Most landlords know that it’s important to have a signed, written lease agreement. But is a two-page freebie you scrounged up somewhere online going to protect you?
The quality of your lease contract matters. That’s a lesson far too many mom-and-pop landlords and rental investors learn the hard way.
Real estate investments typically cost in the six-figures. That’s a lot of moolah! So you better make dang sure that you protect that investment.
Enter: the battle-ready lease agreement.
1. Guest Clauses:
The biggest cause of wear and tear on any property is people. Constant trampling across the carpeting flattens it and gradually ruins it. More people using your investment property is like higher mileage on a car. The more people, the more stress on the flooring, systems, and even the yard.
In my many years as a property manager, I have always conducted walk-through inspections with tenants after they move out. Those rentals with many people living in the unit? Always the heavily damaged ones. And the tenant’s usual line is “It wasn’t me, it was my kids, friends, relatives that caused that wear and tear. But you can’t deduct normal wear and tear from my security deposit anyway, so hand it over.”
How on earth does the landlord handle this?
By making sure that you have a strong occupancy clause. Some states and municipalities do have occupancy standards in place but that rarely means anything to a renter. It is mucho importante that you have a strong lease clause that not only specifies how many will reside in the unit but also restrict overnight guests to a specific (low) number of consecutive nights.
One other thought to ponder: make sure that in your agreement, that it includes the words in as many sections as possible. “Tenant is responsible for the actions, liabilities or damage created by any and all occupants, guests and invitees.”
2. Over-Use of Utilities
Some landlords cannot avoid including some utilities and services with the rent. Sadly, what I’ve witnessed is that more often than not, any desire for energy conservation flies out the door when a tenant does not have to pay. For instance, when heat is included in the rent, I have seen thermostats set to 77 degrees! Ironically, take that same tenant and make them responsible for the utility bills, and it is set to a more affordable 68 degrees (or even lower). It’s the same for water, electricity, gas, everything.
What’s a landlord to do?
Make sure that you include a clause in your rental agreement that if there is evidence of over-usage, the tenant will pay the difference. But be specific about usage, and consider setting a trigger. Your lease contract might say “If the gas and electric bill is under $50/month, the landlord will pay it on behalf of the renter as a courtesy. If the gas and electric bill is over $50 in a given month, the renter will be responsible for their own bill, in its entirety.”
Obviously the exact figure varies from property to property, so make sure you know what is a moderate bill for that rental unit. Review the billing history for that unit as a baseline.
3. Property Inspections
How would you know if there are too many people? Or if a pet was sneaked in? How would you know if the property is a complete mess and being damaged?
By visiting the property, of course.
Most leases do contain “
right of entry” clauses that provide for how much notice must be given. But rarely do I see the word inspection used. Add it in! This does not give you the right to pop on in and sit down with some popcorn and watch Netflix. However, it does leave you room to make an inspection – just to be sure all is status quo.
And guess what? If a renter knows that you will be inspecting, they tend to keep things in better order in the long run.
4. Specifics On Use
Make sure that your tenant understands that if little Timmy throws the matchbox car in the toilet, and it blocks up the plumbing, that they as tenants will be footing the bill. Anything caused by neglect or abuse by a tenant should be paid for by that tenant! Period.
You may think detailed rules are silly, but I tell you that they can save you money! In the rules section, include “nothing in the toilet except toilet tissue and excrement.” Yes, I do get that detailed!
Hardwood floors? Make sure you add in the lease agreement that the tenant must protect the flooring with felt under furniture legs, and no high heels (yep, we are asking their guests to remove the shoes)!
I had a fireplace in one of my rentals and added a clause that it was for décor only and not available to use. By doing this, I am protecting against fire, and liability against injuries. This does not mean your obedient tenant is going to listen; however, if something does happen, guess who is on the hook?
5. Utility Malfunction
So often, I have had a tenant call and scream at me that the electric company shut off the electric. Whether it was their own fault or that there was an electrical issue, it was nothing I caused, but the landlord seems to be the perpetual door mat.
Having a clause in a lease that provides that if a utility or service should become unusable (when it is not the landlord’s doing), the landlord is not liable. This protects you from running around and purchasing and delivering candles for your tenant should a storm knock out the electric.
I have had tenants demand that I must “put them up” in a hotel because the heat is not working. There were times where I have done that as a courtesy, but I do not want to be forced to do it simply because my lease agreement is not more landlord protective.
6. Fees Protection
There are rules, laws and regulations all across the board that prevent the landlord from charging fees. Let’s face it! There is a mortgage to be paid and there seems to be no hesitancy from the mortgage company to charge a late fee. Yet, in so many states, there are absurdly strict limitations.
One little clause may not be the “solve-all” but it sure can assist. Here it is (now this is an insider secret):
“The Tenant understands that it is impossible, or extremely difficult to compute the specific damages suffered by the Landlord for Tenant’s failure to make payments when they are due, therefore, the Landlord and Tenant agree that these fees are a reasonable and fair estimate of the costs incurred by the Landlord.”
This clause does not mean that you can charge out the wazoo. But it certainly can assist in states that have the restriction of “reasonable charges” listed in the law.
These are just a few of many, many clauses that may seem mundane or even ridiculous… until your tenant calls you screaming and flinging demands. Legal clauses are often the only barrier standing between a landlord and a lengthy, expensive lawsuit, so take them seriously – they may just save you thousands of dollars in the not-too-distant future.
What clauses do you like to include in your lease agreement? Where have you run into trouble with renters in the past? Share your experience!