| A
lease or tenancy is the right to use or occupy personal property
or real property given by a lessor to another person (usually
called the lessee or tenant) for a fixed or indefinite period
of time, whereby the lessee obtains exclusive possession of
the property in return for paying the lessor a fixed or determinable
consideration (payment).
-------------------------------------------------------------
Click
here to find the new way to make long-term money online in
your spare time
-------------------------------------------------------------
In law, there are two types of property:
* Real property is land or any permanent
feature or structure above or below the surface. Ownership
of land is an aspect of the system of real property or realty
in common law systems (immovables in civil law systems and
Conflict of Laws).
* All other property is considered personal property or personalty
in common law systems (movables in civil law and Conflict
of Laws), and this property is either tangible or intangible,
i.e. it is either physical property that can be touched like
a computer, or it is an enforceable right like a patent or
other form of intellectual property.
There are three separate levels of rights
or interests affecting both forms of property. In descending
order of importance they are:
* ownership,
* possession or
* control and use.
The legal documents that transfer these rights
are respectively: conveyance/transfer, lease/tenancy, and
bailment/pledge for tangible personalty, assignments and licenses
for intangibles.
Conceptual background
Under normal circumstances, owners are free
to do what they want with their property. In the case of personalty,
the normal rule is that owners in possession cannot steal
their own property, nor can they be prosecuted if they destroy
it. Owners can, however, steal their property from another
if they have already surrendered possession to that person.
This reflects the power of the state to regulate the rights
and duties of an owner and to impose liabilities should others
suffer loss or be endangered by any use to which the property
is put. But, in general terms, owners have considerable freedom
of action under all legal systems, both national and international.
By definition, owners also have the rights of both possession
and control over their property, and they can transfer those
subordinate rights to others.
Leasing of real property
There are different types of ownership for
land but, in common law states, the most common form is the
fee simple absolute, where the legal term fee has the old
meaning of real property, i.e. real estate. An owner of the
fee simple holds all the rights and privileges to that property
and, subject to the laws, codes, rules and regulations of
the local law, can sell or by contract or grant, permit another
to have possession and control of the property through a lease
or tenancy agreement. For this purpose, the owner is called
the lessor or landlord, and the other person is called the
lessee or tenant, and the rights to possess and control the
land are exchanged for some payment (called consideration
in legal English), usually a monthly rent. Although leases
can be oral agreements that are periodic, i.e. extended indefinitely
and automatically, written leases should always define the
period of time covered by the lease. In the 1930s, the British
government introduced infinite leases, only to remove the
power to create these in the early 1990s. A lease may be:
* a fixed-term agreement, in other words
one of these two:
o for a specified period of time (the "term"), and
end when the term expires;
o conditional, i.e. last until some specified event occurs,
such as the death of a specified individual; or
* a periodic agreement, in other words renewed automatically
o usually on a monthly or weekly basis
o at will, i.e. last only as long as the parties wish it to,
and be terminated without penalty by either party.
Because ownership is retained by the lessor,
he or she always has the better right to enforce all the contractual
terms and conditions affecting the use of the land. Normally,
the contract will be express (i.e. set out in full and, hopefully,
plain language), but where a contract is silent or ambiguous,
terms can be implied by a court where this would make commercial
sense of the transaction between the parties. One important
right that may or may not be allowed the lessee, is the ability
to create a sublease or to assign the lease, i.e. to transfer
control to a third party. Hence, the builder of an office
block may create a lease of the whole in favour of a management
company that then finds tenants for the individual units and
gives them control.
Under English Law, a written lease should
have three essential characteristics:
1. A Fixed Term
2. At a Rent
3. Exclusive Possession
However, according to Astalt v Arnorld, a
possession is not essential but will help to contribute towards
finding a lease.
Leasing of tangible personal property
An owner can allow another the use of a vehicle
(such as a car, a truck or an airliner) or a computer either
for a fixed period of time or at will. This can be a simple
leasing transaction, or it can be a transaction intended to
allow the user the right to buy the item at some future time.
* In a simple lease of a car, P pays O a
rental for the use of the car during the agreed period which
may be a few days (e.g. for a holiday trip) or longer where
it is more economic to pay for use rather than pay for the
ownership of an asset of depreciating value. Normally, only
P will be allowed to use the vehicle and, in such a case,
P has possession and control. But, P could be an employer
who allows C the use of the car to visit clients, and thereby
gives C control. An explanation of North American vehicle
leasing may be found at car leasing.
* In a lease with the possibility of purchase, O could allow
P to lease the car for a specified period of time. If all
the rental payments are made in full and on time, P will then
be allowed to buy the car at a low or nominal price. It is
relatively unusual for the owner to offer these forms of agreement.
More usually, a finance company is introduced as a third party
into the transaction. Hence, O sells ownership of the car
to F, and F then leases the car to P. It is standard for the
contractual terms to prohibit P from parting with possession
or control of the car to another (if P does part with possession,
this can be a theft of the car from F). In the U.S. this is
called Closed-end leasing. In other jurisdictions, it is called
hire purchase, lease purchase or finance leasing. These transactions
are complicated. The most common problem arises when O makes
specific representations as to the quality and reliability
of the car to P during the initial negotiations. If what is
said induces P to buy the car from O, those representations
would usually be enforceable against O. But, in this transaction,
O first sells the car to F who makes no representations to
P. The laws vary from state to state on the extent to which
P might be allowed a remedy if the car proves to be of poor
quality.
To clarify the concept, the owner of tangible
movables has the power to keep possession and only to transfer
control. This may be for:
* short- or long-term storage ((e.g. leaving
a passport with hotel staff or depositing valuable property
in a bank vault — a hotel or bank holding property is
a bailee); or
* for delivery purposes (e.g. using a carrier to transport
goods to a specific destination); or
* it may be a form of mortgage — a pawnshop holds a
pledge over the goods deposited until the money lent is repaid.
Leasing is a common method by which airlines
acquire their aircraft, usually from companies specialised
in the field of Commercial Aircraft Sales and Leasing. Aircraft
leasing transactions are typically divided into finance leasing
and operating leasing.
Real leases
Whether it is better to lease or buy land
will be determined by each state's legal and economic systems.
In those countries where acquiring title is complicated, the
state imposes high taxes on owners, transaction costs are
high, and finance is difficult to obtain, leasing will be
the norm. But, freely available credit at low interest rates
with minimal tax disadvantages and low transaction costs will
encourage land ownership. Whatever the system, most adult
consumers have, at some point in their lives, been party to
a real estate lease which can be as short as a week, as long
as 999 years, or perpetual (only a few states permit ownership
to be alienated indefinitely). For commercial property, whether
there is a depreciation allowance depends on the local state
taxation system. If a lease is created for a term of, say,
ten years, the monthly or quarterly rent is a fixed cost during
the term. The term of years may have an asset value for balance
sheet purposes and, as the term expires, that value depreciates.
However, the apportionment of relief as between business expense
and depreciating asset is for each state to make (all that
is certain is that the lessee cannot have a double allowance).
Private property rental
Rental, tenancy, and lease agreements are
formal and informal contracts between an identified landlord
and tenant giving rights to both parties, e.g. the tenant's
right to occupy the accommodation for an agreed term and the
landlord’s right to receive an agreed rent. If one of
these elements is missing, only a tenancy at will or bare
licence comes into being. In some legal systems, this has
unfortunate consequences. When a formal tenancy is created,
the law usually implies obligations for the lessor, e.g. that
the property meets certain minimum standards of habitability.
With a bare licence, some states do not imply any significant
lessee protections
A tenancy agreement can be made up of:
* express terms. These include what is in
the written agreement (if there is one), in the rent book,
and/or what was agreed orally (if there is clear evidence
of what was said).
* implied terms. These are the standard terms established
by custom and practice or the minimum rights and duties formally
implied by law.
Commercial leasehold
Benefits of commercial leasing
For businesses, leasing property may have
significant financial benefits:
* Leasing is less capital-intensive than
purchasing, so if a business has constraints on its capital,
it can grow more rapidly by leasing property than it could
by purchasing the property outright.
* Capital assets may fluctuate in value. Leasing shifts risks
to the lessor, but if the property market has shown steady
growth over time, a business that depends on leased property
is sacrificing capital gains.
* Leasing may provide more flexibility to a business which
expects to grow or move in the relatively short term, because
a lessee is not usually obliged to renew a lease at the end
of its term.
* Depreciation of capital assets has different tax and financial
reporting treatment from ordinary business expenses. Lease
payments are considered expenses, which can be set off against
revenue when calculating taxable profit at the end of the
relevant tax accounting period.
Disadvantages
There are some significant drawbacks:
* If circumstances dictate that a business
must change its operations significantly, it may be expensive
or otherwise difficult to terminate a lease before the end
of the term. In some cases, a business may be able to sublet
property no longer required, but this may not recoup the costs
of the original lease, and, in any event, usually requires
the consent of the original lessor. Tactical legal considerations
usually make it expedient for lessees to default on their
leases. The loss of book value is small and any litigation
can usually be settled on advantageous terms. This is an improvement
on the position for those companies owning their own property.
Although it can be easier for a business to sell property
if it has the time, forced sales frequently realise lower
prices and can seriously affect book value.
* If the business is successful, lessors may demand higher
rental payments when leases come up for renewal. If the value
of the business is tied to the use of that particular property,
the lessor has a significant advantage over the lessee in
negotiations.
Leasing
| Drafting
a Lease for Your Rental Property | Change
the Terms of a Lease |
Negotiate
an Apartment Lease | What
is a leaseholder | Business
property lease |
Contents
of a Lease | Manage
Rental Property |
