Lease Terms: 10 Things You Should Include in Your Rental Agreement

10 Things You Should Include in Your Rental Agreement

An analysis of Census Bureau information on rental statistics in the United States indicates that more Americans are renting now than has been the case in the past 50 years. With almost 4 in 10 Americans today renting their homes, it’s a landlord’s market for the savvy investor looking to make a nice side income or start renting as a permanent day-job.

But the Uniform Residential Landlord and Tenant Act (URLTA) of 1972 is also making it a tenant’s market for the savvy renter who knows their rights, and landlord duties, and enforces those during landlord-tenant disputes. Avoid nasty and expensive legal battles by making sure your landlord and tenant agreement contains these 10 critical lease terms.

The Importance of Lease Terms in the Rental Agreement

Rental statistics today show that there are over 112 million renters in the United States and over 23 million landlords. This is good news for a potential landlord looking to invest.

Approximately 65 percent of those renters are doing so for financial reasons. And that could mean financial problems for the potential landlord.

Ensuring your rental agreement has the right lease terms is important. But financial problems with high-risk tenants aren’t the only problems landlords face. Those can be avoided by using free proper tenant screening tools, and ensuring your rental lease agreement is airtight.

1. Names of All Parties

The first and most important term to have on your agreement is the names of all parties that will be living there. This you can ask on your first interview with the prospective renter, but the names on the lease or agreement will be the names legally and financially responsible.

It’s happened more than once where one party rents the place, and another party lives there. This can be intentional or not, but the landlord needs to know the name of every adult living there.

This protects the landlord in the event of non-paying tenants. The landlord will have the right to collect from anybody named on the lease.

2. Occupant Limits

In addition to knowing who will be living there, you need to specify on your rental contract who can and who can not live there. You want people living there that you have screened, and not people that you just met after 6 months when you show up to have the toilet fixed one day.

If someone that is not on the lease is living there, you have the right to evict them swiftly. Setting this limit early sends a strong message to your tenants.
Tenants that are not going to cause problems won’t have a problem with this important clause.

3. Length of the Agreement

This is called the term of the rental contract or the term of a lease agreement. It needs to be stated whether this is a month-to-month rental contract or a lease for one year or more.

Many generally run from month-to-month and will self-renew, while some lease agreements can be set for one year with the option to renew when that period ends. A month-to-month agreement does not mean you lose rights.

What you choose will depend on your own flexibility, and how long you want the tenant there. You may want them there as long as possible for your own financial investment, but you may also not be sure about this tenant and want some flexibility.

Use sample month-to-month agreements to be sure your contract has the lease terms that will protect you.

4. Upfront Costs – Security Deposits

One of the most expensive parts of a lease for a new tenant is the upfront costs. Many can handle the rent, but the security deposit or other upfront fees like pet fees can change a renter’s mind in a minute.

You don’t want to lose tenants by having too many of these costs, but you also want to make sure your investment is secure. That means being clear from the get-go on security deposits.

You don’t need a five-year lease to ask for a security deposit. This is a fairly standard upfront cost that will protect you in the event of damage or rental problems.

Be clear about the amount of this cost, and what it will be used for in the event it is needed. You also need to be clear about when it will be returned to the tenant if it is not used.

Most states require that you also specify where it is being held until it is returned.

5. Damage Responsibility

It is often understood that whoever damages a property is legally and financially responsible for covering the cost of repair and/or maintenance. However today’s tenants are getting as savvy as landlords, and you need to specify this.

It’s very easy for them to say it’s your property, your cost unless you specify this in your lease terms. Not only do you need to specify what damage they will be responsible for, but it’s also a good idea to specify what alterations they can and can not make.

Can they put in a garden? Paint the walls? Add a security system? Buy a dishwasher? Who is responsible for all of that? It’s your property, you decide that in the lease terms.

You also need to specify a time frame on when they can tell you about damage.

For example, if a carpet fire ensues and you don’t find out for 6 months because they didn’t want you to find out, you can hold them responsible for it by including time frame terms in the damage clauses on your rental contract.

6. Your Right to Entry

Every state may have different specifications of this lease term, under privacy legislation. But at the same time, it is still your home or rental property.

If there is a problem and you need immediate access, you want to be able to get in. Including a right to entry clause on the rental agreement will allow this and circumvent any tenant that may have issues with this.

Tell them upfront in your rental agreement that you have a right to enter for certain purposes such as repairs or emergencies. You also need to tell them how much notice you will provide for entry for repairs and things, and 24 hours notice is a typical lease term.

7. Criminal Activity Terms

It should go without saying that your tenant doesn’t have the right to engage in criminal activity on your property, and breaking any law is illegal no matter what property any person may be on at the time. But do they have a right to continue living there if they break the law?

That is decided on by you at the time of the rental agreement. It is estimated that approximately 28 percent of rental applicants have a criminal record of some sort, and that is just over 1 in 4 applicants. If you have a no drug policy and your tenant is using drugs in the house, they can face criminal charges as well as be evicted immediately.

8. Pets or No Pets

It is up to you to decide whether or not you allow pets on the property. Pets are messy and can cause damage, and they are just one more responsibility.

You don’t want to become a landlord with a nightmare from rental hell. Tenants have been known to even leave pets behind in an eviction or middle of the night move.

You make the call by including this lease term from the beginning.

9. Rent

Your lease or rental agreement needs to say how much rent is going to be paid when it is required by every month, and what forms of payment you will accept.

Decide ahead of time what happens if a check is returned for non-sufficient funds, what fees the tenant is responsible for, and the steps taken if the rent doesn’t arrive at all.

Simple. Even the best tenants in the world need these lease terms on their rental agreement.

10. Anti-Discriminatory Laws

The political environment is such that anti-discriminatory terms are appearing on every type of contract imaginable, even job applications. This is a good thing.

President Trump himself has been sued by the Department of Justice as far back as the 1970’s for racial discrimination in renting in what was one of the biggest Justice Department suits in New York at the time.

Obviously, you don’t want that to happen to you. You want to be in the group that sends a welcoming message, and you can do this in your lease terms. Be sure to review all the fair housing laws and know what constitutes as discrimination so you don’t ask questions or add terms in your ad like “no children allowed.” This is familial discrimination and is against the law.

The Fair Housing Act, prohibits discrimination by direct providers of housing, such as landlords and real estate companies as well as other entities, such as municipalities, banks or other lending institutions and homeowners insurance companies whose discriminatory practices make housing unavailable to persons because of:

Protect Yourself from Rental Nightmares

It is estimated that there are over 2,500 new renters in America every day, and approximately 544 new landlords every day. That’s terrific news for today’s investor that wants to tap into this market.

But at the same time, you want to avoid messy and possibly embarrassing legal battles that are costly in themselves. Remember when you are renting that it is your house and you lay down the law with the right lease terms in the rental agreement.

Even the simplest agreement can easily include all of these lease terms.

Today’s tenant has an average credit score of 650. That’s not terrible. But it isn’t perfect either.

Protect yourself from nightmare tenants and costly legal battles through proper screening and proper lease terms. Check off this list of lease terms on every rental agreement, and follow the newbie’s guide to being a landlord before any tenant signs the dotted line.