Landlords have to prepare for the unexpected. A tenant might damage your property or stop paying rent at any time without prior warning.
That’s why it’s essential to have strong lease agreements—which will protect your investment. Your leases should be as detailed as possible so you have something to reference during a potential future dispute.
A solid lease agreement will cover you legally and save a lot of stress over the long run.
What is a lease agreement?
A lease agreement is a legal contract between a tenant and landlord which outlines the terms of tenancy. Sometimes it’s called a rental agreement or rental contract, but those usually refer to month-to-month arrangements while lease agreements cover a year or more.
If you’ve never drawn up a lease agreement before, you can find free templates online that will get you started. Every contractual situation can be different, so you may have to tailor yours to fit your property and expectations.
Nevertheless, every lease agreement should include the following.
The contract should identify you as the landlord and all the adult tenants. In a family, this would include both parents but not the children. Thereafter, if any of the named tenants violates the lease, you have the right to terminate the agreement with all of them.
Though this may seem obvious, the lease must state the address of the property so it’s clear which physical space is involved.
3. Occupancy limits
These specify how many people are allowed to inhabit the property. The number must comply with local occupancy laws, which vary. But as a rule, there shouldn’t be more than two tenants per bedroom.
4. Lease term
Leases can run month-to-month or for a year. However long you decide to make the lease, you have to be clear about the duration in the contract.
You should also identify how much notice either party must give in the event that someone has to terminate the lease early. If you plan to charge an early termination fee, state how much it is and how it should be paid.
Of course, the lease agreement should establish the rent amount. In general, you should aim for 1% of the property’s market value.
But the optimal rental fee will vary according to your property expenses and market rates. Whatever you do, make sure you can maintain a decent cash flow so you will stay in business, and remain competitive with similar rentals in the area so you attract good tenants.
Also specify when the rent will be due. Usually, it will be the first of the month. How will you accept payments?
You might opt for cash or check or online payment methods like echeck, credit card, PayPal, or Venmo. Select a method or choice of them that’s convenient for you.
Will there be a grace period for late payments? If not, state how late fees are to be calculated and at what point non-payment will lead to eviction.
Will you charge a fee for payments that bounce? These are all vital questions the lease agreement should cover in detail.
6. Security deposit
You should include the amount of the security deposit. Aim for half to a full month’s rent.
Also explain how you will use the deposit. For example, you might deduct unexpected repairs, damage, or cleaning fees from the amount.
Delineate when and how the deposit will be returned to the tenant. Is it non-refundable or will you refund it as soon as the tenant moves out in good order?
Make clear who is responsible for paying for various utilities. Many landlords require tenants to pay for gas, electricity, and Internet service, while the owner covers water, sewage, and garbage disposal. Also provide instructions and contact information for any utilities the tenants need to put in their name.
8. Furniture and appliances
If you plan to include any furniture or appliances in the unit, make sure to list these by name in the contract. That lets tenants know what to expect, and it’s clear who they belong to. In other words, they aren’t free to keep or remove.
Set rules for tenant behavior in the lease agreement. Typical ones include:
- Dedicated quiet hours when tenants should keep noise levels to a minimum
- Restrictions against illegal activities like drug dealing and prostitution
- Rules for keeping pets, such as extra fees
- Rules against smoking
- Regulations for subletting
- Rules for running a business on the property, such as a car repair operation in the garage
- Policies on alterations to the property, like painting or putting nails in a wall
Whatever you decide to allow or prohibit is entirely up to you, but you have to put it in the contract if you expect tenants to know it and be held responsible. You should include provisions about the penalties for violating any of these rules, as well.
10. Maintenance and repairs
The rental contract should describe your expectations with regard to cleanliness and repairs. For example, tenant responsibilities might include vacuuming, taking out the garbage, and mowing and watering the lawn.
Landlord responsibilities might include washer and dryer maintenance and any plumbing issues. Tenants should also know they should alert you to any damages or dangerous conditions so you can get them fixed quickly.
Allow new tenants to document preexisting conditions and damages when they move in, so they won’t be held responsible for them after checkout. Both parties should sign off on this initial inspection.
11. Entry rights
On occasion, you might have to enter the property while it’s under lease. You’ll need to describe the justifiable reasons to enter the property and how much advance notice you will give the tenants.
Reasons might include repairs, maintenance, inspections, emergencies, or to show the property to prospective renters. Check with your local housing regulations to make sure you stay compliant with the law here.
Both you and all adult tenants should sign and date the contract to make it legally binding on both sides. This gives you something to refer back to in the event of any disagreements or disputes later on.
13. Helpful information
Finally, it’s not a bad idea to include the following helpful information as part of a new tenant’s move-in package:
- Your contact information
- An emergency escape plan
- The trash pickup schedule
A good lease agreement will benefit landlords and tenants because it allows each to know what to expect from the other.
Before finalizing the rental contract, have a lawyer examine it to make sure it complies with local regulations. These will include rent control, health and safety codes, occupancy rules, and antidiscrimination laws. It’s better to be safe than sorry.
If you need more help composing your lease agreement, Green Residential can help. Our experts have years of experience in property leasing and making landlords and tenants happy. Don’t hesitate to contact us today.