Your Killer Lease Agreement - Key Elements to Include
Posted: Monday, October 27, 2008
by James Janel
NACREPS
One of the best investments you could ever make is to buy rental property. Whether it is commercial real estate or another type, you can still make a lot of money. Regardless of your chosen investment, one critical factor in your success is the lease agreement that you use. Most people don't really put much stock into the actual lease agreement. They believe that it is simply a formality that most landlords have to go through. The truth is that it is a valuable document that can prevent you from losing a lot of money. Done the right way, it can solidify your investment and keep you safe.
In today's market, there are several different options that landlords can choose from to create their lease agreements for residential and commercial real estate. In the old days, you had to deal with a real estate attorney, but the internet has changed that. No longer do you have to submit your needs to someone else and pay them for doing it for you. There are several websites available that will help you create your own lease agreement for commercial real estate and residential real estate as well.
Regardless of which method you choose to create your lease agreement, it is important that you have a basic understanding of the laws in your area. Just because something is commonplace in one area of the country doesn't mean that it is legal in another area. Before you get started on your lease agreement, do a little research.
Key Elements to Include in Your Lease Agreement:
Property Condition
One thing that you need to include in your lease agreement for residential and commercial real estate is a statement about the condition of the unit. If it is a brand new unit, you should state that. If it needs a little bit of work, this should be in there as well. A checklist with all of the different areas of the house or building is a great tool to use in a lease agreement. This way you can avoid any discrepancies with your tenants. If they try to tell you, after their lease is up, that there was always a big hole in the wall, you will be able to prove otherwise. In fact, you have it right there in writing with their signature on it. Trying to tell a judge otherwise will be all but impossible.
Security Deposit
Another item that you'll need to iron out the details on is the security deposit. Decide how much you need up front. Then state in the lease agreement exactly what will happen to the deposit upon completion. If you're going to use the deposit for repairs and give the tenants the rest, tell them about it. Whatever you plan to do, spell it out clearly in the lease agreement.
Monthly Rent Details
One thing that may seem fairly obvious is that you specify the amount of rent and when it is due. This might seem like a "no-brainer" but you would be surprised at the number of misunderstandings in this area. Put in the lease agreement exactly when the rent is due and when it is considered late. State any possible late fees or how long it will be before action is taken. If tenants are continually late with their rent every month, it will be easier for you to take recourse against them. If you don't spell it out in plain English, they could dispute it and claim that they didn't understand. It's best to avoid this scenario all together and just get it in writing.
Repairs
Repairs are another area that you need to talk about in your lease agreement. Decide who is responsible for what and exactly what you will cover. If it is a triple-net agreement, then you can make the tenant responsible for all repairs for property. Triple-net agreements are common in the world of commercial real estate.
Whichever method you choose to write your lease agreement, just make sure that you cover all of the bases. Online software is a great way for the do-it-yourself commercial real estate investor. However, it isn't for everyone. For those that don't feel comfortable going it alone, a real estate attorney is still a good choice. They can oversee everything and make you feel much more comfortable with the process.
Once you complete your lease agreement template, the next step is to get the property rented. Now comes the fun part! You actually get to start bringing in the cash flow.
About The Author:
James Janel is the Executive Director of the National Association of Commercial Real Estate Property Scouts. He is a Professional Property Scout, as well as an experienced commercial real estate investor. To find out more about property scouting and real estate investing, or to request our free report, Prospecting for Profits: Turning Dirt into Cash, go to http://www.NACREPS.org.
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Top-level comments on this article: (1 total)These principles also apply to rsidential agreemants although is not as easy to apply some of the rules when a tenant does not pay or is always late. In this economy it is not easy to have an empty place, late rent is better than not at all.
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