Real Estate Practice pre-licensing class.

1. The Real Estate School
U N I T 2 2
LEASING AND PROPERTY
MANAGEMENT
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2. OVERVIEW
• Property Management – Involves the leasing, managing,
marketing, and overall maintenance of real estate owned by
others, usually rental property
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3. LEASE AGREEMENTS
• Lease – Contract between an owner of real estate (Lessor) and a
tenant (Lessee)
LESSOR
OWNER
LESSEE
TENANT
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4. LEASE AGREEMENTS
• Lease – Contract to transfer
the lessor’s rights to exclusive
possession and use of the
property to the tenant for a
specified period of time
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5. LEASING REAL ESTATE
• Lease agreement combines two contracts:
1. Conveyance of a possession of the real estate
2. Pay rent and assume other obligations
• Landlord retains a Reversionary
Right to possession after the
lease term expires
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6. LEASING REAL ESTATE
• Pennsylvania Statute of Frauds requires that leases for more than
three years be in writing to enforce performance on the contract
• The Real Estate Commission’s
Rules and Regulations require
licensees to use written contracts
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7. LEASE AGREEMENTS
• Requirements of a valid lease:
• Capacity to Contract – Legal capacity
to contract
• Legal Objectives
• Offer and Acceptance – Reach mutual
agreement on all terms
• Consideration – Exchange of promises
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Figure 22.1 (page 448)

8. LEASE AGREEMENTS
• Drafting of leases:
• Residential Leases – Usually preprinted agreements
• Commercial Leases – Generally more complex with different
legal requirements and may include complicated calculations of
rent and maintenance costs
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CAUTION - Legal counsel should
be sought when drafting legal
documents

9. LEASE AGREEMENTS
• Possession of Premises
• The Lessor is bound by the
implied Covenant of Quiet
Enjoyment
• Lessee may occupy the leased
premises without interference
from landlord
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10. LEASE AGREEMENTS
• Use of Premises – Lessor may restrict a Lessee’s use of the
premises through provisions included in the lease
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Residential Restriction Office Restriction Retail Restriction

11. LEASE AGREEMENTS
• Term of Lease – Should be
stated precisely and
include a beginning and
ending date together with
a statement of the total
period of the lease
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12. LEASE AGREEMENTS
• Security Deposits – Used as security in case
tenant defaults on payment of rent or
damages the premises
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13. LEASE AGREEMENTS
• Security Deposits (cont’d)
• Maximum security deposit in first year
of lease = two month’s rent
• Maximum security deposit after the
first year = one month’s rent
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14. LEASE AGREEMENTS
• Security Deposits (cont’d)
• During years 2-5, the landlord may increase the amount of
security deposit to keep pace with increasing rents
• After year 5, the landlord may not increase the amount of
security deposit
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15. LEASE AGREEMENTS
• Security Deposits (cont’d)
• Residential security deposits >$100 must be deposited in an
approved banking or savings institution
• Must be deposited in an interest bearing account starting on the
2nd anniversary
• Must be returned to tenant, including interest, within 30 days of
the termination of tenancy
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16. LEASE AGREEMENTS
• Improvements – Tenant may make improvements with Landlord’s
permission
• Any alteration becomes Landlord’s property
• In commercial leases, trade
fixtures may be installed by
Tenant and removed prior to
end of lease, provided space
is restored to prior condition
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17. LEASE AGREEMENTS
• Accessibility – Tenant’s with disabilities must be permitted to make
reasonable modifications to a property at their expense
• Landlord may require
premises be restored to
its original condition at
end of lease
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18. LEASE AGREEMENTS
• Maintenance of Premises – Residential Lessor is required to
maintain dwelling units in a habitable condition
• Commercial and industrial leases
usually maintain the Lessee is
responsible for making own
repairs
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19. LEASE AGREEMENTS
• Recording a Lease – Anyone who inspects the property receives
actual notice so recording is considered unnecessary
• State laws vary as to the
acceptability of recorded leases and
under what circumstances
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20. LEASE AGREEMENTS
• In Pennsylvania, a Memorandum of Lease may be filed to
provide notice of the interest but does not disclose the terms
of lease to the public
• Only the names of the
parties and a description
of the property are
included
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21. LEASE AGREEMENTS
• Options – Clause in a lease that grants the Lessee a privilege of
renewing or extending the lease
• Lessee must give notice before a specific date of the intention to
exercise option
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22. LEASE AGREEMENTS
• Purchase Option – Gives Lessee the right to purchase the leased
premises
• Right of First Refusal – Allows
Tenant the opportunity to buy
the property before owner
accepts another
offer
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23. DISCHARGE OF LEASES
• Leases are discharged when any of the following occur:
• Parties have fully performed their obligations
• Operation of law
• Mutual agreement
• Leases are NOT discharged if:
• Either party dies
• Property is sold
(Certain exceptions apply)
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24. DISCHARGE OF LEASES
• If leased real estate is SOLD, the new owner takes the property
subject to existing leases
• Exception: Sale Clause
Language in a lease that
permits the new owner
(landlord) to terminate existing
leases
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25. DISCHARGE OF LEASES
• Federal and State laws allow military personnel to terminate leases
without penalty in certain situations
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26. DISCHARGE OF LEASES
• Destruction of Premises – Residential tenants are permitted to
reduce their rent payments in proportion to the amount of space
they are unable to use
• Tenants who have
constructed buildings
on leased land are still
obligated for the
payment of rent
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27. DISCHARGE OF LEASES
• Assignment and Subleasing – Only allowed when a lease
specifically permits them
• Assignment – Tenant transfers all leasehold
interests to another person or entity
• Subleasing – Tenant transfers less than all the leasehold interest
by leasing them to a new tenant
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28. DISCHARGE OF LEASES
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Assignment Sublease
Figure 22.2

29. DISCHARGE OF LEASES
• Breach of Lease
• Landlord Remedy – Suit for Possession (Actual Eviction) Legal
process whereby Landlord may regain possession when Tenant
breaches a lease or improperly retains possession
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30. DISCHARGE OF LEASES
• Breach of Lease (cont’d)
• Landlord Remedy – Suit for Possession (Actual Eviction)
• If Tenant fails to leave, the
Landlord can have the
judgment enforced by a
court officer who forcibly
removes the Tenant
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31. DISCHARGE OF LEASES
• Breach of Lease (cont’d)
• Landlord Remedy in Pennsylvania
• Landlord must give proper notice before filing suit
• Landlord files a complaint
• District Justice (DJ) issues summons for Tenant to appear and answer
complaint
• DJ enters judgment against the Tenant ordering the Tenant to deliver
property (may also include costs)
• If Tenant fails to leave, a constable is utilized
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32. DISCHARGE OF LEASES
• Breach of Lease (cont’d)
• Tenant Remedy – Constructive Eviction – If the leased premises
become unusable, Tenant may have the right to abandon them
and sue for damages
• Tenant has to prove that there was conscious neglect by the
Landlord
• Tenant must leave the premises while the condition that made
the premises uninhabitable exist
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33. DISCHARGE OF LEASES
• Breach of Lease Remedies (cont’d)
• Warranty of Habitability
The Lessor who leases
residential premises
warrants that the
premises are fit for
habitation
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34. DISCHARGE OF LEASES
• Breach of Lease (cont’d)
• Pro-Tenant Legislation – The Uniform Residential Landlord
and Tenant Act addresses the need for both parties to fulfill
certain basic obligations
• Landlord’s right to enter property
• Use and maintenance of premises
• Tenant’s protection against retaliation for complaints
• Contact information for Tenant
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35. DISCHARGE OF LEASES
• Fair Housing and Civil Rights Laws – Affect landlords and tenants
just as they do sellers and purchasers
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36. DISCHARGE OF LEASES
• Pennsylvania Human Relations Act – All persons must have access
to the housing of their choice without regard to their race, color,
religion, national origin, sex, age (40 years old or older), disability,
use of guide or support animals due to a disability, or familial
status.
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37. TYPES OF LEASES
• Gross Lease – The Tenant pays a fixed rental and the landlord
pays all operating expense (property charges or operating
expenses)
• Residential and commercial office
leases are most common
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38. TYPES OF LEASES
• Net Lease – The Tenant pays all or most of the operating expenses
in addition to the rent
• Typical in large commercial and industrial leases
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39. TYPES OF LEASES
• Percentage Lease – Rent is based on a minimum fixed rental
fee plus a percentage of the gross or net income received by
the tenant
• Typical in retail business leases
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40. TYPES OF LEASES
• Percentage Lease Calculation – EXAMPLE
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A retail lease requires minimum rent of $1,300 per month plus 5% of the
business’s sales over $160,000. On an annual sales volume of $250,000,
calculate the annual rent.
• Base Rent: $1,300/month x 12 months = $15,600
• Percentage Rent: $250,000 - $160,000 = $90,000
$90,000 x 0.05 = $4,500
• Total Rent: $15,600 + $4,500 = $20,100

41. TYPES OF LEASES
• Variable Leases – Allow for increases in the fixed rental charge
during the lease period
• Graduated Lease – Provides for specific
rent increases at set future dates
• Index Lease – Allows rent to be increased
or decreased periodically based on
changes in an index
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42. TYPES OF LEASES
• Ground Leases – Landowner leases unimproved land to a tenant
who agrees to erect a building on it
• Used in commercial and
industrial property
development
• Separate ownership of land
and building
• Long-term (50-99 years)
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43. TYPES OF LEASES
• Oil and Gas Leases – Landowner receives a cash payment for
executing the lease and a royalty for oil or gas extracted from the
ground
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44. TYPES OF LEASES
• Lease Purchase – Used when a Tenant wants to purchase a
property but is unable to do so
• Part of the periodic rent is applied toward the purchase price until the
Tenant can obtain financing
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45. TYPES OF LEASES
• Sale and Leaseback – Owners of property sell the property and
then lease it back for an agreed period and rental
• Used to obtain extra working capital
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46. THE MANAGEMENT PLAN & AGREEMENT
• The Management Plan – Outlines the
details of the owner’s objectives with the
property and what the property manager
expects to accomplish and how, including
all financial objectives
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47. THE MANAGEMENT PLAN & AGREEMENT
• Property Manager analyzes three factors
• Owner’s objectives
• Regional and
neighborhood market
• Specific property
• Critical indicators:
• Occupancy
• Absorption rates
• New starts
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48. THE MANAGEMENT PLAN & AGREEMENT
• The Management Agreement – A contract that creates a general
agency relationship between the owner and the property manager
and defines responsibilities
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49. THE MANAGEMENT PLAN & AGREEMENT
• The Management Agreement (cont’d)
• Management agreement should be in writing and include the
following points:
• Property description
• Time period
• Manager’s responsibilities
• Owner’s purpose
• Manager’s authority
• Reporting
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• Compensation
• Allocation of costs
• Antitrust provisions
• Equal opportunity statement

50. THE MANAGEMENT PLAN & AGREEMENT
• Calculating Rental Commissions
• If an apartment unit rents for $1,200 per month and the commission payable
is 8%, the commission will be calculated as follows:
$1,200/month x 12 months = $14,400/year
$14,400 x 0.08 = $1,152
• Rental commissions are usually payable when the first month’s rent is
received and the tenant moves in
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51. THE MANAGEMENT PLAN & AGREEMENT
• Residential Property Management
Agreement
(Landlord Agency Contract)
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Figure 22.4
(page 466-471)

52. PROPERTY MANAGER’S RESPONSIBILITIES
• The three principal responsibilities of the property manger:
1. Achieve the objectives
of the owner
2. Generate income
3. Preserve and/or increase
the value of the property
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53. PROPERTY MANAGER’S RESPONSIBILITIES
• In Pennsylvania, a property manager who serves the public for a
fee must be one of the following:
• Licensed real estate broker
• Real estate licensee affiliated with a property management
company
• Brokerage firm that has a property management department
(NOTE: Property manager may also be an employee of the owner of real estate)
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54. PROPERTY MANAGER’S RESPONSIBILITIES
• Financial Reports – While there is no standard formats, there is
similarity among reports and should be adapted to meet owner’s
needs
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55. PROPERTY MANAGER’S RESPONSIBILITIES
• Financial Reports (cont’d)
• Operating Budget – Projection of income and expense for the
operation of a property over a one-year period
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56. PROPERTY MANAGER’S RESPONSIBILITIES
• Financial Reports (cont’d)
• Cash Flow Report – Monthly statement that
details the financial status of the property
• Most important report because it provides
a picture of the current financial status of
a property
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57. PROPERTY MANAGER’S RESPONSIBILITIES
• Financial Reports (cont’d)
• Cash Flow Report – Formula for
arriving at cash flow
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Gross Rental Income
+ Other Income
- Losses Incurred
Total Adjusted Income
- Operating Expenses
NOI Before Debt Service
- Debt Service
- Reserves
Cash Flow

58. PROPERTY MANAGER’S RESPONSIBILITIES
• Financial Reports (cont’d)
• Profit and Loss Statement – A financial picture of the revenues
and expenses used to determine whether the business made
money
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(+)

59. PROPERTY MANAGER’S RESPONSIBILITIES
• Financial Reports (cont’d)
• Budget Comparison Statement – Compares the actual results
with the original budget
• Usually given in
percentages or
numerical variances
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60. PROPERTY MANAGER’S RESPONSIBILITIES
• Renting the Property – Effective rental of the property is essential
to ensure the long-term financial health of the property
• Licensees must use the
Consumer Notice for the
lease of residential or
commercial property
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61. PROPERTY MANAGER’S RESPONSIBILITIES
• Renting the Property (cont’d)
• Setting Rental Rates – Influenced primarily by supply and
demand
• Property manager should
conduct a survey of
competitive spaces
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62. PROPERTY MANAGER’S RESPONSIBILITIES
• Renting the Property (cont’d)
• Setting Rental Rates (cont’d)
• Residential Space – Stated as
a monthly rate
• Commercial Space – Stated as
an annual or monthly rate per
square foot
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63. PROPERTY MANAGER’S RESPONSIBILITIES
• Marketing – Must take into consideration the property itself, the
supply and demand in the area, and the amount of money
available for advertising
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64. PROPERTY MANAGER’S RESPONSIBILITIES
• Advertising – Property managers must attract the best tenants by
considering various methods of advertising
• Newspaper
• Brochures
• Direct-mail
• Web sites
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• Radio
• Television
• Billboards

65. PROPERTY MANAGER’S RESPONSIBILITIES
• Selecting Tenants – Proper selection is the 1st step in establishing
and maintaining sound, long-term relationships
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66. PROPERTY MANAGER’S RESPONSIBILITIES
• Selecting Tenants (cont’d)
• Property managers should make sure premises are suitable for
tenant in terms of size, location, and amenities
• Commercial tenant’s business should be compatible with the
building and other tenants
• Property managers need to be aware of how fair housing laws
affect and impact their business
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67. PROPERTY MANAGER’S RESPONSIBILITIES
• Selecting Tenants (cont’d)
• Collecting Rents – Terms of rental payments should be spelled
out in the lease agreement:
• Time and place of payments
• Provisions and penalties for late payments
• Provisions for cancellation and damages in case of
nonpayment
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68. PROPERTY MANAGER’S RESPONSIBILITIES
• Selecting Tenants (cont’d)
• Collecting Rents (cont’d)
• Property manager should establish a firm and consistent
collection plan with a system of notices and records that
comply with state and local law
• Property manager must be prepared to initiate and follow
through with the necessary legal steps to evict tenants
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69. PROPERTY MANAGER’S RESPONSIBILITIES
• Maintaining Good Tenant Relations
• Regular newsletters or posted memos help keep tenants
informed
• Maintenance and service requests should be attended to
promptly
• Treat all tenants the same in terms of rent collection and
enforcement
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70. FEDERAL LAWS AFFECTING
PROPERTY MANAGEMENT
• Americans with Disabilities Act (ADA)
• Title I – Provides for the employment of qualified job applicants
regardless of their disability
• Any employer with 15 or more employees must adopt
nondiscriminatory employment procedures
• Employers must make reasonable accommodations to enable
individuals with disabilities to perform essential job functions
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71. FEDERAL LAWS AFFECTING
PROPERTY MANAGEMENT
• Americans with Disabilities Act (ADA) (cont’d)
• Title III – Prohibits discrimination in commercial properties and
public accommodations
• Ensures that people with disabilities have full and equal
access to facilities and services
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72. FEDERAL LAWS AFFECTING
PROPERTY MANAGEMENT
• Americans with Disabilities Act (ADA) (cont’d)
• Property manager is responsible for determining whether a
building meets ADA’s accessibility requirements
• Existing Buildings – ADA recommends reasonably achievable
accommodations
• New Buildings – Must meet higher standards
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73. FEDERAL LAWS AFFECTING
PROPERTY MANAGEMENT
• Equal Credit Opportunity Act (ECOA) – Prohibits lender from
denying a loan based on a person’s race, color, religion, national
origin, sex, marital status, age, and receipt of public assistance
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74. FEDERAL LAWS AFFECTING
PROPERTY MANAGEMENT
• Equal Credit Opportunity Act (ECOA) (cont’d)
• Should use the same lease application for every applicant
• If checking credit for one; check
credit for all
• Be consistent in evaluating income
and debt of applicants
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75. FEDERAL LAWS AFFECTING
PROPERTY MANAGEMENT
• Fair Housing Act – Prohibit discrimination in the sale, rental, or
financing of housing
based on race, color, religion,
national origin, sex,
familial status,
or disability
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76. PROPERTY MAINTENANCE & RISK MANAGEMENT
• Property Maintenance – Keeping the property in good condition
involves four types of maintenance:
1. Preventive Maintenance – Preserves the long-range value and
physical integrity of the building
2. Corrective Maintenance – Actual repairs that keep the
building functioning
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77. • Property Maintenance (cont’d)
3. Routine Maintenance – Day-to-day duties such as cleaning and
performing minor adjustments
4. Tenant Improvements – Construction alterations made to the
interior of the building to meet the tenant’s needs
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PROPERTY MAINTENANCE & RISK MANAGEMENT

78. • Risk Management
• Security of Tenants – Property managers
and owners should evaluate measures
to protect tenants from
unauthorized entry to
buildings and to
secure apartments
from intruders
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PROPERTY MAINTENANCE & RISK MANAGEMENT

79. • Risk Management Techniques – The perils of any risk must be
evaluated in terms of options
• Control it through preventative measures
• Avoid it by removing the risk
• Retain it by insuring it with large deductible
• Transfer it by taking out an insurance policy
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PROPERTY MAINTENANCE & RISK MANAGEMENT

80. • Types of Insurance – First line of defense in risk management for
property owners and managers
• Tenant’s Insurance – Property
manager should notify
tenants that they should
obtain renter’s insurance
to protect their personal
belongings
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PROPERTY MAINTENANCE & RISK MANAGEMENT

81. • Types of Insurance (cont’d)
• Commercial Insurance – An insurance audit should be
performed which will indicate areas in which greater or lesser
coverage is recommended
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PROPERTY MAINTENANCE & RISK MANAGEMENT

82. • Types of Insurance (cont’d)
• Commercial Insurance (cont’d)
• Multiperil Policies – Insurance package that includes standard
types of coverage for fire, hazard, public liability, and casualty
• Condominium associations carry insurance on common
elements and buildings
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PROPERTY MAINTENANCE & RISK MANAGEMENT