Education
March 22, 2024

A Landlord’s Guide to Structuring Rental Agreements

Education
March 22, 2024

A Landlord’s Guide to Structuring Rental Agreements

Education
March 22, 2024

A Landlord’s Guide to Structuring Rental Agreements

A lease isn’t just a binding contract between you and your tenants. It’s also a blueprint for your business success.

There are several key components that virtually any rental agreement should include. But no two rental properties are exactly alike, so no two leases should be identical either. In this article, we’ll cover five essential lease terms and how you can tailor them to suit your unique needs and goals.

1. Tenancy Term

This is the period for which your rental agreement is effective. One-year residential leases are the norm in many communities, although month-to-month leases are also common, and multiyear leases are not unheard of.

Month-to-month rental agreements allow landlords to adjust terms or terminate problematic tenancies on short notice, but frequent turnover can increase your maintenance, marketing, and administrative costs. Multiyear rental agreements are sometimes helpful in retaining long-term, high-quality tenants, but most tenants and landlords require greater flexibility to respond to life changes and market dynamics.

2. Utilities and Services

Here, you’ll specify who is responsible for water, power, internet, etc. Properties that offer an all-inclusive rent price can be more appealing to renters, especially in more transient communities where tenants don’t want the hassle of setting up utilities in their name. On the other hand, having tenants pay for these variable costs can encourage energy conservation while simplifying your rental pricing strategy and monthly accounting process.

There’s no one-size-fits-all solution, and your decision will come down to market conditions and your operational capacities and preferences.

3. Insurance Requirements

Leases should state whether or not tenants are required to carry insurance. For tenants, renters insurance policies can cover the loss of belongings in case of theft or damage, as well as personal liability and living expenses if a covered loss makes their unit uninhabitable.

As a landlord, you can rest easier knowing that your tenants have greater protection from financial hardship and that your own liability is mitigated. Requiring your tenants to carry insurance can secure these benefits for both parties, but it can also present enforcement challenges.

4. Use of Property

This clause defines allowed and disallowed activities on the premises. It’s easy to rule out certain activities, like anything illegal, dangerous, or disruptive to other tenants. But other activities are left to your discretion, like smoking, altering interiors, using common areas, hosting homestays, and running home businesses.

In each case, you have to consider prevailing norms in your market and compare the inherent risks against the risks of limiting your tenant pool. In all cases, you’ll need to make sure your policies are crystal clear.

5. Pet Clause

Here, you’ll indicate whether companion animals are allowed in your units. About two-thirds of Americans have pets, so pet-inclusive policies can open up your field of potential tenants and reduce your turnover rate. But it can also open you up to accelerated wear and tear on your units, as well as complaints from neighbors and liability concerns.

One solution is to require a separate pet deposit and agreement that details the tenant’s responsibilities, like keeping their furry friend up to date on vaccines and ensuring that common areas stay clean.

Your Property. Our Specialty.

For over 130 years, Millers Mutual has been focused on just one thing: providing comprehensive insurance coverage that landlords can rely on. Here’s one option: a Businessowners Policy (BOP), which combines the benefits of property, liability, and income coverage into a single policy.

Find out more about BOPs and other smart insurance solutions for apartment buildings and rental dwellings by reaching out to an agent near you today.

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