What Real Estate Investors Must Include In a Lease Agreement


30 Dec What Real Estate Investors Must Include In a Lease Agreement

A rental agreement is a document that acts as a contract between you and your tenant, defining the terms of the tenancy. As tempting as it might be, using a free downloaded lease agreement template isn't often enough for a legal lease that complies with the law and protects your real estate investments. The lease is one of the most important documents you'll create as an investor with rental properties. Keep reading to learn about the essential elements every basic lease agreement needs.

Names of All Tenants

The first and most basic thing you'll need to include in any lease agreement is the name of every tenant who will be living in the rental property. Requiring all adult parties to be named as tenants is an important step to protect a property and ensure on-time rent collection each month. 

Each tenant is legally responsible for paying rent in full and abiding by all lease terms. This means that if one tenant fails to pay rent, you'll be able to seek out the total rent payment from any other tenant residing in the property. In addition, if one tenant violates the lease terms, you will reserve the right to terminate the lease for every tenant in the rental unit.

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A Thorough Description of the Rental Property

A complete description of the rental property, including the full address and unit number (if applicable), is essential for your lease or rental agreement. In this description, real estate investors should note things like designated storage spaces, parking spots, and areas your tenants are not allowed to access. For example, if there is parking on-site, be sure to include the number of parking spots per unit in the building and the specific numbers associated with them. This information is as important for you as it is for your tenants. Without these property specifics, your tenants may not know when they're violating a property policy, parking in the wrong place, or accessing an off-limits area. 

The Tenancy's Term

Though the terms are often used interchangeably, a rental agreement and a lease are two different things. While rental contracts are typically short-term and operate on a month-to-month basis, leases create tenancies that end after a specific period of time. The most common length of a lease agreement is one year. However, no matter which option you decide to use, make sure the document specifies the length of the tenancy term with starting and ending dates.

The Rental Rate and How to Pay Rent

When you're writing out the rental rate in your lease agreement, it's not often enough to simply note the monetary amount that your tenants need to pay every month. In addition to this information, you'll need to write out the when and how rent is to be paid. 

In most cases, rent is due on the first of every month. As far as how rent is to be paid, specify whether rent payments need to be mailed to you, left in a specific place for you to pick up, or if renters should use an online payment portal. The lease should also include the grace period for late rent (if there is one), acceptable payment methods (electronic, personal check, etc.), and any applicable fees for late rent payments.

The Security Deposit and Other Fees

The security deposit paid by your tenant is an important fee for a few different reasons. First, it allows you to make repairs caused by tenant damage without dipping into your personal funds. It also gives your tenant a reason to take great care of the property while they live there. In your lease, be sure to outline the following things about the security deposit carefully:

  • The dollar amount of the security deposit.

  • How the deposit might be used if a renter causes property damage.

  • Whether the tenant is expected to replenish the deposit in the event that it needs to be used.

  • When and how the deposit will be returned to the tenant.

  • How deductions from the deposit will be accounted for.

  • Non-refundable fees (cleaning fees, emotional support animal or pet deposits, etc.) 

As long as you're specific about these details, this section of your lease agreement should be airtight and reduce the potential for conflict with a renter. Make sure there's no room for misinterpretation!

Repair and Maintenance Policies

Your repair and maintenance policies should be outlined in every lease agreement, including the repairs and routine maintenance you'll deliver. It's also in your best interest to describe the tenants' responsibility to maintain clean premises and pay for any outstanding damage caused to the property outside of normal wear and tear. Of course, defining normal wear and tear is a good idea, too. 

In addition, a clause that your tenants are required to notify you of any dangerous or defective conditions can help you keep your property up to code. This is also the best place to include information on what kind of alterations your tenants are allowed to make or not make (painting walls, nailing things to the walls, etc.).

A Landlord Right of Entry Clause

To avoid any tenant claims of illegal entry into the property, it's critical to include a key clause about entry in your lease agreement. Outlining your rights to access the rental property in accordance with your state's landlord access laws can help you and your tenants avoid disputes or any invasion of privacy. In most cases, you'll be required to provide tenants with 24 hours of notice before entering the rental. However, this may not be the case in the event of an emergency, which you'll also want to make a note of in your lease.

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Rules and Other Important Policies

When including additional rules and essential policies in your lease agreement, don't forget a few additional areas, including:

  • Illegal Activities. To limit your liability and protect anyone who enters or resides in your rental, it's important to add a clause that specifically prohibits illegal activities.
  • Smoking Policies. As a landlord, you have the right to prohibit or restrict smoking in your property. This can include smoking cigarettes, marijuana, or vaping. If you limit smoking, but don't prohibit it, make a note of areas where it's acceptable for your tenants to do so.

  • Pet Policies. You also have the right to prohibit pets in your rental, except for service animals and emotional support animals. If you do allow pets in your rentals, make sure you specify pet policies or add a pet addendum in regard to species, breed, size, and the number of pets allowed. 

Your real estate attorney or a property manager can help you cover these items in the lease!

Contact Information

A lease agreement should also include your contact information or how to reach your property management company. This is also the best place to specify how you'd prefer to be contacted and the best way to reach you in an emergency. 

Required Landlord Disclosures

Federal, state, and local laws typically require landlords to disclose certain pieces of information in lease agreements. For instance, you're required by federal law to disclose whether there's lead-based paint anywhere on your rental property. It's also important to ensure your lease doesn't violate any rent control, anti-discrimination, or health and safety laws.

Make More Money With Excellent Real Estate Investing Deals!

Making more money from rental properties starts with the best real estate investing deals. While a comprehensive lease agreement is important for rental property owners, it's also critical to find the best properties that make excellent rentals. Privy delivers investor insights and the best property deals from your preferred markets! With the Privy Advantage, you spend less time researching markets to find your next rental and more time adding the best investments to your real estate portfolio. Reach out soon to learn more about how it works!

Learn more about creating airtight leases! Download a free copy of "The Ultimate Guide to Lease Agreements."


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