“The 10 Important Items A Basic Lease Agreement Should Cover”
What does a basic lease agreement include?
That’s probably the question you are asking yourself.
Every property manager should provide a written lease agreement with every tenant even if it’s not required by the law. This document will protect you and your tenant from any possible disputes in the future.
A written lease agreement is the proof that you both understand each other’s rights and responsibilities. And knowing the terms you’ll need to include on the agreement is essential.
Let me share with you today the 10 terms your basic lease agreement should include. This will help you have peace of mind knowing that you and your properties are covered the best you can during the tenant’ stay.
Terms To Include In A Basic Lease Agreement
Making a basic lease agreement is easy but before you start making one you must first know the rental laws in your area. Any violations of rental laws can open up your business for litigation and other legal challenges that could negatively affect your rental property business. This is the key step to complete prior to starting to draft a basic lease agreement. Rental laws may vary depending on the state. That’s why it’s advisable that you research the laws in your area before you start making a draft.
When making a draft your lease agreement (since it is an actual contract) you should follow a logical order of information and dissemination of term of the contract.
Here is the first item that you should include in your basic lease agreement.
1. Names Of Both Parties
Just like any contract you need to identify the parties to the contract. In a basic rental lease agreement, the 2 parties to identify would be the lessee and the lessor. In layman’s terms, the lessee would be the renter or tenant, and the lessor would be the landlord or property management firm overseeing the contract.
To avoid any misunderstandings of who would be renting and occupying the property it is best to include those person(s) in the lease agreement and conduct background screen anyone involved in renting the property. The names of the individuals who are moving and living at the property with the tenant are included in this section.
Additionally, if there is a co-signer to the lease that person should also be listed in this section of the contract lease. The people who are mentioned must sign the lease agreement and thus be legally responsible for following the terms of the lease during the rental period covered under the lease agreement. All persons signing the lease and/or are moving with the tenant into the property must sign the lease and agree to follow your terms and policies for renting your property.
2. Description Of The Property
Since the basic rental lease is involved with a rental of a specific property you must identify the exact property so that the lease will be valid if any legal action should occur. It is best when writing the basic lease agreement to add a description of the rented property. Providing simple information such as the address and apartment number is important. If this information is not presented, then the agreement cannot be enforced.
A more detailed description of the property including size, use of garage if available and other key descriptions should be included in this section of the lease agreement. Including basic information allows each party to the contract to have a clear agreement as to what property will be rented by the tenant during the lease term.
3. Terms Of Rent
A basic rental lease contract should always include terms of rent. When writing a lease agreement one of the most important items to include is that you specified everything that is related to terms of rent.
Be specific to every detail and indicate the amount of rent that the tenants will pay on a monthly basis. It’s also important to include your preferred payment options. In this section of the contract, you should also include possible penalties or additional charges for the tenant when the rent is paid late or a rent check issued bounced. The more detail you include in this section the easier it is to charge and collect penalties if there are delays in rental payments. You can also include an eviction clause regarding terms of rent.
4. Term Of The Tenancy
Before renting a property you should always determine what type of lease or length of the lease is best for your company’s rental policy. There are 2 types of basic leases: fixed term and month-to-month. The terms of tenancy should be listed directly after the terms of rent.
The lease agreement should indicate whether it is a rental agreement from month to month or a fixed-term lease. A fixed term lease is a contract that covers a specific time period usually a 1-year lease is standard when renting a property. During the year of the contract, rents are normally fixed and all terms will not change.
If you determine to use a month to month rental agreement then the terms of the contract are valid the entire time the tenant is occupying the property, but you can incur increases in rent and change other terms of the contract on a monthly basis.
In this section of the contract by stating the terms of the tenancy means that you indicate the start and end of the lease. This section can also be used to indicate how and when you and your tenant can end the lease. Any rules, penalties, or terms regarding lease break can be added in this section as well.
5. Details About The Security Deposit
A security deposit is a deposit by the tenant to cover any damages or losses that may incur when the tenant is renting the property. The security deposit is normally the amount of one or two months of rent. This deposit must be paid by the time the landlord and the tenant sign the lease agreement. Depending on State and local laws the security deposit must be handled in different ways. Some States require that the security deposit is placed in an escrow account and the tenant must be given the interest that will be generated by the fund.
Security deposit is one of the most common reasons why a relationship between a tenant and property manager ends on a sour note. When the tenant moves out of the property then that is the time the landlord or property manager can assess any damages and fix what occurred during the tenant’s tenancy. When writing your rental lease agreement in this section you should be specific about cleaning carpets or replacing carpet and if that is covered by the security deposit. Also, any additional possible cleaning or minor damages, like holes in the wall or painting of the interior of the unit, should be assigned a cost to fix in this section to avoid any misunderstandings
A lease agreement could help you avoid any possible disputes with your tenant and that is the main reason you should be specified in this section and state every possible matter regarding the security deposit.
For example, your lease agreement must indicate how much the security deposit is and when it needs to be paid by the tenants. Also again it is very important to be specific about how when or how you will use the security deposit.
The terms or policies regarding how will the security deposit be returned should also be indicated. The property manager should also have an account for deductions and forward that to tenants when returning the security deposit.
6. Details About Pets
As the property manager, you have the right to allow or restrict pets in your property.
Your lease agreement should indicate if pets will or will not be allowed in the rental units. A good recommendation is if pets will be allowed then you should indicate the limitations on number, size, and species of pets that can stay in the rental unit.
You have the right to restrict animals to your properties but there is an exception to it. According to the Americans with Disabilities Act any service and assistance animals are allowed to be taken inside the rented property.
7. Details About Repairs And Maintenance
Before a tenant moves in, explain or tell them the condition of the property. When detailing the description of the property you should indicate what the lessor will cover in upkeep and maintenance. You should also detail what would be the lessee’s responsibility if they decide to fix the property on their own decision. The agreement needs to detail who will shoulder and be responsible for payment of damages that might occur on the property.
Just like the security deposit, misunderstandings about the responsibilities for repairs and maintenance to the rental property are common causes of disputes between the property manager and the tenant. The basic lease agreement is the best place to indicate the tenant’s and property manager’s responsibilities for repairs and damages in the property.
8. Alterations To The Property
Since we already mentioned the condition of the property in the last item, your lease agreement should also include if you allow the tenant to make alterations to the rental unit.
Prior to renting the unit if the tenant wants to change the floors from carpet to hardwood floors that it should be detailed in who is responsible for paying for that alteration and who will actually do the work. When allowing alterations to the property you should always be aware that any alterations should improve the rented property.
Again make sure you list specifically what you will allow in alterations prior to signing the rental contract. This way if the tenant does alterations that damage or make the property less valuable then they would be responsible for paying to have the property restored to its original functionality and condition. If you allow the tenant to make alterations describe in detail in this section of the contract what kind of alterations can the tenants make in the unit.
9. Right To Enter The Property
The laws from state to state vary, but commonly it’s the landlords or property manager’s right to enter a rental property any time needed. In your rental contract, this section should detail reasons for immediate entry into the property if there is a flood or something else causing damages, and also indicate how access can be granted by tenants if doing a basic inspection of the property. You are the property owner but you are not allowed to just barge in or enter the rented unit when the tenant has already moved in. Entering the property without their permission is illegal, you are required to respect their privacy.
In your lease agreement, it’s important to indicate your rights in entering the unit. Explain the reasons why or when you are allowed to enter the unit. Also, inform your tenant that you will provide a notice first before you enter their rented property. I make it a habit to parrot what is already in the local laws (paraphrased) so that the tenant is informed of what is and is not allowed.
10. Restrictions On Illegal Activity
The last term that a basic lease agreement should include is the restrictions on illegal activity. Your lease agreement should indicate that illegal activities and disruptive behavior are not allowed within the premises of the rental unit.
It is advisable to be specific in this section. Make a list of the illegal activities and disruptive behaviors that are not allowed in your unit.
Here are few examples:
- drug dealing
- excessive noise
Remember that as the property manager, it is your responsibility to keep your property and tenants from any illegal activities. You must ensure their safety inside your rented property. Be strict regarding this matter because it is a major factor that can bring your whole rental property business down.
When you’re done making the draft of your lease agreement, you must bring it to a rental lawyer. Your lease agreement will become a legal document. Consulting a rental lawyer is important before finalizing to avoid any mistakes or violation of the law.
Final Thoughts About A Basic Lease Agreement
As we discussed, a basic lease agreement is not that complicated. It just contains the pertinent information about and for the tenant and the rented property.
Before you complete your basic lease agreement, make sure you review the rental laws in your area one last time. Any violations of rental laws can negatively affect your rental property business. Finally, don’t forget to consult a rental lawyer before you finalize your draft to avoid any mistakes or violations to rental laws.
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.