Basics of Rental Leases

Basics of Rental Leases

The minimum that a real estate lease should contain is:

  • identification of the parties
  • description of the premises
  • clear terms of payment
  • an agreement to rent
  • a term

In order to protect against various potential losses, both landlord and tenant are advised to add specific clauses to cover many different situations that may arise during the tenancy. Some tenants take care of—and even improve—the property they rent, but others cause serious damage to the premises and fail to pay rent. For the landlord, a lease can offer these protections:

  • locks the tenant in for a set term
  • provides remedies for actions by tenants

For the tenant a lease can offer these protections:

  • locks the landlord in for a set term
  • assures him that the rent will not be raised during the term
  • protects his enjoyment of the premises

Lease or Rental Agreement

The difference between a lease and a rental agreement is usually that a lease is for a set term, such as a year. A rental agreement is for a tenancy that may be terminated by either party at any time (usually with reasonable notice).

For the landlord who wants to be able to evict an unruly tenant or sell the property, there are other solutions that can be used in a carefully worded lease.

The lease should clearly spell out what acts constitute a default under the lease. Strict compliance should be demanded.

If a landlord intends to sell a property some time during the term of the lease, he can either have a month-to-month tenancy and risk losing a tenant early, or he can give himself an "option to terminate the lease." Rather than allowing a landlord to terminate at any time, , the option to terminate could come into effect only if the property were sold. In some states, such an option may not be enforceable. To increase the likelihood that the provision would be enforceable, it should provide that the landlord could terminate only if he paid some consideration to the tenant. This consideration could be thirty days notice plus $100 credit against rent, or one month's free rent.)

Evictions

In some areas evictions are expensive and time-consuming procedures, but in other areas court clerks supply eviction forms and it is relatively fast and simple. The landlord should screen the tenants carefully. The landlord should always get a tenant application with a list of several past landlords. Ask the past landlord questions about the tenant, such as the amount of the rent, starting and ending dates of the tenancy, etc.

Sublease and Assignments

A sublease allows your tenant to lease out the premises to a third party and act as the landlord. In an assignment, your tenant legally substitutes a third party who assumes all of the rights and responsibilities of the lease. In other words, the third party simply steps into the shoes of the old tenant.

Arbitration to Resolve Disputes

Arbitration is an alternate way to resolve disputes without having to go to court. Instead of a judge, an intermediary renders a decision. And unlike a trial decision, which can be appealed, the decision can be binding, if required by the arbitration agreement. 

One of the main benefits of arbitration is privacy. Disputes settled through arbitration will not be heard in a public court. This means any information disclosed during the proceeding is not available to the press or any outside parties. Another benefit is speed. Because the arbitration process is less formal than a court proceeding, disputes can be resolved much more quickly. Finally, arbitration is more likely to produce mutually beneficial results. Unlike a judge, an arbitrator is free to work out compromises. 

On the other hand, the two parties generally have only one opportunity to resolve the dispute in their favor. The one-shot aspect of arbitration without possibility of appeal can make it complicated and costly because both parties want to ensure they have the best attorneys and experts on their side.

Inspections and Checklists

Before your tenant moves into the unit, you should inspect the premises. Some states actually require you to describe the condition of the rental in writing and provide a checklist for each unit.

When describing the unit, clearly identify all of the features, from window treatments to flooring. Next, identify the condition of each feature. List the scrapes, scuffs and other imperfections, as well as any upgrades you've made to the unit. Are there new appliances? Have you repainted or re-carpeted? Did you install a new garbage disposal? A formal move-in checklist helps avoid disagreements down the line should you need to withhold funds from the security deposit to cover damages. 

At this point, you should also take photographs of the unit before the tenant moves in. By documenting improvements and existing features, you can easily identify any changes, including damages to the unit at the time of move-out.