1234 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
D. INVERSE CONDEMNATION
Inverse condemnation occurs when a government takes private property without paying for it. This may be
V. Zoning and Government Regulations
Zoning laws control the speed and type of development within a municipality or other local government region by
regulating the use of property in different zones. This is a constitutional use of a municipality’s police powers as long as
it is rationally related to the community’s health, safety, or welfare.
A. PURPOSE AND SCOPE OF ZONING LAWS
Zoning laws encourage sustainable and organized development, and control growth. Among other things, zoning
ordinances classify land by permissible use as part of a comprehensive plan.
1. Permissible Uses of Land
Generally, municipalities divide land into districts according to present and future uses. The districts may be
divided into subdistricts (for example, a residential district may be siubdivided into areas for single-family
homes and areas for apartments). Types of permissible uses are—
• Residential. Here, buildings are constructed for human habitation.
• Commercial. This land is designated for business or government activities—stores, offices, hotels,
• Conservation. These districts are dedicated to soil and water conservation efforts.
2. Other Zoning Restrictions
Ordinances may dictate details such as the distance a residence must be from a property line, the aesthetics
B. EXCEPTIONS TO ZONING LAWS
1. Variances
A variance allows an exception to zoning rules (for example, a variance is required to build a garage closer to
a property line than otherwise permitted). But a hardship cannot be self-created (that is, a party cannot buy
2. Special-Use Permits
3. Special Incentives
Special incentives (tax credits or lower tax rates) can encourage certain uses (new businesses or
preservation of historical homes) or support environmental goals (energy efficient buildings).
VI. Landlord-Tenant Relationships
The temporary nature of possession distinguishes a tenant from a purchaser. The exclusivity of possession
distinguishes a tenant from a licensee.
A. CREATING THE LANDLORD-TENANT RELATIONSHIP
ENHANCING YOUR LECTURE—
HOW TO NEGOTIATE
A FAVORABLE BUSINESS LEASE
Generally, an entrepreneur starting a business is well advised to lease rather than buy property because the future
success of the business is uncertain. By leasing instead of purchasing property, persons just starting out in business
allow themselves some time to determine whether business profits will warrant the outright purchase of property.
FACTORS TO CONSIDER
One thing to keep in mind when leasing property is that lease contracts are usually form contracts that favor the
landlord. Thus, as a prospective tenant, you need to think about negotiating terms more favorable to you. Before
negotiating the terms of the lease, do some comparison shopping to find out the rent for other similar properties in the
determine, to a great extent, the location of the leased premises. If you are involved in a mail-order business, for
NEGOTIATING LEASE TERMS
When negotiating a lease, you must also determine who will pay the property taxes, insurance premiums, and
utility bills and who will be responsible for repairs to the property. These terms are generally negotiable, and
CHECKLIST FOR THE LESSEE OF BUSINESS PROPERTY
1. When you are starting a business, leasing can be beneficial because it reduces your liability in the event that your
business is unsuccessful.
2. Realize that although lease contracts normally favor the landlord, you usually can negotiate advantageous terms
3. Make sure that the lease clearly indicates whether the landlord or the tenant is to be responsible for taxes on the
4. To protect yourself in the event your business is unsuccessful, start with a short-term initial lease, perhaps with an
option to renew the lease in the future.
B. PARTIES’ RIGHTS AND DUTIES
1. Possession
A landlord is obligated to give a tenant possession of the property at the beginning of the lease term, and
the tenant has the right to retain possession until the lease expires.
2. Use and Maintenance of the Premises
Generally, a tenant may use leased property in any manner within the terms of the lease (which impliedly
includes uses that are legal, that reasonably relate to the ordinary use of the property, and that do not harm
the landlord’s interest). The tenant is responsible for damages, but not ordinary wear and tear. The
landlord must comply with local building codes, which sometimes require that property be maintained in
underfunded, and received little support from politicians. Inspectors’ salaries were often low, giving rise to corruption.
Landlords found it easy to obtain variances on the basis of political considerations, and public prosecutors did not
enforce the codes vigorously.
In the first decades of the twentieth century, Iowa, Connecticut, and New York adopted legislation authorizing
tenants to withhold rent if their landlords failed to correct housing code violations that made the property
ADDITIONAL BACKGROUND—
Uniform Residential Landlord and Tenant Act
In an effort to create more uniformity in the law governing landlord-tenant relationships, the National Conference
of Commissioners on Uniform State Laws published the Uniform Residential Landlord and Tenant Act (URLTA) in final
form in 1972. Of particular interest are the URLTA provisions dealing with the duties of landlords to maintain premises
leased for residential use. URLTA Section 2.104, for example, requires landlords to comply with local building and
housing codes relating to issues of health and safety and to make any necessary repairs so as to maintain the
3. Implied Warranty of Habitability
Generally, a landlord must furnish premises in a habitable condition at the beginning of the term and
maintain them in that condition for the duration.
and (5) whether the defect contravenes applicable housing, building, or sanitation statutes.
4. Rent
Generally, a tenant must pay the rent even if he or she refuses to occupy the property or moves out, as long
as the refusal or the move is unjustifiable and the lease is in force. This responsibility ends if, for example,
the building burns down. The text points out that a tenant may withhold rent if the warranty of habitability
is violated and explains how this is done and how much may be withheld.
ADDITIONAL BACKGROUND
Rent Default and Notice Provisions
The rights and obligations of landlords and tenants concerning the payment of rent are discussed in the text. In
Rockstad v. Global Finance & Investment Co., 41 P.3d 583 (Alaska 2002), the Alaska Supreme Court interpreted rent-
payment default and notice provisions in a commercial lease.
Plaza Mall in Fairbanks, Alaska. Rockstad leases space in Washington Plaza from Global Finance and Investment Co.,
business hours ended at 5:00 P.M. DeWitt commonly accepted Rockstad’s rent payments up to ten days after the first
of the month.
In August 1999, Rockstad failed to make a timely payment. Global sent him notice of the deficiency, but it was
more than ten days before he paid the overdue amount. The next month, Rockstad went to DeWitt’s office to pay the
rent on September 10, a Friday, at approximately 5:10 P.M. Over the weekend, Rockstad left a message for DeWitt,
explaining that he had tried to pay the rent. On Monday, DeWitt told Rockstad that Global refused the late payment
and sent him a notice to vacate.
He refused. Global filed a suit in an Alaska state court against Rockstad to evict him and to collect the unpaid rent.
The court concluded that Rockstad was in default under the lease but that the breach was not material, and declined to
evict him if he paid the back rent, with interest and costs. Rockstad appealed to the Alaska Supreme Court.
payment somewhat more harshly. In describing a renewed default as the commission of ‘any default described above a
second time’ without mentioning a second opportunity for cure, subsection15.4 seems to announce an intent not to
leave the second default open to cure after it has arisen. Thus, the renewed-default provision can plausibly be read as
empowering the landlord to declare a default without having to afford the tenant the luxury of a subsequent right to
cure.
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second default. Requiring the landlord to give written notice of the second default has no obvious effect on that
“In summary, interpreting subsection 15.4 to require that a second default be preceded by written notice is
textually plausible; it arguably effectuates the reasonable expectations of the contracting parties; and it renders none
of the disputed lease provisions superfluous. This interpretation also resolves subsection 15.4’s ambiguity in a way that
favors continuing the lease and that disfavors the lessor and drafting party, Global. Accordingly, we conclude that this
Highways, 562 P.2d 1042 (Alaska 1977).
elements of a subsection 15.2 default, failure to pay on time and written notice of such failure. There are [two]
interrelated problems with so defining a renewed default under subsection 15.4.
“The first is that it is not related to either the actual or the objectively measured expectations of the parties.
Neither party contends that it intended or expected that ‘default’ in subsection 15.4 would mean ‘failure to pay on
time combined with written notice of such failure.’ Nor do the rules and standards in aid of interpretation of
1240 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
Notes and Questions
1977). Have students find and read the Wessells case and explain how the legal principles expressed in that case apply
to the facts and issues of the Rockstad case.
2. Ask students, what is the basis for the disagreement between the majority and the dissent in the Rockstad case?
What are the conclusions and supporting arguments for each position?
3. An ethics-based question for students is whether the relative sizes of the businesses in a case such as Rockstad
4. How is the holding in this case of interest to landlords who want their tenants to make timely payments of rent?
5. Transferring Rights to Leased Property
A landlord can sell, give away, or otherwise transfer his or her real property just like any other real property
6. Termination of the Lease
• A lease terminates if its term ends (notice is not normally required).
• A tenant may be given the opportunity to buy the leased property. The transfer is a release, and the
tenant’s interest in the property merges into the title to the property. A release is subject to the
Statute of Frauds and must be in writing.
• The parties may agree to end a tenancy before it would otherwise terminate. The surrender may have
to be in writing, unless it is by operation of law, which may occur if a tenant abandons the property.
• A landlord may treat a tenant’s moving off the premises completely with no intention of returning
before the end of term as an offer of surrender, and retake possession. Acting to mitigate the damages
may be interpreted as accepting an offer of surrender.
TEACHING SUGGESTIONS
1. Obtain copies of a standard real-estate sales contract and ask students to discuss whether the apportionment of
could be improved and whether the buyer or seller should be better protected. The same activity could be repeated
with a lease.
2. Bring in an actual survey of a parcel of land and show the class how the drawing itself is supposed to track the
courses and distances given in the legal description.
4. Ask students who rent apartments to bring in copies of their leases and discuss the extent to which these leases
make reference to the significant rights, duties and liabilities of the landlord and tenant discussed in this chapter.
Discuss the extent to which the leases can be considered overreaching or unconscionable. How might these leases be
modified so as to correct this problem?
5. Probably few students are landlords or are even familiar with a landlord’s situation. To round out and fill in the
6. Ask students whether they own any property as joint tenants, tenants in common, etc., and whether they have
found any particular advantages or disadvantages to be associated with such property ownership.
7. In relation to concurrent ownership, you might explain to students that at common law, unless a clear intention to
create a tenancy in common was shown, there was a presumption that any co-tenancy was a joint tenancy. Modern
statutes, however, reverse this presumption. Most statutes now presume that a co-tenancy is a tenancy in common
unless there is a clear intention to establish a joint tenancy. Thus, language such as “to Adam and Eva as joint tenants
with right of survivorship, and not as tenants in common” is often necessary to create a joint tenancy.
Cyberlaw Link
If the filing of documents under recording statutes is done online, rather than by taking papers to a government
office, what effects might this have in contests over title to property? How might the Internet affect the principles of
landlord-tenant law? Will it make it easier for a landlord to mitigate his or her damages when a tenant abandons rental
property? Will leases become more uniform because basic forms will be available? Will leases tend to favor tenants as
the availability of rental property is more widely publicized?
DISCUSSION QUESTIONS
1. What is a fee simple absolute? The holder of a fee simple absolute possesses the greatest possible aggregation of rights in
2. What is the difference between a tenancy in common and a joint tenancy? A tenancy in common is a form of co-
3. What is the difference between an easement and a profit? An easement is the right of a person to make limited use of
4. How does a license differ from an easement? A license is the right of a person to come onto another person’s land. It is a
5. What conditions must be satisfied before a person can acquire property by adverse possession? For property to be
6. How might the doctrine of unconscionability affect the validity of leases? A court may declare an entire lease or any of its
7. What is a retaliatory eviction? A retaliatory eviction occurs when a landlord evicts a tenant for complaining to a
8. When may a tenant withhold the payment of rent? The withholding of rental payments is a remedy that is generally
9. What is a landlord’s lien and how may it be exercised? Under the common law, the landlord could take and keep or sell
10. What is the difference between an assignment of a lease and a sublease? The tenant’s transfer of his or her entire interest
1244 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
ACTIVITY AND RESEARCH ASSIGNMENTS
1. Ask students to call local banks and find out all the costs that are involved in closing a residential real estate transaction as
well as those costs necessary for obtaining a home loan. How much money in excess of the amount of the loan and down
payment is actually required to buy a home?
3. Have the class attend a meeting of the local zoning commission to observe and report firsthand on the way in which
requests for variances and other zoning matters are dealt with locally.
EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT
Footnote 5: Matthew Humphrey paid $44,000 for a home in Louisiana and partially renovated it. He replaced rotten
wood beneath a window, leveled the porch, painted the interior, replaced sheetrock, tore out a wall, replaced a window, dug up
eighty feet of field line for the septic system, and pumped out the septic tank. Terry and Tabitha Whitehead bought the house
for $67,000. Problems developed with the air-conditioning, the fireplace, the bathrooms’ plumbing, and rotten wood in the
bathroom and porch. They filed a suit in a Louisiana state court against Humphrey, seeking to rescind the sale. The court
awarded the plaintiffs costs relating to the fireplace ($1,675) and the bad wood ($7,695). They appealed. In Whitehead v.
Humphrey, a state intermediate appellate court affirmed. Rescission was not warranted for the sewer problems because the
With respect to the sewer problem, should the court have crafted an intermediate remedy—something between
complete rescission and absolving the seller of all liability? It seems equitable, considering the estimated price to fix the damage
and prevent its recurrence, that both parties might split the cost. The court fairly applied the law that governed this case,
however (the limitations period), and it seems unfair to come to the seller outside that law and order him to pay when he would
not otherwise be liable.
In Louisiana, a seller who knows of a defect and does not inform a buyer can be liable for the buyer’s attorney’s fees in
a suit based on that defect. Did Humphrey qualify as such a “bad faith” seller in this case? Explain. Yes. The Whiteheads argued
that “Humphrey was a seller who knew of the existence of the defect, plac[ing] him in the category of the so-called bad faith
seller entitling them to attorney’s fees.” The court agreed. “[T]he trial court expressly addressed and decided the factual issue of
Humphrey’s knowledge of the rotten sills upon which hinge . . . the enhanced remedies against the bad faith seller. Once that
factual determination was made, the remedy of the award of attorney’s fees against the so-called bad faith seller . . . was the
CHAPTER 50: REAL PROPERTY AND LANDLORD-TENANT RELATIONSHIPS 1245
just, legal and proper remedy . . . . [W]e will award the minimum for attorney’s fees for the trial of this case in the amount of
$2,500.”
Footnote 7: Water flows through a ditch from Oyster Lake in Walton County, Florida, into the Gulf of Mexico. To
prevent the water from overflowing onto private property, the outflow was stabilized with the help of the Florida Department
of Environmental Regulation. This made the land available for development. William and Patricia Hemby bought it. When
Suppose that instead of Walton County’s diversion of Oyster Lake’s rising water, Hurricane Opal had flooded the
Hembys’ property. Would the result in this case have been the same? Explain. The result in this case would have been different
if Hurricane Opal had flooded the Hembry’s land, without Walton County’s action. In those circumstances, the county could not
have been liable on the theory of a taking for the loss of the owners’ beneficial enjoyment of their property.
Could Walton County have successfully argued that Hurricane Opal flooded the Hembys’ property? No. Hurricane Opal
did not flood the Hembys’ property. The county’s action in response to the hurricane caused the flooding. Of course, the result
in this case might have been different if the hurricane had flooded the land, without the county’s action
ANSWERS TO ESSAY QUESTIONS IN
STUDY GUIDE TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
BY HOLLOWELL & MILLER
1. Describe the nature of the power of eminent domain and the process by which private property is condemned for a public
purpose. The state has the power to take property for public use or purpose without the consent of the owner. This is the
power of eminent domain and it is a very important attribute for the public control of land-use. Every property owner holds his
or her interest in land subject to a superior interest. In the United States, the government retains an ultimate ownership right in
2. What does the implied warranty of habitability require, and when does it apply? The implied warranty of habitability
requires that a landlord who leases residential property furnish premises in a habitable condition—that is, in a condition that is
1246 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
safe and suitable for people to live in—at the beginning of a lease term and to maintain them in that condition for the lease’s
duration. Some state legislatures have enacted this warranty into law. In other jurisdictions, courts have based this warranty
on the existence of a landlord’s statutory duty to repair or have simply applied it as a matter of public policy. Generally, this
warranty applies to major—or substantial—physical defects that the landlord knows or should know about and has had a rea-
sonable time to repair—for example, a big hole in the roof. In deciding whether a defect is sufficiently substantial to be in
REVIEWING—
REAL PROPERTY AND LANDLORD-TENANT LAW
Vern Shoepke purchased a two-story home from Walter and Eliza Bruster on in the town of Roche, Maine. The
warranty deed did not specify what covenants would be included in the conveyance. The property was adjacent to a
public park that included a popular Frisbee golf course. (Frisbee golf is a sport similar to golf but using Frisbees.)
Wayakichi Creek ran along the north end of the park and along Shoepke’s property as part of a two-mile public trail
system. The deed allowed Roche citizens the right to walk across a five-foot-wide section of the lot beside Wayakichi
Creek. Teenagers regularly threw Frisbee golf discs from the walking path behind Shoepke’s property over his yard to
1. What is the term for the right of Roche citizens to walk across Shoepke’s land on the trail? Here, the right
2. What covenants would most courts infer were included in the warranty deed that was used in the property
transfer from the Brusters to Shoepke? A warranty deed conveys the most covenants, or promises of any other deed.
3. Suppose that Shoepke wants to file a trespass lawsuit against some teenagers who continually throw Frisbees over
his land. Shoepke discovers, however, that when the city put in the Frisbee golf course, the neighborhood homeowners
signed an agreement that limited their right to complain about errant Frisbees. What is this type of promise or
agreement called in real property law? A promise between a group of landowners protecting the interests of
4. Can Shoepke hold Slater financially responsible for the damage to the carpeting caused by Indalecio? Why or why
not? When Slater sublet the apartment, she remained liable under the lease agreement. If a subtenant fails to pay the
rent or causes damage to the premises, the landlord can still hold the original tenant financially responsible for the rent
payments or cost of repairing the damage. Hence, Slater can be held liable for the damage Indalecio caused (beyond
ordinary wear and tear).
DEBATE THIS:
Under no circumstances should a local government be able to condemn property in order to sell it later to real
estate developers for private use. The Constitution’s Fifth Amendment is clear about giving the power of
condemnation to government. Such power can only be used to take private property for public use (and with
appropriate compensation, of course). When a local government uses this taking power to condemn property that it
later sells to private developers for a shopping mall development or nicer houses and apartments, that government is
acting in violation of our Constitution.
ANSWERS TO QUESTIONS—
SPECIAL CASE ANALYSIS
Case No. 50.3
Kelo v. City of New London, Connecticut
Supreme Court of the United States, 2005.
545 U.S. 469,
125 S.Ct. 2655,
162 L.Ed.2d 439.
(a) Issue: On what issue did the Court focus? The main issue in this case was whether the power of eminent domain
can be used to further economic development. Property owners whose homes a city was attempting to take by
eminent domain for a redevelopment project challenged the condemnation of their property for a private economic
development. The state courts to which these parties appealed upheld this use of the power of eminent domain.
1248 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
(c) Applying the Rule of Law: How did the Court apply the rule of law to the facts of this case? The Court explained the
governing rule, discussed how it had been applied in previous cases, reviewed the circumstances of this case, and set
out the reasons for its conclusion. The Court reviewed the principle underlying the plaintiffs’ challenge to the city’s
action and briefly explained how and why the rule had changed from “long ago.” The Court also noted that the
condemnations were part of a comprehensive plan to help a “distressed municipality” economically.
(d) Conclusion: What was the Court’s conclusion? The Court concluded that the power of eminent domain can be used