According to statistica.com, in 2015 up until 2017 the highest eviction rate in the United States was 6.1 percent. This happened in Memphis, Tennessee. In looking for an apartment…continue reading
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What Is a Lease Agreement?
Regardless of the industry, your business belongs to, you could not get away with paperwork—in fact, tons of them. These documents range from simple letters to comprehensive agreements. Also, you should note that running a rental business or leasing a property is not an exception to that. Aside from creating rent receipts to keep a record of every transaction, the lessor should also prepare a lease agreement for a systematized rental or tenancy period. But what exactly is a lease agreement? A lease agreement is a written contract that provides an outline of the responsibilities of both the lessor (landlord) and the lessee (tenant). Although it is commonly used for renting out a residential property or a dwelling unit, one can also write a lease agreement for other assets like vehicles and industrial equipment. This type of document makes it clear to both parties that the lessor will grant the lessee temporary ownership of a particular property, given that the lessee pays a specified amount on a regular basis.
Cars and housing units are the most rented properties all around the globe. For this reason, several business people decided to establish a leasing business to provide the market with cheaper and easier access to transportation and shelter. Data from Statista revealed that as of 2019, the revenue for the car rental market on a global scale was over $59 million. Analysts expect that the booming of the travel and tourism sector will create a positive impact in the car rental industry. On the other hand, statistics also showed that the global revenue for vacation rentals (e.g., apartment, holiday homes, rooms, etc.) during the same year was over $83 million. Being a part of this growing industry is not just a walk in the park, especially when you have to prepare legally binding documents for a smooth-flowing business process. In this guide, we will cover the fundamentals of a lease agreement so you will have a full understanding of the document.
The Tenements of a Lease Agreement
Rooms, houses, buildings, and apartments do not come with identical colors, dimensions, and overall structures. However, they all provide a roof over our heads and a ground beneath our feet. The same thing goes with lease agreements—writers of this document don’t follow a similar framework and wording, but they do have several features in common. Before we discuss the steps in writing a lease agreement for your business, it is important for you to have a basic understanding of its elements. By doing so, creating the agreement will be less of a hassle than you think it is. Listed below are the key elements of a lease agreement.
At Least, There’s a Lease!
Landlords have other things to deal with aside from writing a lease. However, they should not neglect the importance of having a written agreement. Although it is considered enforceable, verbal agreements are already a thing of the past. Problems and conflicts may also arise with this type of arrangement.
A written lease agreement protects the rights of both the tenant and the landlord. It guarantees the lessee the use of an asset as long as they follow the terms written on the document. In the event that they fail to adhere to the agreed-upon terms and conditions, the landlord can terminate the agreement provided that there is proper notice. In the United States, non-payment or failure to pay the rent is the primary reason why landlords send eviction notices to their tenants. The next reason was the violation of the lease and the use of the property for other purposes. This information has been revealed by a Statista study conducted last 2017. Having a lease agreement is one way to protect your business from tenants who fail to do their obligations like paying rent. Moreover, it provides both parties a tangible proof that there was an agreement between them. And when misunderstandings or controversies occur, both the landlords and the tenants can refer to the lease agreement and resolve the issue more quickly. That’s when you can say, “At least, there’s a lease!”.
How to Draft an Effective Lease Agreement
If you have no idea how to start working on a legal document, then how would you even finish it? Documents, especially those that are legally binding, may take a lot of time to write. One needs to have extensive background knowledge about the document he or she is going to write, or it may work against his or her favor. In this section, we have outlined a step-by-step guide in creating an effective lease agreement in case it is your first time to write such type of agreement.
Step 1: Read About the Landlord-Tenant Law
Ignorantia legis neminem excusat. Or in English, ignorance of the law excuses no one. As a landlord, you should uphold this legal principle to protect yourself and your business from unfavorable circumstances. Without having a clear understanding of the federal and state laws in relation to the tenancy, there is a tendency that your business will fail. That is why you need to read about the landlord-tenant laws in your country and state so you won’t find yourself in conflict with the law. Knowing your rights and responsibilities as the landlord enables you to provide the utmost convenience to the tenants, and in return, they will also do their part as a rentee. Aside from that, it gives you a clear idea of what you can include in your agreement.
Step 2: Include Every Crucial Provision
Your lease agreement needs to cover all the crucial stipulations for it to serve its purpose. As previously mentioned, the document should include essential information about the parties involved, terms of payment, policies, terms of renewal, and others. Also, make sure to include in your agreement every rule you want to implement during the tenancy period. Considering that a lease has different topics to cover, you must provide headings for every section. Aside from making your document look organized, doing so will help the tenants distinguish the rights and responsibilities immediately.
Step 3: Use Plain Language
Legal documents such as a lease tend to intimidate some people believing that this document is loaded with legal jargon—thus, making it less understandable on the part of the client (or the tenant). For this reason, you should keep your tenants in mind when drafting a lease agreement. One way to make the content of the agreement easily comprehensible is by making use of plain and simple language. If the lease mentions any legal jargon or technical terms, make sure to define these.
Step 4: Consult an Expert
This article will only serve as your guide as you create a draft of your lease agreement. Moreover, the details provided are only the basics of the subject matter. If you want to make sure that your agreement is in line with the law, the best thing you can do is to consult an expert or seek legal counsel. These professionals will help you have in-depth knowledge about the legal aspects of leasing. Apart from proofreading and reviewing your lease agreement for you, lawyers can also advise you so you can run your business smoothly.
Step 5: Discuss the Terms
Before the signing of the agreement, you need to discuss the terms with the tenants to ensure that it is mutually beneficial. If there are any changes as you negotiate with the lessee/s, make sure to put these into writing. Lastly, both parties should sign the lease for it to take full effect.