If you are a landlord or property manager, your lease is a critical component of your business operations. You should be careful not to rely on pre-printed leases or downloaded forms. Standardized lease agreements are not guaranteed to fit your particular needs, and what may work in California may not be enforceable in Indiana. As such, I recommend you always work with a qualified real estate attorney to protect your or your client’s investments, and ensure your ability to enforce the lease terms as you need them. While this article does not address every term we think you should include in your lease, these five lease provisions are essential and should be drafted carefully. Below are five elements of a lease that I regularly see improperly drafted or altogether missing on preprinted leases and downloadable forms.
#1- The Parties- Who Should Sign the Lease?
Clearly identify the parties to the lease. This may seem obvious, but I often see property managers incorrectly write leases between the property manager and the tenant. Rather, property managers should write the lease between the property owner and the tenant. The property manager is merely an agent for the landlord. The property manager may sign and enforce the lease as agent for the owner, but the property manager is not the landlord. The importance of identifying the property manager as an agent for the owner-landlord becomes clear in those cases where the property manager is terminated or quits, and the owner or a replacement property manager needs to enforce the lease.
It is also important to identify all adult residents as “tenants” and have all of them sign the lease. This is important in order to enforce the lease against and collect rent from all adult residents. In the case of domestic battery, there is a law requiring the landlord to release a battered resident, but a landlord can still enforce the lease against the offending tenant.
#2- Identification of Property- ‘Where’ the Property is Located
Be specific and thoroughly identify the address as well as the unit (for multi-unit properties). While on the topic of addresses, make sure the address is clearly marked on the property – not just a mailbox, but physically on the unit. If you have to evict a tenant, the court constables may not leave the court case notices, if the property address and individual unit are not identifiable. You do not want to delay regaining possession of the property for something as trivial as not having a door marked with the unit number. Also, in your lease form, use a defined term for the property, such as “Property” or “Premises.” Here is an example of identifying the property and giving the property a defined term for use throughout the lease.
“The Landlord does hereby let and demise to the Tenant, and Tenant leases the premises commonly known as 123 Renters Drive, Unit 4, City, State Zip Code (the “Property”).
Once you define the term, stick to that definition. This creates a uniform lease and is easy for the courts to read and interpret. Far too often I see leases that identify the Property by different words throughout the lease. In one paragraph, a living unit might be referred to as the “premises,” while another paragraph refers to the unit as the “residency,” and yet another paragraph might refer to the unit as the “property.” The courts may not rule against the landlord where a tenant has failed to pay rent or is causing damage, but a landlord’s ability to collect damages could be impacted where a tenant’s duties as to a living unit are confused with different duties as to the larger building or common areas. Defined terms should be carefully used.
#3- Attorneys’ Fees &/or Collection Costs
Indiana operates under the American Rule. That means, unless the contract allows for recovery of attorneys’ fees or fees are available under a state statute, each party is responsible for his or its own attorneys’ fees. A lease should allow a landlord to recover fees, but should not allow the tenant or a “prevailing party” to recover fees. The term “attorneys’ fees” must be used in the lease. “Costs” is a term that refers to court costs, not attorneys’ fees.
Additionally, do not limit attorneys’ fees to legal proceedings only. Write the attorneys’ fees clause so the fees can be collected by the landlord, even if the landlord does not go to court to enforce a lease. If a tenant breaches the lease, the landlord should be able to add fees to the tenant’s tab. The goal is to allow for reimbursement to the landlord of any attorneys’ fees and/or collection costs incurred to enforce the lease.
Often, landlords may be sued by a tenant in court or in an administrative matter. Or, tenants will file counterclaims, in hopes of delaying an eviction order or to lessen an adverse damages award in a judgment against the tenant. Landlords should consider lease language allowing the landlord to recover fees for having to defend against a tenant’s claims.
#4- Late fees
When a rent payment is late, a late fee must be charged. Do not feel guilty about this. How would you feel if your paycheck was late? This is no different. Tolerating late payments only teaches the tenant that late payments are acceptable. Clearly identify when rent is deemed late and how much the late charge will be. I recommend using a per day fee versus a flat fee. Also, state that the late fee is not a penalty. Courts are reluctant to enforce penalty provisions. The late fee compensates the landlord for the additional administrative costs of having to collect late rent and for the additional risks associated with a late-paying tenant. The lease should say so.
#5- Maintenance and Repair
This is probably the number one issue that tenants dispute in court. Many times, tenants never show up for the damages hearing. However, of the tenants who do show up, the majority dispute their responsibility or the amount of damages, or claim the physical damages to the living unit were already there when the tenant took possession. To combat this, use a move-in walk-through form. Many preprinted leases will have a short clause stating that the tenant has examined the Property and that the Property is in good order without damage. While this clause is helpful, I also recommend a walk-through form to accompany the lease. This form should cover all areas of the Property. Have a form for both before the time when the tenant takes possession and the time when the tenant vacates the Property. These forms are helpful in court when damages are disputed.
As you can see, even the most basic components of a lease need to be drafted carefully. It is very easy to overlook details or assume the courts will interpret your lease the way you intended. Therefore, consult a knowledgeable real estate attorney in the state where your rental property is located to review your current lease or to draft a lease to ensure your ability to enforce the lease terms as you need them. Any upfront costs for a professional review of your lease will be money well spent.
Guest article by Chad Rollins, Esq., Rollins Law Group LLC