When you’re about to start renting your investment property, one of the first things on your list should be a well drafted lease. Choosing to go with a lawyer to help you draft the lease is an excellent idea since your attorney has experience in this area and will make sure you dot all your i’s and cross all your t’s. If you can’t afford a lawyer to help you with this task, or simply want to tackle this on your own, then reading up on this article will greatly help you cover very essential points in your tenant lease agreement. Including important clauses in your lease will prevent future headaches if (and when) you’re faced to battle legally against one of your tenants.
Names of all tenantsThe name of every adult tenant in your Lease Agreement is important to include and here’s why. When all tenants are named in the lease and sign it, they are agreeing to conform to your lease terms. This means the tenants are all responsible for the full amount of rent, the rules for common areas and living in your rental property. If one or more of the tenants refuses to be responsible for any amount of the rent, you can legally go after anyone who signed the contract. This also includes the fact that you can terminate the lease for all tenants if one or more decides to break any of your lease clauses.
Limits on tenantsYour lease needs to clearly stipulate that the premises can only be inhabited by the adults and their minor children who signed the lease. This is ideal since you have screened all the tenants who signed the lease and avoids problems with tenants having a relative or friend move in without your permission. This also helps avoid your tenants “subleasing” your rental property.
Terms of tenancyIn California, every rental document needs to specify whether it’s a Rental Agreement or a Lease. Don’t know the difference? Well, here are the basic principles of each.
Rental AgreementA rental agreement is usually used for month-to-month agreements such as student leases and temporary fully furnished units. They’re usually signed once and auto renew unless they are terminated in writing by either the landlord or tenant. Things you should clearly specify in your Rental Agreement include the following:
- The date the agreement begins
- The days you need to notify the termination of the agreement (most are 30 days with the exception of agreements that have been in place for more than a year in which the case would be 60 days.)
- They days you need to notify any changes in the lease (which again is normally 30 days or 60 in the case of a rent increase.)
Fixed Term LeaseA fixed term Lease Agreement is ideally used for long term tenancy. It must specify the exact date the tenancy begins and ends and the duration, which is typically a year in California.
Specify RentThis is probably a no brainer, but hey, I have to throw it in here. Here are some additional ideas to include in your Rent Amount clause.
- How much the rent is
- When rent is due and whether or not you have a grace period before rent is considered late
- How rent is to be paid. If it is to be mailed by check, be sure to include your mailing address
- Late fee amount and bounced check fees.
Security DepositsThis clause is the source of most legal conflicts between landlords and tenants. You can avoid the hassle in the long run if you pay extra attention to this section in either your Lease or Rental Agreement. Things to be clear about are the following:
- Exact dollar amount of the security deposit. The California legal limit you can ask for a security deposit is 2 times the rent and in the case you offer a furnished unit, it is three times the amount of rent. Another note worth mentioning is you can charge an addition half of months’ rent if the tenant has a water bed.
- How the deposit is to be used. You need to specify that it will be used to cover any damages the tenant may cause to the unit. Another good idea is to cover what the deposit cannot be used for such as last months’ rent.
- When the deposit is to be returned, and how. By California law, the tenant must receive any receipts and itemized list of how the deposit was used, and any amount leftover returned within 3 weeks after the tenant has moved out.
Maintenance and RepairsOne of the best ways to defend yourself against future legal battles is clearly set out responsibilities for repairs and maintenance in your Lease Agreement. For example:
- State the tenant’s responsibilities to keep the rental premises clean and sanitary and to pay for any damages caused directly by their abuse or neglect.
- Establish a procedure for any and all repair claims and dangerous living conditions on the rental property and state how you will handle complaints and repair requests.
- State restrictions on what could be done to the rental unit without your written consent, such as installing an alarm system or painting walls.