Rentals

Creating a Rental Agreement

After finding the perfect tenant, you must always ensure that all renters sign a rental agreement before they can move in. The rental agreement or lease is the most important tool in protecting yourself legally. Therefore, you should be diligent about creating a legally sound rental agreement that covers you in the case of all possible situation.

Below are our tips on how to create an air-tight rental agreement.

Ways to create a rental agreement

There are three ways to create a new rental agreement:

1. Write a lease completely on your own.

This option is the most time consuming, but also the cheapest. If you are a not an attorney and you chose to write a rental agreement on your own, you will need to complete extensive research into all applicable landlord-tenant laws. Writing your own agreement puts you at risk for forgetting vital information needed or creating something that is not actually legally binding.

2. Hire a lawyer to write the agreement.

This is the most expensive option for creating a new rental agreement, however it does ensure that you are completely legally covered, and all rules and laws are addressed. If you are worried about a potential lawsuit or if you have an unusual need for the lease, you may want to spend the money to have an attorney help you.

3. Use a lease template.

This is the most favorable option for creating a new lease because it gives you an example to work from while also allowing you to customize your exact circumstances. There are many lease templates available online for free or for a small charge. You may also be able to find a good template from another landlord. This is the most cost-effective and convenient way to write a new lease, while still making sure that you don’t leave anything important out.

What does the law say?

There are many state and federal laws that you must follow when creating a new lease. You should be aware of the laws that have to do with the following:

1. Late fees

Around 20 different states have specific laws regarding late fees and grace periods for late rent. Check out our article on late fees, which details the different state laws you must follow when writing late fee policies into your lease agreement. In general, make sure that you are not charging excessive fees (more than 10%) and are giving your tenants a fair grace period.

2. Security Deposits

Possible state laws about security deposits include requiring you to give your tenants a receipt as proof of payment, include the bank name and address that’s holding the deposit in the lease, and/or pay your tenants interest for the deposit. Some states may also specify the maximum you can charge for the deposit. For example, California law specifies that the security deposit cannot exceed the price of two month’s rent. In every state, your lease should specify that any damage the tenant causes beyond normal wear and tear will be covered by the security deposit.

3. Occupancy

Even if you would love to fill a one-bedroom apartment with a family of five, most states have legal occupancy limits that you will be required to follow. Typically, the majority of states specify that the maximum occupancy of each bedroom is two people. You can use this limit to calculate the total occupancy limit of your property. While there are laws that specify the maximum occupancy, there are no laws that specify a minimum occupancy for a property. For example, you can have a three-bedroom unit with only one tenant occupying it. In all cases, the lease should specify that the only people who can live in the dwelling are those officially listed on the lease; therefore, if the tenants go over the legal occupancy limit by bringing in unauthorized roommates, you will be legally covered.

4. Maintenance and Repairs

Your lease should specify what maintenance and repairs the tenant is responsible for and what you are responsible for. For example, clearly state in the lease that the tenant is responsible for replacing all light bulbs, but that you will repair any faulty electrical wiring. In general, you should specify that you will be responsible for things that effect the property’s habitability, as well as things that are caused by your negligence. In this section of the rental agreement, you should reiterate that any costs to replace or repair excessive damage that the tenant causes due to negligence or irresponsibility will be deducted from the tenant’s security deposit. For instance, if the tenant breaks a window by playing catch inside, you can deduct the cost to replace it from their deposit.

5. Fair Housing Act

The Fair Housing Act is a federal law that applies to landlords in all 50 states. It was enacted in order to ensure that all renters have equal access to housing. The Fair Housing Act means that you may not discriminate against any tenants or applicants for their inclusion in a protected class. Protected classes covered in the act include: race, color, national origin, religion, gender/gender identity, marital status, familial status, age, disability, participation in government subsidy programs, or sexual orientation.

With this law in mind, you should never include language in the lease that discriminates against a protected class. For instance, you should not include a clause in the lease that requires tenants to move out if they have a baby while residing on your property. However, you may specify that the tenants cannot go beyond a set occupancy limit.

The Fair Housing Act does not protect against including rules about the tenant’s income, non-service animal pets, and criminal activity. For instance, this means that you can include language that explicitly states that the tenant can be evicted if they are convicted of committing a crime on your property.

For more information on laws to be aware of when writing your lease, you should use the internet as your first resource. You can easily use .gov and .org websites to research state and federal laws that you must follow when creating the rental agreement. Many laws can also easily be found through online database searches. Simply type in your state and any laws you are looking for, such as “Kentucky security deposit laws.” However, if you are still confused after researching online, you should consult with a specialized attorney to ensure you are legally protected.

Additional Rental Agreement Clauses to Include

Rental agreement clauses are different from other personal rules or information you might include in the document. These are written specifically to comply with any applicable laws and ensure that you are legally protected in all situations.

A severability clause is arguably the most important clause to include in a rental agreement or lease because this clause ensures that if one part of the lease is found to be invalid or illegal, the rest of the lease cannot be voided. For example, if you charge a late fee that exceeds the legal limit and the court voids this requirement, the tenant must still comply with all other specifics stated in the lease. This clause protects you from the court voiding your entire lease, should you accidentally break state or federal laws in a portion of the rental agreement.

A rent liability clause specifies that each individual tenant is always responsible for paying their full rent amount each month. This ensures that even if one roommate of two refuses to pay their portion of the rent, both roommates are legally “on the hook” for making sure the rent is paid in full. All tenants listed on the rental agreement are made liable for the full rental payment through this clause.

A clause on the landlord’s right to access is used to specify if and when you may enter a tenant’s dwelling. Use this clause to clearly state that you will only ever enter the residence during reasonable work hours and after proper legal notice (usually one to two days). Additionally, specify in this clause that the only time that you will enter a residence without notice is if there is an emergency such as fire, or a severe maintenance problem, like a flood. This clause legally protects both your right to access your property and the tenant’s right to privacy. This clause should always be included in order to protect yourself from illegal entry and/or harassment lawsuits.

The last clause you will want to include is one that specifies the use of the premises. This is used to restrict the amount of people that can live in the dwelling and what type of activity may occur in the residence. This clause will legally protect you if your tenants go beyond the state occupancy limit, or if they use the property for anything other than living.

Additional customization to complete

In any lease template you use, you should include the additional information in order to customize the agreement and ensure that all important information is included:

  • All tenant’s names, including any minors
  • Lease term and start/end dates
  • Rent price, due date and how it is to be paid
  • Late fees and rent grace period
  • Security deposit amount, where it is kept, and how it will be returned to tenants
  • Maximum occupancy
  • Pet policy and/or fees
  • A list of utilities
  • Maintenance and repair request process
  • Any additional fees you plan to charge

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