A Good Lease Protects Both Parties
A Solid Lease Agreement. It is the foundation of your success as a landlord. A good lease agreement does not just lay out the terms of the landlord-tenant relationship. It protects you from the tenant. It provides you with all the rights and remedies you will need if the tenant does not hold up their end. It protects you if the tenant breaks the lease, damages the property, or starts running a criminal enterprise from your property.
What can happen if you don’t have a solid lease agreement with your tenant? If you don’t have a good rental agreement, you will have trouble down the road. You could have problems evicting the tenant if the lease is not done properly, and you could lose money if the lease does not address specific issues.
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What are some of the important elements of a residential lease?
The Parties to a Residential Rental Lease Agreement
The two parties to the lease are the landlord and the tenant. The owner of the property is the landlord, and the people who will live there are the tenants. As a side tip, it is nice if your property has been put into an LLC or Corporation, so the LLC or Corporation is listed as the landlord. For the tenants, list all of the adults that will be living there as tenants. If you fail to list someone, you could have trouble evicting them later.
The term is how long the lease is for. Typical residential rental leases are for 6 months or 1 year. Some landlords do 2 year leases, but that limits your ability to raise the rent if the market goes up. Another tip is to do leases that result in your lease being up in the summertime. This is because it is easiest to lease (or sell if you need to) your property in the summertime. So if you need to lease your property in December, do a 6 month lease or an 18 month lease, so it will renew or end in the summertime.
Rent amount is how much they will pay every month. Pay close attention to how much you charge. You obviously want to get the most you can, but if you talk the tenant into paying way above the market, they will eventually figure it out and opt to not renew at the end of the lease. We have found that the best practice is to find out the market rent for your area, and try to get a little bit more.
The Security Deposit
The deposit protects the landlord in the case the tenant damages the property or bails on the lease. The amount of the deposit is typically equal to one month’s rent or higher. It should be paid before the tenant moves in, along with the first month’s rent. We recommend against letting the tenant “pay out” the deposit over time. That rarely works. If the tenant has bad credit or presents some other risk, charge 2 or 3 times the normal deposit to offset that risk.
People love their pets. But their pets can destroy your investment. This section will determine how much the additional pet deposit is, and whether or not it is refundable (tip- make it NON-refundable). We also recommend limiting the number of pets and the weight of the pets. You don’t want the crazy cat hoarder in your home, and you don’t want giant dogs terrorizing the neighbor’s kids.
The repair section of the lease will lay out what repairs the landlord is responsible for, and what repairs the tenant is responsible for. If the lease is for a single family house, usually the landlord is responsible for big stuff, like HVAC repairs, plumbing repairs, electrical, etc. The tenant is usually responsible for little items like changing light bulbs. Keep in mind that every area around the country will be a little different in this area, so find out what landlords in your area do.
Utilities and Landscaping
Who will pay for electricity, water, gas, etc.? We recommend you have the tenant pay for all utilities, or else the tenant could abuse the privilege. What about cutting the grass? Is this paid for and managed by the landlord or the tenant? You must decide and put it in the lease.
Termination and Default
How should the landlord or tenant end the lease? With a 30 day or 60 day notice before the term is up? Do you want to give the tenant a way to break the lease by paying 2-3 months rent upon move out? If the tenant defaults, what is their liability? Usually they are responsible for the rent until the lease term is up or until a new tenant moves in.
Special Provisions is where you can add in whatever you need to. Examples would include a No Smoking provision that says tenant must pay for smoke remediation if the property wreaks of cigarettes after they move out. You can also throw in anything else that needs to be mentioned.