What Does it Mean to Draft a Lease Agreement?
Drafting a lease agreement means writing a lease agreement. A lease agreement is a binding legal contract between a tenant and a landlord that gives them the right to live in the property for a fixed period of time.
Leases can also be for commercial use. A commercial lease allows someone to use a landlord’s property for business purposes for a specific period of time.
Before renting, you must enter a legally binding contract with the property’s owner. As a landlord, you must have a contract outlining the duration of the lease, terms, and conditions, and an agreement to lease from the tenants.
Here is an article about leases and their structure.
Types of Leases
There are several types of leases, but they can be divided into two main categories:
These leases can vary, especially in commercial leases where someone seeks to operate their own business on another person’s property.
Absolute Net Lease
An absolute net lease requires the tenant to pay their fixed rent plus all associated expenses, including maintenance and utilities. In a net commercial building lease, you would be responsible for maintaining the property and its grounds, including its roof and foundation. Failure to maintain the property could result in a breach of contract, fines, or a lawsuit.
In residential leases, absolute net terms are not as common. Usually, tenants are not responsible for any necessary repairs or routine maintenance. Still, you may be responsible for repairs brought on by your actions.
Triple Net Lease
The tenant agrees to pay for the rent, property taxes, utilities, insurance, and maintenance in a triple net lease. This is one of the most expensive leases a tenant can sign as it comes with the most significant amount of financial liability.
Triple net leases offer greater freedom to tenants and landlords, and there may also be caps on taxes and insurance increases. Also, the landlord is the least active in the property’s management with this type of lease, so it can almost be like owning the property yourself.
Modified Gross Lease
A modified gross lease changes over time. Initially, the tenant agrees to pay a base rent. Still, they take on additional costs through taxes, insurance, utilities, and repairs. Both the landlord and tenant are responsible for additional costs.
In some cases, the tenant may take on 50% of the responsibility, while in others, they only take on 25%.
When signing a modified gross lease, it is important to consider the limitations placed on how much a landlord can shift financial responsibility to the tenant. This can prevent them from being charged large amounts or drastically increasing their dues without notice.
Full-Service Lease
A full-service lease is an all-in-one agreement where the tenant pays a flat rate for rent and all property expenses. In commercial leases, this can also include insurance for the building. Renters may still hold their insurance policies in residential lease agreements. Requirements vary.
Full-service leases grant clients the most accessible payment model but can also mean a higher base rent. This is because landlords will factor the cost of maintenance, utilities, and taxes into the base figure.
Here is an article with more information about different types of lease agreements.
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How Do You Draft a Lease Agreement?
You can draft a lease agreement independently or enlist the services of a professional attorney. Working with a real estate lawyer can help you draft a lease agreement tailored to your property.
If you decide to draft your lease agreement, you will need to be certain it contains all the legal terms and clauses to be seen as a binding contract in your state. Failure to include the necessary details can render a lease void, even if you and the tenant agree to its terms.
Working with a lawyer for commercial lease services can help you draft the right lease for your needs. It can also help institute an addendum to lease, a modified version of the original contract.
Here is an article with ContractsCounsel’s guide on how to write a lease agreement for more details.
What Should Be Included in a Lease Agreement?
A lease agreement should include several key elements:
- A description of the property. Include the property’s full address and details relating to its size and structure. It should also be noted whether this property will be rented for residential or commercial purposes.
- The names of the landlord and tenant. Identify the landlord, management company (if applicable), and tenant(s) by their legal names.
- Duration of the agreement. Specify when the lease will go into effect, how long it will last, and how much time the tenant will have to renew the lease.
- Early termination clause. To avoid abandoned properties and lost rent, landlords can write stipulations about terminating the lease. However, tenants will have to give prior notice and possibly pay off the remainder of the lease or a percentage of it before they can legally end the agreement before its expiry date.
- Consequences for non-payment. Make sure the lease agreement specifies what penalties the tenant will face if they fail to pay their rent or other expenses and how long they will have to make a payment before facing legal consequences. Failure to pay can also result in the early termination of the lease and a subsequent eviction notice from the landlord.
- Maintenance requirements and modifications. The landlord may require the tenant to perform certain maintenance on their behalf, and they can require them to seek approval before they make any modifications to the property. The landlord can also require the tenant to only work with an approved contractor when enlisting repair services or making changes to the property.
There are rental rules in every state that protect tenants from being evicted without warning, even in the event of non-payment. Therefore, it is important to ensure that your lease agreement is fully compliant with the rental laws in your state.
Here is an article about how to write a lease agreement and landlord-tenant laws by state.
Why Do I Need a Lease Agreement?
You need a lease agreement to rent a property to someone else legally. Without a lease agreement, they are not legally obligated to pay you rent, and they can leave the property anytime without notice.
Lease agreements also help landlords enforce certain terms for tenants, such as not smoking on the property or owning pets.
Here is an article with 27 lease agreement clauses that help protect landlords.
Who Can Draft a Lease Agreement?
Real estate lawyers can draft a lease agreement per your state's rules and requirements. Working with a lawyer is the most efficient way to draft a legal lease agreement for residential and commercial landlords.
You can also use a lease agreement template online, then have a lawyer review it before the assignment lease is issued to the tenant.
Here is an article about how to review a lease agreement.
How Much Does it Cost to Draft a Lease Agreement?
According to ContractsCounsel’s market, the average lease agreement costs $485. This figure reflects lease agreements across all U.S. states, so you can expect to spend around $500 to draft a lease agreement for your property.
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