7 Important Terms That Should Be In A Rental Or Lease Agreement

“7 Important Terms That Should Be In A Rental Or Lease Agreement” written by Mike Marko

Do you know the must-haves to include in your rental or lease agreement?

And the points you should consider including as well?

Every property manager must provide a written rental or lease agreement to each of their tenants. A written rental or lease agreement is a proof that you and your tenant agreed to the terms and policies of renting the property.

However, many property managers are not aware of the important clauses that should be included in their agreement. That’s why in this article, we’ll discuss the seven important clauses that every rental or lease agreement should include.

Essential Contents Of A Rental Or Lease Agreement

As a property manager, or if you are engaged in running a property management firm, you should know or be able to make up your own rental and lease agreement. Both the rental and the lease agreement are two separate documents and both have specific needs and terms that should be included to be effective for the rentals they will be presiding over. Knowing the difference between the two documents and what they do will help you determine how you can market or offer your rental properties to possible tenants.

Understanding the essentials of the rental and lease agreements is the first step to determining what and how you would like to use each document when you are renting your properties. As you read on we will try to educate you as to everything you need to know and the difference between the two agreements in this article.

The first question that we need to answer is what exactly is the difference between the rental and lease agreement?

What Is A Rental And Lease Agreement

A rental and lease agreement is a contract between a landlord and a tenant that states how much will a tenant pay for rent and for how long will the tenant stay in the property. Both are contractual agreements that are signed and authorized by the property manager and the tenant renting the property. Both the rental and the lease agreement have specific terms that make them separate contracts that must be agreed to by the property manager and the tenant.

A signed and authorized rental or lease agreement will become a legal document enforceable if any disputes or legal action arises from the rental of the property. Both the rental and the lease agreement are often offered to contractually bind the terms for the tenant and property manager while living in rental properties but there’s a huge difference between the two agreements.

Lease Agreement

A lease agreement is a contract that is made specifically for long-term renters. The normal length of a lease agreement is 6 months to 1 year. Since the contract is for a specific length of time the content of a lease agreement cannot be changed during the term specified. Everything from the terms and policies, the amount of rent, and the length of the tenancy are unchangeable.

Even if the value of the rented property is increasing, the landlord or the property manager, cannot just increase its rent. Similarly, the tenant cannot just leave the property whenever they want. The lease agreement gives stability and specifics for both the renter and the property manager and guarantees contractually that the terms agreed upon will be followed for the specific length that the contract is written to cover.

At the end of a lease agreement, everything in the contract can be changed. The changes range from increasing rents to changing length and terms within the lease agreement. The changes are made before the contract is signed and agreed upon for the next term of rent. If the lease agreement is not resigned at the end of the term, it becomes a month-to-month contract and can be ended with the proper legal steps or signing of a new agreement.

Rental Agreement

A rental agreement is a complete opposite of the lease agreement. This agreement is often offered to short time renters and it is usually a month-to-month basis. A rental agreement expires every month and thus needs to be agreed upon continually. The contents are changeable during its renewal. Like a lease agreement if the terms of the rental agreement are not signed and updated it stays in place as an enforceable contract until the tenant vacates the rental.

Just like the lease agreement a rental agreement contains valuable contents such as the terms and policies for renting the property, responsibilities of both sides, amount to be paid in rents, and other important information about the tenancy.

To better help, you understand the contents of a rental or lease agreement and to help you write 2 separate and effective documents, we’ll explore seven important things that you need to include in your draft to making an effective rental and lease agreements.

1. Basic Clauses

Both the rental and lease agreement must include basic clauses in the terms of the contracts. The first part of the agreement must contain the names of the individuals that are involved in the tenancy. The name of the property manager and the tenant must be presented in this part. Aside from that, the names of the individuals that are moving with the tenant are must also be included. This is important to be able to hold all parties that are involved in the rental legally responsible if anything was to happen during the rental of the property.

Along with the property manager and the tenant’s name, the first part of a rental and lease agreement must include various details about the rented property. The current condition of the property and its address is commonly included in this part.

To cap off the first part of drafting your two agreements, you should specify if the agreement is a fixed term lease or rental agreement that is a month-to-month term contract.

2. Rent Clause

In both the lease and rental agreement contracts the next part of your agreement should be the rent clause.

Every rental and lease agreement should specify how much rent will the tenant pay to the landlord at a given time. Every important detail or information about the rent should be included here. You must specify in this part how your tenant would pay their rent via money order or personal check are the most common ways to pay rent. Accepting credit card payments is not suggested as the tenant could dispute the charges at a later date and withhold rents. It is also best to include any late payment terms, your preferred payment options, and any additional fees for any late payments or rental dues.

3. Security Deposit Clause

Both the rental and lease agreements should detail the terms and uses of the tenant’s security deposit. The security deposit is commonly required to cover any damage that may occur during the rental of the property.

The security deposit amount can vary but it is normally equivalent to one or two month’s rent.

In some states, the landlord or property manager are required to place the tenant’s security deposit in a separate interest-bearing account it is best to check your state and local laws to make sure you are not violating any terms included when taking the security deposit. The security deposit should be returned to the tenant after deducting the number of damages incurred in the rental unit.

To avoid any misunderstandings or legal challenges it is best to make sure to indicate how the security deposit will be used. Often you can include the requirement to clean carpets or clean unit by professional cleaners after the rental. If that is your desire then it should be listed in the terms of the contract so there are not any misunderstandings when returning the security deposit after the rental is completed.

4. Repairs And Maintenance Clause

Every rental and lease agreement should contain information on how the tenant could make changes on the rented property. In this part of the contract, you should include the tenant’s responsibilities in maintaining and repairing the rented property. Restrictions and responsibilities in the rented property should also be included in the terms of the contract.

Common restrictions and responsibilities can be the following:

  • not parking in the driveway
  • noise control rules
  • changing locks with the written approval of the landlord
  • trash cans responsibilities
  • lawn care

5. Subletting Clause

The subletting clause normally is most often used in a lease agreement since it is for a specific term of time. A sublet clause either allows a renter to contractually use another person to rent the apartment while under the same terms of the lease agreement that they signed to rent the property.

At some point in your business, you will encounter a tenant who will want to or ask to sublease their rented property. To avoid complications and troubles of subleasing it is best to make sure to include a clause regarding subletting. If you will allow subletting, make sure to indicate in this clause that the tenant should first ask your written permission before turning the rental unit to someone else. If no subletting is allowed then you should list legal penalties and ramifications if the tenant does sublet the rental.

Since a rental agreement is month-to-month and when the month is over the tenant can either ask to leave the rental or sublet the rental to another person. Since you are entering into a new contract monthly you would have ultimate approval over adding a new tenant to the contract or just ending the rental at the end of the month. So even though it is not commonly used in a month to month rental agreement it is still best to include a subletting clause to the rental contract.

6. Termination Clause

Both the rental and lease agreement by nature of the contracts one being month-to-month and the other being a specified term have termination clauses. However if the rental and/or lease agreement is not signed or updated it will stay in place as a month-to-month contract until renegotiated or termination of the rental.

Termination clauses that you should include in both agreements should focus on damages or other factors pertaining to rents. Non-payment of rents, late payments of rent, damages to property, illegal activities at the property and other details that could hurt the property rental are commonly included in terms to terminate the contracts.

However, before you start writing a termination clause, it is advisable to know and familiarize yourself with rental laws in your area. Knowing the rental laws in your area can help you avoid any possible violation of terminating or evicting a tenant.

Eviction can either bring positive or negative effect on your business. So when you’re making a rental or lease agreement it is best to make sure to include the rules of terminating a lease.

7. After The Tenant Leaves

Both the rental and lease agreements should specify in the terms of the contract what will specifically happen when the tenant leaves the property.

To make sure you are not including any terms that could be discriminatory or illegal it is best to check your local laws about what a property manager should do to the personal property left behind by a tenant. Some states restrict property managers in confiscating the personal belongings of the tenant. Most of the times, the government requires the property managers to give a notice to the tenant to collect the personal belongings that they leave behind.

In the terms of the contracts, you could specify that anything left behind will be disposed of after a certain period of time. If your state requires you to keep the property for the tenant then you should include a clause, agreed to by both parties in the contract, that they will pay for storage of that property. This way you can avoid being a storage site for past tenants property.

Before you include this clause in your agreement, it is advisable to check the rental laws in your area first.

Final Thoughts About Rental Or Lease Agreement

In this blog post, we covered the seven important clauses that every rental or lease agreement should include. Make sure that you include details about the rented property, rent, security deposits, repairs, and maintenance. Take the time to review your own lease agreement and make sure that you at least consider each of these different sections.

Feel free to comment below with any thoughts or questions you may have on the rental or lease agreement.




Suggested Articles:
1. Checking A Tenant’s Rental History
2. How To Understand A Credit Bureau Report
3. The 10 Important Items A Basic Lease Agreement Should Cover

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Article: 7 Important Terms That Should Be In A Rental Or Lease Agreement

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