“What To Include In A Rental Contract”
Are you a property manager wondering about what to include in a rental contract?
Once you are done in selecting tenants for your rental property, the next step you should do before the tenancy term begins is to prepare the rental contract. This will serve as the basis that you and your tenants should observe once the tenants stayed in the rental property. It will help make sure that both parties understand each other’s legal obligations.
A rental contract contains the rules which are agreed upon and set by both the property manager and the tenants. The contract should contain the basic terms of the tenancy and it could be typed or handwritten.
Since there are lots of things to consider in a rental contract, I’m going to take the time to walk you through the different elements.
9 Terms To Include In A Rental Contract
When you have finally completed the search for the most qualified tenant to rent your property it is now time to lock them in and sign a rental contract. When you write a rental contract, it is important to define all parts of the rental agreement and cover almost everything that you or the tenant may have to deal with during the tenant’s stay in your rental property.
If you are just new to the property management field or have been working in the field for a long time it is important to know what is included in a rental contract and why. When managing a rental property, the rental contract is considered the law or the main things that were agreed to by you and the tenant prior to them renting the unit. If any disputes or misunderstanding arise, the rental contract should almost always be used to resolve these disputes or issues.
Having a rental contract that is complete and covers all important areas of the tenants rental of the unit is essential. Below we have sections detailing major points and details that a rental contract should have and should address. You may add more to your rental contract but let’s begin with the basics of the rental contract…
1. Names of all Tenants
The rental contract, when signed, needs to identify all tenants that will be living in the rental unit. It’s very important to identify all tenants and have them sign the rental contract so that all of them will be responsible for observing all the terms that are written in the rental agreement. When listing all tenants this holds the tenants listed responsible to make regular payment of monthly dues and should define the proper use of a property.
The rental contract is exactly that, a contract that can be enforced by the law wherever the rental unit is located. Since it is a contract for rent, no matter what happens during the rental period the person(s) or tenant(s) that sign the rental contract are responsible to fulfill and complete the contract by law. For instance, when one of the signers cannot pay the rent, you can legally ask for the entire rent from any of the other tenants listed on the rental contract. Also, if one of the tenants made an important violation of the terms of the tenancy, you could terminate all of the tenants who signed the rental contract.
Additionally, if there is a dispute on unpaid rental payments or property damages, you as a property manager can sue any or all of the tenants listed on the rental contract to pay unpaid rents or damages to the property.
2. Limits on Occupancy
Before finalizing rental of the property you should know how many adults, children, and animals (if allowed) will be occupying the rental. The rental contract should clearly state that only the people (together with their children) who signed the contract have the right to live in the rental unit. By including this type of wording into the rental contract gives you the ability to decide who can stay in your rental unit and to provide the limit in the number of occupants. Make sure that only those people whom you have screened and approved were allowed to stay in the rental unit.
When you include this into the rental contract, you gain a right to evict a tenant who invites a friend or relative to move in the rental unit without your permission. It helps prevent the property from being turned into a boarding house, etc. If any dispute arises over who is living at the rental, by having limits on the occupancy allows you to be legally covered in any eviction or over occupancy dispute.
3. Term Of The Tenancy
The rental contract should clearly define the term of the tenancy prior to renting the unit. The terms of the tenancy should be understood and be clear between both parties. The rental contract can and should specify if the tenancy is a rental agreement that is a fixed-term lease or one that is a month to month rental.
A fixed-term lease is defined by the specific length agreed to when signing the contract. A fixed-term lease usually lasts a year but can also be extended. Normally when a fixed-term lease expires the rental then becomes a month to month rental agreement but the rental contract originally signed and agreed to still stays in place until the tenant vacates the rental. The fixed-term lease allows the property management firm and the tenant to feel more stable in the rental because of the length defined is legally protected. Also when negotiating a fixed-term lease it is common to lock in the rent price which is a major benefit for the tenant to avoid undue rental increases.
Month to month tenancy
A month to month rental is exactly defined as a rental where the tenant or your management firm could end the rental after each month of occupancy. Additionally, the rental price can be increased on a month to month basis following occupancy and rental increases laws. Even though it is month to month you must still follow all laws and practices when asking a tenant to leave the property high normally includes a 30-day notice to terminate rental.
Whether you decide to have rental contracts or agreements that run monthly or fixed-term lease the final decision is up to you on how long you would like the tenant to rent the unit.
One of the most important items of the rental contract is the agreement by you and the tenant regarding the amount of rent that should be paid monthly by the tenants. The rental contract should also indicate when the rental payment should be made and how the tenants should make the payment. If you want to prevent having disagreements with your tenants, it would be best to be specific with your rules about the rental fees. You might include details such as:
- acceptable payment methods (such as personal check only)
- whether late fees will be due if rent is not paid on time, the amount of the fee, and whether there’s any grace period, and
- any charges if a rent check bounces.
5. Deposits And Fees
The most common dispute between tenants and the property manager is about the damage deposit and any fees accrued during the moveout process. To minimize the chance of disagreement, the rental contract should contain specific details about how the deposits should be used, including:
- the dollar amount of the security deposit (be sure you comply with any state laws setting maximum amounts)
- how you may use the deposit (for example, for damage repair) and how the tenant may not use it (such as applying it to last month’s rent)
- when and how you will return the deposit and account for deductions after the tenant moves out, and
- any legal non-returnable fees, such as for cleaning or pets.
It’s also a good idea if the rental contract will also specify details about where the security deposit is being held and if there will be an interest on the security deposit that will be paid to the tenant.
6. Repairs And Maintenance
It’s a responsibility of the tenant(s) to take care of it during their stay. However, when damages on the property occur it’s best to abide by the rules that are set in the rental contract regarding repair and maintenance. The following details should be included:
- the tenant’s responsibility to keep the rental premises clean and sanitary, and to pay for any damage caused by his or her abuse or neglect
- a requirement that the tenant alert you to defective or dangerous conditions in the rental property, with specific details on your procedures for handling complaint and repair requests, and
- restrictions on tenant repairs and alterations, such as adding a built-in dishwasher, installing a burglar alarm system, or painting walls without your permission.
Note that when repairs are brought to your attention, be sure to address them immediately even if caused by the tenant. You can then bill them back to the tenant. That helps ensure that the property is in good shape and remains safe for the occupants.
7. Entry To Rental Property
The rental contract should give you the permission to access the property for valid reasons. This is an important matter that you should make sure if you don’t want to receive any claims that you are violating the privacy rights of your tenants. Also, it’s advisable to specify how much advance notice you will give the tenant before you visit the property.
Note that restrictions are often imposed by local laws and codes. Be sure not to violate them in your rental contract.
8. Restrictions On Tenant Illegal Activity
As a property manager, it’s your responsibility to protect every rental unit from any illegal activities. Illegal activities often bring damages to the property and it will only give you losses for the repairs that are needed to be incurred.
The rental contract should include a clause that disallows any illegal activities to be done by tenants. Any disruptive activities to other tenants and/or neighbors could also be included in this clause such as excessive noise in the unit. This is for the comfort and peace of all the tenants that are living in the rental property units. Prohibiting illegal activities and disruptive behaviors on the rental units will also prevent troubles or disagreements between the tenants that are living in the property.
Normally, property managers ban pets on their rental property units. If you are one of them, be sure to include it in the rental contract.
There are also cases where pets are being allowed by property managers. If this is your case, just provide any special restrictions such as a limit on the size or number of pets or a requirement that the tenant will keep the yard free of all animal waste.
I recommend having the contract not allow pets, then use a separate Pet Addendum contract to allow the pets detailed on the document. This makes it very clear that pets are not allowed UNLESS you specifically allow particular pets.
Final Thoughts On What To Include In A Rental Contract
Every one of your tenants should sign a rental contract. This will ensure that the tenants know and understand their responsibilities that they should observe during their stay on your property. Make sure that the rental contract that they signed contains all the important terms that we talked about in this article. With a properly crafted rental contract you can minimize any misunderstandings between you and your tenants.
If you have any questions or thoughts about what should be in a rental contract… please feel free to add them into the comments below.
Disclaimer: This commentary is a matter of opinion provided for general information purposes only and is not intended to be taken as investment or trading advice under any circumstances. Information and analysis above are derived from sources and utilizing methods believed to be reliable, but we cannot accept responsibility for any losses any person may incur as a result of this analysis. Individuals should consult with their personal financial advisers. By using this web site or any information contained in it, the user specifically and expressly agrees that no advisor-client relationship is created between said user and any author, owner, executive, or principal of this web site by either use of this web site, or by any information, product, or service offered by or on this web site. No express or implied guarantees or warranties as to investment or trading results are made, and any perceived insinuations of such are hereby expressly disclaimed.