Tenancy Agreements - Creating A Watertight Lease | Propertylogy

Tenancy Agreements – Creating A Watertight Lease

By on March 5, 2013

Your tenancy agreement is an asset.

It could also be your savior when you finally find a reason to dig one out to re-read the terms.

So it is important to prepare them right the first time and keep them vacuum packed into a dry closet with the dehumidifier running.

Tenancy agreements don’t just state the terms and conditions between landlords and tenants. They also serve as an indication of the property value itself.

Because a property’s market value is usually calculated on a multiple of it’s generated income, these documents will be able to support the market when you find a need to verify it.

Saying that, the methods that tax authorities around the world to determine the value of property in order to calculate property tax will vary from place to place. A popular method is working out the annual value of a property’s rental income.

Newbie property investors often find it resourceful to download leasing agreement templates from the internet and fill the in blanks.

Thus creating their own legal contracts.

That is sufficient… until you run into disputes with your tenants.

Because when you run into that tenant from hell, you will curse yourself for falling into this self-depicting predicament.

Tenancy agreements are definitely the type of things you want to get right the first time as the consequences of mistakes can be devastating in both time and money when you run into the type of tenants who’s going for blood.

You will require the services of a good property lawyer to help you.

A good lawyer seasoned in leasing agreements should have standard, watertight leases ready that incorporates the law while leaving leeway for you to customize terms and conditions.

It could cost you some money to get a lawyer to do this. But if it can save you from an appearance in court, the money that you have spent on a lawyer is well worth it.

Here are some of the big issues that you want to address in your tenancy agreement.

Particulars of tenants/occupants

Other than getting your apartment trashed like a VIP hotel room, the last thing you want is to have people living in your property whom you are unaware of.

Guests that pop in once in a while will be find. But residents that you don’t know about can be problematic if your luck runs out.

You could be harboring illegal immigrants.

So the names of each occupant should be stated in the contract. Everyone will be tied to the terms. Occupancy is limited to the tenants and their children. No sub-letting, colleagues, room mates, girlfriends, etc.

Period of the agreement

You cannot sign up a tenant forever. So you have to state the period which the agreement enforce.

For technicality, a home rental of 1 year or less is often referred to as a rental agreement. While one for more than one year is referred to a lease. That is the main difference between the two.

An annual tenancy is common practice.

If you want to settle on a longer lease, just consider inserting clauses that allow you to review the rental each year. Or insist on an option to renew into the contract.

Some landlords go with month-to-month tenancies.

If this practice suits your situation, make sure your spell out the termination process clearly to avoid disputes.

Rental terms

Clearly show the amount of rent payable each month. State the day of the month that it is due. Also state how payment should be made.

It could be by cash, cheque payable to you, or other methods you decide. It is also wise to insert a clause that you will charge a particular interest on late payments.

This is just to protect yourself and up to you whether or not to enforce it.

Security deposit

Show how much security deposit you require.

Remember that deposits have to be topped up when rental rates increase.

You have to also clearly explain under what circumstances the deposit can and cannot be deducted and the items that falls into both categories.

Then include information on the criteria to be met for the security deposit to be returned to the tenant.

Who is responsible?

Your tenancy agreement has to clearly state what are your responsibilities and what are the tenants responsibilities.

Landlords are usually responsible for repairs and maintenance. Tenants are usually responsible for keeping the property free from abuse.

It could be your preference to restrict tenants from doing their own repairs and maintenance without your approval. This is because they can cause damage to the property with a lack of expertise even though they have the best intentions. It could also potentially result in injury which might become a liability nightmare.

They should also not be a disturbance to your friendly neighbors. You need the eyes and ears of your neighbors to help monitor the place. So it is not a good idea to be a source of annoyance.

Your rights as owner

Your tenants will surely have the right to their privacy. But as the owner of the property, you should include terms whereby you can enter the property during particular times and periods.

For example, landlords often remind new tenants of their right to reentry for the premises.

Common terms used in tenancy agreements

To get up to speed with drafting your first tenancy agreement, here are some common terms you should get yourself familiar with:

  • Premises
  • Habendum
  • Reddendum
  • Diplomatic clause
  • Escalation clause
  • Forfeiture clause
  • Minor repair clause
  • Rent review clause
  • Constructive eviction clause
  • Non-disturbance clause

As these are legal terms, it is best that you check with your lawyer on their definitions and implications.

Property investments are serious matter. And tenancy agreements are not just pieces of papers stating that you will be paid.

As mentioned earlier, you will find out how important this document truly is when you run into disputes. That’s why land lords often include a long list of provisions that tenants have to adhere to.

The best way is to get a good lawyer to handle this for you.

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