In the world of leasing, an in-depth understanding and background of lease agreements is vitally important not just for new property managers or landlords who have just stepped into the industry but also for those who already have acquired extensive experience in dealing with renters for years. As there always are new trends, property owners are advised to keep a consistent or growing level of familiarity with the updated basic lease agreement and its essential components. Otherwise, a simple miss of the concepts or latest legalities may be enough to break the momentum needed to excel in the field. Whilst verbal, informal, or pretty basic rental agreements are common, landlords are advised to shift to a comprehensive, written agreement as this provides protection to property, their investment, and their livelihood.
What composes a lease agreement?
A lease agreement is a contract agreement that outlines the terms under which the lessee, also known as the tenant or renter, agrees to rent a property that the other party, known as the lessor, owns. The contract primarily serves as a guarantee that the lessee is to pay regular payments for a specific period of time and to use the property under specific terms that the lessor requires.
There are some instances that lessor may necessitate a co-signer to the lease. More often than not, such a case happens if the original lessee is under the legal age or does not have enough credit history that the lessor can base on for his decision whether to grant the lease or not.
Basic elements in the rental lease agreement include the lease duration (most leases are renewable after a year), the schedule for renewal and the renewal process, rental property rules including terms involving pets, businesses, smoking, and other dos and don’ts, and payment terms including the penalties and procedures for late-payment and non-payment instances. The most essential term under a lease agreement is the length of time the agreement is to be in effect. Hence, people who are interested to rent a property must make sure that they entirely agree to the terms, especially the length, stipulated in the contract before sealing the lease deal. Otherwise, legal consequences may arise.
What are the types of lease agreement?
Your lease contract is in effect regardless if you live in the property or not. If you decide to pre-terminate your lease agreement, your lessor is legally entitled to the rental fee covering the period remaining on your lease contract but these implications can be lessened if you resort for shorter term lease. Below are the most common types of rental lease agreement that will guide you as you decide:
1. Short-term Lease
A short term lease contract usually contains a fixed monthly rental fee that is to be paid during the entire period of the lease. This is what is usually used for short-term apartment or house rents.
2. Month to month Lease
A month to month lease, meanwhile, contains a monthly rental fee that is subject to change at any time provided that the lessor has given appropriate notice beforehand as defined in the lease agreement. This type of lease is what is usually availed when a lessee is not certain about the period of time he can occupy a property.
Also known as sublet, subleasing is usually common in apartments or houses for lease where the original lessee leases the property to a third party. The lessee and the third party are to define the new leasing arrangements provided that the lessor assents to it. The consent has to be properly documented. No third party renters are advised to enter into a subleasing agreement without the lessor’s written consent.
Regardless of the type of lease, it is vital that a person who is interested to lease a property fully understands the lease terms and is able to meet or comply with these terms.
To avoid unbearable penalties, the pre-termination terms and fees should also be taken into account just in case the potential lessee decides to end the lease earlier than the contracted duration.
Lease Agreements: Discussed
According to the requirements and preferences of both the lessor and the lessee, the terms of a lease can considerably vary. However, it is vital to ensure that the lease agreement both parties are using is compliant to the local, national, and federal jurisdictions in the area where the leased property is located. Otherwise, both parties may be compelled to settle legal liabilities should the lease be challenged in court.
Lessors are obliged to uphold the duties and responsibilities indicated in the lease agreement. Moreover, they have to maintain compliance with the practices and policies set forth in the contract. Contract terms are considered fixed until expiration, thus each lessor must make sure every element in the contract is carefully considered before releasing the final document.
Meanwhile, lessees are also to affix their signature on their lease contract as a proof that they vow to comply with all the guidelines and terms stipulated in the lease agreement document especially on the clause that defines payment and termination terms.
Lease Agreement Coverage
A lease that is legally bound can just be as simple as a basic handwritten contract signed by the lessor and the lessee or it can be wide-ranging as a multi-page contract covering all phases of life in the rental property. Most lessors opt for simple structured leases; others do not see entering into a comprehensive lease package as one that is worth the effort and time.
However, more often than not, lease legal experts see the comprehensive type as the better bet as the basic one usually contains vague policies and expectations that make it more susceptible to disputes. Comprehensive lease packages are also said to be with lesser legal risks than basic leases.
Lease Agreement for Beginners
With all the technicalities, implications, and components in rental lease agreements, they can appear a bit intimidating but in actual, they are merely specialized contracts. Just like other contracts, lease contracts are created more as a protection to rental property owners, e.g. to act as the best defence against bad, irresponsible, and harmful tenants. A legally binding lease is expected to settle important dividends down the road.
Lease agreements are not created the same. Nonetheless, there is a specific set of basics a good lease contract must encompass.
As per the legal experts, to maximize protection for both the rental property owner and the lessee, below are seven vital elements to include in every lease contract:
1. Identification details about the Lessor and the Lessee
A protective lease contract clearly identifies both parties: the lessor/property owner and the lessee/renter and the lessor’s agent in some cases. In any case of a rental property lease, the contract should specify the identity of all parties including, most importantly, their name and address. As a general rule, lessors have to be at least 18 years old.
2. Details about the Property
A lease agreement must include the full mailing address of the property indicating its house or apartment number, street name, town, state, and postal code.
3. The Term of the Lease
The rental term refers to the start and end dates that the lease agreement is valid and active. Using generic phrases like “the lease is valid for one year” must be avoided at all times. Rather, the lease contract must include the exact dates, i.e. the day, month, and year that the lease starts and the exact date that the lease ends.
A lot of yearly leases automatically shift to month to month leases after the maturity of the original lease term.
4. The Rental Fee and the Due Date
The lease contract must also specify how much is the rental fee and its due date. It is vital to indicate the full rent amount due over the entire lease period and then divide it by the amount due per month.
5. Term of Security Deposit
The lease contract should highlight the security deposit clause as well. This must include the total amount of security deposit that was collected, the date that it was collected, and the name and address of the bank or the location where the security deposit went down. Moreover, the security deposit clause should also include the interest rate, the factors that can validate deduction from the deposit, and the procedures to undergo and the conditions to meet for the security deposit to be returned.
6. Major Responsibilities of the Lessee
This part is usually highlighted in an outlined form covering the major responsibilities of the lessee in compliance with the landlord tenant low to keep and maintain the leased property. As a general rule, lessees are required to keep a safe and hygienic environment. This means that the lessee must do all means to prevent hazards and damages to the rented property.
At times, lessors may provide predefined housing or building codes. Along with these codes, the specific requirements that the lessor defines should also be included in the clause.
7. Each Party’s Signature
Last but probably the most important component of a lease contract is the part where both the lessor and the lessee signs at least two copies of the agreement with the date also indicated. These signatures serve as a proof that both parties agree to conform to the lease terms. Each party is to keep a signed copy of the lease agreement. At times, the legal team that notarized the contract may ask for a photocopy of the signed lease contract.
During the absence of the lessor, the lessor agent can sign the agreement on the lessor’s behalf.