Writing Lease Agreements

Managing the transition from one lease to the next is one of the most important jobs landlords handle. With some tenants staying for several years while others are out in several months, you’ll want to ensure a smooth transition between tenants to produce a solid and legally-sound landlord lease agreement.

Because there are so many clauses to include, the task of creating a solid lease that covers all of the variables around renewing and vacating can feel overwhelming. We’ve put together this primer on building a residential lease agreement that can save you time and energy when the move out date is quickly approaching.

And remember, it’s always a good idea to seek the legal advice of a real estate law firm to be sure the content of your lease is legal. Here are several suggestions on the best ways to state the end-of-term requirements in your lease agreement. You'll also find some helpful suggestions on how to protect your finances and your property from damage caused by tenants.

Build a Severable Lease

In legal terms, having a severability clause in your lease prevents a judge from voiding the entire agreement simply because one small section of your lease is deemed illegal. A severability statement contends that each portion of the agreement stands independently — on its own merit — even if other portions of the contract are found to be faulty. This also applies to commercial lease agreements which are sometimes more complex and nuanced. It’s here where legal advice is important because certain use of language can be construed as vague or misleading, even though the meaning of a passage in the agreement seems clear to you.

Discuss the Renewal Process Completely

Getting your tenants to deliver timely notice of intent to vacate can be difficult if you don’t account for the terms of notice or renewal in your lease agreement. Many property managers require that the tenant give 60 days’ notice which provides them enough time to market their rental property and find a suitable tenant. If a 30 days’ notice is preferred, be sure that it's sufficient time for you to make repairs upon the tenant’s exit from the property.

Set a seventy-five day reminder. One best practice is to send a letter to the tenant at the seventy-five day mark — prior to the end of the agreement — reminding them of their obligation to inform you of their decision to either exit the lease or seek renewal.

State the financial impact that will result if no action is taken. Remember to include a statement detailing the resulting fine and other conditions if the tenant should breech their obligation to inform. For instance, if the tenant does not deliver notice in a timely manner, an administration fee equal to five percent of a month’s rent will be charged for every day the notice isn’t received after the deadline. When a tenant’s exit is stalled, your ability to properly find a new tenant in time is impacted. This way, you’ll have some form of financial means to offset paying the mortgage out of pocket if your tenant doesn’t provide ample notice.

Offset the fine. Another option to the above provision is to state that the tenant is responsible for paying the equivalent of sixty days' rent after you officially receive the tenant’s written intent to vacate — given that the notification was not received by the cut-off date. If you received the notice with only 30 days left on the lease, the tenant is still responsible for paying the equivalent of two months’ rent, affording you cash to pay the mortgage while you’re seeking a qualified renter.

Avoid automatic renewals. Although the prospect of having a long-term lease in place may seem appealing, you may find that having “an out” to replace the current tenant is a good thing. Suppose your tenant’s application passed with flying colors, and six months later they’re behind on rent and are disturbing the neighbors as well. Having an exit strategy can help you to replace a problem tenant and find a more financially stable one.

Advise that the tenant gets covered. Include a few lines in your lease discussing the importance of the tenant having an active renters policy for the entire lease period. There are many cases where accidents, flooding and other circumstances will be the responsibility of the tenant. If the damage they cause isn’t covered by your policy, you may have to pay out of pocket to make repairs once the lease is over.

Define the expected property condition upon vacating. When the time comes for the tenant to surrender the premises, include a clause in your lease agreement that defines your exact expectations of how the rental’s to be cleaned and maintained by the tenant. Discuss the requirement that the property be returned in better-or-equal condition to the state it was in upon taking occupancy.

Discuss how the security deposit may be used. Normal wear and tear aside, the place is expected to be cleaned as well. Document that the security deposit will be used to offset the costs required to restore the unit if it isn’t cleaned properly. Another great idea is to add a statement requiring a non-refundable cleaning deposit, due upon signing, that covers the cost of getting the space professionally cleaned after the tenant moves out.

Document the damage with a property inspection app. State that before and after images may be used to help document issues. Consider downloading a commercial property management app onto your smartphone to compare and contrast images of your property before/after it was rented. Remember to review photos taken in common areas as well because sometimes tenant damage isn’t limited to the rental space.

What to Do When Your Tenant Defaults on the Lease

Be sure to review the state laws that dictate the ways landlords and tenants are required to navigate the termination of a lease. Local laws may further limit or define terms that need to be followed as well. Both parties will likely be required to deliver written notice of intent to break the lease. Landlords can define the terms that will trigger fines or the outright payment of the remainder of the lease term under certain circumstances. For instance, if the tenant abandons the rental in month four, you’ll still be able to legally collect the remainder of the eight month’s rent with this kind of language included in your agreement.

Distribute a Move-Out Cleaning Instruction Packet

Getting your tenants a guide to instruct them on how and what to clean can help to take some of the guesswork out of what your expectations are — and it can be a real comfort to the tenant, too. They’ll know what condition you need the rental in for the security deposit to be safe. If you’re a new landlord, you’ll find we’ve got more great advice on business ownership that can help to guide you along the way as well.

Email the tenant the “before photos.” Provide them with the photos taken of the space before it was rented so they’ll know what needs attention. If it looks like the place is going to require painting, be sure that the move-out cleaning instruction packet requires the tenant to use drop cloths and other protections to keep spills to a minimum.

Make a list of items to clean. It’s also a good idea to provide a checklist of cleaning tasks that will help to ensure the tenant’s deposit will be refunded in full.

Refer to the lease’s move out provisions. It’s helpful also for the tenant to understand the terms and conditions necessary for the receipt of the security deposit. They’re more likely to leave the place in good condition if they’re fully aware of what’s expected of them.

Protect Your Investment With Business Insurance

Insulating yourself and your finances isn’t just limited to the language in your rental lease agreement. When the unexpected happens, having the right insurance in place can protect your business and deliver you real peace of mind as a landlord. Take some time and check in — or stop by — your American Family Insurance agent (Opens in a new tab) to review how our business insurance coverages can be customized to cover your property more completely.