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A lease agreement is a crucial document, a formal, written contract between the leaseholder and the freeholder. The agreement lists the terms and conditions of the lease in detail and serves as concrete evidence in case of any issues. It clearly spells out the expectations, rights, and obligations. 

The lease agreement safeguards the interests and rights of both parties. The lessee does not have to worry about unlawful termination of the lease, exorbitant financial demands, and extra restrictions. At the same time, the agreement cements the lessor as the lawful original owner of the property to whom all property rights will be reverted at the end of the lease. When everything is laid out clearly for everyone to read and refer to as necessary, it helps avoid or at the very least deal better with disputes and hassles. It’s like an umbrella of legal protection for the lessor as well as the lessee. 

For a lease agreement to serve as the foundation of a successful lessor-lessee relationship, it should be well-drafted and easy to comprehend. Every landlord should ensure that these key clauses are present in the lease agreement:

Term of the Lease

This clause defines the time for which the lease is valid. After this period, the lease effectively ends. The lease agreement should include the start date and end date. A lease is typically for more than a year. It could be for decades or even centuries (999 years). The main difference between a lease and a rental agreement is the term, and the choice typically rests with the lessor/landlord. If the lease has less than 80 years remaining, the lessee may not be able to sell the property at a good price and may want an extension.

Payment Details

The agreement should clearly state the payments to be made and the dates on which they become due. The late fees or penalties if any should also be outlined. Without this clause, the landlord won’t be able to collect any late fees or impose any penalties. The landlord should also define the exact duration of the grace period if one is allowed. 

Severability

If the court rules a part of the lease is non-applicable, the severability clause protects the rest of the agreement. This clause helps make the contract stronger. If this clause is missing from the lease agreement, the whole contract faces exposure to the risk of being invalidated by the court. 

Use of Premises

This clause clears the terms around the use of the property. The property, under normal circumstances, should only be occupied by the people mentioned in the lease. The leaseholder cannot use the property in any way that is likely to harm the people occupying the adjacent properties.

Premise Access

The landlord may have to enter the property to perform maintenance and inspections. The visits for these purposes require reasonable advance notice that’s appropriate according to the circumstances.  Such visits must also take place during reasonable hours. This clause typically includes the form of notice the landlord will provide, the notice period, the purposes for which visits are acceptable, and may also include the hours within which the landlord can visit the property. 

Early Termination

The early termination clause lays out the circumstances under which the parties may end the agreement before the term expires. Typically, these circumstances include violations of the terms mentioned in the agreement. Such circumstances will effectively terminate the obligations stated in the agreement and sever the relationship of the two parties. 

Sublease guidelines

The lease agreement should clearly indicate that the landlord does not want leaseholders to sublease the property if that is what is preferred. On the other hand, if subletting is acceptable to the landlord, this clause must include clear guidelines, restrictions, and policies, or make the landlord’s consent a condition. 

Renewal and Holding Over

This clause typically maintains that the leaseholder must provide advance notice if they wish to renew the lease or leave the property at a particular time. 

This is vital because the advance notice provides time to the landlord to find a new tenant if the present leaseholder intends to move out. If the leaseholder does not provide this notice, they become liable for extra days of rent.

If the landlord does not specify renewal/holding over conditions, the lessee only has to pay up until the end of the lease, and this releases the lessee from paying for any extra days for which they occupy the property before moving out. If the leaseholder doesn’t move out after the end of the lease listed in the agreement, this clause can help the landlord collect rent legally. 

The landlord can set up a system to renew the lease automatically or draft a fresh lease document. Usually, landlords prefer the option to automatically renew the agreement. The choice rests with the landlord. There is no obligation on the landlord to extend the lease once it expires. A lease renewal calculator can help determine the amount of premium the lessee can expect to pay for extending the lease.

Attorney Fees and Lawsuit Costs

Many leases specify who will be held responsible for paying the costs of a lawsuit if the parties go to court over the meaning or implementation of a part of the lease. These clauses do not include any legal disputes that arise independently of the lease.  Typically this clause explicitly requires the losing side in a landlord-tenant dispute concerning the lease to pay attorney fees and court costs. 

 

Wrapping Up

The landlord should ensure that the clauses are written keeping the best interests of both parties in mind, while the lessee needs to scrutinise the clauses meticulously. Taking the time to draft a comprehensive yet simple lease agreement and reading it thoroughly will help ensure that both parties are on the same page regarding the lease. A well-drafted lease agreement ensures the landlord enjoys the guarantee of long-term income and the leaseholder enjoys the security of the lease length even when the value of the property rises.

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Avatar photo Rentround February 19, 2024