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Define an option-to-buy.
An option is an enforceable contract in which the optionor (seller) gives the optionee (buyer) the right to purchase the property before a determined time for a stated price and terms.
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List four things an option does to the advantage of the optionee.
- The optionee is under no obligation to purchase the property.
- The optionee can prevent the sale of property to another party while raising funds to buy the property him/herself.
- The optionee has access to the property during the option period.
- The optionee can establish good credit and set up financing for the future purchase while living in the home.
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How does an option benefit commercial property acquisition?
The option gives the commercial buyer time to research zoning, space planning, building permits, environmental impacts, and other issues prior to purchasing without losing the property to another buyer during the option period.
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List five items that are required for an option contract.
- Non-refundable consideration
- Price and terms of sale
- Option expiration date
- Legal description of the property
- Must be in writing
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Explain the "how to deliver notice of election" contract provision.
This is a clause that clarifies how to make the option election, when it must be made, and any other terms required.
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What are the results of an option contract being recorded?
The optionee creates equitable interest in the property.
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What should be considered when determining a fair option fee? List five.
- Current value of property
- Anticipated value of property at end of option term
- Length of option term
- Tenant's credit
- Value appreciation rate in property area
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What are the three contracts necessary in an option-to-buy?
Lease agreement, option contract, purchase agreement
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Which contract should include a provision that the optionor continue to make his/her regular mortgage payments and maintain all insurance?
Lease agreement
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Name four items the options contract should include.
Option fee, options credits, how and when option fee is paid, whether or not option fee is refundable
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What is the first step a landlord should take if the tenant in an option-to-buy defaults on the lease?
Send a letter to tenant notifying him/her that the option is being terminated.
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What type of contract is option
Unilateral
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Exercise of option creates___ sale contract
bilateral
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In exchange for the right of option, the optionee pays the optionor
Valuable consideration
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An option does not in itself convey
An interest in real property
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The contract necessary for the terms to take place until option is exercised
Lease
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What are the results of an option contract being recorded
Equitable interest in property is created
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Define a lease.
A lease is an agreement in which property owners give parties the right to use or occupy their real property for a specific period of time in return for consideration.
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What is a leasehold?
The tenant's interest in the leased property, considered intangible personal property.
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What rights does a leasehold estate grant the tenant?
Exclusive possession, occupancy, and use; quiet enjoyment; profits from use
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In conveying the leasehold estate, the landlord acquires what type of estate and what rights does that entail?
A leased fee estate – right to receive rent, repossess the property at the end of the lease term, monitor tenant's obligations to maintain the premises
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What type of lease is an arrangement that automatically renews for successive periods?
A periodic tenancy
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Name the four types of leaseholds.
- Estate for years
- Estate for period
- Estate at will
- Estate at sufferance
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Which leasehold has a beginning and end date, does not require notice to terminate at the end of the term, and does not have an automatic renewal
Estate for years
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In which leasehold does the holdover tenant have unlawful possession of the property and, thereby, must be evicted through the courts?
Estate at sufferance
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Renter Jim would like to apply some of his lease payment monies to the purchase of his unit. What type of arrangement would make this possible?
A lease purchase
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What type of lease would be used when an owner wishes to lease raw land to an agricultural or mining interest?
A land lease
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Tenant Fred has a lease payment that is tied to the Wholesale Price Index. What type of lease does Fred hold?
Index lease
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Residential leases are usually what type?
Gross leases
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___conveys a leasehold interest to the tenant
Lease
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tenants Rights include5
exclusive possession, occupancy, use, quiet enjoyment, profits from use
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Landlord's Rights and Obligations
Lease conveys a leased fee estate to the___
owner
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Landlord rights; Landlord may sell, assign, or mortgage the ____ ____ _____
Leased fee interest
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Acquired by landlord in conveying a lease
Grants rights to receive rent, repossess property at end of term, monitor tenant regarding premises maintenance
Landlord must provide necessary building support and services and must maintain the condition of the property
Leased fee estate
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Specific period of time with beginning and ending date
Does not require notice to terminate at end of term
Renewal is not automatic
Estate for years
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Called periodic tenancy
lease term renews automatically upon acceptance of monthly or periodic rent
no definite ending date
can be terminated by either party upon proper notice as defined by state law
Estate from period-to-period
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also called tenancy at will
no definite expiration date and no renewal cycle provided rent paid on time
no lease required
death of either party terminates tenancy
Estate at will
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tenancy against landlord's will and without an agreement
tenant fails to vacate at end of lease term
landlord must evict through courts
landlord cannot lock tenant out, turn off utilities, or forcibly remove tenant
Estate at sufferance
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– full service lease, landlord pays operating expenses
Gross
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Type of lease– tenant pays utilities, internal repairs, and share of taxes, insurance, and operating expenses in addition to rent; common in office and industrial properties
Net
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Type of lease;– landlord shares in income generated from use of property; rent can be fixed percent of gross revenue without minimum rent, fixed minimum rent plus percent of gross sales, the greater of percentage rent or minimum rent
Percentage
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Type of lease; – short lease terms, lease clauses comply with local landlord-tenant laws, lease clauses generally not negotiable; can be net or gross lease
Residential
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Type of lease; – long term up to 25 years, require tenant improvements to meet usage needs, lease clauses are negotiable, lease clauses must express all points of agreement and be very precise
Commercial
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Type of lease; – commercial lease with rent based on standard that relates to tenant's trade, must be clearly stated in contract, and impacts rent adjustments
Index
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Type of lease;– commercial lease with low beginning payments that increase over time
Graduated
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Type of lease;– lease is for land only for either agricultural or mining, for development of land, or when owner wants to sell interest in improvements made to land while retaining ownership of the land itself
Ground or land
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Type of lease; – leasehold interest to owner of cooperative
Proprietary
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Type of lease;– leasing of water, air, or mineral rights
Rights
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Lease purchase –
for tenants who want to buy the property but do not have the funds at the time and need to use the premises until they can purchase
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– tenant can buy leased property within the lease term; option goes with property if assigned to third party; option can be assigned apart from the rest of the lease stipulations; is secondary to rental agreement
Lease option
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A landlords interest in the rented premises best described as
Leased fee
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