Creating a Solid Lease Agreement

Many people entering property management for the first time ask if they should use a pre-packaged lease for their tenants, or should they create their own lease. In my opinion, a prewritten lease alone is not good enough, because it won't cover all of the particular issues pertinent to your own rental property. However, your lease must be airtight and cover every situation that might arise.

Besides creating a typical tenant lease, strive to make it more - make it a tenant satisfaction agreement. The smart property manager can craft a lease that includes incentives and concepts that can turn average residents into productive, marketing, money making partners. These satisfaction clauses can be added to the basic lease to create a good relationship right from the start.

Here are some tips on creating your own lease. Most importantly, even if you create your own lease, you should still take it to a local real estate attorney for a final review before using it. You might want to start with a standard prewritten lease, and then modify or add to it as needed. Make sure you understand your local and state laws, and keep your writing plain and simple.

The Basic Lease Agreement

1. Include the full names of all prospective tenants - these will be the only ones held accountable if there is a dispute. Be sure to include both names of a married or unmarried couple. Remember, if one tenant skips, you should be able to hold any other party on the lease responsible for the rent. Also, if any one tenant violates the terms of the lease, you should be able to terminate the lease. 2. Spell out more than just the rent amount - besides including the rent amount and the day rent is due, also include how it should be paid, such as by mail, in person, online, direct deposit, etc. List acceptable forms of payment, such as 'personal checks only', money orders, or credit cards, remembering that you may pay a fee for credit card processing. Also include any charges if a check should bounce, when rent is considered late, and any late fees that the tenant is responsible for. Be sure to include if you are going to apply any late fees prior to applying money received towards the actual rent. 3. Make sure you specify who can live at the residence. This would normally be only the names on the lease and any of their minor children. This gives you the right to evict any other people that might move in later, such as relatives or friends, plus it protects you if the tenant tries to sublet the rental without your permission. 4. Be specific on security deposits. Many legal hassles develop out of this part of the lease, so make sure you spell out the amount of the security deposit, conditions for the return of the deposit, acceptable deductions, and when it will be returned. Be sure to include how the deposit can be used by either party, such as deduction for cleaning costs, additional costs for pets, damage costs and other fees. Make sure the tenant knows that the deposit cannot be applied to rent payments. 5. Specify the lease term of your rental agreement. If the lease runs for one year, outline if it reverts to a month-to-month after that, and the number of days notice you will need to renew the lease, if it is renewable. If the lease self-renews, be sure to specify the number of days notice that either you or the tenant must give in order to move out. 6. Clearly outline the obligation of both the tenant and yourself regarding repairs and maintenance. Your tenant will probably want to make alterations such as painting, running wires, pictures, alarm systems, etc, so make sure your permission is required first. You should require that the tenant keep the property clean and let you know if anything needs your attention right away. Make sure that you define who owns an improvement - usually a fixture improvement to the wall or ceilings would become the property of the owner unless restored to the original condition. 7. To be sure that you do not get charged with illegal entry or privacy violations, be sure that you include the rights you may have to enter the premises. Normally, the landlord cannot enter without the tenant's permission, but you should have the right to inspect the property, show prospective buyers, make repairs, and provide maintenance with proper tenant notification and during acceptable hours unless in case of emergency. You might want to include the right to show the property to prospective tenants after notice of termination is given, again with proper notice to the current tenants. 8. In case of a dispute, you must outline in the lease which party pays attorney costs. Many standard leases make the tenant responsible for paying to enforce the lease provisions in case of a dispute, but your state laws may not permit that, instead forcing the loser of a lawsuit to pay the attorney fees.

Incentive Clauses

Above are just some of the basic provisions of a lease. However, you can also turn your lease into a valuable marketing tool for your business while at the same time providing extra satisfaction for your tenants. Here are just a few basic ideas, which will be covered in more detail in a future article.

1. Award special benefits to your tenants the longer they stay. At each tenant lease anniversary, provide a financial or other type of award, provided they are on time with all of their rent payments. 2. Provide incentives for your tenants to recommend you to other prospective tenants. 3. Provide an incentive for your tenants to eventually own the house they currently rent, provided they remain in good standing as a tenant. 4. Encourage your tenants to make upgrades to your property if they have the skills. You can provide materials and they can provide the labor.

Important Added Clauses

Most times, a basic lease is not enough. There are many other important clauses that many landlords tend to neglect, yet they become invaluable if there is ever a dispute. Here are some examples of clauses that can be added to your lease agreement.

?Parking - how many vehicles (cars, boats, motorcycles, etc) can be parked at the residence? ?Residential use - can the tenants run a business? What kind? ?Garage sales or auctions? Are you going to permit these? How often? ?Change in status (any changes in the lease application, such as employment) ?Subletting - is it allowed? How many residents? What notification? ?Co-signer on lease - should you add another responsible party as a guarantor? ?Partial payment of rent - how is it handled? ?Returned check fees - how are you going to handle returned checks? ?Bankruptcy - what if your tenant files for bankruptcy? ?Lease violations - what are your rights? What are the tenant's rights? ?Absence of tenant - what is the tenant disappears? Can you get into the rental? ?Furniture lien - can the tenant possessions be taken? ?Increase late fees - can you charge additional late fees if the tenant is often late? ?Judgment collection - who pays? ?Utility bills - what if the tenant defaults? ?Emergency repair - what if you have to cut off the water for repairs? ?Problem neighbors - how do you handle complaints? ?Disasters - what if you can't fulfill your landlord obligations because of a disaster? ?Illegal activity - make sure you can take action against drug use, explosives, firearms, etc. ?Quiet enjoyment - you should insure that the tenant does not intrude on other people's rights ?Smoking - make sure your rules are clear. ?Pets - how many pets? What additional deposit? What about additional cleaning costs? ?Yard upkeep - Make sure your property looks neat and is safe. ?Health and safety codes - Be sure your tenant doesn't not violate these.

I hope these ideas make you think about how important your tenant lease can be. With the right rental agreement design, you can create a lease that will protect your property, promote timely rent receipt, motivate your tenants, and protect your legal rights as a landlord.

Wayne Gathright is president of W G Software, Inc. developers of the Tenant File Property Management Software (http://www.TenantFile.com). He has over 30 years experience in consulting and software development for real estate. Mr. Gathright also markets a product for easy creation of leases called the Lease Designer software. (http://www.LeaseDesigner.com). The Lease Designer product allows the user to select from several prewritten leases, choo