You already know how important it is to have a signed written lease agreement, but the information that’s actually contained within the four corners of that document is equally important. Chances are, that 2-page “sample” template you found online is not going to afford you all the protections you need and deserve. To avoid learning this the hard way, here are a few essential lease clauses to protect yourself and your investment.
Do you know the biggest cause of wear and tear on a property? It’s people. And, logically speaking, the more people you have occupying a unit, the more accelerated that wear and tear will become. You can mitigate some of these damages by incorporating a guest clause into your lease – one that specifies how many people are allowed to reside in the unit as well as what kind of restrictions there are on overnight guests. (We recommend specifying a maximum number of nights each month.)
Most importantly, make sure your rental agreement contains the following verbiage:
“Tenant is responsible for the actions, liabilities or damage created by any and all occupants, guests and invitees.”
Utilities Over-Use Policy
If your properties are located in an area where it’s common for landlords to foot the bill on some or all of the utilities, it’s imperative that you protect yourself against abuse of this privilege. While some tenants may be respectful and considerate of this, others will have no qualms about taking advantage of the situation. For instance, when heat is included in the rent, it’s not uncommon to see a tenant crank the thermostat, or leave windows open.
To prevent this, include a clause within your lease that specifies tenant responsibility for over-usage. To make this easier for everyone to understand, set a ceiling to trigger billing. For instance, your lease might indicate that you will pay for electricity (gas, water, etc.) up to a monthly maximum of $50 (or whatever the average may be for your property). Any charges above and beyond that amount are to be paid by the tenant. Or, if you prefer, you could even state that any utility bills exceeding the specified amount will become the sole responsibility of the tenant.
Property Inspection Policy
One of the best ways to keep tabs on the condition of your properties is to conduct routine inspections from time to time. These visits and walkthroughs allow you to identify the need for maintenance and repairs. They also provide the opportunity to spot any violations to the lease, such as additional people or unapproved pets. But while most leases contain a “right of entry” clause, few go as far as adding in “regular inspections,” which we recommend doing either quarterly or annually.
Of course, this doesn’t give you to right to just drop in any time you’d like. You will still be required to adhere to the laws and regulations in your area, which will likely include a specific amount of notice. But it does give you the legal right to make inspections from time to time to ensure everything is kosher. As an added bonus, when tenants know you can and will be doing regular inspections of their units, they’re far less likely to cause major damage or break the rules.
Use, Repair and Malfunction Liability
If you aren’t careful to specify exactly who is liable for the costs of things like property repairs, appliance replacements and utility malfunctions, you will very likely end up with a costly battle on your hands if and when something goes wrong. Make sure it’s clear that any damages caused by neglect or abuse are the tenant’s responsibility. Be as specific as possible. That means getting as detailed as saying “nothing in the toilet except tissue.”
Another important thing to note in your lease is who is responsible in the event that a utility malfunctions. For example, if the electricity goes out due to a downed power line and your tenant loses all the food in their refrigerator, you’ll want to make it clear that you are not liable for replacement costs. Likewise, if the water is shut off due to town activities, a clause in your lease can prevent the tenant from demanding that you foot the bill for their hotel stay.
Last, but certainly not least, you’ll want to protect yourself against a tenant potentially renting out your property to someone unknown to you. If you aren’t careful in this respect, all of the hard work you put into screening your current tenants could be for naught, and you could easily end up with a nightmare on your hands. If you don’t allow subletting (which we strongly recommend), make that abundantly clear in the lease.
If you do decide to allow your tenants to sublease, cover yourself by requiring written approval first. This will ensure that you stay in the know about who is residing in your units and allow you the opportunity to sufficiently screen the new prospect.
Last important point – these clauses may not always be 100% enforceable. There are occasional loopholes that can muddy the water. But, they will at least provide an added layer of protection for yourself and your hard earned investment.
What did we miss? Do you have any must-include clauses to your property leases? Please share your thoughts in the comments section below.