Leasing Chapter 7 Quiz

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Questions and Answers

Match the following leasing concepts with their descriptions:

Usable area = The space that can be used exclusively by a tenant Gross area = Total area of a building including all spaces Rentable area = Usable area plus a pro-rata share of common areas Security deposit = An upfront payment to cover potential damages

Match the following lease provisions with their purposes:

Date of possession = Specifies when the tenant can move in Use of premises = Defines activities allowed on the property Rent amount = Identifies how much a tenant must pay for leasing Maintenance = Outlines responsibilities for upkeep of the property

Match the following tenant screening steps with their order:

Investigating the applicant = Step 2 Notifying the applicant = Step 4 Application process = Step 1 Reaching a decision about the applicant = Step 3

Match the following types of leases with their characteristics:

Gross lease = Tenant pays a flat rental fee that includes all property expenses Net lease = Tenant pays base rent plus some or all property expenses Percentage lease = Rent is based on a percentage of tenant's sales revenue Open-ended lease = Possession date is flexible without a specific end date Signup and view all the answers

Match the following qualities of desirable tenants:

Stable income = Assures timely rent payments Good credit history = Demonstrates financial reliability Positive rental history = Indicates responsible previous tenancy Strong references = Provides validation of tenant's reliability Signup and view all the answers

Match the application process steps with their descriptions:

Application form = Collects personal information and rental history Background check = Investigates the applicant's history Reservation fee = Holds a unit while the check is completed Qualification package = Includes documents required for commercial applications Signup and view all the answers

Match the types of applications to their characteristics:

Residential application = Focuses on personal information and references Commercial application = Includes business and ownership information Standardized application = Ensures uniformity and reduces discrimination claims Landlord identification check = Complies with the Patriot Act regulations Signup and view all the answers

Match the legal documents with their purpose in commercial leasing:

Profit and loss statements = Shows business financial performance Tax returns = Provides evidence of business income Business plan = Outlines the strategy for business operations Resumes of key personnel = Highlights qualifications of important staff Signup and view all the answers

Match the tenant qualities with their importance:

Maintain the property = Ensures upkeep and value retention Pay rent on time = Prevents financial issues for the landlord Get along with other tenants = Promotes a harmonious community Stay for a while = Reduces turnover and vacancy rates Signup and view all the answers

Match the criteria for screening prospective tenants:

Written authorization = Required by Fair Credit Reporting Act for background checks Identification requirement = Complies with Patriot Act regulations Personal guarantee = Often needed from small business owners Background investigation = Essential step in verifying tenant history Signup and view all the answers

Study Notes

Learning Objectives

Explain advantages of standardized application forms for all tenants
Describe additional information needed by managers for commercial tenant applications
Discuss legal requirements for screening potential tenants
Distinguish between usable area, gross area and rentable area in describing square footage
Describe situations justifying open-ended possession dates in lease agreements
Compare gross leases, net leases and percentage leases
Describe percentage rent calculation and importance of defining gross sales in lease agreements
Explain use clauses for industrial property leases
Discuss who must sign leases in residential and commercial transactions

Suggested Lesson Plan

Students review previous chapter, "Marketing" using Exercise 7.1
Students review Chapter 7, "Leasing," and learning objectives

Selecting Tenants

Owners and managers seek tenants who will maintain the property, pay rent on time, get along with other tenants, and stay for a while
Application process: investigation, applicant decision, notifying applicant, records retention
Qualities of desirable tenants (exercise 7.2) and qualification package contents (exercise 7.3)

Application Process

Application form: standardized for efficient and consistent data collection, avoiding discrimination claims
Gather information on applicant: rental history, employment, assets, references
Fair Credit Reporting Act (FCRA): mandates written authorization before running a background check
Commercial applications: more complex requiring business information, owner information, roles of employees, financing details, and planned improvements to space
Documents in Qualification Package: profit & loss statements, tax returns, personal financial statements, operating budget, business plan, franchise agreements (if any), resumes.
Landlord may require personal guarantees from small and medium-sized business owners
Patriot Act requires landlord verification to comply with the Specially Designated Nationals and Blocked Persons watch list.
Reservation fees may be requested by landlords for residential properties to hold a unit during background checks.

Lease Provisions

Legal description of property in lease documents
Space diagrams included in commercial leases
Square footage calculations are critical in commercial leases
Commercial leases often include operation expense clauses
Lease terms: time period of the agreement: residential (6 months to 1 year); commercial (3 to 30 years), depending on property type, and tenant investment in fixtures
Term tenancy: fixed term, automatically expires at the end of the term, useful for days or months.
Periodic tenancy: automatically renews for a fixed period, useful for monthly agreements
Date of possession is usually stated in the lease. For retail, this date often lags the formal possession period to allow time for business setup.
Tenant improvements may be covered in the lease

Maintenance and Cleaning

Managers usually handle common area maintenance and cleaning
Tenant responsibilities usually outline tenant responsibilities to maintain individual units and the common area

Lease Clause (Use and Restrictions)

Use clause restricts tenant activities to a specific purpose, and prohibits illegal or hazardous materials usage
Non-compete clause prevents the landlord from leasing space to similar businesses
Landlord inspection rights for hazardous substance compliance and insurance requirements

Lease Options and Obligations

Lease assignment involves original tenant transferring the full lease to another party
Lease sublease involves original tenant transferring less than full lease rights to another party
Landlord consent is usually required for both assignment and sublease
A right of "first refusal" often stipulates that a tenant receives first opportunity to lease adjacent space
Lease Option to Renew lets a tenant renew the lease upon completion of the initial lease term period
Different types of leases involve different payment schemes (gross/net/percentage).

Signing the Lease

Residential leases must involve all adults residing in the property to be liable in case of breach
Commercial leases must involve legal representatives of the entity.
Landlord consent is required for any significant alterations in residential spaces.

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Description

Test your understanding of key concepts in leasing, including the advantages of standardized application forms, tenant screening legal requirements, and different types of leases. This quiz will also cover the importance of defining usable, gross, and rentable areas, as well as who must sign leases in residential and commercial transactions.