The Hidden Risk In Using A One-Size-Fits-All Lease

There’s no way to compare local rental regulations. For instance, some states allow tenants to terminate leases before the lease expiration date; other states do not. These same types of distinctions also apply to other types of regulations including but limited to: a landlord’s ability to raise the rent based on an increase in their cost of operation (i.e. if property taxes rise); landlords’ use of late fees (penalties for failure to pay timely) about a tenant’s rental obligations; and landlords’ obligation to disclose information about properties they are renting (for example, that a building contains lead paint). As such, the use of a standard form lease may give either the landlord or the tenant a false sense of control over what is occurring during the leasing process. Although you may think you’ve covered your bases by filling in a generic lease agreement with the basic information, you may ultimately realize that one or more of the provisions you included don’t comply with the applicable local regulations. This can result in protracted disputes over delayed payments, property damage, or other issues requiring costly litigation.

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Local Law-Based Leases Help Eliminate The Gap Between Applicable Regulations And Lease Provisions.

As stated previously, local regulations regarding rentals can differ significantly. Because of that, generic lease agreements that are designed to meet the general needs of all locations can provide a false sense of security and control. You may sign a generic lease agreement believing you’re adequately protected, yet discover after the fact that one or more critical sections of your generic lease agreement don’t meet the needs of your location. At this stage, the Conflict may already be ongoing due to a dispute, a delay in rent payment, damage to the property, or attorney fees. Therefore, state-specific lease agreement provide you with a better opportunity for compliance with the actual local laws governing your rental properties. These types of leasing agreements also provide you with greater control and fewer potential areas for error.

The Problem Often Arises Later

A poorly drafted lease will rarely appear defective during the initial signing process. Most people tend to be cordial when the parties are signing an agreement. The tenant wishes to receive possession of the unit. The landlord wants his property rented. Both parties generally wish to finalize the transaction as smoothly as possible. Afterward, both parties usually file the lease and forget about it until it comes into play.

However, as explained above, that is typically when problems arise. Perhaps the tenant desires to vacate the premises before the lease expires. Or perhaps there is a difference of opinion on the necessity of making repairs. Or maybe the tenant contests the amount retained from his security deposit upon moving out of the premises. Or perhaps you need access to the property for purposes of performing repairs; however, you cannot determine how many days’ advance notice you are obligated to give. In those cases, the specifics of the lease become very important.

Using a state-specific lease agreement helps you avoid that mismatch because the document is built around the rules that actually apply to your rental property. It gives you a stronger starting point and reduces the chance that an important local requirement is missing.

Generic Phrasing Can Create Very Costly Problems

A lease should accomplish more than merely identifying who pays rent, who occupies the premises, and who is responsible for certain dates. It should detail the practical business relationship between you and your tenant. 

Although a generic lease may cover some of these topics, its phrasing will usually be overly broad. Overly broad language creates confusion, which leads to disagreements. Disagreements result in lost time, lost money, and wasted patience.

You do not need a lease agreement that reads as if a lawyer wrote it to intimidate your tenant. You need a lease agreement that is specific enough to minimize uncertainty and ambiguity. The clearer your lease agreement is to both parties, the easier it will be for each party to understand what is expected of them.

Lease Agreements Support Your Income Stream

While real estate investing can sometimes be viewed as an investment strategy, rental income depends on the proper handling of minute details. Your lease agreement impacts how quickly you can react to delinquent rent payments, misuse of your property, non-compliance with the terms of your lease agreement, and issues related to the departure of tenants.

If you do not have appropriate language in your lease or sufficient protection, each time a problem occurs, it will take much longer to correct. A single misstated section in your lease could create a significant amount of money spent on resolving one of these issues.

Tenants Benefit From Clearly Defined Lease Provisions

Clear definitions allow fewer opportunities for misunderstandings between landlord and tenant. Your tenant will understand how to report needed repairs, when rent payments are due, what the house rules are, etc. Additionally, clear definitions help minimize potential controversy over the return of security deposits. A strong lease agreement will instill a sense of stability and reduce emotional reactions among both landlord and tenant.

Lease agreements do not require you to create anything harsh. Your lease agreement should be fair, solid, and easy to comprehend. 

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Convenience Should Never Negatively Impact Your Ability To Make Decisions

One advantage of using generic leases is convenience. You probably have many responsibilities (work, finances, repairs, etc.) in addition to numerous time-sensitive tasks (finding new renters) while managing your rental properties. Therefore, having an easily accessible generic lease at hand is just another responsibility you do not need to consider.

Before you transfer ownership or possession of your rental property to another person, take time to review the rental agreement that will be used to support the transfer. While no rental agreement can eliminate all potential problems related to running a rental property, a good one can establish a basis for addressing typical issues most landlords face.