CRECI Real Estate Law and Ethics 3 — Questions and Answers
Question 1: In a triple net (NNN) lease, which costs does the tenant typically pay in addition to base rent?
- Mortgage principal and interest only
- Property taxes, insurance, and maintenance (Correct answer)
- Capital improvements and structural repairs
- Only utilities and janitorial services
Correct answer: Property taxes, insurance, and maintenance
In a triple net lease, the tenant pays base rent plus the three 'nets': property taxes, building insurance, and maintenance/operating expenses.
Question 2: Which doctrine allows a court to reform or cancel a contract when one party takes grossly unfair advantage of another's lack of sophistication or bargaining power?
- Res judicata
- Unconscionability (Correct answer)
- Lis pendens
- Quantum meruit
Correct answer: Unconscionability
The unconscionability doctrine allows courts to void or modify contracts that are oppressively one-sided, particularly when there is unequal bargaining power.
Question 3: A commercial broker is offered a gift by a developer in exchange for steering clients to that developer's listings. Accepting this gift would most likely violate:
- The broker's duty of disclosure to the developer
- The broker's fiduciary duty of loyalty to clients (Correct answer)
- Antitrust laws prohibiting price-fixing
- Zoning ordinances restricting commercial use
Correct answer: The broker's fiduciary duty of loyalty to clients
Accepting undisclosed gifts in exchange for steering clients violates the broker's fiduciary duty of loyalty, which requires acting in the client's best interest above all others.
Question 4: What is the primary purpose of a 'lis pendens' notice filed against a commercial property?
- To establish priority of a mortgage lien over other creditors
- To provide public notice that litigation affecting the property is pending (Correct answer)
- To notify tenants of an impending foreclosure sale
- To record a change in property ownership after a court ruling
Correct answer: To provide public notice that litigation affecting the property is pending
A lis pendens is a recorded notice warning prospective buyers and lenders that a lawsuit is pending that could affect the property's title or ownership.
Question 5: Under RESPA (Real Estate Settlement Procedures Act), which of the following is prohibited?
- Charging origination fees on commercial loans
- Paying kickbacks for referrals of settlement service business (Correct answer)
- Requiring title insurance on federally related mortgages
- Disclosing estimated closing costs to borrowers
Correct answer: Paying kickbacks for referrals of settlement service business
RESPA prohibits kickbacks and unearned fees paid in connection with federally related mortgage loans, as these inflate costs for consumers.
Question 6: Which clause in a commercial lease gives the tenant the right to purchase the property at a set price if the landlord decides to sell?
- Right of first refusal
- Right of first offer
- Option to purchase (Correct answer)
- Right of preemption
Correct answer: Option to purchase
An option to purchase gives the tenant the irrevocable right to buy the property at a predetermined price during a specified period, regardless of whether the landlord intends to sell.
Question 7: A commercial property manager intentionally misrepresents the vacancy rate of a building to induce a buyer to pay a higher price. This constitutes:
- Puffery, which is legally permissible opinion
- Fraudulent misrepresentation (Correct answer)
- Negligent misrepresentation only if unintentional
- Breach of warranty of habitability
Correct answer: Fraudulent misrepresentation
Intentionally stating a false material fact to induce a transaction constitutes fraudulent misrepresentation, exposing the manager to civil liability and potential license revocation.
CRECI Real Estate Law and Ethics 3
In a triple net (NNN) lease, which costs does the tenant typically pay in addition to base rent?