Leases and Tenancies-Module 1 of 5

Module 1: Leases and Tenancies

The ownership of property entails several important rights for the property owner. Most notably, these include the right to possess and occupy the property, the right to exclude others from the property and the right to gift or sell the property.

However, a property owner may grant some of these rights to another for a period of time. When a property owner enters into an agreement with another to transfer the right to occupy and use the property, a tenancy has been created. Landlord-tenant law is the body of laws governing the relationship between the landlord, who conveys the property, and the tenant, who occupies it.

Leases

A lease is the contractual agreement between the landlord and tenant which grants the tenant the right to possess real estate owned by the landlord for a period of time. The lease spells out the terms of the tenancy, and the obligations each party undertakes over the course of the rental period.

During the lease period, the landlord cedes the right to occupy and possess to the tenant. This transfers to the tenant all the rights connected with possession of the property, including the right to exclude the landlord himself from entering the property.  

However, the landlord retains title to the property.  This allows the landlord to transfer the ownership of the property to another by selling, gifting, or granting the property as an inheritance during the tenancy. However, unless otherwise stipulated in the lease, the new property owner will be bound by the terms of the lease until it is properly terminated.[1]

While landlord-tenant law developed in the common-law and each state has enacted its own legislation, most states have adopted some or all of the Uniform Residential Landlord and Tenant Act, creating a measure of uniform rules for residential rental agreements.[2]

Note that many of the protections that states have constructed to protect the rights of tenants apply only to residential leases. The tenants in commercial leases are generally considered to be in a position to negotiate on equal footing and protect their own interests against landlords and so are less in need of statutory protections than people or families renting their homes.

Licenses

The owner of a property may grant others certain rights with respect to the property which allow them to use it for specific purposes. These grants are called licenses, and they include privileges such as easements, the right to profit from property and other rights to use the property for specific purposes.  

The key difference between a lease and a license is the right of possession, A leaseholder has the right to possess the property, which includes the right to occupy, as well as the right to exclude others. Licensees, on the other hand, do not enjoy the right of possession and are not granted absolute control over the property.[3]

For example, since hotels tend to rent rooms for a short duration, provide services connected with a hotel stay and retain basic control over the premises, a guest at a hotel is generally considered to be a licensee rather than a leaseholder.

Since licensees do not have the right of possession, they cannot enforce their rights through civil actions, such as trespass or nuisance, though they may have other avenues of redress. Likewise, the protections afforded to leaseholders in the context of a landlord-tenant relationship do not apply to licensees.

When the grant from the owner leaves it unclear whether she intended a lease or a license, the law considers several factors to determine the status of the grant of use. These include whether the agreement uses language typical of a lease, the type and degree of restrictions on the use of the property as well as whether the owner retains the right of entry and a measure of control over the property.[4]

Types of Tenancies

The period of time that the tenancy arrangement lasts is often fixed in the lease. During this period, the rights and responsibilities of the landlord and tenant remain in effect and the agreement cannot be unilaterally terminated by either party. However, there are a number of different ways a lease can describe the time period of the tenancy arrangement, each of which creates a different type of tenancy.[5]

Term of Years

When the lease specifies a specific date of termination, or a defined period of time after which the lease is terminated, this is called a term of years (or tenancy of years). A term of years can be created for long or short periods of time, but it must state calendar dates marking the beginning and end of the tenancy or employ a formula that can be used to calculate such dates. Note that, despite the name, a term of years can last less than a year. 

A typical term of years would be created when an apartment is leased for a fixed number of months or years from the date of the lease, so that the start and end dates are fixed in the lease agreement.

During this time, the tenancy cannot be terminated unilaterally by either party. At the end of the period, the tenancy automatically comes to an end. There is no need for either party to communicate with the other, or to give notice of termination.[6]

Note that while most terms of years agreements set the period of tenancy by calendar dates, it may also be possible to create such a tenancy by stating in the lease that the tenancy will terminate on the occurrence of an event or condition (such as when the college semester ends or when a construction project is completed).[7] A term of years does not have to specify a specific calendar date of termination to be valid.  

However, if the event or occurrence at which the lease ends is ambiguous and does not lend itself to a clear date of termination, the tenancy is considered a term of years. In such circumstances, the tenancy may be terminated at any time, even if the stated event does not occur.

For example, in one case, a campground was leased to a tenant, with the stipulation that the lease would continue as long as the camp was run as a “business.” The Supreme Court of Alabama held that such a term was not sufficiently determinate, lacking a fixed end date needed to create a term of years, and so could be terminated at any time.[8]

Periodic Tenancy

A periodic tenancy is a tenancy which is fixed for a specific duration of time, but which is automatically renewed if neither the landlord nor the tenant chooses to terminate the lease. [9] The length of time for which the tenancy is automatically renewed depends on the language of the lease.

For example, if the lease states that the property will be rented to the tenant, “from month to month,” then the lease is renewed every month until one or both of the parties decide to terminate. Since this is a continuation of the same tenancy, the terms of the lease carry over into each successive period in which the lease is automatically renewed.[10]

A periodic tenancy is created when the landlord and tenant enter into a lease which grants the tenant the right of possession and specifies a periodic schedule for rental obligations, such as the monthly or yearly payment of the rent, but does not fix an end date for the lease.

In such circumstances, the tenancy will be extended for a time stated in the lease until one of the parties gives notice of termination.[11] Often, the terms of the lease require that such notice be given in writing. 

For month-to-month or week-to-week tenancies, a party must give notice a full period in advance and the termination must be at the end of a period. For example, if a week to week tenancy renews automatically each Sunday, the party seeking to terminate has until Saturday to give notice that the upcoming period will be the last. The lease would terminate at the end of the following week.

For year-to-year tenancies, however, notice of termination need not be given a full year in advance. Instead, six months’ notice was required at common law, and many states have shortened that period even further by statute. If notice is given late, the tenancy will be extended another period, but will be terminated at the end of the additional period.[12]

Generally, a periodic tenancy can only be ended as of the last day of a period, although some jurisdictions permit ending the tenancy on any day, provided sufficient notice is given.[13]

Note that a periodic tenancy can be created even if no automatic renewal provision is specified in the terms of the lease. If the lease does not fix an end date but does provide for the payment of rent on an ongoing basis, whether it be each month, each week or each year, a periodic tenancy is created.[14]

Similarly, a periodic tenancy can be created by operation of law, such as when a tenant stays past the end date of a tenancy for years. If the landlord allows the tenant to remain, the law will treat the ongoing tenancy as a periodic tenancy.[15]  Alternatively, if a tenant takes possession of property under an invalid lease, but the tenant nevertheless offers rent and the landlord accepts, this may be considered a periodic lease under the law.[16]

Tenancy at Will

A tenancy which has no specified duration and can be terminated by either the tenant or landlord at any time, is called a tenancy at will. [17]

Note that while this form of tenancy can be ended at any point, it is considered a lease rather than a license. For as long as it lasts, the landlord has the full rights of possession, and can bring legal actions against trespassers.

A tenancy at will can be explicitly agreed upon, as in a case where the lease conveys possession to the tenant but does not include an end date or establish when the rents are due.[18] However, a tenancy at will can also result from a problem arising in the intended formation of another type of tenancy. 

For example, the law generally requires that long term leases cannot be entered into orally but must be in writing. In many US states, the cut-off for the written lease requirement is one year.[19] An oral agreement for a period which exceeds the length specified by law is an invalid lease. However, if the tenant takes possession of the property regardless of the legal status of the lease, with the acquiescence of the landlord, a tenancy at will is created.  

For as long as this situation persists, the tenant has all the possessory rights of any tenant, including the right to exclude the landlord. If the tenant subsequently pays rent, and the landlord accepts it, a periodic tenancy is created.[20]

At common law, a tenancy at will could be terminated with no advance notice. However, most states have enacted statutes providing a notice requirement. Generally, these laws mandate a 30-day notice of termination, though often only the landlord, and not the tenant, must provide notice.[21]

Tenancy at Sufferance

The final category, tenancy at sufferance, concerns the tenant who wrongfully remains in possession of a leased property past the date of a valid termination. Examples of such holdover tenants include a tenant who refuses to vacate after termination of a lease, or a tenant who enjoyed a month-to-month tenancy but refuses to leave despite being given timely notice of termination during the prior month.

In these circumstances, the tenant possesses the property against the wishes of the landlord, and without a valid lease agreement. However, since she entered the property under a valid lease, a holdover tenant is not considered a trespasser, and the landlord must adhere to state law regarding evictions to oust the tenant from the property.

Alternatively, the landlord has the right to hold the tenant to another term without the tenant’s agreement. This obligates the tenant for the payment of rent, and states often permit higher rental rates as penalties for wrongfully outstaying the lease.[22]  This rule is intended to provide a disincentive to tenants who stay past the end of their lease, knowing that the landlord cannot evict them immediately due to the protections afforded to tenants under state eviction procedure rules.

In most states, if the landlord chooses to hold the tenant to another term, this decision gives rise to a periodic tenancy.[23] The length of the period will usually be determined based on the rental arrangement as stated in the original lease. So, if the rent was due each month, the holdover tenant will be held to a month-to-month tenancy, and the same is true for other periods of time. However, regardless of the terms of the original lease, the maximum period of the new term is one year.[24]  

Note that in contemporary landlord-tenant law, a holdover tenant may object to being held responsible for a new term of lease on the grounds that circumstances beyond the tenant’s control (such as an environmental disaster) made it impractical for her to move out in time. Under this approach, a tenant will be protected against being held to another term, and from other financial penalties if she vacates the rental property as soon as circumstances permit.[25]

For the rest of the course, we’ll turn to the rights and responsibilities of both parties to a lease agreement. In module 2, we’ll cover the responsibilities of the landlord and then, in module 3, turn to the rights of the tenant to enforce the landlord’s responsibilities. In modules 4 and 5, conversely, we’ll cover the duties of the tenant and enforcement rights of the landlord.