Why You Should Make Sure You Have A Strong Lease Agreement

Introduction to Lease Agreements

A lease agreement, sometimes referred to as a rental agreement, is the foundation of any successful rental arrangement between a property owner and a tenant. This legally binding contract sets out the terms and conditions for renting a residential or commercial property, ensuring that both parties understand their rights and obligations throughout the rental period. A well-crafted lease agreement will clearly state the rent amount, the due date for each rent payment, the amount and handling of the security deposit, and outline tenant responsibilities such as maintenance and care of the property. By establishing these details upfront, lease agreements help streamline the rental process, minimize confusion, and protect the interests of everyone involved. Whether you are renting out a single-family home, an apartment, or a commercial property, having a comprehensive lease agreement in place is essential for a smooth and professional landlord-tenant relationship.

What You Should Include in Your Lease Agreement

There are a number of details that you should include in the lease agreement, such as:

• the amount of security deposit required,
• the monthly rent and what it includes or excludes,
• the terms of the lease,
• the length of the lease, and
• any building rules and special clauses.

You have to decide on the amount you expect your tenant to pay as a security deposit. This is normally set at one to two months' rent.

When you have decided on the amount that your tenant should pay as a security deposit, you should ensure your tenant is clear as to what it covers. If at the end of the lease agreement your tenant has left some damage, then you are entitled to withhold repayment of the whole deposit once you have written down the details of the damage and its value.

However, ensure that you have been through the property first so that your tenant is aware of any current defects in the furniture and fittings in the property from the rental date. This stops any disagreement when you find there is any additional damage done, as your outgoing tenant may refuse to admit that he or she was responsible for that damage. It is also advisable to take some photos of the property in its current state just to keep your tenant on his or her toes regarding adequate care and attention to your property.

Depending on what state your property is located in, check to see what the requirement is regarding deposits, as you may have to pay the security deposit into an interest-bearing account. When it comes to refunding the deposit, any interest derived from it should be included in the refund. If, on termination of the tenancy, your outgoing tenant has defaulted on rent payments, you can deduct this amount from the security deposit.

Otherwise, generally you are not usually able to deduct anything for what is considered to be average "wear and tear" on the property that is incurred simply by the tenant being in residence there. However, you can deduct for unnecessary stains on carpeting or countertops, any large holes that have appeared in any of the walls, and any appliances you provided that you find are missing.

If you are renting out your property furnished, then an inventory is essential. This should include a complete list of everything in the apartment and their condition. This must be signed by your tenant and yourself. If any damage is done, you can re-coup its monetary value either directly from your tenant or via the security deposit that has been lodged at the commencement of the lease agreement.

You may, if you wish, request that your tenant takes out insurance so that if there is a catastrophic event, like a fire, that may damage both your property and any adjoining property, then both you and your tenant are covered for any losses or liabilities.

However, your own insurance cover should include damage to both your property and any other property nearby. It is not a usual requirement to ask your tenant to take out their own insurance cover as they have already paid a security deposit. It should be emphasized, though, that your insurance will not cover your tenant’s personal possessions in the event of a break-in or a fire.

You will have to calculate the amount to charge your tenant for rent. This could be rent only, excluding any additional charges associated with renting the property, such as trash disposal, the cost of electricity, water, and heating or it could be what is called gross rent. This includes any additional costs such as the ones listed above.

You must remember to include all the correct information in your lease agreement so that your tenant knows exactly what has to be paid. You should take into consideration the time of year if you are going to present a gross rent calculation to your prospective tenant, as certain utilities are used more often depending on the season. Do not forget to specify the day of the month the rent is due.

Another important part of a lease agreement is ensuring you have listed all the keys you have released to your tenant. On leaving the property, your tenant must return those keys listed. If by any chance your tenant lost the keys and replaced the lock(s) at their own cost, then you should make sure you get all the keys back from the tenant.

Normally, the set of keys you provide are coded, making it difficult for any duplicates to be made by your tenant unless they get your permission first. However, it would probably be a wise move on your part to change the locks on your property’s doors once the tenant has vacated and before the next tenancy begins.

If your property is in an apartment block, you should not forget to include additional rules in your lease agreement that apply to tenants who live in these buildings. A new tenant may throw a housewarming party which, if loud enough, could attract complaints from nearby tenants who have been affected by the disturbance. Not all new tenants necessarily know about the building’s noise laws, so it could be you that gets into trouble if you have forgotten to mention them in your lease agreement.

Some apartment blocks designate duties to owners/tenants of apartments, such as the cleaning of shared areas like the floor outside your apartment’s door or the entrance ways into the apartment block. You should ensure your tenants are informed if they have to adhere to such obligations; otherwise, you may receive a complaint if the work is not done.

If, as a landlord, you do not mind some types of pets accompanying a new tenant, then there should be a pet policy included in the lease agreement. There are different classifications of pets with house pets usually being cats, dogs, hamsters, birds, and other sorts of small animals. Do not forget, if you own an apartment in a block, then the management may have rules about pets so you should check first before including pets on your lease agreement. You do not want your new tenant turning up with a pit bull terrier in tow if only rabbits and guinea pigs are permitted as pets in your apartment block!

Terms of a Lease

Typically, leases run for a 12-month period at a time. Unless stated in the lease agreement, most leases include a clause which allows the lease to be continued on a month-by-month basis. A month-by-month lease is also known as a month-to-month agreement, month-to-month lease, or month-to-month tenancy, and is a type of periodic tenancy. This arrangement is for a period of a month at a time and renews automatically every month until the lease agreement has been terminated by one of the parties. A 30-day notice period is normally required in order to terminate a month-by-month agreement, and such required notice periods should be clearly stated in the lease. If it is the tenant who decides to terminate, the notice should specify the desired termination date and be sent to you by mail or hand delivered. You have to give a good reason if you instigate the termination of a lease agreement.

A fixed-period lease specifies a set duration for the tenancy, and the lease should clearly state the fixed period, required notice periods, and the desired termination date.

The Value of a Fixed-Term Lease

A lease which ends on a fixed date gives more certainty to you as the landlord. A long-term lease provides stability for both landlord and tenant, ensuring clear contractual terms over an extended period. It indicates the precise end date for the tenancy, and no notice of termination is required. You cannot stipulate a rent increase with this type of lease. The advantage here is that neither party has to give notice to terminate the lease; it simply ends on the specified date. Similarly, the way the lease is written could stipulate a specific number of weeks, months, or years. It runs in the same way as a fixed-term lease with a specific end date, but it is drawn up in the lease agreement based on the number of weeks, months, or years. Procedures for how a tenant can leave early, including notice requirements and potential penalties, should also be clearly outlined in the lease agreement.

Payment Terms

Payment terms are one of the most important aspects of any lease agreement, as they define the financial expectations for both the landlord and the tenant. The lease agreement should clearly specify the rent amount, the due date for rent payments, and the acceptable methods of payment—whether that is cash, check, or an online payment system. To avoid misunderstandings, it is also important to outline any late fees or penalties that may apply if the tenant fails to pay rent on time, as well as the consequences of unpaid rent. Security deposits should be addressed in detail, including the amount required, how and when it must be paid, and the conditions under which deductions may be made or refunds issued. By setting out these payment terms in writing, landlords and tenants can help ensure a positive landlord-tenant relationship and reduce the risk of disputes over money during the rental period.

Termination of a Fixed-Term Lease Agreement before the Lease Expires

Once a fixed-term lease agreement period has been decided, it means your tenant is responsible for fulfilling all obligations set out in the lease or rental agreement, including paying the rent for the specified period of time. If the tenant decides to vacate the premises before the term of the rental lease agreement has come to an end, then he or she is typically required to pay the rent for the remainder of the lease’s term. Each tenant responsible under a written lease may be held accountable for these obligations.

If a new lease is created with a replacement tenant, the original rental lease agreement may be terminated or modified to reflect the change.

In some states, there may be a law that requires you, as the landlord, to act in good faith to find another tenant to take the place of the original one. If you can find another tenant before the end of the vacating tenant’s lease period, you cannot ask the previous tenant to pay the rent for the remaining period of the original tenancy as you would be then obtaining double the rent.

What Happens Once the Lease Term has Expired?

When the lease has reached its expiry date this does not necessarily mean the rental agreement is terminated. Both residential leases and commercial leases may convert to periodic arrangements after expiration. If the lease is based on a “periodic” term, it will renew automatically using the same arrangement as before. For example, a periodic lease which is based on a month-to-month arrangement is a series of separate leases, each of which renews automatically as each month ends. A commercial lease may have different renewal and rent increase procedures compared to a residential lease. Rent increases are often addressed in the lease agreement and may require notice before taking effect. If the tenant or landlord wishes to terminate the lease, the correct notice simply has to be given.

The Significance of a Fixed-Term Lease

If your lease agreement is for a fixed term (i.e. the expiry date of the lease is stated), then this does not mean that the lease has to stop completely. It can continue either by renewing the lease with the same or different conditions or it may change automatically to a monthly lease. The state that you are living in may have specific statutes which determine what happens to a fixed-term lease once it expires. While oral contracts for leases may be legally enforceable in some states, they often lack the legal protection and clarity provided by a written lease, making disputes harder to resolve.

In some states, the lease automatically reverts to a periodic one, usually monthly. In other states, the lease becomes what is termed a “tenancy at sufferance,” which is similar to a “tenancy at will.” Basically, this is a temporary arrangement which provides similar conditions as the original lease for as long as the tenant and landlord wish to keep it, but it does not have the same legally binding protection as a periodic lease or a renewal of a fixed-term lease. A written lease should also specify remedies in case of the landlord's failure to deliver possession or fulfill obligations, such as rent adjustments or limits on liability.

The state will determine the time period that notice to quit must be served on a tenant before the official end of a fixed-term lease. As long as you keep to that proper notice period, you will not have to keep to any extension of a periodic lease arrangement or a tenancy at will.

A Periodic Lease

Periodic leases are a type of rental agreement commonly used for renting property, including both residential and commercial rental property. In a periodic lease, the lease should clearly define the leased premises and specify the amount of each month’s rent to ensure clarity for both parties.

A periodic lease can be based on a weekly, monthly, or yearly basis which automatically renews. If you, as the landlord, wish to end the lease agreement, then you have to give notice for your tenant to vacate, which is based on what is laid down in your lease agreement. You can increase the rent or alter the lease’s terms as long as you give the correct amount of notice. When the end of the notice period has been reached, your tenant is required to vacate the premises or you can initiate eviction proceedings. You may not alter the lease’s term throughout the period of the lease, whether it is based on a week, month, or year.

Legally Binding Contract

A lease agreement is more than just a set of guidelines; it is a legally binding contract that governs the landlord-tenant relationship for the duration of the rental period. Once both parties sign the written agreement, it becomes enforceable in court, providing legal protection if disputes arise. To ensure the lease agreement stands up to scrutiny, it should include clear provisions for notice periods, procedures for termination, and methods for resolving disputes. It is also essential that the lease agreement complies with all relevant local laws and the landlord tenant act, as failure to do so can render parts of the contract unenforceable. By taking the time to create a thorough and compliant lease agreement, both landlords and tenants can feel confident that their rights and responsibilities are protected throughout the rental period.

Avoiding Disputes

Preventing disputes is key to maintaining a healthy landlord-tenant relationship, and a well-structured lease agreement is the first step. Clearly defined lease terms help set expectations and reduce the likelihood of misunderstandings. Open communication is equally important. Addressing questions and concerns early can prevent small issues from escalating. Regular property inspections and prompt attention to maintenance requests can also help avoid conflicts related to the condition of the rental unit. Including provisions for mediation or arbitration in the lease agreement offers a constructive way to resolve disagreements without resorting to costly legal action. By fostering trust and clarity, landlords and tenants can work together to resolve issues amicably and keep the rental experience positive for everyone involved.

Things You Should Remember When Your Tenant Moves Out

Do not forget to arrange an inspection with the tenant before your property is vacated. You will want to ensure the property is in the same condition as when you first rented it out to that particular tenant. When assessing the property, remember that you can only deduct from the security deposit for damages that go beyond normal wear and tear. Ordinary wear and tear includes things like faded carpets or minor scuffs, while damages such as broken blinds or large stains may justify a deduction. If all is well, then a written document indicating that the transfer of the apartment back to you shows that there are no noticeable defects or damage done beyond normal wear and tear, and you should return the security deposit in full.

In summary, these are the main points you should include in a lease agreement:

• What type of property you are renting
• The property’s full address
• The tenancy term
• The amount and frequency of rent payable
• The amount and conditions set for the security deposit
• Any taxes that the tenant must pay
• What utilities are paid by the tenant
• Insurance status
• Notice of termination
• Tenant and landlord repair obligations

Go through the Lease Agreement Carefully with Your Tenant

Many problems with tenants can be avoided if a good level of communication is maintained throughout the period of the lease agreement. The lease agreement should clearly specify actions that can be taken by either the landlord or the tenant, ensuring both parties understand their rights and responsibilities.

As soon as the lease agreement has been signed by you and the other party or parties involved, it becomes legally binding. This means it is in both you and your tenant’s interest to read through the document thoroughly together, even if it is lengthy, so that you know that your tenant is fully aware of its contents. The lease should include a clause where the tenant agrees to the terms, and the landlord must provide the tenant with all required disclosures. Once you are both satisfied, then you jointly sign the lease agreement.