Your rental lease agreement is perhaps the most important document you’ll create, negotiate, and execute as a rental property owner. It’s what you’ll refer to if your tenant has a question, and you’ll need to have it handy if a dispute should arise between you and the tenant. The lease agreement tells each party what their expectations and responsibilities are.
Without a strong lease agreement, your property is at risk, and so is your relationship with your tenant. Today, we’re talking about some of the things you absolutely must have in your lease agreement, and what you should avoid when you’re trying to decide where to find one and how to write it.
Purpose of a Rental Lease Agreement
The basic purpose of a rental lease agreement is to establish a contract between you and your tenants about what will happen. As the landlord, you are agreeing to provide a safe and habitable property for a certain amount of time and at a certain rental amount. Your tenants, in exchange, are agreeing to pay you a specific sum of money in order to live in that home.
When you’re creating your lease, you want to set proper expectations. The agreement should reflect everything that you anticipate happening during the course of the tenancy. In the lease agreement, you want to clearly state your terms are and what you require of the tenant.
Basic Subjects to Cover in the Lease
A good lease agreement will start by identifying the parties involved in the contractual agreement. You’ll need to list your name and contact information, or that of your property management company. You’ll also need to include the tenant’s name and contact information, as well as any other residents, including minors. Make sure the lease includes the property address and a brief description of the property, such as a single-family home or an apartment in a building. Mention the unit number and everything that’s included in the rental, such as appliances and any furnishings.
Next, you’ll need to be sure your lease includes information about rent. You need to say how much rent is due, when it should be paid, how it should be paid, and what happens if it’s late. Include any information on late fees and other consequences.
Your lease should also detail the conditions under which you will enter the home as a landlord. Many states have laws about how much notice must be given and whether that notice needs to be in writing, so make sure your lease reflects the relevant requirements. If you plan to inspect the home regularly, make sure you include an inspection schedule. Maybe you’ll want to visit the property every other month. If you’re planning to review and evaluate the property frequently, make sure the tenants are aware of it.
Move-Out Instructions Are Critical
Including instructions for the move-out process is critical and must be included in the lease agreement. This is your opportunity to tell the tenants, in writing, exactly what you expect when they are moving out and turning possession of the property back over to you. Be detailed. If you want the tenants to have the home professionally cleaned and the carpets shampooed, be sure the lease reflects that. This will minimize your risk and it will give the tenants everything they need to successfully move out of your home and receive their security deposit back.
Remember to mention maintenance items and what the tenant is responsible for doing. If you want the tenants to be responsible for landscaping, include that in the lease agreement. Many landlords forget to address the pool. If you have a pool and you want the tenants to maintain it, make sure your lease lays out that expectation. If you don’t put anything in there about the pool, it will fall on you to maintain the pool for your tenants.
Protect your Investment, but Avoid being Unreasonable
Be thorough and include details, but don’t be too stringent. You might want your tenants to take care of the lawn and landscaping, but if you have trees that are over six-feet tall, you should probably have those taken care of professionally. When you set the right expectations for your tenant and they’re easy to meet, you’ll minimize your own risk and you’ll increase the chances that your tenants will do everything you want them to do.
We don’t like to have tenants subletting their place, so we recommend you include a clause about subletting. If you’re okay with it, that’s fine. But, most tenants will want to sublet their property when they need to move out before the end of the lease period. You don’t want to be in a situation where someone is living in your property who wasn’t screened by you, or chosen by you.
So, give tenants a chance to terminate early if necessary. We include a termination clause so that if tenants need to leave before the end of their lease term, they’ll pay a fee to get out of the property. You could set something up where tenants are responsible for up to two months of the rent when they break their lease and move out; but if the property is rented in a week or two, then the departing tenant is only responsible for those vacant weeks. This gives them an out, and they won’t sublet their property to someone you don’t know.
Include a Pet Policy in Your Lease Agreement
We always recommend that you allow pets in your rental property. If you don’t, you’re eliminating a huge part of the rental population, and you’ll probably lose money on longer vacancies. So, be sure that you’re willing to have pets, but make sure that you’re avoiding any of the possible damage and liability that often comes with pets. A good pet policy should be included in your lease agreement.
If you’re not comfortable with certain breeds, for example, have a list of aggressive breeds in your policy that you won’t rent to. You can also limit how many pets your tenants have. Maybe you just want to allow one dog or two cats. You can set requirements for the age of a pet and the size of a pet. Minimize your risk by including pet information and establishing restrictions. Decide what you’re comfortable with, and create your pet policy around that comfort level. Don’t be too strict by banning all pets, but have some restrictions in place so you’re covered.
Finding a Credible Lease Template
When you create your lease, you’ll want to make sure you’re using a lease that is legally enforceable in your state and compliant. You can find a lot of leases online, but be careful about the template or the outline that you choose. Use a credible source as a template. Don’t create your own lease agreement based on what you want or don’t want. You need a lease that’s going to hold up in court if necessary.
At Mynd Property Management, we are professional Realtors, so we always get our lease templates from the Real Estate Department of the state we’re working with. Each state will have its own real estate department or professional organization, and you should try to access their forms and documents when you’re looking for a great lease template.
If you don’t have access to a Realtor’s lease agreement, find a credible online source from another professional organization or even a professional property management company. Look for a simple and easy template, and build off of that if you can. Our leases are usually two or three pages. You don’t need a 30-page lease. It’s unlikely your tenants will read it, and it will probably include a lot of legal jargon that you and your tenants struggle to understand.
You want to have enough information in your lease to protect yourself and share valuable information with your tenants, but you don’t want it to be too crazy. Sometimes, landlords put everything they can in there and they include huge and cumbersome restrictions that will turn the tenants off.
You want to give yourself 100 percent protection, but that’s nearly impossible. Landlords can put anything they want in a lease; it doesn’t mean it will stand up in a court. The judge may not side with you if something in your lease is ridiculous. So, keep it simple.
A good rule of thumb we follow is that if we can’t understand something ourselves, we don’t include it in the lease agreement. If you cannot explain something in plain language, it might be too cumbersome to include in the lease agreement. Keep things simple. Make sure someone with a high school education can read and understand it. Remember, your tenants aren’t only seeing this – a judge may potentially see it. If you ever have to evict or defend yourself in court against a tenant’s claim, you want to make sure your lease holds up.
The goal of your lease agreement is to minimize your risk without overburdening the tenant. If you have any questions about lease agreements and how to protect yourself as an Oakland landlord, please contact us at Mynd Property Management. We can help you find a great tenant and include all the state-specific language that your area requires.
About Benton Cotter
Benton Cotter is the VP of Regions for Mynd Property Management. As such, he’s in charge of managing the on-the-ground operations team, including the firm’s Regional Directors. Most recently, Cotter was one of the founding members of RentVest.