3 Must Haves In Lease Agreements
Just like snowflakes, no two lease agreements are the same.
They are an area of major anxiety for new real estate investors.
Lease agreements are a very important document when it comes to ‘collection of information’. The document will allow the landlord to collect crucially important information concerning the tenant.
I have spoken to so many new real estate investors after they purchased their first rental property.
So many of these new investors were worrying because they did not have a lease agreement for their new tenant to sign.
Many of these new investors would ask me if I had a sample lease agreement that I would be willing to share with them. My answer in many of these cases was, no. My answer was no because many of these new real estate investors were trying to seek out the ‘perfect’ lease agreement.
Just like with people, perfection does not exist. The same applies with lease agreements.
Many experienced landlords that I know use less than perfect leases with their tenants. In fact, I know of a number of occasions in which these ‘veteran’ landlords do not get their tenants to sign leases. This is not smart, and I don’t recommend that you do this.
In my mind, the lease agreement helps you to organize and collect information. It is the information that is collected in the lease agreement that will come in very helpful down the road, if and when any troubles occur with your tenant. Not only that, the information collected in the lease agreement will serve as a point of reference between you and your tenant.
As a landlord, you need to be organized when it comes to your relationship with your tenant. Having an organized lease agreement will enable you to maintain a good working relationship with your tenant. Here are 3 Must Haves that you need to include in your lease agreement:
1) Your Tenant’s Deposit
When a tenant moves into your rental property, you take from them a deposit. The amount and rules regarding the deposit vary depending upon where your rental property is located. In many areas such as the area that my rental properties are located, I collect from my tenant the first and last months rent deposit. In all of my lease agreements, this amount is in writing and the tenant signs the lease agreement acknowledging that they have provided those funds.
Believe it or not, landlords and tenants get into disagreements about how much money was initially provided as a deposit. Having your lease to refer to, you can quickly draw reference to it, which will help to eliminate any disputes between you and your tenant.
If you do not record on your lease the amount that was provided by your tenant as a deposit, you do not have any proof that they in fact provided those funds to you.
Remember to always, record on your lease agreement the amount of money your tenant provided you as a deposit.
2) Is your Tenant a Smoker and do they have pets?
This is one of my favorites. I get a real kick out of this one. I find this one interesting because many people lie and or do not disclose information here. When tenants lie and or do not disclose all information here, it gives me insight into their character. The reality here is that some tenants will try to hide from their landlords the fact that they are a smoker or that they own pets. Any proactive landlord would uncover this lie very easily. Site visits to the rental property by the landlord allow the landlord to see if there are any pets or if tenants are smokers. What is especially entertaining are unscheduled site visits to the property. If your tenant is a smoker and they have farm animals living in your rental property, you will find this out very quickly after an unannounced site visit to the property.
3) You need to collect 2 forms of Identification (ID) from your tenant
I cannot stress to you how important this is. Most real estate investors and landlords will collect this information from their tenants on their ‘rental applicaions’ and not on their lease agreements.
At the end of the day, it does not matter where you physically record this information. What does matter is that you have this information on hand.
This information may not seem that important to the novice investor, however, it is critically important, especially if your relationship with your tenant takes a turn for the worse.
As real estate investors and landlords we are liable for so many things. If your tenant does not fulfill their obligations as set out in your lease agreement, you have recourse to collect money from them. Situations can arise in which your tenant does not pay you rent. You could sustain damage to your rental property by your tenant or by a party known to the tenant. As well, in many areas, utility bills can go unpaid by your tenant, and you the landlord will be stuck paying the bill, once they have left your property for good and are living somewhere else.
As you are beginning to see (hopefully), collecting 2 forms of ID from your tenant on their rental application or lease agreement allows you to track your tenant if your relationship with them makes a turn for the worse.
If your tenant does not pay you rent, damages the property, and leaves you with unpaid utility bills, by having their ID you will be able to track them down where ever they may be now, and make a claim against them in order to recover your costs.
You could send their unpaid utility bills to a collections company and/or pursue the non payment of rent issue in Small Claims Court.
If on the flip side, you did not collect any ID from your tenants at the time of signing your lease agreement the following could happen… They could take off from your rental property and leave you with many unpaid bills. If you have no ability to track their whereabouts through tracking their ID, you would be stuck fronting the bill for all of these missed payments.
New real estate investors will always experience anxiety when it comes to having their new tenants sign a lease agreement. However getting them to sign the lease is short term pain, for long term gain.
You never want to find yourself in a situation in which you are stuck paying unpaid bills just because you did not take the extra few seconds required to obtain your tenant’s ID.
In summary, the lease agreement is a very important document. As a new investor, at first you may experienced some anxiety with regards to getting your tenant to sign it.
However, in the end you will be much better off having a complete and up to date, signed agreement.
Until next time…
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