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PROPERTY

Fall 2013

CLASS ONE

INTRODUCTION TO PROPERTY:

Why Study Property?

What is Property? (Real vs. Property)

o

Real property

 
 

§

Fixtures (start out as personal property but when become affixed they become real)

§

Land

§

Farming

§

Historical background

 

Medieval times: distinguished and refined ones social relationship

 

§

Special

§

Unique

§

o

Personal property (tangible and intangible)

 

§ Has become a function of the wall street capital markets

§ Modernization of property: turning it into cash

§ Books, cars, jewelry

§ Intangible:

 
 

Good will or an idea

 

§ Needs to be replaced

o

What other courses involve property issues?

 

§ Contracts

 

§ Leases

§ Landlord/tenant law

§ Personal jurisdiction

§ Lis pendens

 

§ Judgment liens

§ Tort law: Fraud, misrepresentation, premises liability

§ Criminal law: trespassing

§ Constitutional law: imminent domain, taking, right to take someone’s property, estate and local government

§ Family law

 

§ Trust and estates

§ Intellectual property: copyrights, patents

§ Corporations

 

o

Why special rules/courses for property?

 

§ It is unique

 
 

Selective views or attributes that make property different

 

§ Limited/finite

o

What is different about real property from other types of property?

How do you acquire property?

o True owner vs. possessor

§ Acquire rights by finding something

§ Inherit

§ Purchase it

§ Adverse possession

If you possess property for a period of time, you acquire rights to it

§ Imminent domain:

Federal or state may acquire property involuntarily

§ Theft

§ Title action

§ Equity

§ Estoppel

§ Discovery

Major issues in property law

o

Ownership: what does it mean to say that X “owns” something?

o

Right to exclude vs. Right of Access

o

Right to use, Possess, and enjoy property

o

Right not to be injured by someone else’s use of property

o

Right to transfer (disaggregation)

§

Limits on Disaggregation

 

Limits on ability to slice and dice

Restrictions which void on public policy

o

Immunity from loss

 

§

Loss of Property

 

Forfeiture provisions

Contracts

 

Different theories of way to lose property

 

o

Due process of law

o

Freedom to contract

§

Triangle—statute, common law, and K

 

In NY cannot hire a surrogate to carry a child

o

Relationship between K & property law

§ Why do rules change over time?

No duty for a landlord to mitigate damages

§ A lot of K principles:

Whether a Landlord has to be reasonable

o Justifications?

§ Equity

§ Justice

§ Utilitarian

§ Social Relationships

§ Possession

§ Expectation

o

History

§

Social context

§

Statute of Frauds (dates back to 1600’s)

o

Why certain property concepts have been discarded and some have remained

o

Formal sources of property rights (leases and contracts, deeds and wills)

§

Informal (oral promises, possession over time, family relationships, social customs and norms)

o

Possession

§

Relational aspect between true owner, possessor, and the rest of the world

 

True owner trumps the possessor

Want certainty of ownership

o

Bundle of rights (slice and dice)

§ Concurrent owners (joint tenant)

§ Present and future owners

§ Vertical division

§ Family/entity ownership

§ Different estates (lease vs. FSA)

SYLLABUS AND COURSE REQUIREMENTS:

1. Textbook, Supplement, Reference Materials

a. Statutes are in the supplement

2. Syllabus & Reading

a.

Index to all topics

b.

Assigned reading

i.

Who is suing whom for what?

c.

Rule statement needs to come from either statute (mandatory, default rule), contract (parties provided answer to the question) or common law

d.

3. Blackboard Website

4. Final Exam, Grades Practice Exams, PLA questions, etc.

a. Closed book

b. Practice exams

5. Lateness and Attendance Policy

6. Class Capture/Videotape

7. Powerpoints (ahead of class and final)

8. Participation

9. Office Hours

10. CRES Breakfast forums

11. Professional Development

12. Desk microphones

13. 5 minute break

14. Seating chart

15. Review 10-15 min before class starts

END OF CLASS DISCUSSION

CLASS TWO August 29, 2013

Landlord/Tenant Law Leaseholds Duty to Deliver Possession

Lease Transaction

o

Landlord/Owners: All rights to use, exclude, enjoy (Landlord Lessor)

§ Landlord can still sell and mortgage the land

 

Ownership is not absolute: The landlord’s rights are limited because the tenant has the right for 10 years of exclusive possession of the property

Can be separated into different rights & interests

Two different entities can have different legal rights in the same parcel of property

Lease of land is both property of tenant and landlord (simultaneous rights)

 

o

Does NOT have right of possession

 

§ 10 year lease (Leasehold)

 

Leasehold Estate: (K that does the conveyance)

Landlord’s Right to use in future after 1/1/2020 (LL record title future interest LL Reversion) (Tenant Lessee)

Tenant’s Right to Use for 10 years till 1/1/2020 (Present Interest Lease) (Tenant Lessee)

o

Exclusivity (important use): granting exclusive use and space to tenant

§

Tenant cannot mortgage or sell land

o

Right of possession: How would you figure out one’s presence?

§

Inquiry:

 

Physical presence, keys, furniture, etc.

Land records, but the property itself

o

What does it mean to have a property right in the future?

§ Can’t enjoy it until sometime in the future

Present and Future Interests:

o

Tenant has a present possessory interest

o

There is also a future possessory interest (whenever leasehold terminates)

§ If LL retains future interest: “reversion”

§ If LL transfers the future interest to a 3 rd party: “remainder”

Landlords are sometimes referred to as Lessors

Tenants: Lessees

Lease: Estatehold Lease

Landlord: (lord of the manor)

Lease vs. Contract:

o

Lease:

§ Conveyance (a present transfer) and a contract (instruments of transfer)

§ Covenants are independent (default of party x doesn’t excuse performance of other party)

§ Two principle promises contained within lease

Tenant’s promise to pay rent

Landlord’s promise that tenant peacefully enjoy property (Covenant of quiet enjoyment)

§ Whether one party performs promise or not, has nothing to do with the other party defaulting on their promise

§ Common law: (Landlord/tenant law) the tenant has to pay rent (monthly), irrespective of whether or not landlord is performing his promise

Covenants are independent of each other

Means that you don’t have an excuse for not paying rent

o

Contract:

§ Covenants are dependent (default of party x excuses performance of other party)

Protects the other party

Modern contract law: modified law: made it more rational

Classification System of Leaseholds (fixed period of time- beginning & end)

o

o

Term of years (tenancy for a term)

Periodic Tenancy (fixed period of duration and continues automatically until either landlord/tenant gives notice of its termination)

§ Express: in writing

§ Implied: (harder because of Statute of Frauds)

Exceptions: Equity

Example: Month to month or year to year

§ Automatically turn over and continue over to the next period unless its terminated (needs to have action to terminate—give

notice)

Common law: Notice must be given equal to the length of the period

o

Tenancy at will:

o

o

Advance, sufficient notice required, and has to be the end of the month

Ex.: One year needs 6 months to terminate

§ Have no fixed duration

§ Lasts as long as either party desires it to last

§ No advance notice is required

§ Both parties have the right to terminate

§ Under common law: Landlord can terminate lease at any time

§ Doesn’t give a period of time

§ Automatically terminates:

If landlord/tenant dies

If landlord decides to transfer

§ May only be terminated in less than 30 days (New York)

§ Common law: if one party had the right to terminate the lease, the other party also has the right to terminate

But only if you first determine that the lease is a tenancy at will** (Final exam questions): provisions of a lease says “Tenant has the option to terminate” 50 days notice

o What kind of lease is this? (Right to terminate does not make it a tenancy at will)

§ Existence of termination option does not change the property classification of that lease

§ Don’t get confused:

Tenancy at will: pay rent at the end of each month? Is it still a tenancy at will, or periodic tenancy?

o

Implied K to a periodic tenancy if paying at the end of each month

o

Tenant’s paying rent monthly, is a practical matter because landlord has accepted rent and impliedly created periodic leasehold

o Holdover Tenancy (Tenancy at Sufferance)

§ Three year lease expiring happens automatically, doesn’t require any action

Contract with a 2 months notice: (K will override rule)

o

Statute if applicable (“at least”)

§ §232-a: Might not apply because it states “no monthly tenant, or tenant from month to month” OR

o

Common Law Notice equal to the period (one month) *the default rule

Can always vary the rule by a Contract (to fashion a rule that meets the parties’ needs)

Problems on Page 422:

o Question 1: On October 1, L leases Whiteacre “to T for one2 year beginning October 1.” On the following September 30, T moves out without notice

§ What are L’s rights? Tenant doesn’t have to give notice because it is a term of years

Year to year contract

§ What if the lease had been “to T from year to year” beginning October 1?

Periodic Tenancy: 6 months

§ What if the lease had been for no fixed term “at an annual rental of $24,000 payable $2,000 per month on the first of each month”?

First ask what kind of lease is it?

o Then go through each type to determine type

Implied period

Statute will require a month’s notice

A year to year (periodic will significantly change)

Question 2:

o

T, a month to month tenant notified L on November 16, 2010, that she would vacate as of November 30, 2010. T subsequently vacated on that

date and paid no further rent to L. L, after reasonable efforts, finally relet the premises beginning April 1, 2011. The jurisdiction in question has no statute prescribing the method of terminating a month-to month tenancy

§

Periodic lease

o

L sues T for unpaid rent for the months of December 2010 and January

through March 2011. What result?

§ Common law: One month before (at the end of the month)

§ In New York: 30 days notice

 

Can always give more notice, could not send notice after what’s equal to the period

o

Whether a notice given late, will that notice automatically become

effective until the end of that period until you have to give notice?

§ Policy reasons to give notice:

Give notice to provide landlord knowledge so he can take action

o

How is landlord harmed if we allow the notice effective for next period?

o

Can’t end month-to-month 14 days before you plan to vacate.

o

Lawyer should most likely send another notice:

§ “Irrespective to whether Nov. 16 th notice is effective, just in case prior notice is not effective, see new notice”

Lease vs. License vs. Contract (Problems on Page 428)

o

License:

§ A type of contract

§ Terminable

o

Lease:

§ Is a contract (concludes with a conveyance)

§ Mutually enforceable promises

§ A conveyance of a present possessory interest

§ Dictates remedies and other issues

§ Breach: Landlord/Tenant court to enforce

o Is it a lease or a license? (page 428)

§ Factors:

The intention of the parties;

Easier to get a licensee out vs. a tenant;

The number of restrictions on use;

The exclusivity of possession;

The degree of control retained by the granting party (landlord or licensor);

The presence or absence of incidental services, etc.

o More incidental services, the less likely

§ If lease what type of lease?

Ability to use property pretty freely

More restrictions the more likely the less consistence

Examples:

o

(1) A rents from B the right to erect a billboard on land owned by B

o

(2) A contracts with B to install and operate a cosmetics concession in B’s department store;

o

(3) A rents a room for two months in B’s rustic country inn;

CLASS THREE September 3, 2013

Duty to Deliver Possession (Hannan v. Dusch) Thursday September 26 th Class Cancelled

Hannan v. Dusch (Pg 438) (What default rule is going to apply in the absence of a contractual rule)

Who is suing whom for what?

o Hannan is the lessee (tenant) suing the landlord

What remedy is he seeking?

o Damages

What type of Lease?

o

Term of years Lease (Whenever you see a lease, determine which type of lease it is**)

o

No notice is needed to be given because the term is set, and it expires once the term ends.

Background facts:

o

Existing tenant remained in the premises when the old lease ended.

o

No express covenant at all (regular contract law: if theres no express covenant, what’s left? Need to argue there is some sort of implied covenant)

o Landlord was able to give T2 legal, but unable to give actual possession because of a holdover tenant

Did LL promise to deliver possession?

What is the legal argument?

o

Landlord’s argument

§ Landlord said he did not breach any express terms in the lease

§ Relies on the actual words of the lease (claiming he never

promised that he would put the tenant into actual possession – only duty is to give the legal right of possession

o

Tenant’s argument

§ Depends upon the case of there being an implied duty or covenant to deliver actual duty of possession of the premises (whether the landlord has to take actions against the holdover tenant)

Analysis:

o

Court says: Whether the landlord has the duty to oust a trespasser

o

Legal Possession vs. actual possession:

Lease between Landlord and tenant 1 (1/1/02-12/31/2012) vs. Lease Between Landlord and tenant 2 (1/1/13-12/31/2016)

1/1/13: Tenant 1 still in possession

Difference between “legal possession” and “actual possession”

o

Legal: Whether or not Landlord gave someone else all the rights

§ Has no obstacle in the form for better possession that would prevent tenant from obtaining premises

o

Actual: Either in or not

§ Trespasser might be in actual possession but not in lawful possession (fact based determination)

§ What constitutes actual possession: does not require standing vigilant in space 24/7.

Legal determination that is based on something physical

Two different rules (US and English)

Landlord only has to guarantee legal possession, not actual

o

Implied covenant re: legal possession, but not actual

o

American Rule vs. English Rule: both have in common: the duty to deliver legal possession.

o

UK Rule: implied duty to deliver legal and actual possession

o

American (old NY common rule): implied duty only to deliver legal possession

o

Discuss commencement date vs. Contract execution date

o

Legal possession: simply the right of possession, not actually physically in possession, but whether or not you legally have the right of possession

Re: American rule: landlord is not bound to put tenant in legal possession

o

All T2 has at its disposal is that nobody has a better right of possession

o

Tenant has the duty to sue the holdover tenant

o

Both landlord and tenant2 have an issue with holdover tenant1

o

Under American rule new tenant has to sue the holdover tenant

o

Economic issue is who is going to bear the risk of a holdover tenant?

§

Any reason why T1 fails to move out

o

Would the Court’s conclusion been different if the landlord lawfully extended the tenant1’s terms (t1’s rights are better than t2?)

§ T2 did not have the lawful right to the lease

§ Since the landlord did not give legal possession, and therefore T2 did not have any rights to lease

§ There is no absolute

§ In order to sue breach of K:

Existence of Promise (implied –Both UK and American rule - covenant of Landlord to ensure the legal right of possession at the beginning of the term)

Breach (Do not know if there is a breach until the beginning of the term)

Damages (remedy = not paying rent for something not in possession of, and whether the market has changed)

Would the court’s conclusion be different if Third party trespasser ejects T2 after lease commences?

o

Lease between LL and T1 (ending 12/31/2012)

o

Lease between LL and T2 (starting 1/1/13-12/31/16)

§

1/1/13 T2 takes possession

 

Trespasser ejects T2 on 1/1/15?

o

*No obligation on the landlord to assure your enjoyment against wrongful intruders (another example of a risk of loss)

o

* (Implied covenant) Quiet possession (page 439): “The landlord assures to the tenant quiet possession as against all who rightfully claim through or under the landlord”

DO NOT BE DISTRACTED BY THE PRIOR TO THE LEASE TERM AND AFTER THE LEASE TERM: IT MUST BE THE EXACT DATE OF THE TERM

o

Landlords are not responsible for: trespassers

o

Landlords are responsible for: T2 being Dispossessed by someone having better title

What are the policy reasons behind US and UK rules?

o UK Rule:

§ Not what the parties intended

§ Simply implying what the parties intended: Tenant wouldn’t have gotten into the lease if he wasn’t going to have possession

§ It would be unfair to let the landlord into the lease without providing possession to the tenant

§ Landlord is in a better position to oust the prior tenant

Clearly knows whether prior tenant is leaving

§ Landlord can protect himself by putting in a term in the prior lease as a disincentive to T1

§ Bring a suit to evict T1

§ Easier for landlord to bring a suit because original lease was with T1 and LL.

More resources, better relationship, etc.

o US Rule: No duty to deliver actual possession

§ Someone shouldn’t be responsible for the tort another person

§ Landlord not at fault

§ Why should we imply for something that the parties are arguing for

§ T2 has sufficient legal and equitable remedies to protect themselves

§ tenant has greater incentive to use these remedies

§ Very risky for landlord to not have a buffer from the beginning of the lease to the end

Tenant should have an express provision that the landlord is held liable for a breach of covenant to deliver actual possession at a specified date and have some remedy if that covenant is breached

Tenant should also have an express provision (condition precedent) rent should be conditioned upon delivery of possession

o

If there’s a breach of that promise, rent does not have to be paid

o

Right to put an outside date terminating the lease if the T1 has not left

o

Right to have an express provision of landlord promising not to enter into an extension, etc. try to get as much from the landlord as possible

What would T2 do if we’re in a NY jurisdiction if the tenant can evict the holdover?

o T2 has the legal right of possession, and does not have to provide notice of eviction or suing

Request leases of prior agreement (looking to see what the expiration date is)

NY Real Property Law § 223-a: Remedies of lessee when possession is not delivered. In the absence of an express provision to the contrary, there shall be implied in every lease of real property a condition that the lessor will deliver (legal and actual) possession at the beginning of the term. In the event of breach of such implied condition the lessee shall have the right to rescind the lease and to recover the consideration paid. Such right shall not be deemed inconsistent with any right of action he may have to recover damages. *Statutory default rule*

NY Law Relating to duty to deliver possession:

Contract:

Statute: UK Rule, in the absence of an express provision to the contrary

Common Law: American Rule: only legal possession

What we will do next week:

Look at sample leases

Subleasing & Subletting assignment

Ernst case

Look at the Agenda, and go through 1-7 for first class on subleasing

Property CLASS FOUR: September 10, 2013

NY Law Relating to duty to deliver possession:

Contract:

NY Law Relating to duty to deliver possession: Contract: Statute: Common Law: UK Rule, in the

Statute:

Common Law:

UK Rule, in the absence of an express

American Rule:

provision to the contrary

Only legal possession

When analyzing an exam problem weigh out both rules, but state that our jurisdiction governs the rule.

Lease Excerpts: (Supp, page 21) Example 1:

Sample Lease – Section 2.3: What remedy does a tenant have to a holdover tenant from a prior lease?

o

Citing NY Law 223-a: Absence of an express provision to the contrary…

o

In this example, there is an express provision to the contrary of 223-a, and therefore according to the K rule, the K overrides NY law.

o

Tenant Remedy: rent abatement

o

If landlord defaulted in their promise (of possession), the tenant is obligated to pay rent (pursuant to the contract rule)

o Section (d) of the lease: provides an express provision to the contrary of Section 223-a of the Real Property Law… Textbook (pg 442) Questions:

2. L and T2 execute a lease for a specified term. T2 takes possession and pays rent for several months. T2 then learns that L had earlier leased the premises to another tenant (T1) for the same term. T2 remains in possession but stops paying rent. L sues T2 for unpaid rent; T2 counterclaims for rent already paid. What result?

Lease btw LL and T1 1-1-00 – 12-31-20 Lease Btw LL and T2 1-1-13 –
Lease btw LL and T1
1-1-00 – 12-31-20
Lease Btw LL and T2
1-1-13 – 12-31-20
1/1/13
T2 takes possession
T2 learns that there is a T1
with legal right, BUT T1
Hasn’t ejected yet

What does delivery of “legal possession” mean?

In some ways actual possession trumps legal possession

Two possibilities:

o

Take possession and you have the lawful right to do so

o

Take possession and you don’t have the lawful right to do so

What happens when T2 shows up and kicks T1 out?

o T2 in possession, but with someone with better title comes and takes possession (breach of quiet enjoyment - Hannan v. Dusch)

SUBLEASES/ASSIGNMENTS:

1. Basics of Landlord & Tenant Relationship:

A. Privity of Contract

B. Privity of Estate

Landlord----(Lease as Contract)------ à Tenant

Landlord----(Lease as Conveyance)-- à Tenant

Landlord -------Lease--------Tenant Privity of K Privity of Estate

LL has all Rights--- à LL and T enter into Lease -- à LL Reversion/Tenant

Lease, by virtue of being a legal document, a legal relationship develops between the two.

Legal relationship arises by virtue of contract (Privity of contract)

o

o

o

Privity of K exists when there’s a contractual relationship between two parties

Anytime you have a contract with enforceable promises, that constitutes a privity of contract

§ Don’t sue for a breach of privity of contract, just sue for breach of contract

Privity of Estate: theoretical relationship (legal nexus)

§ Legal relationship between holder of reversion (landlord) and the holder of the possessory estate (Tenant or, after an assignment: T2 –whoever happens to be the then, current possessory holder)

Landlord now has a legal relationship with assignee

§ LL still has right of reversion

§ Exists and describes legal relationship between holder and possessory of estate (Tenant) and the holder of the reversion (Landlord)

§ Both have interests in the same property

Don’t have absolute rights

Legal theories re: tenant and the landlord:

o

Breach of K arising re: privity of estate

o

Can sue for tort (arising out of duty of care)

o

Real covenant (property related) vs. Personal:

§ Promise of quiet enjoyment is a real covenant

§ Covenants pertaining to the land (quiet enjoyment, payment of rent, etc.)

o

Potential conflict arises from the ability of holding some property rights

§ Landlord (reversion)

§ Tenant (right of possession)

Want to encourage free transfer of property

Encourage ability to transfer property to someone else

What is an assignment?

o

Term used to show something is being transferred (or conveyed): not a contract [original Tenant is assignor and T2 is assignee]

§ Landlord-----Lease--- à Tenant--- à T2 Assignee:

LL has all the rights----Lease----(LL Reversion/Tenant)- à (LL Reversion/Tenant2)

o

o

o

Neither landlord nor tenant can sever privity of relationship absent a legal justification (i.e. breach)

T2 has privity of estate

Tenant1 has rights (possession, exclusivity, enjoyment, etc.) and transferred it to T2

§ Legal consequences:

Landlord is not suing Assignee T2 for breach of privity

of estate but is suing for breach of contract (promises)

o No Privity of K between landlord and assignee:

§ Landlord’s response: someone else’s promise will be binding on T2, even though T2 did not personally make that promise

o Unlike personal promises (i.e. student loan, etc.), if there is privity of estate, someone else’s promise (T1) will be binding, and LL can sue for breach of K the person he is in privity of estate with.

o An assignment does not automatically sever a contractual relationship unless the following occur(s):

§ Release

Tenant can be released if landlord chooses to do so

o T2 now has a legal relationship with the LL solely by virtue of the relationship to the same piece of property

§ T2 (party in actual possession) ought to pay the rent because he is primarily liable (equity question)

§ Full performance (will not be sued for breach of promise)

Legal Consequences of Assignment?

o

Property Law Magic

 

§

By virtue of relationship between holder of reversion/possession

 

LL has all Rights - à Lease (Privity of K) Privity of Estate severed à LL Reversion/Tenant1 -----Assignment-----LL reversion/Tenant2

o

§

LL can sue Tenant1 for breach of K because of T1’s promises in original lease

 

If T2 claims innocence of obligation to pay rent:

 
 

o

LL can argue that since he has Privity of Estate with T2, the holder of the possessory estate assume liability for promises conveyed in K

o

LL can sue either parties for breach of K:

 

§ T1 (assignor) because of Privity of Contract

§ T2 (assignee) because of Privity of Estate

When T2 assigns their lease to T3, what is the legal significance of subsequent assignments?

o Privity of K goes away by:

§ Release

§ Full performance NOT by death

T2 ASSIGNS TO T3:

When T1 transferred to T2 severing its privity of estate, they still had privity of K

With T2 there was no contractual relationship with LL just the estate, and when T2 transferred out of property, so was the relationship

o

LL cannot sue T2 for breach of K because there was no contractual relationship between them

o

LL can sue T1 for privity of contract

o

LL can sue T3 because there’s privity of estate between LL and T3

How can Privities be Created Under Contract Law?

A. Lease as Contract:

a. Landlord -----Lease -------Tenant

How can Privity of Estate be created: By virtue of relationship between holder of reversion/possession.

o

Whoever is in possession

o

Assignment is a conveyance (NOT A CONTRACT)

§ No contractual relationships between T1 and T2

T2 doesn’t really have to sign anything

Assume assignment and assumption, what are the legal relationships between LL, T1 and assignee?

o Legal consequences by T1 to T2?

How to Sever Privities:

o

Privity of K?

§ Fully perform promise

§ Satisfaction

§ Discharge

§ Innovation

§ Release (expressed)

*If the facts are murky re: whether there is a release, there is no release

o MUST BE EXPRESSED (not implied)

o

Privity of Estate?

§ Transferring possessory interest

LL transferring a reversion

o Unilateral action of one party

Assignment since it changes the relationship between holder of reversion and holder of possessory estate

FOUR SCENARIOS: Either T1 is released or not - OR -Either T2 assumes the lease or not

o

Scenario 1:

§ Who Can LL sue when there’s neither assumption nor release?

LL can sue T1 under theory of privity of K because contractual relationship remains (ASSIGNMENT DOES NOT CAUSE OR EQUAL RELASE)

o

Scenario 2:

§ LL can sue T1 for privity of K

§ LL cannot sue T1 for Privity of Estate

§ LL can sue T2 for privity of estate

§ LL can sue T2 for privity of K (because assumed all obligations in

K)

o

Scenario 3:

§ LL cannot sue T1 for privity of K or privity of estate (been released from K)

§ LL can sue T2 for privity of K and privity of estate because assumed obligations from K and is the possessory holder of the estate

o

Scenario 4:

§ LL cannot sue T1 for privity of K or privity of estate because he was released and is not possessory holder of estate

§ LL can sue T2 for privity of estate because he’s the possessory holder of the estate, but not privity of K because he did not assume obligations of K *NOTE: T2 Can always be sued under Privity of Estate (because of property law – always privity of estate). (Only time T2 couldn’t be sued was when they hadn’t assumed and then subsequently assigned to T3).

**We will have at least 2 questions of one or two of the above scenarios**

***

For Thursday:

*Start with the law of Suretyship [what happens when the LL sues one party (T1)] *Then discuss subleasing *Discuss Earnst case *Read Rowe v. A&P also

CLASS FIVE: September 12, 2013

Legal consequences of an Assignment by T1 to T2?

o

Privity of K

o

When not released, T1 still remains liable

Privity of Estate

o Always exists between landlord and the possessory holder of the estate

When a tenant enters into an Assignment, he transfers all interest and rights to assignee.

Tenant still obligated because of the contractual nature of the lease

Special promises (real covenants) runs with the land because of the legal relationship between these two parties, each of which has interest in the property.

Suretyship: The principle upon which party can get a remedy (T1 getting sued for T2’s failure to pay rent, even though he was obligated by K)

o

Creditor gets paid by third party who pays off debt for the other (T1) who failed to pay debt (T2)

o

Where Third party (T1) pays off debt from someone who’s primarily liable of someone who’s ought to pay LL (T2)

o

If T1 wins,

 

o

In every scenario, landlord can sue assignee (under different theories –like privity of estate)

o

It is who ought to pay the debt, not who’s liable

o

(Very tested area on the bar)

§

i.e. insurance law

 

o

***If someone other than the person who ought to be paying, this should

trigger a suretyship question***

§

LL sues Assignee (T2)

 

Question: Who can T2 sue?

 

o

Not T1 for suretyship because no equity to be done because they were the ones who were supposed to pay anyway

o

If LL can sue BOTH T1 and T2:

§

If LL v. T2 and LL wins: Does T1 have any remedies?

 

No. Because LL already won from who ought to pay

o

When LL sues T2 not a suretyship question

o

When LL sues T1 and wins it HAS to be Privity of K

§

Then T1 can sue T2 for suretyship

o

**Regarding: Scenario 3 and 4 fact pattern, will ask a suretyship question BUT THIS IS NO SURETYSHIP

SUBLEASING

Assignment

transferring all of right retaining nothing

vs.

Sublease (trying to get someone to take possession of lease and pay for it)

must be for a period of time less than the entire lease

Legal relationship between tenant and subtenant

o

Tenant wears “2 hats”:

§ Tenant with the Landlord; and

§ Sublandlord by virtue of the sublease

o

Creates a privity of K AND

o

Creates privitiy of estate (Sublandlord with Subtenant) and (Sublandlord

with original LL)

§ Not with subtenant and LL

§ Sublandlord has reversionary right at the expiration of the sublease (takes back into possession)

Relational aspect of property law

When lease between Sublandlord as the Landlord, then Landlord has reversionary right

Ernst v. Conditt:

o

Sublease v. assignment – How to identify whether it’s a sublease or assignment

 

§

What is the difference between sublease & assignment (and what are the consequences of that difference?)

o

Legal question: is the instrument an assignment or sublease?

 

§

Essential to figure out if Ernst wins

 

If assignment: LL has a legal relationship and right (because there is privity of K or privity of estate)

o

Sublease (subtenant’s argument):

 

§

LL (Ernst)---lease---T(Rogers)Rogers(SubLL)---sublease---sub- tenant (Conditt)

o

OR

o

Assignment (Landlord’s Argument):

 

§

LL(Ernst)-----lease----------T1(Rogers)

o

Tenant has no right to assign or sublet without consent of the LL

o

Unless they’re released, they’re going to be liable

o

Conditt argues he cannot be sued because he is in a sublease

o

An assignment is an instrument of conveyance

 

§

A sublease is an instrument of conveyance

o

In the lease, the parties use the term “sublease” and the parties are arguing it is dispositive

 

§

Right of re-entry arises in any lease/sublease by virtue of default

o

D argues Rogers still remained liable throughout his “sublease”

 

§

But the argument is not supportive since Rogers can still remain liable in a sublease and an assignment

o

Court says two different approaches:

 

§ Formalistic Rule (Common law):

 

An assignment contains the whole term leaving no interest or reversionary right

Sometimes the facts used under formalistic, might also be used for modern rule approach

A sublease arises when less than everything is transferred

It is regardless of intent, form of document, and what you labeled it, look at what the document does formalistically.

 

§ Modern Rule:

 

looking at the intention of the parties

Cardinal rule adopted for construing rigid instruments

Plainly appears that they intended assignment

o

Can LL sue assignee?

§ Yes, because under any scenario, T2 is liable under privity of

estate

o Since Rogers retained liability does not constitute a reversion

PROBLEMS:

3(a). What rights does LL have v. T1?

1. First determine whether relationship between T1 and T2 = assignment or

sublease?

2. Second:

a. Common/Formalistic rule: Look at what was stated in the lease

i. Anything less than a transfer of the entirety of the remainder of the term = sublease (NOT ALL = SUBLEASE)

ii. (ALL = ASSIGNMENT) If everything is transferred for the entire

term = assignment

1. Applying facts here: T1 subleases to T2 for one year, out of his three year lease, so therefore according to common law/formalistic approach = sublease

b. Modern rule: Look at intentions of the parties

o Rule: Determine what the intentions are

§ Applying Modern rule must look at the intent of the parties. If the parties intended assignment, it is treated as assignment, and vice versa. According to facts, we cannot establish the parties intent because we are only informed that the parties “subleases, transfers, and assigns” therefore not establishing anything. Answer: This is probably a sublease:

Landlord can sue T1 because privity of K and privity of Estate Cannot sue T2 because neither privity of K nor privity of Estate

NEXT CLASS:

Questions 3(b) and (c) and the following cases:

Rowe v. A&P:

o Is there an implied prohibition against assignment if silent?

§ If lease is silent re LL’s consent, under what circumstances, if any, will a court imply a requirement to obtain LL’s consent?

Kendall v. Pestana:

o Does LL have to be reasonable –Can LL unreasonably withhold consent?

§ If lease explicitly requires consent (but doesn’t set standard for denial of consent), can LL unreasonably withhold consent?

PROPERTY Class Six – September 17, 2013

Continued discussion of Subleases:

LL/tenant relationship

o Legally impossible to enter into a sublease greater than the original lease

Comparison of sublease and assignment: Might accomplish the same, but only on the surface because of the interest transferred

Sublease:

o

20 year sublease – a day

o

no legal relationship between landlord and subtenant because there’s no privity of estate

o

K between LL and tenant remains

Assignment: (different transfer vs. sublease)

o

A legal relationship between LL and assignee

o

K between LL and tenant remains

o

No automatic release

o

No automatic assumption

§ Only an assumption creates a K relationship between T2 and the LL

Problems page 449:

3(b) LL leases to T for a term of three years at a monthly rent of $1,000; the lease provides that “T hereby covenants to pay said rent in advance on the first of month” --“T shall not sublet or assign without the permission of L” Six months later T, with the permission of L, transfers to T1 for the balance of the term. Thereafter, T1 pays the rent directly to L for several months, then defaults. L sues T for the rent due. What result, and why? *What are LL’s rights against T and T1

Is it a sublease or an assignment?

If assignment, LL v. T: Yes, K

If assignment, LL v. T1: Yes, Privity of Estate

Consent does not release original tenant nor make T1 in privity of K *What is the first question (always)? *Who can landlord sue and under what theory?

Ernst v. Conditt formalistic split

o

In a jurisdiction following formalistic approach LL can sue….

3.

First determine whether relationship between T1 and T2 = assignment or sublease?

a. Common/Formalistic rule: Look at what was stated in the lease

i. Anything less than a transfer of the entirety of the remainder of the term = sublease (NOT ALL = SUBLEASE)

ii. (ALL = ASSIGNMENT) If everything is transferred for the entire term = assignment

a. Applying facts here: According to the common/formalistic rule, since T1 transferred to T2 the balance of the term, the relationship here is equivalent to an assignment. It is not a sublease because transfer was not less than the original lease.

b. Modern rule: Look at intentions of the parties (intent rule helps to decide sublease/assignment)

o Rule: Determine what the intentions are

§ In a jurisdiction that follows the intent rule: Applying Modern rule must look at the intent of the parties. If the parties intended assignment, it is treated as assignment, and vice versa.

§ Applying the facts here: we cannot determine what the actual intentions of the parties are since the fact pattern does not state it.

3(c) LL leases to T for a term of three years at a monthly rent of $1,000; in the lease “T covenants to pay the rent in advance on the first of each month” and covenants to keep the leased premises in good repair.

Six months later T assigns her entire interest to T1 who agrees in the instrument of assignment to “assume all the covenants in the lease” between L and T;

Three months later T1 assigns his entire interest to T2; Three months after that T2 assigns his entire interest to T3. T3 defaults on rent payments and fails to keep the premises in good repair

L sues T, T1, T2, and T3. What are the liabilities of the four tenants to L and as among themselves?

LL-----lease----(3 years)-----original tenant

Assignment to T1 with assumption

o T1 assignment with T2; no assumption

§ T2 assignment to T3; no assumption

T3 has privity of estate

Who can sue and under what legal theory? *Unless release is expressly stated, LL can sue all tenants under privity of K. ** LL can sue T1 for privity of K ***T3 is the holder of the possessory estate ***privity of K between LL and t1 by virtue of privity of K (assumption) ****no K between LL and T2, no privity of estate between LL and T2 ***** can sue T3 and win, but if he sues T1, T1 can open suit v. T3 for suretyship

Quick review of suretyship….

Equitable remedy

If LL can sue both T1 and T2:

o If LL v. T1 and LL wins, T1 v. T2

Rowe v. A&P:

Lease is silent. The legal question is under what circumstances will a court imply a requirement to obtain LL’s consent for an assignment?

o

Must argue notwithstanding the absence of an express release, there is an implied provision

o

LL argues:

§ reliance on special skill

 

§ percentage rent

o

Court requires specific evidence:

LL entered into lease in reliance upon a special skill or ability and there’s no evidence of such

 

o

I.e. Nassau hotel case (Percentage rent and reliance on parties to run the hotel)

o

Here: there’s base rent (LL will be paid regardless of who is the tenant)

 

§

Percentage rent was extra and it also never kicked in (when revenues exceed a certain threshold)

 

LL was also an attorney –doesn’t help his case since he should already know rules of property

Parties neglected to include provision in their lease

o

Court applies the Default Rule: transferability: permit for transfer of assignees or subleases

Kendall v. Pestana: (Pg. 450)

1 st :

Landlord ----------lease-------Tenant--------sublease-------------------subtenant

(san jose)

(Perlicht) Assignment of T’s interest to Pestana Pestana (T1/Assignee)

(Bixler) Assignment Kendall(proposed subT)

Lease

o Sublease

§ Assignment

Proposed Assignment (what parties are fighting about)

When consenting or rejecting a proposed assignment do the reasons have to be reasonable, or can they be unreasonable.

Majority Rule vs. Minority Rule:

o

Majority: May refuse consent even if arbitrary

o

Minority Rule: LL must be commercially reasonable where no provision exists in lease

Restatement: LL can’t unreasonably withhold consent, unless a freely negotiated provision gives LL such right

o Look at the words following “reasonable”

§ “where no provision exists in the lease”

Traditional rule where LL can withhold consent when its arbitrary:

o There must be a commercially reasonable objection

Arguments for and against the majority/minority rule……

Majority Rule vs. Minority Rule:

Majority Rule (traditional rule):

Lease is a conveyance; LL should have control over property; freedom of ownership and control; LL should only have to look to original Tenant [lease is property law conveyance]

Respects the Contract; Unambiguous reservation of right to LL; T could have bargained for clause; court shouldn’t’ rewrite K (contract interpretation)

Stare decisis; reliance

LL deserves increase in FMV or property

Minority Rule (modern approach):

Lease is more like a contract; LL can have control, but must be reasonable; original Tenant is stilly liable; Duty to mitigate is now rule in many states; LL can still have say over who is assignee (examples); good faith and fair dealing; commercially reasonable

Its not unambiguous; K was not explicit; intent; not rewriting K; just requiring good faith

Law is changing; not universally held rule; changing view of K nature of the lease

LL can’t get more than bargain; increase in FMV doesn’t belong to LL; consent not a way for LL to make more money

Examples of LL reasonably withholding consent:

o

Proposed Assignee’s financial stability

o

Suitability of the particular property use

o

Legality of use

o

Whether proposed assignee will be making alterations

o

Personal taste or opinions

o

Making more money has nothing to do with protection of landlord and ownership of property

Is LL’s consent required? Various possibilities in K:

1. Lease is silent

a. Rowe v. A&P: no implied prohibition

2. Lease states: tenant may not assign

3. Lease states: tenant may not assign, without LL’s consent

a. Majority rule: OK to refuse consent, even if arbitrary

b. Minority rule/Kendall: must be commercially reasonable

4.

Lease states: tenant many not assign, without LL’s consent and LL shall not be unreasonable (or LL shall be reasonable) (Provides a standard*)

a. Enforce K provision

5. Lease states: tenant may not assign, without LL’s consent and LL may be unreasonable (Provides a standard*)

a. Majority Rule/Restatement: enforce K provision

b. Kendall: even Kendall court says OK to enforce do not pick this answer*

CLASS SEVEN: SEPTEMBER 19, 2013

Legal significance of an assignment and a sublease Review

Majority Rule vs. Majority Rule

o Majority Rule:

§ Lease is a conveyance, LL should have control over property; freedom of ownership and control; LL should only have to look to original tenant

Lease is property law conveyance

Minority Rule:

o Lease is more like a K

§ Examples of reasonable reasons to withhold consent:

Financial responsibility

Suitability of use

Legality

Need for alteration

Nature of occupancy

According to the agenda:

Various possibilities in Contract:

1. Lease is silent

2. Lease states: Tenant may not assign (won’t be tested on this)

3. Lease states: Tenant may not assign, without LL’s consent (standard):

Traditional Rule: OK to refuse consent even if arbitrary

a. Modern rule/Kendall: must be commercially reasonable

4. Lease states: Tenant may not assign, without LL’s consent and LL shall not

be unreasonable (or LL shall be reasonable)

a. Enforce K provision

i. Doesn’t matter whether you’re in Kendall jurisdiction or not

5. Lease states: tenant may not assign without LL’s consent and LL may be

unreasonable

a. Traditional rule/Restatement: Enforce K provision

b. Modern/Kendall: Even Kendall court says OK to enforce

i. Doesn’t matter whether you’re in Kendall jurisdiction or not

Questions on page 457/458

1(a): Assume Kendall rule applies. LL refuses consent since proposed transferee is considering space in another building owned by LL? (no split in analysis) For his economic protection, LL can reasonably refuse consent because it would be unreasonable to refuse consent solely because the LL wanted to do a deal with that party. Kendall says reason to erfuse consent has to relate to the protection of the LL and the ownership of his property. Not for personal taste, convenience or sensibility

LL cant get more than bargain

Increase in FMV doesn’t belong to LL

Consent not a way for LL to make more money

It must be related to a real property interest

It must protect the LL in the ownership and operation of the property

o

Not for personal taste, convenience or sensibility of LL

o

But only for the protection of LL in its ownership and operation of property of the particular property – not for its general economic protection (see p. 453)

Question 2:

Lease expressly prohibits assignments. T1 wants to assign to T2. LL refuses consent to the assignment since LL wants to enter into direct lease with T2 and capture rent increase. Sine lease only prohibits assignments, Tenant “transfers” lease minus one day after LL refuses consent to assignment.

What is the issue?

Rule 1: To determine whether consent required, need to determine if “transfer minus 1 day” is an assignment or sublease. Jurisdictions follow either “formalistic” rule or look at “intent” Describe the rules:

Formalistic rule: if transfer all, assignment; if not all, sublease. Intent rule: rule is that characterization/nature of instrument is determined by intent of the parties. The words used may be evidence of the parties’ intent -- not dispositive. Application of facts: Applying formalistic rule, this instrument is a sublease because the facts state “transfer minus a day” and a sublease doesn’t transfer all. It is not an assignment because not all is transferred. Applying the intent rule, it would most likely be an assignment because T states that she wants to assign but because LL refuses consent she instead transfers for all minus a day. Showing her intent to be of an assignment.

If state follows “formalistic” rule, it’s a sublease [here the facts indicate the transfer was for one day less than remaining term].

If state follows “intent” rule, it [might be/probably is/is] an assignment [since that is what initial tenant wanted to do in the first place and this “transfer” was just a subterfuge]. But note that specific words actually used tends to undercut the intent argument. However the question states “T wishes to assign to T1”.

Issue 2:

So the transfer is a sublease OR assignment depending on jurisdiction. Therefore, we need to determine if LL’s consent was required in connection with an assignment and/or sublease.

Rule 2: The general rule is that the common law favors free transferability. Subleases and assignments are permitted unless expressly prohibited by lease because of general common law rules favoring free transfer. [Source: common law]. (If there is a provision in the lease that requires it, we’ll enforce it.). We generally don’t read in implied prohibitions except in unusual circumstances. [See Rowe v. A&P] If however there is an express provision in the Lease requiring consent, then law will enforce the provision and LL’s consent is required. [Source: K and common law] restrictions on alienation are permitted and enforceable – just disfavored and read narrowly.

*If the lease says so, it is. If it is, then consent is not required.

Here the lease restricts assignments, but not subleases. Therefore, A: since the lease does not expressly prohibit subleases, tenant may freely sublease. Landlord’s consent is NOT required because of general common law rules of free transfer. (Source: Contract and common law) Formalistic jurisdictions*** Initial conclusion 1: therefore, in jurisdiction that determines that the transfer is a sublease (Formalistic), LL’s consent not required and t1 may transfer to t2.

B: Here, this lease expressly prohibits assignments and the common law will enforce that provision. So, LL’s consent is required.

Application A: dealing with “if transfer is a sublease”: END

Application B: If in a jurisdiction that determines that the transfer is an assignment, this particular lease expressly prohibits assignments. Therefore, LL’s consent is required:

END (SCENARIO 3)

Is Landlord’s refusal to consent reasonable?

Rule 3: if LL’s consent is required and there is no standard, there is modern rule and traditional rule regarding LL’s ability to withhold consent.

Traditional LL can unreasonably withhold consent for any reason Modern: LL must be reasonable (Kendall)

Application:

Here there is no standard of consent in Lease. (Source: lease) If in traditional jurisdiction and jurisdiction determined that the transfer is an assignment, LL can therefore withhold consent for the transfer in sole and absolute discretion

If in modern jurisdiction (and jurisdiction determined that the transfer is an assignment) LL can only withhold consent for the transfer if reasonable, what are the rules on reasonability? Subrule: factors for reasonability are: (Describe Kendall)

Application: Here (describe facts), therefore LL’s refusal to consent is unreasonable since LL is NOT basing refusal

Conclusion 1: if in jurisdiction that follows formalistic rule, instrument is a sublease (formalistic). Under modern or traditional, LL’s consent not required since the lease is silent on subleases. It only restricts assignments. Therefore, T1 may transfer/sublease to T2. (ROWE)

Conclusion 2: Intent Jurisdiction: and determines assignment, and follows modern rule:

re: consent (LL must be reasonable), LL may not refuse consent since LL is unreasonable (economic gain is not a valid reason).

If lease says assignments and subleases are prohibited, no need to figure out sublease/assignment re: intent required. Need to figure out whom LL needs to sue. If prohibited both: Erndst v. Conditt analysis.

Dumpor’s Rule (Q3): In jurisdictions following Dumpors’ rule (consent to assignment 1 deemed consent to future unless expressly reserved), if LL sues T1, what result? *Consent is going to keep applying unless you do something. Representing a LL consenting to assignment, what are you going to advise? Drafting express clause stating T1 agrees that one consent does not result in further subsequent assignments. T1 needs to seek consent. **Reason why this clause is in there is to undue Dumpors’ Rule. Reason you put in the language is so that it does not apply.

LL--------lease------T [Prime Lease: no assign/sublet without consent.] Consent of LL to assignment to T1 (no assumption)

Tenant 1: is there still privity of estate? T1 assigns to T2 without consent?

LL can sue if in Dumpors’ Rule jurisdiction T1 for privity of K and T2 for privity of estate.

NY Section 226-b:

Most of which varies by contract

If you have a commercial lease that contains no provision at all, no implied restrictions Rowe v. A&P

Form of the statute (one para deals with assignments, one para with subleases—diff rules) *Very first clause: unless a greater right is conferred by the lease, the tenant renting residence may not assign without consent from LL, which consent could be reasonably withheld. *Protection of T: provided owner releases tenant with consent. Remedy: release (would prefer release than entering assignment), LL can sue us by privity of K, the whole purpose of getting out of lease is assignment. If reasonable, T not released as T can’t assign If unreasonable, T released but no assignment Not quite the same as Assignment = OK Provision(6) Any provision of a lease or rental agreement purporting to waive a provision of this section is null and void.

The Tenant Who Defaults (Self-Help) In this section we examine:

Diff rights and remedies of the landlord on two different versions of the world:

Tenant is in Possession: Whether LL can take self help to retake possession (Forcible entry/change locks), if T is in possession & defaults; and

Tenant is NOT in Possession: Whether after T abandons possession, does LL have a duty to mitigate damages?

Sommer v. Kridel: YES, duty to mitigate

Kenneth Cole cases (NY): NO DUTY TO MITIGATE (True in residential context also)

TENANT IN POSSESSION:

Berg v. Wiley (page 460)

Tenant failed to finish remodeling and comply with health code violations and LL wanted them out

Description of Lease:

Who is suing whom for what?

o T1 is suing LL

What are 2 legal questions?

o Did T abandon/surrender the premises? (p.462)

§ Review standard for court?

Sufficiency of evidence to support the jury’s finding that Berg had not abandoned or surrendered?

o Not really asking this question. Really asking if there’s sufficient evidence to support jury’s finding that tenant did not abandon?

No error

T was still in legal possession (no abandonment; no offer to terminate lease) Lease is still in effect

o Was LL’s retaking possession lawfully? Is Self-help wrong as a matter of law? (p.462)

§ Common law rule: LL can use self help to retake premises from a tenant-in-possession (without incurring liability for wrongful eviction) so long as 2 conditions met:

LL must be legally entitled to possession

o Holdover tenant OR

o Breach of lease AND lease contains a reentry clause

AND

o Re-entry must be peaceable

Therefore: T may recover damages for wrongful eviction if either

o

LL not entitled to possession OR

o

Not peaceable

§ LL’s argument: no violence, (actual or threatened violence could

give rise to damages)

How can you have that if tenant was not there?

§ Holding: Court couldn’t resolve this case

§ What is non-peaceable entry when the tenant is absent?

§ What’s wrong with LL’s self-help?

§ New standard (growing minority)

Analysis of first legal question: Did tenant impliedly offer to terminate the lease?

o

If they did, by abandoning, then LL accepts that offer, and cannot sue for wrongful conviction.

o

Surrender & Abandonment by a tenant

§ Tenant’s offer to terminate the lease:

Express offer (an agreement to surrender)

Implied offer (by abandonment or surrender)

§ Landlord’s acceptance of offer to terminate Lease

Express (an agreement whereby LL agrees to accept)

Implied (are LL’s actions inconsistent with –or repugnant to the continuation of the original lease?)

o

Express agreements satisfy the statute of frauds (in writing)

o

Implied agreements (examine intent of LL and T; contract standards)

Next Tuesday: Finish this case, and duty to mitigate, and next assigned material (quiet

enjoyment)

PROPERTY; CLASS EIGHT: September 24, 2013

In this section we examine:

Surrender & Abandonment by the tenant:

o

Tenant’s offer to terminate the lease:

§ Express offer (an agreement to surrender)

§ Implied offer (by abandonment or surrender)

o

Landlord’s acceptance of offer to terminate lease:

§ Express (an agreement whereby LL agrees to accept)

§ Implied (are LL’s actions inconsistent with or repugnant to the

continuation of the original lease?

Common Law Rule Re: Self Help:

o LL may use self-help to retake premises from a tenant-in-possession (without incurring liability for wrongful eviction) so long as 2 conditions met:

§ LL must be legally entitled to possession

Holdover tenant OR

Breach of lease AND lease contains a re-entry clause

§ AND

Re entry must be peaceable

§ Therefore T may recover damages for wrongful eviction if either

(i) LL not entitled to possession OR (ii) not peaceable

Court’s Holding and Reasoning:

o

Holding?

o

What is non-peaceable entry when the tenant is absent?

o

What’s wrong with LL’s self help?

o

New Standard (growing minority)

Policy reasons having a good alternative that doesn’t even allow the possibility of threatened force, pushing towards that ALL self-help is wrong.

o

Common law rule/Modern Law: this would be a breach of the peace

§

Self help is never available to dispossess tenant

o

Want a higher standard, not a speedier one

Written notice and opportunity cure:

o Self help:

§ Enforceable: If self-help is not available

LANDLORD’S DUTY TO MITIGATE Sommer v. Kridel/ NJ & Kenneth Cole/NY

Facts:

Kridel entered into a lease

May 19 th notifies LL he was expressly surrendering possession (offer to terminate)

Sommer doesn’t allow anyone else to rent it, even though there was inquiry

Rule:

Traditional/Common Law (majority rule): Landlord has no duty to mitigate

o Why should LL have to concern themselves after tenant is given absolute right

Modern Rule (applied by the Sommer Court):

Analysis:

Distinction is not viable

Duty to mitigate with contracts

Implied duties

Basic notions of fairness and equity would dictate LL has this duty

Crazy for him to stay by an empty apartment and not collect rent

o Matter of fairness

Cheapest cost avoider

Plaintiff could have avoided damages

Modern motions of fairness (away from Property Law)

LL needlessly increased damages by turning away possible new tenant who wanted to rent out surrendered apartment

LL has a reasonable effort to mitigate

o

Try to rent the apt as soon as possible

o

Advertisements in local newspaper

§

Providing proof

o

Hire a real estate agent to show the apt.

o

Keep a log of who saw the apartment

§

Burden of proof: does LL have to prove that they mitigated or does the Tenant have to prove that LL didn’t reasonably mitigate.

o

Each case judged on its own facts

Tenant will be liable for LL’s cost to mitigate

Does LL have to rent to anyone?

Don’t have to accept an unsolved or unsuitable tenant

Returns the property to productive use

Opposition to duty to mitigate:

Holy Properties v. Kenneth Cole:

Landlord has 3 options (page 44, sup.):

Do nothing and collect full rent from T (no duty to mitigate)

o

LL is ok with empty space

o

LL is able to collect rent from tenant

Accept T’s surrender (terminating the lease), re-enter premises and relet premises for LL’s own account (tenant has no liability) (lease is terminated)

o

Rent market is rising

o

LL wants to capture increase value

o

Tenant unable to assign or sublease

Notify that LL is entering and reletting for T’s benefit ($$ goes to LL’s expenses, then to Tenant’s rent liability)(tenant still liable) (duty to mitigate)

o Dceclining market or

o

LL is unable to collect rent from original T

o

LL doesn’t want space empty

o

This is the “Classic” mitigation scenario where LL tries to minimize T’s damages

Why pick one over the other?

o

The middle bubble (option 2) if rent has gone up, LL can benefit with increased rent and new tenant

o

Tenant will be liable for rent difference if rent goes up and LL mitigated by reletting premises.

Economic reasons why you would not want to do nothing

Presumably able to collect rent

Doing nothing and suing is not a great option

Can the parties agree that the LL has to mitigate?

o

Enforce K provisions giving LL right

o

Enforce a clause that says Tenant agrees that LL doesn’t have to mitigate at all?

Next Class: Quiet enjoyment & Marketability

Sept 26 th – class cancelled by Professor

CLASS NINE: OCTOBER 1, 2013

Introduction to Breach of Covenant of Quiet Enjoyment

Breach of the Covenant of Quiet Enjoyment

Covenant of quiet enjoyment (must prove existence of it)

o

Express (in writing)

o

Implied (common law, judge, court)

Breach

o

Actual Eviction: when a tenant is physically ousted

§ By LL (protect against “ouster”): under what circumstances are living conditions so miserable that a tenant chooses to leave?

§ By 3 rd party

o

Constructive Eviction by LL (protect against actions similar to “ouster”)

o What is Constructive Eviction by LL? Reste Realty v. Cooper (p. 438)

What were LL’s arguments?

o

Waiver

o

Condition was not a permanent interference with the use of quiet enjoyment

o

Def stayed too long to prove unlivable conditions

Background facts:

o Reste successor to Donigan

o Joy Cooper is Tenant

§ 1958 signs lease no.1 for 5 years, using ground floor space for commercial purposes

§ 1 year later enters into a new 5 year lease

How did the court respond to Landlord’s arguments?

o

Waiver:

§

Def relied on original LL’s promise, can’t be a waiver if she relied on the promise

o

Court said def did not stay too long

o

Flooding not permanent interference

§ Court defines permanence: regular reoccurrence and sufficiently serious

§ It was permanent although not constant

§ It was regular and persistent

§ Doesn’t have to be everlasting and unending

§ If regular and serious enough to substantially interfere with use and enjoyment for purpose of lease (in effect, defining “constructive eviction”)

o

Test for constructive eviction was clearly met by above factors

o

Definition of premises in this lease did NOT include the driveway

Did the LL breach a covenant justifying tenant’s removal from the premises?

o One mode of analysis is….

§ Breach of the Covenant of Quiet Enjoyment

Express (this lease contained an express covenant-existence of a promise pg. 486)

Implied

o

Majority rule: implied covenant of QE in all leases

o

Old NJ Rule: no implied covenant simply because of the LL/T relationship. There must be an express agreement or use of some words that imply the covenant. (Note: NJ now has implied covenant of QE)

So if there is a covenant of quiet enjoyment, was there a breach???

Constructive eviction (pg 486)

o

Any act or omission of LL (or anyone acting by, through, or under LL OR having superior legal title) which renders premises

o

Substantially unsuitable for the purpose for which they are leased

o

Seriously interferes with beneficial enjoyment of premises

§ Other examples of breach of covenant of QE- pg 486-7

§ Noisy garbage truck is not a breach of QE bc not in direct control of LL

LL’s act or omission (not fixing driveway and/or not properly paving property)

Other theories:

o Breach of dependent covenants:

§ Stewart v. Childs (older case) – covenants independent

§ Higgins v. Whiting (newer case)- covenants are dependent

§ A breach of a dependent covenant is a material failure of consideration

K: Promise + consideration (Covenants are dependent)

Tenant’s point of view is almost always paying rent

Most important promise is to pay rent

Absence of an express provision, most courts will read in an implied promise in the lease

o Also similar to implied duty to deliver legal and actual possession

o Implied warranty against latent defects

§ (K type argument)

Actual eviction:

o 3 rd party having paramount title (legal right) dispossesses Tenant

§ LL leases to T1 (doesn’t take possession)

§ LL leases to T2 (takes possession)

§ T1 arrives and asserts “legal right” over T2

§ Review Hannan Case (pg 439)

Actual “Eviction” by LL:

o LL wrongfully evicts and/or forces T off premises

§ Ex. Self help in Berg v. Wiley

Looking at Hannan:

o Court made 3 diff points: (when there is no express covenant is there an implied covenant to possession?)

§ (1) evicted by LL or someone claiming possession (covenant of quiet enjoyment)

§ (2) duty to deliver possession at the commencement date

§ (3) evicted by trespasser

No question of covenant because it is expressly in lease

o Question of breach:

§ Actual eviction by tenant

§ Actual eviction by LL

Constructive Eviction:

A way of proving the breach

A way of proving the breach

o

Any wrongful act or omission of LL

Any wrongful act or omission of LL

o

§

Or anyone acting by, through, or under LL or having superior legal title which renders premises:

Substantially unsuitable for the purpose for which they are leased or seriously interferes with beneficial enjoyment of premises AND (This is the part that makes it constructive)

are leased or seriously interferes with beneficial enjoyment of premises AND (This is the part that

o

Tenant therefore abandons – tenant is required to abandon premises (have to prove tenant did or did not do something)

Tenant therefore abandons – tenant is required to abandon premises (have to prove tenant did or

o

§ Element of abandoning premises is standard of actual eviction

§ LL so disregarded obligations by either doing or failing to do something, it is as if they actually evicted tenant

Abandonment = dispossession (no longer in possession)

o

Serious abandonment

o

Have to make sure the party actually left

o Promise to pay rent is the “hallmark” of a LL/Tenant relationship (commercial or residential)

§ Promises that were once dependent became independent

Questions on Bottom of Page 491:

o

Can you have a breach of the Cov QE for a Tenancy at Will?

o

Is there a breach of Cov QE if:

§ LL fails to control excessive noise of neighbors

§ Cigarette smoke

§ Criminal activity

o

Page 491; Question 2(a):

§ LL fails to control excessive noise made by neighboring tenants of T who commonly party long and loud…assume disturbance in

question is not noise but cigarette smoke seeping in. Did LL breach cov of QE due to 2 nd hand smoke?

First state whether cov of QE is express or implied

o If nothing expressed, law implies cov QE in every lease

Whether there is a breach:

o Actual or Constructive eviction?

§ No actual eviction

§ Only way T can prevail is if they can prove constructive eviction:

Constructive eviction is:

o

Any wrongful act or omission of LL (or anyone acting by, through, or under LL) OR having superior legal title which renders premises:

§ Can refer to statutes to support the act or omission as “wrongful”

§ Noise statute applies to occupants themselves

§ Also refer to the lease in question to see if they refer to noise issue

o

Substantially unsuitable for the purpose for which they

NY Section 227 (Supp. Page 60):

are leased OR seriously interferes with beneficial enjoyment of premises; AND

o Tenant thereafter abandons – tenant is required to abandon premises

§ Applying rule to facts: (this is not a strict liability offense) (1) Here we do not know whether T abandoned premises; (2) question of whether this smoking is so severe/constant it truly interferes with daily QE: again facts are not indicative of this factor; (3) we know that the LL failed to control the “noisy” Tenants, however factor mentions any wrongful act or omission. 2 nd hand smoking might not equate to wrongful.

o §227: When tenant may surrender premises:

§ Where any building is destroyed or injured by the elements, or any other cause as to be untenantable, and unfit for occupancy, and no express agreement to the contrary has been made in writing, the lessee or occupant may, if the destruction or injury occurred without his or her fault or neglect, quit and surrender possession of the leasehold premises, and of the land so leased or occupied; and he or she is not liable to pay to the lessor or owner, rent for the time subsequent to the surrender. Any rent aid in advance or which may have accrued by the terms of a lease or any other hiring shall be adjusted to the date of such surrender. (Default statute making it fragile and easy to undo)

Now look at Implied Warranty of Habitability…

Hilder v. St. Peter: Suit for breach of implied warranty of habitability

Court rejects argument that abandonment is a requirement

Background facts:

o Lease was a conveyance

o

Provision to deliver (Hannan)

o

Court’s analysis:

o

Policy Reasons:

o

New Rule (“safe, clean and fit for human habitation” housing)

o

Implied warranty exists for cov. of QE

§ Recognized dependency of covenants:

Tenant does not have to pay rent when there has been a breach of an implied covenant

For Thursdays class: Tenant calls you up and tells you they’re living in horrible conditions, how do you translate the law to advice???

For Thursday: read through Lohmeyer v. Bower

CLASS TEN: OCTOBER 3, 2013

Intro to Coneveyancing – Purchas and Sales Contracts Statute of Frauds

Intro to Unit 2: Purchase and Sale of RE

Seller (deed) à Buyer ß $$$$

In a lease: The conveyance (transfer) happens in the lease

o “LL hereby conveys to T1”

Why do we care if there’s an enforceable K?

o No legal relationship between seller and buyer Pre-K

Trying to pin point at what point LL and buyer in privity of K together

First:

o Is there an enforceable promise?

§ When was the K formed?

Tells us where on the timeline the line can be drawn.

o What’s the legal relationship between the buyer and seller after the

promise has been performed?

Concept of an allocation of risks:

o Stuff happens

Equity allocates some of the benefits of the buyer at the concept stage

o If you get the benefits, you don’t get the loss

Why even bother with a contract of sale?

o

You need to have a closing.

o

The only way to convey property is through a deed

Contracts of Sale:

o Why have a K of sale?

§ No more than conditions and covenants

§ Contains mutual promises (if it doesn’t contain mutual promises, not enforceable)

§ Protects the parties

§ Lock in the price

§ Only way of locking in price of mutual promise is a K

o

Conditions and Covenants

§ Closing conditioned upon certain items true and untrue

§ “Subject to” “Contingent upon”

§ most of the K is a bunch of conditions

o

Purpose of Condition?

§

We let parties set the terms of their promises as long as you’re not attaching the term that’s void because its against public policy

o

Policy goals behind Statute of Frauds:

§ Prevent fraud or perjury

§ Most state has some version of it (varying)

§ Property lasts a long time

§ If the K for sale is for purchase and sale of house for $5000 and property w Hickey v. Green: Payee left blank, issue identifying the parties (Want specific performance)

Payee has to endorse the check

o

Seller pleads SOF as defense

o

Reasonable Reliance, change of position

§ Purpose of change of position:

Who is suing whom for what?

Does the Statute of Frauds apply?

Is Statute of Frauds satisfied?

Is there an exception to the SOF?

Page 506: (Court takes SOF seriously)

o This is equity: a lot of leeway (variety) in how quick a court will take seriously equity

Example of a court that has a higher standard (variance)

Walker case in its enforcement of SOF: Higher bar to find an equitable exception

Likely issues in SOF cases:

o Disputes as to what constitutes a writing

Hypothetical:

In New York, Buyer sees a “for sale” sign. B says to S that she wants to buy it. B gives S a $500 check to S as down payment. Later that evening B changes her mind. Can S sue B?

o

Opposite facts of Hickey

o

Answer under NY GOL 5-703 (page 87)

§ Conveyances and contracts concerning real property required to be in writing.

1. An estate or interest in real property, [other than a

lease for a term not exceeding one

created, granted, assigned, surrendered or declared, unless --by act or operation of law, or

cannot be

--by a deed or conveyance in writing, subscribed by the person creating, granting, assigning, surrendering or

declaring the same

(Doesn’t apply in this hypo):

o Deals with property law, can you sign the lease orally

2. A contract for the leasing for a longer period than one year, or for the sale, of any real property, or an interest therein, is void

unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged

4. Nothing contained in this section abridges the powers of courts of equity to compel the specific performance of agreements in cases of part performance.

o

(Codification of form of possession)

o

Legislature does not diminish equity power

o

Standard for equity in NY statute.

§ Need a way of computing the price

§ Exceptions?

Bc timeframe is so short, no time for buyer to have reasonable reliance or incur any irreparable injury

§ Answer:

If claim is going to fail for enforceability it will be because lacking an essential term (price)

o Some courts will disagree on that matter.

Next Class:

Marketable title

CLASS ELEVEN: October 8, 2013

Marketability Equitable Conversion

MARKETABLE TITLE:

Different types of “title”

o

Record title

§ If you went to the land records shows who owns title but not dispositive of ownership

o

Insurable title

§ What the title insurance is willing to insure

o Marketable title

§ Quality of the title

§ Common law implies promise of seller to convey title in sale

§ Buyer can terminate K and don’t have to close if title not marketable

Seller has time to cure prior to closing

§ Law assures to buyer a title free from reasonable doubt but not

every doubt

§ When presented with title problem applying vague standards to something specific

§ Reasons why you might need a standard of something less than perfect

Difficult for any transaction to close because the buyer would always be able to claim imperfection

Recognition that every property has some problem

o Standard of imperfection would make it an impossible standard

Marketable Title Defects:

o

Chain of title:

§ Rare but if they happen, almost always mean total title failures

§ Low probability, high cost if the event occurs (insurance companies take this on—paying small premium and shifts risk onto 3 rd party)

Fraudulent transfers

Forged deed (if you discover deed was forged prior to closing, you don’t have to close)

Incapacity

Duress

Improper acknowledgement

Deed wasn’t delivered

o

The world of encumbrances (much more likely): Reduces value of the

property

§ Third party rights that someone might have relating to (1) monetary, possessory rights, or use

§ Monetary: right to money that creates a title problem

Lien: (almost always liens) describes certain rights of the lienholder that give them the right to sell property in satisfaction related to debt (property matter)

o

Not recorded in land records

o

Mortgage lien (voluntary transaction)

o

Unpaid taxes (federal and state level)

o

Mechanic’s liens: particular kind re: someone doing work on the house

Mortgage

o If there’s no debt, mortgage is meaningless

§ Possessory: (tenant)

Lease

o Important in commercial real estate because value of property is relative to lease

§ Uses:

Easement

o

If your neighbor has an easement across your property to get to the lake, it interferes with the use

o

(Cannot be a nuisance because that’s a tort)

o

Zoning law not an encumbrance (not a third party private right ---law of general applicability)

§ One of the reasons why every buyer will be able to walk away

o

§ (not leaking roofs, ugly paint, people moving in next door) has to

be something about the title that causes the reduction of the value of the property Encroachment:

§ An illegal intrusion upon property

§ Something physical built on some property that you don’t own

Fences

Air conditioners hanging over property line

Garage

§ Example:

Owner of Lot B’s garage encroaches on lot A

 

o

Is lot A unmarketable?

 

§

Yes, because B is encroaching onto Lot A

 

o

Is Lot B unmarketable?

 

§

No. There may be a problem though. Lot A could go to court and force Lot B to move his garage. But B owns all of lot B

 

A cannot interfere with B’s use of any portion of what’s inside his lot square

Lot A

Lot B

 

o

o

o

o

garage house
garage
house

o

A’s ability to sue b with the overhang is not a right title of interest that A has in B’s property

o

A only has a right of exclusive possession

§ *There will be a question on this*

o

A’s property unmarketable because the piece of garage interferes with use

o

An unrecorded deed suggests possibility of litigation because you don’t have title

o

Visibility is impt. component because it gives the justification

§ Invisibility is a tough standard

Common law definition of marketable title is implied in all contracts

o

Default rule is implied in the K

§

Free transferability (what’s not prohibited is permitted)

o

If every title has an encumbrance, every buyer has an option

Contractual variations on the standard of marketability:

o

Under what circumstances can the buyer rescind (lawfully terminate, refuse to close, etc.)

o

S covenants to deliver marketable title: very buyer friendly

o

S covenants to deliver marketable title, subject to the recorded citibank mortgage (smaller than 1) Buyer doesn’t have to close if anything other than citibank

o

“subject to all encumbrances of record” creates a smaller exception (Cannot use an encumbrance of record to get out of closing)

o

“subject to all encumbrances” very limited on buyer having the right not to close

Lohmeyer v. Bower:

o

S covenants to deliver marketable title, subject to all encumbrances of record

o

Court reformulated what was expressly written to make it read: S covenants to deliver marketable title, subject to all encumbrances of record (so long as not violated)

§

But it is not that version because it was silent.

o

This court read into K to mean “so long as not violated”

o

What did K say?

§

Free and clear of all encumbrances except taxes, subject however, to all restrictions and easements

o

Restrictive covenant renders title unmarketable because it interferes with use

o

Encumbrance of record “if not violated” was read into it

o

Problems of the property:

§

Zoning violation

o

Mere existence of restrictive covenant makes title unmarketable:

§ In the absence of an agreement to contrary…all restrictive covenants make title unmarketable

§ Could write K diff. saying buyer only has to close if …

o

Mere existence of zoning does not render title unmarketable

o

Violation of zoning and violation of restrictive covenant make title unmarketable