Searching for a new apartment can be a fun experience or a frustrating experience depending on your location and your budget, but once you find your new home you will need to sign a lease. For lawyers or law students, reading a lease may be simple. For non-legal types, it may seem simpler to skim it, sign it and forget about it. The better way to handle a lease is to be aware of significant clauses that can have a big impact on your comfort in your home and on your wallet. Never sign a lease until you are confident that you understand it. (For related reading, also check out Is Now The Time To Buy Or Rent?)
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1. Money Matters
Be sure to verify that the monthly rent, late fees and security deposit in the written lease all match your verbal agreement with the landlord. Make sure you know when the rent is considered late and what the penalties are for a late payment. The lease should mention the requirement that any deductions from the security deposit when you move out be explained in writing and explain the conditions under which the security deposit will be returned. Check to see when rent increases are allowed and how much notice you will receive before you need to pay the higher amount.
2. Restrictions on Residents
If you are planning on living with roommates or want to have a family member live with you, check the lease to see if there are restrictions on how many people are allowed to live in the apartment. A landlord may have grounds to evict tenants if they have too many residents in the home.
Don't sign a lease that makes the tenants responsible for repairs. This could be costly and time-consuming, and the landlord could complain that you haven't done maintenance to the required level. While many lease agreements make the tenants responsible for minor repairs and the landlord responsible for major repairs, make sure the meaning of those terms are spelled out so you don't get stuck with a job you don't want.
If you have a pet or think you might want one in the future, be sure to check the lease for restrictions on the type, size or number of pets allowed. Some landlords charge an extra deposit for potential damage, so make sure you read carefully the description of how to get that deposit back when you move.
5. Agreed Compensation
There may be a clause that lists an agreed compensation (for example, $200 or $2,000) for any damage to the apartment or other losses incurred by the landlord, such as your moving out before the lease is up. Don't sign this if the agreed compensation is high, because this is a big incentive for the landlord to look harder for damage.
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6. Subletting your Apartment
Sometimes tenants need to leave their apartment for a month or two or permanently before their lease expires and want to sublet their home to cover the rent. If you think you may need to do this, make sure your lease allows a sublet. In some cases, the landlord will insist on approving the new or temporary tenant. Try to negotiate the removal of that clause, since it can be time-consuming to find a tenant who meets your approval and the landlord's.
7. Ending Your Lease
A typical lease lasts for one year or two years, but you need to carefully check what happens when the term expires to make sure you don't have to leave too abruptly. Many landlords will move to a month-to-month lease after the first term or they will require a month or two months written notice if you plan to move. Make sure you are aware of this clause so you don't give your landlord an opportunity to charge any additional fees or keep your security deposit when you are ready to move.
Make sure the lease does not require you to pay for "reasonable wear and tear" on an apartment or that you are required to vacate the apartment in the condition in which you rented it. Tenants should only be responsible for damages caused by their own negligence, not normal aging.
The Bottom Line
Careful reading of your lease, including questioning and perhaps negotiating with your landlord, can go a long way to avoiding a dispute with your landlord. (For more information, take a look at Will Your Rent Rise In 2011?)
For the latest financial news, see Water Cooler Finance: Goodbye 2010 (And Good Riddance?)
Home & AutoReal estate rentals can be a profitable alternative to the buy-and-sell approach if investors know how to make accurate valuations.
EconomicsA lessor is the owner of an asset that is leased.
EconomicsA modified gross lease is a rental agreement where, in addition to their rent, tenants pay a share of other costs associated with the property.
Credit & LoansA lease is an agreement between two parties where the lessor owns property that it allows the lessee to use pursuant to terms of the agreement.
EconomicsA leasehold improvement is an alteration made to a rented space that customizes the space for the tenant.
EconomicsA type of brokerage account where a surviving member inherits the other member's share of account assets upon the death of that other member.
Home & AutoKnow what to look for before entering into a rental agreement.
RetirementFind out how best to claim and convey ownership on your assets.
BudgetingWhen a housing crisis strikes, the big winners are often the renters.
Personal FinanceIf you own your home, but temporarily can’t afford the payments, and can’t a find cheaper place to live, temporarily renting your home may be the solution for you.
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