Real Estate Leases: The Landlord's Point of View
In most areas of the country the landlord has nearly complete control of the terms of the lease when he rents real property, such as a house, apartment, or store. This has been the system for hundreds of years and this custom is very difficult to change. From the landlord's view this is the way it should be. The landlord has thousands of dollars invested in the property and he or she does not want to turn it over to a complete stranger without strong legal protection.
In some areas of the country, specifically in very expensive rental cities like Chicago and New York City, local governments have taken rights away from landlords and imposed rent controls and other similar laws. If you own property in an area subject to rent control, then you should check with the local rent control board for their latest rules and regulations and keep up with other legal developments. If you are ever unsure about a law, contact an attorney.
Bad Faith and Unconscionable Leases
In most areas of the country the landlord is free to set most of the lease terms unless they are outrageous or unconscionable. Courts will refuse to enforce agreements that are considered "shocking to the conscience,'' or made in bad faith. What exactly do those terms mean? It all depends upon the judge, jury, and facts of your case. There are few hard and fast rules you can follow.
From the landlord's point of view, the lease should be as strong as possible without being so restrictive that it is in danger of being held invalid by a court. Just what is too restrictive is a matter of state law. States differ greatly in what they allow, and what is legal in one state may be unconscionable in another.
One important clause to have in a lease is a severability clause. This is a clause that states that if one of the clauses in the lease is held to be illegal or unenforceable, then that will not affect the validity of the rest of the lease. Without a severability clause, it is possible to have an entire lease thrown out for one bad clause.
The Best Strategy
The best strategy for a landlord to use is to have a lease that is strong but fair, to screen tenants carefully, and to get as large a security deposit as possible.
Screening Tenant Application. You should use a tenant application that gives you enough information to decide if the tenant is a good risk and to find him or her if he or she leaves without fulfilling the terms of the lease. For screening the tenant, you should get rental addresses and landlord's names prior to the current address. To be able to track the tenant down later, you should get a driver's license, social security, and bank account numbers.
Note: You should not ask any questions about race, nationality, age, disabilities, or anything else that might be illegally discriminatory.
Credit Report. In some areas credit bureaus offer special rates on tenant credit reports. These can be as low as $10 or even $5. When weighed against the cost of an eviction or damage to the property, the cost is nominal. Some landlords avoid the cost altogether by charging a non-refundable application fee. To find a source of reports on tenants you should check online for "credit reports" or "credit bureaus." Or, call a local landlords' association or the manager of a large apartment complex.
Security. Most landlords know the difficulty of getting a large security deposit out of a tenant. With lower priced rentals you may find most tenants do not have money for a deposit and want to pay installments toward the deposit. In such cases you must use your own judgment. It may work out fine, or the tenant may fail to pay rent, damage the apartment, and use stalling tactics to stay in the place for months. Of course, there are many state laws controlling security deposits, so you should be sure to follow the rules for your state.
Other important things a landlord should have in a lease are as follows:
- prohibition on assignment or subleasing or have these be allowed only upon written permission by the landlord
- limit on the number of occupants and animals
- clear definition of and remedy for default
- right to access to the premises
Some states have laws spelling out the parties' rights in these areas, but it is also good to include them in the lease so that the law is clear to the tenant.
Parties to the Lease
Before drafting a lease, you should consider who will legally be the other party. If a couple is renting the unit, then you should get the signatures of both on the lease. This way you have the assets of both guaranteeing payment even if one of the tenants decides to live elsewhere prior to the end of the lease.
If you rent to a corporation, then you should get the personal guarantees of the officers or shareholders. Often a corporation will be a shell with few assets and will allow the principals to walk away from the lease without liability. If the market is soft (many vacant units), then you might consider accepting a corporation without personal guarantees if the alternative is to let the unit sit vacant. A large security deposit would make this situation even more acceptable.
Most tenants will expect to sign a landlord's lease and many may not question the terms. Occasionally a tenant might want to make a change in a lease or to offer his or her own lease. Whether a landlord should agree to either of these would depend upon how tight the rental market is and whether the differences are acceptable.
If a tenant took the trouble to prepare his or her own lease, it’s likely that it includes provisions more favorable to the tenant. Innocent-looking clauses may end up costing the landlord a bundle. From the landlord’s perspective, l it is better to let the tenant suggest changes to landlord’s lease.