Property Management – Importance of Written Lease Agreements For Property Management Companies, Landlords and Property Managers

Property Management Importance Written Oral Agreements

In property management business, property management companies, landlords and property managers may want to enter into a written lease or rental agreement with their tenants. Using a written agreement can be a good idea because these agreements specify the terms of the landlord and tenant relationship that bind both parties and protect both property management companies, landlords and property managers and tenants by establishing their rights and obligations. For property management companies, landlords and property managers, they provide a legal basis for enforcing rental policies, including rent collection procedures.

Property management companies, landlords and property managers will need to decide whether it’s better for them to use a lease or rental agreement. Each type of tenancy offers advantages and disadvantages. Property management companies, landlords and property managers will need to determine what works best for them. Keep in mind that in some jurisdictions, there is no legal difference between a lease and a rental agreement.

Written rental agreements spell out the obligations of both the tenant and the landlord, and the terms and conditions of tenancy. In jurisdictions where rental agreements are recognized as a different type of contract than a lease, such an agreement does not establish a period of time for tenancy. Written agreements generally provide tenancy for a short period of time — usually under a year, often month-to-month. In the majority of jurisdictions, they may be automatically renewed each month unless you or the tenant provides the other with proper written notice of intent to end the agreement. Month-to-month agreements usually allow you the greatest amount of flexibility. Under a month-to- month agreement, property management companies, landlords or property managers usually may increase the rent or change other terms of the agreement at any point provided they give proper notification. Because tenants also have the right to terminate the agreement with relatively short notice, property management companies, landlords or property managers may be exposed to higher tenant turnover. Property management companies, landlords or property managers may prefer to use month- to-month rental agreements in rental markets where there is large demand but a low supply of rental units.

Property management companies, landlords and property managers should be aware that in some jurisdictions, a property management company, landlord or property manager cannot end a month-to-month tenancy without a legal reason, even though the tenant can. In locations that have rent control, there may be limits on how often and how much they can raise the rent, even with a month-to-month tenant. They should check their local laws to see what is allowed in their area.

Written leases also spell out the obligations of the tenant and landlord, but set a stated period of time for tenancy, usually a year. Rental increases or other changes in tenancy cannot be made until the lease expires, unless there is a specific clause allow- ing increases or changes at an earlier time. Written agreements may increase your chances of having longer-term tenants but may limit your flexibility. You may prefer to use written leases in markets with low or seasonal demands for renting and high vacancies.

Property Management – Know what should be included in a lease
What goes into a lease is generally up to you. If your community has any laws regarding what leases can or cannot require, you need to follow them. For example, in some places the law limits the amount of late fees that can be charged or forbids a landlord from including a requirement that a tenant pay the landlord’s attorneys’ fees.
To inform yourself of laws regarding leases in your area, contact the official local government office that handles landlord/tenant relations. Sometimes this is handled by local offices of rental accommodations, zoning, housing, or consumer affairs.

You will find that nearly all leases contain the following basic information:
• the names and signatures of both the landlord and the tenant;
• the date on which the lease was signed;
• the address of the unit the tenant is renting;
• the beginning and ending dates for the period during which the tenant has the right to rent the unit;
• the amount of rent the tenant must pay;
• the time when rent is due, procedures for collecting rent, and any policies regarding late fees or penalties for returned checks;
• the amount of any security deposit or advance rent the tenant must pay, and the circumstances under which the landlord will collect or return such payments;
• the policy concerning whether a security deposit can be used as the last month’s rent;
• the amount of notice required to terminate the lease;
• where and how such notices should be sent; and
• required disclosures, such as lead-based paint or other hazardous conditions.

Many leases also contain provisions covering the following:

• whether the cost of providing heat, hot water, electricity, or other utilities is the responsibility of the landlord or the tenant;
• whether the tenant may sublet the unit;
• how many people may reside in the unit at one time;
• whether the landlord or the tenant must take responsibility for making various types of repairs;
• whether the property can be used for business, car repairs, or other purposes;
• any policies regarding pets, overnight guests, park- ing, extended absences, or other issues;
• any types of alterations the tenant may be allowed to make and any restrictions against making alterations;
• tenant responsibilities for maintenance and damages caused by tenant;
• policies regarding illegal activities, disturbances, violations of laws, and ordinances;
• when the landlord may enter the premises (in compliance with local law);
• any circumstances under which the tenant may be asked to grant access to exterminators, painters, or maintenance workers;
• any storage space(s) a tenant may use and any restrictions on items that can be stored; and
• late payment fees and attorneys’ fees for evictions.

Property Management – Determine clauses that allow you to raise rent
As mentioned earlier, in some locations, laws allow you to include an “escalator” clause in a lease. Such a clause allows you to raise the rent — by either a specified amount or by a stated percentage — if your real estate taxes or utility costs were to increase.

Property Management – Consider making mutually agreeable changes to an unexpired lease in writing
There may be occasions when you and/or your tenant want to change provisions in a lease. For example, a single person may eventually want to share the unit with a roommate. Or a tenant who originally planned to live in his or her unit for the duration of the lease may later want to sublet it to accept a work assignment abroad. Generally, you may make a change in a lease if both you and your tenant agree to it in writing. There are some cases when an unwritten agreement might be enforced by the courts, so do not assume that a tenant cannot hold you to a promise just because it is not in writing.

Property Management – Seek help when creating a lease or rental agreement
If you prefer to write your own lease or rental agreement, you can find sample leases online or in stores, real estate offices, public landlord/tenant offices, and apartment owners’ associations. You may want to consider having an attorney familiar with landlord laws review the lease or rental agreement to make sure that the lease protects your interests and to make sure that it does not include illegal terms. Some lend- ing institutions that make mortgage loans for homes like yours also may have materials that contain sample leases or information on how to create a lease or a rental agreement. You also can hire a real estate attorney to prepare a lease or rental agreement for you.

If you are modifying the format of an existing lease, make sure that all blanks are completed or deleted. If you write in changes, be sure that both you and the tenant initial the changes.

Source: FannieMae.com

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