Being able to attract good tenants to a rental property is the cornerstone of being a good real estate investor. More than just attracting them, you need to retain them and make sure they remain consistent and reliable. The ideal situation is finding someone who pays their rent on-time (in full), rents for years and keeps your property in good condition. A unicorn!
Before you hit the streets looking for someone to rent your property, it’s of vital importance you take some time to craft a sound rental lease agreement. This is your ticket to snagging that unicorn renter and can help you avoid putting up with nightmare tenants for any longer than you absolutely have to.
The rental agreement is key
A strong, well-crafted rental lease agreement is key to the success of any real estate investor. Lease agreements provide both tenants and property owners with a clear set of expectations. This mutually agreed-upon understanding allows you to develop strong, healthy relationships with your residents. Ultimately, it improves your chances of maintaining their long-term tenancy.
Clear, consistent guidelines dictating tenant behaviour improve your tenant base, allowing you to populate your investment property with good, reliable, consistent tenants. Rental agreements also mitigate potential legal liabilities and can help you ensure your investment business is operating above-board.
Consult an expert
Above all else, make sure you’re talking to an expert when setting up rental agreements. Rental rules and regulations vary drastically from province to province and even from municipality to municipality. It’s advisable to have a trusted real estate attorney assist you with drafting your rental agreement, or at least sign-off on any documentation you produce.
There are, however, several universal characteristics present in all good lease agreements. Be aware of these traits when drafting yours. Consulting with experienced investors operating in your market can help you identify areas in your agreements that may require further fine-tuning.
What to include in a lease agreement?
There are several things that must be included in a lease agreement, regardless of the location of your investment property. For instance, you should always include the address and unit number of the property. While this may seem like a no-brainer, it can limit potential legal liability if there’s a dispute in court.
Payments and fees
The lease must outline all payment information regarding the rental unit in question. For instance, the monthly price of the rental unit needs to be clearly displayed on the agreement. Any monthly or one-time fees or deposits will also need to appear. Finally, you have to outline the ways the tenant can opt to pay their rent and the monthly due dates during the contract period. The lease agreement must also stipulate late fees incurred when a tenant isn’t able to pay their rent on-time.
Liability and responsibility
You’ll need to outline the tenant’s responsibility to care for the rented unit. While it’s understood that some wear and tear will take place during the duration of their tenancy, clearly define what that means. In addition, outline certain types of damages that may incur charges upon move-out. Finally, remind the tenant they can’t change the locks in your building, and that they should let you know as soon as possible if serious damage does occur to the unit.
Utilities and responsibilities
The lease agreement needs to stipulate the way the tenant will pay for their utility expenses. Most modern apartments include separate meters for electricity and gas. If this is the case, plan on requiring the tenant’s account information with the local hydro provider on the lease agreement. If your investment property doesn’t have individual meters, you’ll need to clearly break down the way that tenants are billed for water, gas and electricity.
Illegalities and safety concerns
While it may seem like this goes without saying, you should make a point of barring illegal activity—particularly drug use—from your investment property. Again, this is just a necessary step to mitigate potential legal liability.
Also, outline local health and safety codes, and make it clear that tenants are in violation of their lease terms if safety codes aren’t observed at your building. This is particularly relevant for smoke and carbon monoxide detectors. You’ll also have to dictate landlord inspections procedures.
Finally, the lease agreement should cover any auxiliary circumstances specific to the property and unit. For instance, if the unit includes covered parking, this should be outlined in the lease terms. If you choose the allow pets at your building, draft a separate pet addendum for tenants bringing their furry friends.
As the property owner, it’s your right to be notified of anything major affecting your property or the tenant’s ability to pay rent. Many rental agreements include addendums for notification clauses. For example, if your tenant is going out of town for 14 days, they need to notify you of their absence on the property. Or, if they’ve recently lost their job, they need to make you aware of this, since it affects their ability to potentially pay rent.
Keep in mind, a notification clause should only be specific to the property or your ability to collect rent. Tenants have the right to live in peace and privacy, which means not having to answer to their landlord about every change in their life. Respect tenant privacy!
There are several other considerations that could make your property more attractive to prospective tenants and help make the terms of rental are clear. For instance, you could install a security system at your building and instruct the tenant to maintain it as part of the lease agreement. This can help you keep your tenant safe, and also minimize potential property damage.
Regardless of the type of tenant lease, you’re drafting, it’s important to work with a qualified local real estate attorney. This will ensure your rental agreement doesn’t leave you exposed to potential litigation and unnecessary financial risk. It’ll also help you set expectations for your tenants and give you grounds for handling situations in the event your