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Thursday, 30 May 2019 17:46

Top 5 Lease Agreement Clauses

There are many lease agreement clauses that are under-specified. They might be unclear or leave a lot of legal wiggle room for a tenant. The best way to write a lease is in a way that's clear and transparent. This protects both you and the renter. There are some key sections that are even overlooked. It's also not uncommon for an owner or property manager to overlook a legal responsibility they have.

Understand first that you shouldn't approach this in an antagonistic or aggressive way. You and the tenant are not necessarily on opposite sides of lease clauses. As you'll see, many tenants simply may not realize that there are certain restrictions or why those restrictions are sensible. The more they're spelled out, the less room there is for confusion and the easier it is for tenants to keep you in the loop and meet their responsibilities. These are the top five lease agreement clauses that help everyone stay on the same page.


1. Use of Premises

This is key. Renters may assume they can use their space however they wish. To them, it's natural to think of it simply as the place they live before they think of it as the place you own and rent to them. This doesn't come from a bad place. To feel comfortable and at home, it's necessary to think of a rental in that way. This is why use restrictions should be spelled out in the lease. It avoids unnecessary conflict or misuse down the road.

What are some uses you may wish to restrict? Someone running a business from their home can expose you to liability. You may not wish them to use the property as an Airbnb or other home-sharing space.

Alternately, you may be comfortable with the space being used in these ways. If you are, simply be sure that your specifications for how these things are realized are spelled out. A short-term rental from the resident themselves still requires whoever's making that short-term rental to follow your restrictions, as well as municipal regulations.

You may wish to build in an additional charge for those wishing to home-share or open the space up to short-term rental. After all, this does increase your risk and unlike the tenants to whom you directly rent, you're not necessarily vetting the short-term renters who come through.

2. Security Deposit

This seems obvious, but it's worth going over for some of the finer details that can be missed. A security deposit protects you from nonpayment or tenant damage. The terms for the security deposit should be exceptionally clear and detailed. This protects you from the tenant turning around one day and claiming something was vague or unspecified.

The tenant should have a full understanding of the rules they need to follow and the condition the property needs to stay in. Following these rules allows them to get a refund of their deposit should they move out without breaking those rules.

Many states and local regulations require a tenant to be informed of where their deposit is held and its interest rate. As a general rule, make sure that you include the security deposit receipt as a rider to the original lease. This acknowledges receipt of the tenant's security deposit.

Remember that tenants are very nervous about security deposits, and some have been cheated out of them before even when they followed all the rules and kept their rented property in perfect condition. Just as you've had bad tenants, they've had bad landlords. Transparency on both sides makes everything work out much better. Try to provide the tenant with a copy of the security deposit receipt within 30 days of receiving their deposit.

3. Subletting Restrictions

Life plans change. Some tenants may find themselves in a position where their job changes or a family emergency happens. They may have to move unexpectedly for a very legitimate reason. Financial emergencies can also happen. Students may stay during the academic year, but not plan on being there for a full-year lease. It may make sense in these cases for the tenant to sublet the rental. This may be preferable, or it may not work well for you.

Be clear in the lease about subletting conditions. Subletting involves allowing a new tenant on a long-term basis. You need to be clear about the conditions and screening that goes into this. How involved do you want to be? One benefit of subletting is that instead of the tenant leaving and having to lease the property from scratch, the tenant does much of the work to find a replacement themselves – after all, it's in their financial interest to do so.

At the same time, you need to protect yourself in reasonable ways. At the very least, you have to be informed when a tenant moves out and sublets. You should be able to screen a subletter in the way that you'd screen a tenant. Are there associated fees that are legitimate to put on the subletting process? Will the lease be assigned to the subletter, or still go through the tenant? How is the security deposit handled? Who has the right – if anyone – to lease renewal?

4. Liability

Liability should be joint and several in nature. What exactly does this mean? Joint liability means that all parties signed on the lease are jointly responsible for fulfilling its terms. Individual liability means that each party signed on the lease is individually responsible for fulfilling its terms. Doesn't clear things up all that much? Think of it this way:

Rent on a property is $3,000 a month. There are three tenants who have agreed to split that equally. That's $1,000 per month each. As a group, they're responsible for paying $3,000 a month. One tenant moves out. The rent is still $3,000 a month for the property. As a group, those two remaining tenants are still responsible for paying $3,000 a month.

5. Severability

Severability is often ignored in leases, to the owner's detriment. Severability ensures that an oversight on the lease doesn't make the entire lease invalid. It's a clause that basically says that one part of the lease being deemed illegal does not negate the entire lease.

Let's say you make a mistake in your legal wording. It happens to many people when dealing with legal language. This causes you to miss a deadline that you're required by law to meet. Being inaccurate in one portion of the lease doesn't mean the entire lease is suddenly torn up. It just means that one section where you made a mistake is overridden by law.

Severability does not excuse you from that mistake. You're still responsible for it and for whatever the law requires for you to make it right. Severability just means the rest of the contract still holds without a problem.

A real estate attorney is a very good idea for looking over your leases. If you're confused by your responsibilities in any way, according to old laws or new ones, it's a good idea to seek one out. They'll be able to help you with compliance, as well as ensuring that you've covered all your bases in a way that protects you and your property. Contact Asheville Phoenix Properties for further help with lease agreements and property management.