The Lease

While it may seem overly obvious, you absolutely must have a written lease when renting. It amazes me how many people rent without a lease (I see them in court later, and they are very frustrated landlords at that point). If you don't have a written agreement, then most states have minimum standards that are established by law, and those tend to err on the side of the tenant, not the landlord. For example, in my state you can write in the lease a period as short as seven days to give notice of breach (like not paying the rent). Less than seven days is considered "unreasonable" by the courts. However, if you don't spell that out in the lease, the state establishes 30 days as the period of notice. I have seen many times when a landlord was in court trying to get a tenant evicted who was already a month or two behind on the rent (letting them get that far behind is a mistake in itself) and didn't have a written lease. They usually have heard about "seven days" somewhere, but then when the judge finds out there isn't a written lease they have to give the landlord the bad news that they have to give them 30 days notice, and then file again. The deadbeat tenant is laughing at that point - they've already gotten away with a month or two of free rent and now know they can steal at least another month from the hapless landlord. The landlord can't even think about retaliatory actions like removing the doors - nearly all states have adopted very harsh penalties for doing those types of things.

You really don't want the state establishing the rules for your rentals, trust me. It's also amazing though, how many very, very poorly done leases I've seen (in nearly every case where I've purchased properties and had existing tenants the leases were not very good), and I confess that my early leases weren't the best. It took a while to develop a solid lease. Most landlords realize they need a written lease, but they do it almost as an afterthought, or they get a canned one from an office supply or off the internet. These are usually mediocre at best (though better than nothing), and fail to address many, many things that have to be addressed in good lease. Keep in mind that if there is an area of ambiguity where it could be interpreted more than one way, the courts will normally interpret in the way most favorable to the tenant, because you presented the lease. The courts consider that because it was your lease, you had an advantage in the time to prepare it to say what you wanted. That's a big pitfall of boilerplate leases.

Some landlords will at least get an attorney to put something together, but even then some attorneys are just going to give you something that is pretty boilerplate, while some have real experience at what needs to go into a lease (and what your state laws are). Even if you go to the trouble of getting a good attorney, you will still discover things as you go along that you will want to add to your lease to address specific situations, and you can't just forget it once you have a standard lease. You need to review your lease at least once a year keeping in mind situations that have come up and changes in law. If you are serious about your real estate empire, your lease is one of your most important tools - and will be your best friend when you end up in court (which you will frequently) with a bad tenant. It is possible for you to write your own lease that is a good one (or adapt a boilerplate one), if you are willing to take the time to study all the aspects of what a good lease requires. It is also possible for you to get a poor lease from an attorney if you don't study what is required in a good lease and just leave everything to the attorney. Either way, you need some familiarity with the tools needed for a lease that does what you need.

This series on putting together a lease will be a long one - because a short lease probably is a bad one. The purpose of the lease isn't for you to trip up your tenants later; it is to establish all the necessary aspects of your relationship in a way agreeable to both of you. When you both agree on all these aspects, you've created the basis for a win-win deal. Of course, if things do go sour, it's also to insure that you are protected as much as possible from bad actions by the tenant.

In general, the lease should use straightforward language. Yes, it will have to have some legal terms in it, but it can still be reasonably understandable rather than legal gobbledygook. You should read through the lease with the tenant at signing, explaining legal terms, emphasizing key points (like how much the rent is, when it is due, etc.), and asking if they have any questions.

Having said that, you are going to be absolutely flabbergasted by what tenants will later claim the lease says or think it says. This will happen no matter how thorough you are in going over the lease, explaining terms and answering any questions. There is some aspect of the human psyche which can literally change our memories to the opposite of what actually happened if we need it to fit our actions later. I once had a tenant angrily write complaining that we had breached the lease because the smoke alarms hadn't been inspected. We had to write back pointing out that the lease said the tenant must inspect the smoke alarms monthly and report any problems immediately and that the tenant had initialed that page of the lease right after we read that page to them. Her memory got bad (and obviously she didn't want to challenge her memory by looking at her copy of the lease) because she had wanted out of the lease and we had said no. She then was convinced that we had been a "bad" landlord all along and "remembered" us breaching the lease on a number of points (this wasn't her only faulty memory). The fact that we had actually lived up to our obligations didn't suit what she wanted, so she created things in her mind. Despite the fact that tenants will do this, you still need to make sure the tenant understands what they are signing at the time the lease is executed, but then your job in that department is over.