Property II Outline 1.

Leasing Real Property (Chapter 7)

a. Leaseholds - themes
i. Leaseholds evolved to be governed by both property and K law concepts ii. Increasing use of statutes to define landlord/tenant relationship iii. Immutable rule supersede any contrary provision in a lease, intended to protect vulnerable tenant iv. Default rule fills in the gaps that the parties did not address in the lease 1. * parties are free to ignore default rule, but cannot evade immutable rule

b. Landlord right to exclude

i. Good faith reasons 1. potential T may not have enough $ 2. felony charges 3. L does not have to rent to T for any reason if it is a room in his own home or complex with < 4 families ii. Bad faith reasons 1. Personal preference, don t like T s appearance, etc. iii. Landlord s right to exclude extremely limited due to 1. Fair Housing Act of 1968 (page 440) a. 3 step approach federal court use to establish discriminatory intent under FHA i. P establishes a prima facie case of discrimination ii. Burden then shifts to D to prove a legitimate, nondiscriminatory reason for conduct iii. If D meets burden, then P must show that the reason is mere pretext b. Handicap under FHA i. Physical or mental impairment which substantially limits one or more..major life activities ii. Record of having such impairment iii. Being regarded as having such impairment 2. Civil Rights Act of 1866 a. Additional protection against racial discrimination i. all citizens of US shall have same right .as is enjoyed by white citizens purchase, lease, sell, hold and convey real and personal property

c. Leasehold types
i. Distinction is important, determines when it ends and how it is suppose to end ii. Term of years 1. Specific end date 2. Ends when date occurs 3. No notice required iii. Periodic Tenancy 1. Automatically renewed

2. Requires adequate notice iv. Tenancy at will 1. No fixed ending point, it continues, as long as both are still willing 2. Often rises out of implication 3. Termed by appropriate advance notice a. Automatically terminates if either party dies, T abandons possession, or L sells the property v. Tenancy at sufferance

1. Rightful possession that turns into wrongful possession 2. Landlord options under CL: a. Treat T as trespasser and evict him or; b. Renew T s tenancy for another term 3. Today, most states have limited option b, in order to avoid unfairness to T a. (some states require payment of double rent during holdover, others limit the length of the renewed tenancy to no more than a year) vi. Lease agreement says rent is 12K per year, payable 1,000 each month. 1. Term of years or periodic tenancy? a. Term of years requires landlord or tenant to give 6 month notice of eviction or departure b. Periodic tenancy generally requires a month s notice d. Negotiating the Lease i. 3 aspects of lease negotiations ii. Statute of Frauds 1. Mandates that a lease for real property for a term of more than one year cannot be enforced unless it is in writing 2. Key terms: - party names, property description, leasehold duration, amount for rent a. If key term is missing, K does not exist regarding that one term, still have a leasehold agreement iii. Standard forms 1. L and T usually negotiate key terms of a residential lease: amount of rent and the duration of the tenancy. T is then asked to sign preprinted standard lease form, without any meaningful opportunity to negation other terms iv. Rent control 1. Few state, local ordinances may limit amount of rent that a residential L can charge. 2. Establishes a base rent for each unit then allows L an automatic increase for all units each year e. Covenant of Quiet Enjoyment i. L warrants that T will not be disturbed in possession by any other person with superior right to possession ii. In case of disturbance of possession, L covenants to defend T iii. Immutable rule you cannot contract away L s promise not to wrongfully evict T

1. E.g. If T leases a farm from L and performs all of his lease obligation yet L wrongfully ejects T from the farm and retakes possession, this actual eviction of T breaches the implied covenant of quiet enjoyment f. Landlord s Duty to Deliver Possession i. American Rule 1. L is merely obligated to deliver the legal right to possession to T when the lease term begins, absent a contrary provision in the lease 2. L has no duty to oust a trespasser or holdover T, T has no claim against L ii. Justifications for American Rule 1. Freedom of K a. L is not warranted against the wrongful acts of 3rd parties b. T has greater incentive and the same ability as L to bring suit to recover possession c. Economic waste facilitates full use of rental housing units and thereby tends to reduce rents by not forcing L to wait until prior T is moved out before entering into new lease iii. English Rule 1. Requires L to deliver actual possession of the premises to T when lease term begins 2. Basis of L s obligation is an implied covenant in the lease that the premises will be vacant when the term commences 3. There is a breach of L s obligations if a 3rd person is improperly in possession of the leased property on the date T is entitled to possession and L does not act promptly to remove such person and does not in fact remove him within reasonable time. a. For such a breach, T may terminate the lease b. English rule sees holdover T as one with superior right to possession whereas American rule sees holdover T as a trespasser (Covenant of Quiet Enjoyment) iv. Justifications for English Rule 1. L-T relationship is fundamentally unequal 2. L is seen as having superior ability to ensure that the property is vacant when lease term begins 3. L is more likely to know whether old T intends to hold over, and only the L has legal right to evict old T before new lease begins 4. L is more sophisticated about the eviction process and better able to bear the costs involved g. The Problem of Substandard Housing i. Caveat lessee let the tenant beware 1. CL- L had no legal duty to repair leased premises, while T was often unable to make repairs

2. Beyond obligations specified in the lease, L had no obligation to repair the premises ii. 1960 housing codes were in place in large cities which mandates all dwellings have: 1. Heat; hot/cold water; plumbing; adequate windows and ventilation; no infestations; electrical wiring (safe); watertight roof; other features to provide minimum living standard iii. Fines and imprisonment were threatened to owners of dwellings which violated housing codes, although it was often cheaper to pay the fine than repair the defect. h. Constructive Eviction i. Ls failure to keep the premises in a tenable condition. 1. Untenatability exists when the interference with occupancy is of such a nature that the property cannot be used for the purpose for which it was rentedand the tenant subsequently surrenders the property ii. a constructive eviction occurs when a tenant leaves the leased premises due to conduct by the landlord which materially interferes with the tenant s beneficial use of the premises iii. T now has 2 options for untenable premises: 1. (1) remain in possession, pay rent, sue L for damages OR 2. (2) move out, terminate the lease and be relieved of liability for future rent i. Elements of Constructive Eviction i. (1) Wrongful conduct of L (2) substantially interferes with T s use and enjoyment of leased premises ii. Wrongful Conduct of L 1. Acts and Omissions of L a. Any affirmative act by L that seriously interferes with T s enjoyment of the premises may meet requirement i. (e.g. L who engages in loud construction activities, repeatedly trespasses on leased premises, or commits nuisance) b. Omission is deemed wrongful only when L is under duty to act i. L s duty may arise from express clause in the lease, typically a provision that requires L to repair the premises or to supply heat/water/utilities iii. Conduct that substantially interferes 1. Conduct must amount to such a major interference that a reasonable person would conclude a rented dwelling is uninhabitable 2. If T is aware of L s wrongful conduct when taking possession, the right to assert constructive eviction in the future is waived iv. Limitations of Constructive Eviction 1. If L breaches her lease obligations to T by failing to provide heat and T notifies L about the lack of heat but the problem persists. In theory, T can assert constructive eviction, terminate lease and vacate the premises. But, if T cannot find a replacement housing, this remedy is illusory. j. Implied Warranty of Habitability

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i. Most important reform produced by L-T revolution! ii. It effectively assigns the burden of repairing residential premises to L as a matter of law regardless of the provisions of the lease 1. Requires the L maintain bare living requirements 2. The premises are fit for human occupation 3. L warrant that lease premises are habitable at the outset of the lease term and remain so through the course of the tenancy iii. If L breaches the warranty, T can remain in the premises and withhold rent until defect is fixed, among other remedies 1. In most jurisdictions, warranty cannot be waived Remedies i. In order to claim L has breach implied warranty, T must notify L of the problem, and allow reasonable time for L to make repairs 1. Withhold rent: effective remedy because it gives L incentive to repair the premises a. IWOH is a defense to eviction, if L were to try and evict T for not paying 2. Repair and deduct a. Some states, T may withhold rent and use funds to repair defects 3. Sue for damages a. T may sue for damages while retaining in possession or after vacating Damages i. Difference between value of dwelling as warranted and value of dwelling in defective state ii. Difference between agreed rent and fair market value of property as is iii. Percentage diminution in agreed rent 1. Many courts lower the agreed rent by a percentage that reflect T s loss of use 2. This method vests broad discretion in the trial court to determine the extent of diminished use Arguments for Implied Warranty i. Seen as a utilitarian response to contemporary social and economic conditions and is well suited to address needs of the poor urban resident ii. L typically forbids T from negotiations of lease, creating disparity in bargaining power, T are effectively forced to accept substandard housing. iii. Intertwines with housing code movement, movement to treat residential leases as a K rather than a conveyance and growing belief that everyone has right to decent housing Arguments against Implied Warranty i. Compliance with warranty imposes extra costs on L ii. L will tend to pass these costs on to T through increased rents iii. Some T will be unable to afford these higher rents; and iv. T will be forced out of housing market 1. Reality is many L ignore the doctrine; and T living in uninhabitable conditions who are aware of their rights rarely assert them

o. Transferring the Leasehold Interests i. T may transfer rights either by assignment or a sublease ii. Assignment 1. Transfer of the T s existing lease to a third party. 2. If T transfers the right of possession for the ENTIRE remaining term of the lease, the transfer = assignment iii. Sublease 1. Is a wholly new lease between the original T and a third party 2. If only part of the remaining term is transferred = sublease iv. Privity of Contract 1. Contract law label for the relationship between 2 parties who enter into a contract a. E.g. if A leases GA to tenant B in 2005 for a 10 year term, A-B lease can be viewed as a contract which created privity of K between A and B v. Privity of Estate 1. The property law label for the relationship between 2 parties to the conveyance of an estate in land a. E.g. above, because A-B lease can be seen as a conveyance it created privity of estate between A and B b. What happens when B assigns to C in 2008? i. Privity of K arises between assignor B and assignee C, B-C will be liable to each other if he breaches the terms of the agreement ii. Prior privity of K between lessor A and lessee B continues, unaffected by the assignment, because the A-B lease still exists (B is still obligated to pay rent to A) iii. New assignment creates new privity of estate between lessor A and assignee C, because C has obtained B s entire interest 1. C has substituted into B s place as the holder of B s nonfreehold estate 2. Note: privity of estate will continue until assignee reassigns his interest, vacates the premise, or lease terminates iv. In a sublease there is no privity of estate between A and C , in an assignment privity of estate changes from A-B to A-C p. Tenant s Right to Assign or Sublease i. Tenants are free to assign, sublease or transfer their interest absent an agreement to the contrary. 1. CL preference for free alienation of interest in land 2. However, vast majority of leases, expressly restrict tenant s right to transfer a. L insists on a restriction to avoid an irresponsible successor tenant ii. Lease allows transfer if landlord consents 1. Sole discretion clause

a. Lease might provide that L may refuse consent for any reason whatsoever in his sole discretion i. Even an arbitrary, unreasonable reason (federal and state antidiscrimination legislation provide a restriction on landlord s discretion, can t deny based on race etc.) 2. Reasonableness Clause a. Lease might provide that L may refuse consent only on a commercially reasonable basis i. L might deny consent if Z has a bad credit record ii. Court s do consider a number of factors in the reasonableness standard: 1. Financial responsibility of the proposed transferee 2. Nature of the new use proposed for premises 3. Suitability of the proposed use for the premises 4. Legality of the use 5. The need for alteration to the premises 6. Whether the use will compete with the landlord s business or other existing tenants 3. No standard in lease a. Lease might require L s consent, but contain no standard to guide L s decision; such provision is called a silent consent clause. i. Which to choose sole discretion or reasonableness? 1. Traditional Rule a. Still the majority: court applies the sole discretion standard in this situation b. Why? i. Reasonableness standard encourages litigation simply because parties may easily disagree on what is reasonable given the facts 2. Modern Rule a. Jurisdictions favor the reasonableness standard for commercial leases b. Kendall court (495) argued that commercial L may withhold consent under such a clause only if it has a commercially reasonable objection c. Why? (1) this rule benefits society by ensuring that land is devoted to its highest and best productive use and does not restrict alienation d. (2)viewing the lease as a K, the implied covenant of good faith and fair dealing party must act in good faith and in accordance with accepted principles of fair dealing

e. This rule also reflects the actual intent of the typical L and T q. Ending the Tenancy (Abandonment/Eviction) i. Abandonment occurs when T: 1. Vacates the leased premises without justification; 2. Lacks the present intent to return; and 3. Defaults in the payment of rent a. Courts typically consider T s statements, the nature and quantity of tenant property left behind, the duration of T s absence and related factors ii. Rights of Landlord When Tenant Abandons 1. At CL, L was free to choose 3 remedies when T abandoned premises: a. Leave the premises vacant and sue T later for accrued rent; b. Mitigate damages by reletting the premises to a new T, and then sue the original T for unpaid balance; or c. Terminate the lease i. These 3 options reflect the historic view that the lease was a conveyance and not a K ii. Modern Approach 1. Jurisdictions are abolishing option a. altogether, instead of allowing L to wait out a lease and sue for damages, courts are requiring L to either terminate the lease or mitigate the damages by attempting to lease the premises to a new T 2. Sommer v. Kriedel leases should be governed by the more modern notions of fairness and equity inherent in K law, not antiquated real property concepts 2. Policy Arguments on Mitigation a. Utilitarian argument favor mitigation and focus on the waste of housing resources, don t want a room to sit vacant if it can be filled traditional rule motivates L to keep the abandoning T s unit vacant. i. L argues the lost sale 1. Mandatory mitigation insulates the breaching T from liability and causes economic harm to L, a lost sale, now he has to find 2 rooms to fill instead of one 3. Mechanics of Mitigation a. L must make the same effort that any commercially reasonable L would undertake to rent any vacant unit. Factors include: i. The extent to which L advertised the unit for rent; ii. Extend to which L offered or showed the unit to prospective Ts iii. Remaining length of original lease term iv. Cost of preparing the property for a new T

v. Market rent for comparable units; vi. How far the terms of any replacement lease deviate from terms of original lease b. Courts are split on who has the burden of proof on reasonableness; some states place it on L and others impose it on T i. If L is suing T for breach of leasehold and failure to pay, T can argue that L did not mitigate damages T will have to go on discovery and investigate what L did and did not do in regards to mitigating damages 2. Selling Real Property (Chapter 8) a. Purchase Contract i. Statute of Frauds 1. Essential Terms 2. Writing 3. Signature ii. Marketable Title iii. Equitable Conversion iv. Duty to Disclose b. The Closing i. The Deed c. Title Assurance i. Title Covenants 1. General Warranty Deed 2. Special Warranty Deed 3. Quitclaim Deed ii. General Warranty Deed/Special Warranty Deed both contain 6 specific title covenants 1. Present Covenants a. Covenant of seisin b. Covenant of right to convey c. Covenant against encumbrances d. Difference between present covenants and implied covenant of marketable title? i. ICMT applies to defects discovered BEFORE the closing ii. Title covenants protect against defects discovered AFTER the closing 2. Future Covenants a. Covenant of warranty b. Covenant of quiet enjoyment c. Covenant of further assurances