SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Lease

Top 10 Rental Lease Agreement Provisions

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The lease is perhaps the most important landlording document.  It is the legal document granting possession of a property from you, the landlord, to a tenant for a specified price and a specified period of time.

Smarter Landlords take care when drafting their lease.  They have it reviewed by a local attorney familiar with the local landlord/tenant laws.  Be aware that not all laws are the same.  Every jurisdiction has their particular quirks.  Even here in Tennessee the laws change drastically if I drive just 30 miles or so east to the next county.

Despite these local differences, most leases will say essentially the same thing.  So what basics should you have in your lease?  Here are my top ten rental lease agreement clauses:

  1. Amount of Rent and When it is Due – Remember this is a legal document and you have to spell out even the most basic of information especially when rent is due.  After all, how else can you determine if the rent is late?
  2. Lease Term – How long will the lease run?  One year?  Two?  A month?  Will it be renewable?  Will it run month to month?  All items to consider and spell out.
  3. Address of the Property – Seems simple, but simple things are easily forgotten.  Be sure you include where the tenant is going to live.  If you get in front of a judge with a lease without an address you may just be out of luck.
  4. Late Fees – How much are they?  When are they due?  Be sure to check you local laws here.  Most states will regulate how much and when you can charge.
  5. Security Deposits – How much are they?  Where will they be held?
  6. Occupants – You need to list the names of all occupants over the age of 18.  These are the folks who are legally entitled to be in your property.  Anyone else can be accused of trespassing if necessary.
  7. No Alterations – Unless you want your walls pink, black or purple (yes they will paint them black) you need to specify that the tenants are not allowed to do any alterations of any kind.
  8. Quiet Enjoyment – This is a legal terms that means the tenant has a right not to be bothered by you and other tenants.  It also states that the tenant has a duty not to bother other tenants with their loud music, late night parties, etc.
  9. Eviction – You should spell out when you will begin the eviction process.
  10. Attorney’s Fees – Be sure you have a provision that all attorney’s fees incurred to enforce the lease (to evict or otherwise) will be paid by the tenant.  If you do not have such a clause you will not be able to recoup these costs later on.

So there you have it, my top 10 residential lease provisions.  You can use these to form the basis of your lease, but again be sure to have any legal document reviewed by a professional.  A lease can of course contain many other provisions as well. But I will save those for another post.

Every Landlord’s Nightmare!

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The following story describes every landlord’s nightmare.  You have to read it to believe it.

Smarter Landlords screen their tenants and verify everything they say.  Save yourself the time, aggravation, frustration and money, screen your tenants or risk something similar happening to you.

 

 

By Barry Carter/Star-Ledger

He looks like an attorney in his crisp gray suit, white shirt and red patterned tie.

Not only does he dress the part, Mark Newton knows the law. In fact, an exhaustive Star-Ledger review of his court filings shows that for at least 19 years he has made Superior, chancery, federal and municipal courtrooms his virtual offices, representing himself in hundreds of court battles — though he has no license to practice law.

His specialty? Avoiding eviction. And he is relentlessly effective.

Read  the rest of the article here.

 

H/T to Josh at Biggerpockets.com

Breaking Rule #1

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I used to have a best friend whom I knew from the day I was born. We hit every milestone together—and so did our parents.  When we were both looking for a place to rent at the same time, it seemed like a no-brainer. Who else would make a better roommate than my best friend?!

It was quite possibly the worst mistake I have ever made. Within a month, our friendship was damaged. She didn’t like my cat. I didn’t like her make-up mess. We bickered, we fought, and we never recovered.

So, when I read all of the real estate blogs (including this one) about NEVER renting to family or friends, it resonated with me. I knew there was truth behind the warning, and I swore that I wouldn’t do it.

All of that changed when I jumped neck-deep into a triplex rehab. Suddenly, I found myself reevaluating my options—reweighing the pros and cons.

If I rented to a friend, then I could do the work while renting out the unit. I could start building cash flow to help fund repairs. The logic was persuasive.

In the end, we decided to rent to our friend at a discounted rate for one year, which still equals more than if we had held it vacant an additional month. He agreed to paint himself and to allow us free access to his property whenever we needed to fix something. Given that his unit needs the most work, this felt like a decent deal. I conceded; we signed a lease.

It’s now been over a month since we signed the lease, and I have to say, it’s not that bad.

PROS:
The tenant helped with the carport demolition
I have a tenant that I know, like and trust
I’m collecting rents earlier than expected
I don’t have to paint

CONS:
I have to work around stuff: furniture, appliances, dishes, etc.
I feel imposing, especially since he works 3rd shift
It seems like I always have friends over now
I’m more distracted when working

So far, the pros greatly outweigh the cons. We discovered a massive leak in the kitchen wall shortly after signing the lease, which meant that our tenant received brand new cabinets, sink and faucet. We were happy to have him as a tenant throughout the kitchen rehab, which proved to be messy and time consuming. It would have been an awful inconvenience for a new tenant. Plus, he’s happy to have a new kitchen.

I would do things a little differently though, like be more specific!

For example, I told my tenant that I would purchase the materials if he painted. That seemed fair. However, I failed to mention that I had envisioned white paint in all rooms. So, when he brought me the color swatches that he had picked up from Lowe’s, I felt compelled to go with his plan. Had he been an average tenant, I would have responded with a heartless “Sorry but I failed to mention…” Since he was a friend (and had been so great throughout the kitchen debacle), I coughed up the extra cash for the colors he wanted. I’m always looking for the silver lining though. Our tenant friend feels almost as much invested in our rehab as we do.

That has to be good news, right?

Has anyone else ever cautiously rented to friends or family? I would love to hear your thoughts, especially since my grandparents are getting older and inquiring about a one-bedroom.

Podcast – Landlording 101

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Check out my latest podcast where myself, Jo Garner and Holly Swogger, President of the Memphis Investors Group, discuss landlording basics such as leases, screening tenants, security deposits and more.  We also discuss how you can increase your cash flow by using some of the many mortgage options available to landlords for their rental properties.  We have never seen rates this low.  If you can refinance now is the time to do it.  Put some more cash in your pocket today! 

 

 

 

 

 

 

 

 

 

The One Clause Every Lease in Tennessee Should Have

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If you invest in the great State of Tennessee like I do, there is a clause that you should be sure that you have in your lease.  I say “should have” because it is not required.  But if you put this one clause in your lease, you will save yourself some time and hassle down the road.

Tennessee Code Annotated (T.C.A.) 66-28-201(c) states in part that:

Rent shall be payable without demand at the time and place agreed upon by the parties. Notice is specifically waived upon the nonpayment of rent by the tenant only if such a waiver is provided for in a written rental agreement.

What that law says is that you the landlord have to provide your tenant notice that he/she is late on their rental payments before you can take them to court, unless your lease specifically contains a clause stating that the tenant waives the right of notice.

When you go to eviction court here in Tennessee, one of the first things the judge is going to want to see is your lease.  The judge will ask if you have the notice clause in your lease.  If you do not, the judge will then ask if you served notice that rent was due.  If you have not served notice, guess where your case goes.  Yep, right out the door.  Ignorance of the law is no excuse.

I know it sounds silly.  The tenant knows they have not paid the rent, why do I need to notify them of it?  Plus, it takes time, effort and money to serve notice, time you do not have because they are not paying you!  You want them out so you can get it re-rented.  So put a simple clause in your lease like the following:

Rent is due without demand or notice from Manager/Landlord.

And be sure to have your tenant initial beside this clause when you are going over the lease with them.

Remember I’m not a lawyer and can’t provide legal advice.  I am only a landlord with several years experience.  So check with your own legal counsel.

Those of you in other states, I bet there are quirky laws like this for your state, so be sure to know and follow the laws in your state.  One good place to find out about local laws is at your local REIA group.  Find one and join up today.

 

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What Makes a Solid Lease

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A solid lease is one of the keys to being successful as a landlord.  It will clearly define both the tenant’s and the landlord’s roles.  So what makes a solid lease?  Here are my top ten components

  1. Make sure it is written.  Seems simple enough but I have heard more than just a few times of people not having a written lease.  If you do not write it down, how will you prove to a judge what the terms were?  It will come down to he said/she said.  Have a written lease!
  2. State the monthly rental amount and late fees upfront and in bold.  Have the tenant initial next to these amounts.
  3. State clearly when the rent is due.  Put it in bold and have the tenant initial next to it.
  4. State the amount of the security deposit.  You may want to have another form letting the tenant know what they have to do to get it back in full.
  5. Set a term for the lease.  Will the lease be for six months, a year, two?  What ever it is set the term and then make it go month to month at the end of that term.
  6. Outline who is responsible for what utilities.  Clearly spell out the utilities that the tenant and the landlord are responsible for.
  7. Have a set of house rules about noise, trash, cars on the lawn, criminal activity, etc, etc.
  8. List what appliances come with the property.  You may even want to list serial numbers on the lease.
  9. If your property was built before 1978, have a lead based paint disclaimer and be sure to hand out the lead based paint brochure.  It could be a $20,000 fine if you do not!
  10. Include any clauses that may be required by your state or local jurisdiction.  Laws vary from place to place.  In my location the laws are completely different from one county next door.  Be aware of your local laws and seek competent advice on them!

You may want to take the time to have an experienced attorney look over your lease.  I have and it really helps.  Also, ask folks at your local REIA group if they will share copies of their lease with you.  Everyone’s lease is a little bit different and you can tailor one to fit your needs.

Finally, your lease should be a “living” document.  You should change it as you experience new issues or laws change.  Review it every once in a while to be sure it is keeping up with your needs.

Happy investing and work smarter not harder!

Dealing With Tenant Drama

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Tenants are the lifeblood of a landlord.  Their rent payments keep us up and running.  Tenants, being human however always bring some drama along with them.  Many times they want to involve you, the landlord, in that drama.

Sometimes it is just petty BS.

“My roommate is driving me crazy and she needs to move out! Make here leave.”

“My roommate did not pay me for this month’s rent so I only have half of the rent.”

Other times it is more serious.

“We are getting a divorce.”

“I lost my job.”

You will get all kinds in this business.  I have had roommates stealing from each other, fall off the wagon, stop taking their meds and start screaming in the middle of the night.  Every year brings a new experience.

You as a landlord need to protect yourself, your property and other tenants from the tenant drama.

Let’s tackle the petty BS first.

First of all, we are clear at move-in, we do not do tenant drama and we do not resolve disputes between roommates.  Renting an apartment is an adult experience and we expect our tenants to act and resolve disputes like adults.

Secondly, you need is a strong lease.  Be sure that every adult living in the property is a signatory on your lease.  Our lease states that each tenant/roommate is “jointly and severally liable” for the payment of rent.  So if one does not pay, the other tenants are each individually liable for the non-payment and we can evict them all.  We also require that we receive only one check or money order for the rent, no matter how many roommates.  You do not want to be chasing down roommates for their share of the rent.  These tips will protect you and give you an out to point towards when dealing with the drama.

When tenants try and drag you into the drama, you need to be cool, collected and firm.  Remember, you do not do tenant drama.  Listen to your tenants, always be polite and remind that they are adults and they need to work out their problems as adults.

Then there are the more serious matters.  You need to have policies in place to deal with these events.

When someone gets a divorce or loses a job, no matter what your lease says, things are going to change.  Your job now is to manage that change as best as you can.  These more serious matters are going to generally require someone to move and many times the breaking of a lease.

Tenants may try to hide things as long as they can, since “denial” is not just a river in Egypt.  Eventually however the problems will surface and you need to be proactive.  Talk to your tenant as soon as you suspect a problem.   Again be firm but polite and listen to the problem.

If there is a divorce and someone needs to move, let them move.  Have policies in place that state the consequences for breaking the lease.  For example we may keep all or a portion of the security deposit depending on the circumstances.  We require a release fee of extra month’s rent if they break the lease.  You just need to say that you understand their problem however our policy is x y and z.  Most people will understand.

When a tenant has lost their job it can be a really serious blow and you have two options; evict them or work with them to move them out asap.  Again be firm but fair.  State that you understand their problem but that they can’t stay without paying and that they will need to find other accommodations soon.

Set a date for them to move out and be sure to stick to it.  You may actually need to help them move along with gentle reminders or you may even want to provide them some funds to move or give their security deposit back upon move out even if the have to break the lease.  You job here is not to stick it to someone who is down, your job is to get your property back in as close to a rent ready state as is possible.  One of your biggest expenses as a landlord can be eviction and the subsequent clean up and repairs.  We try to avoid that at all costs.  You are not going to get blood from a stone at this point, so cut your losses, help the tenant transition out and get your property back so you can re-rent it.

What about the tenant that stops taking their meds and starts screaming in the middle of the night?  When these types of situations arise you need to be careful.  You can try talking to the tenant, but they may not be helpful or may be embarrassed, etc.  In this case you may need to call their emergency contacts for help.

Your rental application should have a section for emergency contacts.  Be sure that you ask the relationship of the emergency contact to the tenant on the application.  Many times the tenant will put a family member, such as mom or brother, on the application.  These types of  situations may be ones where you get in touch with the emergency contacts to discuss your concerns.  Be careful of your tenant’s privacy rights here.  You may just want to let them know that it may be time to check in on their family member.  We have had success using this approach in the past.

As a final note, be sure to check with your own state laws.  If you become aware of drug dealing, spousal or child abuse and do nothing, you may become liable.  So be careful here and take action if necessary.  You can find out about your local laws at your local REIA.

In sum, expect a lot of tenant drama.  Be ready for it with a solid lease, a good application form and firm but fair policies that you discuss with your tenants at move-in.  You can’t predict or be ready for all the drama (we change our house rules every year based on the drama we experience), but you can sure save yourself a lot of aggravation, headache and drama.

 

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