This page briefly introduces real property leasing. The discussion does not address leasing of personal property. The legal concept of leasing real property builds upon related legal concepts, especially property and contacts.

Lease: a contract in which one person (lessor or landowner) transfers to another person (lessee or tenant) temporary possession and use of real or personal property in exchange for something of value and a promise to return possession at a future time. See N.D.C.C. §47-16-01.

Most often, a lease presumably transfers to the tenant the rights to possess and use the real property for a relatively short period of time, anywhere from several weeks to several years. Many lease agreements also presume that the tenant will make minimal or no changes to the property, and when the landowner resumes possession of the property at the end of the lease, the land will be in the same condition it was in at the start of the lease. One arrangement that does not adhere to these basic assumptions about leasing is a ground lease.

Ground Lease: A long-term lease whereby a landowner conveys to a tenant the right to use undeveloped land; the tenant is allowed to develop and operate the land for the duration of the lease. Any improvements to the real property remaining at the termination of the lease will belong to the landowner; and unless agreed to otherwise, the landowner has no obligation to compensate the tenant for the improvement.

See Diocese of Bismarck Trust v. Ramada Inc., 553 N.W.2d 760 (N.D. 1996)

The FargoDome is an example of a ground lease. The State of North Dakota is the landowner; the City of Fargo is the tenant; the agreement is a long-term understanding (99 years) in which the tenant will construct and operate a relatively large facility throughout the lease and at the end of the lease, ownership of the building will transfer to the landowner. It is understood that during the lease, the tenant will continue to make changes to the land, such as build and maintain parking lots, remodel and expand the building, etc.

In a ground lease, it is understood that the tenant will make a major investment to develop the land; an investment that probably costs more than the value of the undeveloped, leased land.  It also is understood that the ownership of the developments (e.g., buildings and other improvements) will transfer to the landowner at the end of the lease without an obligation that the landowner compensate the tenant/developer.  For these reasons, ground leases often are long-term leases; the extended time is intended to provide the tenant an opportunity to recover the tenant's investment in developing the land. 

The explicit understanding in ground leases that the tenant will make a major investment in changing (developing) the leased land differs from traditional leases wherein the tenant is expected to make little or no change to the leased property. Even "agreed to" changes that will be made by the tenant are often relatively minor changes in most traditional leases.

 

Leasing: A combination of contract and property law; the law offers the parties considerable flexibility in specifying the terms of their lease agreement, yet states have enacted landlord-tenant law to

• resolve questions parties do not address in their agreement, and
• equalize the bargaining position of the parties.

  This second objective (equalize relative bargaining positions) deserves further comment. It is generally assumed that a person seeking to lease housing has less bargaining or negotiating power than the landowner because the tenant needs housing -- a basic human need. Based on this assumption, state legislatures have enacted landlord-tenant laws to "strike a balance." The system is not perfect. Some would argue that the landowners still have a significant advantage over someone needing a place to live; others would argue the legislatures have taken too much away from the landowners and given too much to the tenants.

  Irrespective of one's perspective on that particular policy question (that is, has the legislature struck an appropriate balance between landowners and tenants), the point that needs to be recognized is that legislatures have enacted considerable statutes to address issues in an area of law (leasing) that some would point out is generally resolved though private negotiations of a contract.

  Bottom line -- despite the fact that a lease is a contract to be negotiated between the private parties, a substantial amount of statutory law has been enacted to "strike a balance" in bargaining power as tenants seek to meet the basic human need of housing. Do not overlook this point as you continue to study the laws of leasing.

Types of leases

1. Lease for a term

• Definite inception and termination dates
  • N.D.C.C. §47-16-05. Lease of realty presumed for one year. A lease of real property, other than lodgings, in places where there is no usage on the subject, is presumed to be for one year from its commencement, unless otherwise expressed in the lease.
• Lease can be written or oral, but the Statute of Frauds requires that leases which will not be completed within one year from time of agreement must be in writing to be enforceable (unless an exception applies; see N.D.C.C. §9-06-04(3)).
• Maximum term for a lease (under North Dakota law):
  • 10 years for agricultural land
  • 99 years for all other leases
  • N.D.C.C. §47-16-02 No lease or grant of agricultural land reserving any rent or service of any kind for a longer period than ten years shall be valid. No lease or grant of any city lot reserving any rent or service of any kind for a longer period than ninety-nine years shall be valid.
• A lease can be renewed as often as the parties desire.

2. Periodic Tenancy

• A lease that continues for successive periods of time unless one of the parties terminates the agreement.
• There is no limit to how many times a lease can renew.

• The lease automatically renews at same terms as the original lease, EXCEPT for no more than 1 year.
  • N.D.C.C. §47-16-06. When a lease is presumed renewed. If a lessee of real property remains in possession thereof after the expiration of the hiring and the lessor accepts rent from the lessee, the parties are presumed to have renewed the hiring on the same terms and for the same time, not exceeding one year.
• Notice to terminate must be given 30 days before expiration of current term, otherwise the lease will renew.
  • N.D.C.C. §47-16-15 Notice of termination of lease. A hiring of real property for a term not specified by the parties is deemed to be renewed ... at the end of the term implied by law, unless one of the parties gives notice to the other of an intention to terminate the lease ...

• A lease for a term can become a periodic tenancy if, at the end of the term, the tenant remains on the property and the landowner accepts the tenant.

3. Tenancy at Sufferance

• A situation wherein the tenant remains in possession of property after expiration of the lease term and before the landowner has accepted the tenant for another term as a periodic tenancy.
• Landowner who desires not to renew the lease can evict the "hold over" tenant.
• If events since the termination of the previous lease imply that a new lease has begun (e.g., the landowner has taken no steps to indicate the landowner wants the tenant to vacate the property), the arrangement is no longer a tenancy at sufferance and the two parties are implicitly bound by the terms of a new lease.

4. Tenancy at Will

• Lease with no fixed time period and for which the tenant has paid no rent. Similar to license in that tenant possess the property only with landowner's permission and subject to termination at landowner's discretion.  Likewise, the tenant could terminate the arrangement at any time and without notice.
• Due to the uncertainty implicit in a "tenancy at will," courts prefer to define arrangements as something other than a "tenancy at will;" for example, the court may determine that the arrangement is a periodic tenancy.

Lease Terms

Because a lease is a contract, the parties should specify the terms for their agreement. Topics to consider may include

• Inception and termination dates for the lease
• A procedure to amend the lease agreement; also see N.D.C.C. §47-16-07
• A statement that the arrangement is not a partnership or an employment relationship
• A description of property being leased
• The landowner's right to enter the property during the lease
• The tenant's right to sublease
• A statement indicating whether the lease is binding on heirs and assignees; see N.D.C.C. §§47-16-18 and -28
• Specifications on how the tenant may use the property; also, a statement that requires the tenant to use the property for the purposes for which it was leased; N.D.C.C. §47-16-11
• The rental rate
• Due date for rental payments; if payment dates are not specified in the lease agreement, see N.D.C.C. §47-16-20
  • monthly for residential property;
  • quarterly for other property; and
  • annually for farmland, at year's end
• The tenant's obligations, such as specific maintenance or repairs
• A statement that the tenant must not commit waste (permanent or substantial injury to property)
• A statement that the tenant must exercise ordinary care to preserve the property; N.D.C.C. §47-16-09
• A statement that the tenant must repair deteriorations caused by ordinary negligence; N.D.C.C. §47-16-10
• Tenant is liable for injuries on premises except when landowner is liable
• Tenant must provide landower notice of adverse possessor; N.D.C.C. §47-16-25
• Specify repair obligations for landowner and tenant
• Improvements by tenant; can tenant make improvements, which improvements can be made, who will pay for the improvements (tenant, landowner, or share the cost between them)? What will happen to the improvements at the end of the lease (e.g., will the tenant have an opportunity to continue operating the land or have the landowner compensate the tenant for the remaining value of the improvement)? Will the tenant be allowed to remove the improvement at the end of a lease (such as a fence)?
  • An improvement could be repairs or remodeling a building, constructing new fences, storage, water system or waste management facility, or planting alfalfa/hay or applying extra fertlizer. The issue is who pays for these long-term investments that have value of several years. Be certain the agreement is clear; otherwise, a tenant may not have an opportunity to recover an investment.
  • Recall, improvements to the land often fit the definition of a fixture which becomes part of the land and will be owned by the landowner, regardless of who made the improvement. Thus the lease agreement needs to clearly state the intent of the landowner and tenant with respect to improvements.
• Renewal of lease agreement
• Termination notice
  • Will the lease be binding on a new owner if the current owner sells the land? Will the lease be binding on the new owner if the current owner dies and the heirs become the new owner?

Some lease terms for farmland

• What husbandry practices must the tenant follow?
• Tenant's obligation to provide information about chemical applications during the past year
• Sharing of operating expenses?
• Who is entitled to government payments? Are fallowed acres allowed, mandatory, or at the option of the tenant?
• Who owns the GPS/GIS data?
• Who has the hunting rights?

The landowner is obligated to secure the tenant in quiet possession N.D.C.C. §47-16-08

• Once the tenant is in possession of the leased property, the tenant has the right to determine who should be allowed on the property. This right can be altered by the lease agreement, however, such as the landowner retaining the right to enter the leased property for a particular purpose. The tenant's right to exclusive possession also can be affected by other outstanding legal rights, such as an easement held by a utility company that allows the company to enter the land to operate and maintain the utlitlity company's facilities.
  • Quiet possession is the legal concept that if someone else (a third party) claims the right to possess the land, it is not the tenant’s task to establish that the tenant has the actual right to possess the land.  [Think of the right to possess the property as a "stick in the bundle of legal rights" and the issue is who holds that stick.]  Instead, it is the landowner’s obligation to prove that the third party does not have the right to possess the property and that the tenant (based on the lease from the landowner) has the right to possess the property. 

  Sometimes the dispute may be based on the third party believing they have the right to control possession of the property and not the landowner.  Perhaps the third party are siblings to the landowner and the siblings think they inherited the land, rather than the landowner.  In that case, the landowner would need to prove that the landowner was the heir and is the appropriate owner. 

  Other times, the dispute might have arisen because the third party thinks they have a lease with the landowner and therefore the landowner cannot lease to the tenant.  For example, Farmer A has been leasing from the landowner for several years.  The landowner is now beginning to lease to Farmer B; however, Farmer A feels that the original lease has not yet terminated and that the landowner cannot yet lease the land to Farmer B. 

  In either case, it is the landowner’s obligation to establish that the landowner has the right to possess the property and that right has been transferred to the tenant. 

  In summary, it is the landowner’s obligation to assure the tenant possesses the land at the start of the lease without a dispute from others; it is not the tenant’s obligation to “battle with” third parties over who has the right to possess the land.  The landowner has to provide the tenant “quiet possession”.

• For example of a North Dakota case involving the issue of quiet possession, see Pfeifle v. Tanabe, 2000 ND 219, 620 N.W.2d 167.  This case illustrates that the landowner (rather than a third party) also can be responsible for interfering with the tenant's right to quiet possession of the leased property.

The landowner is liable for injuries on premises when:

• there is an undisclosed danger
• there is a condition dangerous to persons off premises
• the property is leased for public admission
• the landowner retained control over portion of the property
  • "Under premises liability law, to find a property owner owed a duty to an injured party, the owner must have had control over the property where the injury occurred. See 62 Am.Jur.2d Premises Liability §6 (1990)."  Stanley v. Turtle Mountain Gas & Oil, 1997 ND 169, 567 N.W.2d 345 [this case does not deal with leased property, but the legal concept is arguably applicable]
• the landowner agreed to make repairs but failed to do so
• the landowner was negligent in repairing the property

Tenant's rights

• The tenant has the right to exclusive possession during the lease and is entitled to reimbursement when that right is violated

• Produce raised during lease are presumed to be owned by the tenant
  • N.D.C.C. §47-16-04 In the absence of any agreement to the contrary between the lessor and the lessee, the products received from real property during the term of a lease belong to the lessee.
  • Harvest growing crops that were planted before it was known that lease would terminate
    • see N.D.C.C. §47-16-27

     

• Make repairs and deduct the cost from the rent, or vacate the property; N.D.C.C. §47-16-13
  • This statute primarily applies to residential property. Note: the tenant must notify the landowner of the needed repairs and allow the landowner a reasonable time to complete the repairs. Also note, this provision applies when the needed repairs are such that the residence is uninhabitable.

 

• Tenant may terminate the lease when the landowner fails to give possession or make repairs after reasonable time, or greater part of property perishes (N.D.C.C. §47-16-17).
  • Relatively minor breaches of a lease agreement do not allow the tenant to terminate the lease, but may entitle the tenant to compensation from the landowner.  If the tenant terminates the lease due to a breach by the landowner but it is subsequently determined (maybe by a court) that the breach was not severe enough to justify termination, the tenant may be the one who is liable for breaching the lease agreement.
  • An example of a "greater part of the property perishing" would be a business leasing a warehouse for storage. If the warehouse is destroyed by fire through no fault of the tenant, the tenant has no interest in continuing the lease. In this case, the law allows the tenant to terminate the lease without the termination being considered a breach by the tenant.

• Remove trade fixtures (removable fixtures)
• General rule is that a tenant who installs a fixture during a lease may not remove the fixture at the termination of the lease.
• An exception: trade fixtures can be removed at the end of a lease.
• This distinction is primarily relevant to rental of buildings; trade fixture: fixtures used in the tenant's business.
  • N.D.C.C. §47-06-04. Fixtures - When tenant may remove.
  • When a person affixes that person's property to the land of another without an agreement permitting that person to remove it, the thing affixed belongs to the owner of the land, unless the owner of the land chooses to require the former to remove it.
  • A tenant may remove from the demised premises, any time during the continuance of the tenant's term, anything affixed thereto, for the purpose of trade, manufacture, ornament, or domestic use, if the removal can be effected without injury to the premises, unless the thing has become an integral part of the premises by the manner in which it is affixed.
  • When any tenant upon agricultural land shall have built, erected, or placed upon such leased premises during the tenant's tenancy, any grain bin, granary, or structure for the purpose of housing grain, and no written agreement between the landlord and the tenant has been made as to its removal, the tenant may remove the same at any time within eight months after the termination of the tenant's lease and the vacating of said premises.
  • The tenant shall not have said right of removal as against the owner or holder of any mortgage, deed, or conveyance which shall have been filed and recorded after the building, erection, or placing of such bin, granary, or structure, unless such tenant, within sixty days after such building, erecting, or placing, shall have filed in the office of the register of deeds a written notice describing the land, the character of the structure, and stating that the tenant intends to remove such structure as provided by law.

• But rather than rely on these rules, tenants should anticipate such questions and resolve them as part of the lease agreement.
• Pfeifle v. Tanabe, 2000 ND 219 -- tenant has the right to "terminate a lease and vacate the premises ... when the lessor failed to make repairs within a reasonable time after notification by the lessee." The case also addresses quiet possession, notice of need to make repairs, and removal of trade fixtures.

Eviction -- court action forcing tenant to leave premises N.D.C.C. §47-16-13.7; also N.D.C.C. chapter 33-06.

N.D.C.C. §33-06-01. When eviction maintainable. An action of eviction to recover the possession of real estate is maintainable in the proper district court when: ...

4. A lessee, in person or by subtenant, holds over after the termination of the lease or expiration of the lessee's term, or fails to pay rent for three days after the rent is due ...

7. A lessee or a person on the premises with the lessee's consent acts in a manner that unreasonably disturbs other tenants' peaceful enjoyment of the premises.

8. The lessee violates a material term of the written lease agreement between the lessor and lessee.

Assuring the rent is paid

Filing a farm lease which reserves to the landowner title in the crop produced on the leased land until the lease is complied with (that is, until the rent is paid) (N.D.C.C. §47-16-03).

• File with county register of deeds before July 1.
• Effective against subsequent purchasers and encumbrancers
• Sauder vs. Union Produce Cooperative and Citizens State Bank
• Failure to file the lease waives the landowner's interest in the crop, except for the unpaid rent.

Terminating a Lease

• A lease will terminate without breach (neither party has a legal claim against the other)
  • at the end of the term,
  • by mutual consent,
  • upon destruction of the property, or
  • if the tenant acquires ownership of the land (N.D.C.C. §47-16-14).
• Landowner may terminate the lease when the tenant violates use, or does not make required repairs (N.D.C.C. §47-16-16).
• Tenant may terminate the lease when the landowner fails to give possession or make repairs after reasonable time, or greater part of property perishes (N.D.C.C. §47-16-17) -- repeats statement from above.
• At termination of a lease, the landowner is entitled to possession, rent, and actual damages (N.D.C.C. §47-16-13.4).

• If the lease is being terminated, each party has a duty to mitigate (take appropriate action to minimize their damages). N.D.C.C. §47-16-13.5. But see STONEHEDGE SQUARE LIMITED PARTNERSHIP v. MOVIE MERCHANTS, INC. for a decison that held a "non-breaching landlord whose tenant has abandoned the property in violation of the lease has no duty to mitigate damages."

An interesting set of facts:

"Ehrman sued to evict Feist from the premises, alleging, among other things, that Feist had failed to pay rent and had committed waste. Feist answered the complaint and counterclaimed, alleging Ehrman had represented she owned the land but had only a life estate, that Ehrman had represented Feist would be able to buy the farm at the end of the lease term for a reasonable amount, and that in reliance on those representations, Feist had made improvements for which he was entitled to compensation. Feist filed a third-party complaint against Roger L. Ehrman, Ramona Thingvold, and Janice Haugen, Freida Ehrman's children, to clarify title to the property, alleging Ehrman had conveyed the property to them in 1987, reserving only a life estate." Ehrman v. Feist v. Ehrman, 1997 ND 180, 568 N.W.2d 747

See N.D.C.C. chapter 41-02.1 for statutes on leasing personal property.

Summary of Key Points

• A real property lease combines features of property and contract law.
• Although the parties to a lease have considerable flexibility in specifying the terms of their agreement, state statutes address some issues that the parties may not have explicitly addressed, or impose limitations on some lease terms in an effort to balance the negotiating positions of the parties.
• There are several types of leases, each with different legal implications.
• The legal obligations and rights of the tenant and landowner are based on common law, statutory law, and the terms of their agreement.

Last updated May 15, 2010