 Personal Finance PowerPoint Presentation. Lease part number two. Get ready to get financially fit by practicing personal finance. Most of this information can be found at Investopedia, a complete guide to renting by James Chen, updated April 9th, 2022. You could go there for more references and resources continuing your research. What is a lease? A lease is a contract outlining the terms under which one party agrees to rent an asset, in this case property, owned by another party. So we've got a contractual agreement. Typically it's going to be in writing at least two people or entities involved. We got the person that is renting the apartment that's going to be paying the lease payments. That's going to be the lease E. You could refer to it as the lease or is going to be the rent or the ones that the party that owns the property that is going to be leasing it and they're going to be basically collecting the rent payment. Clearly the lease then is a contractual agreement between the two of them. It guarantees the leasee also known as the tenant use of the property and guarantees the lease or the property owner or landlord regular payments for a specified period in exchange. So that's going to be outlining the clear agreement that we would imagine in a normal type of leasing situation. The leasee, the one that's going to be paying the rent, the one using the property, typically living in the property is then going to be having the access or use to the property in exchange for, of course, payments. Those payments typically being the rent going to the lease or or landlord, both the leasee, that's the renter and the lease or the landlord face consequences if they fail to uphold the terms of the contract. So clearly the contract is outlined. So you have an agreement a contract. If you violate the contract, then there's going to be could be consequences, of course, to violating the contract on the leasee side. It might be something like you didn't pay the rent or you didn't take care of the place the way you promised to take care of the place and so on on the lease or side. Possibly they're not giving you what they expect what they promised to give you in terms of service or amenities and so on. So at leasee is a form of incorporeal right. That's incorporeal right. Understanding a lease leases are legal and binding contracts that set forth the terms of rental agreement and real estate and real and personal property. So we're talking again once again, the leases are legal. So they're legally binding. So clearly their contract legally binding contracts that set forth the terms of rental agreements. So clearly the rental agreement has those two parties typically involved the lease or in the leasee to real estate. So we're talking specifically about real estate. That means generally, you know, property building land and so on, and real personal property. These contracts stipulate the duties of each party to affect and maintain the agreement and are enforceable by each. So each person that is in the contract can enforce the terms of the contract under the agreement of it. So for example, a residual property lease includes the property address, landlord and tenant responsibilities. So what you would expect to be outlined in the lease, the property in question, you would want that to be defined specifically. Now note that some contracts might not be as good at this kind of things, right? You could have you can have a less well worded contract. But most of the time, if you're talking to a professional leasing company or something like that, the leases have become more standardized, and they'll be more standardized and possibly look more similar when you're talking about similar locations and areas. But you know, these are the things that you would expect to be outlined in a lease, right? You want to want to be able to identify the property clearly, the landlord and tenant responsibilities, you want to be knowing what's going on between the two individuals. And it's similar to any kind of agreement that you're like a partnership type of agreement, or if you're going into business of any kind with individuals, then of course, you would like to lay out the terms in some way, shape or form this. In this case, we're talking about it in the form of a contract, which is a legally binding set of terms, but it should be clear so that each of the parties know upfront what they're doing, and they know what they're agreeing to. And they know the consequences if they, you know, violate the contract. So the rent amount would clearly be something we would expect on the contract and required security deposit. So that's going to be the amount of payment that often happens upfront in order to safeguard the damage to the property in the event that the tenant leaves, and the property has been, you know, less is left worse in shape than it was when the renter took the place. And therefore the less sore has that security deposit they could dip into. So rent due date. So when is the when is the rent going to be due? That's going to have to be defined quite clearly. Because if the rent is late, you might be subject to, you know, penalties and interest in action at that point. Consequences for breach of contract. So if you were to breach the contract, if something went wrong, if you didn't pay the rent, if you didn't pay it on time or you didn't pay it at all, or something else happened, what what is the recourse under the terms of the contract, the direction of the leasee pet policies. So if you have, that's clearly going to be one thing that that most apartment places, for example, or rental properties will have specific what kind of pets may or may not be allowed. Other essential information. Not all leases are designed the same. But all of them have some common features. These include the rent amount, the due date of rent, the expiration date of the lease. So the landlord requires the tenant to sign the lease, thereby agreeing to its terms before occupying the property. So typically, when you're talking about contractual rental arrangements with those real estate involved, it's not usually going to be an oral contract shaking hands. For example, you're going to have the written lease signed and and you know, you that's pretty much what you want generally as well, because you would like things to be set down and as clear as possible between the parties involved, given that it's usually going to be a, you know, big, bigger item or a bigger thing in both parties lives, right? So they wanted you want to make sure we're clear about the conditions. Most residential leases and standard are standard with the same terms for all tenants. So if you're talking about residential leases, if you have, if you're looking at a leasing company, or if you're in an apartment, you are complex or something like that, you would think that the leases would be some taking some kind of standard format for the tenants involved. Leases for commercial properties on the other hand, are usually negotiated in accordance with specific leases and typically run from one to 10 years with larger tenants often having longer complex lease agreements. So if you're talking about a company renting space like in an office building, it gets much more complex because that company might want to do many different things to the office building and they would like to do it long term as opposed to when you're talking about rental property for individuals where the place is designed to live and most people's needs for living are somewhat the same. However, when you're a commercial business, you might have more people, you might want a more open space or you might want more cubicle space or you might, you know, you have a whole whole bunch of different things that could be unique to that specific business. So they might want to tear down walls or tear down cubicles or input wall. So that and if they're going to do that kind of stuff, then you're they're going to want a longer lease term because they're not going to be wanting to to be held hostage to any kind of updates or changes they have made after a year's term, they would like because they're going to want to be growing their name in that place. So it's a whole kind of different animal to some degree with the with the business property with the personal property. It might be easier in one sense in that it's going to be you would expect more uniform special considerations consequences for breaking leases range from mild to damaging depending on the circumstances under which they are broken. So if you break the lease, if you don't pay the rent at all, you know, you're probably going to get kicked out at some point, less to government, you know, there's rules now these days, there's, you know, they're not they can't throw you out or something, but you would think that that would be a problem over time. But if you're just late on the payment or something like that, or you violate, you know, apart, you parked in the wrong place or something like that, obviously, the conditions or the terms or the breach of contracts might have different outcomes depending on what happened. So the tenant who breaks a lease without prior negotiation with the landlord faces civil lawsuits, a derogatory mark on their credit report. So it could affect your credit and that, of course, is not good or both. As a result, breaking a lease, a tenant may encounter problems renting a new residence. So clearly, it's kind of like if you're a job type of situation, when you go from one job to the other job, it's easier to pick up new jobs. If you have a history in the job market that is good, that then if the history in the job market was not good, it's somewhat similar with the leasing. Of course, it might not be the case all the time where the new lease area is going to basically try to contact your prior places that you were renting at. But if there was something significant enough that they think they're not going to be able to pay, for example, you didn't pay it, you left the last place because you couldn't pay the lease, then that could affect the credit. And if it affects the credit, it can become like a downward spiral and it can be quite depressing in that case. That's kind of hard to turn out of. So what you'd like to do, if possible, is try to be, of course, once you sign the contract, be in compliance with the contract and so on and be able to move from one place to the next place will be a lot easier. Your options are going to be a lot more open if you're in compliance with the contract and obviously if your credit score is up and so on, that gives you more freedom typically to move and find a new place. So as a result of breaking a lease, a tenant may encounter problems renting a new residence as well as other issues associated with having negative entries on a credit report. Tenants who need to break their leases must often negotiate with their landlords or seek legal counsel. In some cases, giving a certain amount of notice or forfeiting the security deposit allows tenants to break their leases with no further consequences. So if you need to break the lease early, possibly because you just can't make the payments or you just need to get out of there early for some reason before the lease term is up, then you might try to seek legal counsel, but there might not be a whole lot the legal counsel can do other than give you advice because clearly if you're not going to make the payment or if you're moving early you're going to break the terms of the lease in general. You also might want to talk to then the landlord so they are aware of of the situation and possibly you can negotiate from that point there might be some kind of stipulation in the lease in the event that you were to break the lease or possibly move out early or something like that which could be like you got to pay an extra month or two months rent or something like that in order to to make that change or make that move possibly in some cases the security deposit that you put down up front might cover that so you wouldn't get the security deposit back in that instance but you might be able to to use that to break the lease and and you know move or do whatever you need to do at that point in time. If it's just kind of like a surprise to the landlord if you don't keep the landlord involved then they're more likely to to be upset with the whole process of course and they're more likely to take take action and that action could include things like going straight to the to the credit report and if it hits the credit report that is something that you would like to avoid because that's going to make it more difficult for your choices going forward. Some leases have early termination clauses that allow tenants to terminate the contracts under a specific set of conditions job related relocation divorce induced hardship or when their landlords do not fulfill their contractual obligations so clearly if you're moving because of job related relocation and there's a clause related to that that would be great if on the other hand you're trying to prove that the landlord didn't fulfill their contractual obligations that might be a little bit more difficult because it's likely that the landlord might argue against that now clearly if you're moving because the landlords not fulfilling their contractual agreements if they're not keeping up the maintenance and so on and you're moving because of that then that's going to be an easier case to to make and you might have to pull in a lawyer for example to help you to make that case but I've worked I've lived in like college areas and whatnot where the people moved around a lot and see kind of situations where people want to move for one situation they just want to move to another place and they might then if you try to pull in the lawyer at that point in time to to to justify the move under the idea that the landlord wasn't fulfilling their contractual agreements again that might be a more difficult case to make one you you often kind of see still and obviously whenever you pull in the lawyers part of the process of pulling the lawyers one you got to take into consideration is it worth the time and effort and the cost of the lawyers that are going to be involved and number two obviously the lawyers are in part there to intimidate the other side so no matter what the conditions were if you're pulling the lawyers the landlord might say hey I don't want to get involved with these with the lawyers and getting that that type of stuff so I'm just going to let it go and I'm going to move on to the next tenant but if that happens then of course that landlord's not going to be particularly happy with the situation it's not like you're going to leave them with a good taste in their mouth which may or might may not be a relevant type of situation but something to kind of just keep in mind because when you go to the next area even if they don't hit your credit score or that kind of thing it's possible that they could talk to them to the last landlord and that could make some restrictions in terms of where you're going to go if you have a history of you know suing everyone then that could be a bit of a problem so for example a tenant may be able to terminate the lease if the landlord does not make timely repairs to the property so clearly if the landlord's not doing what the landlord should be doing under the contract and you're saying hey you my water is not working your trash hasn't been taken out you know and so on and so on then then that would be a solid case and you would think then that a lawyer might be a good a good way to prove that case so you can remove yourself if you if you need to remove yourself from that situation before the contract is up but again I've seen I've seen a lot of other situations especially in like college areas where you know the they know parents that are lawyers and this and that and and it seems and so the lawyers are brought in for less than less than always the optimal situation looks like just to intimidate sometimes to try to move from one place then but in any case or whatever let's move on here the terms of a lease cannot violate state or federal law so a clause that allows a landlord to enter the premises at any time without notice or one that via court action grants a landlord to recover more than statutory limits allow is not enforceable so there's some limits to what the lease can say so even if the lease says you know something that's beyond the limit then it's not going to be enforceable under the law and clearly the lease only has power due to it being enforceable under the law so protected groups certain groups of people have more a leeway in ending leases early chief among these are members of the military so members of the military are more likely to need to move suddenly for for our for our benefit and therefore you would think they might have more favorable conditions under under some certain contracts so under the service the service members civil rights act they can break their leases if they receive active duty orders requiring them to relocate for more than 90 days many states allow domestic violence victims to break leases without negative consequences so clearly if you're domestic violence victims they might they might you might see why you would have an exception on those cases because they might have you know be stuck in an area of whether it wouldn't be good for them to be so the abuse must have been fairly recent normally within the last year and the tenant usually should show some form of proof such as the court order of protection or a police report documenting the violence some states also allow renters especially older adults to terminate a lease early due to disability health conditions or medical crises that make living in the current home untenable usually required in a letter from a local doctor hospital or other medical professional attesting to the health condition even people and these protected groups must give landlords at least 30 days notice in writing of their desire break to the lease lease breaking in the COVID-19 era so now we've got the COVID-19 where they were trying to they were trying to put in laws that would be beneficial to people that possibly have less income due to the whole situation and when they do that sometimes the burden more heavily falls falls on the landlords right because if you they do the thing that they're trying to be not they're trying to help people out by saying that that you you have some lease breaking leeway possibly they're obviously taking rights at the same time away from the landlords and so this causes issues like down the line in terms of just the contracts how are contracts going to work in the future and so on what's the likelihood of this thing happening again it's this kind of thing so our coronavisuses induced shutdowns and financial hardships have caused many renters to wonder if they can get out of their leases without being penalized because of the pandemic the short answer is no despite federal and eviction moratoriums so you got the these eviction moratoriums and laws that have been put in place the pandemic does not relieve the tenant from their contractual obligations even in the era of COVID-19 if you end the lease early you're still responsible for your rent until the end date of your contract that said there might be extenuating circumstances and exceptions on august 3rd 2021 the biden administration composed a center for disease control recommended 60 day moratorium on evictions for failure to make rent or housing payments in areas experiencing high incidence of the delta variant of the virus however on august 26th 2021 the supreme court vacated the cdc order effectively ending the eviction moratorium so it was a kind of an interesting thing because i'm pretty sure when when they put this in place because you can't it might not be constitutional to make that kind of law because obviously the landlord owns the property and if you make these kind of laws then you're then you're you're telling the landlord that they there's that they don't have the rights to the property so much because now there's there's a restriction on the usage so there's kind of interesting sides to this type of argument and again this kind of these kind of laws have longer term effects on what's going to be the value of the property and so on from an from an economic perspective it's kind of interesting because i think when the president put in this particular law he basically admitted at the point of putting it in that he didn't think he didn't think it was constitutional you know when he put it in but he did but then he did it anyways for and so and then and then i think the the supreme court said it wasn't constitutional at least that's my interpretation of it on september 24th 2021 the federal housing finance agency the FHFA announced that fanny may and freddy mac would continue to offer covid-19 forbearance to multifamily property owners so if your landlord has a fanny or freddy backed mortgage an FHA loan or a VA loan they must agree not to evict tenants solely for the non-payment of rent and allow flexibility in back payments having lost the threat of eviction landlords in these situations may be more lenient in letting a renter break a lease so type of leases beyond residential leases tenants who lease commercial properties have a variety of lease types available all of which are structured to assign more responsibility on the tenant and provide greater upfront profit for the landlord some commercial leases require the tenant to pay rent plus the landlord's operational costs while others requires tenants to pay rent plus property taxes and insurance the four most common types of commercial real estate leases include we have the single net leases in this kind of lease the tenant is responsible for paying the property taxes double net leases these leases make a tenant responsible for property taxes and insurance triple net leases tenants who sign these leases pay property taxes insurance and maintenance costs and then we got the gross leases tenants pay rent while the landlords is responsible for other costs how do leases work leases are generally legally binding contracts between two parties the leaser and the leasy they involve a piece of property rented out by the owner the leasor to the leasy or the tenant the leases can be verbal agreements but are normally drawn up in writings when you're talking about property leases real estate then you're typically talking about a written lease in that case both parties agree to the terms of the lease including the rental amount length of time for the contract as well as any consequences that may result if either party doesn't uphold the terms of the conditions of the contract so what benefits do leases provide for landlords and tenants signing a lease provides both landlords and tenants with clear terms and conditions outlining the relationship and the rental agreement so clearly any kind of contract any kind of agreement any kind of partnership with two people of some kind you want to outline what is expected and if you do so in a formal contract then now that's basically what the lease is doing so doing so also enables the rights and responsibilities of each parties involved for instance leases provide both parties with structure in that they establish the cost associated with renting and the length of time under which the lease is exercisable this provides both parties with with stability a lease also gives both parties a clear understanding of what happens when each party breaks or goes against any of the terms laid out within the lease contract can you break the lease either party can break a lease but doing so isn't advisable as there may be consequence involved tenants may be responsible to pay the landlord's early release charges and or the remaining balance to pay off the lease in some cases breaking a lease may even hurt a tenant's credit score