Leases: Creating the Tenancy

Long ago, leases were considered a conveyance. Tenants would be given a “leasehold” for a certain period of time where they had the right to exclusive use of the property. The landlord would then hold a reversion. However, over time this concept changed to be viewed more as a contract, rather than a conveyance.

Selecting the Tenant

Traditionally, landlords had exclusive right to determine who they could issue a lease to. However, legislation has limited this right. For instance, landlords are not allowed to refuse a lease to an individual because of discrimination of race, religion, sex, family status, handicap status, etc. (See the Fair Housing Act of 1968).

But how do you prove the landlord discriminated against you when refusing to offer a lease? See below:

Neithamer v. Brenneman Property Services, Inc.

81 F. Supp. 2d 1 (D.C. 1999).

Brenneman is the defendant seeking summary judgment before trial. These proceedings determine whether the case will be heard by a jury.

Question

How does the plaintiff show there was discrimination in refusing tenancy?

Rule

Burden-shifting rule. The plaintiff must first establish a prima facie case by showing:

1. Member of a protected class,
2. Applied and was qualified to rent,
3. The application was rejected,
4. The property remained available.

If the plaintiff shows this is the case, then the defendant must show that they had a good reason to reject the case. Then the burden shifts back to the plaintiff to show that the reason provided by the defendant was in pretext (fake reason).

Holding

There is enough evidence to support a prima facie case, the defendant provided a reason, and the plaintiff showed how that reason could be a pretext. Thus, summary judgment is denied; the case will be heard by a jury.

Facts

The plaintiff is a homosexual man with HIV looking to rent an apartment. When he found and liked this particular apartment, he presented several documents. His credit report was poor, but he told the agent that it was due to a medical emergency, to pay the bills of a lover who died of AIDS. He stated that since then, he was in good financial standing and produced other records to prove it.

The agent took the application to the owner who denied the application and several other offers made by the defendant (pay for an additional month, have a co-signer, pay for the whole year in advance). The plaintiff then sued for discrimination against his sexual orientation status and for perceived disability (HIV).

Analysis

Because it can be so hard for a plaintiff to show any direct evidence of discrimination, there is a burden shifting test. That test is outlined in the rules above.

Here, the first and second elements of the test are disputed. For the first element (part of a protected class), the plaintiff had to show that the defendant perceived the plaintiff was part of that class. Here, there are enough clues to do so. The plaintiff had shown that he had a lover, who had died of AIDS. It would make sense that the plaintiff could also have been exposed to the virus.

For the second element, the defendant argues the plaintiff was not qualified because of his poor credit score. However, the plaintiff was able to show that he had the means to pay for rent.

With the burden shifting to the defendant, they argue that the plaintiff’s application was denied due to the poor credit score. If this was all the plaintiff had offered, then this may be a good reason. However, the plaintiff is able to show the reason may be in pretext because there were other documents in the possession of the defendant to show that the plaintiff could pay, and had allowed others to be tenants without a good credit score.

Additional Notes

The Fair Housing Act is codified as 42 U.S.C. § 3604. This act applied to the sell and rental of property. Unless there are certain exceptions (See 3603(b) and 3607), sellers and renters were not allowed to discriminate based on race, color, religion, sex, familial status, or national origin in refusing sell or rent, making terms, and advertising.

There is an exception to selling/renting, and making terms. However, these exceptions do not apply to advertising:

1. Rooms or units in dwellings containing living quarters occupied by no more than four families liming independently of each other,
2. Single-family house by an owner if he owners fewer than three houses and does not use a real estate.

In other words, we ask, “Do you live there? Do others live there with you?” If fewer than four others live there, owners are except. Additionally, we need to ask “How many properties do you own? Do you use an agent?” If fewer than three properties, the owners are exempt.

The exceptions here were written because the Fair Housing Act was done under the Congressional Commerce clause. As such, Congress does not have power to regulate small families that have no impact on interstate commerce.

Case Notes

Most of the time there will be no direct evidence to show that there was discrimination. So, this case focuses on how to prove there was discrimination without that direct evidence.

First, this property is subject to the FHA because the owner was using a real estate agent.

Because it is subject the act, the court then uses the burden shifting analysis to determine whether there was discrimination.

1. Plaintiff must show:
   1. They are a protected class and the defendant knew of that class (must provide sufficient “clues” to show the defendant was suspected the plaintiff’s class.).
      • Focus on his disability (HIV) rather than his sexual orientation because orientation is not protected by the FHA. 42 U.S.C. § 3602(b) defines what is a handicap.
   2. Qualified for the property
   3. Application was rejected
   4. Property remained available.
2. Defendant must show:
   1. There was a nondiscriminatory reason to reject the application
      • Extremely bad credit (no reasonable landlord would rent to him)
3. Plaintiff must show:
   1. The reason was pretext
      • The defendant did not follow the bad credit policy for others.

Fair Housing Council of San Fernando Valley v. Roommate.com, LLC.

666 F.3d 1216 (9th Cir. 2012).

Roommate is the defendant. A summary judgment and injunction was held against them for violating the Fair Housing Act. Roommate appeals.

Question

Does the anti-discrimination provision of the Fair Housing Act extend to roommates?

Rule

The FHA prevents discrimination for dwellings. A dwelling could be interpreted as either a shared family unit or a single-family unit. As such, if one interpretation violates a constitutional provision, then the court will adopt the approach of the other.

Holding

A dwelling should not extend to shared family units. Consequently, roommates can be selected by preferences without violating the FHA.

Facts

Roommate.com allows visitors to create an account by including personal information such as gender, sexual orientation, religious affiliation, hobbies, interests, lifestyles, etc. The goal then is to match potential roommates by allowing users to sort based on their preferences.

The Fair Housing Council sued Roommate saying this practice of sorting preferences was discriminatory in violation of the FHE.

Analysis

If the FHE extends to shared housing, then the defendants practice would be in violation. However, a dwelling could be interpreted as either a shared housing or a single-family unit. Because there are constitutional provisions (the right to associate and the right not to associate), the court leans heavily in favor of not allowing the law to enter inside the home.

Along with the constitutional provision are policy reasons for roommate selection. For instance, a woman may want to select a roommate with another woman because of privacy and security reasons. Additionally, roommates are often involved in the intimate details of everyday life having access to another’s person, belongings, and space. What one roommate does has an impact on the other roommate’s lifestyle. Thus, the FHE does not extend into the home.

Additional Notes

The reason why this case was in dispute was because of the definition of a “dwelling.” Reading the statute, it could be interpreted as applying to roommates and not applying to roommates.

As such, the court determined that a dwelling was an independent housing unit (coving the whole unit, kitchen, bathroom, etc. instead of selecting one part of a unit to be a dwelling). Thus, a room within a unit is not a dwelling. Because there is a constitutional provision of freedom to associate, or not associate, the court is averse to a broader approach.

It is important to note that the Civil Rights Act would still restrict racial discrimination.

Selecting the Estate

While ownership is a freehold estate, leases create non-freehold estates. There are four ways to create a tenancy estate:

1. Term of years tenancy
   • This is a lease that lasts for a specified period (e.g. 1 year, 5 years, or 10 years). At the end of the term the tenant’s possession automatically expires.
2. Periodic tenancy
   • This is a lease that is automatically renewed after the initial period has run (e.g. month-to-month). To terminate this lease, notice must be given at least a month in advance for month-to-month leases and at least six months in advance for year-to-year leases.
3. Tenancy at will
   • The lease will last indefinitely until one party terminates it. Either the tenant or the landlord can terminate the lease at will.
4. Tenancy at sufferance
   • This is considered a wrongful tenancy, where the expiration has run but the tenant has not left the premises. The landlord is then left with two options. First, they could evict the tenant (being a trespasser). Second, they could renew the tenant’s lease. Many jurisdictions have limited the ability for the second option.

Additional Notes

• “Rent is 12,000 per year, payable 1,000 each month.” Most jurisdictions will find this as a periodic tenancy for a year because of the “per year” language.

Notice the difference between a license and a lease. A license is a privilege for the individual to be in possession. However, a lease gives the tenant rights that are much more extensive than a license.

Effel v. Rosberg

360 S.W.3d 626 (Tex. Ct. App. 2012).

Effel is the defendant who lost in the trial court and appeals. This case focuses on whether parties can create leasehold estates outside of the tenancy options mentioned above.

Question

Does the lease create a life estate in the tenant? If not, what tenancy was created here?

Rule

When the term of a tenancy is not defined, the default is a tenancy at will.

Holding

Here, there was not a life estate. Additionally, this is a tenancy at will which was terminated by the plaintiff. Affirmed.

Facts

During a settlement agreement Rosberg obtained possession of the property in question. After doing so, he created a lease with the defendant that gave her tenancy for her life or until she vacated the premises.

Later, Rosberg learned that the defendant had built a fence on the property contrary to the lease. He sought to evict the tenant who resisted.

Thus, the defendant is arguing that this is a life estate (she would get to stay) and the defendant is arguing that this is a tenancy at will (she would be evicted).

Analysis

This is not a life estate. The settlement agreement did not reserve a life estate for the defendant (who did not sign the settlement agreement anyways). Instead, the defendant signed a lease agreement where she was permitted to stay for life or until she vacated the property. However, when the language of a tenancy is indefinite, it creates a tenancy at will. Thus, either party could terminate the agreement at any time (regardless of the intent within the language of the agreement).

Additional Notes

The question in this case is to determine what non freehold estate exists. Rosberg wants this to be a tenancy at will. Effel wanted a lease for life. So, there is a legal issue here because the language does not fit nicely into any of the non freehold estates.

The court argues that there is no life estate because the appellant had not signed the settlement agreement. There was no language in the deed where a life estate was reserved for the appellant.

Additionally, there is no law within the jurisdiction says a lease must either have a period of years or it will be a tenancy at will. In other words, a party cannot create a different kind of freehold estates. Why? Simplicity and unity of law.

Negotiating the Lease

There are three factors that limit the ability to negotiate a lease. First, the statute of frauds (must be in writing if the term could exceed a year). Second, standard forms (pre-prepared contracts ready for the tenant to sign after dealing with price and term). Third, rent control (regulations by states and cities that limit how much a landowner can charge for possession).

Delivering Possession

Who has the duty to deliver possession to the tenant? Does the tenant have to take possession, or does the landlord have to ensure that the space is ready to be possessed?

Keydata Corp. v. United States

504 F.2d 1115 (U.S. Ct. Claims 1974).

Keydata is the plaintiff. NASA, the government, is the defendant. Both filed a motion for summary judgment.

Question

What are the rights of a tenant to have the lease delivered to them?

Rule

When the lease is silent as to the mode of delivery (conveyance or physical delivery), then the landlord is required to deliver actual possession at the beginning of the term.

Holding

Actual possession here was required. Thus, summary judgment is granted in favor of the government.

Facts

NASA and Keydata are both tenants of Wyman. NASA needed more space and Keydata was looking to move. So, they worked out an agreement together for Keydata to leave and NASA to take over some of the computer space. Additionally NASA would pay for some of the equipment costs (Air conditioning) that Keydata had installed.

However, when NASA went to take possession, Keydata had not left. Thus, NASA terminated the lease because the premises were not available to them at the time the possessory period began.

Later, Keydata sued NASA for violating the lease and sought damage compensation for the money NASA promised they would pay for the equipment.

Analysis

Here, the lease was silent as to the mode of delivery. As such, the courts adopt the English rule for what to do. That is, the landlord must deliver actual possession to the leasee. There are several policy reasons for this rule. First, the landlord has a better idea of knowing when the holdover is going to leave and whether they have not left. Second, the landlord should know the status of the property. Third, the landlord is the only one who can properly evict a holdover. Finally, the tenant would not receive the full benefits of the contract if they bear the burden of possession.

Landowners could protect themselves though. They could write into the lease a disclaimer of obligation to deliver possession or have a security from the holdover on the promise that they will not hold over.

Finally, the courts are able to adopt this rule because this is a contract. Contracts with the federal government are to be governed by federal law, not state law.

Additional Notes

Here, the issue is what is the default rule for how to deliver. There are two approaches of what it means to deliver possession:

1. The American rule – Possession of a property will not be withheld, but there is no requirement for the landlord to deliver (simply give legal right). Recovery of damages would be against the holdover tenant, not the landlord.
2. The English rule – If the lease is silent on a requirement to deliver, then it is assumed that the landlord has to deliver. Recovery of damages would be against the landlord.

The reason why the rule matters is because it determines who has a duty. Here, the court adopts the English rule (and the rule outlined in the Restatement 2d of Property). Largely, the landlord has greater authority and resources to enforce lease terms and to protect the new tenant from damages.

On the other hand, the American rule is adopted by a lot of states. The main reason for this is because we want to protect the landlord liability for the wrongs of a third party (the holdover party).

Disclaimer

The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.