Reading... Why You Should Make Sure You Have a Strong Lease Agreement
Back to top

Why You Should Make Sure You Have a Strong Lease Agreement

When you rent out your apartment, a rental contract called a lease agreement is drawn up and signed. This agreement contains details about your apartment, as well as the rights and obligations of the tenant and you as the landlord. It is a legally binding document, once it has been signed, so you have to get the details regarding the lease right before any signing takes place.

There are some annoying things that could take place if your lease agreement has failed to include all the relevant details. For example, the tenant could:

  • steal valuable furniture if it has been omitted from the inventory;
  • fail to pay the rent on time if no day in the month has been specified;
  • move undesirable pets into the premises if you have not specified any restrictions in the lease agreement;
  • hold noisy parties in the apartment block because you have failed to include the rules; or
  • run up unreasonable utilities bills because you included these facilities in the rent.

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 make a mention of 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 agreement is for a period of a month at a time which 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. If it is the tenant who decides to terminate, the notice should 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.

The Value of a Fixed-Term Lease

A lease which ends on a fixed date gives more certainty to you as the landlord. 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.

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 has agreed to it so is therefore responsible for paying the rent for that particular specified period of time. If the tenant decides to vacate the premises before the term of the 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.

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.

Penalty Clause

Leases sometimes contain a penalty clause which means the tenant has to pay a re-rental fee to you to help cover some of the cost you have had to bear as a result of having to re-rent your premises.

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. If the lease is based on a "periodic" term, it will renew automatically using the same arrangement as before. To give an 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. 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.

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.

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

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.

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. If you notice that your property is in a significantly worse condition, then you may be able to retain all or some of the security deposit paid by your tenant. 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 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.

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. Once you are both satisfied, then you jointly sign the lease agreement.

How to Create a Strong Lease Agreement

Use our lease agreement template or sublease agreement template to create a strong lease agreement right now.