When entering into a lease period, it is important to outline in detail all of the restrictions, responsibilities, payments, and terms related to the lease. This ensures that both the renter and the landlord or rental agent are in full agreement and compliance with the rules.
That protects both parties since a well-crafted lease agreement spells out in detail many of the elements that could cause miscommunication and misunderstandings between a tenant and a property owner or landlord. But what is a lease agreement and what should be included in a well-crafted lease agreement?
What is a lease agreement?
A lease agreement is the contract that exists between a landlord or property owner and a tenant. In most cases, the lease agreement will outline the terms of the renter’s tenancy, including the length of time they’re renting, the upfront fees they’ll pay, the monthly rental amount, and the rules and regulations governing the property’s use. In addition, a lease agreement may include a variety of disclosures and addenda as required by the local and state authorities and by specific circumstances surrounding the lease.
What is the difference between a lease agreement and a rental agreement?
Although the two terms are generally used interchangeably in an informal setting, there is actually a difference between a lease agreement and a rental agreement. Generally, a rental agreement is short-term, covering a period of up to 30 days. This type of agreement is suitable for short-term tenancy like Airbnb rental or in the case of a month-to-month rental, like that which might occur at the beginning or end of a longer lease agreement.
A lease agreement, by contrast, is longer-term and covers an ongoing period of rental. In some resort areas, for example, lease agreements may be seasonal, covering a period of three to six months. In many cases, a standard lease agreement is good for one year, though you may find that offering a two-year lease in the case of a well-qualified tenant is a good way to increase tenant retention and provide a more consistent stream of income.
What should be in a lease agreement?
There are a variety of different types of lease agreements covering various markets, property types, and aspects of the tenancy. By and large, most residential agreements will include the following:
- Names and contact information for all tenants 18 years or older, including phone numbers and email addresses
- Names and contact information for the landlord and/or property management company
- Address of the property being leased, including restricted areas if applicable
- Restrictions on subletting and long-term guests
- Amount of rent, including security deposit, fees, and payment terms
- Specifics related to the payment of utilities and other required services
- Additional fees or rental amounts in the case of pets, parking spaces, repair co-pays, or other charges
- Charges related to early lease termination
- Right of entry guidelines for the landlord, owner, or property manager
- Specifics related to disruptive or illegal activities taking place on the property
- Specifics related to property damage, property alterations, and property upkeep
- Length and type of tenancy
Different states and municipalities may require different disclosures or supporting documents. It may be a good idea to include an acknowledgment of receipt of these disclosures for initials or signatures within the lease agreement.
In some cases, you may have different terms, conditions, requirements, and specifications for different properties in a portfolio that you own or manage. It may be a good idea to create a standard lease agreement covering basic information along with addenda related to special circumstances or specific property features.
Features of the California Lease Agreement (C.A.R Lease Agreement)
The Residential Lease Agreement (12/19) provided by the California Association of REALTORSⓇ contains many of the standard terms and conditions that you would find in a well-crafted lease agreement along with specific disclosures required by the state. In addition to some of the items we’ve mentioned, there are some interesting elements to note, including the following:
- Sections 19-21: provide information regarding the tenant’s responsibilities related to allowing advertising and entry to the property in the event of the lease or sale of the home during the period covered by the lease.
- Sections 25-26: give a detailed overview of the tenant’s responsibility at the end of the lease term, including pre-inspection move-out and repairs, if applicable.
- Sections 27-29: relate to damages, including those which might make the property uninhabitable, and advises tenants to carry their own renter’s insurance since they and their possessions are not covered by the landlord’s insurance.
- Sections 34-36: relate to representation, mediation, and attorney fees arising from disagreements and disputes between tenants and the landlord.
- Section 38: provides a long list of required disclosures along with checkboxes to indicate those disclosures that apply to the subject property.
- Section 39: relates to the Servicemembers Civil Relief Act. This is a law designed to limit the financial burden placed on servicemembers during periods of deployment or other military service. It is essential to ensure that your lease agreement does not attempt to abrogate or terminate the rights covered under this Act.
- Sections 41-42, and 44: relate to real estate agency or broker representation and compensation.
- Section 43: gives tenants the right to receive a translated lease agreement for leases negotiated primarily in Spanish, Chinese, Korean, Tagalog, or Vietnamese.
- Section 46: offers an additional space for listing applicable attachments and addenda related to the lease agreement.
- Section 48: offers information about foreign language interpretation.
- Section 49: includes representation information for properties managed by a property manager or rented through a leasing firm.
You’ll notice that landlord and tenant initials are required on each page and each page also includes a place to list the address and the date. This is to ensure that the entire agreement is covered by the signatures at the end of the agreement and that the entire agreement applies to the same property and lease term. If you are not using the standard lease agreement, be sure to include these elements in your own version.
Adding a Lease Addendum to the standard lease agreement
A lease addendum provides the opportunity for you to add additional information to the standard lease agreement you use with your renters. You may want to consider a lease addendum in the case of specific property features that don’t apply to all of the properties you manage or in the case of aspects of the agreement that pertain only to specific tenants.
Here are some examples of specific situations that may require an addendum in addition to the standard lease agreement you are using:
- Additional property features: If the property you are renting has additional features like a pool, spa, or underground irrigation system, you may want to include an addendum outlining the condition of the feature, its acceptable use, any restrictions on its use, and specific information related to repairs and scheduled maintenance.
- Smoker’s addendum: If the renter is a smoker, you may want to include an addendum outlining the restrictions and penalties associated with smoking inside the unit.
- Pet addendum: If the renter has pets, a pet addendum may outline the acceptable type, number, and breed of the pets as well as additional requirements, fees, and damage deposits.
- Legal disclosures and liability addendum: Depending on the year of the property’s construction and the requirements of the local municipality, you may need to include specific information related to lead-based paint, asbestos, mold, bedbugs, and other elements. This may include inspection reports, prevention information, and restrictions.
- Occupancy restrictions: This type of additional information could cover items like long-term guests, subleases, and other questions related to occupancy.
- Property use restrictions: This type of addendum may include requirements for property maintenance, landscaping, snow removal, and other items as well as specifics related to the HOA or condo association.
Adding a Rent-to-Own Addendum to the Lease Agreement
One significant addendum that you may need to add to your standard lease agreement is that required for a rent-to-own/owner-financed purchase. It is important to outline the way in which rent is applied toward the purchase and how funds are held, as well as financial penalties in the event that the tenants do not fulfill the terms of the rent-to-own agreement. Along with this, however, you’ll still need to outline the property use and disclosure requirements just as with any standard lease agreement.
In the event that your owner client is entering into a rent-to-own agreement, you may wish to obtain a separate document that covers both the leasing conditions and the rent-to-own/owner financing aspects of the agreement. The property owner should work with his or her real estate attorney to document the unique terms and conditions of this type of transaction.
Adding or Adjusting Lease Terms After Acceptance and Signing
While a lease addendum is signed at the same time as the standard lease agreement, a lease amendment may become necessary or desirable at some point during the lease term. While the lease itself is a binding agreement, a lease amendment can be entered into down the road if some aspect of the agreement has changed and both parties agree to the change.
Some circumstances which might warrant a lease amendment include:
- Changes to the pet policy or to the number of pets
- Changes to the tenancy, either adding or removing a current tenant
- Changes to the lease term or changes allowing the tenant to sublet the property
- Rent forgiveness in the case of financial hardship or if an existing tenant begins trading property-related maintenance services for rent
- Unusual circumstances like those relating to the COVID-19 shutdown, a natural disaster, or the destruction of the property.
It is important to be open-minded, especially when working with a tenant who has been reliable and on-time with rent payments. Sometimes it is more important to keep a current tenant happy with an adjustment to the lease terms rather than to create dissatisfaction that might result in their terminating the lease early or at the end of the lease term. Tenant retention is often a priority and flexibility can go a long way in maintaining tenant satisfaction.
How can I use an electronic signature tool for lease agreement completion and signatures?
Most lease agreements involve a variety of elements, from dates to added information to initials and full signatures. With a robust electronic signature tool, like the one provided by RentSpree, you can make the process of gathering information and completing the lease agreement easier than ever before. This is especially important for households with multiple tenants where it may be a challenge to bring everyone in at once for signing.
Remember, however, that an electronic signature is no substitute for a thorough review of the agreement as needed. Be sure to offer the opportunity for your potential tenants to ask questions and receive information about the document they’re signing. This will help to build trust and avoid misunderstandings down the line that can lead to frustration and undermine tenant retention efforts.
RentSpree’s electronic signature feature offers additional convenience so that you can get your lease agreement signed on the go. With RentSpree’s e-sign tool, you’ll save time with secure document management that improves your application and onboarding process. Create a streamlined signature process to facilitate out-of-town relocations and assist with multiple tenant households.