is free \" To such a house who would not tenant be? Seventeenth-Century English Tombstone In Chapter 11, you learn about leasehold estates and licenses, a landlord's choice of tenant, required lease provisions, suggested lease provisions, remedies, and a landlord's tort liability. 424 Part II >>> The Real Estate Transaction As noted in Chapter 5, an estate is one's interest in real or personal property. Interests in real property may be divided into two broad categories: 1. Freehold estates characterized by their indefinite duration since no one knows when the estate will end leasehold estate An estate in real property that lasts for a definite period of time. 2. Leasehold estates, which usually last for a definite period of time A freehold estate is considered to be an interest in real property, and the owner of the estate has both title and the right to take possession of the land. A leasehold estate (sometimes called a nonfreehold estate), while an interest in real property, is traditionally classified as a \"chattel real,\" a personal property interest in real estate. This classification has significance in several contexts. For example, the leasehold estate \"at common law was a chattel real and personal property; upon the death of the owner of this estate intestate, it passes as any other personalty to the deceased tenant's personal representative. While it is an estate in real property, it is not real property.\"1 Real property, on the other hand, passed directly and immediately to the decedent's heir. Although the tenant does not have title to the property, she has the right to take possession of the property for a stated period. When the lease ends, the right to possession reverts back to the landlord. The landlord's interest during the period of the lease is called a \"reversionary interest.\" The four types of leasehold estates are as follows: 1. The estate for years 2. The periodic tenancy 3. The tenancy at will 4. The tenancy at sufferance (See Figure 11.1.) This chapter describes the leasehold estates (along with licenses and cooperatives) and then examines the contract used to create a leasehold estatethe lease. Figure 11.1: Estates in Land Freehold (Chapter 5) Estates in Land Estate for Years Periodic Tenancy Leasehold Tenancy at Will Tenancy at Sufferance Chapter 11 >>> Landlord and Tenant 425 The remedies available to the landlord or tenant when the landlord has breached a duty established by the lease or by law are then covered. The chapter concludes with a discussion of the landlord's tort liability to the tenant or to visitors on the premises. LEASEHOLD ESTATES AND LICENSES Estate for Years An estate for years, an estate that has a definite beginning and a definite end, is the most common type of leasehold estate. The length of time between the beginning and end may be one day, or it may be ten thousand years. In some states, however, a lease for a definite term exceeding a certain period (for example, more than 100 years in Massachusetts) is considered to be a fee simple estate by statute. The parties may select the lease's duration as long as the state does not limit its length. In one case, for example, the court decided that an estate for years was created when one person leased property to another person in the year 1800 for a term of two thousand years at an annual rent of $10.07.3 Most leases provide that they will terminate under specified conditions, including the lessee's nonpayment of rent. Unless the estate for years is terminated under a specified condition of the lease, it will terminate at the end of the period. The rights of the tenant cease automatically at midnight on the last day of the term. The landlord is not required to send the tenant a notice to leave unless required to provide notice under statute; the lease itself serves as the notice. estate for years An estate of fixed durationa year or a multiple or fraction of a year. The essential characteristic of this estate is its duration.2 Periodic Tenancy A periodic tenancy, sometimes called an estate from year to year, lasts for a period of time that is automatically renewed until the landlord or tenant gives notice that it will end. The periodic tenancy can be created by the express agreement of the landlord and tenant, or its creation may be implied. For example, if the landlord and tenant sign a lease that states everything except the term of the lease, it is implied that they intended a periodic tenancy. An implied periodic tenancy also is created when the tenant takes possession of the property under a defective lease. A CASE IN POINT In Laughran v. Smith,5 the tenants took possession of the rental property on May 1 under a five-year lease that was void because the landlord never signed it. The court decided that by \"the entry, occupation, and payment of rent they became tenants from year to year, with the right to terminate the lease on the 30th day of April of any year on giving due notice.\" Periodic tenancies are commonly created when a tenant remains on the premises at the conclusion of an estate for years. The tenant's remaining in possession (or \"holding over\") is considered to be an offer to rent the premises under a periodic tenancy. If the landlord accepts the offer by treating the tenant as a periodic tenant, the rent and the length of the renewable periods are determined by the original lease. However, when the original lease was for a term of more than one year, the periodic tenancy is considered to be from year to year. periodic tenancy A tenancy that endures for a certain period of time and for successive periods of equal length unless terminated at the end of any one period by notice of either party. The chief characteristics that distinguish periodic tenancies from other nonfreehold estates are the continuity of the term and the requirement of notice to terminate the tenancy.4 426 Part II >>> The Real Estate Transaction The rule making the tenant liable for another lease term is sometimes harsh. For instance, if a tenant remains in her apartment for three days after the end of a one-year lease, she will be liable for another full year's rent. Yet the objective of the rule is to protect tenants as a class. As one court noted: The rule imposes a penalty upon the individual tenant wrongfully holding over, but ultimately operates for the benefit of tenants as a class by its tendency to secure the agreed surrender of terms to incoming tenants who have severally yielded possession of other premises in anticipation of promptly entering into the possession of the new. . . . [A]s the value of any piece of property is largely dependent upon its actual or potential continuing yield in periodic rent, the social and economic importance of the landlord being able certainly to deliver, and the prospective tenant so to obtain possession on the stipulated day, is obvious.6 holdover tenant A tenant who retains possession after the expiration of a leasehold interest. In some situations, the holdover tenant remains on the property involuntarily because of circumstances beyond her control. When this happens, the tenant is not liable for a new term. A CASE IN POINT In Regan v. Fosdick,7 the tenant was unable to leave an apartment until nineteen days after the term ended because the tenant's child had scarlet fever and was quarantined on the premises under a board of health order. When the landlord later brought suit on the theory that the tenancy had been renewed, the court decided in favor of the tenant because the tenant was forced to remain on the premises by circumstances beyond his control. Regardless of the method used to create a periodic tenancy, the usual method of termination is by notice to quit, given by either the landlord or the tenant. At common law, a six-month notice was required to terminate a year-to-year tenancy, while the notice for tenancies with shorter periods was determined by the length of the period. For instance, a one-month notice was required to terminate a month-to-month tenancy. Today the time period for giving notice in most states is determined by statute. To compute the time period, days are counted beginning with the day after the notice was served and ending with the last day of the rental period. Although the notice does not have to use legal terminology, it must be clear and unambiguous. A CASE IN POINT In Torrey v. Adams, a tenant leased property under a year-toyear lease ending May 1 each year.8 The tenant wrote to his landlord, \"I want to tell you that I will have to give up the apartment when the lease expires, June 1, 1921, as I shall break up housekeeping. I expect to return East early in May to see about things and trust this will be satisfactory to you.\" The tenant moved from the apartment in May but was held liable continued Chapter 11 >>> Landlord and Tenant 427 for rent for the rest of the year because the notice \"must be so certain that it cannot reasonably be misunderstood, and if a particular day is named therein for the termination of the tenancy that day must be the one corresponding to the conclusion of the tenancy, or the notice will be treated as a nullity. The notice would have been sufficient if in any form of words it had provided for the termination of the lease on May 1, 1921.\" Tenancy at Will A tenancy at will is characterized by its indefinite duration; it may be terminated at any time after the landlord or the tenant gives proper notice. In most states, the tenant has a statutory right to remain on the premises for a specified period (for example, thirty days) after notice is given. A tenancy at will may be created expressly by contract between the parties, or it may be implied. For example, a landlord owns an apartment building that she wants to sell. If potential buyers would prefer to purchase the building free of longterm leases, the landlord might lease each apartment under a tenancy at will that expressly provides that \"the lease shall last until the landlord sells the property.\" Even if this clause is omitted from the lease, a tenancy at will might be implied if the landlord and tenant made no agreement specifying the term of the lease. Tenancy at Sufferance A tenancy at sufferance results when a person in possession of real estate refuses to leave after his rights to occupy the property have ceased. This technically is not an estate because the tenant has no right or permission to remain on the real estate; however, neither is the occupancy a trespass because the tenant's original entry onto the property was rightful. For example, Lanny leased an apartment to Bennett for one year; the lease was to end September 1, 2009. If Bennett does not leave the apartment by September 1, he will become a tenant at sufferance and will become liable for damages based on the reasonable rental value of the property. To discourage both residential and commercial tenants from remaining in possession past the expiration of their leases, some states, such as Florida, require the tenants to pay double rent until they leave.10 The landlord also could decide to treat Bennett's holding over as a periodic tenancy, as discussed previously. tenancy at will A landlord-tenant relationship that endures only so long as both parties agree to its continuance is an estate at will. The chief characteristic of the tenancy is its durational insecurity since either party may terminate the tenancy at any time.9 tenancy at sufferance A tenant who continues in possession of leased property after his rights to the property have terminated. Licenses In many business transactions, it is important to determine whether a leasehold estate or a license has been created. A lease gives the tenant an estate in the form of an exclusive right to possession of the property. As noted in Chapter 4, a license which is permission to enter the premises for a specified purposegives the licensee no right, title, or interest in the property. End of Chapter Case In Nextel of New York, Inc. v. Time Management Corporation on page 462, the court rules on whether the plaintiff possessed a nonexclusive license or a commercial lease for its cell phone antennae and equipment. license A privilege to enter the premises for a certain purpose, which does not give the licensee any title, interest, or estate in such property. 428 Part II >>> The Real Estate Transaction LANDLORD'S CHOICE OF TENANT Initial Selection of Tenant http:// To access a web site detailing the rights of tenants, see http://www .tenants-rights.org testers People working for government agencies or public interest groups who pose as tenants to detect whether landlords are violating antidiscrimination laws. The landlord is prohibited from deciding whether to rent to a prospective tenant based on the prospect's membership in a protected group. As discussed in Chapter 6, the Civil Rights Act of 1866 prohibits a landlord's discrimination on the basis of race in selecting tenants. Title VIII of the Civil Rights Act of 1968, as amended in 1988 (also called the Fair Housing Act, or FHA), provides that the landlord may not discriminate on the basis of race, color, religion, national origin, sex, handicap, or family status (that is, families with children) in leasing a dwelling. State and local fair housing legislation often adds additional categories of prohibited discrimination. For example, special state statutes that apply to the rental of public housing prohibit discrimination against people based on their sexual orientation11 or against those who have illegitimate children or a criminal record.12 The enforcement of the FHA has been greatly enhanced by the ability of public interest groups to employ testers to see if protected groups are accorded the same treatment as others. For example, the Metropolitan Milwaukee Fair Housing Council sent black and white shoppers to the Shorecrest Apartments.13 Shorecrest gave the shoppers different information about unit availability and rental rates based on their race. The court held that the testers had uncovered sufficient incidents of discrimination to prove a \"pattern of discrimination,\" and the court upheld a jury's award to the testers of damages for their emotional distress. Despite federal and state legislation, landlords sometimes have considerable leeway in selecting tenants. A CASE IN POINT In Kramarsky v. Stahl Management,14 a landlord refused to rent an apartment to an African-American divorce who was general counsel to the New York Commission on Human Rights, because the landlord believed she might cause trouble as a tenant. When the prospective tenant brought suit, the landlord proved that he was not discriminating on the basis of race or marital status: 60 percent of his apartments were rented to unmarried people and 30 percent to African Americans. The court decided that discrimination on the basis of intelligence is legal. According to the court, a landlord \"may decide not to rent to singers because they are too noisy, or not to rent to baldheaded men because he had been told they give wild parties. He can bar his premises to the lowest strata of society, should he choose, or to the highest, if that be his personal desire.\" Landlords also must be concerned about the physical qualities of structures that may produce a discriminatory effect on disabled tenants. For example, the FHA's protections for the disabled, discussed in Chapter 6, require that new multifamily dwellings, defined as \"buildings with four or more units in which first occupancy is on or after March 13, 1991,\" must be made accessible to the disabled. This Act is aimed at helping tenants who are wheelchair users. These dwellings, which include most apartments and condominiums, must include the following: Chapter 11 >>> Landlord and Tenant An accessible building entrance on accessible routes Accessible and usable public and common use areas, such as swimming pools and laundry rooms Usable doors within the entire premises, with clear passage of 32 inches opening to 90 degrees Routes into and through the dwelling unit, including only a 1/2- to 3/4-inch threshold Light switches, electrical outlets, thermostats, and other environmental controls in accessible locations Reinforced walls for grab bars Usable kitchens and bathrooms for wheelchair maneuverability A landlord also cannot refuse a disabled tenant who wants to modify her dwelling at her own expense. Still, the landlord can require the tenant to restore the apartment to the condition prior to modification when she leaves. Commercial landlords also must comply with Title III of the Americans with Disabilities Act (ADA), which prohibits hotels, shopping centers, bars, restaurants, movie theaters, athletic clubs, and many other places of public accommodation from discriminating against disabled individuals. The Act requires the removal of existing architectural barriers by installing ramps and curb cuts, widening doors, and adding accessible parking if these and other measures are \"readily achievable\" (accomplished with little difficulty or expense). The Act also provides that places of public accommodation and commercial facilities built after 1993, as well as buildings and areas that are undergoing alterations in older existing buildings, be made \"readily accessible\" to the disabled.15 The readily accessible requirement may even apply to \"virtual\" commercial facilities. Recently, blind consumers were certified in a class action suit against Target, claiming that Target.com discriminates against them under the ADA. The plaintiffs contend that the Target.com web site must be made accessible to them by providing alterations such as screen-reader software that vocalizes the web site's text and contents.16 Although landlords cannot legally exclude tenants protected under fair housing legislation, they may legally screen out potentially troublesome tenants not protected by law. Some landlords have enlisted the help of tenant screening services. Using advanced computer technology, these businesses, many associated with large credit reporting agencies, conduct background checks of prospective tenants, looking in particular for those who may have a record of rent defaults and apartment abuse. However, like credit reporting agencies, these businesses can make mistakes. In reaction, some states, such as New York and Minnesota, have statutes that require landlords to inform those who are rejected of the service's name and address so they can challenge any inaccuracies.17 Can a landlord refuse to rent to a cohabiting unmarried couple on the basis that their relationship violates the landlord's religious values? In Smith v. Fair Employment and Housing Commission,18 a California court ruled that enforcement of a state statute banning inquiries about marital status or associated discrimination did not conflict with the landlord's First Amendment rights or state constitutional rights to the free exercise of her religion. Consequently, the landlord was required to rent to the unmarried couple. On the other hand, the Massachusetts court in Attorney General v. Paul Desilets19 used a balancing test to consider whether the landlord could refuse to rent to the 429 430 Part II >>> The Real Estate Transaction unmarried couple. On one side of the scale is Massachusetts' interest in enforcing the right of cohabiting unmarried couples to freely lease. On the other side is the landlord's right to free religious exercise based on the Massachusetts Declaration of Rights and the federal constitution. Because the strength of the state's interest in allowing the couple to rent had not been sufficiently demonstrated, the court determined that resolution by summary judgment was inappropriate. A trial was needed to determine the strength of the state's interest. In some cases, landlords may be compelled by law to discriminate in the selection and eviction of certain dangerous and undesirable tenants to protect their lawabiding tenants and their property. Chief among these are tenants and guests involved in drug-related activities. For example, landlords have been held liable for damages and have been required to pay fines and even forfeit their properties for illegal drug-related activity by tenants. This can include the manufacture, sale, or use of drugs that occurred on or near their premises.20 Moreover, under the amended federal Anti-Drug Abuse Act of 1988, all federal public housing agencies must provide in the lease (which every tenant must sign) a provision that any tenant or anyone under the tenant's control will be evicted for any drug-related activity on or near the premises. End of Chapter Case In Department of Housing and Urban Development v. Rucker on page 462, the U.S. Supreme Court rules on whether public housing authorities can evict tenants for their guest's drug use on their premises. One of the biggest problems for landlords whose property may involve drug activity centers on the manufacturing of methamphetamines, or meth. Meth is a highly addictive drug often produced in makeshift labs in residential housing. Its use has created serious social and economic problems for individuals and society, as well as the potential for explosions, chemical fires, and the release of toxic chemicals into the environment. In response, some states are shifting the responsibility to landlords to combat the effects of these labs. For example, many states require the landlord to remediate the premises by removing the toxic chemicals that meth production creates. Other states, such as Missouri and Nevada, generally oblige the owner, when selling the property, to disclose to prospective buyers that there was once a meth lab on the premises.21 Some public and private sector landlords now drug-test prospective tenants. They also test existing tenants on an annual basis or those tenants for whom there is a reasonable suspicion of illegal drug use. Although there have been no reported lawsuits in the private sector yet, drug testing of tenants might violate certain federal and state laws. For example, if a large company with apartments in different areas of a city tests its tenants in poorer, predominately minority neighborhoods but not in wealthier, nonminority neighborhoods, it could be in violation of the FHA. Also, depending on how the testing is conducted, it may violate common law privacy rights, among other state laws. The activities of public housing agencies raise constitutional issues. Despite these legal and ethical issues, commentators have noted that most tenants are in favor of drug testing to reduce or eliminate drug activity.22 As the foregoing discussion demonstrates, landlords may try to protect their tenants from other tenants who threaten their person and their property. The next Chapter 11 >>> Landlord and Tenant case discusses whether a landlord has a legal duty to exclude dangerous tenants from renting. A CASE IN POINT In Castaneda v. Olsher,23 the plaintiff, Ernest Castaneda, resided in a mobile home park owned by George Olsher. Castaneda was shot accidentally as the result of a gang battle across the street from his residence. Castaneda sued Olsher for, among other actions, \"breaching a duty not to rent to known gang members.\" The court ruled in Olsher's favor, stating \"[g]ang members do not . . . announce their gang affiliations on housing applications. If landlords regularly face liability for injuries gang members cause on the premises, they will tend to deny rental to anyone who might be a gang member or, even more broadly, to any family one of whose members might be in a gang. The result in many cases would be arbitrary discrimination on the basis of race, ethnicity, family composition, dress and appearance, or reputation. All of these are, in at least some circumstances, illegal and against public policy and could themselves subject the landlord to liability.\" ETHICAL AND PUBLIC POLICY ISSUES Is it ethical public policy for local governments to require prospective tenants to show landlords proof of citizenship or legal residency status before they can rent? A growing number of U.S. cities are attempting to pass ordinances that would have the effect of denying a person a place to live unless that person can prove she is in the country legally. To enforce these ordinances, landlords would be fined and would have their business licenses revoked if they rented to illegal aliens. Many argue that since the federal government has not been able to stem the flow of illegal alienssome of whom may be terroristslocal governments must take on the task. Opponents maintain that this is solely the job of the federal government and that many of these laws are simply a disguised form of racism and xenophobia. California, for example, passed a law in 2007 that forbids local governments from requiring landlords to inquire or report the immigration status of tenants. Opponents further argue that even if illegal aliens are not here legally, they still have a human right to dignity, including the right to shelter. Are these ordinances going too far, or are they necessary for fighting the illegal alien problem? Retaliatory Eviction After the landlord has selected a tenant and leased an apartment, does the landlord have complete freedom to refuse to renew the lease as long as she does not violate fair housing legislation? The traditional answer was yes. 431 432 Part II >>> The Real Estate Transaction A CASE IN POINT In Aluli v. Trusdell,24 the landlord brought suit to evict a tenant who was leasing an apartment under a month-to-month periodic tenancy. The tenant claimed that the reason for his eviction was due to his activities as an organizer and member of a tenants' union. Although the tenant alleged that the eviction would deprive him of his First Amendment rights to freedom of speech and association, the court decided in favor of the landlord: \"If it is true that he is seeking possession of the rented premises for the sole reason that he disagrees or dislikes the tenant's communicative or associative activities, is not the landlord also protected by the First Amendment in expressing these disagreements or dislikes? . . . [T]he landlord-tenant relationship is a contractual one in our jurisdiction. If we accept the tenant's contention, it would mean that we would be substantially altering this relationship and impairing the traditional right of a landlord to recover possession of the demised premises under the terms of a lease.\" The Aluli case also illustrates the vulnerability of tenants with a periodic tenancy who can lose their leasehold quickly. In many states, the traditional rule has been modified by statutes that prohibit a landlord from raising rent, decreasing services, or terminating a lease in retaliation because of any one of the following: 1. The tenant attempted to enforce rights under the lease or state law. 2. The tenant reported health or building code violations to a government authority. 3. The tenant joined a tenants' union. Is it illegal for a landlord to retaliate against a tenant for refusing to engage in sexual relations? Although it is unlikely that Congress contemplated this when it passed the 1968 FHA, the next case established the rule of law on the issue. A CASE IN POINT In Shellhammer v. Lewallen,25 Norman Lewallen, the landlord, approached his tenant, Tammy Shellhammer, and asked her to pose nude for him. She refused. Later he offered to pay her to have sex with him. Several months later Shellhammer was evictedostensibly for withholding her rent while waiting for Lewallen to provide her with a working refrigerator. The federal circuit, in this case of first impression, upheld the magistrate's finding that Lewallen was liable under the Fair Housing Act for evicting Shellhammer in retaliation for her refusal to have sex with him. According to commentators, sexual harassment against tenants has become a significant problem, particularly for lower-income, single women with few housing alternatives.26 In 2004, in the largest tenant sexual harassment case ever, a federal judge in Kansas City, Missouri, ordered a landlord to pay $1.1 million in damages to eleven women who were threatened with retaliatory evictions if they did not Chapter 11 >>> Landlord and Tenant have sex with the landlord. The women also were subjected to unwanted verbal sexual advances and sexual touching.27 Even where there is no statute, in some states, the courts have developed a retaliatory eviction defense that can be raised by tenants after landlord retaliation.28 The tenant's protection against retaliatory action is often broadened by a presumption in favor of the tenant that a landlord's action is retaliatory. For example, in Reed v. Burns,29 the landlord failed to rebut the presumption that a letter giving the tenant thirty days' notice was in retaliation for three tenant letters complaining about rodents and electrical and plumbing problems. The court ruled that the tenant was entitled to damages. 433 retaliatory eviction An eviction of a tenant for complaining about the condition of the leased premises or violations of the law. A CASE IN POINT In Hillview Associates v. Bloomquist,30 mobile home park ten ants formed a tenant association to improve the cleanliness and safety of the park. Some tenants were involved in altercations with the landlord's representative, and the tenants later received notices of eviction from their landlord. The court stated that to determine whether a landlord's primary motivation is not retaliatory, the following must be considered: (a) the landlord's decision was a reasonable exercise of business judgment; (b) the landlord in good faith desires to dispose of the entire leased property free of all tenants; (c) the landlord in good faith desires to make a different use of the leased property; (d) the landlord lacks the financial ability to repair the leased property and therefore, in good faith, wants to have it free of any tenant; (e) the landlord was unaware of the tenant's activities that were protected by statute; (f) the landlord acted at the first opportunity after he learned of the tenant's conduct; and (g) the landlord's act was not discriminatory. The court ruled that while some of the tenants could be evicted for assaulting the landlord's representative, three tenants were evicted for their participation in the tenant association. The court emphasized that \"[U]nder Iowa law, tenants may organize and join a tenant's association free from fear of retaliation.\" REQUIRED LEASE PROVISIONS Introduction: Residential Versus Commercial Leases The lease is a unique legal hybrid: it not only is a contract between the landlord and tenant but also is an instrument that conveys a property interesta leasehold estateto the tenant. The reasons for the lease's dual nature are historical. In early English law, the lease was regarded merely as a contract. But in the fifteenth and sixteenth centuries, when England was dependent on an agrarian economy, the need to stabilize the lease of agricultural land became important. The lease then came to be regarded solely as a conveyance of the landlord's entire interest for the term of the lease. With the coming of the industrial revolution, residential and commercial leases in heavily populated urban areas became predominant; these leases are more similar to contracts than to conveyances. The net result is that courts today use both property and contract law concepts in fashioning the rights and duties of the landlord and tenant.31 Courts sometimes distinguish between residential and commercial leases. The general principles of landlord-tenant law covered in the sections that follow lease A contract conveying a property interest (leasehold estate) to a tenant. 434 Part II >>> The Real Estate Transaction http:// The Internet is a rich source of information about state and local landlord and tenant law and practice. The California Department of Consumer Affairs, for example, provides information about California landlord and tenant law at http://www.dca.ca.gov. For general information on federal and state landlord and tenant law, see http://www.law .cornell.edu/topics/ landlord_tenant.html generally apply to both types of leases (except where noted). However, courts are sometimes more willing to modernize the law governing residential leases in recognition of the importance of shelter, moving the law of residential leasing closer to the law of contracts. In the words of one court: \"The typical city dweller, who frequently leases an apartment several stories above the actual plot of land on which an apartment building rests, cannot realistically be viewed as acquiring an interest in land; rather he has contracted for a place to live.\"32 Several states have enacted statutes based on a model law (the Uniform Residential Landlord and Tenant Act) that apply only to residential leases. Commercial leases can involve the rental of space within an existing building and the rental of land, called the ground lease. Under a commercial ground lease, the tenant leases property and agrees to construct a building on the leased land. Thus, these leases tend to be for a term of many years. Courts are less willing to reform the law of commercial leases; as a result, these leases are \"still by and large governed by a body of [property] law that crystallized in medieval times.\"33 For example, the implied warranty of habitability, considered to be the major development in landlord-tenant law in recent years, generally applies only to residential leases. However, as discussed in Gym-N-I Playgrounds, Inc. v. Snider on page 464, a few states now recognize an implied warranty of suitability for commercial properties.34 Similarly, various rent-related remedies, such as rent withholding, are often limited to residential leases. Nevertheless, developments in the law governing residential leases are important to commercial landlords and tenantsat least when space, as opposed to ground, is leased. A person who rents an office in an office tower acquires more than an interest in land. Like the residential tenant, a commercial tenant contracts for \"a package which includes not merely walls and ceilings, but also adequate heat, light and ventilation, serviceable plumbing facilities, secure windows and doors, proper sanitation, and proper maintenance.\"35 Moreover, many commercial tenants now demand that their landlords provide a \"wired\" infrastructure with broadband and software applications. Therefore, it is logical that in the years to come, the traditional property law concepts governing commercial leases will gravitate toward the modern contract law concepts governing residential leases. (See academic.cengage.com/blaw/aalberts for a residential and a commercial lease and a checklist for a commercial lease.) Writing Requirements Every lease, whether residential or commercial, should be in writing to avoid later controversies about the terms of the agreement. Most states include leases within their Statute of Fraud's writing requirement (discussed in Chapter 7) only when the lease term is for more than one year. The required writing must include four essential provisions: 1. Names and signatures of the parties 2. A description of the property 3. The term of the lease 4. The amount of rent A lease containing the four required provisions is valid between the landlord and the tenant. However, in many states two additional requirements must be met if the lease is to be recorded: Chapter 11 >>> Landlord and Tenant 1. The lease must be witnessed. 2. The signatures must be acknowledged by the landlord and tenant before a notary public. Almost all states have established provisions for recording leases. As one example, in Wisconsin, all leases may be recorded; but only leases for more than one year must be recorded to be valid against later purchasers.36 In states with race statutes governing their recording processes, it can be critical to record residential leases. As discussed in Chapter 8, the first person to record prevails even when there is notice of an unrecorded lease. Thus, a student who leases for nine months but does not record could be dispossessed by another student who leases later but records first. When the lease for a period of longer than one year is not written or any of the essential terms is missing, the lease is usually invalid. But when the tenant takes possession of the property under an invalid lease, a tenancy at will is created; when the tenant takes possession and pays rent, there is a periodic tenancy. When the tenant takes possession, pays rent, and makes improvements on the property, the lease is enforced under the doctrine of substantial performance. In one case, a court held that there was substantial performance when the tenant took possession, paid rent, planted rosebushes, installed expensive carpet, and painted the house.37 Names and Signatures The lease must name both the landlord and the tenant. When the landlord is an individual (and not a partnership or corporation), it may also be wise to name the spouse of the landlord to avoid problems arising under dower and curtesy laws (see Chapter 10) as well as community property law (see Chapter 5). Like a contract for the sale of real estate, the lease must be signed by the party to be charged, although in some states, a lessee who has not signed will be bound by the lease if he has taken possession of the property. Description of Property Because the lease is a conveyance of property as well as a contract, the lease must describe the property with the same certainty required in a deed or a mortgage. Furthermore, the landlord should specifically reserve any rights that will not pass to the tenant. For example, the lease conveys to the tenant the exclusive right to possess the real estate, and even the landlord cannot enter the premises without the tenant's permission. Consequently, if the landlord wants to enter the property to show an apartment to prospective tenants, the right should be specifically reserved in the lease. In addition to the described property, the tenant receives a number of incidental rights necessary for the use and enjoyment of the premises unless the lease states otherwise. For instance, a tenant who leases an apartment in a building is entitled to use the building's halls and stairways to reach the apartment even though the right is not specified in the lease. If the whole building is leased, the tenant has the right to use the outside walls and roof for advertising purposes. A CASE IN POINT In Monarch Accounting Supplies, Inc. v. Prezioso, the landlord leased a building to a tenant for a five-year term and then leased the roof to another party for advertising. The court decided that the continued 435 436 Part II >>> The Real Estate Transaction lease gave the tenant the right to the roof even though it was not specifically mentioned in the lease and that rents the landlord received for leasing the roof should go to the tenant.38 In some cases, a tenant who leases a building has the implied right to use the landlord's adjoining land and buildings. In McDaniel v. Willer,39 the landlord operated a general store and used a building on a nearby lot to store fertilizer. When he leased the store, the tenant was given the right to use the storage building even though that right was not mentioned in the lease. The Lease Term The date the lease begins and the duration of the tenancy should be clearly stated in the lease. If they are not and if a court cannot ascertain the intended term, the lease will be considered a tenancy at will or a periodic tenancy. Rent rent Consideration paid for the use of property. The lease must state the consideration (rent) that the landlord is receiving in exchange for possession of the property. If no rent is stated in the lease, either the leasehold will be considered a gift from the landlord or the tenant will be liable for the reasonable value of her possession of the property. The lease also should state the time and place for the rent payment. If no time is stated, payment is due on the last day of the period. For instance, if rent is paid monthly, the rent would be due on the last day of the month. If no place is stated, payment is due at the rented premises. Any method may be used to calculate rent as long as a specific amount can be determined by the use of the method. Each of the following methods is permissible: 1. A specific dollar amount 2. A graduated rental calling for predetermined periodic increases in the rent 3. A cost-of-living index method by which the rent is adjusted on the basis of the index 4. A percentage method by which the rent is based on the volume of the tenant's business on the leased property 5. An appraisal method that calculates rent as a percentage of the appraised value of the rental property40 Although not all courts agree, the traditional rule is that an option to extend a lease is unenforceable when the lease provides that rent will be determined by mutual agreement of the landlord and the tenant at the end of the original lease.41 The adoption of rent controls for residential leases is a highly charged political question that has legal ramifications. A CASE IN POINT In California, virtually every large city except San Diego has adopted rent controls, which cover half the state's population. The San Jose rent control ordinance provides that landlords are entitled to continued Chapter 11 >>> Landlord and Tenant 437 automatic 8 percent annual increases; increases higher than 8 percent may be challenged by tenants on the basis of personal hardship. Landlords attacked this provision on the grounds that it was unconstitutional because it forced them to subsidize the poor. In the 1988 decision Pennell v. San Jose, the U.S. Supreme Court disagreed, stressing that the law provides landlords with a fair return on their investments while at the same time protecting tenants from unfair rent increases.42 The residential landlord typically collects monthly rent from her tenants; and she pays ad valorem real estate taxes, property and liability insurance, and maintenance from the rent. This is called a \"gross lease.\" The commercial landlord's practices vary significantly, but the commercial leases used most often are \"complete net,\" \"triple net,\" and \"bond leases.\" A commercial tenant would typically pay its share of ad valorem real property taxes, common area maintenance, and insurance in addition to rent. Leases for retail space often require that the store pay \"percentage rent,\" a percentage of sales above a certain floor, or \"breakpoint.\" Percentage rent allows the landlord to share in the tenant's success in its mall or shopping center and allows the tenant to pay a lower rental fee until its sales reach a predetermined level. Many brick-and-mortar retail tenants, due in part to competition by Amazon .com and other online businesses, are developing web sites to sell online to complement their in-store sales. For example, assume that Amy visits a store and sees a dress that she likes, but it is not the right color. Amy can access the store's web site while she is at the store to find the color she wants. However, since Amy technically bought the dress in cyberspace instead of in physical space, the store is not credited for the sale and the landlord loses if rent is based on a percentage basis. In response, some commercial landlords, using the percentage rent method, are now using so-called \"wired leases\" with tenants to capture some of the rent they would otherwise lose. Other landlords, such as the Saint Louis Galleria Mall in Missouri, prohibit their tenants from exhibiting \"signs, insignias, decals or other advertising or display devices which promote and encourage the purchases of merchandise via e-commerce.\"43 Security Deposit The landlord commonly requires a tenant to make an additional advance payment called a security depositto cover the tenant's liability for unpaid rent, unpaid utility bills, or damage to the premises. Many state statutes, several of which cover residential leases only, regulate security deposits. Although the statutes are not identical, they have several features in common. First, statutes define the security deposit (for instance, as any amount that must be paid in advance apart from the actual rent) and limit the amount of the deposit, often to one month's rent. Second, statutes limit the landlord's use of the security deposit. In some states, the deposit cannot be used to reimburse the landlord for ordinary wear and tear that may be reasonably expected in the normal course of apartment living. Third, legislation limits the landlord in his interim use of the deposit; the landlord may have to post bond to cover the deposit or place the deposit in a security deposit Money deposited by a tenant with a landlord as security for the performance of the lease. 438 Part II >>> The Real Estate Transaction special bank account and pay interest on the deposit to the tenant. Finally, statutes prescribe the procedure for collecting a security deposit. In some states, a landlord must mail a claim for damages to the tenant within a specified period or else waive the right to damages. Also, in many states, the landlord has the burden of bringing suit to justify retention of the security deposit. Often these statutes impose strict procedural duties on landlords. The next case discusses whether a tenant's procedural requirements under security deposit statutes should also be strictly construed. A CASE IN POINT In Lae v. Householder,44 the tenants vacated the premises but waited forty-seven days to mail a written request for the return of their security deposit. Under Indiana's security deposit statute, the tenant must make the request within forty-five days, after which the landlord has a legal duty to submit an itemized list of damages and a check for the net balance. The appeals court ruled in favor of the landlord, holding that the tenants failed to comply with the statute's explicit requirement. The Indiana Supreme Court overruled the appeals court, arguing that the primary purpose of the statute is to equalize a bargaining position between tenants and landlords that is often unbalanced in the landlord's favor. Therefore, even though the tenants were two days late in making their request, the landlord still owed the duty to submit a list of damages and a check for the balance. The court emphasized that the notice requirement is primarily to inform the tenant of his responsibilities so that the landlord does not wrongfully withhold the deposit. The Lae case demonstrates how courts sometimes look at the overall purpose of a statute instead of strictly adhering to the statute's text. Other courts in this situation might be inclined to adhere strictly to the statutory requirement even if it does create a hardship on tenants. The different ways that courts interpret statutes are discussed in Chapter 1. unconscionable contract A contract so onesided as to be oppressive and unfair. contract of adhesion A contract in which one party is in a superior bargaining position and the other party has no realistic opportunity to bargain over the terms. SUGGESTED LEASE PROVISIONS A number of provisions, even if not required by law, should be included in the lease to avoid expensive, time-consuming litigation. The issues most likely to cause a dispute may be grouped into three categories: the condition of the premises, the tenant's use of the property, and the transfer of lease interests. These issues are discussed next. In most cases, the provisions discussed can be changed by the lease terms. However, the ability to alter legal rights and duties by contract is sometimes restricted by the doctrine of unconscionability. An unconscionable contract or provision is one that is unfair to one of the parties who is in a weak bargaining position. A contract between a party in a strong position (who can dictate the contract terms on a take-it-or-leave-it basis) and a weaker party (who needs the subject matter of the contract) is termed a contract of adhesion. These doctrines are generally used successfully only by residential tenants since commercial tenants are presumed to be more sophisticated and have a better bargaining position. Chapter 11 >>> Landlord and Tenant 439 A CASE IN POINT In Weidman v. Tomaselli,45 a clause in an apartment lease provided that if the tenant breached the lease agreement, he would pay additional rent of $100 to cover the attorney's fees and court costs incurred by the landlord. When the tenant later breached the agreement and the landlord brought suit for the $100, the court listed the requirements of an adhesion contract: \"A contract of adhesion is a contract in relation to a necessity of life, drafted by or for the benefit of a party for that party's excessive benefit, which party uses its economic or other advantage to offer the contract in its entirety solely for acceptance or rejection by the offeree. Thus, the elements of a contract of adhesion are (1) a necessity of life; (2) a contract for the excessive benefit of the offeror; (3) an economic or other advantage of the offeror; and (4) the offer of the proposed contract on a take-it-or-leave-it basis.\" The court decided that this lease was an adhesion contract with an unconscionable clause and refused to enforce the clause. According to the court: \"Given the overwhelming need for housing, the respondents must do exactly as the petitioner demands, or shelter will be denied. Had the petitioner demanded that the respondents fall to their knees and grovel before him, the respondents perforce would have swallowed their pride and done so, or be condemned to remain outside, never to come in from the cold. Here, the petitioner demanded that the respondents grovel not physically, but legally. The petitioner's unbargainable price is that the respondents agree to clause after clause of terms to the excessive benefit of the petitioner.\" Condition of Premises Beginning on September 1, Pete leased a building to Rose for one year. After Rose took possession of the property, she discovered that she could not use the building because the plumbing needed repair. Who has the duty to repair the plumbing, Pete or Rose? The answer to this question often depends on whether the plumbing was defective when the lease was made on September 1 or became defective after Rose took possession. Conditions Existing When Lease Was Made The traditional rule applied to the sale of property generally and to leases in particular is caveat emptor, or \"let the buyer beware.\" In lease cases, the rule was based on the assumption that the tenant could inspect the premises and discover any problems, such as defective plumbing, before signing the lease. If the tenant refused to make the inspection or decided to rent the property despite the defect, the tenant could not later force the landlord to correct the defect unless the lease specifically imposed that duty on the landlord. A major exception to the traditional rule has developed in recent years as a result of state statutes and cases involving primarily the lease of residential property. Under this exception to the rule of caveat emptor, the landlord must provide premises that are suitable for residential use even when the lease does not impose the duty on the landlord.46 As observed by one court, the typical tenant lacks the skill to make repairs and enters into the lease expecting \"a well-known package of goods and services.\"47 caveat emptor \"Let the buyer beware.\" Requires tenants to examine and judge the quality of the premises on their own. 440 Part II >>> The Real Estate Transaction A CASE IN POINT In Lemle v. Breeden,48 Lemle rented a home in Honolulu from Breeden. Shortly after moving into the apartment, Lemle realized that there were rats in the home. Before vacating the premises, Lemle and his family spent three nights camped in the living room, unable to sleep because they were worried about the rats. They could hear the rats scurrying across the roof, and the rats could enter the house through various openings. The court held that Lemle was entitled to recover an advance payment of rent and his security deposit because the landlord had breached an implied warranty of habitability: \"The application of an implied warranty of habitability in leases gives recognition to the changes in leasing transactions today. It affirms the fact that a lease is, in essence, a sale as well as a transfer of an estate in land and is, more importantly, a contractual relationship. From that contractual relationship an implied warranty of habitability and fitness for the purposes intended is a just and necessary implication. It is a doctrine which has its counterparts in the law of sales and torts and one which when candidly countenanced is impelled by the nature of the transaction and contemporary housing realities. Legal fictions and artificial exceptions to wooden rules of property law aside, we hold that in the lease of a dwelling house, such as in this case, there is an implied warranty of habitability and fitness for the use intended.\" Conditions Arising After Tenant Takes Possession At common law, the tenant assumed any risks that arose after she took possession on the theory that these risks should fall on the party in possession of the property. Thus, if a tornado destroyed the building that Rose leased from Pete, Rose would still be liable for rent for the remainder of the lease term since the tenancy was considered primarily a lease of the land rather than the building.49 The common law duty to pay rent no longer applies in many states when the premises are destroyed by a natural force.50 More importantly, the landlord bears the risk of changed conditions if he has a duty to keep the premises in repair, a duty that has increasingly been imposed on the landlord. The nature of that duty is examined next. The Duty to Repair At common law, the landlord, who had no right to enter the leased premises, had no duty to make repairs on the property. The tenant also had no duty to make major repairs but was required to make \"tenantable repairs\" to prevent waste. These were described in Suydam v. Jackson:51 At common law the lessor was, without express covenant to that effect, under no obligation to repair, and if the demised premises became, during the term, wholly untenantable by destruction thereof by fire, flood, tempest or otherwise, the lessee still remained liable for the rent unless exempted from such liability by some express covenant in his lease. But the lessee was under an implied covenant, from his relation to his landlord, to make what are called \"tenantable repairs.\" . . . The lessee was not bound to make substantial, lasting or general repairs, but only such ordinary repairs as were necessary to prevent waste and decay of the premises. If a window in a dwelling should blow in, the tenant could not permit it to remain out and the storms to beat in and greatly injure the premises without liability for Chapter 11 >>> Landlord and Tenant 441 permissive waste; and if a shingle or board on the roof should blow off or become out of repair, the tenant could not permit the water, in time of rain, to flood the premises, and thus injure them, without a similar liability. He being present, a slight effort and expense on his part could save a great loss; and hence the law justly casts the burden upon him. The common law rule has been altered in recent years by statutes and case law involving residential leases. Under the modern approach, the landlord is responsible for keeping the property in the condition required by housing codes. Many states go further and require the landlord to repair defects that make the apartment uncomfortable, even when there is no building code violation. The underlying theory is that a landlord gives an implied warranty of habitability; that is, the landlord promises that the apartment will be fit for residential use. This implied warranty is the logical consequence of modern living patterns since tenants generally lack the skills to inspect the property effectively or to make repairs and must rely on the landlord's assurances that the premises are habitable.52 In the next case, the court ruled on whether the tenant must still pay rent when the implied warranty of habitability is breached. implied warranty of habitability An implied promise by a landlord that the premises are fit for habitation. A CASE IN POINT In Wade v. Jobe, Lynda Jobe discovered numerous defects in the home she rented from Clyde Wade, including accumulated sewage and a foul odor. After the city inspector declared the premises unsafe for human occupancy, Jobe vacated the home and refused to pay the rent owed. When Wade sued, Jobe counterclaimed, arguing she did not owe the rent because Wade breached the implied warranty of habitability. The court remanded the case to the trial court stating that \"[I]f the trial court determines that he [Wade] was not in breach, the landlord will be entitled to payment for all the past due rent. If the trial court determines that his breach of the warranty of habitability totally excused the tenant's rent obligation (i.e., rendered the premises virtually uninhabitable), the landlord's action to recover rent due will fail.\"53 There may be limitations to the landlord's implied duty to keep the premises repaired, such as when a tenant, a third party, or a natural force has caused the condition. The landlord also has no duty to make minor repairs to conditions that do not make the apartment unlivable or do not constitute a substantial violation of the housing code.54 Furthermore, the tenant must notify the landlord of the changed conditions and give the landlord a reasonable time to make corrections.55 Although a breach of building code requirements can be an easily ascertained violation of the implied warranty of habitability, other conditions may require a careful assessment of the facts. The tenant cannot generally waive the implied warranty of habitability unless a defect is clearly disclosed to the tenant.56 A few states, such as Texas and New Jersey, also recognize an implied warranty of suitability, an extension to commercial property of what the implied warranty of habitability is to residential property. The landlord impliedly warrants that facilities essential to the use of the commercial premises are free from latent implied warranty of suitability An implied promise by a commercial landlord that facilities essential to the use of the commercial premises are free from latent defects and will remain in suitable condition. 442 Part II >>> The Real Estate Transaction defects and will remain in suitable condition. This implied warranty can be waived by commercial tenants. In the next case, the court discusses this implied warranty. End of Chapter Case Can the implied warranty of suitability be waived when the commercial tenant signs a lease that contains an as-is clause? In Gym-N-I Playgrounds, Inc. v. Snider on page 464, the court ruled on this issue. Lease Provisions The preceding rules governing conditions in existence when the lease was made and arising after the tenant takes possession apply only in the absence of a lease term that specifically addresses the issue. In other words, the landlord and tenant may rewrite these rules and establish their own list of rights and duties. However, a residential lease provision that is unconscionable or that violates public policy is not enforced. Thus, if a tenant lives in a city where there are very few residential apartments available and a landlord offers a lease to the tenant containing a waiver of the implied warranty of habitability on a take-it-or-leave-it basis, it is unlikely that a court would enforce the waiver.57 One common lease provision is a \"no pets\" clause created to protect the landlord's carpeting, furniture, and other property. However, in certain instances, even these can violate public policy. A CASE IN POINT In Bronk v. Ineichen,58 two deaf tenants vacated their apartment after a contentious confrontation with their landlord in which the landlord refused to let them keep their dog. The tenants claimed that the dog was a \"hearing dog\" trained to alert his masters to the ringing of doorbells, telephone, and smoke alarms and to carry notes. The court ruled that the landlord's refusal to reasonably accommodate the disabled tenants in his \"rules, policies, practices, or services when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling\" violates the Fair Housing Act. Lease provisions altering the duties imposed by law should be drafted with great care. For example, a tenant might make a general promise in the lease to keep the property repaired or to leave it in the condition it was in when she took possession. If the property is destroyed by a trespasser or by a natural cause such as a hurricane, a court applying the traditional view of landlord-tenant relationships might hold the tenant responsible for rebuilding or repairing the property.59 Tenant's Use of Property No Lease Provision In the absence of a lease provision restricting use, the tenant may use the property for any legal purpose consistent with the nature of the property or the intentions of the parties. Chapter 11 >>> Landlord and Tenant A CASE IN POINT In Edwards v. Roe,60 a landlord tried to evict an unmarried female tenant on the grounds that she was using the apartment to engage in sexual intercourse with a male friend. The court held that the tenant was not acting illegally because, since this was not a commercial activity, she was not engaged in prostitution and because New York law does not proscribe normal sexual intercourse between unmarried consenting adults. The court also held that the tenant could not be evicted under a statute allowing eviction when the apartment is used for immoral purposes: \"If the test be personal to me, I hold that, without a showingand there is nonethat she has harmed anyone, respondent has done nothing immoral. And if the test be the response of the 'ordinary' or 'average' man or woman, assuming that it makes sense to posit the existence of such a person, I hold that, given the ethical standards of the day, respondent has done nothing immoral.\" For the reasons stated in Edwards, only a handful of states now have laws prohibiting opposite-sex couples from living together, and those that do, seldom enforce the laws.61 The following section discusses the issue of whether homosexual couples also have rights to live together. ETHICAL AND PUBLIC POLICY ISSUES Is it an ethical issue as well as a violation of public policy for landlords to evict gay and lesbian tenants for behavior that violates the landlord's personal and religious views? In Problem 10 at the end of the chapter, the issue is discussed. The tenant's right to make physical changes is typically addressed in the lease. When a lease contemplated \"erections and additions,\" for example, the tenant's alterations that enlarged a gas station and probably increased its value were not waste and did not breach the lease.62 If the lease is silent, the tenant can generally make physical changes to enhance the use of the property but may not make structural alterations, even when the alterations increase the value of the real estate. For example, if a tenant has leased a building for use as a coffee shop, she could install a counter and stoves but could not tear down or build partitions on the property. The rule against alterations has been criticized in recent years; and it is likely that in the future, more courts will allow alterations that are necessary for the tenant to make reasonable use of the property.63 A tenant who has made physical changes in the property must restore the property to its original condition when possible. (Domestic fixtures were discussed at greater length in Chapter 2.) However, the tenant is not responsible for changes due to normal wear and tear that result from reasonable use of the property. Consequently, the tenant would not be responsible for refinishing wooden floors that had become scuffed through the tenant's normal use but would have to repair damage caused by using skateboards on the floors.64 443 444 Part II >>> The Real Estate Transaction Lease Provisions The parties to a lease can, and usually should, insert a clause in the lease specifying the pr