Building a Lease Agreement Online: The Basics
With the shortage of decent free residential leases online, this series of articles will break down essential parts and clauses found in typical residential leases, with an example that you are free to use, but which we make no promises or guarantees about. We should emphasize one more time that we are not providing legal advice.
The first section of the lease needs to nail down the most basic elements: who the parties are, what the property is, and what we’re doing with the property (leasing, lease with option to purchase, triple net leasing, etc.), plus the date of the agreement.
It’s OK to add a few other terms or specifications if they are helpful, but the first paragraph shouldn’t be bogged down with fine print, which comes later. The first paragraph should serve to quickly tell someone reading it (the tenant, a judge later in court, etc.) the basics of what this document is about.
The Parties of Lease
This may sound simple, but you want to make sure you get the parties to the agreement right. With residential leases, it’s unlikely the party you’re leasing to will be a corporation, trust, or other entity. It will be precisely the person living in your property and responsible for paying the rent (use full legal names).
If three competent adults live in the rental, you probably don’t want to let just one or two sign the lease. You want them all to sign the document. If three roommates share a place but only one signs the lease, the other two are likely to eventually figure out they may be able to leave that person holding the bag. They will want to whine that the others aren’t paying “their share” and skip out. Hold them all responsible. I’ll discuss “joint and several” more in another post, but I like to make it clear in the first paragraph as well that all parties on the leasing side are jointly and severally responsible for payment and damages. That means, as far as you are concerned, there aren’t “shares” (they can work that out among themselves, but it’s not your concern). You can collect what’s due from any or all of them in any amount.
Some people can’t be a party to a lease contract, basically anyone who isn’t competent. Minors (children) aren’t competent. People declared by a court mentally incompetent aren’t, well, competent. Also, make sure you are the proper party to be leasing. If you have placed the property title in an LLC or trust or something, you personally can’t lease it. The party leasing it needs to be the LLC or trust it’s titled with. Also, if you have an assumed name (DBA or “Doing Business As”) that you’re using, it’s probably a good idea to include that. Sometimes parties are called Lessor and Lessee, but they can also be called Management and Resident, or other similar terms as long as you define the parties like them.
You want to include the date of the lease agreement; this isn’t necessarily the date you’re granting possession, which can be agreed to be a later date elsewhere. This is the date everyone signs the agreement. This becomes important, especially if there were earlier agreements because later, you will declare those void after the date of the rental contract to avoid confusion.
Basics of What’s Happening
You can just say lease or rent; sometimes, more legal terms like “let” or “demise” are used. If you’re doing something other than simply granting possession (renting), that needs to be clarified somewhere in the contract (if it is a lease purchase, call it that), and what better place than in the first paragraph.
Often “consideration” is talked about in terms of contracts. Consideration is required for a contract to be valid, but it’s just defining what each party is giving to the deal. You don’t have to state something like “consideration is”; in a lease, the consideration you’re giving is possession of the rental, and the tenants’ consideration is whatever they are giving you (usually money, of course, but if you agree to take pigs or cows that’s still valid consideration), you just want to make sure the consideration is clearly spelled out. That includes making sure the unit or property being leased is clearly identified, at least by its address. All the terms of the consideration aren’t necessary for the first paragraph, especially if they are complicated, but putting the address leased in the first paragraph is a good idea.
So, if we put all that together, it might look something like this (words in capitals with asterisks around them are blanks you would have to fill in):
This agreement made effective *DATE* is between *YOU OR YOUR LLC ETC.* (hereinafter called Lessor), his/her heirs or assigns, and *NAME OF TENANT(S)* (hereinafter called Lessee, “Lessee” defined as all persons entering into this Agreement with Lessor). All persons comprising Lessee, including any co-signors, guarantors, and sureties, are jointly and severally liable for obligations arising herein.
Lessor lets to Lessee, and Lessee leases from Lessor, the residential unit located at and known as *ADDRESS* (hereinafter called Premises), under the following terms:
And there you have it. You’re off to a good start.