The Lease Agreement

Lease Agreement “Must-Have” Clauses

Better known as “the law of the land,” the lease agreement is both your six-gun and your lever-action rifle, equipped with enough ammunition to stand your ground at the O.K. Corral. The problem is that landlords often fail to recognize the importance of drafting a few pieces of paper. Instead, they use a generic form from a friend or some obscure website that comes with nothing more than a single page (maybe two… if the signature lines spill over onto a second page), leaving you with very little ammunition – certainly not enough should there ever be a showdown.

Aside from getting a good tenant, having an iron-clad lease agreement is paramount for your protection – and the ironic thing is that many landlords don’t even understand most of the lease agreement they have the tenant sign. Don’t pass up an opportunity to control the language (within reason) that says what a tenant can and cannot do while leasing your property. For those that have the available finances, this is the time you should seek professional legal advice from an experienced real estate attorney. Otherwise, pay close attention to see exactly what is recommended for the standard lease agreement. This article is based on the Lease Agreement offered by AmerUSA which may be found under Rental Forms.

  • Subject of Lease

This section specifies the physical location (street address, city, county and state) of the property that is the subject of the lease and for what purpose it will be used. If your lease does not specify an intended use, then the tenant could (for example) use it for a business or exploit whatever zoning rights are available under the law, of which you may not approve. Hence, the need to include a specified purpose.

  • Term of Lease

As you would expect, you must define the term of the lease and options. Most leases are for one year, but you can always rent month-to-month – or even for several years, if the tenant agrees. As far as the right to renew, extend or modify, it’s usually a good idea to leave this open-ended – by requiring both parties to agree to such changes. If you should guarantee the tenant the right to renew with a right of first refusal, you could be stuck with a bad tenant, or perhaps somebody with whom you just didn’t get along with, for another year… or more.

  • Monthly Rent

Most lease agreements are paid monthly. This section spells out how much the rent will be and when it is due. The landlord often collects the first month’s rent in advance at the time of the lease signing – with all future payments due on a particular day of each month. This section is also a good place to spell out the late fees and returned check fees. It’s customary to have a $50 late fee or 5%, if the tenant fails to pay by the 5th day after the monthly due date. Maximum returned check fees can be found under Laws.

  • Security Deposit

This is an essential part of any lease executed today. A security deposit usually protects against excessive wear and damage caused by the tenant, but can often include loss of rent. Some landlords also include a pre-determined cleaning fee (for example, $250) that is automatically deducted upon moving out, regardless of whether or not there are any major problems. Maximum amounts for security deposits within each state can be found under Laws.

  • Number of Occupants

There should be a limit on the number of occupants permitted for your property and additional occupants must be agreed to in writing by you. Common exceptions protecting the tenant under many housing laws are pregnancy or adoption. So, unless the tenant becomes pregnant or adopts a child, the only other way they can legally add an additional occupant is with your written permission.

  • Assignment and Subletting

Unless you are more amenable to the idea of automatically giving the tenant the right to assign their lease or sublet to another party than most people tend to be, it’s strongly recommended that you include a clause such as this requiring your approval. This way, you have the opportunity to check out the new potential tenant and determine what kind of additional subletting terms (if any) might then be required.

  • Showing Property for Rent

When your lease is about to expire or terminate, you will be glad you have this section included – which basically gives you the right to advertise the upcoming vacancy and show it to prospective tenants with a reasonable advance notice. No landlord wants a vacant unit and getting a head start (usually, 30 days) can only help to reduce any loss.

  • Entry for Inspection, Repairs and Alterations

Every landlord needs to have the right to enter their property with a reasonable amount of notice (usually, 24-48 hours) – and it is customary to setup a window of time when you expect to remain at the property, not just a time when you will show up. This is not just for maintenance and repairs, it’s also for inspecting the unit for potential lease violations, such as unauthorized pets, occupants, hazardous materials… and the list goes on.

  • Redecoration and Alterations

The last thing you want is to walk back into a vacant unit that now has a built-in horse trough that was originally designed to be a bathtub – or maybe you discover that your outdoor patio is now a saloon. (Not that this may not be without its advantages…) In all seriousness, the idea behind this very important clause is to not only prevent outrageous occurrences such as these, but also to protect the sanctity of your unit from even the simple stuff like migraine-inducing wallpaper and/or paint colors. It is recommended that you require any changes to be approved by you in writing, except for fixtures that can be easily and safely removed and then replaced by the tenant prior to vacating. It’s rare – but every so often, a tenant will come along that will do wonders of improvement for your property and at no cost to you. These are usually contractors or do-it-yourself gurus that know how to lay tile, hardwood floors and perform other aesthetic feats which you may gladly welcome. But I wouldn’t exactly hold your breath on that one…

  • Taxes and Utilities

Property taxes are always taken care of by the landlord and personal taxes are – of course – the tenant’s responsibility. However, utilities are always open to negotiation – so this section is an absolute “must-have,” so that there is no disagreement later as to who was supposed to have been paying for what…

  • Maintenance and Repairs

In commercial leases, the tenant is usually responsible for interior repairs and maintenance – but in residential lease agreements, the landlord will usually take care of everything, unless you define each person’s respective responsibilities for maintaining and repairing the unit. Most of the time, the landlord is responsible for anything that would render the unit uninhabitable like faulty appliances, plumbing, heating or air conditioning – but, ultimately, you are entitled to draft your lease agreement anyway you choose, as long as the law permits.

  • Pets and Animals

It’s up to you whether you want to accept pets. According to the American Pet Products Manufacturers Association (APPMA), roughly 39% of all U.S. households own at least one dog and 34% own at least one cat. After reading those statistics – if you hadn’t given it much thought before – you may now want to seriously consider accepting animals to better ensure keeping your vacancy filled. Just be sure you maintain the right to approve any and all occupants stemming from the animal kingdom – and the human one, for that matter!

  • Waste, Nuisance or Unlawful Use

Simply put, this has the tenant agree not to collect extra mounds of nasty, smelly trash on the front lawn for their compost pile or open up an auto restoration business with the backyard as the scrap yard/motor oil recycling center. You may want to elaborate on this clause to curtail commonly seen problems in your area – kind of like imposing your own “Homeowner’s Association (HOA)” regulations or deed restrictions. If your property happens to be in a deed-restricted area, then be sure to give the tenant a copy of the HOA bylaws (rules and regulations) – and also to add verbiage that the tenant acknowledges having received them and agrees to abide by them.

  • Lessee’s Holding Over

When the lease expires, there should be no holding over (the tenant continues to stay) – unless both parties agree in writing. This clause is added just in case you forget about the expiration date and the tenant happens to stay without authorization. It allows the landlord to give a thirty day notice to terminate at anytime – unless there is a problem with the tenant, you would probably want to keep them on until you find a replacement. Otherwise, you would normally give the tenant a 60-day courtesy notice stating that the lease is expiring and whether or not you are willing to renew.

  • Redelivery of Premises

Very simply put, this single sentence of a section has the tenant agree that they will give your property back in the same basic condition that it is was given to them – aside from minor wear and tear that is expected.

If there is a specific part of your house or apartment that you feel warrants special attention, this section is the place to do it.

For example: Prior to the tenant moving in, you just installed a brand new screen enclosure for the patio – which can be very expensive to repair – and your tenant happens to have pets and small children. This could be specifically addressed as a “brand new item” that you want to make sure is not left with a door that no longer closes and a screen that looks more like used chicken wire…!

  • Default

This section spells out what happens should the tenant violate any term or condition of the lease agreement (past due rent, damage, nuisance, etc.). When a violation occurs, usually the landlord will give the tenant an opportunity to correct whatever it may be or at least allow them to show they have initiated the appropriate steps to correct the problem.

For example: An authorized pet turns up on the premises. The landlord may then allow a reasonable amount of time for the tenant to find the pet a new home. There is a great amount of flexibility in this section afforded to the landlord when it comes to tolerance and timeframes. Therefore, this part should be modified to accommodate your personal beliefs regarding how to handle lease violations.

NOTE: You must also take into account any requirements or provisions your local or state governments may have before you can terminate the lease.

  • Destruction of Premises and Eminent Domain

Okay, you have a tenant in your unit located in the Midwest – and, all of a sudden, a tornado wipes out the building while no one is there. This part of the lease explains that if the property is essentially destroyed, the lease agreement terminates immediately – unless the unit is only partially damaged (and still habitable); then, the tenant will pay only an agreed portion of the rent until it is fully restored.

For example: The outside porch blows away – the tenant should have the rent reduced by the percentage of the porch that is no longer there. The other – albeit extremely rare – situation would be for the government to step in and take control of the property for some specified purpose (e.g., time of war, highway expansion plans, etc.).

  • Delay in or Impossibility of Delivery of Possession

If, for some reason, the property is not ready for the tenant to move in on the effective date of the lease agreement, this clause allows the landlord a certain amount of time to get the property ready or the lease shall terminate. This is particularly useful if you are in the process of making some repairs or improvements which run behind schedule due to unforeseen circumstances (e.g., supply shortages, contractor issues, bad weather, etc.).

  • Binding Effect

This legal jargon basically says that if the tenant dies, his or her estate is responsible for paying the remainder of the lease or if the lease is assigned to another person (upon approval of the landlord), all of the terms and conditions of the lease agreement shall remain in full force. By the same token, if the landlord sells the rental property, the new owner (landlord) assumes control over the lease agreement for whatever time may be left remaining.

  • Governing Law

This aspect of the lease agreement ensures that the landlord gets to fight any landlord-tenant legal entanglements on their home field– which is, customarily, the state in which the property is located. For those tenants coming from out of state, this will serve to remind them of which state’s laws they now need to obey. It is also common in this section to see a notation regarding in which county any and all legal actions must be filed.

  • Attorney Fees

This clause is intended to deter the tenant from filing frivolous lawsuits. It simply states that if a lawsuit is filed, the losing party must pay the winning party reasonable attorney’s fees – in addition to any monetary award ordered by the court.

  • Entire Agreement

In case you have discussions with the tenant prior to – or even after – the execution of the lease that may be misconstrued by the tenant as a binding agreement, this section clearly states that the only terms and conditions that are legally binding are the ones stated in the written lease agreement, regardless of what has been – or will be – said.

  • Modification of Agreement

This section appropriately supports the “Entire Agreement” clause, by stating that any and all changes to the lease must be mutually agreed to in writing by both the landlord and tenant.

  • Paragraph Headings

Everyone has their own interpretation of agreements and the simple statement contained within this clause eliminates at least one element from having to be debated and misinterpreted: all of the Paragraph Headings!