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16 Provisions That Every Lease Agreement Should Contain
There is technically no standard set of terms that a tenancy agreement has to contain.
You can basically put any provision into the contract as long as it does not violate any laws or is considered unconscionable.
An unconscionable provision refers to a term or condition that is unfair.
But even though there is no set of rules of how a lease agreement should be drafted, the following are a list of provisions that most landlords would agree as essential.
Here they are for your observation.
1) Personal details
Because a lease agreement is supposed to be a legally binding contract, it is important for it to include the legal names of both the landlord and tenant.
You don’t want to be grabbing at straws when there is a need to identify who is really renting the house from you.
This is why the social security number of the tenant is another piece of information that should be obtained.
If the property is being rented by a company, the full legal name of the corporate entity must be included.
2) Names of occupants
Technically speaking, when someone who is living on the property does not have his or her name on the lease, the individual(s) is just an occupant.
And they will not have the rights of tenants.
You need to at least have the names of these occupants.
Additionally, you might want to mention the maximum number of occupants permitted in the property.
This is a basic barrier to prevent your tenant from sub-leasing your property… which can lead to other problems.
3) Physical address
It goes without saying that stating the property as the “second house along Filbert Street” is not enough.
The actual physical address of the house needs to be listed.
4) Length of tenancy
While most landlords use years as a denominator when issuing leases, it is not a rule. More like a standard practice.
You have the freedom to rent out an apartment for any period you want.
Just spell out the length of the tenor or if it is on a rolling month-to-month rental.
Deciding on the length of tenancy can be a tricky task.
So remember to consider factors like:
- fluctuation of mortgage repayments
- whether you are going to sell the house in the near future
- are the tenants considered high-risk renters
5) Security deposit
The security deposit is one of the things that tenants can leverage to stress you out… because many landlords can feel that it is their money when it in fact isn’t!
Just a reminder that you do not have a free-hand over what happens to the security deposit.
Do check with local and state laws regarding how security deposits should be handled as different locations can be subject to differing laws.
This is a provision that you need to spell out clearly.
If a tenant fully expects to get the money back when the lease expires, you can bet that he would figt you tooth and nail to get it back.
This is a term that you wouldn’t forget.
State the amount of rent, when it should be paid, and how it should be paid.
It might be news to new landlords that they have the power to penalize tenants for non-compliance.
This usually come in the form of late rental payment fees.
Especially in commercial lease contracts, landlords are known to charge tenants a late fee usually calculated as a percentage of rental on a pro-rated basis.
And there is guideline that is stopping you from charging a fixed fee too.
Just bear in mind that if you are indeed going to install a late payment penalty fee on tenants, state it clearly in the lease agreement to prevent conflicts in future.
8) Expenses that tenants will bear
Here is where you list down all expense items that are the tenants’ responsibility.
The most obvious item that comes to mind is the utility bills.
While it is not always the case that tenants pick up the tab, it makes total sense for them to be responsible for it.
Paying for what they use is justified and will seldom be a term that they would argue over.
If you feel that squeezing your tenants too much is bad karma, you can include a utility rebate off the rent. This will ensure that tenants continue to monitor their usage while you share the responsibility as well.
A $100 utility rebate would be a nice gesture.
9) Maintenance responsibilities
You as the landlord would be mostly responsible for essential services like ensuring running water is available in the house and there is adequate heating.
But there are some things where responsibility can be transferred to the tenant.
- Keeping the swimming pool clean
- Keeping the yard reasonably trim
Should tenants be too lazy to do these tasks themselves, you can often offer these extra services on the side and make a little extra money.
10) List of furniture, appliances, and fittings
If you are new to being a landlord, you might think that it is virtually impossible to list down every item that is in the house.
But rest assured that it is possible,
Because the house would be basically bare to the bone with big furniture and empty cabinets, it is actually very easy to list down all major items in the house.
For example, a bedroom might just contain:
- Queen sized bed with mattress
- Dressing table
- Side table
- Standing lamp
Don’t be lazy and skip listing these items. You would regret it when a dispute arises concerning lost or damage to property.
11) Are pets allowed?
You won’t want a situation where you need to chase out a tenant’s beloved family pet.
So mention it upfront whether any pets are allowed in the house. And what type of pet.
12) Termination procedure
If you think that tenants would implicitly be graceful in their conduct, you would be shocked at how some of them can behave.
Some tenants can literally disappear as soon as they feel that it’s time to move out… leaving you with an operations dilemma.
It is not unusual for tenants to move out without completing the tenor of the lease.
In this case, the process of terminating the lease needs to be clearly stated so that you can take whatever needed actions for your real estate business.
No explanations needed.