Leasing - Real Estate

Real Estate

See also: Rental agreement and Leasehold estate

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. The acceptance of rent by the landowner from a tenant creates (or extends) most of the rights of tenancy even without a written lease (or beyond the time limit of an expiring lease). 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:
  • for a specified period of time (the "term"), and end when the term expires;
  • 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
  • usually on a monthly or weekly basis
  • 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 common law, a lease should have three essential characteristics:

1. A definite term (whether fixed or periodic)
2. At a rent
3. Confer exclusive possession