Basic Legal Clauses in Real Estate Leases
Every lease is different, specific to the property and the landlord and tenants’ needs, but there are some basic legal clauses that are common in many leases.
Parties, Property, Consideration, Agreement Purpose
The lease must contain the names of the parties, a description of the property, a recitation of consideration (mutual agreements in the lease), and an agreement ( covenant) to rent. It is best for all parties if there is a clear description of exactly what property is included in the leased.
- Landlord's Position. It is usually in the landlord's interest to have all adult tenants sign the lease. That way, they could all be held liable in case of default. If the tenant is a corporation-especially a new corporation-or a trust, then the landlord should require an officer or beneficiary to personally guarantee the lease.
- Tenant's Position. If the tenants are a married couple, then it is better if only one of them signs the lease. If both sign the lease then all of their joint property could possibly be subject to the landlord's claim. The law governing this issue varies by state, so you should discuss this matter with an attorney to learn more
The place and manner of rent payment should be clearly spelled out. In some states a landlord may require that payment must be in cash even if the lease does not say so, but in other states this is not so.
- Landlord's Position. If a landlord has accepted checks throughout a tenancy, it is possible that he will not be able to suddenly demand cash. In any case, it is best to have it clearly spelled out in the lease.
- Tenant's Position. The tenant does not have a separate position in this clause because rent is solely a landlord benefit.
There is generally a clause indicating the amount of money a tenant must pay up front. This is for the landlord to hold in case of damage to the premises, or if tenant leaves without paying rent.
A security deposit is one of the most important things for a landlord to have in a lease. It is the best protection a landlord has against damage to the premises or a default in the lease. In some states, it is common for a landlord to require both a security deposit and a last month's rent deposit. In others, there is just one security deposit that can be used for any type of damages; not just rent.
Note: Security deposits are strictly regulated in many areas. Some laws require that the deposits are held separate bank accounts or the payment of interest to the tenant. You should investigate the rules in your state and comply with them.
Both parties usually want to be reimbursed for their legal fees if they must go to court to protect their rights.
- Landlord’s Position. The landlord wants to be reimbursed for his legal fees in the event that he has any trouble with tenant.
- Tennant’s Position. The tenant prefers not to pay legal fees unless he is taken to court and loses in court. He would like to have his legal fees paid if he wins in court.
Note: In some areas the winner of any court case would be allowed attorney's fees no matter what the lease says.
Note: Because a judgment can be enforced against a tenant for many years, (with interest) it is good to obtain one in any litigation against a tenant. The financial position of even the most judgment-proof (unable to collect from) tenant might change over time. However, if a landlord is more concerned with countersuits by tenants, he or she might consider an option stating that each party will pay their own attorney's fees. In some states this may be unenforceable, but in others it could save money and avoid litigation.
A jury waiver clause allows for a trial without a jury. Only a judge presides.
- Landlord's Position. Since jury trials usually take longer than trials before a judge, tenants often request them just to delay the process. Also, some believe that juries more often side with tenants. Therefore the waiver of a jury trial is usually in the landlord's interest.
- Tenant's Position. Tenants would prefer this clause not be in the lease because they would like the option of having a jury trial.
Note: In some states, the jury waiver clause may be unenforceable and some judges may even consider it unconscionable.
This clause makes it clear that allowing a tenant to do something once does not mean it can happen again.
- Landlord’s position: If the landlord lets a tenant do something once, the tenant may be able to legally do it again.
- Tenant's position: A tenant prefers to have the same rights as the landlord.
If the tenant leaves the property and removes his or her possessions before the lease ends, this clause allows the landlord some choices.
- Landlord’s position: The landlord wants to quickly re-rent premises if the tenant vacates. Because there can be a dispute as to whether or not the property was actually abandoned by the tenant, the landlord may want a clear definition of abandonment. However, this definition might be overruled by another definition provided in state or local laws.
- Tenant's position: The tenant would prefer that there is a clear definition of abandonment.
This clause allows the landlord to refinance the property.
- Landlord’s position: The landlord may have trouble refinancing the property unless the tenants subordinate their leasehold interest in the property to the financing. (This means that the tenants agree that the lender has a superior right to the property than the tenants.)
The risk to the tenant is that if the bank forecloses, then the lease will no longer be in effect. In both residential and commercial tenancies, this could mean either termination of the tenancy or higher rent. In a soft rental market the landlord may be glad to have the tenant stay at the same rent, but in a commercial tenancy where the tenant may have thousands of dollars invested in the business premises, the lender could use this to force the rent higher.
- Tenant's position: The tenant would prefer not to subordinate his lease to the lender because then the lender could remove him if there is a foreclosure. However, in most cases (unless the rent is low) the lender would prefer for him to stay and pay rent. So in most cases this is not a big issue. The best situation for the tenant would be to not have this clause in the lease.
Surender of Premises
This clause lays out how the property is to be returned after the lease terminates.
- Landlord’s position: The landlord wants to ensure that the tenant understands that the premises must be returned in clean condition In general, it is best t to change the locks whenever a tenant leaves.)
- Tenant's position. In general, the tenant is not responsible for normal wear and tear on the premises. The tenant should not leave the premises dirty or damaged, but would not be held liable for the wear related to the time the tenant occupied the premises. From the tenant's point of view it is best to spell this out in the lease, but even if it is not spelled out this will usually be case according to state law. Tenant would also like to have his security deposit returned at the time of surrender.
Alteration and Improvements
This clause sets the standards by which a tenant can change the rented property with things like paint and fixtures.
- Landlord's Position: The landlord does not want tenants to alter the premises or to use unusual paint colors on the premises. The landlord also does not want the tenant modifying the electrical or plumbing systems, which could cause damage to the property or to other tenants spaces.
- Tenant's Position: The tenant wants flexibility to modify the premises, and if the modifications improve the value of the property or the tenant agrees to return the premises to its original state, there should be no objection from the landlord.
Some leases need to establish whether recording of leases is allowed.
- Landlord's Position. Landlords want to be sure the lease is not recorded in the public records, since it would be a cloud on his or her title to the property.
- Tenant's Position. The tenant usually does not need to record the lease unless it is a long term commercial lease.
Access to Property
This clause sets out what rights a landlord has to go into the rented property.
- Landlord's Position: Generally, state law l gives the landlord the right to enter the premises for such things as inspection, repairs, or showing them to prospective tenants or purchasers. (This is called the right of access.) In some states, the landlord has no right to enter the premises unless such a right is reserved in the lease. In any case it is best for both parties if the right of the landlord is spelled out clearly in the lease. This way there can be no misunderstanding.
- Tenant's Position: The tenant prefers that the access be only at reasonable times and that he or she be given prior notice.
This clause dictates the installation of locks.
- Landlord's Position: The landlord wants to always have a key to the property so that he can get in for emergencies and in the event the tenant vacates the premises.
- Tenant's Position: The tenant usually cannot keep the landlord from having a key to the premises, but might like to change the locks in case the last tenant kept a set of keys. For extra protection the tenant should insist on permission to add a deadbolt lock, if one is not provided, on each exterior door.
In case a court finds that one part of the lease is void, unenforceable or unconscionable, this clause offers the landlord protection by preventing the entire lease from being void.
- Landlord's Position. The landlord usually does not want that one clause to cause the whole lease to be thrown out.
- Tenant's Position. Tenant's rights are usually not affected by this clause.