06. THE KILLER LEASE
6.1. DUE DILIGENCE: Written Agreement
Introduction: The Legal Relationship Between Landlord and Tenant
Disclaimer regarding the Lease: Even though legal information appears in this chapter it is not intended to be legal advice. The author of this book is very clear in stating up front that he is NOT an attorney and is unable to give you legal advice. When dealing with any lease the tenant and the landlord are advised to seek legal advice from an attorney.
6.2 Definitions (from the Georgia Real Estate Commission)
29.01 INTRODUCTION
A landlord and tenant relationship starts when the owner of real property conveys to the tenant the rights to use, enjoy, and possess that property. In return for this transfer of rights, the tenant makes payments to the landlord in an agreed upon form that can include a specific amount of money, an exchange of property, services, or a percentage of the tenant’s sales. If the contract does not specify the time for payment, the law will presume that the rent will be due at the end of the rental period. Typical leases require payment in advance. Any contract for rental based upon some unlawful purpose or that is contrary to public policy is void.
29.02 USUFRUCTS
If the term of the rental agreement between the landlord and the tenant, known as a contract for rent, is for less than five years, the law presumes that no transfer of an estate takes place (O.C.G.A. § 44‑7‑1). The landlord merely contracts to subordinate some of the landlord’s rights to the property during the existence of the relationship. In Georgia the term “usufruct” describes the bundle of rights and privileges that a tenant holds that is less than the interest that passes when an estate for years is created (O.C.G.A. § 44‑7‑1).
29.03 ESTATE FOR YEARS
Although the term “lease” normally refers to contracts for rent, technically the term refers to the creation of an “estate for years.” An owner creates an estate for years when the owner carves an estate from his or her estate and grants it to someone else for a fixed period of time with the condition that it reverts to the owner when that time has expired. (O.C.G.A. § 44‑6‑100). For example, a landowner contracts to give a tract of land to a private school for use as a playground for 99 years at a cost of one dollar ($1.00) a year. After that time the land will return to the landowner’s control. The owner has created an estate for years. An estate for years differs from a usufruct in that a tenant holding a usufruct receives only a limited right to use and enjoy the property, whereas the recipient of an estate for years possesses an estate in that property and has the rights and powers of ownership for a limited time. (O.C.G.A. § 44‑6‑102). These differences, unless otherwise specified in the rental agreement itself, affect who is responsible to pay real property taxes and the rights to assign or sublet the property, to pledge the property as security for a debt, to obtain title insurance on the property, and to force the sale of the tenant’s interest in the property to satisfy a judgment in a lawsuit.
Although a lease for a period of five years or more is presumed to create an estate for years, it may in fact be a simple rental agreement or usufruct; and the parties can specify their intentions in that respect in the agreement. (O.C.G.A. § 44‑7‑1).
29.04 TENANCY FOR A DEFINITE TERM
Rental agreements most often are specific as to the period of their duration. Generally these are “tenancies for a definite term.” If the time period specified is one year or less, the agreement can be oral and will still be binding on the parties. However, if the period is for more than one year, it must be in writing. (O.C.G.A. § 44‑7‑2).
29.05 TENANCY FROM YEAR TO YEAR
A tenancy from year to year is the most common form of residential rental arrangements. A landlord and tenant produce a written agreement creating a tenancy for one year with an option to renew for each succeeding year. Unless the agreement states otherwise, the arrangement does not automatically renew the contract at the end of a year’s time but requires the parties to reaffirm their intention to continue the arrangement and allows for the renegotiation of the terms. If, however, the parties do not reach an agreement at the end of the specified time, the tenant becomes either a tenant at will or a tenant at sufferance.
29.06 TENANCY AT WILL
If the parties do not specify the time for the termination of a tenancy, they create a “tenancy at will.” (O.C.G.A. § 44‑7‑6). A landlord and tenant can create a tenancy at will by express contract, by implication, or by operation of law. For example, Mr. A orally agrees to rent an apartment to Mr. B for two years. As Georgia law requires that rental agreements for more than one year must be in writing, this verbal agreement is invalid and a tenancy at will would result. In Georgia a landlord must give a tenant sixty days notice before terminating a tenancy at will, and a tenant must give the landlord thirty days notice before termination of the tenancy. (O.C.G.A. § 44‑7‑7). As a tenancy at will requires the implied or express consent of the landlord, a dispute over the term of the tenancy will not ordinarily create a tenancy at will. Instead, a tenancy at sufferance will result.
29.07 TENANCY AT SUFFERANCE
A tenancy at sufferance results when a tenant comes into possession of real property lawfully and retains possession after the lawful right to possess has ended. In this way the rightful possession of property has become wrongful. Unlike a tenancy at will, the law does not require sixty days notice of termination to the tenant. For example, Mr. A rents an apartment to Mr. B for one year, and both parties sign a contract to that effect. At the end of one year’s time, Mr. A asks Mr. B to vacate the property, but Mr. B refuses to leave. Mr. B has become a tenant at sufferance, and Mr. A is not required to provide additional notice in order for him to have Mr. B removed from the property. A tenant at sufferance is also known as a holdover tenant.
Above definitions provided by the Georgia Real Estate Commission.
6.3. HAVING A WRITTEN LEASE
It’s important that you have a written rental agreement with your tenant. It spells out who has to do what, and when it has to happen. If you never get around to having a written agreement, and there is no specified termination date, then your tenant is called a TENANT AT WILL, because they are living there at your will with your permission.
Under a tenancy at will, the law sets down certain guidelines that you must follow in the absence of a written lease. Not surprisingly, most of these guidelines favor the tenant.
For example, under a tenancy at will, if you decide to increase the rent or to ask the tenant to leave, you must give him sixty (60) days notice. On the other hand, if he decides he is moving out, he is required to give you only thirty (30) days notice. Hardly seems fair to me.
Fortunately, there are many things we can include in the lease agreement to put the relationship on a more even playing field.
Georgia law does not allow you to transfer or waive certain duties you have as the landlord of residential property. (By the way, this book deals only with residential leases – commercial is similar, but different.)
In general, the landlord’s obligation is to repair, and the tenant’s obligation is to pay rent.
Specifically, you cannot write a lease that would change or transfer your obligation to repair the property. The law requires that the landlord repair all defects which are “latent,” meaning those that were hidden or not known at the time the property was rented.
While you can certainly write into the lease that the tenant accepts the premises in AS IS condition, that does not relieve you of the obligation to repair if the tenant complains to the local authorities.
The law reads:
“The landlord must keep the premises in repair. He shall be liable for all substantial improvements placed upon the premises by his consent.”
Unfortunately, it is not clear exactly what is meant by the word “substantial,” but it certainly includes any buildings or garages.
As you will see when you read the RENTAL AGREEMENT in this chapter, I have addressed the issue of repairs as well as possible under the law.
Even though we cannot shift the obligation to repair onto the tenant, we can (perhaps) contractually agree that the tenant will pay for some or all of the repairs that must be made during the term of the lease. I call this a “deductible for repairs,” and it really encourages the tenant to take care of minor repairs himself.
By the way, I used the qualifier “PERHAPS” advisedly. Some judges in Georgia are of the opinion that my repair deductible is unenforceable, while other judges feel that it was agreed to by the parties, and is reasonable. The legislature, in their wisdom, is silent.
If your judge throws it out in a dispossessory hearing, don’t call me and complain. Especially if you are in magistrates court, the judge may have little experience in landlord-tenant matters and simply may not like your looks. The good news is that most of my landlords using this provision have never had a problem.
6.4. Comments about each part of the lease:
Beginning with the 2020 edition, I have moved all of my commentary on each part of the KILLER LEASE to the members site at www.RealEstateCoffeeBreak.com. Only those with current subscriptions are allowed into the site. The commentary changes frequently, as a result of changes in federal laws and regulations, state laws and regulations, and precedent setting decisions handed down by judges from the bench in a variety of courts.
6.5. SIGNING THE LEASE
I have the tenant sign the front and initial all the other pages. They get their copy and I get mine. After they sign the lease with the move-in inspection, then (and only then) will I accept the check for the SECURITY DEPOSIT. At that point, I give them the keys and convert the EARNEST MONEY to the first month’s rent. I do NOT accept digital signatures on my leases, although I know many landlords do. I just like an old-fashioned piece of paper with blue ink signatures.
6.6. DOCUMENT STORAGE
I keep a separate file for every property, and keep the current lease in that file. Whatever you do, don’t lose the lease. The best lease in the world (this one) won’t do you much good if you can’t find it.
In addition, we have started using a computer or a scanner to scan in all documents and convert them to PDF format for easy retrieval and off site storage. I use GOOGLE DRIVE for tons of FREE ONLINE STORAGE that Google offers for free. Some landlords use OneDrive and others use Dropbox, but I am a confirmed GOOGLER.
This system works great for all leases, applications, notices, contracts, closing statements, loan docs, surveys and appraisals. It is also a great way to organize mortgage statements, tax bills, insurance policies and everything else by property. CREATE A FOLDER in Google Drive for each separate property or each unit if you wish, and keep a copy of EVERYTHING.
This way, if your office building burns down or your computer dies, you are backed up.
Once these docs are converted into PDF documents, you can store them on the internet for free in GOOGLE DOCS, which is available as an adjunct to your Gmail account.
I hear from some that they are using MicroSoft OneDrive, but I am afraid MicroSoft may go out of business at any time, just like Apple, so I avoid them both.
Whatever you use, make sure to keep copies of all important documents backed up OFF YOUR COMPUTER and OFFSITE. I like using the Internet because I am convinced they will keep up with it better than I will.
6.7. CUSTOMIZING YOUR LEASE
Feel free to change any portions of the lease that don’t fit your situation, but remember that this lease is designed to act as part of an overall program. If you are making more than just a minor change to the lease, get someone who knows what they are doing to make sure your new document is legal and enforceable. That means an attorney.
Also, remember that much of trial law is made up by magistrate judges as they go along.
There is nothing you can do about it, except appeal their ruling to Superior Court, which might take years and cost thousands of dollars. Your best bet is to take an attorney along anytime you need to appear in court (even Magistrates Court) for any reason.
Likewise, if you (or your attorney) come up with any new ideas that you like better than this lease, please write to me and tell me about it.
This lease is the product of forty years of the thrill of victory and the agony of defeat, of trial and error, of good advice and thoughtful meditation. But I know it can be made better. I look forward to hearing from you!
By the way, all my forms are available on my website for registered users to download and customize on your personal computer. Call my office at (404) 373-6000 for access and available formats.
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6.6. RENTAL AGREEMENT (The Killer Lease)
Beginning with the 2020 edition, I have moved the most recent edition of the KILLER LEASE to the members site at www.RealEstateCoffeeBreak.com. Only those with current subscriptions are allowed into the site. The KILLER LEASE changes frequently, as a result of changes in federal laws and regulations, state laws and regulations, and precedent setting decisions handed down by judges from the bench in a variety of courts.
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Please remember that this lease and this book are copyrighted and are available for use only by those who have paid for it. Any other use constitutes theft of intellectual property and is just plan stealing. Like a horse thief. Below is an actual photo of what happens to horse thieves.
6.8. MOVE-IN INSPECTION LIST Example:
The following is a comprehensive list of any existing damage to the premises, and is presented to the resident for the resident’s permanent retention prior to tendering of a security deposit. Resident has the right to inspect the premises to ascertain the accuracy of this list prior to taking occupancy, and shall state specifically in writing the items on the list to which he dissents, if any.
LIVING ROOM
DINING ROOM
KITCHEN
HALL
BEDROOM
BEDROOM #2
BEDROOM #3
BATH #1
BATH #2
GENERAL COMMENTS:
Within three business days after the date of the termination of occupancy, management shall inspect the premises and compile a comprehensive list of any damage done to the premises and the estimated dollar value of such damage. The resident shall have the right to inspect the premises within five business days after the termination of occupancy in order to ascertain the accuracy of the list. If the resident refuses to sign the list, he shall state specifically in writing the items on the list to which he dissents and shall sign such statement of dissent, which must then be presented to management.
Resident agrees to notify Management in writing within two (2) days of move-out of a forwarding address where Resident will receive U.S. mail. In the event that Resident fails to provide a forwarding address after move-out, Management shall mail the Move-Out Statement to Resident’s last known address.
_______________________________ _______________________________
MANAGEMENT / date RESIDENT(S) / date