The complete book of real estate leases (+ CD-ROM)

What information do I need to include in a lease to make it enforceable?

Excerpted from Complete Book of Real Estate Leases by Mark Warda ©2007

The minimum that a real estate lease should contain to be enforceable is:

? identification of the parties;
? description of the premises;
? clear terms of payment;
? an agreement to rent; and,
? a term.

In order to protect against various potential losses, both landlord and tenant are advised to add specific clauses to cover many different situations that may arise during the tenancy. An owner often has most of his life savings in his properties and depends upon a steady cash flow for income or mortgage payments. A tenant will be spending a portion of his or her life at the premises and if things do not go right, that time could be miserable.

Some tenants take care of-and even improve-the property they rent, but far too many cause serious damage to the premises and disappear owing rent. Some landlords look out for their tenant's interests and try to keep them happy; others do not.

For the landlord, a lease can offer these protections:

? locks the tenant in for a set term and
? provides remedies for actions by tenants.

For the tenant a lease can offer these protections:

? locks the landlord in for a set term;
? assures him that the rent will not be raised during the term; and,
? protects his enjoyment of the premises.

Lease versus Rental Agreement
The difference between a lease and a rental agreement is usually that a lease is for a set term, such as a year. A rental agreement is for a tenancy that may be terminated by either party at any time (usually with reasonable notice).

Since some landlords do not want to be locked into a certain term or rent amount, they sometimes shy away from signing leases. There are agreements being used, some of which are titled "rental agreements," that attempt to lock in a tenant, but which allow the landlord to terminate them at any time. Most of these are not legally enforceable. An agreement in which one party must perform while the other party can get out at any time is not a binding contract. If the landlord can terminate the lease at any time, then the tenant can also terminate the lease at any time, even if the lease says he is bound for a set term.

Similarly, there are leases that state that in the event of litigation the tenant must pay the landlord's attorney's fees. If it does not say that the tenant only pays if he loses, or that the loser pays the winner's attorney's fees, it could be considered unconscionable by a court.

In considering the use of these types of agreements a landlord must weigh the likelihood of a lawsuit with the benefits of using a strong agreement. Most tenants may believe these clauses are enforceable and few tenants have their leases reviewed by an attorney, so most of the time the unenforceable clauses may serve their purpose. (In the few cases that do go to court the landlord would be advised to settle with the tenant and consider it a price to be paid for all the other times the clause worked.)

Tough leases work best with middle class tenants who cannot afford legal advice. The rich can afford lawyers and the poor get free lawyers. The biggest danger for the landlord is having a tenant who qualifies for free legal aid. These lawyers, usually paid for with the landlord's tax dollars, know how to drag on a case for months or even years.

For the landlord who wants to be able to evict an unruly tenant or sell the property without resort to questionable clauses, there are other solutions that can be used in a carefully worded lease.

? The lease should clearly spell out what acts constitute a default under the lease. Strict compliance should be demanded and evictions carried out immediately after a default.

? If a landlord intends to sell a property some time during the term of the lease, he can either have a month-to-month tenancy and risk losing a tenant early, or he can give himself an "option to terminate the lease." Rather than allowing a landlord to terminate at any time, which would make the lease unenforceable, the option to terminate could come into effect only if the property were sold. (There is a possibility in some areas that even such an option would make the lease unenforceable against the tenant. To be sure that it would be enforceable it should provide that the landlord could terminate only if he paid some consideration to the tenant. This consideration could be thirty days notice plus $100 credit against rent, or one month's free rent.)

Basic Lease Clauses

Parties, Property, Consideration, Agreement
The lease must contain the names of the parties, a description of the property, a recitation of consideration (mutual agreements in the lease), and an agreement to rent. It is best for all parties if there is a clear description of exactly what property is meant to be included in the lease.

Payment
The place and manner of rent payment should be clearly spelled out. In some states, a landlord may require that payment must be in cash even if the lease does not say so, but in other states this is not so.

Security Deposits
There is generally a clause indicating the amount of money a tenant must pay up front. This is for the landlord to hold in case of damage to the premises, or perhaps the tenant leaves without paying rent.

A security deposit is one of the most important things for a landlord to have in a lease. It is the best protection a landlord has against damage to the premises or a default in the lease. In some areas it is common for a landlord to require both a security deposit and a last month's rent deposit. In others, there is just one security deposit that can be used for any type of damages; not just rent.

Severability
In case a court finds that one part of the lease is void, unenforceable, or unconscionable, this clause offers the landlord protection by preventing the entire lease from being void.

Attorney's Fees
Both parties usually want to be reimbursed for their legal fees is they must go to court to protect their rights.

Jury Waiver
A jury waiver clause allows for a trial without a jury. Only a judge presides.

Waiver
This clause makes it clear that allowing a tenant to do something once does mean that it can happen again.

Abandonment
In the event the tenant leaves the property and removes his or her possessions before the lease ends, this clause allows the landlord some choices.

Surrender of Premises
This clause lays out how the property is to be returned after renting.

Alterations and Improvements
This clause sets the standards by which a tenant can change the rented property with things like paint and fixtures.

Access
This clause sets out what rights a landlord has to go into the rented property.

Excerpted from The Complete Book of Real Estate Leases by Mark Warda All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.