Property Management Overview

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Questions and Answers

What is the primary purpose of the R/U ratio in lease agreements?

To calculate the tenant's share of operating expenses (correct)

To determine the total lease term

To evaluate the condition of the property

To assess tenant's creditworthiness

Which type of tenancy automatically renews until one party gives notice?

Term tenancy

Continuous tenancy

Periodic tenancy (correct)

Fixed tenancy

What typically influences the duration of a commercial lease?

Amount of investment in fixtures (correct)

Type of residential unit

Landlord's preference

Location of the property

What is an add-on factor in lease agreements?

An additional charge for operating expenses Signup and view all the answers

When does a residential lease term generally begin?

Once the tenant is entitled to possession Signup and view all the answers

What are liquidated damages in a commercial lease context?

Monetary compensation for construction delays Signup and view all the answers

What condition allows a landlord to evict a tenant under

Tenant breaches the lease Signup and view all the answers

What should a lease include if remodeling or a build-out is involved?

An addendum with a work schedule and standards Signup and view all the answers

What is a use clause in a lease agreement?

A provision that limits the tenant's use of the property to one purpose. Signup and view all the answers

What is typically true about noncompete clauses in commercial leases?

They prohibit the landlord from leasing space to competing businesses. Signup and view all the answers

What is true about tenant improvement allowances?

They represent funds provided by the landlord for initial modifications. Signup and view all the answers

Which statement about insurance requirements in commercial leases is correct?

Insurance requirements may include provisions for hazardous substances. Signup and view all the answers

How do alterations differ between residential and commercial leases?

Residential tenants usually need landlord approval to make alterations. Signup and view all the answers

Which of the following is NOT typically included in a use clause?

Permitting illegal activities. Signup and view all the answers

In what way do management duties differ for residential and commercial properties regarding common areas?

Managers usually handle maintenance and cleaning of common areas in both residential and commercial properties. Signup and view all the answers

What does the covenant of quiet enjoyment guarantee to tenants?

Tenants can occupy the property without interference from the landlord or third parties. Signup and view all the answers

What is a characteristic of a sublease?

It may be referred to as a sandwich lease. Signup and view all the answers

What does a noncompete clause typically require from a landlord?

To prohibit certain competing uses in subsequent leases. Signup and view all the answers

What is one purpose of a security deposit in a lease agreement?

To pay for expenses associated with lease breaches or damages. Signup and view all the answers

What does a standardized application form help to avoid claims of?

Discrimination Signup and view all the answers

Study Notes

Security Deposits

Managers holding security deposits are fiduciaries and must be fair and transparent.
When a lease ends, the deposit should be returned promptly, with deadlines often determined by state law.

Common Area Maintenance

In residential and commercial settings, property managers typically handle maintenance of common areas.
Routine cleaning inside residential units is usually done by tenants, while repairs are managed by the landlord.
Maintenance in commercial units is usually subject to negotiation.

Lease Provisions

Every lease should contain a use clause limiting the tenant's purpose and prohibiting illegal or hazardous activities.
Residential leases generally restrict use to residential purposes.
Commercial leases prohibit illegal uses and hazardous materials.
Noncompete clauses, often found in shopping center leases, restrict landlords from leasing to competing businesses.
Hazardous substance provisions may include landlord inspections, insurance requirements, and indemnification clauses for landlord protection.

Covenant of Quiet Enjoyment

This covenant, either stated or implied, guarantees tenants uninterrupted possession of the property, free from disturbance by the landlord or a third party with legal claim.
This provision cannot be waived and applies even if not explicitly stated in the lease.

Alterations and Initial Improvements

Residential tenants generally require landlord permission for alterations.
Commercial tenants often customize their spaces, making significant alterations a key part of lease negotiations.
A tenant improvement allowance (TIA) may be provided by the landlord to fund build-out or remodeling.
Work letters, detailing plans, specifications, and completion dates, can be attached to the lease as addendums.

Residential Tenant Rules

Residential landlords often include a lease addendum outlining tenant conduct rules.

Lease Term

Residential leases generally run from 6 months to 1 year.
Commercial leases can range from 3 to 30 years, depending on the property type and tenant investments in fixtures.
Leaseholds can be categorized as term tenancies or periodic tenancies.

Term Tenancy

A term tenancy has a fixed term, ranging from days to years.
The tenancy automatically ends at the completion of the specified term.

Periodic Tenancy

A periodic tenancy automatically renews each period (e.g., month-to-month).
The tenancy terminates upon notice given by either party.
"Just cause" eviction laws prevent landlords from ending tenancies without valid reasons like market withdrawal or lease breaches.

Lease Start Date

Residential leases start when tenants gain possession, with the date specified within the agreement.
Commercial leases also commence on the possession date, but for retail spaces, it may be delayed to allow businesses to set up and start generating income.
Premises unavailability on the agreed date can entitle tenants to compensation.
Commercial tenants may experience significant damages, including lost income, so leases often include liquidated damages provisions.
Lease start dates may be uncertain when tenants request remodeling or a build-out.
A work schedule, construction standards, and anticipated occupancy date should be included in an addendum when remodeling or building out.
Remodeling: Renovations of existing rental space.
Build-out: Creating a desired space from an unfinished area.

### Application Forms

Standardized application forms should be used to collect data from applicants to avoid potential discrimination claims.
Residential tenant applications gather personal information, rental and employment history, asset information, and references.
- The Fair Credit Reporting Act (FCRA) requires applicant authorization for background checks.
Commercial applications are more complex, requiring information on the business and its owners, including employee details, owner/lease signer roles, financing, and planned improvements to the leased space.
- The qualification package includes the application form and supporting documentation such as profit and loss statements, tax returns, personal financial statements, operating budget, business plan, business entity documents, franchise agreements, and resumes.
- Some landlords require small- and medium-sized businesses to personally guarantee the lease.

Background Investigation

Background investigation focuses on verifying application information: legal history (criminal and civil), rental history, employment, and creditworthiness.
- Screening services offer background information about tenants, including employment history, past addresses and landlords, credit history, and legal history.
- If the initial screening is clean, property managers conduct further investigations by contacting past landlords and employers and checking references.

Lease Types

Leases can be categorized by the method used to calculate rent.
- Gross Lease: Landlord covers operational costs (maintenance, taxes, insurance).
  - Most residential leases are gross leases.
- Net Lease: Tenant pays a pro rata share of operational costs.
  - Most commercial leases are net leases.
  - Common area maintenance (CAM) charges: Operational costs associated with shared spaces.
  - Triple net lease (fully net lease): Landlord passes maintenance, tax, and insurance costs to the tenant.
- Percentage Lease: Retail landlords charge a fixed minimum rent plus a percentage of the tenant's gross sales.
  - The lease specifies how gross sales are defined, reported, and calculated.
- Escalation Clause: Rent increases at specific intervals (usually annually).
  - Operating expense escalation clause: Tenant pays a proportionate share of increased operating expenses beyond the first year.
  - Expense stop escalation clause: Limits the owner's responsibility for operating expenses.
  - Reappraisal clause: Property is appraised periodically, and rent is adjusted accordingly.

### Security Deposit

Most tenants pay a security deposit to cover potential lease breach expense.
- State laws restrict the amount landlords can charge residential tenants for security deposits.
- Commercial landlords aren't subject to these restrictions.
- In partnerships, a resolution authorizing a partner to sign the lease is recommended.

### Personal Guarantee

When a small business owner personally signs the lease along with the business entity, it's considered a personal guarantee.
- This makes the owner personally responsible for lease breaches alongside the business entity.

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Description

This quiz covers essential aspects of property management, including security deposits, common area maintenance responsibilities, and crucial lease provisions. Understanding these concepts is vital for effective property management in both residential and commercial settings.