The Most Basic Rules And Terms That Your Rental Lease Should Cover
Most people think that real estate investment is a source of passive income. Reality couldn’t be more untrue. There is a tremendous amount of thought and work that goes into making a successful real estate investment portfolio and it is definitely not so easy as to just calling yourself a landlord and waiting for the cash to land on your lap. The work is so varied, it can involve legal issues,paperwork, handyman tasks and more. Much, much more. As a landlord or property owner, your job is to know how to wear many hats because there are so many different roles to do when you are a landlord. Today, we are going to talk about one of, if not the most important thing in the real estate industry -legal documents, more specifically rental lease agreements between landlord and tenant. As a landlord, your lease agreement is perhaps the most important document you will have and that you will use. Why? Because it is the one legal agreement that governs the business relationship between you and each tenant that occupies the properties that you own. The lease agreement acts as the rules by which tenants live in that property, as well as defining the legal repercussions should the rules be broken. Our world is governed by laws, and without proper legal documents, our society wouldn’t be able to function as smoothly as it does.
The lease agreements is crucial in real estate investment. It provides both renters and landlords/property owners with a legally enforceable contract, which provides security to both parties. A good lease agreement is mean to protect the rights of interests of both landlords and tenants, to help prevent misunderstandings that could potentially lead to painful, money-draining and time-consuming litigation. Without it, the real estate industry would probably break down and succumb to turmoil.
House rules are important and worthwhile for many reasons. It helps you clearly define and convey to your tenants in legal terms and on paper what your expectations are, prevent tenants from abusing your property, and legally allow you to take action should anything go wrong. Despite what you may think as landlords, not all tenants are purposefully difficult. A lot of the time,tenants break rules because they don’t know that those rules even exist. By explaining the rules and putting them in writing, you can clearly convey your expectations and have them understand where you stand on any particular issues. When you have clearly established rules regarding tenants on your property, it helps prevent tenants from abusing your property.Tenants are much less likely to violate rules if they know that there are consequences, and nobody wants to be evicted. Eviction is not only annoying for the tenant, it can leave future scars on their resume leaving very few landlords to want to take them in. Without rules detailed legally on a lease agreement, you cannot take legal action should your tenants repeatedly violate the terms intentionally. First time landlords sometimes think it’s unnecessary to implement so many house rules, but without them, you cannot properly protect your investments and maintain good tenants for your business.
These Are Some Basic House Rules You Should Expect And Abide By:
No Illegal Drugs -This is pretty standard. As a citizen of society, we should understand what is legal and what is illegal. If we choose to participate in illegal activities,then we must understand that we can and will face legal consequences from our actions. No landlord or property owner would want their property portfolio to be tainted by illegal activities, especially in the form of illegal drugs. It could prove detrimental to their business if illegal drugs are found on their premises. As a tenant, you should abide by such rules to avoid landing both you and your landlord in hot water.
Maintain Cleanliness Of The Property (Take Care Of It Like It’s Your Own)
Tenants don’t always take care of a landlord’s property very well. For example, problems like garbage removal is a minor issues that can transition in to a major problem if no proper rules are set in place. If tenants don’t consistently take out the trash,your property can run the risk of violating local health ordinances and become unsanitary and unlivable. An unlivable property cannot be rented out or resold. It’s important to state in the lease how and when garbage is to be removed from the property, as well as any other stipulations regarding recycling and so on. It’s a good idea to be a clause in the lease agreement that allows you to charge tenants for any fees or penalties should the city assess against you for improper garbage removal and health hazards.
You Must Pay Your Rent And Utilities On Time Every Month
You are responsible for getting your rent in on time. The lease agreement states which date of every month that you must pay your rent, utilities, and other bills to your landlord. It’s important to talk about the policy of late rent on your lease agreement. The success of your investment is directly linked to whether your tenants pay you rent on time.Without rent, your cash flow stops, which can be detrimental to your real estate business if it’s a recurring issue. How and when will you enforce a penalty if your tenants fail to pay on time? You might be able to let it go the first time, but if it keeps happening, attention must be paid. You have different options in regards to how you want to deal with late rent issues (an issue that all landlords and property owners deal with). You might consider the rent as late if it is paid just a day after the specified date of the month (on the lease), or you may decide to give a grace period of three to five days. There is no industry standard, and completely up to you. As for financial penalty options, it’s possible for you to charge a flat penalty fee or a percentage of the rent for each additional day that the rent is late. There is some room for freedom in this area, but just remember to check with your local market’s real estate laws to determine what is legal and what’s not.
You Must Be Mindful Of Security Procedures
Locking Your doors to Prevent crime and break-ins is a standard policy in lease agreements. it’s one of the few ways that landlords and property owners can protect their properties.
Essential Terms That Your Lease Agreement Should Cover:
- Parties to the lease-the lease agreement should name the landlord(s) and tenant(s) who are bound by the contract.
- Description of the property - the lease agreement should have a description of the property controlled by the lease contract, such as the exact address and type of property.
- Terms of the rent - the specified rent (in dollars) amount should be stated in the lease agreement, in addition to the day/date rent is due each month, where and how the rent should be paid (by check, by bank transfer, etc). It is advised that the terms for late rent should also be stated in this clause of the agreement.
- Security deposit details - the amount of the security deposit, how it is to be paid, and the terms of its future release (when the lease ends) should be specified clearly in this portion of the lease agreement.
- Lease dates and termination -the start date and end date of the lease should be stated clearly in the lease agreement, as well as the specific description of how and when the landlord(s)and tenant(s) can end the lease. For example, you should specify how many month’s early notice is required should the lease be terminated early.
- Occupants of the property -the lease agreement should list the names of every person who will be a regular occupant of the property. It should be stated here what happens if a person stays for more than a certain period of time.
- Pet Policies - Pets often cause a great deal of tension between tenants and landlords, which is why having a written pet policy is necessary. The lease agreement should specify whether or not a tenant is permitted to have a pet or multiple pets and of what size and breed. Most landlords will put limitations on the number of pets allowed, size of the pet(s) and species. Some landlords will not permit large breed dogs and species of the reptilian variety to be on the property. This is a clause where you should also state if there is an additional pet deposit required for a pet and the exact amount should be included in the lease agreement. Some properties require a monthly pet fee, while others ask for a one-time security deposit to be returned upon move-out (should there be no damages incurred on the property by the specified pet(s).
- Repairs and damages - the condition of the property should be stated here, in addition to both the tenant(s) and landlord’s individual responsibilities for repairs and problems with the property. The lease agreement should also describe whether the landlord or tenant is responsible for damages to the property. If there are damages, what will happen?
- Alterations to the property -the lease agreement should describe what (in detail), if any, alterations the tenant is allowed to make to the property. It’s important to list all of the do’s and don'ts clearly so that there are no future misinterpretations and misunderstandings.No matter how big or small the alternations, you should still list it in the lease agreement.
- Right of entry - the lease should include a clause here that allows the landlord to enter and inspect the property with reasonable notice and permission by the tenant. The term here should also define reasonable notice and explain the rights of the tenant on the property to protect rights of privacy. Right of entry is a rather standard clause in most lease agreements. How and under what circumstances are you, the landlord, allowed to enter the property? In most cases, you would need to provide a warning and have a justifiable and necessary reason for entering the premises when it is contracted to your tenant. Any surprise visits can lead to very problematic issues, so be sure to discuss this rule with your tenants carefully and come to a mutual agreement.
- Right to renew the lease -If the tenant has the right to renew the lease at the end of the lease agreement, those terms should be listed in the lease agreement. A new lease agreement should be signed each time the tenant renews the lease.
- Right to sublet the property -If the tenant has the right to sublet the property to another person, the lease agreement must clearly dictate those terms and under what conditions.
- Parking restrictions and rules -If the property has parking or offers residential and/or guest parking in designated spots, those terms should be clearly listed in the lease agreement.What are the parking fees if there are any? How many spots are allocated to the property? These should all be stated in the lease.
- Prohibited Possessions- If certain personal possessions, such as water beds and BBQ grills are not allowed on the property, those terms should be listed - along with the consequences and penalty if those items are brought in and cause damage to the property
- Property rules - if the property is in something like a residential building or sharing complex, the landlord may specific rules that govern proper behaviour and etiquette on the property such as avoiding loud noises and large parties of guest after midnight. Property rules are decided upon and up to the landlord.
Other (Optional) Rules That Landlords Have Have Put In Lease Agreements:
- No Couch Surfing(Refer to www.couchsurfing.com) - This is a relatively new business and global phenomenon amongst the younger generation. Couch Surfing is an digital platform with a global community of over 10 million people operating in more than 200,000 cities that connects travelers with an extensive network of people who are willing to open up their homes and network. It works somewhat like a private hostel service that has become exponentially popular the last few years. From a landlord/property owner’s standpoint, we can see why this would be a problem and why these rules are implemented.
- Don’t throw things down the drains
- Don’t throw things down the toilet, apart from toilet paper
- No candles inside
- No grills inside or on balconies
- No inside furniture outside
- No outdoor furniture inside
How To Deal With Violations Of Rules Properly
Just because you have set specific rules doesn’t mean that your tenants won’t violate them. In addition to rules, it’s important to also have consequences for violating the rules. How you deal with violations is case by case and up to you. Some violations will require nothing more than a verbal warning, while others could be grounds for eviction. It is always better to start strict and go easy on the tenant as the lease goes on, than it is to start with lax rules and attempt to tighten up months down the road. You don’t want to end up with tenants who step all over you and are not afraid of consequences. There is nothing wrong with being firm with your tenants. Your primary goal is to protect your investment.
If you have questions or need help customizing a lease agreement, our professional team at Engel & Volkers can help guide you in the right direction. It’s also beneficial if you can work with a qualified real estate lawyer to draw up the best lease agreement - so that you and your tenants can be in a harmonious partnership.