Leases...oh boy where to start? Well, you know you should have one and you know it's used to enforce the rent so that there are no interesting 'I told you so's ' and forgotten promises down the road during tenancy. A properly written lease not only lays out expectations during tenancy, but also provides remedies should one party fail to meet them.
What many fail to realize however, is that a Lease should be beneficial to both landlord and tenant. We know it should include the rent amount and we know it should include the property, late fees, signatures, yada, yada, yada... but in this article we will look at the top five most overlooked and at times completely missed lease clauses and why they are beneficial to both tenants and landlords.
#1: Use Of Premises
How will the rental be used? As a single family residence? For business purposes? The use of premises clause should not only include the purpose the rental is used for i.e. single-family residential but it should also list the number of adults and children which will occupy the property during the term of the lease.
The use of premises is also important because it ensures that the property is being used in accordance with any HOA by-laws or township ordinances - if the HOA limits the number of occupants to two per room, well then you know that the max capacity your two bedroom rental can accommodate is four occupants and limiting the number of occupants on the lease becomes vitally important.
For Tenants: It's clear and in writing. The last thing you want is to have your landlord complain that your 15 year old son is not supposed to be in the rental because he didn't submit an application... even though you listed him. If it's in the lease, it's in the lease.
For Landlords: Surprise! There's 10 people living in your 2 bedroom rental. Save yourself the headache and the additional wear and tear on your property and clearly define who is allowed in the premises to keep your tenants from making their friends your unintentional tenants.
The rental may be the landlord's property, but it is the tenant's home during the term of their lease and just like any other, there may be there will be guests which visit from time to time. Similar to the use of premises clause, the guest clause however addresses the tenant's guests which visit the property. A good guest clause defines the difference between a guest and a tenant, for instance: a guest which receives mail at the property or moves in their furniture is considered a tenant and may be violating the lease. Additionally, your guest clause should also state the maximum number of days guests may sleep over for the year before they are considered a tenant, violating the lease and triggering a possible rent increase.
For Tenants: Knowing how your guests are seen in the eyes of the landlord ensures that you know exactly what is expected and that you will not be breaking the lease and receiving unexpected fines, fees, rent increases or face possible eviction.
For Landlords: You are able to clearly define that your tenants are allowed guests but within the lease parameters. Defining the number of days guests are allowed helps you limit the amount of wear and tear that is acceptable to you during the tenant's stay.
#3: Utility Responsibilities
Electric bill, gas bill, water bill... who pays for what? Utilities are essential in keeping the property running problem free and a utility clause should not only cover who is responsible for which utilities, but should also list in whose name the utilities will be held under. For utilities which may be covered within the rent the utility clause should also specify the maximum amount of allowable usage which is covered by the rent.
Here's a rosy picture... Spring time is near, trees are blooming and the birds are chirping and... you get a call about your rental which is flooded because the heat was turned off while the tenant was on vacation for two weeks during the winter - The point: ensure your utilities clause also includes the minimum expected temperature threshold and other important items to protect vital property systems such as frozen pipes.
For Tenants: Don't get blindsided by unexpected utility bills, the utility clause will let you know if you are responsible for a specific utility. It should clearly layout your allowable usage and those utilities which are or are not covered within the rent.
For Landlords: Specifying whose name is on the utility and defining the maximum allowable usage will save you from having an $800 utility bill surprise with another one on the way next month.
"A properly written lease not only lays out expectations during tenancy, but also provides remedies should one party fail to meet them."
#4: Access to Premises
When a tenant signs a lease there is a reasonable expectation of peaceful and quiet enjoyment however, there are times when access to the premises by the landlord or those servicing the property is necessary. The access to premises clause which many refer to as the 'inspection' clause clearly lays out when the landlord or those servicing the property are allowed to access it, for what reasons and if any tenant notice is needed prior to entering.
Wait... 'if any?'' A good access to premises clause should aim to give the tenant a minimum of a 24 hours notice whenever reasonably possible prior to access however, during times of emergency...think fire, flood, life and property threats...the clause should specify that the landlord or those servicing the property can access the property immediately as needed without notification in order to address those emergent issues and protect the property from further damage.
For Tenants: A reasonable expectation of privacy is important and your access to premises clause should be respectful enough to give you at least a 24 hours notice for regular maintenance, showings, inspections, etc. and keep your landlord from barging in unannounced.
For Landlords: A Category 1 storm hits and you decide to drive by your property to check on it and notice the tenant left the windows open and there is now a torrential downpour, you ring the doorbell and no one answers... Now what? In situations such as these where damage to the property is imminent, you or your property manager needs to access your property in order to protect it and save you money in the long run.
What happens when the lease expires? Does it renew automatically? Do all parties need to sign a new agreement? Does the rent increase by 1,000,000%?...well we hope not but, you get the point.
A good renewal clause covers whether the lease will automatically renew at the end of term, whether a new agreement needs to be signed or whether it will just continue month-to-month. Additionally, it should specify if the Tenant needs to give the landlord a notice to vacate, if the tenant plans on moving out, and how long prior to the end of the lease term the notice should be given.
For Tenants: Keeping an eye out for the renewal clause is important in saving heartache when it comes time to renew the lease or moving out. Knowing when you have to notify the landlord of your plans can ensure that you are not charged fees for late notification and will lead to cooperation in either helping you move out or maintaining your privacy by not having applicants walk through your home should you choose to stay.
For Landlords: The last thing you want, is to think that your tenant is staying and planning to renew their lease only to find out a few days before the lease ends that they plan on moving out, leaving you to scramble to list your rental at the last minute. A good renewal clause not only specifies a time period that a notice should be given prior to the end of the lease, but also remedies and penalties for failing to do so.
Bonus: House Rules
Did you really think we were just going to list 5? House rules, house rules, house rules... Well, what are house rules? House rules are basically a 'catch all' and are usually referenced in the lease through a clause and then listed and attached as an addendum. They convey to the tenant the expectations of property use during their tenancy. House rules typically cover things such as use of the common areas, quiet hours, how to properly use appliances, restrictions such as access to attics, parking, use of balconies, property care during inclement weather, lawn care, locks, signs, trash, on and on and on.
Essentially anything that is not covered or is too specific to find a place in the lease with regards to property care and conduct while on the property can be listed in House Rules. House Rules can serve as a road map in negotiating future conduct issues should they arise.
For Tenants: House rules are important for tenants to know so that you are aware of the expected use of the property, its amenities and the penalties that may come from failing to follow them. Most house rules benefit both tenants and landlords especially if the property is a multi-family dwelling.
For Landlords: Different tenants come from different backgrounds and not everyone may know what your expectations are for your property. Putting expectations in writing in a House Rules addendum helps you to clearly convey to tenants what is and what is not proper conduct while occupying your rental and can help you avoid uncomfortable situations.
In all cases remember that it is always advisable that you have your lease reviewed by a qualified attorney which will ensure it is compliant. A good lease is beneficial to both tenants and landlords and provides remedies aside from a simple eviction, which may not always be preferred by either party. Of course, there are many additional parts and sections to a lease other than those listed here, which are all together important however, many either gloss over or completely miss some of the clauses we covered here, leaving tenants and landlords exposed to potential downfalls but...guess what? Not you!
About Ricardo Reis
Ricardo is a member of G3 Management & Investments and a real estate professional. He has been a successful property manager and real estate investor for over 10 years.