How to Complete New Tenant Leases
If you've worked to optimize your screening process, the next step is to put together (or update, if you have an existing one) a lease agreement.
As a landlord, one of the most important initial planning steps is to create a lease agreement that covers your bases.
A lease agreement that:
- Establishes expectations for tenant do's and dont's from the very beginning
- Covers your cash flow with things like a late fee policy and an early termination clause
- And protects you as the landlord from liability
Whether you're renting out a residential or commercial property, the process of creating a lease agreement can seem overwhelming, but it doesn't have to be.
Below, we'll cover: step-by-step how to create a rental agreement for a new rental property, including tips on what to include, how to handle security deposits, and how to make sure your lease agreement is legally compliant.
What Is a Lease Agreement?
A lease or rental agreement, also known as a:
- Rental contract
- Rental lease agreement
- Or a simple a lease...
is a legally binding contract between a landlord and tenant that outlines the terms of, well... a rental agreement.
This can include things like the monthly rent payment, the length of the lease term, security deposit policy, and the conditions under which the tenant can exit the lease.
A lease agreement is not only a document that outlines the terms of renting a rental unit, but it's also a tool to protect yourself and your property from potential damages or disputes that may arise during the lease term.
Creating a Lease Agreement: An Overview
A lot goes into creating a proper rental agreement.
So, before we begin, here's an overview of what we'll be covering if you're new to the process or just getting started (if not, feel free to jump head):
- Essential terms in every lease agreement
- Type of lease agreements
- Step-by-step instructions for creating your lease agreement
- Making your lease agreement legally compliant
- Rental agreements by state
- And additional tips for creating your lease agreement
By following the above steps and taking action, you can create a rental property agreement that is not only legally sound but also covers you from all angles.
Having a clear understanding of the terms and conditions outlined in your lease agreement is critical, as well as making sure that your tenants have read and fully understand the agreement before signing.
To make sure that everything turns out right, don't just grab one of the templates we link to below and call it a day.
Have an attorney do a once-over on your agreement when you're done drafting it and consider seeking the help of a property manager in the creation of the agreement if you want to be doubly sure that it's compliant regarding your state and local laws.
We'll touch on all of this below, however, so by following all the steps we talk about throughout this guide you'll be well set up with an effective lease agreement.
Including Essential Terms in Your Lease Agreement
When creating your rental agreement, there are certain terms and conditions that you must include in order for it to be considered a proper rental lease agreement.
1. Rental amount and the due date for rent payments
One of the most important terms of a rental lease agreement is the rental amount, or the amount of money that the tenant will pay to the landlord on a monthly or annual basis.
This should be clearly outlined in the lease agreement, along with the due date for rent payments.
It's also important to include any late fees or penalties for late rent payments, as well as the methods by which rent can be paid.
2. Length of the lease term
Another important term to include in your lease agreement is the length of the lease term.
This is the period of time for which the tenant will be renting the rental unit. It can be a fixed-term lease (such as one year), or a month-to-month lease with a notice period.
3. Restrictions on the use of the rental unit
Another important term to include in your rental agreement is any restrictions on the use of the rental unit.
This may include things like restrictions on pets, smoking, or the number of occupants allowed in the unit.
These restrictions should be clearly outlined in the lease agreement so that tenants understand the terms and conditions of their tenancy.
4. Conditions for renewing or terminating the lease
It's also important to include information about the conditions for renewing or terminating the lease in your lease agreement. This may include:
- The notice period required for termination
- Early termination fees, and
- What may disqualify a tenant from renewing
Different Types of Rental Property Lease Agreements
While the two most common lease agreements may be the standard residential and commercial agreements, there are several other agreements you'll want access to.
Here are the most common of those:
Standard Residential Lease Agreement
The most common of rental agreements, a standard residential lease agreement is typically for a one-year period but can be for any fixed period.
It outlines the terms and conditions of the rental of a residential property, including the amount of rent, security deposit, and any restrictions on the use of the property. It also lays out the rights and responsibilities of the landlord and tenant.
Commercial Lease Agreements
Commercial lease agreements are for the use of any type of retail, office, or industrial space.
They are typically longer in term than residential leases and may include specific provisions related to the nature of the business being conducted on the property.
The terms and conditions of commercial leases may be more complex than those of residential leases as it typically includes clauses on common spaces and conducting business.
Month-to-Month Lease Agreement
A month-to-month lease agreement, also known as a “tenancy-at-will,” allows the tenant and landlord to have a binding arrangement that may be altered with 30 days’ notice.
This type of agreement is often used for renters who are in a transitional period or are unsure about how long they will need to rent the property.
Condominium (Condo) Rental Agreement
A condominium rental agreement is for a residential unit that is owned by an individual in a complex with other individually owned residences.
It is similar to a standard residential lease agreement, but may also include specific provisions related to the shared use and maintenance of common areas in the complex.
Short-Term Rental Agreement (AKA Vacation Rental Agreement)
A vacation rental agreement, also known as a short-term rental agreement, is used when renting a property for a short period of time, typically a few days.
This type of lease agreement is commonly used for vacation homes, apartments, condominiums, or any other type of residence that is not a primary residence.
A sublease agreement is a legally binding contract between a tenant and a subtenant, outlining the rights and responsibilities of each individual in the rental unit.
This type of agreement is used when a tenant wishes to rent their rental unit to someone else. In this case, the tenant is still responsible for the lease agreement with the landlord and the subtenant is responsible for the lease agreement with the tenant.
The subtenant is also responsible for paying rent and any additional fees to the tenant and must comply with all the terms and conditions outlined in the original lease agreement with the landlord.
Room Rental Agreement
This type of rental agreement is for a roommate seeking others to join in paying rent in a residential unit together.
This may be completed by a new roommate or as a collective group. A roommate agreement is a legally binding contract between the roommates, outlining the rights and responsibilities of each individual in the shared living space.
The agreement should include information such as the monthly rent payment, the security deposit, and any additional fees.
Additionally, it should also include details about shared living areas and amenities, such as the kitchen or laundry facilities, and how they will be shared and maintained.
It's important to establish clear guidelines for living together and to ensure that everyone understands and agrees to the terms outlined in the agreement.
Rent-to-Own Lease Agreement
Rapidly growing in popularity over the past several years is renting to own, in which a tenant enters an agreement with a property owner to pay rent with the goal to eventually purchase the property.
The agreement as well as a predetermined amount to go toward a down deposit. rent-to-own lease agreement is a structured rental payments in combination with payments to own the property.
This type of agreement may be used for tenants who are not ready to purchase a property outright but want the option to do so in the future.
Creating Your Lease Agreement: Step-by-Step Instructions (All 50 States)
Now, let's talk about actually putting together your lease agreement.
Don't be overwhelmed if you've never written a lease agreement before– you don't need to.
Nowadays, it's far easier to use a template on one of a variety of form sites such as eForm.
We'll touch more on state laws and making sure your lease is compliant later, but for now you'll take care of most of the work by going to DoorLoop's rental agreement resource page and printing your state's compliant rental agreement.
First, head to Doorloop.com/forms and select the type of agreement you're creating:
Then, find and click on the state where the property is located:
You can either download a standard PDF agreement that matches the type and state you selected, or you can click the 'customize' button to head to eForm (no affiliation) and create a custom agreement.
You'll be asked a set of 20-30 questions before generating an agreement that is pre-filled with all you and your tenant's information.
Or, if you prefer, you can just fill in your information and leave the tenant's information blank and make copies to fill out each tenant's information later.
Creating Your Lease Agreement, Part II: What Should Your Lease Include?
With that said, let's look at the major areas of a standard rental agreement.
This will not only help you fill out your own lease agreement but make sure you're covering the most important areas.
Keep in mind that this doesn't replace working with a professional to get your lease compliant with local laws, but it will help you get it done so that you're ready to do exactly that.
First, at the top of the typical lease agreement you'll find the parties and occupants:
Next, you'll see the lease term:
Rent amount and terms:
Your late fee policy, if you've chosen to have a late fee:
As well as your security deposit policy:
You'll want to include clauses on policies such as your right of entry, utilities, and what happens to the lease in the event that you sell the property:
Similarly, you'll want a clause on early termination to protect your rental income in the event that a tenant desires to exit their lease early:
A general disclaimer that the tenant must follow all local laws relevant to landlord-tenant laws and rental agreements, to protect you in a variety of general ways:
A clause that stipulates what can and will happen if any aspect of the agreement is breached:
An all-important list of disclosures for things such as lead and rent increases:
Finally, binding the agreement with a signature:
Also, in the event of accepting the rent automatically via ACH, an agreement to authorize automatic recurring payments:
Keep in mind that this is by no means everything that the average lease agreement should include– and there are other types of lease agreements that should include clauses unique to that type of rental.
That's why using a template is great as you're less likely to miss something vital.
And as we spoke about earlier, starting with a template also significantly reduces the amount of work you need to do to complete your lease agreement.
Making Your Lease Agreement Legally Compliant
Once you have created your lease agreement and included all of the essential terms, it's important to make sure that it is legally compliant.
This means checking that it aligns with the laws and regulations of your state and that it includes any required language or disclosures.
1. Checking laws and regulations of your state
Each state has its own set of laws and regulations governing rental properties, and it's essential to be aware of these when creating a lease agreement.
These laws may include requirements for certain language or disclosures to be included in the lease agreement, as well as specific rules for handling security deposits, rent payments, and other aspects of the rental process.
Before finalizing your lease agreement, it's important to check the laws and regulations of your state to ensure compliance.
2. Requirements for language and disclosures to be included in the lease agreement
There may be certain language and disclosures that are required by your state to be included in your lease agreement.
For example, it may be required to include information about lead-based paint or mold, or to disclose the presence of any hazardous materials on the property.
It's important to check the laws and regulations of your state to ensure that you include any required language or disclosures in your lease agreement.
3. Specific rules for handling security deposits and rent payments
Each state has different rules and regulations governing the handling of security deposits and rent payments.
For example, some states have limits on the amount of security deposit that can be collected, while others have specific rules for returning the security deposit at the end of the lease term.
It's important to check the laws and regulations of your state to ensure that you are handling security deposits and rent payments in compliance with the law.
By following these steps, you can create a rental property lease agreement that is fair, legally binding and compliant with the laws and regulations of your state.
This can help you to avoid potential disputes or legal issues and ensure a smooth relationship between landlord and tenant.
It is important to seek the help of property managers if you need it, they can help you to ensure that your rental agreements are legally compliant and in compliance with the specific laws and regulations of your state.
Additional Tips for Creating Your Own Lease Agreement
As a landlord, you have the option to create your own rental agreement or use a standard lease agreement template.
While using a standard rental agreement template can be a convenient option, it's important to make sure that the template is legally compliant and that it aligns with the specific laws and regulations of your state.
By creating your own lease agreement, you can tailor it to the specific needs of your rental property and your tenants.
1. Should you use a standard lease template? Pros and cons
Using a standard lease agreement template can be a convenient option for landlords, as it provides a pre-written and legally compliant document to work from. It can also save time and effort when creating a rental agreement.
However, standard lease agreement templates may not take into account the specific needs of your rental property or your tenants.
For the property type, the fix is easy: use an agreement specific to that type of renta agreement.
As we talked about earlier, you can find agreements relevant to an assortment of typical rental agreements other than the standard one such as short-term and month-to-month.
Additionally, it's important to make sure that the template is legally compliant and that it aligns with the specific laws and regulations of your state.
With that said, there is an easy fix: have a local professional look at it.
You can draft your lease template then pay a real estate attorney or your property manager to review it for any potential issues or additional clauses or terms you should include.
2. Tailoring the lease agreement to the specific needs of your rental property and tenants
Creating your own lease agreement allows you to tailor it to the specific needs of your rental property and your tenants.
This may include things like the monthly rent payment, the length of the lease term, and any restrictions on the use of the rental unit.
By creating your own lease agreement, you can ensure that it aligns with the specific laws and regulations of your state and takes into account the needs of your rental property and tenants.
3. Have a property manager or real estate attorney review the lease agreement
We've touched on this briefly already, but it's important, so let's talk about it in more detail now.
Before finalizing and signing a lease agreement, it's important to have a property manager or attorney review it to ensure that it is in compliance with the specific laws and regulations of your state and local municipality.
They can also advise you on any clauses or terms that may be problematic or unclear (or missing) and help you to avoid potential disputes or legal issues in the future.
A property manager can help you with the process of creating rental agreements and handle other aspects of the property management process, so if you're planning on using one it could be a win-win.
If you don't have a professional look at your agreement, you could end up losing money or end up in a variety of legal trouble.
Cover Your Bases with a Proper Rental Lease Agreement
Creating a proper rental property agreement is critical to being a successful investor and landlord.
An ineffective agreement can cause you to be unequipped to deal with a problem tenant, fall into costly litigation, lose rental income, and the list goes on.
By following the steps outlined in this blog post, however, you can create a lease agreement that is:
- Legally binding
- Compliant with the laws and regulations of your state, and
- Covers you in every way possible from security deposit to property damage
It is important to note that, as a landlord, you have the option to create your own lease agreement or use a standard lease agreement template.
Regardless of how you do it, it's important to make sure that the template is legally compliant and that it aligns with the specific laws and regulations of your state.
Remember to seek the help of property managers if you need help in drafting your agreement as they can help you to ensure that your rental agreements are legally compliant and in compliance with the specific laws and regulations of your state.
Alternatively, if you're not working with a property management company, you can go to a local real estate attorney to do the same for a one-time fee.
By understanding your lease agreement and making it legally compliant, you can rent your property with confidence knowing you're protected in every way possible.