Understanding Leases: Class Agenda & Rule Against Perpetuities

1. Agenda for 14th Class • Admin stuff • Name plates • Handouts • Slides • Leases II • Rule Against Perpetuities (continued) • Leases • Classification of Leases • Tenancy at Sufferance • Delivering possession • American v English Rule • Assignments and Subleases • Privity of Contract and Privity of Estates • Consent to assignments and subleases

2. Assignment for Next Class I • Review any questions we did not discuss in class today • Read: Leases II • Questions to Think about / Writing Assignments • Questions on p. 4 • Q3 (WG1), Q5 (WG2), Q6 (WG3) • Questons on pp. 14-16 • Q3 (WG4), Q4 (WG5), Q6b (WG6), Q7 (WG7) • Questions on pp. 22ff. • 1 (WG1), 2 (WG2), 3 (WG3), 4 (WG4) • Ads on p. 24 • Row 1, both ads (WG5) • Row 2, left ad (WG6); Row 2, right ad (WG7) • Row 3, left ad (WG1); Row 3, right ad (WG2) • Row 4, left ad (WG3); Row 4, right ad (WG4) • Ad on top of p. 25 (WG5) • Do you think the court in Fair Housing Council v. Roomate.com reached the correct decision as a matter of law and/or policy? (WG6) • P. 29 Q1 (WG7)

3. Rule Against Perpetuities • No interest is good unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest. • “At the creation of the interest” • Time of conveyance for inter vivos transfers • Time of death, if interest conveyed by will • “Life in being” • Anyone mentioned in instrument who might be alive • Anyone implied • E.g. Child living when O dies, when grandchildren mentioned • Choose person most likely to make the interest valid • Interests that may not vest (and thus may fail) • Contingent remainder, vested remainder subject to open • Executory interest • NOT • Vested remainder, unless subject to open • Future interests held by original grantor and heirs • Reversion, Possibility of reverter, Right of entry

4. RAP Problems IV • Consider the following variations on the will clause in Jee v Audley. Are they valid under the Rule against Perpetuities? • I give Blackacre to Mary Hall for her life and then to her children, if she has any who survive her. If she does not have any children who survive her, then I give the remainder to the children of John and Elizabeth Jee then living. • I give Blackacre to Mary Hall, but if Mary Hall and her descendants all die, I give Blackacre to the children of John and Elizabeth Jee who are alive when I die. • I give Blackacre to Mary Hall, but if Mary Hall and her descendants all die, I give Blackacre to the children of John and Elizabeth Jee then living. • I give Blackacre to Mary Hall, but if Mary Hall and her descendants all die, I give Blackacre to the children of John and Elizabeth Jee then living who were also alive at the time I died. • Does the result in Jee v Audley make sense as a matter of law or policy?

5. Leases • Massive historical change • Medieval typical situation – farm & farm house • Modern typical situation – apartment • Law slowly changed • Lease has 2 aspects • Property • Contract • Contractual element has become more important over time • Strong regulatory aspect too • Housing codes • Anti-discrimination law • Terminology • Landlord (L) and tenant (T) • Holdover from medieval times • Lease is not freehold

6. 4 Types of Leases • Term of Years • E.g. Lease for 1 year. • Any lease with fixed term • Termination determined by calendar, not event or condition • Can be less than a year • Periodic tenancy • E.g. Month-to-month lease • Lease automatically renews unless Landlord or tenant gives notice • Notice means that lease terminates at the end of next full period • Unless period is year or longer, in which case 6 months notice • But lease must not end before period agreed in lease. • Tenancy at will • Either L or T can terminate at any time • Statutes now require notice • Which make tenancy at will nearly similar to month-to-month • Catch-all category, if lease does not fit into other categories • Tenancy at sufferance • If lease expires and tenant stays on AND landlord accepts rent • Periodic tenancy at length/period of original lease • Or at period at which rent due

7. Lease Classification Problems • 1. L and T sign an agreement that reads, “The term is one year, beginning September 1.” • 2. L and T sign a lease that reads, “This agreement lasts as long as the parties consent.” • 3. L and T sign an agreement that reads, “The lease will run from September 1 until the following August 31. One thousand dollars payable on the first of every month.” • 4. L and T enter a lease that reads in relevant part, “the rent is $48,000 per year, payable $4,000 on the first of each month.” • 5. L and T enter a lease that reads, “the rent is $1,000 per month.” • 6. L and T enter a lease that reads, “the rent is $1,000 per month and lasts until the tenant completes medical school.” • 7. L and T are negotiating on the phone over an apartment lease. At the end of the conversation L says, “Have we got a deal? Five years lease with rent at $10,000 a year?” T replies, “Great. I accept. It’s a deal.” • If you have a lease, read your lease and determine what kind of leasehold you have? Quote the relevant language in your answer. If you do not have a lease, read the California Association of Realtors lease and classify the kind (or kinds) or leasehold in that document

8. Tenancy at Sufferance Problems • 1. The landlord’s options. Under what circumstances should a landlord move to evict a tenant who holds over? Are there any scenarios where a landlord might want to keep a tenant who has already proven themselves untrustworthy by staying past the agreed-upon term? • 2. How can landlords draft leases to better protect themselves from the threat of holdovers? • 3. Seven years ago, Tommy Hillclimber leased a commercial building on a busy street from Lisa. The lease was for a five-year term with annual rent of $100,000. At the end of the term, Tommy retained possession of the building but continued to make rent payments. Lisa has cashed all of Tommy’s rent checks. Last week, Sprawl-Mart contacted Lisa and offered to rent the building for $200,000 a year. Lisa quickly sent notice to Tommy stating that the lease will terminate in 30 days. Does Tommy have to vacate?

9. Delivering Possession • What is landlord required to do by lease? • English Rule • Landlord must deliver possession • If landlord does not delivery possession • Tenant can terminate void lease and collect damages • Tenant can wait, accept possession when available • Abate (pro-rate) rent • Collect damages for delay • Now rule in most US states, including California • American Rule • Landlord must deliver rightto possession • If tenant cannot take possession because of wrongful occupant • Tenant’s only remedy is to sue occupant • Tenant can only sue landlord if occupant had right to continue to occupy • Rule adopted by Virginia in Hannan v. Dusch

10. Q’s on Delivering Possession • Do you think the court in Hannan v Dusch reached the correct decision? If you were deciding a similar case today, would you choose the English or American rule? Would you make your preferred rule mandatory, or would you allow the parties to vary it by contract? • If you were drafting a lease for a landlord, what language would your include addressing the issue in Hannan v. Dusch? • Does your lease address the issue in Hannan v Dusch? Does it choose the English rule? The American rule? Or something different? Quote the relevant language. If you do not have a lease, answer this question for the California Association of Realtors lease.

11. Assignment & Sublease • Sometimes tenant does not want to occupy premises for full term of lease • 4 possibilities • Breach lease -- pay damages and/or unpaid rent (L duty to mitigate?) • Negotiate with landlord • Assignment • Assignee gets all rights and duties of assignor • Sublease • Sublessee gets less than sublettor has (e.g. shorter term) • Assignment and sublease do NOT release original tenant from obligation to landlord • But landlord can sue assignee (but not sublessee) • Assignor is secondarily liable • Liable as surety, if assignee does not pay • If assignor pays, then can sue assignee • Landlord can sue persons in privity of contract or in privity of estate • Privity of contract – person with whom directly contracted • Unless lease or assignment says “new tenant assumes obligations & duties…” • Privity of estate – original tenant (if no assignment), or assignee • NOT sublessee

12. Assignment & Sublease Problems • 1. Landlord leases property to T1 from January 1, 2015 to December 31, 2015. On March 1, T1 sold T2 her remaining interest in the property. On October 1, T2 rented the property to T3 for two months. Describe the privity relationships between all of the parties. If T3 stops sending rent payments to Landlord, whom can the Landlord sue to recover the money? • 2. Alger, a landlord, rents a commercial building to Brown for 5 years. Six months into the lease, Brown subleases his interest to Clancy for 3 years. Clancy then turns around and assigns his interest to Dahl. Describe the privity relationships between all of the parties. If Dahl stops sending rent checks to Alger, whom can Alger sue to recover the money. • 3. Picasso, a landlord, rents an apartment to Renoir for one year. The lease contains a provision allowing the tenant to renew the leasehold for a second year on the same terms. Renoir assigns his interest in the lease to Seurat. Seurat then assigns his interest to Turner. What are the privity relationships between the parties? Can Turner exercise the renewal clause in the original lease? • 4. Landlord leases a unit to T1 for ten years beginning in 2010. In 2012, T1 transfers all of his right to T2 “for a period of five” years. In 2013, T2 subleases to T3 for one year. What are the privity relationships and whom can the landlord sue if T3 stops paying rent?

13. Assignment & Sublease Problems • 5. L leases a commercial property to T1 for ten years beginning in 2010. In 2012, T1 assigns all of her interest to T2. A year later, T2 assigns all of her interest to T3. In 2014, T3 subleases to T4 for a term of four years. In the sublease contract, T4 agrees to assume “all of the covenants and promises” in the original lease between L and T1. In 2015, T4’s business fails and she ceases making paying rent. What are the privity relationships? Whom can L sue to recover the unpaid rent money?

14. Consent to Assign or Sublease • Many leases forbid assignment or sublease • Or allow only with consent of landlord • Julian v Christopher • If lease requires landlord’s consent to assign or sublease, landlord can only refuse consent if refusal is reasonable • California follows Julian • Some states enforce clause in which Landlord reserves the absolute right to deny any request for any and all reasons at his sole and absolute discretion • Restate 2nd enforces, if provision “freely negotiated” • Some states refuse to allow landlords to forbid assignment or sublease • Does your lease allow assignment and/or subletting? With or without consent of the landlord? Quote the relevant language. If you do not have a lease, answer this question for the California Association of Realtors lease. • Do you think the court in Julian v. Christopher reached the correct decision? Why would a landlord want the right to withhold consent arbitrarily and unreasonably?

15. Consent to Assign or Sublease • Last year, X rented a storefront in a local strip mall and opened a successful coffee shop. The lease … includes the following provision: “No assignments or subleases without the landlord’s consent. Landlord can only deny consent based on commercially reasonable objections.” … Must the Landlord consent to the following assignment proposals?  • Alfred plans to open a mattress store. He’s a college dropout with no business experience but his rich father will co-sign the lease and guarantee all payments get made on time. • Bob, an experienced therapist with good credit, wants to open a marriage counseling practice targeted at same-sex couples. The landlord, however, believes same-sex marriage is immoral and worries that the counseling center will hurt the business of a Christian bookstore in the strip mall. • Cathy has a well-thought out plan to open a shooting range. The Landlord agrees to the assignment on the condition that Cathy increase the rent payment by $100/month. Cathy refuses.