A well written lease can truly help you sleep better at night.
How do you write that perfect lease though?
If you are using a property manager or even a Realtor to lease your property, they should have access to good, well written leases. You can also get a good lease from various landlord associations that specialize in your property type. You should avoid buying a very basic, generic lease, especially if it doesn’t include all the specifics that your State may require.
A good lease is necessary to protect yourself and your tenant from any legal issues that may arise, but remember, it all starts with placing a good tenant.
Here are 20+ details that you should include in ANY residential lease agreement:
- Lead Based Paint: If your property was built before 1978 you also have to make sure you inform your tenants of that fact and that there may be lead paint on the property. You must also provide all your tenants with the government booklet “Protecting Your Family From Lead” along with the signed lease. If you fail to disclose this information and do not provide the brochure, the tenant can cancel the lease at anytime without penalty since you failed to disclose the possibility of lead paint on the property.
- Late Fees: Some owners want to charge a 10% or higher late fee and have more fees for every additional day the rent is late. The courts have ruled that this unreasonable and you will not be able to collect these fees if your tenant challenges you in court. The courts will generally allow a late fee between 5%-6% of the collected rent with no daily late fee.
- Grace Period: Most landlords will put a 3-5 day grace period into their leases. While this is fine if you like getting paid 3-5 days after the rent is due, it is usually unnecessary if you have a good tenant. If you set expectations up front that the rent is due on the 1st of every month and late on the 2nd and then enforce the late fee when this schedule is missed, you will generally get your rent on the 1st. Some owners will make an exception if a tenant gets paid on the 2nd or 3rd of every month and then consistently pays their rent the next day. A word of caution on making this exception is do not let the rent get paid later than the modified due date without paying a late fee.
If a tenant is tight on funds every month and is in the mode of paying the squeaky wheels first and you are an easy going landlord, you put yourself into the easy going, get paid late column of this tenant’s accounting system. You want to make sure your tenants understand that you are a good, responsive landlord and in exchange for that, you expect the rent to be paid in full, on time, every month, period.
Be sure your lease includes the following sections with details of each section clearly defined:
- Security deposit to not be used for last month's rent
- No smoking on the property (this can include marijuana, even though it's legal in California now)
- Where they can and cannot park
- Any maintenance expectations
- Restrictions on pets
- Neighborhood conditions are unknown
- Current property condition
- All HOA Rules & Regulations (CC&Rs)
- No subletting
- Megan's Law Disclosure
- Joint and individual obligations of tenants
- Tenant's obligation on vacating the presmises
- What happens if they break the lease
- What if they damage the property
- What if they have to move out because of a problem with the property
- A mediation clause
- How tenant payments are applied to tenant charges
- Tenant's responsibility to prevent mold
- Tenant's responsibility to guard against bed bugs
- No oral agreements exist outside the lease
A lease is a legally binding contract and if it is not comprehensive and well written to protect the property owner’s substantial interests, it exposes the property owner to both potential liability and an inability to charge the tenant for certain items or terms of the lease if they are not included in the lease.
When you have a well written, legally solid lease, it gives you a leg to stand on when your tenant starts threatening you with a lawsuit. You will always be able to respond with, "as it states in your lease, you..." Make your lease a great insurance policy!
For a comprehensive guide to managing rental property, check out this resource.