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Important Terms When Drafting Your First Basic Tenancy Agreement
There are people who sell template tenancy agreements. And if you are lucky, you can also find free standard template that are the most “popular” with the most downloads. There is no pleasure in bursting your bubble. But if you have to go to these means to obtain something that protects your property investment, you should rethink whether properties are the right kind of investments for you.
Different countries have different laws regarding property, they will also have different terms and practices in the industry. Different landlords will also have different terms to insert. So 1 tenancy agreement, or leasing agreement, that works for someone does not necessarily work for everyone. You are shooting yourself in the foot by downloading and using templates found on the internet. The best way is to engage a lawyer to help you.
Before even drafting your tenancy agreement that you secretly hope that the tenant will sign without reading, you have to figure out how you want to approach your terms and items. The essential terms are your rental rates and length of stay. Some of the most typically important terms and items in a tenancy agreement are listed below for you to consider inserting into the contract. Or use this as a guide to structure them into your draft. Remember that every tenant is different with different demands and expectations. You have to work out what kinds of terms work best for you.
You are advised to seek the help of a lawyer when in doubt. You are responsible for your own actions.
Landlords who have been in this business for a while knows that one of the most important items in a contract is to list down the names of those who are eligible to live in your apartment. This include names of adults and children. All adults have to sign the tenancy agreement. New tenants have to get your approval if they wish to move in.
Make all tenants jointly liable for rentals and damages. This will prevent blame from passing between tenant to tenant. Tenants who take the blame may have moved out leaving you on one to claim from. This term at least gives you the right to stake a claim from the remaining tenants.
This is a tricky issue to handle. Your tenant may have a visiting cousin who is staying over for a week. And you have suspicions that it is not really a cousin. Calling out your tenant on a lie is not exactly a good way to manage your relationship. Your tenants came all the way from another country alone to work. Now they have friends visiting them to add colour to their lives and you have to make noise over it. You can insert a “guest clause” in your agreement that clearly states the number of guest allowed at any one time and the length of time the guests can stay.
Sometimes misunderstandings can occur due to space restrictions. This occur most evidently in multi-tenanted properties. To pre-empt this, descrbe clearly the space entitlement of each tenant and common areas that everyone can use. Examples of these areas include basement, attic, storage areas, balconies, etc.
Draw up a list of furniture and electronics in your property. Include serial numbers of them. This is for the tenants to acknowledge that these items are present in the apartment and in working condition. You definitely want to be compensated when these items are damaged or go missing. To prevent opportunistic tenants from replacing your LED television set with a LCD, note down the serial numbers of your electronics.
Late payments and early payments
To discourage tenants from late payments, you can add a penalty fee clause. Some people just make it a habit of being late. You should not tolerate lateness no matter what the circumstances. If lateness are due to cash flow, the better way for you to manage this is to set a payment date that suits the cash flow circumstances of your tenant instead of accepting late payments. To encourage early payments, you can offer a small discount when tenants pay early.
More on late rental payments
If you allow a tenant to pay you 3 day late each month, in 10 months you could be looking at loss 1 month worth of rent. Consistent lateness should warrant termination, or even forfeiture of deposits. Be a nice guy on this and you will be the one taken advantage of. Crafty individuals may even give you the run around by issuing post-dated cheques or straight out bounced cheques. See to it that these instances are classified as late payments. The most leeway you can offer your tenant is 2 chances. By the third occurrence, it should warrant your actions.
At times, tenants will want to personalize your apartments for themselves. They may want to hang a huge painting that requires your walls to be punctured, paint your walls pink as they just love the colour, or even landscape your garden with their own favorite trees. They may genuinely think that they are helping you out by beautifying your property. And you think otherwise. To prevent this from happening, insert a clause that requires your personal approval for any of these “improvement” to be carried out.
Depending on where you investment property is, laws may prohibit you from entering your property without the tenant’s permission. Not that you want to invade other people’s privacy. But you should have a term that allows you to enter your property without needing their permission. As a compromise, you can state what are the hours that you can enter the property.
You don’t want complaints from neigbours about your noisy tenants. Even worst if your tenants are complaining about other tenants in a multi-tenant property. So state in your tenancy agreement that they cannot be a disturbance to the neighbourhood. List down activities that you consider as a disturbance to the neighbours.
Depending on how you view your risks on a particular investment property, you may require your tenants to buy tenant insurance. To learn whether this is something that you should include, it is best to check with your insurance agent on how these insurance schemes work.
Assignment and subletting
Sometimes, your tenants could be out of the country for a prolonged period of time. They may want to sublet the apartment to someone else at this time. They may also be making a permanent move to another country while there is still a long period left in the tenancy contract. This is a time where they might want to reassign the lease to someone else. To deal with these issues, you can consider one of these options.
- Absolutely no subletting or reassignment
- Allow only with your permission while the tenant remains liable for rental and damages
- Allow only with your permission while the new tenant are liable for rental and damages
- Tenant are free to do as they please as long as they remain liable for rental and damages
There are good reasons why some landlords totally prohibit animals in their properties. You have to make a decision on this one if the tenant wishes to bring in one. If you indeed agree to allow pets in your apartment, state your rules clearly. Pet owners are passionate about their pets. So rules that make their pets look like prisoners just gives a bad taste in their mouths.
There are 5 key aspects of the security deposit to address in your tenancy agreement.
- The amount required
- When does it have to be paid
- The conditions to be met for full or partial forfeiture
- The conditions to be met to return the money
- Interest on the deposit, if any
If your property is a landed one with a garden, this will be of particular interest to you. Either you or your tenants will have to attend to caring for the garden. If the tenant takes up the responsibility, make sure you communicate what is required for “caring”. A person might interpret that as watering the plants. Another might interpret it as cutting the grass. There are many more other ways different people can interpret this one word.
Some tenants may have a car or even multiple cars. You could be subjected to costs for every car in the property. Be sure to mention how many cars can the tenant park in the building and the additional fees for additional vehicles.
Repairs are usually taken up by landlords unless breakdowns are clearly caused by tenant abuse. You probably don’t want tenants to start attending to their own repairs on your apartment anyway. To prevent abuse of calling for repairs, you can consider charging a fee for types of unscheduled repair work. You will definitely have to attend to emergencies.
Set your standards of cleanliness that the tenants have to adhere to. Uncleaned apartments can cause pest infestations, weird odours, health hazards, etc.
Use of premises
You will be the talk of the neighbourhood if tenants are using your property for illegal activities like drugs, and gambling. State your rules of use and specify what are not allowed. When bad things happen, not only are tenants liable, you will be responsible as well.
Tenants come and go. It is the reality of this business. To avoid extended periods of vacancies, requiring a notice period from tenants to inform of their outgoings will give you time to start searching for new tenants. It also gives you time to prepare repair and maintenance work that you want to do before renting out your property again.