Protect Your Assets When Creating a Lease
You have spent a lot of time and money to create your income producing asset. Now is the time to protect it with a solid lease agreement.
According to the National Multifamily Housing Council Survey, about 37% of homes in the US are rented. While this is near historic highs, which means that there are a lot of clients to go around, it is important for a landlord to exercise caution when entering into a lease agreement.
When you are buying a rental property, you intend for it to make your life easier, not more complicated. One of the best ways of protecting your interests is by having a proper lease agreement. A well-written lease agreement could save you a ton of money and tenant problems; hence it is critical to know the law and consult with a professional to determine your rights and responsibilities as a landlord and those of your tenants.
The following are some of the things to take into consideration when drafting a rental lease agreement:
“I never knew I was not supposed to bring dangerous chemicals into the building.” Some tenants will claim total ignorance when caught with some dangerous explosive or chemical in the house. As such, it is important to clearly state the responsibilities of the tenant in the rental lease agreement. They need to know that they will have to keep the property free of any sanitary and safety hazards. They will need to follow all housing and building codes.
Security Deposit Terms
Tenants will break stuff, and you should be prepared for such an eventuality. The best way to be prepared is to have a security deposit that will usually include:
- Amount of security deposit
- Procedure for returning the deposit
- Name and address of the Institution or Bank where the Security Deposit is held
- Reasons for deducting from the security deposit
One of the best ways of preventing issues is by requiring the tenant to contact you in writing when there are critical things to be discussed. The litigious tenant will usually prefer instant messaging and texts, but these may not be printable and reliable way of keeping records. If you want to avoid any trouble, you need to require that all requests and communication be in writing, such as email or letters sent to a designated address.
Repair and Maintenance Policies
Most tenants will cause a ruckus over security deposits even when they have damaged the property. To prevent such battles, it is critical to explain maintenance and repair policies that may include:
- Whose responsibility it is to maintain sanitary and clean premises and to pay for any damage on the property outside normal wear and tear.
- The requirement that tenants have to alert you to dangerous and defective conditions and have specific procedures for handling repair and maintenance requests clearly spelled out.
- Restrictions on tenant modifications and repairs without written approval from the landlord.
“I have paid my rent and deserve to enjoy the property as I see fit.” We all know of the tenant who has music blaring late into the night, making it impossible for anyone to sleep. A good lease agreement needs to have a code of conduct for such situations. For instance, you may stipulate that there should be no loud music after certain hours.
Term of the Tenancy
Having a predetermined tenancy period which can be anything from a three-month rental or month-to-month agreement, protects you from problem tenants. Check with the local laws on tenancy and include stipulations such as how much notice the tenant or you needs to give before termination of the lease.
What’s Included with the Rental
Explicitly state if you will be providing utilities such as cable, electricity, heat and gas. In most instances, the tenant will be responsible for paying for the utilities, and you need to make that clear. If you will be providing furniture and appliances or any utilities, ensure that you list what is included in the rent and what is not.
Landlord’s Right to Enter Rental Property
It may be our property, but some tenants may throw a tantrum when you exercise your right to entry. They may have some claim to violation of privacy and illegal entry if terms are not clearly set out in the rental lease agreement. Check with local laws on access to the property and spell out what the tenant can expect in terms of landlord access to the property.
Landlord and Tenant Signatures
“I never signed that, and I don’t agree with it”, say some tenants. It is critical to remember that a lease agreement will only be enforceable if it has both the landlord and the tenant’s signature. These signify that both landlord and tenant have read and understood the terms of the agreement and agree to be bound by them. The agreement needs to be signed and dated by all tenants above the age of the majority that are named as parties to the lease agreement.
Consequences for Breach
There will be breaches of the rental contracts, and you need to be prepared. You can prepare by having a very specific list of consequences for violations of the contract. For instance, if a tenant persistently violates the lease agreement or cause damages to property and refuse to pay for the repairs, landlords will issue a warning or an eviction notice depending on the severity, and the repairs are getting deducted from their security deposit.