Landlords know that renting out a property is a risky undertaking, that is why they are aware of the importance of having a lease agreement between them and their tenants. A signed lease form serves as evidence that both parties are aware of the terms, rules, and regulations of the rental contract and that they both agree to abide by it.
Because a lease agreement allows a tenant to occupy a property for longer periods compared to a rental agreement, you want to make sure that you have all your bases covered. This means ensuring that your rental agreement will protect you, your tenant, and your property as much as possible from any potential issues.
Crafting a good lease agreement is not simply stating what day the rent is due each month, by how much, and that tenants should not cause damage to your unit; it is more encompassing than that.
If you have no idea how to come up with one, keep reading because we will tell you the important rental lease clauses, addendums, and disclosures for both tenants and landlords that you need to take note of and include in all your lease agreements.
Standard Residential Lease Agreement
Most people would use the terms “lease agreement” and “rental agreement” interchangeably, but these two are actually different. In general, a lease agreement indicates the exact period a tenant will occupy a rental property, while a rental agreement is only applicable on a month-to-month basis.
This means a tenant is only expected to rent the property for 30 days, but he or she has the option to renew the agreement, with a rental agreement, while a lease agreement allows the tenant to stay in the rental for a year or so on average.
Since a standard residential lease agreement covers a longer time period, the terms and conditions present are more comprehensive. Because of this, both landlords and tenants must mutually agree on everything stated on the agreement before signing.
While it is difficult to change the terms of the agreement before the lease is up because it is made with the expectation that it is valid and binding throughout the duration of the lease, it is still possible to do so. If certain terms need to be modified, there should be a written consent from both parties before the revisions start being valid. After all, it is considered a legally binding agreement and any changes must be made known to and acknowledged by both parties.
What Should a Landlord Include in a Lease?
Lease agreements are personalized to specifically cater to the requirements of both tenants and landlords, and to protect the property from damage. Despite this customization, there are some vital information that a landlord needs to include in all such contracts.
A standard residential lease agreement needs to have the following information:
- Names and contact information – must include those of all the tenants (or all those who will occupy the rental throughout the specified period), landlord, and property manager (if applicable). Multiple tenants in one unit are considered as a group, and they are equally responsible for rent and any possible damage or issues involving the property.
- Details of the property – including the exact location, square footage, type of rental property, amenities, and other features
- Occupancy terms and limits – states the duration of the lease, including when it starts and ends, whether it is month-to-month or covers a specific period, and the required days’ notice if a tenant is asked to move out if (particularly if there is a month-to-month lease). It must also indicate the number of tenants who will live in the property to prevent illegal tenants, including family and friends, that did not undergo screening to live in the property.
- Details of the rent – aside from indicating the required amount, exact due dates, payment methods, and any late or additional charges, it should detail which utilities are covered by the landlord or property manager and which ones will be paid for by tenants.
- Security deposit and other fees – must include the specific amount given by the tenant and other details related to it, any valid reasons or conditions where a landlord can use or deduct from it (such as when repairing damage caused by the tenants), as well as fees that are legally non-refundable. Note that different states set maximum limits for the security deposits, and you must abide by this.
- Rights and obligations of both tenants and landlords – customized depending on both parties’ agreements.
- Policies on alterations, repairs, and maintenance – should clearly indicate if a tenant can alter the rental property in some way, as well as the limit to any possible alterations that they can do. It should also mention what kind of repairs are the responsibility of either the tenant or the landlord
- Landlord access – must state the required advance notice period before a landlord can enter the rental in non-emergency situations, as well as the possible reasons for entering, to prevent tenants from claiming illegal entry.
- Pets – indicates whether the property is pet-friendly or not, any restrictions, such as in terms of size and what kind of animals or breeds are allowed, and responsibilities of pet owners.
- Other important legal restrictions – such as state laws, signing incentives that a tenant can receive from you, acceptable means of resolving disputes, prohibitions for activities considered illegal, and options for extending the lease or a rent-to-own provision
These are the essentials that any landlord should include in a lease agreement, and you can simply customize it to be as applicable to you and your tenant as possible. If you have no clue how to come up with a good lease agreement, there are a lot of templates available online that you can use as your guide.
What is an Addendum?
Even if you crafted a comprehensive lease agreement that you and your tenant agreed upon from the beginning, it is possible that you may have forgotten to include something vital to the lease agreement. Fret not, because it is still possible for you to do so, even if you are already halfway through with the period of the validity of the lease.
What you can do is make an addendum to the lease contract. An addendum, which is a Latin word that means “something added,” is literally just that – something added to an existing document; in this case, it is added to an existing lease agreement. And as we mentioned earlier, any changes made to a lease agreement must be signed by the parties involved, and this includes an addendum.
Since you are just adding new rules or conditions related to an existing lease agreement, it is not as formally sounding as the lease contract. Most often, an addendum:
- Uses easy-to-understand language and terms
- Covers only one issue or topic
- Is considered a part of the lease, that is why it is equally important
- Normally only one to two pages long
- Has provisions or terms that must be followed by all parties, which means they are not optional
An addendum does not require renegotiation, since it is only used to add new conditions, rules, or any missing information to the lease agreement. An addendum is also different from a lease amendment, but people often think that they are the same. An addendum adds something to the lease contract, while a lease amendment changes something in the lease contract.
A typical addendum often only consist of the names of the parties involved, the dates of the original lease contract, when the addendum starts to be effective, and the reason for creating the addendum. To be considered valid, the addendum must be signed by all named parties and attached to the original lease contract.
Some of the most common addendums are:
- Smoking addendum – such as naming designated smoking areas of the property
- Pet addendum – like what kind of pets are allowed and any size restrictions, as well as any additional fees that must be paid in case a tenant has pets
- Renovation addendum – such as in cases where a property will undergo renovations and a tenant signs the lease before the work is completed, the addenda details what kind of work will be done on the property that may affect the tenant
Updating lease agreements with addenda helps make the existing terms become clearer to both parties, preventing conflict or disputes. Do note that addenda can also come in the form of educational brochures that are required by the state, such as the lead paint brochure.
What is a Lease Clause?
While the terms of the lease agreement state the various policies, rules, and regulations that both landlord and tenant crafted and agree to comply with, the lease clauses are specifically made in order to comply with state and local laws that involve tenants and landlords. Because of this, they are typically written in a more formal manner and often use legal jargon.
Clauses in the lease agreement focus on “what-if” situations and the possible consequences if they are violated. And because they are also based on state and local laws, violating these may also have legal consequences.
Lease Clause for Landlords
Landlords like you have invested a lot of time, energy, and money in your rental property, so it is understandable that you want to protect your investment. To do that, here are some lease clauses that you should include:
- Severability – considered the most important, this clause mandates that even if a part or aspect of the lease agreement is found to be illegal or invalid, the rest of the agreement is still considered valid and legally binding. Otherwise, a judge may void the entire lease because of that one illegal clause or term.
- Late Fees – without a late fee clause, a tenant can choose to pay rent beyond the agreed due dates and not be penalized for it. Some state laws put a cap on this kind of charge, as well as require landlords to give a grace period, so check the laws involved first before including this clause.
- Joint Liability – in case multiple tenants live in the property, they are all responsible for paying rent and are all liable for any issues. This means that even if one of the tenants is unable to pay, the rest of the tenants staying in the same property must still pay the entire rent in full. And in case a tenant causes damage to the property, all of them are considered liable for it. All the tenants in a rental are considered a single entity, not individual tenants.
- Accessing the Rental Property – this gives you the right to enter the rental, especially to conduct regular inspections, even if it is occupied by tenants. However, you can only do so during reasonable hours and with an advance notice properly given to the tenant. Even if you own the rental, tenants still have the right to quiet enjoyment.
- Subleasing – unless you prohibit it, a tenant may opt to sublease your rental property instead of occupying it himself or herself. And if you allow it, it is ideal that you require your tenant to gain your permission first before doing so and for you to be involved in the screening of potential sublessees.
- Use of the Property – while it is expected that tenants will live in the unit, some rent properties for both residential and commercial purposes. Be clear if you allow this setup or you would limit your unit for residential use only. If you allow a tenant to run a business in your property, make sure that you are aware of the risks involved, especially if customers will enter your rental.
- Lease Renewal or Holdover – in case the lease is up and a tenant wants to continue renting your unit and does not leave, you may consider it as an automatic renewal of the lease or a hold over where the tenant is charged higher.
- Default – in cases where you or your tenants are unable to fulfill the conditions of the lease, the other party can opt to terminate the lease agreement, like in the cases of non-payment of rent and major lease violations. The aggrieved party must still give due notice before terminating the lease.
- Guests and Their Use of Premises – the more people living in a rental, the faster and worse the wear and tear in your property, that is why you should limit the tenants present in the unit. Without a good occupancy clause, tenants can claim that they have guests present, but you are unaware that these “guests” have already become your unofficial tenants for some time.
- Disturbance – unless the rental is isolated and with no neighbors in sight, a disturbance clause prohibits tenants from making a lot of noise that will cause other tenants or neighbors to complain. Any noise generated by their electronics, such as televisions and sound systems, should be within reasonable levels only and must not disturb others.
- Maintenance and Repairs – you must define what kind of maintenance and repairs are your responsibility, and which ones are that of tenants. Minor ones are expected to be handled by tenants, and major ones are often the responsibility of landlords. And in case of any damage that cannot be attributed to normal wear and tear, tenants are considered liable for it.
- Buy-Out – if for some reason you or your tenant must break the agreement for valid reasons, a reasonable notice must be given to the other party first, as well as compensation for it. Do note that an exception usually applies if the tenant is leaving due to military service; in such cases, they are not required to pay a penalty fee when they have to leave in short notice.
- Moving Out – to ensure that your unit’s condition is as close to its original state before being occupied, make sure to include a clause requiring your tenant to clean up before moving out. Otherwise, you may have the right to deduct cleaning and repairs fees from the security deposit if it meets certain conditions.
While these clauses mostly protect your rights as a landlord, it should also cover the rights of a tenant. Remember, a good lease agreement must have terms and clauses that are beneficial to both landlords and tenants.
Landlord Tenant Utility Agreement
A common point of contention between a landlord and a tenant is in terms of who pays for the utilities. While landlords are obligated to provide basic utilities to tenants renting their units, who shoulders the bills for it will vary – some landlords choose to include it in the rent, while some require tenants to be solely responsible for paying the cost of utilities they consumed. No matter what the arrangement is, the landlord-tenant utility agreement must be made clear from the start.
In many cases, this is the usual arrangement when it comes to paying for utilities:
- Electricity – depends on the agreement between landlord and tenant
- Cable and Internet – tenant pays
- Natural Gas – depends on the agreement between landlord and tenant
- Alarms and Security System – tenant pays
- Garbage collection –landlord pays
- Water and Sewer – landlord pays
An exception applies in single-home rentals, as well as units with separate meters. In such cases, tenants are expected to shoulder the bills covered by those meters, because the usage reflected on the meters reflect their own usage and no one else’s. This allows tenants to give you only their rent payment and pay utility companies directly.
But in cases where only a single meter is used for the entire building with multiple units, you must inform potential tenants about this. While your name is present on the bills for those utilities, you need to have a clear arrangement with tenants when it comes to their share of the payment. To make it easier in these cases, you can go for one of these options:
- Combine the cost of rent and utilities each month that a tenant has to pay
- Get the average cost of the utilities and use it as the basis of the flat rate you will charge your tenants
- Check the consumption of the tenants and bill them accordingly
Whether you will bill tenants for the utilities or let them pay for their own usage, each of them has their own sets of pros and cons that you should be aware of. This is the reason why any arrangement of landlords and tenants when it comes to utilities does not really follow any set of guidelines; it will solely depend on what both parties will agree on.
What Makes a Lease Voidable?
As much as you and your tenant want to reach the end of the lease agreement in good terms, there are times when voiding the lease is inevitable – it can be because certain issues cause it to become null and void, or the lease contract is voidable from the very start.
You might think they are the same but a void contract is different from a voidable contract. A contract that is considered void is one that is not considered valid from the very start, which allows both parties not to honor it. On the other hand, a voidable contract is one that is considered valid, but one party has the discretion whether to continue with it at any time or reject it.
Voidable contracts can be considered one-sided because only one party is bound by its terms and the other party can choose to void it anytime.
In general, any contract can be considered voidable, including a lease agreement, if it meets the following conditions:
- One of the parties involved is a minor, since the law considers minors as “not having the capacity to enter a contract”
- All the contents of the contract are not known to one of the parties before he or she signed it
- Anything that can be considered as fraudulent circumstances
- Intimidation or coercion was used to force one party to sign the contract
- It was signed while a party was inebriated or did not have the mental capacity to think about it properly
If you get a tenant to sign a lease agreement with the above circumstances applicable to him or her, he or she has the right to cancel it at any time without incurring any penalty.
The most common reason for considering a lease to be voidable involves fraud, particularly when lease disclosures required by the state and local laws, namely mold, bed bugs, lead-based paint, radon, and asbestos, are not made known to potential tenants before signing the lease agreement. Not a lot of tenants know about this requirement, and some landlords take advantage of it to lessen their expenses, especially when it comes to conducting an inspection.
Among these, the non-disclosure of the possibility of lead-based paint being present is the most common. Lead paint can be toxic when it becomes lead dust, and this type of paint was used in many homes built before the 1978 ban. Landlords are required to disclose if lead paint is confirmed to be present in the property, and testing can be as simple as using lead paint test kits or be more thorough by hiring lead-based paint professionals to conduct an inspection.
If you want to check your property for lead paint for compliance to building codes, using bulk kits for testing lead paint is the most budget-friendly way to do so. Each box comes with 144 swabs, which is enough to test multiple surfaces of more than one home. Doing so makes you compliant with state laws; otherwise, you are required to assume that lead paint is present and follow lead-safe practices.
Voidable lease agreements work more in the favor of tenants, that is why you need to ensure that your lease agreements with tenants are not just fair but also signed in valid circumstances.