The rental agreement is the most critical document to the success of a landlord-tenant relationship. However, many owners do not fully understand the legal implications of this document. As a result, some landlords opt for cookie-cutter leases that do not offer adequate protection instead of consulting a professional property manager or attorney. But ensuring the lease includes all necessary addendums, clauses, and legal requirements is no easy task. Furthermore, creating a rock-solid rental agreement is just one of numerous tasks rental owners must complete to ensure success. So, join us below as we help you identify and avoid five of the most common landlord mistakes related to leasing contracts.
What is a Rental Agreement?
A rental agreement is a legally binding document between the owner of a rental unit, or their designated property management company, and a tenant. That said, this contract protects both the landlord and tenant by outlining critical responsibilities for all parties. Therefore, understanding what to include and why it is important is vital. So, let’s review a few basic requirements of a solid lease agreement below.
Basic Necessary Details
Every lease agreement needs to include some basic information to identify the property, and all included parties.
- Tenant Names and Occupants
- Landlord Name and Contact Information
- Property Address
- Lease Contract Term along with Start and End Dates
Financial Specifics
Most contracts revolve around some financial transaction, and a rental agreement is no different. Therefore, owners must clearly define all fees, deposits, and monies due so there is no room for confusion. That said, this includes –
- Amount, Due Date, and Policies regarding Refundable and Non-Refundable Deposits
- Rental Amount, Due Date, Grace Period, and applicable Late Fees
- Description of any Additional Fees (Utilities, Parking, Ect.)
Regarding the security deposit, it is also a good idea to include information on where any refundable deposits will be held. In addition, many states require landlords to have deposit funds in an interest-bearing escrow account. So, be sure to check the laws in your local jurisdiction.
Lease Clauses and Addendums
Every lease can vary slightly based on the specific needs of the property. However, a lease must address all rights, roles, and responsibilities for the tenant and landlord. Outlining these policies, in the beginning, can go a long way to preventing potential disputes later on. So, rental owners must take their time when creating a comprehensive legal rental agreement. That said, some of the essential lease clauses include, but are not limited to –
- Circumstances of Renewal
- Maintenance Requirements
- Guest Policies
- Lease Termination Penalties
- No Smoking Policy and Consequences
- Use of Premises Restrictions
- HOA Specific Requirements
5 Landlord Mistakes When Creating a Lease Agreement
Understanding how to create an effective rental agreement involves knowing what to do but also what not to do. Unfortunately, landlord mistakes are common and often lead to aggravation, lost income, or legal vulnerabilities. So, if not drafted correctly, landlords could find themselves in real trouble. That said, let’s take a look at five of the most common landlord mistakes that can hurt your lease below.
- Using Generic or Outdated Forms
- Not Requiring Renter’s Insurance
- Skipping the Cosigner
- Not Defining Tenant Maintenance Responsibilities
- Bending the Rules for Roommates
Using Generic or Outdated Forms
To rent a property, landlords must comply with federal, state, and local laws. However, these laws or guidelines do change or update from time to time. Therefore, rental owners need to remain knowledgeable on any applicable rental laws in their area.
For owners who self-manage, using so-called “standard” lease agreement forms can seem convenient and appealing. However, these cookie-cutter forms are not tailored to the specific property. Additionally, landlords must be vigilant in checking whether or not that standard form complies with local laws. Failing to do so can be potentially disastrous. With that in mind, here are some of the problems you may encounter when using a cookie-cutter lease agreement form –
- Any specific lease provisions owners want to include may not be on the form and are thus unenforceable
- The lease may include overly strict clauses that place an undue burden on either owners or tenants
- Incorrect rules or regulations unbeknownst to owners or tenants can cause disputes later on
That said, ensuring a standard lease from the internet is up to date with applicable laws and regulations can be a challenge. That is why we recommend working with a qualified attorney or professional property management firm.
Not Requiring Renter’s Insurance
Requiring all tenants to have a renters insurance policy with liability coverage has become standard throughout the industry. However, some owners are reluctant to include this in their lease or fully understand the benefits. Not only does this coverage protect a tenant’s belongings in the event of a covered peril, but a renters policy also offers liability coverage. Thus, helping cover medical or related costs if someone was injured on the premises or the tenant damaged the property.
Also, at an average of $8 to $15 per month, this is quite affordable for the coverage it provides. While tenants should choose the coverage level that best suits their personal property, minimum liability coverage should be at least $100,000. Therefore, skipping over insurance requirements is one of the biggest landlord mistakes on this list.
Skipping the Cosigner
Ideally, every applicant will meet all of the standard qualifications, and landlords will have their pick of any number of top-notch renters. Typically, landlords screen tenants based on the following criteria –
- Verifiable Income of 3x the Monthly Rent
- Creditworthiness
- Criminal Background Check
- Rental History Verification
- Prior Landlord or Professional References
In an ideal world, every tenant that applies would make sufficient income, have verifiable references, employment, and previous rental history. However, this is not always the case, and each application requires careful consideration. There are instances where a tenant may lack a credit history or fall short of the income requirement. For example, a young adult going off to college and renting their first place. This is why building a required cosigner clause into your lease agreement can help give quality tenants a chance while still providing added safeguards for owners. By allowing applicants to apply with a cosigner, landlords have better protection against non-payment, property damages, or roommates not fulfilling their part of the lease obligations.
Cosigners must go through the same application process as the tenant, with particular attention to their financial stability. Remember, a cosigner must be able to step in if the tenant defaults. So, we recommend requiring the cosigner to show proof of income at least six times the monthly rent. Thus ensuring they can pay their own bills plus the rent if needed.
Not Defining Tenant Maintenance Responsibilities
One of the most prominent landlord mistakes is not clearly defining what tenants are responsible for in the rental agreement. It is important to remember that landlords cannot assume or take for granted that a tenant will perform the tasks you think they should. So, to save everyone’s frustration and confusion – put it in writing!
Tenants are responsible for the general upkeep of the property and reporting all maintenance issues in a timely fashion. Furthermore, there are often specific requirements that landlords may want to spell out, such as –
- Change or clean the HVAC filter at least once every three months
- Maintain a safe and sanitary home by disposing of all trash in approved receptacles
- Keep up with outdoor landscaping, including mowing grass, pulling weeds, or snow removal
- Test emergency smoke alarms annually and inform landlords of any non-operational units
- Replace burnt-out lightbulbs
- Protect plumbing fixtures and drains from anything that may cause a clog or backup
Any landlord hopes that the tenant will care for the property as if it were their own. But, if they do not, landlords have some recourse if maintenance requirements were clearly defined in the rental agreement.
Pro Tip: Consider adding some general maintenance tricks and tips into your tenant welcome package provided to tenants upon move-in.
Bending the Rules for Roommates
Perhaps your rental property is in a college town that attracts individuals planning to have roommates. If so, it is imperative that owners draft the lease agreement to include some of the following information –
- Thorough Tenant Screening – Any adult occupant over 18 should go through the same application and screening process. That said, this is regardless of whether they contribute to the rent each month or not. Not knowing who is residing in their property is one of the landlord mistakes that can cost the most.
- Security Deposit Information – Besides the general language that goes into a lease agreement concerning a security deposit, roommates present a unique circumstance. So, include policies that state any unpaid rent or damages to the property, regardless of who is at fault, will be taken out of the security deposit at the end of the lease term.
- Liability Clause – One of the most dangerous landlord mistakes is failing to add a clause concerning joint and several liability. Essentially, this ensures that if one roommate disappears, the other will be held fully responsible for rent each month, as well as damages at the end of the lease term.
- Breach of Lease Provision – In essence, the actions of one roommate affect the entire group of occupants on the property. So, reserve the right to terminate the lease for all tenants, even if only one person breaches the lease.
Stress-Free Leasing with Bay Property Management Group
In the end, drafting a lease agreement without adequate knowledge or experience is a monumental task. Thankfully, landlords do not have to rely on their own expertise to develop the most essential document for their rental business. Instead, the opportunity to hire experts in the industry is just a phone call away.
Bay Property Management Group understands the vital role that a strong lease agreement plays in the landlord-tenant relationship. Our team of professional property managers guides owners to ensure that all aspects of their property and financial interests are protected. If you are interested in learning more about the benefits of full-service property management, contact Bay Property Management Group today.