Clauses Every Lease Should Have

NOVEMBER 4, 2019 BY KEVIN (Thanks Kevin)

Your lease is the contract between you and your tenant. For any contract to work and be legal, certain clauses are necessary. If these clauses are left out or are poorly written, the the landlord runs the risk of serious problems in the future. This post describes several clauses every lease should contain.

Before I get to clauses, let me start off by saying that there is no universal, standard lease. Situations between landlords and tenants differ. Properties differ. State and local laws differ. Thus the lease found at Office Max or even my lease will not work for you. A lease needs to be tailored to your unique conditions. Plus, it should be reviewed by a competent real estate attorney from your area.

That said, here are some clauses every lease should have.

Duration
While tenant turnover may be a cash flow killer, I would strongly advise against open ended leases. Instead, every lease should contain a duration or a length of time the lease runs. You want a definite end date, so that either you or the tenant can get out of the contract (with a no-fault eviction if necessary). Traditionally, with residential leases, the duration is a year, but that amount can be adjusted to fit your particular situation. Six month or two year leases are not unheard of.

Term
Most residential landlords set the term lengths of their leases at one month. In other words, while the duration for the lease may last for a year, the term is monthly. This term is why rent is due to most of us every month. Some leases have weekly terms. Hotels have daily terms. Terms can therefore vary, but are important clauses as they set out when we get paid.

Cost
Don’t forget the most important part, which is how much the rent is. Rental amounts need to be clearly spelled out. I think most of us know that, but it deserves a mention as it is so important.

Extension
What happens when your lease duration is up? Does the tenant have to move? Do they need to sign an entire new lease? Does the existing lease continue on in some fashion?

I have seen landlords do all of the above. But the most common way to extend a lease at the end of its duration is to go by the term. Most of us landlords use monthly terms so the lease becomes monthly, or month to month, in duration. Of course this can also be weekly or even daily. Whatever it is, it has to be spelled out in the clauses of the lease what happens when the duration is up.

Late Fees
How much will be charged if the tenant is late with their rental payment? How much can you charge? When is a rental payment considered late? All of these items should be spelled out in your lease so there is no confusion. Plus, you need to provide incentives to get the rent in on time. State laws often dictate when and how much landlords can charge with late fess. So know and understand what those laws say.

Notice of Termination
Both side to any contract, like a lease, need advance knowledge that one party to the contract is terminating the relationship. In the landlord world, this notice of termination means the notice given by a tenant that they are planning to move. How long should this notice be? Most landlords require at least the term of the lease, which is most commonly a month. But why not require a little more? Would not 60 or 90 days of advance notice give you more time to market and re-rent the property and reduce the interruption of your cash flow? We have found in our business that it does.

Allow Showings
Once a notice of termination has been provided by your tenant, you need to get the property re-rented. How do you do that if you cannot show the property? In our leases we insert a clause that allows us to market and show the property once a notice of termination has been submitted. Sometimes tenants complain about the intrusion, but we just point out the clause in the lease they singed and that usually ends the discussion.

Overstay
What happens if a tenant gives you notice of termination, whereupon you re-rent the property but the existing tenant does not move when they saw they will? Where does your new tenant go? Who pays for the expenses incurred? Could get pretty sticky if you do not have the proper clauses for tenants that overstay their lease. In our business, we charge $100 per day of overstay. That clause tends to keep things moving.

Local Needs
Some states require special stipulations in leases. You may need to tell folks where their security deposits are held for example. In Tennessee where I work and live, leases need to have special provision related to notices of non-payment of rent. Not having such a clause can lead to lost time, income and much frustration for the landlord.

Leases are legally binding contracts. What they say and how they say it is important. Carefully consider the words and clauses in your lease. Do not use a “boiler plate” lease and have a competent real estate attorney in your area review it. What you say, or not say, can make all the difference towards helping or hindering your life as a landlord.