Owning a property can work to your advantage or it could spell so many problems that you may regret having an extra property to manage. You can always make extra income from real estate properties that you own when you are able to find the right tenant for it and come to a legally binding agreement which is contained in a lease agreement. However, each state has its own set of state laws that govern lease agreements, so you need to make sure that what is set out in your landlord-tenant contract is in accordance with the state laws. Not having a lease agreement can be disastrous and will end up costing you more if your tenant decides to take you to court for whatever reason. You need to protect yourself from any possible foreseeable problem in the future when you have a property you want to rent out. Moreover, the lease agreement would stipulate what the renter can and do with the property and this will also provide you with the security that you can go after your tenant for any damages to the property of if ever they fail to pay the rent at any time during the stipulated lease duration.
What are Lease Agreements
Simply put, lease agreement is a legally binding contract between the landlord and the tenant regarding the terms and conditions of the leasing of the property. At the very least, the agreement should identify the name of the landlord and the tenant, the property that is being leased, its location, the duration of the lease and the amount the tenant has to pay the landlord and the schedule of the payments. The lease agreement can also include additional information or stipulations for the protection of both the landlord and the tenant. However, any such additional items should be in accordance with the state laws where the property is located. As there are many differences in state laws governing real property leases, one should first familiarize your town or province’s real property and leasing laws. Lease agreements is a legal contract and it should be checked for legal terms and it should not contain any clause which may be construed as against any state laws so it needs to be checked by a lawyer or drawn up by a firm who specializes in lease agreement. This step may seem a lot, but this will ensure that you and your property is protected.
Types of Lease Agreements
Lease agreements can be drawn up for any real property that a tenant is willing to lease. The types of lease agreements can be categorized in terms of the duration or length of the lease agreement or contract and the kind of property that will be leased. For example, there is month to month lease agreements, which meant that the contract is short-term and will be good for only a month, after which the agreement has to be renewed for it to cover the succeeding months. A clause can be added to indicate that after three to five days of the end of the contract, if the tenant has not indicated that they are leaving the property, then it is automatically renewed. There is also annual lease agreements which meant that the tenant agrees to rent the property for a whole year and has to pay the rental for a whole year. A clause may be included that the advance payment can be refunded or not if the tenant decides to move before the end of the agreement. Variations of which may be every six months, or quarterly agreements.
Another class of lease agreements are in terms of the space that is being leased, for example garage and storage lease agreements. Most people accumulate a lot of things, from holding on to family heirlooms or antiques with sentimental values or an expensive collection or an expensive piece of equipment, and at times, these cannot be accommodated in the property that is being leased. Thus, an additional space like a garage or a storage space is needed. The landlord should have such a space for the tenants as part of the original leased property. The additional space may or may not be charged for an additional fee, and thus should be stated in its own lease agreement. Vacation rental agreements refer to those vacation houses that can be rented for days or a month depending on the renter’s needs. A vacation home has a very different set-up than just a space since it comes fully furnished and livable. Any restrictions or limitations that the owners of the vacation house may want should be stipulated in the vacation lease agreement. There is also a hunting lease agreement, wherein tenants are given permission to hunt within the premises subject to prevailing laws in the state.
There are also times, when a tenant decides to sublease the property to another tenant, which should also have its own sublease agreement. The contract is between the subland lord which is the original tenant and the subtenant which is the new tenant. This is called subletting, which can only be done when the landlord actually agrees to it. Thus, a sublease agreement needs to be drawn up identifying that it is a sublet and the landlord and subland lord agrees with the intention of the contract and signs the agreement. Even if the subtenant and subland lord comes to an understanding, if the original landlord does not sign off with it, then the contract is not acceptable or legally binding. A sublease agreement also identifies the financial obligation of the subtenant to the sublandlord, and the duration of the lease. Sublets are usually short-termed and is done in order for the original tenant or sublandlord to actually pay the monthly rental to the landlord. Sublease agreements are often more complicated than that of the original lease agreement as it has to cover the details of the existing contract. Certain provisions and limitation also need to be included in the contract, for example subletting should only be on the first tier only, the subtenant should be informed that subletting the place again is unacceptable and can be an illegal contract.
Conditions of Lease Agreements
Lease agreements need to be comprehensive, which means that every possible condition that may arise from the landlord-tenant relationship is already anticipated in the agreement. One of which is the renewal of the lease agreement. It should be stated whether the lease agreement is automatically renewed after a certain period of time at the end of the contract, or whether a new lease agreement needs to be entered into at the end of the contract. For most people, a renewal is cheaper, as you do not have to redo the contract, but if there will be changes in the rental fee and or other clauses, then a new lease agreement is needed. Another possible option is called purchase lease agreement, where after the lease agreement contract ends, the tenant has the option to purchase the property at a set price, or a rent-to-own agreement, where part of the rental fee is considered payment for the property. In these kind of agreements, the lease is usually long-term as it will have to cover for the market value of the real property or even at a higher rental price if it is at a shorter time period.
Lease Agreement Process
At the outset, creating and preparing lease agreements can be a complicated process, you need to hire lawyers to draft it, you need the tenants to check the conditions of the agreement first before finalizing the document, and there will be a lot of back and forth transactions. For first time landlords, this can be a drawn out and time consuming process, but can be made easier if you hire a firm that specializes in the creation, preparation and processing of lease agreements. The best part of which is that it can all be done online, you just need to input the conditions of the agreement that you want included in the lease agreement, then a preprogrammed software will construct the lease agreement. This will be then sent to you for your approval, and if everything is as it should be, this will then be sent to the tenant for checking. If the tenant agrees on the terms of the contract, he or she sends their e-signature or digital signature to be affixed in the contract. The landlord then also sends in his or her e-signature and then the completed lease agreement is printed and notarized. The contract then becomes a legally binding agreement.
Sometimes, we think that going through the process of drawing up a lease agreement is too much a bother, and if you like the tenant and you come to an agreement, the paperwork is not necessary. However, whether to ensure that your tenant is able to pay the rent at specific dates, and or be evicted if they fail to pay it for a number of months, or to make sure that your property will not have damage to it, a lease agreement is a good way to protect your property.