As a landlord, your lease agreement plays a few important roles. It sets expectations with your tenants, lays down the ground rules for living at the property, and will serve as a legal contract if you ever have a conflict with your tenant in the future. So what exactly should be included in this all-important document?
How a Lease Agreement Protects You
A lease agreement will protect you in many different ways:
Clarification of terms. This is your chance to express, in writing, exactly what your expectations are. You can set formal rules for the use of the property, outline how rent is to be paid, and more.
Legal consequences and evictions. If you want to maximize your property’s profitability, you’ll need to keep it occupied by a paying tenant. If your tenant breaks the rules, damages the property, or refuses to pay rent any longer, you’ll need the legal footing to evict them – and a lease agreement serves that role.
Tenant approval. In most areas, it’s illegal to evict a tenant who complies, in full, with the terms of the lease contract. Because of this, many tenants are eager to read, review, and sign a solid lease agreement when renting.
The Most Important Features of a Lease Agreement
These are the most important features to include in any lease agreement:
1. Identities of those involved. For starters, you’ll need to identify all the parties involved, by name. This includes yourself and any tenants who plan to rent the property. You won’t need to worry about children under the age of 18, but everyone else should be properly identified.
2. Identification of the property. You’ll also want to identify the property, noting the house number, street name, apartment number, city, state, and postal code.
3. The term of the rental. Next, you’ll need to include the term of the rental. This will dictate how long the lease agreement is valid, so be sure to use exact dates. Most lease agreements last for 6 months, 1 year, or 2 years, though it’s also possible to make your lease terms month to month. You can also spell out what will happen at the end of the term; will the lease convert to month to month?
4. Conditions and amount of rent. How much are you charging for rent? When is rent due? And how do you expect rent payments to be made? It’s important to clarify all these terms. It’s also a good idea to explain what constitutes a “late” rental payment, and how much you’re going to charge for a late fee. For example, you might stipulate that the tenant must pay a $35 late fee for any payment that is more than 5 days late.
5. The security deposit (and terms for its return). Next, explain the terms for your security deposit. How much are you going to collect? This may be dictated by law, but most landlords collect first and last months’ rent. You’ll also need to explain where the money is being held, the date the security deposit was collect, and reasons why the deposit could be held (or returned).
6. Rules and responsibilities. This is one of the most important sections of your lease agreement, but it’s also one of the most variable. You’ll need to go through all the rules and responsibilities for the tenant renting your property. This could include explaining how garbage is taken to the street, whether or not the tenant can keep pets, and noise requirements. You’ll also need to explain the legal responsibilities of a tenant even if it’s a reasonable expectation by default; for example, you’ll want to explain that tenants are required to keep the property free of any safety, health, or sanitary hazards.
7. Signatures and dates. Last but not least, you’ll need to collect dates and signatures from every party listed on the document. The contract won’t be valid unless you collect these. Once you have them, make copies to distribute to all involved parties.
Other Important Tips
There are a few other tips you’ll need to follow if you want a rock-solid lease agreement:
Talk to a lawyer. First, make sure you talk to a lawyer about your lease agreement. If it violates a local law, or if there’s a problem with the wording or structure of the document, it may not be considered legally valid in the future. A lawyer will help you navigate and overcome these potential problems.
Err on the side of detail. Don’t be afraid to elaborate and provide detail. Too many ambiguities in your document will render it vulnerable to loopholes and exploitation. Err on the side of providing too much detail.
Make sure your tenants fully understand the document. Finally, take the time to go over the document with your tenants and ensure their understanding. While this isn’t technically a necessary step, it can help you clarify uncertain terms and avoid conflicts that might arise later on.
While many features of lease agreements (such as names and property addresses) are going to be nearly identical from document to document, others are more variable. If you choose to work from a template, make sure you check all sections and terms carefully – and spend time clarifying the rules and responsibilities you want your tenants to follow.