Leases... oh boy, where to start? Well, you know you should have one, and you know it's used to enforce the rent so that there are no interesting 'I told you so's' and forgotten promises down the road during tenancy. A properly written lease agreement not only lays out rental property expectations during tenancy but also provides remedies should one party fail to meet them.
A lease contract should serve both landlord and tenant interests. Beyond rent, property details, and signatures, this article explores the top five often overlooked lease clauses that benefit both parties.
1. Use Of Premises: Defining the Use of Rental Property
How will the rental unit be used? As a single-family residence? For business purposes? The use of premises clause should not only include the purpose the rental is used for (e.g., single-family residential or commercial), but it should also list the number of occupants who will occupy the property during the lease term.
The use of premises clause ensures property compliance with HOA rules and township ordinances. For instance, if an HOA limits occupancy to two people per room, a two-bedroom rental can house a maximum of four occupants, requiring occupant limits on the lease.
For Tenants: It's clear and in writing. The last thing you want is to have your landlord complain that your 18-year-old son is not supposed to be in the rental because he didn't submit an application and is not in the lease agreement... even though you listed him. Make sure you lease includes all listed occupants - If it's in the lease, it's in the lease.
For Landlords: Surprise! There are 10 people living in your 2-bedroom rental. Avoid unauthorized tenants and property wear by clearly defining who is allowed on your 2-bedroom rental premises.
2. Guest Policy: Preventing Unauthorized Tenants
Although the rental property belongs to the landlord, it is the tenant's home during the lease, allowing for occasional guests. The guest policy differentiates between guests and unauthorized tenants to prevent long-term guests from violating the lease agreement.
This clause should specify how long a guest can stay before they are considered an occupant and require landlord approval. Some rental agreements limit overnight stays to a specific number of days per month.
For Tenants: Knowing the guest policy upfront helps prevent violations and unexpected fees, fines, or lease termination.
For Landlords: A clearly outlined guest clause helps ensure that short-term visitors do not become long-term unauthorized tenants. For more in-depth information on managing rental properties, visit the National Apartment Association, a leading resource for landlords and property managers.
3. Utility Responsibilities & Cost Allocation
Who pays for utilities? The utility clause should outline which utilities (e.g., electricity, water, gas, trash removal) are covered by the tenant versus the landlord. Additionally, if utilities are included in rent, the clause should define maximum allowable usage.
Spring is coming, but you receive a call about your rental property flooding because the heat was off while the tenant was on vacation. The point: ensure your utilities clause specifies a minimum temperature to protect essential systems like pipes.
For Tenants: Avoid unexpected utility bills by knowing exactly what is covered and who is responsible for setting up and paying for services.
For Landlords: Clearly defining utility responsibilities prevents disputes and unexpected high costs. Check out this Energy Star Guide for Owners and Managers for more details on how property managers can handle utility responsibilities efficiently.
"A properly written lease... lays out expectations during tenancy, but also provides remedies should one party fail to meet them."
4. Landlord's Right to Access & Notice Requirements
A tenant’s right to privacy is important, but the landlord, property manager or their vendors may occasionally need access for repairs, inspections, showings, or emergencies. The access clause should outline how much notice is required before entering the rental unit and under what circumstances immediate entry is allowed.
Best practice is requiring 24-hour notice for non-emergency visits while allowing immediate entry for emergencies like fires, floods, or security concerns.
For Tenants: A reasonable expectation of privacy is important, and your access to premises clause should be respectful enough to give you at least 24 hours' notice for regular maintenance, showings, inspections, etc., and keep your landlord from barging in unannounced.
For Landlords: A Category 1 storm hits, and you find your property's windows left open during a downpour. Now what? If no one answers the doorbell, you or your property manager need to enter to prevent further damage and additional costs.
5. Lease Renewal & Termination Notice
What happens when the lease term expires? Does it renew automatically? Do all parties need to sign a new agreement? Does the rent increase by 1,000,000%?...well, we hope not, but you get the point.
The lease renewal clause should clarify whether the agreement renews automatically, converts to a month-to-month lease, or requires a new contract.
It should also specify how much notice the tenant must give if they plan to vacate, ensuring the landlord has enough time to market the rental.
For Tenants: Knowing the lease renewal process prevents unexpected lease extensions or fees for late notice to vacate. Knowing your rights regarding rent increases can prevent surprises—check out Nolo’s guide on rent increases for more details.
For Landlords: The last thing you want is to think that your tenant is staying and planning to renew their lease, only to find out a few days before the lease ends that they plan on moving out, leaving you to scramble to list your rental at the last minute. A good renewal clause not only specifies a time period that a notice should be given prior to the end of the lease but also remedies and penalties for failing to do so.
Bonus: House Rules & Property Guidelines
House rules are a 'catch-all' mentioned in the lease through a clause and attached as an addendum. They inform tenants of property use expectations, covering issues like common area use, quiet hours, appliance use, attic access, parking, balcony use, maintenance during bad weather, lawn care, locks, signs, and trash.
Essentially anything that is not covered or is too specific to find a place in the lease with regards to property care and conduct while on the property can be listed in House Rules. House Rules can serve as a road map in negotiating future conduct issues should they arise.
For Tenants: House rules inform tenants about property use, amenities, and penalties for non-compliance, benefiting both tenants and landlords, particularly in multi-family dwellings.
For Landlords: Tenants have varied backgrounds, so clearly outline your expectations in a House Rules addendum to ensure proper conduct and avoid uncomfortable situations.
Related: Should You Allow Tenant Upgrades?
Final Thoughts
A lease agreement is more than just a rent payment contract; it’s a roadmap for a successful landlord-tenant relationship. While basic lease terms cover the essentials, many crucial lease clauses are overlooked, leaving both parties vulnerable.
It’s always advisable to have a real estate attorney review your lease agreement to ensure it is legally compliant, protects both the landlord and tenant complies with HUD's Tenant Rights. A well-structured lease doesn't just define expectations—it provides remedies beyond eviction, offering a fair and balanced approach to rental property management.
Many either gloss over or completely miss some of the clauses we covered here, leaving tenants and landlords exposed to potential downfalls. But... guess what? Not you!
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About the Author Ricardo Reis - Learn About Ricardo
Entrepreneur, Inventor, Investor, Military Veteran. Ricardo is a member of G3 Management & Investments a division of Great Lakes Real Estate and a real estate professional. He is a real estate professional and a successful real estate investor for over 15 years.
NOT INVESTMENT, FINANCIAL, LEGAL, TAX, OR OTHER ADVICE: This blog is for informational purposes only and not a substitute for professional advice. We do not offer advice, solicitation, recommendations, or endorsements. You are solely responsible for evaluating the information's merits and risks. Always consult a qualified professional before acting.