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If you are the proud owner of a residential property in 2023, then you have a great asset on your hands with the potential to bring in a sizeable passive income.
However, as a property owner, you have to be shrewd in your business dealings as well as be up-to-date with the various lease agreement and security deposit laws in your state.
In particular, if you are planning to rent out your property for a fixed period, the first thing you have to do is learn the basics of a residential lease agreement.
In this article, we will discuss all the important aspects of a standard residential lease agreement, covering everything from the security deposit to the date when tenants pay rent.
Read on to find out what you need to know before renting out your property in 2023!
What Is a Residential Lease Agreement?
A standard residential lease agreement is a binding legal document signed between the owner or manager of a residential property and the prospective tenant.
This document describes all the important agreements made between the landlord and the tenant about factors such as:
- The lease term
- Security deposit
- Important disclosures
- Monthly rent and date to pay rent
- Important clauses that affect the original lease agreement
A residential lease agreement has the power to be used in court should either party fail to meet the terms agreed upon at the signing of the rental agreement.
When Do You Need One?
If you are leasing out your residential property to a tenant for a fixed period, a residential lease agreement is essential. This includes all types of residential properties, such as:
- Single-family homes
- Mobile homes
- Apartments
- Room rentals
- Condos
- Other residential dwellings
The reason why a standard residential lease agreement is required is to avoid disputes between the landlord and tenant that normally arise over issues surrounding the security deposit, monthly rent, and disclosures.
Fixed vs. Month-to-Month
One of the first things that a property owner has to decide is whether they will be offering a fixed lease agreement or a month-to-month lease agreement.
The following are the important features to remember about a fixed lease agreement:
- Fixed-term with clear start and end dates
- Cannot end early under any circumstances
- The agreement cannot be altered until the end date of the lease agreement
Regarding a month-to-month lease agreement, take note of the following:
- Can be renewed every month (tenancy-at-will)
- Both parties can choose to terminate as long as the proper procedure is maintained
- When proper notice is given, the agreement can be changed at any time
Deciding whether to offer a fixed lease agreement or a month-to-month lease agreement depends on the type of property being leased and the financial capabilities of the tenant regarding their ability to pay rent on time.
This means as a property owner or landlord, proper screening of prospective tenants is essential before you offer any lease agreements.
Six Steps To Completing Basic Lease Agreements
Drafting a solid residential lease agreement is an easy task as long as you have the required knowledge on what to include in the document.
Help for landlords is available at Doorloop in the form of residential lease agreement templates that contain all the basic information to make your documents legally binding.
If you are drafting your own rental agreement for a residential real estate property, be sure to include follow these steps:
Step 1: Names and Details
The first things you need to include are the names and details of both parties involved in the residential lease agreement. This means adding the following:
- Full names of the tenants and the landlords (this can be either the property owner or the manager)
- Address of the property, including the exact unit number if you are renting out an apartment
- Contact details of both parties, including phone numbers, email addresses, and current residential addresses
- The date on which the standard lease agreement was drafted and signed.
Step 2: Property Description
A complete and accurate property description is very important because it has the potential to affect both the security deposit and rental payments.
This means you have not only describe the type of property, i.e. house, apartment, or condominium but also list any additional fixtures that come with the property, such as wall-to-wall carpeting or light fixtures.
Step 3: Define the Terms of the Lease Agreement
You need to also define the terms of the lease based on your valuation of the property and your screening of the tenant. The terms can be structured as follows:
fixed-term rental Contract
Agree on clear start and end dates that cannot be altered without breaching the terms of the standard lease agreement.
month-to-month rental lease
A lease term that will be renewed every month as long as both parties agree.
Step 4: Agree on the Monthly Rent Amount
The rent needs to be explicitly shown in the rental agreement as well as the day of the month on which the payment is due.
The landlord must decide how much rent to charge, although in most cases the tenant is allowed to negotiate.
Usually, the best way to set the rent amount is to consider how much rent similar properties in the area are charging. Of course, you will have to consider specific circumstances that are unique to your property that may affect the rent amount.
Some states also have rent control laws that limit the amount of rent that can be charged for a property and you will have to consider these carefully as well.
Step 5: Set the Security Deposit
A security deposit can be described as a sum of money paid by the tenant and held by the property owner during the lease's term.
A landlord and tenant don't need to exchange money for a security deposit but it is the common practice in most States.
Once the landlord accepts the security deposit, there are security deposit laws to consider that govern what that money can be used for.
Step 6: Finalize and Sign-off
A standard lease agreement is not legally binding unless it has been signed and dated by both parties concerned. This means if you want to protect yourself from any future litigation, you need to remember to:
- Print out all the agreements clearly
- Read and sign the document together with the tenant and any witnesses if required
- Make copies of the document for both parties to keep for the duration of the lease period
If any amendments to the original lease agreement are made, both parties must agree on the terms and sign off to show that the amendments are now in effect.
Before Letting Out a Rental Property
As a property owner or property manager, your job begins long before the date on which the standard residential lease agreement is signed.
There are many things you need to do in preparation for taking on a new tenant, such as:
Prepare the Property
If the property has not been used for a while, or if the previous tenant left it in a sorry state, the property owner needs to conduct an inspection and see to the repairs that are required.
If you are hoping to charge as much rent as possible, then you have to make every effort to make the place look as clean and modern as you can. Simply cleaning the apartment has the potential to increase the rent amount by quite a bit during rental negotiations.
Evaluate the Property
A full property evaluation means looking at all the attributes of the property and comparing it to other properties in the area. This will help you to decide how much rent to charge.
When setting the asking price, always leave room for negotiations and try to consider as many offers as possible to avoid settling for less than what the property could have earned you.
Place the Property Online
How you advertise the property will have a huge impact on the kind of potential tenants you will attract.
While you always have the option of hiring a real estate agent to list the property for you, these days you can easily handle it on your own.
Many websites allow property owners to list their properties online for a fee or no payment at all.
You also have the power of social media that you can use to reach out to as many tenants as possible. Remember to use great pictures that show your property in the best light and avoid using misleading language.
Set Up House Viewings
Choose dates that are convenient for both you and the prospective tenants to come and view the place. Weekends and after-hours are great options, although you should avoid inviting tenants to the property very late for security reasons.
On the day of viewing, arrive early to make sure the property is clean and that everything is working, as it should. You can also bring a rental application form with you so that prospective tenants can leave their details should you wish to engage with them further.
Screen Prospective Tenant
The screening process is a very important step to take before allowing anyone to reside on your property.
If you are unable to conduct the due diligence yourself, there are plenty of private investigators that you can hire to run a background check on any tenants.
Another option is to simply go online and use one of the many screening software that is at your disposal.
One of the most important things you should find out is whether the tenant will be able to pay rent on time every month. Usually, a tenant should not spend more than 20% to 30% of their monthly income on rent.
Negotiate a Standard Lease Agreement
Once a tenant decides to make you a rental offer, and they have passed the screening process, you can begin the negotiations for the rent payments and other terms of the lease.
If you are not convinced about the tenant's ability to pay rent, you can always ask for a larger security deposit amount to protect your interests.
Draft the Standard Residential Lease Agreement
Once the negotiations are complete and you both agree on the terms, it is time to draft the standard residential lease agreement. To make life easy for yourself, you can use any of the residential lease agreement templates available at Doorloop.
Be sure to add any relevant property disclosures, such as a lead-based paint disclosure. Once all documents and forms have been completed, make sure both parties sign the documents in each other's presence.
Tenant Moves In
Depending on the start date of the residential lease agreement, the tenant can move into and start residing on the property until the end date of the lease when you can decide to end or renew the rental agreement.
When Does the Lease Term Begin?
A tenant is not allowed to move into the rental unit before the official start date of the rental term.
The effective date is listed clearly in the rental agreement and can be used in case the tenant decides to violate the terms by moving in early.
The security deposit and first (1st) month's rent must be handed over to the property owner before the tenant can take possession of the property.
Lease Termination Process
If either the landlord or tenant terminates the lease agreement, it has to be either mutually agreed upon or allowed in the addendums added to the original residential lease agreement.
Early termination outside the bounds of the lease agreements can be regarded as a breach of contract and either party will have the right to sue.
If you were wondering whether you can break the lease terms at any time because you are the property owner, the answer is no! Early termination will have serious consequences for the guilty party.
However, both parties have options that they can exploit, such as:
Landlord’s Options
- The landlord can offer to pay out the tenant so they can be allowed to break the terms of the lease early, which can include returning the full amount of money for the security deposits and offering to pay additional tenant amounts to cover moving and any other inconveniences
- Tenants can be offered free rent for a month or for however long they need to make alternative arrangements, which is usually the preferred option if no security deposit was paid
Tenant’s Options
- The tenant can offer to relinquish their claim on their security deposit in return for being allowed to terminate the lease early
- If no security deposit was paid, or if the landlord feels that it is not enough to cover their losses, the tenant can also pay one month's rent
- The tenant can plead financial hardship which will allow the landlord a chance to release them from the terms of the lease agreement without having to go through the difficult process of eviction
- Some states have laws that allow tenants to be released from the terms of their rental agreements in cases where domestic violence can be proved
Lease-to-Own Agreements
A lease-to-own agreement is similar to a standard lease agreement in terms of the obligations of both parties. The tenant will still be required to pay rent on the agreed-upon dates and security deposits may or may not be included.
However, the main difference is that, with a rent-to-own agreement, the tenant attaches an additional clause to the terms, which allows them to take full possession of the property once the lease expires.
This means such an agreement is similar to paying rent and monthly installments towards the purchasing of the property.
A rent-to-own agreement is a lot more complicated than a simple lease agreement and such an agreement should be handled by experienced real estate agents.
After Lease Expiration
The final date of the lease term is the day on which the tenant is expected to move out of the property address. Certain situations may compel the landlord to agree to a grace period being given to the tenant, such as:
- Circumstances beyond the control of either party, such as the day when movement was restricted due to the Covid-19 pandemic
- Addendums and clauses in the residential lease agreements that allow the tenant to stay on longer than stated in the lease agreement
If the landlord feels that the tenant has overstayed, and the terms of the lease do not have any addendums that allow this, they can initiate eviction proceedings against the tenant.
Final Word
If you are ready to make your property work for you and provide you with a much-needed source of passive income you have come to the right place.
All the required documents, forms, and addendums can be obtained at here.
Here you will also find all the resources that you require to make the process not only easy but also legal.
Visit Doorloop today and take the first step to draft your own standard residential lease agreements!
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