A lease agreement is a binding contract between the tenant and landlord that is signed by both parties once they agree on the terms of the relationship. It designed to protect you—the landlord and your property. You can use it as a reference when the obligations of both parties come into question. A poorly written one, however, can cost you time and money if things go wrong and there is a dispute.
To avoid this, don’t try to wing it by writing your lease on your own. Once you come to an agreement with your tenant and you create a draft of the terms, always make sure the final lease is reviewed by or written by your real estate lawyer. The same is true if you use a standard prepared lease. Your lawyer will protect your best interests not only by using proper legal language that is clear to understand but will also be able to bring up legal or other concerns you should be watching out for that you may have not thought about. This way your tenant won’t be able to turn the tables on you if there is a disagreement about something. You’ll be able to stand your ground because you’ll be protected by a strongly written agreement.
If this is your first lease, familiarize yourself with your local and state laws regarding rental properties. Each state and city have their own unique set of laws. Some states are more tenant-friendly and others are more landlord-friendly. For example, the rent control laws in New York City, which apply to some properties and not others, protect the tenant from unfair drastic price hikes.
Among the laws, an important national law to know is the Fair Housing Act of 1968. This law, an addition to the Civil Rights Act of 1964, prohibits discrimination against potential tenants based on color, race, national origin, religion, sex, familial status, and disability. This act is enforced by the US Department of Housing and Urban Development (HUD).
Once you familiarize yourself with the laws, you can be mindful of them when putting together your lease and other forms of communication. By knowing your facts, you’ll know exactly what you can and can’t put in your lease.
Each lease is different. What applies to one tenant and one landlord and property won’t apply to another. Regardless, the lease should still contain the same important information across the board. Some of these points include the amount of rent, when it is due and when it’s considered late, the amount and details of security deposits, a statement on the good condition of the property and furniture, amount of notice needed to enter the property (check local/state laws), pet policy, and what will happen if tenant defaults on rent or breaches another part of the lease.
Whether the terms are month to month, or yearly, etc., along with a statement on giving notice early and what will happen, is also necessary.
Also, keep in mind as a real estate investor that you may want to sell your property while the tenant is still in there. Your lease should contain clear language that properly addresses this issue. This is another important reason to have your real estate lawyer take part in the lease preparation.
When you do your due diligence with your lease preparation you can be assured things will go more smoothly than if you had written a sloppy lease with leaks. Both you and your tenant will know where you each stand during the duration of their stay in your property. Not only will you save money in the long run, but instead of dealing with problems you will have the time to focus on other important things, like generating more wealth.