LEASE AGREEMENTS
Requirements of a Valid Lease
A lease is a form of contract. To be valid, a lease must meet essentially the same requirements as any other contract:
- Capacity to contract – The parties must have the legal capacity to contract.
- Legal objectives – The objectives of the lease must be legal.
- Offer and acceptance – The parties must reach a mutual agreement on all the terms of the contract.
- Consideration – The lease must be supported by valid consideration. Rent is the normal consideration given for the right to occupy the leased premises. However, the payment of rent is not essential as long as consideration was granted in creating the lease itself. Sometimes, for instance, this consideration is labor performed on the property.
The leased premises should be clearly described. If the lease is for a part of a building, such as an apartment, the space itself or the apartment designation should be described specifically. If supplemental space is to be included, the lease should clearly identify it.
The elements of a valid lease can be remembered by the acronym CLOAC:
- Capacity,
- Legal objective,
- Offer and
- Acceptance, and
- Consideration.
Possession of Premises
The lessor, as the owner of the real estate, is usually bound by the implied covenant of quiet enjoyment. The covenant of quiet enjoyment is a presumed promise by the lessor that the lessee may take possession of the premises. The landlord further guarantees that he will not interfere in the tenant’s possession or use of the property.
The lease may allow the landlord to enter the property to perform maintenance, to make repairs, or for other stated purposes. The tenant’s permission is usually required.
Use of Premises
A lessor may restrict a lessee’s use of the premises through provisions included in the lease.
Use restrictions are particularly common in leases for stores or commercial space. For example, a lease may provide that the leased premises are to be used “only as a real estate office and for no other purpose.” In the absence of such clear limitations, a lessee may use the premises for any lawful purpose.
Term of Lease
The term of a lease is the period for which the lease will run. It should be stated precisely, including the beginning and ending dates, together with a statement of the total period of the lease. For instance, a lease might run “for a term of 30 years beginning June 1, 2011, and ending May 31, 2041.” A perpetual lease for an inordinate amount of time or an indefinite term usually will be ruled invalid.
Implied Warranty of Habitability
The Illinois Supreme Court first confirmed the concept of an implied warranty of habitability in residential tenancies in 1972. Since then, Illinois courts have repeatedly confirmed and amplified the warranty. A landlord must deliver and maintain throughout the duration of the lease any residential leasehold free from defects that would render the use of the dwelling “unsafe or unsanitary” and unfit for human occupancy. Nothing may be present on the premises that could seriously endanger the life, health, or safety of the tenant.
The conditions that violate the implied warranty of habitability vary depending on the state and jurisdiction where the premises are located. Generally, a landlord can be in violation by failing to provide access to :
- drinkable water and hot water, heat during cold weather,
- working electricity,
- a smoke detector,
- a working bathroom and toilet,
- removal of rodent or insect infestation, or
- building code violations.
A tenant must give the landlord notice of a defect and reasonable time in which to cure it. As a remedy, the tenant may choose to:
- move out and terminate the lease if repairs are not made within a reasonable time –constructive eviction,
- stay and repair the problem himself and deduct the repair costs from the next month’s rent (repair costs cannot exceed one month’s rent), or
- sue for any damages resulting from the defective condition
Security Deposit
Most leases require that the tenant provide some form of security deposit to be held by the landlord during the lease term. However, with the paperwork involved in maintain escrow accounts and interest payment reports, many landlords are opting to charge only a “Move In Fee”.
If the tenant defaults on payment of rent or destroys the premises, the lessor may keep all or part of the deposit to compensate for the loss.
Illinois lessees are entitled to receive annual interest on their security deposits. Landlords who receive security deposits on residential leases of units in properties of 25 or more units, on deposits held for more than six months, are required to pay interest from the date of the deposit at a rate equal to the interest paid on a minimum deposit passbook savings account of the state’s largest commercial bank (measured by total assets) with its main banking facilities located in Illinois. Any landlord who is found by a court to have willfully withheld interest on a tenant’s security deposit must pay the tenant an amount equal to the security deposit plus the tenant’s court costs and attorney’s fees. Note: Chicago security deposit rules and rates for residential landlords differ under the Chicago Residential Landlord and Tenant Ordinance.
Improvements
Neither the landlord nor the tenant is required to make any improvements to the leased property. The tenant may, however, make improvements with the landlord’s permission. In most residential properties, any alterations become the property of the landlord, allowance for the wear and tear of normal use.
Accessibility
The federal Fair Housing Act makes it illegal to discriminate against prospective tenants on the basis of physical disability.
Tenants with disabilities must be permitted to make reasonable modifications to a property at their own expense. However, if the modifications would interfere with a future tenant’s use, the landlord may require that the premises be restored to their original condition at the end of the lease term at the tenant’s expense. The Landlord can also require that the Tenant deposit money to cover converting the apartment back to its original condition in an escrow account.
Assignment and Subleasing
When a tenant transfers all of his leasehold interests to another person, the lease has been assigned. The new tenant is legally obligated for all the promises the original tenant made in the lease.
On the other hand, when a tenant transfers less than all the leasehold interests by leasing them to a new tenant, the original tenant has subleased (or sublet) the property. The original tenant remains responsible for rent being paid by the new tenant and for any damage done to the rental during the lease term. The new tenant is responsible only to the original tenant to pay the rent due. Assignment and subleasing are only allowed when a lease specifically permits them. In both assignments and subleases, details of the new arrangement should be in writing.
Most leases prohibit a lessee from assigning or subletting without the lessor’s consent. This permits the lessor to retain control over the occupancy of the leased premises. As a rule, the lessor must not unreasonably withhold consent. The sublessor’s (original lessee’s) interest in the real estate is known as a sandwich lease.
Recording a Lease
Anyone who inspects the property receives actual notice. For these reasons, it is usually considered unnecessary to record a lease. However, most states do allow a lease to be recorded in the county in which the property is located. Some states require that long-term leases be recorded, especially when the lessee intends to mortgage the leasehold interest, usually for a lease more than 20 years.
Non-disturbance Clause
A non-disturbance clause is a mortgage clause stating that the mortgagee agrees not to terminate the tenancies of lessees who pay their rent should the mortgagee foreclose on the mortgagor-lessor’s building.
Options
A lease may contain an option that grants the lessee the privilege of renewing the lease (called a renewal option). The lessee must, however, give notice of his intention to exercise the option. Some leases grant the lessee the option to purchase the leased premises (called a purchase option).
The lease might also contain a right of first refusal clause, allowing the tenant the opportunity to buy the property before the owner accepts an offer from another party.
