Key Elements of a Lease Contract
A Glance at Lease Contracts:
A lease is simply a transfer from an owner to a tenant the right to exclusive possession of a property for a specific time period. Although there are similarities in the structural form of lease agreements, the contracted elements vary for the type of property being leased and for what purpose the property will be leased for. Since there is no “one size fits all” format, a residential lease will naturally differ from a lease for a commercial building or a land lease.
As stated, every lease agreement will vary based on the property type, its use and governing laws. Let’s take a look at an illustrative example of the structure and some of the specific areas commonly contained in a residence lease. The 39 sections and specific terms illustrated below are NOT what is required for a complete and legal agreement, they are provided for review purposes only. As I’ve said many times before, a qualified attorney should be used to draft and advise on any legal agreement.
I probably do not need to state this for my regular readers since they know the content of my posts are opinions based on my experience in real estate - but for the record: Disclaimer: I make no representations or warranties, express or implied to any person, as to the completeness or suitability of the information provided below, #’s 1-39, inclusive, for any purpose or use whatsoever.
In other words, please be smart about your lease document and don’t use any of this content as boiler plate. A properly drafted and executed lease agreement is a binding commitment by the parties, so professional legal advisement for the creation, execution and enforcement of your lease is essential. However, I hope the following points will get you to thinking …
ELEMENTS OF A TYPICAL RESIDENCE LEASE:
1. Purpose - Lessor leases to Lessees and Lessees lease from Lessor the premises legally described, in consideration of the rent, covenants and agreements within the lease.
2. Legal Description - The legal description is included within the agreement or attached as an exhibit to become part of it.
3. Term - The lease term is identified, for example - a term of XX months, commencing on mo./day/year and ending mo./day/year.
4. First Month’s Rent and Security Deposit – Here the lessees agree to pay rent for the premises in the amount XXX dollars United States funds, per month during the full lease term, payable in advance on the XX day of each month to Lessor. The payment transfer method is also defined (check, wire transfer, auto debit etc.)
5. Late Payment Provision – Provision is made that the Lessees pay a late payment penalty of XXX dollars if payment is not received by the XX day of the month (or whatever grace period is agreed).
6. Timeliness of Payments - The outstanding rent and penalty on any monthly rent payment not received by Lessor by the XXX day of the month will be due immediately.
7. Rights of Possession – It is stated that the Lessee's right to possession and all of Lessor's obligations are expressly contingent on prompt payment of rent. Prompt payment of rent is typically made as an independent covenant.
8. Application of Payments – Moneys received by Lessor shall be applied first to non-rent obligations of Lessees, then to rent, regardless of notations on fund transfers.
9. Cash Payments - Cash will not be accepted unless specifically authorized in writing in advance.
10. Pet charges – If a pet restriction is in place, a fee for violation of the pet restriction is defined.
11. Receipt of Funds - Lessor should acknowledge the receipt of XXX Dollars from Lessees as a security deposit.
12. How Security Deposit Will be Held - The security deposit is held by Lessor, to be applied by Lessor against the cost of repairing any damage or cleaning of the premises during or at the end of the term.
13. Refund of Security Deposit - If there is no damage and if the premises are left in a clean and orderly state, the entire sum, without interest is returned to Lessees.
14. Replenishment of Security Deposit - If a portion of the damage deposit is used to pay for the repair of damage during the term, Lessees shall replenish the amount used so the damage deposit is at all times XXX Dollars.
15. Normal Wear and Tear - No such deposit shall be withheld resulting from normal wear and tear from ordinary use of the premises.
16. Unpaid Sums – Lessees shall be liable for and charges will be deducted from the security deposit for any unpaid sums due under the lease, including unpaid rent, unpaid utilities, unreimbursed late charges, damages, cleaning, or repairs to the premises or its fixtures (beyond reasonable wear), expenses incurred in connection with repairs, removal of Lessee's telephone or TV cable services (if Lessees request same and have moved out), attorneys' fees, court costs, and Lessor or Lessor's representative's time and inconvenience in any unlawful detainer or eviction proceeding commenced against Lessees is also deducted.
17. Use/Pet Restriction Defined - Lessees shall use the premises only as a residential dwelling and shall physically reside therein during the term of the lease. No pets shall be allowed (if agreed).
18. Compliance With Laws - Lessees shall comply with all present and future applicable laws, ordinances and regulations of governmental authority affecting in any manner their tenancy of the premises.
19. Subletting Clause – It is stated that Lessees may not assign, delegate or sublet any part or all of the premises or any or all of Lessee's rights or duties under the lease voluntarily or by operation of law, without the prior written consent of Lessor.
20. Occupancy Clause - Lessees represent and agree that they shall be the only full-time occupants of the premises during the term of the lease. Breach of this covenant, without the prior written consent of Lessor, shall constitute grounds to terminate this lease.
21. Condition of Premises - Lessees have inspected the premises as of the execution date of the residence lease agreement and agree that Lessees accept the premises in its present condition and acknowledge that the premises are in good and tenantable condition and that they are leased to Lessees in the present condition.
22. Condition Obligations - Lessees agree to (1) keep the premises in good order, condition and repair and in a clean, neat and sanitary condition, (2) properly dispose of all rubbish, garbage, organic or flammable waste, in a clean and sanitary manner at reasonable and regular intervals. (3) properly use and operate all electrical, gas, heating and plumbing and other fixtures and appliances, (4) not destroy, damage or remove any part of the premises, or any appurtenances, or permit any family member, invitee, licensee, or any other person acting under Lessee's control to do so, (5) not permit a nuisance or commit any waste upon the premises.
23. Return of Premises - Lessees agree to return the premises to Lessor at the time of termination in at least as good condition as when delivered to Lessee, less reasonable wear.
24. Indemnity - Lessees agree to indemnify and hold Lessor harmless from and against any and all expenses, including all costs and attorneys' fees, incurred by Lessor in connection with any claim, action or demand for injury to or death of persons or loss of or damage to property occurring on the premises or adjoining sidewalks, streets or alleys, for which claim, action or demand Lessor is not liable, and which arises from or occurs in connection with Lessee's use or occupation of the premises or the condition thereof, or of the adjoining sidewalks, streets and alleys during the term of the lease.
25. Access By Lessor - Lessor or Lessor's agent shall have access to the premises at reasonable hours and times for the purpose of inspecting the same, making repairs, alterations or improvements, performing work required as a result of Lessee's breach of the lease, or showing the premises to prospective tenants, purchasers, workmen or contractors. Except in an emergency or if it is impractical to do so, Lessor shall give Lessees at least XX day's-notice of intent to enter.
26. Utilities and Liens - Lessees agree to pay for all light, heat, water and garbage disposal fees, all cable TV charges, internet charges and other utilities used in or charged against the premises during the term of the lease, and to keep the premises free of all liens and encumbrances.
27. Casualty - If the premises are destroyed or damaged by fire, the elements or other casualty to such an extent as to render the same untenantable and Lessor elects not to repair the same, the lease shall terminate.
28. Eminent Domain - If the premises or any part thereof are condemned by eminent domain, the lease shall terminate as to the part taken, and any award arising from such condemnation shall be paid and belong to Lessor except any award for damage to personal property of Lessee, which shall belong to Lessees.
29. Alterations - Lessees shall make no alterations, additions or improvements on or to the premises (to include, painting or wall papering rooms) without the prior written consent of Lessor, and if consent is given all such alterations, additions or improvements shall be made at the sole expense of Lessees and shall become the property of Lessor, and shall remain in and be surrendered with the premises at the termination of the lease.
30. Default - Upon failure of Lessees to cure (1) a default in the payment of rent within XX days after the service of a notice to pay rent or vacate the premises, or (2) a default under any other terms or conditions of the lease within ten days after the service of a notice to cure such default or vacate the premises, or upon failure of Lessees to vacate the premises within three days after the service of a notice to vacate the premises due to Lessee's allowance of a nuisance or committing of waste, then Lessor may declare the lease forfeited and shall be entitled to immediate possession of the premises.
31. Abandonment - If at any time during the term of the lease, Lessees abandon the premises after defaulting in the payment of rent, Lessor may take immediate possession of the premises, and Lessees will be liable for the lesser of (1) the entire rent due for the remaining term of the lease, or (2) all accrued rent through the date the premises are re-rented.
32. Fees and Costs - If by reason of any default on the part of Lessees under the lease it becomes necessary for Lessor to employ an attorney, Lessees agree to pay all costs and reasonable attorneys' fees expended or incurred by Lessor in connection with the default.
33. Waiver - No waiver by Lessor of a breach by Lessees of any covenant, agreement or term of this lease shall be construed to be a waiver of any succeeding breach of the same or any other covenant, agreement or term.
34. Notices - To be effective, all notices and consents hereunder must be delivered by United States Postal Service, certified mail, return receipt requested (or as otherwise defined).
35. Appointment of Agent - Lessor may appoint an agent, or agents, at his sole and absolute discretion, to represent him under the terms and conditions of the Agreement. Lessor will notify Lessees at least XX days in advance if such an appointment is made. Further, Lessor shall notify Lessees if such an appointment is terminated.
36. Renewal Hold Over - If Lessees wish to renew the lease for another year (or term), they shall give Lessor written notice of such intent at least XX days prior to the end of the lease term, in which case Lessor shall advise Lessees of the monthly rent that will be due for the renewal term.
37. Month to Month Provision - If Lessee does not agree to the new rental fee and does not quit possession of the premises upon termination of the lease, such holding over shall be construed to be a tenancy from month to month at the same rental and upon the applicable same terms as provided in the lease.
38. General - The lease constitutes the entire agreement between the parties as to the leasing of the premises and may not be modified except in writing and signed by the parties. (I specifically state that no oral agreements have been made). The lease shall be binding upon any successors or assigns of the parties.
39. Legal Execution – The agreement needs to be signed, dated by all parties, and notarized / recorded, if desired or required. Copies, or duplicate originals, to be provided to all contracted parties.
