What is a Written Lease Agreement?
A lease agreement is a legal document between a landlord and tenant that lays out the terms and conditions of renting property. While rental agreements usually dictate a short-term rental period like a month to month, a lease agreement is generally used for long-term rentals over six months.
Lease agreements are standard for both residential rentals and commercial rentals. In both scenarios, there is usually an option to renew a lease after the initial period ends.
Leases will vary based on the property and the needs of the landlord and the tenant. Most leases will include basic information like:
- Property description
- Duration of the agreement
- Rental price
- Repercussions for non-payment
Leases are essential when renting a property because they explain the responsibilities and expectations for the landlord and tenant. In some states, lease agreements are mandatory. Still, even if they are not required, they will help both parties protect their interests and avoid disputes.
Without a lease agreement, you may be at risk of losing rent money, liability for illegal activity on the property, or expensive repairs for property damage. Whether renting out studio apartments in a residential area or a commercial building for business, you are encouraged to have an enforceable lease agreement. If you have questions about what makes a lease agreement legally enforceable and what you are required to include in a lease agreement, consider contacting a real estate attorney.
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How to Write a Lease Agreement
Templates for lease agreements are widely available online; however, it is important to know how to write a lease agreement and what information must be included. Even if you decide to draft your own lease agreement, it is good practice to have it reviewed by an experienced attorney before executing.
To write a lease agreement, follow these steps:
Step 1: Outline your lease agreement. Lease agreements should be organized, clear, and easy to read for both parties. One way to ensure clarity and readability is to begin with an outline. Each section should have a header, and you can include subheadings as well. Some headings you may want to consider in your lease include:
- Leased Property
- Tenant Rights and Responsibilities
- Landlord Rights and Responsibilities
- Lease Termination
- Governing Law
Your headings should be in bold font or underlined, so they stand out and can quickly be located in the document. For other heading ideas, you can search for lease agreement templates.
Step 2: Determine important provisions. You will want to make a list of all the conditions that your lease should address. What rules would you like enforced, and how would you like the rental to operate? After you come up with a list of provisions, you can categorize them under your headings.
Step 3: Construct your lease clauses. Each provision needs to be detailed and include all necessary information. This is the process of turning provisions into clauses. Each clause must be enforceable, so you may want to check with an attorney to ensure that the clauses contain all information required to form a legally binding agreement.
Step 4: Consult local laws or a local real estate lawyer. State laws may dictate what provisions and clauses can be included in a lease agreement. Check your local laws or have a knowledgeable attorney read over your lease agreement to ensure that all provisions follow the law and can be upheld in court.
Step 5: Formatting and fine-tuning. Your lease should include formatting elements like a title and a signature section. Go through your document to ensure that you have all necessary headings, provisions, clauses, and other elements that make a lease agreement professional and legal.
For more information about how to write a lease, check out this article.
What’s Typically Included in a Lease Agreement?
What gets included in the lease agreement will vary based on the type of lease agreement and the specific agreements between the landlord and tenant. Most leases will include the following basic information:
- Party information: The names of everyone staying on the property need to be included in a lease agreement. The landlord information should be included as well.
- Property identifying information: To ensure there is no confusion, the property that is being rented should be clearly identified. Include the property address, description, and what areas are included in the property.
- Term of the lease : The term is the duration that the lease will be in effect. This can include exact dates, a time period, and how the lease is renewed. Depending on how the lease is renewed, you can include the renewal procedure in this section or create a new heading for renewal.
- Rent amount : Rent amount is how much the tenant will pay the landlord for the use of the property. This section should include the rent amount, the due date, and the accepted form of payment. You should also have whether the tenant will be responsible for utilities or if these are included in the rent.
- Late Fees and penalties : Your lease agreement should include provisions about how late rent is handled. You can include a grace period, but it is not mandatory. You may also include penalties for a bounced check or late payment.
- Security deposit : A security deposit is paid to the landlord in case the tenant damages the property. The lease agreement should outline terms about payment and when the deposit is to be returned if there is no damage. This section should also clearly define what is considered “damage” and under what conditions the deposit will not be returned.
- Tenant Rights and Responsibilities: Tenants renting property have legal rights like privacy. The rights and responsibilities section will outline things like modifications to the property, use of the property, keeping the property clean and sanitary, and following local health and safety laws.
- Landlord Rights Responsibilities: Landlords also have rights and responsibilities when renting out property. Landlord duties include maintaining the property, making certain repairs, and following all laws.
- Lease Termination & Remedy: In the event that either party wants to end the lease before the agreed-upon period, there needs to certain circumstances which should be clearly outlined. If a tenant wants to cancel the lease, the agreement should dictate when they can terminate and any fees incurred. If a landlord wants to terminate the lease, circumstances in which they can end the lease should be defined, like failure to pay rent, illegal activity, or property damage. This section should also include the process for terminating the lease and what kind of notice needs to be provided.
- Governing Law: Every lease should include a section about what governing law the lease follows. The governing law section usually consists of a stipulation that if the lease is at odds with governing law, the law will override the lease without invalidating the entire lease agreement.
Types of Lease Agreements
Several different types of lease agreements can be used in both residential and commercial real estate. Five types of lease agreements that are commonly used for commercial properties include:
- Net Lease: When using a net lease , the tenant is responsible for paying most taxes, insurance, and maintenance costs for the property in addition to the agreed-upon monthly rent.
- Double Net Lease: In a double net lease agreement, the tenant must pay all taxes, insurance, and monthly rent, but they are not responsible for maintenance costs.
- Triple Net Lease: A triple net lease , sometimes referred to as an NNN lease, requires the tenant to pay the taxes, insurance, maintenance, and rent for a property.
- Absolute Triple Net Lease: In an absolute triple net lease, the tenant is responsible for all expenses associated with the property. The landlord is virtually absolved from any responsibility for paying for taxes, insurance, and maintenance. In this type of lease agreement, the tenant could potentially be required to cover costs for repairs to a building’s roof or main structure.
- Percentage Lease: A percentage lease requires a tenant to pay a base rent and then an additional amount based on the percentage of their profits from the business.
- Fully Serviced Lease: A fully serviced lease or a gross lease includes all utilities, taxes, insurance, and building maintenance in the rent amount. This lease puts the most responsibility on the landlord and is usually only used for short-term agreements.
Can I Write My Own Lease Agreement?
It is possible to draft your own lease agreement, but you are leaving yourself open to issues. Leases need to include specific information to be legally binding, so when you prepare your own agreement without the help of a legal professional, you risk missing essential clauses or provisions.
If you are going to draft your own lease agreement, you are highly encouraged to hire a real estate lawyer to review the lease. An experienced attorney will know if you have missed any crucial provisions that may leave you open to financial loss or legal liabilities.
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