If you’re in the process of renting out your first investment property, you might prefer to work with a simple rental agreement, but it’s important to take a look at what terms are in your rental agreement, and what terms you need in a rental agreement to provide you with adequate future protection and security.
Lease Agreement vs Rental Agreement
Before you start looking for tenants, you need to decide what kind of rental arrangements you would like to make. Generally, there are two types of agreements landlords can use—rental agreements and lease agreements. While rental agreement and lease agreement are often used interchangeably, there are some key differences between them.
- Rental Agreement. A rental agreement is generally month to month. During the rental time, the landlord can make changes to the rent and the rules of the property as long as they give the tenant proper notice. In most cases, a landlord must give the tenant 30 days notice before making any changes to the rent or the property rules. However, the amount of time needed can vary from state to state.
- Lease Agreement. A lease agreement lays out the amount of rent due for a specific amount of time. During the rental time, the landlord cannot make any changes to the amount of rent or the property rules. If the landlord wants to make changes to the terms of the lease agreement, they have to wait until the lease has expired and renegociate new terms to the lease.
While standard rental agreements are a good starting point, not all include all the necessary terms they should include. Even if all you want is a simple rental agreement between you and your tenant, there are some important terms which should be included in every rental agreement.
Whether you need a home rental agreement, an apartment rental agreement or a room rental agreement, you should use a rental agreement that includes the following terms and/or clauses:
- Names of all parties to the agreement, including all adult tenants. It’s important that your rental agreement includes the names of not only you and your main tenant but also all the other adults who will be occupying the premises. This ensures that all adults who will be living on your rental property are responsible for the duties and obligations of the tenant as outlined in the agreement, including the payment of rent. It also means you’ll be able to terminate the rental agreement if any one of the tenants violates the terms of the lease. If you only list one person as a tenant, and any of the other occupants who aren’t listed violates an important term of the lease, you will have fewer options.
- The term of the tenancy. This clause will set out whether the rental agreement is a month-to-month rental agreement, which will run from month to month unless you, the landlord, or the tenant terminates it, or whether the agreement is a lease agreement for a fixed term. Lease agreements are typically for a fixed term of one year, with the agreement setting out options for renewal on the expiry of the fixed term. Termination options should also be addressed.
- Rent. Your rental lease agreement should have provisions that spell out the amount of rent that’s due, when the rent payments are due, and how the rent payments should be paid.
- Limits on occupancy/subleasing. This important provision ensures that only those who have signed the lease, along with their minor children, can live on the rental premises. Tenants will also not be able to sublease the premises to another party without your approval.
- Security deposits and other fees. Security deposits are often very contentious issues between a landlord and tenant, so it’s important that your rental agreement is very specific about all matters related to the security deposit. This includes not just the amount of the deposit, but issues such as when and how the deposit may be used and when and how the deposit is to be returned. Your agreement should also cover what kinds of fees (for example, cleaning or repair fees) can be deducted from the security deposit. You should also check your state’s laws relating to security deposits, as they may set out certain requirements with which you will need to comply.
- Repairs and maintenance. Both you and your tenant should have particular maintenance obligations under the rental agreement, and these should be clearly set out in the terms. The tenant, for example, should be responsible for maintaining clean premises, as well as be responsible for any damage he or she causes. The terms should also obligate your tenant to inform you of any repairs that need to be made to the premises for which you are responsible.
- Right of entry. Not making necessary repairs can place you in violation of the lease, but what if your tenant won’t provide you with the access required to make such repairs? Your rental agreement should specify the conditions under which you are allowed to enter the rental property, and also what notice is required prior to entry. Because state law often regulates a landlord’s right of entry, you should check to make sure the provisions set out in your rental agreement conform with legal requirements.
- Disruptive behavior and illegal activities. Your rental agreement should have provisions which clearly state what constitutes disruptive behavior (for example, excessive noise) and illegal activities (for example, dealing drugs) and prohibit such behavior and activities. Your rental agreement should also provide that such behaviors or activities constitute grounds for terminating the agreement.
- Pets. If pets are not allowed, this should be clearly stated in your rental agreement. If you do allow pets, the agreement should specify the maximum number of pets permitted, and also state any restrictions as to the kinds or types of pets permitted (for example, large dogs). The provisions should also address your tenant’s responsibility to keep the rental premises clean.
- Damage to premises/alteration to premises. Your rental agreement should state who is responsible for damages to the rental property. Additionally, it should describe what types of alterations your tenant may make to the property, and when your permission or approval for an alteration is required.
In addition to these terms or provisions, you should also consult state and local laws to ensure that the provisions in your rental agreement comply with legal requirements. For example, state or local laws may regulate notice requirements, subleases and how you may deal with a tenant’s property when that tenant leaves owing you unpaid rent.
A severability clause is another provision you should have included in your rental agreement. If your rental agreement contains a severability clause, then in the event any particular clause of your agreement is illegal—for example, because it doesn’t comply with state laws—the remainder of the rental agreement will not be affected by this illegality.
Even if you decide to use a generic rental agreement or a blank rental agreement, provide yourself with the protections every landlord should have by making sure you include these ten terms or clauses in your rental agreement. According to RentPrep.com, one of the most common mistakes landlords make with lease agreements is they buzz through them with their new tenants. It feels awkward or too long so they hurry the process. Take your time going over the lease and all of the aspects of it. Having good communication up front helps to avoid issues later on in the relationship.