How To Draft Lease Agreement: Key Steps and Legal Considerations
Learn how to draft a lease agreement with our step-by-step guide. Understand the essential clauses, legal requirements, and tips for creating a lease agreement. 6 min read
Key Takeaways:
A lease agreement is a legally binding contract between a tenant and a landlord.
A lease agreement must contain essential elements like rent amount, lease terms, etc.
It is important to make sure the lease agreement is in compliance with local laws.
Avoiding jargon or vague language in a lease document is recommended.
All parties need to sign the lease agreement for it to be legally binding.
If you are a landlord or a property owner, knowing how to draft a lease agreement is crucial should you ever wish to rent out your place to tenants. A lease agreement is important for any legally protected landlord-tenant relationship, as it will clearly define the terms, conditions, and responsibilities of each party.
In this guide, we will explain all the key elements of a lease agreement, the important role it plays in property rental, and then show you a step-by-step guide on how to write a lease agreement.
Understanding Lease Agreements: What Goes In The Contract?
A lease agreement or tenant contract is a legally binding contract between a landlord or a property owner and a tenant. It includes essential information such as the terms and conditions for renting a property, the duration of the lease, the amount of rent to be paid as well as the date by which the rent should be paid, any overdue charges if applicable, responsibilities for maintenance and repairs, etc.
In other words, a lease agreement is a legal contract that ensures each party is aware of the rights and responsibilities when renting a property. It is especially important in case there are any disputes or misunderstandings.
Typically lease agreements can be categorized based on the time duration, or the nature of the lease. For example:
Residential vs Commercial Lease: Residential leases are for renting out a home, condo or apartment whereas a commercial lease is for renting out a property for commercial use such as office space, retail space or warehouse.
Fixed-Term vs Month-to-Month Lease: A lease can either be for a fixed duration of time (such as 6 months, 9 months, 12 months or more) or automatically renewed every month.
Essential Clauses In A Lease Agreement
Now that you have a clear understanding of the different types of lease that exist, it’s important to know about the essential clauses that typically exist in a lease agreement.
Parties Involved: The lease agreement should clearly identify the landlord and tenants, and the names used in the contract must be their legal names, as validated by their government identification.
Property Description: The lease agreement should clearly describe the property to be rented, and which portion of the property is to be rented to the tenant. The address and unit number (if applicable) must be mentioned, but additional details such as amenities or facilities provided within the property may also be mentioned.
Lease Term: The lease agreement should clearly state the nature of the lease term, i.e., the starting date, the duration and the options for renewal.
Rent and Payment Terms: The amount of rent to be paid by the tenant should be clearly mentioned in the lease agreement. The due date for the rent, as well as any late fees (if applicable) should also be mentioned.
Security Deposit: If a deposit is required, the amount should be clearly specified along with conditions for a refund. Having a security deposit can protect the landlord if the tenant causes any damages or fails to pay the rent.
Maintenance and Repairs: When it comes to the maintenance and repairs of the property, both the landlord and the tenant’s responsibilities should be clearly outlined in the lease. Typically the tenant is responsible for cleanliness and other tasks such as snow shoveling or lawn mowing, while the landlord is responsible for any repairs for the house or apartment itself.
Rules and Regulations: As a landlord, you have the right to set some house rules which the tenants must follow. You can implement policies on pets, smoking, noise or subletting.
Termination Conditions: The lease agreement must clearly mention the conditions under which the lease may be terminated early. The notice period for lease termination should also be mentioned in the agreement.
Legal Requirements for Lease Agreements
In addition to the essential clauses mentioned above, there are some legal requirements you should be aware of in order to draft a lease agreement.
Compliance With Local Laws
Some states may have specific local laws governing property rentals. You should familiarize yourself with your local laws and regulations before drafting a lease agreement.
Fair Housing Act
All lease agreements must not violate the discrimination laws stated under the Fair Housing Act. Make sure to carefully review your lease agreement to make sure none of the clauses can be interpreted as discriminatory on any ground.
Disclosure Requirements
For all rental agreements, certain things must be disclosed where appropriate. For example, if any lead-based paint is used in the house, or if there is risk of mold, or any other potential hazards, they should all be disclosed in the lease agreement and communicated to tenants before they sign the agreement.
Signature And Witnesses
The lease needs to be signed by both the tenant and the landlord for it to be effective and legally binding. While witnesses are not required when signing a lease, having one can be useful for legal purposes.
How To Draft A Lease Agreement: Step-By-Step Guide
Once you have made yourself familiar with the essential clauses of a lease agreement and the legal requirements, it’s time to start drafting the contract. Below is a simple,
step-by-step guide on how to draft a lease agreement.
Step 1: Gather Necessary Documents
First, collect all the details about the property to be rented, as well as information about the tenant. You will also need to include information about yourself, lease terms, clauses, rent amount, etc.
Step 2: Draft The Lease Document
Once all the information has been collected, draft the lease document according to the legal requirements in your state. Typically most states have a standard rental lease agreement format that all landlords or property owners need to follow. You can use UpCounsel’s standard rental lease agreement and then customize it by yourself, or with the help of an attorney to suit your needs.
Step 3: Review The Lease Agreement
Once you have drafted the lease agreement, review it carefully to make sure that all conditions have been mentioned, that the contract is legally compliant and none of the clauses are discriminatory under any circumstances.
Step 4: Consult With Legal Counsel
This step is optional but highly recommended. Once you have drafted and reviewed the lease agreement by yourself, get legal counsel at least once just to be on the safer side.
Step 5: Finalize And Sign The Agreement
Once the lease has been reviewed and agreed upon by both the landlord and the tenant, the only thing left to do is sign the contract. Both parties need to sign the document for it to be legally binding.
Common Mistakes To Avoid When Drafting A Lease Agreement
If it is your first time drafting a lease agreement, it is quite easy and normal to make a few mistakes. To save yourself the trouble, we have listed some of the most common mistakes people make when drafting a lease agreement.
Overlooking legal requirements: Often, landlords or property owners do not put in the effort to check all the legal requirements within their state, and end up facing high fines and charges.
Ambiguous language: Using vague language or too many jargons will only complicate matters in case of a dispute. To make things easier for yourself, use simple and clear language.
Not including important clauses: If you miss critical elements or clauses when drafting a lease agreement, it can create serious problems later on.
Failure to review: Not reviewing the lease document thoroughly can create problems in the long run.This is why it is strongly recommended to have a lawyer review your draft lease agreement at least once.
Finalizing Your Lease Agreement: Ensuring Legal And Financial Protection
A carefully drafted lease agreement is important for any landlord or property owner who wants to rent out to tenants. By using this guide, you can make the process yourself by drafting the lease document the right way, and ensure legal and financial protection for yourself.
FAQ
Can I use a template to draft a lease agreement?
Yes, you can use a standard template to draft a lease agreement as long as it complies with the legal requirements and regulations.
How do I handle lease amendments or changes after the agreement is signed?
Any changes to the lease agreement must be documented in the agreement and signed by both parties.
What happens if a tenant breaks the lease early?
If any termination clauses or penalties have been mentioned in the lease agreement, then the tenant must comply accordingly for breaking the lease early.
