Renting out your property can be a serious profit maker… and it can cause grey hair. Renting includes (as you may have guessed) letting strangers live in a place that you are completely responsible for. You can do all the background and financial checks in the world and you still don’t know what could happen behind closed doors. This isn’t meant as a scare tactic to keep you from managing a rental income – it’s just meant to be an eye-opener for those new to the landlord gig. Having been a tenant myself (and a responsible one at that) sometimes things happen and well, they are out of the renter’s control. I’ll save my story for the end. Here is a rental agreement example that will cover you should things go awry.
If this is a new concept to you – try the course How to Identify, Buy and Manage Rental Properties.
1. Parties. Who is involved in the lease signing, in other words, who are the tenants? Include the date of the lease signing here.
2. Premises. Define the premises by the address and city it’s located in. Explain that the landlord (you) is only leasing to the tenant under the pretenses set forth below.
3. Term. The length of the lease should be stated here. Be specific, like, at noon on [date] until noon on date].
4. Rent. Explain the total amount of rent due when the sum of all months of the lease are calculated, then state monthly payments expected and the date (and time if necessary) rent must be paid by to not incur late fees. Maybe you’re interested in holding the note and letting a renter (in good standing) finance the property for ownership. Read all about owner financing in this article.
5. Tenant Covenants. The tenant, in consideration of the leasing of the premises, agrees to the terms below.
a. Use/Alterations. Explain in detail the occupancy restrictions, and the prohibitions as indicated by the law of the state the property is in. Include that the tenant must abide by all laws, and should not engage in any activity that can endanger the tenants, property or neighbors. This also should explain that no alteration can be made to the property (without written permission) and that the premises must be kept clean and habitable. Also include that the property cannot be used for commercial purposes.
b. Hold Harmless. [This is copied from an old lease of mine to show you the depth of which this clause should be. Once you read the story at the end you’ll understand why this is important.) The Tenant shall neither hold, nor attempt to hold, the Landlord, Landlord’s agents, contractors and employees liable for any injury, damage, claims or loss to person or property occasioned by any accident, condition or casualty to, upon, or about the Premises including, but not limited to, personal injury to tenant or any third party, damage to property of tenant or third parties, defective wiring, the breaking or stopping of the plumbing or sewage upon the Premises, unless such accident, condition or casualty is directly caused by intentional or reckless acts or omission of the Landlord. Notwithstanding any duty the Landlord may have hereunder to repair or maintain the Premises, in the event that the improvements upon the Premises are damaged by the negligent, reckless or intentional act or omission of the Tenant or any licensees, invitees or co-tenants, the Tenant shall bear the full cost of such repair or replacement. The Tenant shall hold the Landlord, Landlord’s agents and their respective successors and assigns, harmless and indemnified from all injury, loss, claims or damage to any person or property while on the Premises or any other part of the Property. The Landlord is not responsible for any damage or destruction to the Tenant’s personal property. The Tenant shall obtain renter’s insurance at the Tenant’s sole discretion and expense.
If you do need to make repairs, take this course on Home Improvement as a guide for easy project fixes.
6. Utilities. State the utilities that the Landlord is responsible for and the utilities that the tenant is responsible for.
7. Vacancy. If the tenant leaves the premises, without any notice, and without paying, the Landlord has the right to repossess the property and begin the leasing process with another tenant.
8. Security Deposit. The security deposit is the saving grace should something be left in inadequate condition at the premises when the tenants vacate. The premises must be in the same condition when the tenant’s leave as it was when they moved in – minus normal wear and tear and any other previously spoken about repairs. If the premises is in good condition, the landlord must remit the security deposit to the tenant at the new address within sixty days of lease termination. If there is any balance due, the landlord shall write out the reasons for keeping some of the security deposit.
9. Repairs and Maintenance of the Premises. (I’m going to keep this clause as written on a real lease because the extent of what the landlord is responsible for is important for both landlord and tenant to know) The Landlord agrees to keep all the improvements upon the Premises including, but not limited to, structural components, interior walls, floors, ceiling, sewer connections, plumbing, wiring, appliances and glass in good maintenance and repair at their expense unless such items are damaged by Tenant in which case Tenant shall repair. In the event the Landlord is responsible for repair of the Premises, the Tenant shall be obliged to notify the Landlord of any condition upon the Premises requiring repair, and shall provide the Landlord a reasonable time to accomplish said repair. At the commencement of this Lease, the Tenant and the Landlord have completed a written description setting forth the agreed condition of the Premises. If such written description has been completed, it is hereby incorporated by this reference. As of the commencement of this Lease, the Tenant acknowledges that the Tenant has examined the Premises and is satisfied with the condition thereof. Taking possession of the Premises is conclusive evidence to the fact that the Premises are in good order and satisfactory condition.
10. Default. If the tenant seems to not be paying rent, or has decided not to pay rent and has not paid within the number of days you determine rent can be late, the landlord has the right to do one of the following:
(a) declare the term of the lease ended
(b) terminate the tenant’s right to possession of the premises and reenter and repossess the premises pursuant to applicable provisions of the [state law];
(c)recover all present and future damages, costs and other relief to which the landlord is entitled;
(d) pursue landlord’s lien remedies;
(e) pursue breach of contract remedies; and/or
(f) pursue any and all available remedies in law or equity.
11. Attorneys’ Fees. If any of the above promises are not fulfilled by either party and, as such, is brought to court, the party prevailing in such dispute shall be entitled to recover reasonable attorneys’ fees from the other party.
Make sure all parties involve sign and date the lease to activate it.
Complex? Yes. Necessary? Definitely. You can add other clauses if necessary, of course. In the Rental Property Training course, learn the basics of rental income taxes.
Here’s my tenant horror story, which ended up being my landlords nightmare but under the provisions I was not responsible.
I was renting a 3-bedroom house in Virginia with my ex-boyfriend in college. We weren’t your typical college students; I’d like to think we partied less and studied more. Our landlords seemed nice enough, although a bit inattentive. One night, I awoke to what sounded like a jetliner crashing in my living room. Startled, I got out of bed and took about three steps before I realized I was walking in something and it wasn’t carpet. It gets gross, so hold on. Evidently a root from a lovely oak tree beside our house had been growing into the apartment’s septic line for about ten years and it had finally successfully clogged any drainage from leaving our apartment. The explosion I heard was everything (yes, everything) that had been sent out via the commode… coming back in…. via the commode. It exploded with such intensity that every single wall in the bathroom and hallways were covered in – well, muck and muckier water. Every single room in the house was affected, wood floors, ceilings, kitchen, carpet and all.
Needless to say, we relocated as ServPro came in equipped with Tyvec suits and biohazard head gear to clean the mess up. The landlords tried to blame us for flushing something down the toilet, but alas, after much ado and an almost-lawsuit, the plumber who warned them ten years ago about this issue said it was definitely, and totally, not our fault. Saved by the…ratchet.
Moral of the story? Be prepared for the apocalypse and make sure there is a clause in your agreement defining what you are and should be responsible (5b and 9 in this lease). Oh, and heed the advice of professionals before disaster strikes. If you can’t afford a lawyer to draft this document for you, take the Lazy Lawyer course to get inside tips on creating contracts.