If you recently became a rental property owner, or if you're planning on buying your first rental property in the not-too-distant future, you'll need to have your tenants sign a residential lease agreement before moving in.
In a nutshell, a residential lease agreement is a legal document that clearly spells out the rights and responsibilities of both the landlord and tenant. Here's a closer look at what type of information is typically included in a residential lease agreement, why it's so important, and a template you can use with your own rental properties.
What is a residential lease agreement?
A residential lease agreement is a document that creates a legally binding relationship between a rental property owner (or a property manager acting on their behalf) and a tenant who is renting the property.
This type of document is also commonly referred to as a rental agreement, a rental contract, an apartment lease, or simply a "lease." These terms are used interchangeably when referring to residential rental-property leasing agreements. Because leases can tend to be on the lengthier side, some leases offer a lease abstract that simplifies the terms of the lease into a more concise, basic version.
What information should be included in your lease agreement?
Different landlords and property managers use slightly different leases, and there are some specialized leasing documents that apply only to certain situations, such as "lease with option to buy" arrangements. However, most real estate leases contain the same basic information:
Personal information (tenant's)
This will include the tenant's name, current address, phone number, and email address.
This section will state the address of the rental property, describe any access to parking or storage facilities, and list any other relevant information about the property.
Details about the lease terms should be clearly included. When the lease starts and ends, how much the monthly rent is, what security deposit is required, late fees, any additional move-in or move-out fees, and information about pet fees (if applicable) should all be clearly listed on the lease agreement. Essentially, the tenant is promising to pay the rent and other required fees, so it's important to agree to them in writing.
The lease typically includes information about any pets the tenants will be allowed to keep on the premises (e.g., type of pet, breed, weight, and age). Even if you decide to allow pets, you should expect the tenant to let you know the details about any pets they plan to have in the home.
Leases generally include a list of other documents the tenant can expect to receive at the time of lease signing. This can include information about any interest the landlord earns on the tenant's security deposit, lead-based paint disclosures, radon hazard disclosures, a move-in checklist, a receipt for the security deposit, and a resident handbook or welcome package, just to name a few. The tenant should be asked to initial next to the name of each document to acknowledge receipt of them.
Lease covenants and agreements
There will likely be a lengthy list of covenants that the tenant is agreeing to abide by for the duration of the lease agreement. To be clear, this is the primary reason for having a lease agreement -- it spells out exactly what the tenant is expected to do and what they are and are not allowed to do.
Just to name a few examples, common lease covenants and agreements include details about how the rent is paid, what late charges apply and when, details about the security deposits, and the obligations of the landlord to make the property available in a habitable condition. It also provides clear rules when it comes to things like trash removal, quiet hours, subleasing and additional occupants, and what happens at the end of the lease.
Rules and regulations
In addition to the list of covenants, lease agreements should also contain a list of rules in simple, easy-to-understand terms. While this is likely to be a rather long list, examples include rules against operating a grill on a balcony, changing the locks without the landlord's permission, and using common areas as storage spaces.
No residential lease is valid until it is signed by the tenant (and their guarantor, if applicable). In fact, in addition to a long-form signature section at the end of the lease, tenants are typically required to initial at the bottom of every page in order to confirm that they've read everything they're agreeing to.
How is a lease agreement different from a lease application?
It's important to mention that a rental lease agreement is a different document than a rental lease application. An application is used to help decide whether you are going to rent a home to a particular tenant. It generally includes information such as the tenant's Social Security number for the purposes of conducting a credit and background check, as well as a list of references the landlord can use to see whether the prospective tenant has fulfilled their obligations under previous leases. In contrast, a residential lease agreement is used to formalize the landlord-tenant relationship after the tenant's application has been processed and approved.
Do you need to use a formal lease agreement?
The short answer is yes. Whenever you enter into an agreement to rent a property to an individual or small group of people, it is very important that you have a signed contract between both parties. This is true even if the individuals you're leasing to are friends of yours or if they're only leasing the property for a short period. A formal lease agreement clarifies your rights and responsibilities as a landlord and your renter's rights and responsibilities as a tenant.
You should even use a lease agreement if you're renting out a room in your home. Not only does a lease agreement make your expectations known as the homeowner and landlord, but in situations where you're renting a single room, it's important to clearly specify which areas of the home your tenant has access to and the rules they're expected to follow.
Residential lease agreement template
If you hire a property manager, they likely have their own lease agreement to use with tenants. On the other hand, if you're planning to self-manage, you'll need a lease template to use when entering into lease agreements with tenants.
With that in mind, here's a basic residential lease-agreement template from our partners at Avail that you can download and use when renting out your investment properties: Like all templates, this is only a starting point and probably needs some customization. As such, we strongly encourage you to contact a real estate lawyer if you have questions about this template and whether it is right for you.
Millionacres does not, and cannot give legal, insurance, or tax advice. Any information we provide is for informational purposes only and does not constitute a recommendation that it is appropriate for you, or for any specific person. Millionacres and the writers will not be liable for any real estate decision you make, or action you take in reliance on any material you read here. Please see ourTerms and Conditions for additional details, including a disclaimer of warranties and liabilities.
The Millionacres bottom line
This template can be used as a guide when leasing a rental property to a tenant. As a final thought: While a signed lease agreement is a legally binding document, it's still a smart idea to check with a local real estate lawyer before entering into your first lease agreement to make sure you're complying with any local laws. For example, some states have rent control laws that may limit the amount you can charge for rent as well as annual rent increases.
The bottom line is that a residential lease agreement protects you against unpaid rent, property damage, and fines due to the misbehavior of your tenant, and it protects them as well. A lease agreement is an important component of any landlord-tenant situation and should always be used before you allow a new tenant to move in.