Your rental unit is ready to be leased and soon you’ll begin the task of finding a resident for the property. Before you go down that path, realize that a lease or rental agreement defines the business relationship between a landlord and his or her tenant. You can download a generic lease from the internet but save yourself some hassle and make your lease a foundation that steers you away from legal trouble. Who needs that?
So, what should you include in a rental lease agreement? Keep reading as we talk about the most important terms in any rental lease agreement, as well as specific requirements in the state of Texas. First, we’ll answer a defining question, what is the difference between a rental and a lease agreement?
Rental versus Lease Agreement
A rental agreement is a contract of tenancy for a short period, typically with month-to-month terms, which are automatically renewed at the end of each month.
A written lease gives the tenant the right to occupy a rental unit for a set term—most often six months to a year, but sometimes longer. Lease contracts do not automatically renew.
TERMS TO INCLUDE IN RENTAL LEASE AGREEMENT
*The following are suggestions only and are not intended to take the place of solid legal advice. Always consult with an attorney before drawing up your rental agreement to make sure your unique situation is understood. You can also hire a property manager to take care of rental agreements for you.
Basic rental lease agreements should include these terms:
1. Identification of Property
Where is the property located? If you have a name for the property, such as “Sunrise Villas,” include that name in your contract, as well as the full mailing address.
2. Name of all Tenants
Every adult residing in the rental unit, including both spouses of a married or unmarried couple, should be named tenants and both parties should sign the lease or rental agreement. This ensures all tenants are made legally responsible for all terms, including the full amount of rent. If one tenant skips out, this gives you legal right to collect rent from the remaining tenant, and you can terminate the tenancy for all tenants if one tenant violates the material terms of the agreement.
Tip: Include the ages of all tenants in your lease agreement. If a child turns 18, for example, as an adult they should be added to your agreement as a responsible party. If you end up filing an eviction under the parent’s name, and the now-adult child is not included on the lease, they may be able to avoid the eviction, meaning, they may be allowed to stay on the property. Oh boy, avoid that!
3. Limits on Occupancy
Your agreement should specify that the rental unit is the residence of only the tenants that signed the lease and their minor children. Do you prohibit subletting? Clearly state so in your contract.
4. Terms of Occupancy
Define whether your contract is a rental agreement or a fixed-term lease, and for what specific term.
Specify what happens when the term of occupancy expires. Does a long term lease become a month-to-month rental agreement? Do you reserve the right to change monthly rental terms at any time with written notification to the renter? Avoid the headaches—take the time to include these specifics in your contract.
Include early termination requirements as well. If a tenant decides to move out before their lease expires, what takes place? Do you require the tenant to pay you for the balance of the contract?
In Texas, tenants must be given a 3-day notice before a landlord files for eviction. Consider spelling this out in your lease agreement and include how the tenant will be notified of eviction (i.e. in person or through certified mail).
5. Rent Rate
It goes without saying, include how much you charge for rent in the rental lease contract, but don’t forget payment details:
- acceptable payment methods (personal check, cash, automated payment, etc.)
- due date (specify payment due date, grace period, rent rate due after the grace period, amount of late fee)
- NSF charges (returned payment or bounced check fees, ways to repay i.e. certified check or money order)
Ensure you have a late fee policy in place. Late fees are allowed in the state of Texas, but they must be “reasonable,” and cannot be charged until one full day has passed from the actual rent due date. If the charging of late fees is not specified in the lease agreement, it cannot be charged at all. Typically, acceptable late fees run in the range of $25 to $30 per occurrence. Texas courts will not side with you if you charge a whopping $200 late fee for $1000 in rent!
6. Deposits and Fees
Arm your contract! You can avoid most tenant deposit wars through precise wording in the contract, specifically include:
- the exact dollar amount of the security deposit, as well as any pet deposits
- how you will use the deposit if required (for damage repair or cleaning)
- how you hold the deposit (non-interest/interest-bearing account, and who is paid any earned interest)
- how the deposit, or remaining portion of the deposit, will be returned to the tenant (Is the tenant prohibited from holding part of their rent back in lieu of a deposit?)
In Texas, you’ll want to implement a landlord/tenant walk-through checklist that covers both you and the property when the tenant moves in and moves out. Law states If rent is not late, and if costs for damages are taken out of the deposit, the landlord must supply the tenant with a list of damages. If the rent is not paid in full, the landlord is not required to supply the tenant with a list of damages. If you do return all or part of a deposit, it must be returned within 30 days of the last day of residency.
State who is responsible for payment of utilities, and if any utilities are included in the rent amount. Be specific, what action will you take if the resident does not pay utilities? Utilities typically include water, electric, gas, and trash removal. You don’t want trash piled up at the curb, or broken water pipes in the winter because the tenant didn’t pay the electric bill.
8. Right of Entry
Spell out how much advance notice you will give before entering the property. Include language such as “periodic inspections, maintenance, or repairs” to ensure you protect your right to enter the property and to avoid claims of illegal entry or violation of privacy rights. Avoid a lawsuit, if your policy is to enter the property without prior notice when the tenant requests a repair, then your contract must state so.
9. Repairs and Maintenance
In some situations, especially when the rental lease contract does not contain repair and maintenance details, tenants can legally withhold money from rent or security deposits to cover expenses. Avoid the pitfalls by including these terms:
- Tenant is responsible for keeping the unit clean, sanitary, and to repair damages due to carelessness.
- Tenant must alert landlord of defective or dangerous conditions in the rental property. List specific procedures for submitting complaints and requests.
- Specify tenant repair and alteration restrictions. Do you require the tenant to request permission before making alterations to the property?
10. Restrictions on Disruptive Behavior and Illegal Activity
No matter how precise your screening process might be, problem tenants are a part of life. Ensure you include language in your agreement that pointedly prohibits disruptive behavior and illegal activity and consider stating that activity such as excessive noise and drug dealing are prohibited and are grounds for terminating the agreement.
Include pet names in your rental agreement. Consider adding a picture of the pet in the contract. Include whether the pet is allowed indoors or if they are outside pets only. Include how much deposit is paid for the pet and be clear on how the money will be used or refunded after the tenant moves out. Consider including specific wording that covers noise complaints from neighbors, or for keeping the unit and surroundings clean.
OTHER RESTRICTIONS AND REQUIREMENTS
We’ve listed the top eleven terms you should incorporate into your rental lease, but here are a few more items you might include:
Do you allow smoking in your rental unit? Consider language that covers how your tenants are to dispose of cigarette butts, for example, or whether they can smoke within certain footage outside of the unit or building.
13. Parking and Common Areas
Avoid parking wars! Are there assigned parking spaces or common areas? Be specific on how parking is assigned, or how common areas are to be shared and maintained.
13. Smoke and CO Detectors
Who is responsible for replacing batteries in smoke and CO detectors? If you are responsible, ensure language is included in the contract that the tenant must notify you if the detectors are not in working order.
14. Bed Bugs
Unfortunately, these pests are becoming more common than not. Consider including a bed bug policy in your agreement. Will you cover the cost of extermination if infestation occurs? Do you require tenant’s insurance pay for the cost of removing and replacing infested belongings?
15. Renter’s Insurance
Do you require your tenants to carry their own renter’s insurance? You may have insurance that covers the building and fixtures (such as furnace and water heater, or damage from the tenants) but in most cases, the replacement of a tenant’s belongings falls into the hands of the renter.
16. Lease Based Paint
If you manage homes that might contain lead-based paint, you must disclose this in your lease agreement. Ensure a lead-based paint disclosure is issued for properties built before 1978.
FINAL TIPS RENTAL LEASE CONTRACT
Remember, your rental lease agreement is a practical document full of crucial details, yet it is a legal contract.
Consider hiring an attorney to scope out your first least agreement. He or she should ensure your lease agreement includes a clause that states if any condition is not legal, the rest of the lease is still in effect. If part of your agreement falls into the cracks of despair, the rest of your lease will hold up legally!
Now you have the scoop on what you need to include in a rental lease, you have one more IMPORTANT thing to do…have fun making your investment dreams come true!