Property rentals can feel like going through through a maze without a map, especially when it is your first time renting!
Whether you’re a first-time renter or a seasoned landlord, understanding the nuances of a legaly binding document like this is important.
Let’s learn everything there is about residential lease agreements and decode all the process and legal jargons together!
Table of Contents
1. What is a Residential Lease Agreement?
A residential rental agreement is a legal contract between a landlord and a tenant. It basically outlines the terms of tenancy and protects both the parties from getting exploited.
As this agreement is legally binding, it needs to be thoroughly examined before signing. Plus if you have any question you should consult it with an attorney.
2. What is included in a Residential Lease Agreement?
Residential lease agreement includes all the essential details of the lessor and the lessee. To begin with, it has to have all their basic information – their names, phone numbers, email addresses, and addresses.
If there are any co-owners of the property, their names and details too must be included in the documentation. It’ll help to include the details of any property managers if anyone is involved in executing the deal. Along with these details, one should have the details of children or other people living on the property.
It is essential to know that certain states limit the maximum number of occupants on a property. In such cases, following complete occupancy standards is imperative.
2.1 All about the property
It is imperative to include all the details of the property. Usually, there are two main types of rental properties. There are single-family homes and multifamily homes.
Single-family homes are the usual standard houses or townhomes, while multifamily homes are duplexes, multiplexes, condos, basement apartments, mother-in-law suites, and apartments.
When mentioning the type of property, it is essential to include information about who the property belongs to. For example, is it part of a homeowner’s, or does it belong to a condo association?
2.2 Utilities & services
This part of the agreement must detail every aspect of the services and utilities available to the tenant.
To state a few examples, it must include the availability of natural gas and electricity, phone, internet, and cable services, trash and snow removal, water and sewer services, landscaping, furniture and fixtures, and other specifics unique to that property.
It needs to mention how tenants can utilize these things and how they will pay for them.
2.3 Exit, eviction and renewal
This section of the lease agreement includes details of different scenarios in case the tenant has to exit before the stated agreement’s expiration date.
The terms of the lease consist of two aspects – termination and eviction. You need to check whether the termination clause has the end date details, the conditions, and the other provisions. Like – what if the tenant wants to renew the lease?
From the usage of drugs to subletting without the landlord’s knowledge to violating rules mentioned in the agreement, it is imperative to include as many scenarios as possible.
2.4 Date and Amount
This agreement section mentions the date of paying the rent and the amount.
One can break it down into three aspects – the first due date, the monthly due date, and the monthly amount to be paid.
2.5 Additional fees
When the two parties decide on the other aspects of usage – like electricity or gas, or any other service being provided to the tenant, it must mention how the tenant will pay these additional charges and by what date.
This section also must include late fees in case of check bounce for insufficient funds or any added fees levied on the tenant.
2.6 Payment method
Both parties need to decide beforehand the payment method that both are comfortable following. One needs to state this in the agreement clearly.
Usually, online payments, check payments, and money orders are the methods followed by most people.
Some of the tenant obligations include:
- Only legally allowed residents will stay on the property.
- There should be no commercial activities on a residential property.
- Following the rules and regulations mentioned in the lease agreement.
- Not disturbing other people who are residing on the premises.
- In case repairs are needed, inform the landlord accordingly and cooperate with the landlord to get the needful done.
- Use and maintain the property properly. Keep it clean and sanitary.
A few of the landlord’s obligations include:
- Ensuring all the clauses mentioned in the agreement are followed, like maintaining the property well and keeping it liveable for the tenant.
- Maintaining the tenant’s privacy and not interfering with their lifestyle.
- Completing the necessary repairs in time.
- Providing the required utilities that are promised and mentioned in the agreement.
2.8 Insurance of tenants
If the tenant needs to buy a renter’s insurance, one must mention this at the onset, and the agreement should carry that clause. Certain states precisely follow this rule.
If that’s the case, maintaining comparable liability insurance is a wise thing to do. Including a minimum coverage amount in the lease agreement keeps everything clear on paper.
There are insurance brokers who are experts in this aspect. Approaching them is a good move.
2.9 Customized rules
These are specific rules to eradicate all ambiguity. Some of them include:
- Written consent rules: These are related to things like painting, changing locks, any modifications made on the property, and other specific aspects. The documentation of these aspects abolishes ambiguity.
- Association rules: Homeowners or condo association rules mainly apply to the neighborhood or association. These need to be mentioned and followed diligently.
- Rules of Safety: Everything about the safety of the property and premises is part of this section of the agreement. Aspects like the maximum weight allowed to keep on balconies or porches, prohibition of explosive stuff in unsafe places on the property, and other such things.
- Fundamental rules: Some landlords include essential rules too in the agreement. What happens if a key is lost? What are the actions to be taken to get a new key? Who pays for it, and how does one get that made?
- Maintenance rules: These rules are various aspects of the agreement, which include things like trash removal, mowing the lawn rules, shoveling sideways, and many such.
Clear policies about different aspects too needs to be included in the agreement.
For instance, what are the pet policies, smoking, and parking dos and don’ts? In some cases, pets need additional insurance and rent. However, assistance animals do not get included in this clause.
This policy must mention parking policies, areas, and anything specific to the property. There are instances where landlords offer additional storage space. If that’s the case, one needs to add that particular clause along with the extra rent charged.
When everything is in writing, it is most important to go through every aspect of the agreement in detail and check for errors and omissions.
Once the document is ready, it can be sent to the tenant electronically for them to go through this master document. After the two parties agree on all the terms and conditions mentioned in the agreement, the parties can seal the deal.
3. Things to do when Leasing out a residential property
3.1 Inform and share your rental unit with tenants
First things first – the tenants need to be shown the property. Visiting the place and seeing it firsthand helps them make their decision. Most times, it is love at first sight. If the tenants like what they see the moment they step onto the property, they’re more likely to enquire about it.
There are two ways of conducting these visits. One way of doing it is going to the property directly and showing the could-be tenants the house. The other way is hiring a property manager (some companies do this regularly) and letting them show the property to the tentative tenants.
3.2 Filling out a rental application form
If the tenant likes the property and is okay with the rent charged, the second step is asking the potential tenant to fill out a rental application.
The form comprises basic details of the tenant, such as name, current address, level of income, rental preferences, and place of employment (a verification letter from the employer should suffice).
3.3 Background checks
Running a background check on the to-be tenant is important. In addition, it’s essential to check for any criminal history or a history of bad credit to avoid bad tenants. Criminal history is self-explanatory.
No one wants to have a tenant with such a past. However, if they were only involved in something petty for which there is a criminal history, it can be considered an exception to the rule. In such cases, anti-discriminatory laws protect such tenants.
A bad credit history clearly shows lousy money management. It could lead to rent not being paid on time or skipping rent sometimes. But, of course, no one wants to get into such tricky matters, given there is history. So be doubly sure to correctly do the background checks.
3.4 Tenant references
While doing the background check, it is essential to get in touch with the references that the tenant has mentioned in the application form. Calling them and checking their authenticity is imperative.
In addition, it is most important to figure out their genuineness, their capacity to pay. The questions for such reference checks can include if there’s any criminal history or if there has been any bad credit history of which these references are aware.
3.5 Preparing a lease agreement
Now that the landlord and tenant are happy about the property, it’s essential to use a lease agreement builder and customize the lease agreement as per the wants and requirements of both the landlord and the tenant.
This document needs to include the date when the tenant can start to use the property, the end date, the tenure, the monthly rent amount, and the date on which the tenant will pay it.
\Both parties need to agree to these terms and amounts. It should also include late rent fees, who will bear the utilities’ expense, and penalties incurred if the lease is terminated abruptly for any reason. Finally, if the tenant is not moving in immediately, one must add a prorated rent. It is the rent for the period from the date of the agreement until the tenant moves in.
3.6 The final handover
Once every bit of the agreement is finalized and listed, and both parties agree upon the terms, it’s time to go through the rental inspection checklist and take note of the property before the tenant moves in. Once this process is done and finished, it’s time to hand over the keys to the property to the tenant.
4. What are the different ways to create a residential lease agreement
There are two ways to create a residential lease agreement:
4.1 Standard lease agreement
It is a master document where one needs to mention the essential details about the tenant and the landlord. It includes:
- Contact details of the landlord and the tenant
- Every property detail including address, area, amenities, unique selling proposition, and other vital information.
- This agreement also should include lease specifics – term and type of lease.
- Rent details can consist of the amount, date, and late fees in case of failure of payment of rent.
- Security deposit details such as the amount, when to use it for other purposes, and when to return it.
- Dispute resolution methods – in case of any discrepancy, the plans and actions are to be taken to resolve the issue.
- The landlord’s and the tenant’s rights and obligations.
4.2 Comprehensive lease agreement
- This type of lease agreement includes the finer details of the deal.
- You need to mention if it is an empty or furnished property.
- Describe the inclusions in a furnished house before handing it over to the tenant.
- Zero in on a property manager who will monitor the property at regular intervals on behalf of the landlord. Ensure the tenant is also okay with this appointment, and the manager will inspect the property from time to time.
- Rules and conditions specify if one can run a business from home (this property).
- Pet and other additional fees, if any, are levied to maintain the property well.
- Though every adult residing on the premises is liable to pay rent (by law), it is advisable to appoint a guarantor who will be held responsible and liable if the tenant defaults on rent.
5. Documents required for a Lease Agreement
5.1 Rental application
This document includes all relevant details of the tenant. From basic contact details to whether or not the tenant has a criminal history, this document will be the deciding ground for acceptance or failure of the selection of the tenant. It is always wise to run the document by legally educated people with specialized knowledge about rental law.
5.2 Tenant screening
Tenant screening follows particular rental specifics, such as the potential client’s income. Then the applicants who earn enough to be able to pay the rent on time should be shortlisted.
A detailed list of questions for this screening process will expedite the procedure correctly. Similarly, creating a set of questions to ask the employer and references given by the to-be tenant is always a good idea.
Also, doing a thorough background check of the tenant will save agony that may follow later, in case the tenant and the landlord get at loggerheads. Instead of cutting corners, it is better to give this task to a known firm specializing in this field. Again, it saves the landlord the pain and agony in case something goes wrong with the deal.
5.3 Rental Agreement documents
This agreement includes the descriptions of the roles, responsibilities, rights, and obligations of both the tenant and the landlord.
Dates, amount, lease terms, protection policy, and tenant accountability.
A brief about when and how to execute the eviction process if necessary.
5.4 Welcome letter and a move-in checklist
The how-to document includes all the ways to explain to the tenant how to move in. Ranging from how to pick up the keys to get renter’s insurance to set up utilities – this document will help the tenant to have a smooth move-in.
The move-in checklist includes all the existing things on the property. It details the property’s condition before the tenant comes to live on the property. Once the contract expires, this document comes in handy. The landlord can check if the tenant is responsible for any damage to the property other than the usual wear and tear.
5.5 Lease renewal paperwork
With about 90 days left for the expiry of the existing agreement, the landlord can ask the tenant if he wants to extend his stay. If the two share a great rapport, letting the current tenant extend the stay is a good thing, as this can save the landlord time, money, and effort in searching for a new tenant.
5.6 Move-out documents
Move-out documents include a move-out letter and a move-out checklist. The letter states how the tenant plans to move out while explaining how the landlord intends to return the deposit.
It also includes cleaning expectations, the date when the landlord can come over to check out the property, deductions in the security deposit, if any, and requesting a forwarding address.
The move-out checklist includes all that the tenant expects when vacating the flat. This document is essential as it helps in determining whether or not all the stated conditions have been followed or not during the stay. The deposit is to be returned based on this.
5.7 Keeping in touch with tenants
It is a file maintained from the start of the renting process until the tenant leaves the property a few months later. From the time the tenant filled out the application form showing interest in the property till the return of the deposit, every bit of communication should be documented, especially in the digital format. Scanning them all and storing them in the cloud is the best way to keep these bits and pieces of communication.