How well does your lease agreement protect you against liability? How well does it protect your property from the most common damage risks, such as scratched floors and artwork holes in the walls?
Deni and Brian break down what good leases protect landlords from, and how to make sure your lease is shielding you as well as it could.
Video Broadcast Version
Audio Podcast Version
Also available on iTunes, Stitcher, and wherever else you listen 🙂
Resources Mentioned in This Podcast & Video:
What short-term fix-and-flip loan options are available nowadays?
How about long-term rental property loans?
We compare several buy-and-rehab lenders and several long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.
Brian: Hey, guys. Happy Tuesday. Brian Davis and Denise Supplee here from Spark Rental.
Brian: Today we are talking all about lease agreements. And what’s the difference between a free lease agreement, state specific lease agreements, not having any lease agreement at all. So, let’s dive right in and as you guys join us for free to shoot those questions at us. Deni why? Why do landlords need some kind of lease agreement at all?
Deni: Well, first of all, if you don’t have a lease and you have to go to court, it becomes a big he said she said type of thing. So, there’s nothing saying, you know, this one agreed to do this or that. So, I mean, that is really important. Really important, especially if you’re in those tenant-friendly states where a judge is more inclined to. Go with a renter.
Brian: Yeah. Or tenant-friendly cities. Even if the state is neutral or more landlord friendly. If you’re in a tenant-friendly city, doesn’t matter. The laws are not going to be in your favor, nor are the judges necessarily.
Deni: That is for sure. Now, with that being said, a free lease is better than a no lease. But even a free lease kind of leaves you open. Have you ever used one, Brian?
Brian: A free lease?
Deni: Yeah.
Brian: I don’t think so. I mean, you know, sometimes people use them for family members know they’ll use a very short casual lease agreement that just breaks down the basics like rent amount, how often it’s do security deposit amount, what’s the lease term, any late fees, you know, and sometimes those leases are like just one or two pages long.
Deni: Right.
Brian: So, you know, I’ve never used one. I’ve also never rented to a family member or, you know, rent it in such a laid back situation where, you know, you’re not really looking to protect yourself, although you really should be looking to protect yourself even with family members.
Deni: More so actually, even because if you don’t have stuff written, family members are way more apt to say or friends you know. Well, you didn’t tell me that or, you know, whatnot, but.
Brian: Yeah. And, you know, these sorts of very simple free lease templates that you get off the Internet, they do usually not state specific, right? They don’t include state-specific clauses. They don’t include state-specific disclosures or addenda. And just beyond that, they don’t have any of those clauses that are designed to protect you as the landlord and protect the tenant, too, by very clearly spelling out who is responsible for what. On whose shoulders does each responsibility lie? So that’s a problem, because you end up with ambiguity sometimes and the tenant will say, Well, I didn’t know I was responsible for that. And then if you’re the landlord, you can’t point to anything in writing saying, well, yes, you did, because you signed it right here. So.
Deni: Exactly. And then the whole idea is you really want to keep your leases in compliance, because another thing is you don’t want to go to court and judges will do it. They’ll look through and they’ll like, where is this clause or that clause? It’s mandated. Why isn’t it in here? And then you automatically lose and have to go through this whole. Think again and it’s costly.
Brian: Yeah. Oh, yeah. It can lead to tenants who are not paying rents to get more months of free rent as they keep delaying the process. Because you didn’t use the right lease. Right. So, you know, on SparkRental.com, we do offer a free lease agreement for people who want one. You know, there’s there are a lot of landlords out there who do want a free lease. We don’t recommend using a free lease, but we offer it for the people who want it. We also offer a premium state-specific version of the lease for landlords who want to have a more protective lease agreement with state-specific clauses and state-specific disclosures and state-specific addenda and all the things that you really need as a landlord. A couple examples of some of these protective clauses that I really like. I like requiring that the tenant put pads on the bottom of all of their furniture, at least if no, you laugh.
Deni: But I just know that that’s one of your that’s one of the things. Right.
Brian: But I’ve seen because I’ve seen tenants do this time and again, they are not thinking about protecting your property. Right. Because it’s not their property. Homeowners are very quick to protect their hardwood flooring because they just spent ten grand putting it in. Right.
Deni: It’s funny, I just had this conversation with a managing a property and it’s a townhouse and the renters have been beating it up. And I had just taken it over and I said, has anybody, like sent them notice or have you done anything or does your and the lease there’s no clause in the lease really that talks about that. And so he’s kind of messed up right now.
Brian: Yeah. So, then you end up with hardwood floors that are just shredded to hell, right? I mean, they’ve got scratches all over them because the tenant just moved in their furniture with its standard metal feet, and they shove the furniture around and scratch up the floors and they don’t care because it’s not their floors. They didn’t spend $10,000 installing those floors. You know, another example is a clause that says exactly how large the holes in the wall are allowed to be before the landlord will deduct the patching and repair and repainting costs from the tenant security deposit. Right. So, you know, if you don’t put anything like that in there, then you’re going to have a hard time deducting money from the tenant security deposit for patching and repainting walls, because most judges or a lot of judges are very tenant friendly and they’re going to say, well, that’s normal wear and tear people hanging things in the wall. So, what you want to do as a landlord is say something like. You know, holes up to five millimeters or whatever it is are allowed when the tenant moves out without, and they will not be deducted from the tenant security deposit. But anything larger than that will that does require us to patch and repaint the wall and we’re going to deduct that cost from the tenant security deposit.
Deni: And there is that there’s a fine line between wear and tear and stuff like that. And if you don’t spell it like like even the TVs that you hang on the wall right now, they do big damage and.
Brian: Oh yeah Because you have to you have to bolt them in. So, you’re talking about holes that are like a centimeter long.
Deni: Right. So, I put in my leases. No, you can’t mount a TV on the wall.
Brian: Yeah, absolutely. Because when you do mount a TV on the wall, that requires patching and painting afterward. And you can’t you usually can’t just paint over the patch if the paint the entire wall again if you want to match. So yeah, it gets to be expensive for the landlord. So, these are the sorts of protective clauses that you want in your lease agreement as a landlord.
Deni: I also want to talk about that. You know, there are so many and obviously we offer ours as well. And the link is in the chat, but there are many websites, and you can go to your stationery stores, and you can get like, you know, leases to just throw out there. But you want to make sure that it’s also editable because every situation is different, and you need to take that into consideration. You know, if there are roommates and how much, you know, are you going to allow them to pay separately or together or every little thing in there? So even if you find a really good state-specific lease, it should really be editable so that you can add or change clauses to fit your needs.
Brian: Absolutely. And, you know, I’m a huge fan of the move in, move out condition documentation. So you really you need an addendum that is like a walk through condition checklist for the property that you and the tenant both sign off on when the tenant moves in so that it’s clearly documented what the condition of the property was upon move in so that the tenant can’t say, oh no, that damage that was there before I moved in because a lot of judges, again, will side with the tenant just by default. Right. And the tenant gets away with damaging your property without having to pay for it.
Deni: And so few people do the inspections and they’re a big CYA. So, you definitely want to do that, you know, even if your renters are making it tough. You say, no, this is part of the lease. We have to do this inspection and get them to sign off on that bug. Or like Brian said, because that could be a make it or break it.
Brian: Yeah. So, I mean, these are just a few examples of how a good lease agreement protects you as a landlord and why you don’t just want to use any old template that you pull off the Internet. Deni and I have been working in landlord legal forums for what, 14 years now? 15 years.
Deni: Wow, I think.
Brian: Long time.
Deni: Yeah.
Brian: Yeah. So, you know, you really, you need to be thinking ahead as a landlord about what are my risks and how do I mitigate those risks. And one of the major risks for landlords is tenant damage to property. And one of the major ways that you protect yourself against that damage is through a really comprehensive protective lease agreement. Deni, is there anything else you want to cover about lease agreements before we wrap things up for the day?
Deni: Just that. No, this is the world of Google. So, tenants are way savvy right now. So more of the reason you want to make sure you have a really good protective comprehensive lease because they know, you know, and the information is out there. And, you know, we have there’s professional tenants, so they know how to work the system. So, you want to make sure that you are above the system. You know the system; you know your tenant laws and landlord laws in your area and make sure that your lease is ironclad.
Brian: Absolutely. And we did put a link to our lease agreement in the comments if you’re interested. But no matter what lease you use, just make sure that it is super landlord protective because otherwise tenants are going to walk all over you. You as a landlord to defend those boundaries. All right. On that note, we will see you guys’ next Tuesday at the same time, 2 p.m. Eastern. Have a great week and stay in touch. Let us know what you want to hear about in the meantime.
Deni: Absolutely. Have a good day, guys.
Keep Learning More, Keep Earning More!
Ditch Your Day Job: How to Retire Early with Rental Income (Free 8-Video Course)
I want to know more about…
Connect with us on social!
