Property Advantage Blog
Your complete resource for leasing and managing property in Southern California.
You did it. You finally took the plunge and purchased a rental property. You probably carefully crafted a management and investment plan to ensure that your property secures a resident and starts generating passive income within a few months.
Before you sign a lease with that resident, here are a few clauses you may want to consider including in the lease agreement.
General Lease Agreements
The lease agreement is the lifeblood of any property owner-resident relationship. The lease defines your relationship, lays out the rules, and enables you to work together in a constructive manner. A poorly drafted lease agreement can also quickly scuttle your budding rental property development.
It is therefore critical that you carefully craft your lease agreement to ensure that you and your resident are protected.
It might seem obvious but you need to list the names of all the parties to the lease. That means you and any partners (if applicable). That also means the names of ALL of the residents should be within the document. If someone’s name is omitted, they are not permitted to sue to enforce the contract (you can always revise the contract with the consent of all of the signatory parties but, if possible, you will want to avoid that result).
Additionally, you should state the scope of the lease. Are you signing a month-to-month? Is this a semi-annual, annual, or biennial term? If you fail to include duration language, you might be in for a contentious fight if you want to eject the resident or the resident intends to break the lease.
Everyone knows that you need to charge a security deposit but how does that clause actually operate? For what expenses can you specify the security deposit? The industry average is for the security deposit to equal about one month’s rent (you can include security deposit surcharges for pets and other special accommodations).
You can generally use security deposits to repair or clean an apartment after a resident leaves. That means the deposit can pay for a new coat of paint, replaced fixtures, and a cleaning service. You will want to include specific language regarding the purpose and use of the security deposit in the lease.
There are some aspects of property ownership that place the responsibility of property maintenance on you. For example, issues that concern structural integrity or safety, for instance, repairing a leaky roof. But most normal day-to-day wear and tear is the responsibility of the resident.
Additionally, if you provide appliances (e.g. a refrigerator) you should itemize everyone and note the condition of the appliance before the resident moved in. You may want to supplement with pictures.
However, do not assume that the resident is aware that he needs to change the light bulbs and sweep the porch. You need to spell out every single obligation and right in the lease.
Most states require you to disclose to the resident any defects or hazards on the property of which you are aware. For instance, if you know that the porch is rotted through, you need to warn the resident. If you fail to warn and the resident is injured by the defect, you could be liable for their injuries.
Typically, you should warn the resident of all known dangers. If possible, you should simply fix the defects before any resident enters the property.
Subleases occur when a leaseholder decides to allow a new leaseholder to live in the property. Essentially, the leaseholder becomes a middleman between the new resident and the owner of the property. The leaseholder accepts a rent payment from the new resident, the rent payment then goes toward the leaseholder’s obligations under the lease.
Most standard leases prohibit subleasing without the express written approval of the property owner. You want these restrictions to ensure that you maintain control over your property.
Each state has wildly different rules regarding the termination of the lease. Some leases terminate automatically, for example, non-continuing lease agreements that expire after the set term.
Unfortunately, some residents also require evictions. In California, the rules are heavily in favor of the resident; therefore it is critical that you grant leases only to residents upon whom you can rely — within the parameters of Fair Housing, of course.
Get Some Help
If all of this sounds overwhelming, you may want to speak with a property management company.
Residential property management in San Diego is a complex issue to untangle. As illustrated above, there are numerous considerations prior to signing a resident to a lease.
A residential property management company in San Diego, like PropertyAdvantage, is helpful for many first-time or amateur property lessors. Often you lack the necessary time to devote to your property. The professionals at PropertyAdvantage can relieve you of this burden by operating your property on your behalf. With your time freed up, you can work on researching additional properties or hunting down additional residents.