Texas Real Estate Principles II

Transcription

1 Lesson 7: Leases Leasing Real Estate Topics This section focuses on the following topics: Introduction Overview of Leasing Real Property The Lease as a Real Estate Transaction The Nature of Leases Learning Objectives At the conclusion of this section you will be able to: Explain the general nature of leasing real property. Describe the lease as a real estate transaction. Explain how leasing is vital component to real estate practice. Introduction Most people who seek a career in real estate assume that real estate is a business comprised of managing transactions that are sales of real estate. There are many other aspects of real estate including management, lending, title, escrow, and leasing among other aspects. Actually lease transactions in real estate outnumber other transactions significantly. There is almost always a need by owners of real property for people who are skilled at negotiating lease transactions including those who own, residential, commercial, industrial, office and other properties including land. Negotiating leases involves a thorough understanding of the needs of the tenant and landlord. This lesson addresses the overall perspectives in leasing real property. Page 1 of 45

2 Overview of Leasing Real Property The agreement under which a tenant hires a property from a landlord is a lease. That is, the lease is a contract under which a tenant goes into possession of a property or unit of space for a certain period of time in return for payments to the landlord. The time that the tenant may hold possession is called the term. The amount to be paid to the landlord is known as rent. A lease may be an oral agreement under which the property is rented for a short term or it may be a lengthy document containing many special provisions and covenants. The party who hires and rents the property is the tenant or the lessee. The landlord or lessor is usually, but not necessarily, the owner of the property. The lessor may be tenant of the owner who enters into an agreement to sublet the premises to subtenants. This latter agreement establishes an estate, often known as a sandwich leasehold. The original tenant has become sandwiched in between the user of the premises or top lessee and the owner of the property or leased fee the landlord. The locational analysis in selecting a site for a land use is essentially the same whether control of the premises is to be gained by purchase or rental. That is, the locational analysis involved in selecting a site for a supermarket, a gas station/convenience store, or a warehouse would be the same whether purchase or rental were being considered. Leasing, of course, requires no equity investment in real estate. Thus, the tenant may retain or liberate money for business purposes or other uses. Lower transaction cost and greater flexibility of location can usually be realized by renting, although a long-term lease would negate the latter point. The Lease as a Real Estate Transaction Any conveyance of any type of estate in real property is a real estate transaction. Many people have to lease property to meet their housing needs because they don t have the capacity to buy. There are many who invest in property to provide for the needs of those who don t have the option or the desire to buy real estate. Many aspiring homeowners Page 2 of 45

3 need time to build, or rebuild, their financial foundation and credit before they can buy and leasing is a bridge to that goal for them. Most retailers do not want to tie up their capital in real estate but rather into store fixtures, equipment, inventory, staff, and marketing/advertising. The leasing option affords them the freedom to do this. The same needs apply to users of industrial, office, and manufacturing space. Leasing is a method of preserving liquidity to commercial/industrial/office users. Real estate investors and developers seeking to establish and add value to their properties are willing to make the investment into the land and buildings to accommodate these users with the expectation of a reasonable rate of return on their investment. This return is primarily income they receive in the form of rental income. On a residential investment a landlord may look leasing as a revenue stream and anticipate their income using the following model which is covered more in detail later in this course: So if an agent is going to assist an investor in evaluating the feasibility of investing in any property whether it s a single-family residence or a 20-plex, the agent and the client will need to carefully examine the profit and loss performance to assess the property s income potential. To get down to basics a rental property s performance is based on the following: Gross Annual Rent The total amount of rents paid by the tenant or tenants on the property for one year. Vacancy Rate The total amount of rental income to be subtracted expressed as a percentage of gross annual rent. Adjusted Gross Annual Rental Income The gross annual rent minus the rental income lost through vacancy determined by applying the vacancy rate multiplied by the gross annual rent. Basic Rental Property Expenses (T.I.M.M.U.R.): 1. Taxes (Annual Property Taxes) 2. Insurance (Property & Business/Liability Insurance) Page 3 of 45

4 3. Maintenance Expenses on the property & Miscellaneous Costs 4. Management Fees on the property 5. Utility Costs on the property Replacement Reserves Funds set aside from the adjusted gross rental income to replace structural components or make repairs to the property as needed. Net Rental Income Determined by subtracting the Basic Rental Property Expenses from the Adjusted Gross Annual Rental Income. Annual Cash Flow Determined by subtracting the debt service (Annual Principal & Interest on Any Loans on the Property) from the Net Rental Income. Note: A property with negative cash flow is called a property that eats. A residential tenant sees a rental unit as a roof over his or her head until they are able to build the foundation to be able to buy a home. A commercial tenant envisions a space that enables them to provide services to their constituents. The Nature of Leases Leases have many forms and components that differ from one another. There are shortterm leases (one year or less) that don t necessarily have to be in writing to enforceable. Some leases have options to purchase for the tenant that can be found in both residential and commercial leases. Some leases have established rents that can be increased based on financial indicators such as the cost of living. Others are base rents plus a percentage of the gross sales of the operation (Percentage Leases). Land leases are usually much longer-term leases and often require a tenant to make substantial investment into the improvements on the properties. Many retail leases require the tenant to pay his or her share of property taxes, insurance, common area maintenance and their membership in merchants association that would be found in a large shopping center. Page 4 of 45

5 Leases Topics This section focuses on the following topics: Introduction Types of Leasehold Estates Common Lease Provisions Landlord and Tenant Act Types of Leases Learning Objectives At the conclusion of this section you will be able to: Describe the differences in the types of leasehold estates. Explain the general provisions of the Landlord and Tenant Act. Explain the differences in the types of leases. Introduction A lease is an agreement between a tenant (lessee) and a landlord (lessor) allowing the tenant to occupy the landlord s property for specified payments to be paid at a specified rate for a specific period of time. A comprehensive lease agreement defines the tenant s rights and obligations as well as the landlord s rights and obligations, the time period covered by the contract and the amount of money the tenant must pay to the landlord for use of the property. When the real property owner leases property to a tenant, that tenant owns that right to possession, called a leasehold estate. This right includes the covenant of quiet enjoyment, meaning their possession cannot be interrupted or terminated without legal cause or mutual agreement. Here we will learn about the different forms of leasehold estates or tenancy. We will also learn some common lease provisions and the rights of both the landlord and tenant as we look at the Landlord and Tenant act. Page 5 of 45

6 A reversionary right means possession of the property reverts to the landlord after the lease term has expired. The landlord s interest in the property is specifically known as a leased fee estate plus reversionary right. Ownership in real estate is described by two basic terms: 1. Freehold estate: The property owner has actual ownership and possession of the land (or real estate) that lasts for an unspecified period of time. 2. Leasehold estate: The tenant has possession of the property (but does not own it), and his or her estate in the property lasts for a limited period of time. Types of Leasehold Estates There are four general types of leasehold estates: 1. Estate for years 2. Periodic estate 3. Estate at will 4. Tenancy at sufferance Estate for Years Estate for years, or tenancy for years, is a leasehold estate with a specific starting date and a specific ending date. The exact span of time is decided by the landlord, agreed to by the tenant and ranges from days to years. The tenant in this agreement occupies and uses the property as long as the terms of the lease agreement are honored. The agreement can be discharged under the conditions previously discussed. Once an estate for years expires, no special action is required by either the landlord or the tenant to terminate it. Instead, it is implicitly understood the contract is terminated. If the tenant wishes to continue to occupy and use the property, the lease must be renewed. Renewal requires the landlord and tenant come together and expressly agree either to renew the existing lease or to create a new one. Page 6 of 45

7 Periodic Estate A periodic estate, or a periodic tenancy, defines tenancy as automatically continuing for consecutive periods of time. They are most commonly referred to as month-to-month leases. This kind of lease is generally understood to be automatically renewed at the end of each lease period, until the landlord or tenant takes special action (such as submitting a written request) to terminate the lease agreement. For example, in a month-to-month lease, both the tenant and the landlord generally have the option of terminating the lease agreement at the end of any given month. If neither party expressly terminates the lease, then it is usually understood the lease is renewed for another month. Estate at Will An estate at will, or a tenancy at will, is created by a lease agreement that permits either the tenant or the landlord to terminate the lease agreement at any given time. Usually, the terminating party is required to give written notice and ample warning to all parties involved. The distinguishing feature of an estate at will is its lack of a specific tenancy period. Apart from this, the landlord and the tenant involved in an estate at will agreement have all or most of the rights and obligations they would have under any other type of leasehold estate. Tenancy at Sufferance A tenancy at sufferance is not a lease agreement. It is created when a tenant continues to occupy the property beyond the period specified in a previously existing lease agreement without the consent of the landlord. This does not mean the tenant is remaining on the property after the landlord has expressly asked him or her to leave. It does mean, however, the tenant is still understood to be violating the law. In a tenancy at sufferance, the landlord and the tenant have chosen to ignore the fact their formal lease agreement is expired. Everyone goes on as before, but there is no Page 7 of 45

8 formal lease contract governing their relationship or defining the tenant s estate in the leased property. When this occurs, the tenant is referred to as a holdover tenant. When a tenant remains in possession of a property beyond the expired lease agreement, the landlord has a right to evict the tenant. If the tenant continues to pay the landlord rent after the formal lease has expired, and the landlord accepts, then the tenancy at sufferance can become a periodic estate. Common Lease Provisions Leases may be in writing, oral or implied and follow the legal guidelines of a valid contract which include: Offer and acceptance or mutual agreement Consideration or rent Competent parties (of legal age, of should mind, and not under any undue influence or duress) Legal objective or legal purpose Legal description of the real estate A lease for longer than one year must be in writing to be enforceable in accordance with the Statute of Frauds. Leases of less than one year do not have to be in writing, but it is highly recommended to put all contracts or agreements in writing. Most REALTOR associations have lease contract forms that can be use by licensees. In Texas a commonly used form for leasing by apartment locators is drafted by the Texas Apartment Association (TAA); you must be a member of the TAA to use their contract forms. Term of Lease The term of the lease identifies the period of time the tenant has his or her right to possession and quiet enjoyment. The term could also include automatic renewals or options for renewal. If a leased premises is sold or transferred under a voluntary conveyance, the lease will remain in effect. Page 8 of 45

9 Use of Leased Premises The lessor or property owner may restrict the tenant s use of the leased premises or identify additional provisions in the lease contract. These may become more significant in commercial leases rather than residential leases. The contract might identify a specific type of business or specific parking requirements. In the absence of restrictions, the leased premises will be used for legal purposes. Transfer of Lessee or Tenants Rights Assignments and subleases are various ways that a tenant may transfer some or all of his or her leasehold interest in a property. In all cases, assignments and subleases require a property owner s permission a tenant cannot sublet rented property or assign a lease without the owner (or his or her representative) being involved. An assignment of lease usually occurs when a tenant (the assignor) transfers the entire remainder of an unexpired lease term to another individual (the assignee). The general legal effect of an assignment is to substitute the assignee for the assignor in the contractual relationship with the other original contracting party (i.e., the landlord). It is often left to the landlord s discretion (or the manager s discretion) to determine how much legal responsibility remains with the assignor i.e., to determine the extent to which he or she will be held legally responsible if the assignee fails to fulfill the terms and conditions of the lease contract. Tenants should never assume that they have been totally relieved of legal responsibility for a lease unless they have a written statement from the owner to that effect. Even though tenants are frequently the assignors in a lease assignment, it remains true that both lessors and lessees can transfer their respective interests in leases to third parties, unless this kind of transfer is explicitly prohibited by the terms of the lease. In a sublease, the lessee (also known as the tenant or sublessor ) transfers some of his or her interest in a leased property to a third party (sublessee), while retaining some reversionary interest. That is to say, a sublease differs from an assignment because a Page 9 of 45

10 sublease does not transfer the entire remaining lease term. A sublease is thus really a kind of estate within an estate, in which the third party makes a contract with the original tenant, not with the landlord. For example, the sublessee is responsible for paying rent to the tenant, and the tenant is the person who is ultimately responsible for ensuring that the landlord receives the proper rent payment. Because a sublessor can only convey the rights that he or she has in a property, the sublessee is effectively bound to all conditions and limitations in the tenant s lease contract (i.e., the lease between the landlord and original tenant, sometimes called the main lease ). Under a sublease, it is generally the case that the sublessor, or original tenant, is still liable to the landlord for rent and the performance of all covenants. This is true because the sublease is a contract between the tenant and the sublessee, not between the sublessee and the landlord. Breach or Default of Lease Contract A breach of contract occurs when at least one of the contracting parties violates the terms or conditions of a contract. This can occur when an individual fails to fulfill his or her contractual duties to the other contracting party or parties; it can also happen when one party obstructs the other from carrying out his or her obligations. To know when a contract has been breached, we need a clear picture of each party s obligations to the other, so we now turn to a brief discussion of owners duties and tenants responsibilities, and how failures in either of these arenas can lead to a breach of contract. The owner and property manager s chief responsibilities to tenants are maintenance of the property (including access to utilities and structural integrity) and ensuring that tenants can exercise their right to quiet enjoyment, which is a tenant s right to control the leased premises without undue interference from the owner, the manager, or other tenants. The property owner or the manager acting on his or her behalf may have a variety of other contractual responsibilities. The range and character of these duties is established by the lease agreement; whatever a manager s contractual duties may be, he or she must be conscientious about completing them. Page 10 of 45

11 Breaches of these responsibilities may be construed as constructive or partial eviction, and the landlord may be liable to the tenant for damages. Constructive eviction occurs when the leased premises cannot be used for their proper purpose because the owner has failed to provide essential services guaranteed to the tenant in the lease agreement. In such cases, the tenant often has the legal right to terminate the lease without the owner s agreement; he or she may also take legal action to recover damages. Partial evictions come about as a result of similar negligence, but in these situations the tenant is typically still able to use the leased premises. Depending on the nature and severity of the breach that leads to partial eviction, a tenant often has the right to sue for damages, deduct service fees from rental payments, or withhold rental payments until the damages are redressed. Any tenant considering these actions should seek legal counsel to help ensure that his or her response is legally permissible. Tenants are generally evicted as a result of consistent and intentional failure to fulfill important terms in their lease agreements. A manager can take steps to avert evictions, including issuing warnings or, in the case of damages, undertaking repairs and then billing the tenant for repair services. These actions may solve problems without the paperwork and legal complexities of an eviction. Remember, actual eviction (i.e., the legal removal of a tenant and his or her belongings from a property) generally requires the legal authority of a court. Property managers may not enforce an actual eviction independently. Terminating a Lease Leases may be terminated in a variety of ways. The majority of leases are terminated simply by reaching the expiration date specified in the lease agreement. Various sorts of eviction can also terminate a lease. The issues we are discussing in this section do not pertain to a lease termination that results from a tenant s violation of the lease contract. In addition to simply expiring and being terminated by eviction, a lease can also be terminated by providing proper notice as defined in the lease, by surrender and Page 11 of 45

12 acceptance, abandonment, and by the destruction or condemnation of the leased property. Proper Notice Providing proper notice terminates a periodic lease by preventing it from automatically renewing. For example, if a week-to-week tenant who is bound by a periodic lease does not wish to continue living at his or her present location, then that person can give his or her landlord proper notice, effectively stopping his lease renewal. The specific actions required to give proper notice are generally defined in the lease agreement. For example, a tenant is often required to provide written notice of his or her intent to vacate the premises, and he or she must usually provide this notice a certain period of time prior to leaving the property. Surrender and Acceptance A surrender and acceptance termination usually occurs when a landlord wants to end a lease early. In this kind of termination, a tenant willingly gives up his or her interest in a property and the landlord accepts possession of the tenant s leasehold interest prior to the expiration of the lease term. It is important to note here that acceptance is an important part of this kind of termination. A tenant cannot generally end a lease simply by surrendering the leased property to his or her landlord. Unless the landlord accepts the surrender, the tenant can still be held liable for satisfying the terms and conditions of the lease. Abandonment Abandonment generally refers to the voluntary relinquishing of property rights when there is no direct recipient of one s interest in a property. With respect to leases, abandonment occurs when a tenant vacates a property, stops paying rent and, by such acts, illustrates that he or she does not intend to return. If a tenant abandons the landlord's property, then the lease is terminated in one important sense, because the landlord is often no longer legally responsible to the person who abandoned the property. For example, once it has been established that a property has been abandoned, a landlord can rent that property Page 12 of 45

13 to someone else, even if that new lease technically overlaps the lease term of the individual who abandoned the property. This should not be interpreted to mean that abandonment relieves a tenant of his or her contractual obligations to a landlord. This is not the case. A landlord can take legal action against a tenant who abandons property in an effort to recover damages or to force the tenant to carry out the terms and conditions of their contract. Destruction If a property is completely destroyed (e.g., by a fire) or is sufficiently damaged that it cannot be promptly restored to a condition in which tenants can use the property for its proper purpose, then the lease contracts that apply to that property are often terminated. The legal remedies available to the contracting parties vary widely, depending on what happened to the property and how the problem was caused. For example, if the fire that destroys a property results from the owner s negligent maintenance, then the tenants of that property may be able to take legal action against the owner and other parties responsible for maintaining the property. When a property is destroyed by an accident or other unpredictable event (e.g., an earthquake), there is often no one who can be held legally responsible for the condition of the property and the subsequent termination of tenants leases. Condemnation Condemnation occurs when some local, state or federal body declares that a property can no longer be used in the way it is presently being employed (or perhaps that it can no longer be used at all). Condemnation happens for a variety of reasons. For example, a building might be condemned because it violates local safety codes and officials no longer believe that it can be used safely. If a governing body decides that a property cannot be used for the purposes for which its tenants have leased it, then those lease contracts are terminated. When a property is condemned for reasons such as these, state and local laws will determine what, if any, legal recourse is available to those whose leases have been terminated. Page 13 of 45

14 Condemnation can also result from the exercise of eminent domain, which is the power of federal, state and municipal governments to seize private property (either temporarily or permanently) for public use, as long as certain conditions are met. When a governing body seizes a property that is leased to tenants, those tenants leases are terminated. In this sort of situation, the tenants do not usually have any sort of legal recourse against the landlord, because he or she is legally required to surrender the property to the government authority that is exercising its power of eminent domain. Landlord and Tenant Act The Landlord and Tenant Act is a set of laws that identify the rights and obligations of both the lessor (landlord) and lessee (tenant). This act is sections 91 through 94 of the Texas property code. Some of the provisions addressed in the Landlord and Tenant Act include the right of entry by the landlord or landlord s representative, maintenance and security requirements, safety requirements such as smoke detectors, disclosure requirements, and occupancy limits. The laws require a lessor to maintain the leased premises in a habitable condition. Under section 92, the Landlord and Tenant Act requires the landlord to make a diligent effort to repair or remedy any condition that materially affects the health or safety of the lessee or tenant. The law identifies some specific instances in its requirements for the habitability of the premises such as plumbing issues involving raw sewage or leaking water in the property or lack of water to the premises. It also addresses the requirements for heating or air conditioning. If a landlord receives a request from the tenant for a remedy of an inhabitable condition and does not repair that condition within a reasonable time (approximately seven days unless in an emergency situation) the tenant needs to send a second notice to the landlord as to the intent of the tenant to either repair the property themselves and deduct it from the rent, terminate the lease or pursue legal recourse. Page 14 of 45

15 The law also provides specifications for the installation of smoke detectors and the number and location of the detectors. It defines some of the security requirements such as specific locks, keyless deadbolts, pin locks on sliding glass doors, and door viewer holes on exterior doors. Typically, a lease will require a security deposit. The Landlord and Tenant Act requires the landlord to surrender the deposit within 30 days of the lease termination. If the landlord or his or her representative is going to charge the tenant for conditions other than normal wear and tear, he or she must provide an itemized list of the deduction(s) made within that same 30-day period of lease termination. The tenant must provide the landlord or his or her representative with a forwarding address. Below is a summary of the required Texas Landlord Disclosures to the tenant according to nolo.com: Owner or agent identity. In the lease, other writing, or posted on the property, landlord must disclose the name and address of the property's owner and, if an entity located offsite from the dwelling is primarily responsible for managing the dwelling, the name and street address of the management company. (Tex. Prop. Code Ann ) Security device requests. If landlord wants tenant requests concerning security devices to be in writing, this requirement must be in the lease in boldface type or underlined. (Tex. Prop. Code Ann ) Return of the security deposit. A requirement that a tenant give advance notice of moving out as a condition for refunding the security deposit is effective only if the requirement is in the lease, underlined or printed in conspicuous bold print. (Tex. Prop. Code Ann ) Domestic violence victim's rights. Victims of sexual abuse or assault on the premises may break a lease, after complying with specified procedures, without responsibility for Page 15 of 45

16 future rent. Tenants will be responsible for any unpaid back rent, but only if the lease includes the following statement, or one substantially like it: "Tenants may have special statutory rights to terminate the lease early in certain situations involving family violence or a military deployment or transfer. (Tex. Prop. Code Ann ) Tenant's rights when landlord fails to repair. A lease must contain language in underlined or bold print that informs the tenant of the remedies available when the landlord fails to repair a problem that materially affects the physical health or safety of an ordinary tenant. These rights include the right to repair and deduct; terminate the lease; and obtain a judicial order that the landlord make the repair, reduce the rent, pay the tenant damages (including a civil penalty), and pay the tenant's court and attorney fees. (Tex. Prop. Code Ann ) Landlord's towing or parking rules and policies. For tenants in multiunit properties, if the landlord has vehicle towing or parking rules or policies that apply to the tenant, the landlord must give the tenant a copy of the rules or policies before the lease agreement is signed. The copy must be signed by the tenant, included in the lease or rental agreement, or be made an attachment to either. If included, the clause must be titled "Parking or Parking Rules and be capitalized, underlined, or printed in bold print.) (Tex. Prop. Code Ann ) Electric service interruption. Landlord who submeters electric service, or who allocates master metered electricity according to a prorated system, may interrupt tenant's electricity service if tenant fails to pay the bill, but only after specific notice and according to a complex procedure. Exceptions for ill tenants and during extreme weather. (Tex. Prop. Code Ann (h)) Return of security deposit. A requirement that a tenant give advance notice of surrender as a condition for refunding the security deposit is effective only if the requirement is in the lease, underlined, or printed in conspicuous bold print. (Tex. Prop. Code Ann ) Page 16 of 45

17 Tenant s rights when landlord fails to repair. A lease must contain language in underlined or bold print that informs the tenant of the remedies available when the landlord fails to repair a problem that materially affects the physical health or safety of an ordinary tenant. These rights include the right to repair and deduct; terminate the lease; and obtain a judicial order that the landlord make the repair, reduce the rent, pay the tenant damages (including a civil penalty), and pay the tenant s court and attorney fees. (Tex. Prop. Code Ann ) Nonrefundable fees. If landlord collects a nonrefundable fee, the rental document must clearly specify that it is nonrefundable. (Holmes v. Canlen Management Corp., 542 S.W. 2d 199 (1976)) Below is a summary of the tenants rights taken from the Tenants Handbook published by the Texas Young Lawyers Association. Tenant Rights and Remedies This section of the handbook discusses tenant rights and remedies provided by Texas law. Unless otherwise indicated, a lease cannot remove or diminish any right or remedy described below. However, your lease may provide additional protections and remedies. Be sure to read your lease first to see if your problem is addressed. Repairs and Improvements Texas law requires landlords to make a diligent effort to repair problems about which they have been notified and that materially affect the physical health or safety of an ordinary tenant. Examples of items that materially affect the health and safety of an ordinary tenant are sewage backups, roaches, rats, no hot water, faulty wiring, roof leaks, and, sometimes, a lack of heat or air conditioning. If the problem violates a provision of your city s building, health, or fire code, then it is more likely to be considered a health or safety risk. State law generally does not cover problems such as broken dishwashers, walls that need painting, unsatisfactory draperies, or grass that needs cutting. However, your lease agreement may require the landlord to repair these problems as well. If you are uncertain Page 17 of 45

18 how to classify the problem, consult a lawyer, health or building inspector, or tenant association. A landlord that has an on-site management or superintendent s office must provide to you a telephone number that will be answered 24 hours a day for the purpose of reporting emergencies related to a condition of the property that materially affects your physical health or safety. The landlord must post the phone number prominently outside the management or superintendent s office. The remaining sections of Repairs and Improvements will only discuss the requirements and remedies provided by state law as described above. Although some of the general advice may be applicable in other situations, a tenant should not assume that ANY of the remedies discussed below would be available. [Tenants with the Housing Choice Voucher Rental Assistance Program (HCVRAP) (formerly Section 8 ) rental vouchers or in government-owned or government-subsidized housing have additional rights concerning repairs. For example, a tenant with a HCVRAP rental voucher may request that the housing authority that administers the HCVRAP program inspect the unit. If there are repairs that require the landlord s attention, the housing authority may choose to abate (stop) paying its portion of the rent on the tenant s dwelling until the repairs are completed. If the landlord files for eviction, the landlord may not be able to evict the tenant based on nonpayment of the housing authority s rent, as long as the damage was not caused by the tenant s abnormal or reckless use of the premises. For more information about these programs, you should call your local housing authority, attorney, or tenant association.] Exceptions to the Landlord s Duty to Repair Texas law does not require a landlord to repair a condition caused by the tenant or a guest, family member, or lawful occupant of the tenant (unless the condition was caused by normal use of the premises). The law also specifically provides that the landlord need Page 18 of 45

19 not furnish security guards for an apartment complex, although better lighting, locks, fencing, and other security measures could be required in some situations. Other exceptions to a landlord s duty to repair are only valid if the tenant has agreed to them in a written lease and certain conditions are met. It should also be noted that these exceptions are fairly rarely used. For example, Texas law allows landlords with one rental unit to change, in the lease, their duty to repair, but only if the unit was free of health and safety risks when the tenant moved in and the landlord was unaware that there would be repair problems during the lease, and only if the landlord puts a specific and clear lease provision in the lease to this effect that is underlined or in bold print. A landlord and a tenant may also agree in a lease that it is the duty of the tenant to pay for the repair of broken windows, screens, and doors, but only if such a lease provision is specific and clear, underlined or bolded, and the conditions were not caused by the negligence of the landlord. Similarly, a landlord and tenant may agree in a lease that it is the duty of the tenant to pay for the repair damages caused by leaving windows and doors open and from sewage backups if a toy or other improper item is found in the line that exclusively leads to the tenant s unit and is the cause of the backup, but only if such a lease provision is specific and clear and is underlined or bolded in a written lease, and the conditions were not caused by the landlord. A landlord must provide you with a home that is free from health and safety risks, regardless of what is in the lease. Other than those exceptions listed above, a landlord may not modify her duties under the law to repair a condition that materially affects your physical health and safety. If a landlord intentionally tries to change this duty orally or in your lease, you may have a claim against her for actual damages, one month s rent plus $2,000, and reasonable attorney s fees. The law presumes the landlord acted without knowledge, so give your landlord a written notice (and keep a copy) if she is violating the law and ask her to change the lease. If the landlord refuses, you may have a stronger claim against the landlord. Page 19 of 45

20 Procedure for Obtaining Repairs Tenants with problems requiring landlord repairs should take the following steps in order to use the remedies provided by state law (your lease may provide you with more rights): 1. Always Provide Notice You must provide notice of the problem to the person to whom you pay rent. Phoning is usually the fastest way, but you should also provide the notice in writing and keep a copy for yourself as proof. Be sure to date the notice. Many leases require that all requests for repair be in writing. If you mail your rent payments, you can mail the notice to the same address. Sending the notice by certified mail provides the best proof that it has been received. If you send your first notice requesting repairs by certified mail, return receipt requested, then you are not required to send a second written notice in order to pursue your rights and remedies under state law. 2. Pay Your Rent The landlord is not obligated to make repairs required by state law unless you are current on your rent. You must perform your obligation to pay rent or you cannot force the landlord to perform her obligation to repair. Your rent must be current at the time you provide the first notice; otherwise, that notice may not have any legal effect. 3. Give your Landlord a Reasonable Time to Make the Repairs Your landlord has a reasonable time to repair the problem after receiving your initial notice. The length of time considered reasonable will depend on the circumstances, although the law presumes that seven days is a reasonable time. The nature of the problem and the reasonable availability of material, labor, and utilities are all factors that will be taken into consideration in determining how much time is reasonable. During this time, the landlord must make a diligent effort to repair the problem. For broken water pipes or sewage blockages, the reasonable time may be much shorter than seven days. For small roof leaks, a reasonable time may be longer. Page 20 of 45

21 4. It is Not Required, but It May be Wise to Call a City Inspector If the landlord has had a reasonable time to fix the problem and has not done so, you may decide to call the appropriate city or county inspector (housing, health, or fire). This may put additional pressure on the landlord if the condition violates local ordinances. The inspector may also help you decide if the problem affects your health or safety. Obtain a written report and the name of your inspector. 5. Provide a Second Notice and Request Explanation After the landlord has had a reasonable time to repair the condition following your initial notice, you must send a second written notice to repair or remedy the condition. Remember, you do not have to send a second notice if you sent the first notice by certified mail, return receipt requested. You should ask the landlord in this second notice for an explanation for any delay, because if she does not respond, you will have an easier case to prove if you go to court. It is a good idea to send this notice by certified mail to prove it was received by the landlord. Remember to save a copy of your notice. The notice should say that it is your second written notice, that you are requesting an explanation, and it MUST explain what you plan to do if the landlord does not repair the condition. You have three basic alternatives: (1) terminate the lease; (2) repair and deduct the amount from your rent (this is a tricky alternative, see below); or (3) file a lawsuit seeking an order directing repairs, damages, etc. It may be a good idea to list all the alternatives in your second notice and decide later which ones you will use. You should also consider involving other tenants, city officials, and the media. See Overview. Page 21 of 45

22 6. Tenant Remedies If the landlord has clearly had a reasonable amount of time to repair the condition (usually seven days) and has failed to make a diligent effort to remedy the problem and you have properly followed the procedures above, you may be able to exercise one or more of the alternatives listed in your notice: (1) terminate the lease and move out; (2) have the problem repaired yourself and deduct the amount spent from your rent, but only if you follow ALL of the procedures mentioned below; and/or (3) sue the landlord for failing to repair. a. Terminating the Lease If you decide to terminate the lease, you must inform the landlord in your second written notice that you will terminate the lease unless the condition is repaired or remedied within a reasonable period of time (presumably seven days). Remember, you have the right to terminate only if the condition materially affects the physical health or safety of an ordinary tenant, you have provided proper notices, and you are not delinquent in paying your rent. See Warning. If you terminate the lease, you must move out. You can stop paying rent on the day you move out or the date of termination (whichever is later). If you correctly terminate your lease, you are entitled to a refund of rent from the day you terminated the lease or moved out, if you paid rent in advance. You may also use your security deposit to pay any rent that is owed, and you can do this without having to go to court. If you properly terminate the lease, you may still sue the landlord for one month s rent plus $500, actual damages, attorney s fees, and court costs. However, if you terminate your lease, you cannot sue to obtain a reduction in rent or to have the condition repaired, nor can you exercise any repair and deduct remedies discussed below. When you move out, the landlord must return your security deposit unless she has reason to deduct an amount from the deposit (such as for damage Page 22 of 45

23 you caused to the premises). Your landlord cannot keep your security deposit solely because you terminated the lease under these circumstances. If your landlord does not refund the unearned portion of your rent or wrongfully withholds your security deposit, you may wish to file suit against her. See Security Deposits. b. Using Repair and Deduct This remedy involves many procedures and conditions, and it is strongly recommended that you consult with an attorney or tenants association before you attempt to use your right to repair and deduct. In certain circumstances, a tenant can hire a contractor to repair a condition that affects health or safety after giving the required notices and waiting a reasonable time. The tenant is allowed to deduct the money paid to the contractor from the NEXT month s rental payment. See Warning. However, repair and deduct can be used ONLY if one of the following occurs: the landlord has failed to remedy the backup or overflow of raw sewage inside the dwelling, or flooding from broken pipes or natural drainage inside the dwelling; the landlord has agreed to furnish water and the water has stopped; the landlord has agreed to furnish heating or cooling and the equipment is not working adequately, and the landlord has been notified in writing by a local health, housing, or building official that the lack of heating or cooling materially affects health or safety of an ordinary tenant; or the landlord has been notified in writing by a local health, housing, or building official that the condition materially affects health or safety of an ordinary tenant. After providing a proper notice and the conditions outlined above are met, you must wait seven days for the landlord to repair the problem before you can hire a contractor for repairs. (Exception: You do not have to wait at all Page 23 of 45

24 if the condition involves serious sewage problems or flooding, and you only have to wait three days if the condition involves lack of drinking water, heat, or air conditioning.) Although the repair and deduct remedy can be used as often as necessary, the amount that can be deducted to repair any one condition CANNOT be greater than one month s rent or $500, whichever is greater. [A tenant on the Housing Choice Voucher Rental Assistance Program (formerly Section 8 ), government owned or government-subsidized housing may repair and deduct up to the monthly fair market rent of the dwelling from future rental payments, or $500, whichever is greater.] Further, the total deductions in any one month cannot exceed one month s rent or $500, whichever is greater. The company or contractor you hire to make the repairs must be listed in the phone book or classified ads of a local newspaper and must not have any personal or business connection with you. You cannot deduct for repairs made yourself, unless the landlord agrees (obtain the agreement in writing). In addition, all repairs made pursuant to this remedy must be made in compliance with applicable building codes, including a building permit when required. You cannot contract for labor or materials in excess of what you may deduct, and the landlord is not liable for those who furnish the labor or materials to remedy the condition. When deducting the cost of repairs from a rent payment, you must furnish the landlord, along with the payment of the balance of the rent, a copy of the repair bill and the receipt for its payment. A landlord who is unable to obtain necessary parts or who cannot labor following a natural disaster has the right to delay a tenant from exercising the repair and deduct remedy by delivering to the tenant an Affidavit of Delay. This affidavit can delay repairs up to 30 days, but it must set forth the reasons for the delay, including dates, names, addresses, and telephone numbers of contractors, suppliers, and repairmen contacted by Page 24 of 45

25 the owner. Affidavits must be made in good faith and the landlord must continue diligent efforts to repair the condition. A landlord can be severely penalized for wrongfully issuing Affidavits of Delay. Check with a lawyer or tenants association for more details. c. Filing Suit If you are successful in a suit in the matter of repairs, you can obtain a court order requiring the landlord to repair the condition, and you can also recover your actual damages (direct costs resulting from the landlord failing to repair), a reduction in rent in proportion to the reduced rental value effective from the first notice to repair until the condition is remedied, one month s rent plus $500, reasonable attorney s fees, and court costs. See Warning. Filing suit in a Justice of the Peace Court is less expensive and faster than doing so in County Court or District Court. You may represent yourself in a Justice of the Peace Court. However, by filing in a Justice of the Peace Court, you will be limited in some important respects. First, the total amount you recover cannot exceed $10,000 plus court costs. Second, the Justice of the Peace cannot order your landlord to repair the condition, as described above. Third, either party can appeal the case to the County Court for a new trial and, thus, not be bound by the judgment of the Justice of the Peace Court. One advantage to filing suit in County Court or District Court is that, if you are successful, you can obtain a court order to make the landlord repair or remedy the condition that endangers your health or safety. However, filing suit in these courts will probably require the expertise of a lawyer, the costs will be higher, and it make take the court longer to review to your case. Exception for Major Damage Special rules apply if the unsafe condition results from an insured casualty loss such as fire, smoke, hail, explosion, or similar cause. Under those circumstances, the landlord is not required to start repairs until her insurance company pays her. She still has a Page 25 of 45

26 reasonable time after receiving the insurance proceeds to complete the repairs. However, as long as you or your guests were not responsible for the damage and the premises are practically unusable for residential purposes, you (or your landlord) may terminate the lease at any time prior to the completion of the repairs by providing written notice, and you will be entitled to a pro rata refund of any rent paid in advance and your security deposit unless the landlord has reason to deduct an amount from the deposit (such as for damage you caused to the premises). Alternatively, you may be entitled to a reduction in rent proportionate to the extent the premises are unusable (unless the lease states otherwise). If you cannot reach an agreement with your landlord regarding a rent reduction, you can file a suit seeking rent reduction in either County Court or District Court. Retaliation for Requesting Repairs or Exercising Your Rights as a Tenant Your landlord is restricted for six months from retaliating against you because you gave her a repair notice, complained to a city code enforcement agency, public utility, or civic or nonprofit agency, or exercised a right or remedy granted to you by lease, municipal ordinance, or state or federal law. Illegal retaliation occurs when the landlord, in retaliation for your requesting repairs, complaining to a city inspector, or asserting a right you have under your lease or another law, wrongfully terminates the lease, files for eviction, deprives you of the use of the premises, decreases your services, increases your rent, or engages in activity that materially interferes with your rights under the lease. There are several exceptions. For instance, your landlord can increase the rent if the lease has a provision for an increase in the rent due to higher utility taxes or insurance costs. The landlord may also increase the rent or reduce services if it is part of a pattern of rent increases or service reductions for the whole complex. Furthermore, the landlord can still terminate the lease and evict you if you fail to pay your rent, intentionally cause property damage to the premises, threaten the personal safety of the landlord or the landlord s employees, or break a promise you made in your lease. There are other proper grounds for termination available to the landlord that are not considered retaliatory. Of course, if you received a notice of termination at the end of the lease before you provided the landlord notice to repair, you are not protected. This is why Page 26 of 45