If you are in the real estate business and you have properties you lease out to tenants for a month or yearly fee, you need a lease agreement. Not only is this in your best interest, but it is also mandatory by law.
It is not uncommon to find tenants occupying a property without signing a lease agreement issued by the landlord, but this is wrong on many levels. As a landlord, this may be your standard practice, but it is an ill-advised move.
Below, we review 6 reasons why you need a lease agreement for all the properties you let out.
1. Protect Your Investment
You may not be aware of this, but a lease agreement protects your investment more than you know. Issuing rules and regulations through word of mouth will not cut it. As a real estate investor, you need to be aware of the potential risk of poor use of your property, and preventing it should be your number one priority.
2. It Makes Your Property Attractive
The quality of your property is not the only thing that will attract tenants; a lease agreement can. Some potential tenants will not rent your property if word gets out that you don’t issue lease agreements. Many will consider you a dubious or troublesome landlord with a plan. You should realize that lease agreements also protect tenants as much as it protects landlords. So if an agreement is attached to the property, many more tenants will be interested in renting it.
3. Agreement Termination
No landlord prats for delayed payment as this will constitute a loss of investment. But in the real estate industry, late payments or no payments at all are parts of the business. But a lease agreement limits the potential or effects of payment defaults. Some agreements allow for late payments between 7-28 days, after which the landlord is free to eject the tenant to make room for a new one.
If the tenant refuses to pay their rent due to a dispute or is unable to do so because of economic insolvency, you have the right to terminate their tenancy after the agreed number of days or weeks. Without a lease agreement, you can prove beyond reasonable doubt that XYX’s number of days was the agreed grace period. But if the grace period appears on the lease agreement, your interest is protected.
4. It is Mandatory
The law states that all lease contracts must have a lease agreement attached to them, irrespective of the duration. Without this document, whatever agreement you had with the tenant is not legally binding. For instance, if the deed has a three-year term attached to it, the tenant already knows that they more pay the rent to cover the period. So, you expect nothing more after three years elapses, and they cannot stay on the property after three years. This spares both parties future headaches.
5. Protection for Both Parties
There are special laws that protect the rights of landlords and tenants. These laws ensure that one party does not take advantage of the other party and that the contract they enter is fair to all involved. The law ensures that the landlord will get his property back if the tenant fails to pay the rent or when the lease expires. It also protects the tenant’s interest by ensuring they use the property for as long as the lease is still in force. As a landlord, you should also include a clause that shows whether the tenant can apply for a new lease or an extension of an existing lease or not; and on what grounds.
Insurance & Maintenance
If the obligation to maintain and ensure the property falls on the tenant, you should communicate this arrangement in the lease agreement. One of the leading causes of conflict between landlords and tenants is the issue of maintenance. Little or no maintenance of the property leads to devaluation, and at the end of the day, you will be responsible for the repair cost.
But if that lease passes this responsibility to the tenant, they will be aware of such responsibilities, and you can hold them to account should they fail in their duties. The same is the case if both parties agree that the tenant should be responsible for insurance. Failure to pay insurance over a period of time will lead to an accumulation of bills, and you will need to be up defaulting on the insurance contract.
Should damage occur, you can’t file a claim from your insurer. So, unless the contract states otherwise, always include maintenance and insurance costs in the agreement.