A lease establishes the relationship of landlord and tenant and is both a conveyance of a possessory estate in real property and a contract between the parties. Through the lease, the tenant receives a right to legal possession of the property in exchange for "valuable consideration" (i.e., rent) paid to the landlord. Most leases specify the duration of the agreement, any terms for extending the agreement and details regarding rent payments.
Because a lease is both a conveyance and a contract, two sets of duties between the landlord and tenant arise: those that exist in relation to traditional property laws, and those that arise due to the contractual promises of the lease. Many states also have legislation designed to protect the rights of residential tenants, including the right to fit housing and rules regarding evictions. Because these landlord-tenant laws vary by location, it is important to check state and local laws for specific details to ensure that you are in compliance with the law.
Types of Tenancies
In a landlord-tenant relationship, the landlord maintains ownership of the property and the tenant has the right to use the property, as established in the terms of the lease or rental agreement. Tenants have a non-freehold estate interest in the property, created through a lease or rental agreement that is written or oral. Non-freehold estates are often referred to as tenancies. As a landlord, it is important to understand the various tenancies that define the type of lease or rental agreement that exists between you and your tenants. There are four types of tenancies that you should be familiar with:
Tenancy for Years
A tenancy for years is a type of lease that specifies a definite term for the agreement, such as one month or one year. The lease terminates automatically at the specified end date without the need for notice by either the landlord or tenant. A tenancy for years is sometimes called a fixed term tenancy.
Tenancy from Period to Period
A tenancy from period to period is a type of lease that specifies a definite initial time, but that is automatically renewable unless terminated by either the landlord or tenant. The lease could be from week to week, month to month or year to year, and it is renewable indefinitely for a like period of time. A tenancy from period to period is also called a periodic tenancy.
Tenancy at Will
A tenancy at will exists at the pleasure of the landlord and tenant. In other words, it is in force until either the landlord or tenant terminates the agreement. In theory, a tenancy at will can be terminated instantly whenever notice is given by either party. In practice, however, landlords typically provide a reasonable amount of time for the tenant to vacate the property. A tenancy at will is sometimes called an estate at will.
Tenancy at Sufferance
A tenancy at sufferance is never intentionally created and exists as the result of circumstances. This type of tenancy occurs when a tenant remains on a property after a lease has been terminated or the agreement has expired. The only difference between a tenant at sufferance and a trespasser is that the former at one time had a right to occupy the property. A tenancy at sufferance is also called a holdover tenancy.
Itis possible that various types of tenancies can apply to the same rental over a period of time. For example, a tenant could start out with a one-year lease (tenancy for years), and once that period is over, the tenancy could switch to a month-to-month basis (tenancy from period to period). The type of estate that a person has in real property establishes the duration and the scope of his or her rights to ownership and/or possession of the property.
Local laws may dictate what can be included in a lease (for example, the amount of late fees that you may charge might be limited). In general, a lease will include the following detailed information:
- address of the rental property
- names and signatures of the tenant(s) and landlord
- date the lease was signed
- beginning and end dates of the rental period
- terms for the collection of rent (i.e., amount, due date, late fees, etc.)
- amount of the security deposit and policies for returning
- notice required to terminate the lease
- required disclosures (i.e., lead-based paint disclosure)
- policies regarding utilities (does the landlord or tenant pay, etc.)
- policies regarding subletting
- maximum occupancy
- policies regarding pets and overnight guests
- policies regarding parking and storage areas
- policies regarding landlord right of entry
- situations where the tenant will be asked to grant access to maintenance workers
- policies regarding evictions
A landlord must provide safe and habitable units to tenants in compliance with local, state and federal statutes. You must do the following:
- comply with current building and housing codes
- make all repairs and keep the property in habitable condition
- keep all common areas (halls, stairs, parking areas, etc.) in safe condition
- keep electrical, plumbing, sanitary, HVAC and other facilities and appliances in good and safe working order
- provide properly functioning smoke detectors (placing new batteries in them at the beginning of a lease)
- allow your tenant to modify the property to accommodate special needs as set forth in fair housing laws (such as allowing a service animal or installing a wheelchair ramp)
A tenant is responsible for paying rent in full and on time and following the terms of the lease or rental agreement. In addition, you can generally ask tenants to abide by the following rules:
- use the rental property for legal, residential purposes (i.e., not for running a business)
- dispose of garbage in a hygienic manner
- keep the property and adjacent area clean and in good condition
- use only those common areas that are made available to tenants
- park in designated areas
- notify you if they will be gone for an extended period
- notify you if something needs to be repaired or if damage has occurred
- adding roommates, which could violate fire codes and the lease terms
- making changes to the rental property without your permission
- making noise that disturbs neighbors or other tenants
- smoking in designated non-smoking areas
- having pets, or certain types or sizes of pets
- having water beds or other large appliances and furniture
- using grills on porches or balconies
In order to keep your property's market value up, you will have to keep your rental property in good condition, responding quickly to needed repairs and performing routine maintenance. While there are many routine maintenance and repair issues that you can deal with yourself, at times you may have to hire a contractor to do the work.
In general, don't assume that your tenant can deal with routine maintenance issues. For example, many tenants will not clean the lint from the exterior dryer vent, replace air filters, or change overhead light bulbs. You can ask that your tenants notify you right away if they need repairs or help with any routine maintenance issues, and you should plan on responding as quickly as practical to any request. Local and state laws may dictate the amount of time you have to respond to certain health, safety or security issues.
Many landlords keep a written log of all complaints, repairs and maintenance performed on the property, including the date you became aware of the problem and the date the issue was resolved. In general, you should attempt to resolve major problems within 24 hours and minor issues within 48 hours. A major repair is one that involves the health, safety or security of the tenant, such as a broken heater during the winter or a broken exterior door lock. Minor issues do not affect the health, safety or security of the tenant, but may be an inconvenience, such as a leaky kitchen faucet.
In order to ensure you are up-to-date with maintenance, you can create a rental property maintenance checklist, itemizing routine maintenance for the interior and exterior of the rental property by season. For example, the fall checklist for the home's exterior may include these tasks:
- drain outside faucets
- clean gutters and drains
- check roof for leaks, loose and missing shingles, and other problems
- check and clean chimney
- inspect weather stripping around windows
- inspect house siding
- remove window AC units or cover with weatherproof membrane
- remove, clean and store screens, if necessary
- inspect trees and branches that are close to the home
It is your responsibility to create and enforce rental policies. The more clearly you communicate these policies to your tenants, the easier it will be to avoid misunderstandings. Local and state laws may ban you from enforcing policies that conflict with local and state laws. In other words, do not create policies that would be illegal to enforce.
Communicating the policies personally, and in certain cases explaining why you have the policy, can help you build a better relationship with the tenant. While you are under no obligation to explain your reasoning, the tenant may be more accepting of a policy if he or she understands the rationale for the rule. As you discuss policies, you may want to clarify who is responsible for certain tasks, such as mowing the lawn. These details can also be included in the lease or rental agreement.
If a tenant is not following a clearly stated policy, you can send a written notice asking that they cease the violation or move out (known as a "notice to cure or quit"). If the tenant does not remedy the violation or move out within the amount of time as prescribed by state law, you can initiate the eviction process.
The lease or rental agreement should clearly state the amount of money the tenant must pay each month (or other specified period) for rent, when and how the rent will be collected, and any policies regarding late payments or checks returned for insufficient funds ("bounced" checks). In general, you may be able to charge a late fee for rent paid after a certain date or for a bounced check. Most states do not specific a maximum fee; however, the fees must be included in the lease or rental agreement, and the fees should be generally accepted as "reasonable." You can review your local and state laws to ensure you are acting in compliance.
Your lease or rental agreement should also state the acceptable methods of payment. If a tenant pays in cash, you should consider providing a receipt for the transaction, including the tenant's name, the date and the amount paid. Local laws may require you to provide a receipt regardless of the method of payment.
You may have a tenant that does not pay rent, that fails to comply with the lease terms, whose conduct presents health or safety issues, or who conducts illegal activities on the premises. In such cases, you have a legal right to have the tenant and his or her belongings forcibly removed from your property - a process called eviction.
You cannot begin an eviction lawsuit until you terminate the tenancy by providing the tenant written notice. If the tenant does not remedy the situation (for example, by paying the late rent) or move out, you can then file a lawsuit to evict.
State laws vary regarding eviction, and it is important to follow the proper channels to avoid problems. You should have a thorough understanding of your rights and duties prior to evicting a tenant. Many landlords pay an attorney to assist with the eviction process. The Complete Guide To Becoming A Landlord: Hiring A Property Manager
Managing WealthEverything you need to know before you rent a home.
RetirementIf you have the money to buy them and the energy to run them – or the funds to pay a good manager – rental properties can help pay for your retirement.
Managing WealthWhether you're a landlord or a tenant, you need to know the rules.
InvestingA modified gross lease is a rental agreement where, in addition to their rent, tenants pay a share of other costs associated with the property.
Managing WealthIf you have an interest in real estate, read on to find out which type of property you have.
Financial AdvisorAlthough renting by the room can increase returns on rental property, it does come with a few caveats.
InvestingInvesting in rental property can generate serious income, but there's more to it than collecting rent.