Fundamentals of Lease Agreements
A lease agreement is a contract between a landlord or landowner and a tenant. Most commercial landlords draft their own lease agreements, however, some residential landlords purchase them from real estate supply stores or online vendors. A lease agreement typically has the following components:
- The parties identified in the agreement. The parties will typically be the landlord and the tenant who resides in the property. If there are other co-tenants, they should also be identified. If the property is jointly owned by two or more individuals , those owners should all be named.
- The premises are described in detail. Some leases include a legal description and a metes and bounds description.
- Lease term. The lease term is the date it begins and the date it ends. Most residential leases are month to month or one year leases. Commercial leases may also be month to month, or the term may be for several years.
- Rent amount and due dates are set forth in the lease agreement. Rent may be paid on the first of the month or the fifteenth of the month or any other day the landlord chooses.
- Maintenance responsibilities will typically be spelled out in the lease agreement and include things like landscaping and pool maintenance among others.
Conditions for Making Changes in a Lease
The law provides, in relevant part, that a lease will expire at the end of the term unless renewed. Where a lease does not provide for renewal, in order for a landlord to change the terms, or modify a lease, he/she must offer the tenant a new lease. Failure to offer a new lease will result in any changes to the lease being unenforceable. In the first and most common situation, the expiration of a lease, a lease can be modified only in the following manner: (1) landlord can propose a new lease or extension of the existing lease to the tenant who has the right to accept or reject; (2) if tenant rejects or fails to respond, landlord may bring suit for possession based upon actual expiration of the lease term. In the second situation, a landlord/tenant relationship continues after a lease term has expired and no new lease has been established, the relationship is now a month-to-month leasehold as at common law. Either party can terminate this relationship through written notice. However, the law provides that when a written month-to-month lease is in effect at the time of the commencement of a new lease, the new lease cannot terminate the existing month-to-month lease until the expiration of the term for which the rent has been paid. The only legal restriction placed upon landlords in proposing a new lease is that in many states any modification of a lease will be unenforceable if not in writing and signed by both parties.
Tenant’s Permission of Lease Changes
If a lease agreement has been modified by the addition of terms, and if the modifications were made in writing and properly signed by the parties to the lease, then as a general rule the modification will be considered binding on the parties, provided that the modification is valid. An especially significant exception would be if the modification results in a lease term length of more than 12 months without an appropriate written rescission or a substitute written acknowledgment of the lease relationship. If no written agreement exists, the tenant can refuse the proposed changes.
A tenant can reject proposed modifications to the end of their lease relationship. For example, if a party proposes to change a term in an existing lease that will be in effect for another year and the term is not one of the parties’ respective obligations, then the landlord may not change the agreement without breach of contract. If a party insists that a provision be included that is different from the existing standard in all subsequent agreement, then that new provision will constitute a material change in the agreement, and therefore the tenant may return and renegotiate the contract regardless of their past acceptance of the provision.
Most Common Lease Changes
Changes in a lease agreement can take many forms. Some of the more common lease amendment changes that landlords make include:
Changes to Rent
The most common reason for requesting a lease modification is rent increase. A landlord may want to consider rent adjustments when the tenant is using significantly more water as part of their business, such as with laundromats or car washes. It would also be fair to raise the rent after a significant period of time without an increase, or to increase the rents after the property has been improved.
Policy Revisions
Another common lease modification request stems from a change in policies. For example, say a landlord wants to implement a no-smoking policy throughout the property. The rent may stay the same, but a new lease agreement revision will clarify how and when tenants can smoke. The new lease can also include the repercussions if the tenant is non-compliant with this new smoking policy.
Changes in Business Operations
There may also be times when a tenant wants to make changes to their own business operations that require a modification to the lease agreement. When a tenant revamps their business model, it could mean changes to how they occupy the premises. For instance, retail stores have changed their use of space with the growth of e-commerce. With more online sales comes more need for warehousing and less need for store fronts, so a tenant leasing a brick-and-mortar location may want to adjust their shipping and receiving privileges.
Procedure for Revising a Lease Agreement
Mistakes can also occur when the agreement was not written by the landlord and real estate attorney who will later attempt to enforce it. In these cases, mistakes are more likely to be factual inaccuracies rather than wording that is legally objectionable. When a landlord finds himself or herself in this situation, the legal remedy is to make amendments after the lease has been signed, because he never intended to agree to the language in the fully executed agreement. Just as a tenant has to agree to modify a written lease agreement, so does a landlord. In most states, courts will not look favorably upon a landlord attempting to change the terms of a lease solely on the basis of having apparently made a mistake. Since a landlord will be required to prove that he or she chose a particular lease clause as a result of non-negligent oversight, it will be necessary that the landlord first identify the purchase of the lease that is in error, and then show how terms were to be different. After gathering evidence and proof of the error in the lease, the landlord would then send a modification to the lessee that also lays out the reason to the change that is being made. This would require additional proof in order to explain the lease to the tenant in a clear manner . The amendment should then be signed by the tenant and sent to the landlord for signature, prior to being returned to the tenant. Underscoring the need for a lease attorney to review any rental documents is the fact that some modifications—which can include changes to monthly rent, late fees, pet policies, or other areas of the lease—may need to be stamped with a government-required notice. For example, there may be a statement that the landlord is allowed to enter property to make necessary repairs, or to collect certain data on the unit for insurance purposes. These notices will need to be handwritten onto every lease that is modified, and can have a significant impact on a lawsuit if omitted. Abbreviated agreements or agreements lacking certain provisions, especially those not typically seen in a residential lease, may be in violation of state law. Many state laws will require a complete document for a enforceable lease, and amendments will not be enough to make up for missing clauses. Modifying an agreement is not the same as opting to have a new written lease drafted and signed. If a landlord wishes to incorporate any of the invalid clauses into a new, state-compliant agreement, he or she will have to enter into a new, state-compliant agreement—not a modification, which is done when a lease is legally and appropriately signed by both parties for an enforceable contract.
Consequences if Changes are Made Unilaterally
If a landlord does not obtain a tenant’s approval to an amendment to the Lease, or chooses to implement unilaterally changes to the Lease, the tenant is well advised to object to the change and supplement the following:
• date of the proposed change
• lease provision being modified or removed
• if modification of lease term, the new term
• if modification of use allowance, the use and any other allowed uses
• if removal of a right of first refusal or purchase, a date by which to respond to offer
• if modification of maintenance responsibility, the new divided responsibility between
tenant and landlord
• if replacement of landlord due to foreclosure sale, date upon which tenant must pay rents
to new owner
• if removal of a right of first offer for purchase of landlord’s interest, a new date by which
to respond to a request for purchase
• if cancellation of an easement, services to be provided in lieu of cancellation (if any)
• if ability to assign Lease, description of the tenants interests being encumbered.
Failure to obtain a tenant’s approval may subject the landlord to liability and the loss of a profitable rental.
The Rights of the Tenant
In addition to the aforementioned remedies, a tenant has several different avenues available when seeking protection from an improperly executed modification of a lease agreement. At a minimum, the validity of a proposed lease change should be documented in writing to ensure that the information is available for evidence purposes. Further, given the profound nature of the subject matter and the various potential avenues for liability, obtaining legal advice from a qualified attorney is desirable in order to, among other things, fully understand procedural and substantive rights, and how these rights are impacted by the specific circumstances surrounding a proposal for a lease change.
Final Thoughts: Striking a Balance
As with most issues in the landlord-tenant relationship, the goal should be a balance of rights and responsibilities under the relationship. New Jersey law has evolved and the statutes have supported tenants’ rights. The recent cases reflect that tenant protections should not lead to an unfair, subjective outcome for landlords. So, while tenant protections lead to a potential imbalance of rights and responsibilities, the law still maintains the right of a landlord to assert its rights under the lease upon proper notice. A landlord making change orders or modifying a lease agreement should issue proper tenant notices and maintain all of its documentation. This way , if the modifications are substantial and documentation shows that the landlord substantially modified the tenant’s expected use, the landlord can argue for a corresponding adjustment in the rents. If the landlord complies with its obligations under the lease and the law — the tenant should not have a basis to seek any remedies under the New Jersey Consumer Fraud Act or any other theory of recovery against the landlord — especially where the penalties under the CFA are so onerous. Unless there is gross negligence in performance of its obligations under the lease, a tenant almost never obtains CFA damages when seeking contract damages.