A lease agreement is a legally binding contractual agreement between a landlord and a tenant. Basically, it sets out the terms and conditions of the agreement.
This can include conditions such as the rights and responsibilities of each party in addition to the rent and security deposit amount.
Both parties must adhere to all terms outlined in the lease agreement, otherwise, they will face various legal repercussions. A landlord will have sufficient grounds to evict a tenant if the tenant violates part of the lease agreement. Conversely, a tenant could have legal grounds to move out without further obligations to the lease if a landlord violates part of the lease agreement.
As a landlord, creating a foolproof lease agreement is critical to running a successful investment property. Doing so, however, requires experience. So, if you’re just starting out, please consider hiring expert help. A local attorney or property management company can provide you with insight that you might not already have.
Here are the 7 steps you need in order to create a bulletproof rental agreement!
Step #1: Identify the parties involved.
When leasing out a property, there are two parties involved, the landlord and the tenant. Therefore, make sure to state all the names of both parties.
In addition, make sure to also include the property details, such as the full address, including its name and a mailing address. And if it’s an apartment, don’t forget to also reference the exact unit number.
Step #2: State the duration of the lease.
Failure to state how long the lease or rental agreement will be running can cause issues. It’s important to always make sure that prior to lease signing, the agreement has exact dates.
You want to avoid vague language as much as possible. For example, “this lease runs for a year.” This can be confusing, especially if the agreement doesn’t last for exactly one year. To be clear, state the day, month, and the year when the lease will start and end.
Step #3: Specify rent collection policy
As you probably know, consistent rent collection is key to running a successful rental investment. Sadly, though, nonpayment of rent by tenants remains one of the biggest challenges for landlords.
To help avoid nonpayment issues, it’s critical to specify as many details about the rent collection policy on the lease as possible. State important details such as:
- The dollar amount of rent. Write both the full and monthly rent values.
- Rent due date. Be specific on when it becomes due, for instance, on the first day of every month.
- The duration of the grace period. Will you be offering a grace period? If so, mention it. Essentially, this is a period after rent falls due where a tenant can pay rent without incurring any penalty.
- The amount of the late fee. Will you charge a late fee? If so, mention how much it will be. This can be in terms of a percentage or an exact figure.
Including such details can help remove any confusion and misunderstanding regarding rent collection procedures. Consequently, this may help minimize issues of late or missing rent payments.
Step #4: Include important details.
Once you have included the basic components, make sure to add some important provisions and clauses. Doing so can help protect you from issues that a basic lease may not address. The following are some common provisions.
- Security Deposit Details.
While not required by law, most landlords require a security deposit, and for good reason. Requiring a security deposit can help shield you from several liabilities emanating from the tenant’s misuse of the property, such as causing excessive property damage. Be sure to consult the Texas Security Deposit law if you intend on including this in your lease.
- Pet Policy Clause.
Will you be allowing pets into your rental home? If so, consider adding a pet policy to your lease to protect your property against any damage caused by pets. The policy can highlight important details such as the type of pet to keep, number of pets allowed, and pet deposit.
- Property Alteration.
Will you be allowing tenants to make changes to the rental unit? If so, you’ll need to create rules for that and include them in your rental agreement. For example, what exactly a tenant can do to alter the appearance of their unit, whether or not they will need your permission, and the consequences of not following those rules.
Step #5: State each party’s responsibilities.
As a landlord, this is your best defense against all manner of issues. The following are some of the things you’d want to include in the lease regarding repairs and maintenance:
- The responsibility of the tenant to keep their rented premises in clean and sanitary conditions.
- The responsibility of the tenant to repair any excessive damage they may cause through the negligent use of the property.
- A requirement that the tenant notifies you of dangerous or defective conditions in their premises.
You may also want to state some of the responsibilities that you’ll be handling as a landlord as well. For example:
- Ensuring the property adheres to the local safety, health and building codes.
- Responding to the tenant’s maintenance requests. For this reason, you may also want to provide your tenant with your emergency contact numbers.
- Providing the necessary heat, electric, and hot water facilities.
- Maintaining structural components and a reasonably weather-protected unit.
Step #6: State your right of entry.
Every tenant in Texas has a right to enjoy their rented premises in peace and quiet. That said, there are instances where a landlord may want to enter to carry out important responsibilities, like yearly maintenance inspections and repair work.
To avoid claims of illegal entry, make sure to provide as much clarification in this regard as possible. For instance, the advance notice to give, and for what reasons you can enter.
Step #7: Sign it.
A lease or rental agreement is meant to protect both you and your tenant. As such, it’s important that both parties sign it in order to validate it.
Require that all tenants exceeding the age of 18 sign the lease. This is the final step to solidify your contractual obligation to one another regarding your rental property.
As a landlord, you want to ensure your rights and responsibilities are respected to the full extent of the law, and you should ensure the same for your tenants. It’s in your best interest to create a clear and detailed document by making it as comprehensive as possible. If you require more help regarding drafting solid lease agreements, contact McCaw Property Management today!