Rewriting your lease? Here are 5 key clauses you might be missing

Property managers and landlords have spent the last few months gearing up for a busy spring leasing season. You’ve hired and trained new staff. You’ve refreshed their rental listings. Maybe you’ve even invested in new technology to streamline the leasing process.

But the ramp-up is over and now—spring leasing is in full effect!

Prospective renters are going to be itching to lock in their dream apartment, which means that property managers and landlords need to have their leases all buttoned up.

If you haven’t done so already, now is the time to review your existing lease language. Are you still using the standard lease form issued by your state? If so, it’s time to refresh your leases. The standard lease form is really just intended to be a guide. It typically only has basic information—the minimum needed for the lease to be enforceable. It does not necessarily include other provisions that will protect you as a property manager or owner.

Before you start signing new leases this year, consider these 5 key clauses to include in your lease.

#1: Use of Premises

Renters often take it for granted that they can use their apartment for any purpose, but that shouldn’t be the case. Take some time to detail any restricted uses. For instance, you might want say that the property can only be used for residential purposes and only used by those named on the lease agreement. This prevents someone from running a business out of their home, which can present liability issues.

Similarly, you can add language that says whether or not a person can list the unit on home-sharing platforms like Airbnb, HomeAway, and VRBO. As we’ve noted before, allowing tenants to do so can be a major value-add. Residents are sometimes willing to pay a bit more for their apartment if they can recover some of those costs by home-sharing every now and then. If you’re going to allow residents to list the unit as a short-term rental, be sure to specify any restrictions, such as how often they can list the unit; and be sure that your criteria are consistent with your municipality’s local rules and regulations around short-term stays.

#2: Subletting

In addition to detailing restrictions on short-term subleasing on home-sharing platforms, your lease should also include language around a tenant’s subletting of their unit on a longer-term basis. The lease should explicitly state whether a resident is allowed to sublet their apartment; and if so, under which conditions. Is the subletter subject to the same advanced tenant screening procedures as all of your other residents? Will there be any fees associated with subletting the unit? Can a resident simply assign their lease to someone else; and if so, what type of notice will be required?

It’s important to include language around subletting, particularly in the student housing sector, where renters often sign year-long leases but only plan to stay in the area for the duration of the academic calendar. If subletting guidelines aren’t spelled out in advance, a property manager or owner may find that a lessee moves out and sublets the apartment without anyone knowing. If the subletter damages the apartment and the original lessee is nowhere to be found, the owner may have little recourse.

#3: Lease Renewal

Renters appreciate predictability. They don’t want to worry about whether their landlord is going to drastically increase the rent on a year-over-year basis. That’s why it can be helpful to stipulate the terms of lease renewal upfront in the original lease agreement.

This clause may include a pre-defined escalator, such as an automatic rent increase after the first year by a certain percentage. Anywhere between two and five percent is pretty standard. This provision may also include language around how much notice is required by the landlord and/or resident if they plan to renew or cancel the lease at the end of its term. Sixty days is typically standard.

#4: Severability

Severability is one of the most important clauses in a lease, but it’s also one of the most overlooked by property managers and landlords. Essentially, this clause means that if one part of the lease is deemed to be illegal for any reason, the rest of the contract is still legally binding.

Case in point: You included language in your lease that said that the security deposit will be returned within 60 days of the end of the lease term. However, your local security deposit laws require you to return it within 30 days. If you have a severability clause in your lease, then the invalid security deposit clause would not automatically deem the rest of the contract invalid.

#5: Joint and Several Liability

“Several liability” is often confused with “severability;” and as a result, some property managers and landlords only include one or the other. In fact, the two are different in function.

Joint and several liability means that each party to the lease is jointly and individually responsible for fulfilling the terms of the lease agreement. This is important when there are multiple tenants on the same lease. If one of the tenants defaults on the lease, this provision stipulates that the others are responsible for fulfilling all lease obligations.

Let’s say, for example, that three roommates are on the lease. The monthly rent is $2400 per month, which the three tenants split equally. If one of the residents stops paying his or her rent, the other two are still obligated to pay the full $2400 each month. The other two roommates may have to pay $1200 each in order to prevent the group from being in default of their lease. This is a way to hold all parties accountable for the lease in the event that one person isn’t pulling his or her weight.

Property managers and landlords are encouraged to have iron-clad leases that protect their best interests. If you have questions as to whether the terms in your lease are sufficient, contact a real estate attorney, who will ensure that your lease is compliant with local, state, and federal fair housing laws. An attorney will also be able to make recommendations as to other key clauses to include in your lease given the specifics of your rental portfolio.

Which terms do you make sure to include in all of your lease agreements? Let us know in the comments!