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Understanding Leases

By REI Powerhouse from San Marcos, CA

Thee following is actually the rough draft of one of the chapters from my up and coming e-book however I figured it would most likely do some good for any landlord out there.

In this brief chapter we are going to discuss conventional lease contracts because it is a very important part of putting together a lease option. Most authors, teachers and mentors of lease options expect the people that are considering lease options as a possible strategy to already understand leases however only the exact opposite could be true. Understand that almost everyone in the world has rented a lease one place in their life time most people don’t actually pay attention to the information contained in one and that the reason for this section.

Unless you have either read the complete lease word for word when you signed one, you have been a landlord or property manager you may want to pay close attention to some of the basic things covered in all leases throughout the United States and most likely even the world. There are many additional terms and restrictions that most experienced property owners and managers add to the traditional lease agreement however since you should never have any of those terms added to your lease agreement when dealing with lease options we’re going to skip those details and just cover the basics. The reason that above statement was made is because most of the add-ins made by the owners and mangers of the properties are designed to prevent the tenants from making changes to the property that future other tenants may not like but since this intended to be the leaser’s final property which they will own these terms aren’t needed.

Below are the seven primary key points of a lease which we will breakdown one at a time.

1. Start date
2. End date
3. Deposit amount
4. Monthly rent
5. Rent due date
6. Late fees
7. Assignment and Subletting

Key 1: Start date – real simply this is the date the contract begins which is normally the date the tenant will actual start to occupy the property.

Key 2: End date – this is the date when the contract will end most of the time 3, 6, 9 or 12 months from when the lease began. Even though most state laws very from state to state, here in California a true lease must be for 12 months or greater or else it is simply referred to as a rental contract. Most of the time in this section of the lease it will also state what happens at the end of the lease such as if it will become month-to-month or if the tenant must leave on or before the actual expiration date (most commonly it becomes month-to-month).

Key 3: Deposit amount – some States have stricter laws than others in regards to this. Within the state of California the maximum amount of deposit that can be collected is 2 months worth of payments for an unfurnished rental and 3 months rent for a furnished unit. When talking about conventional leases this money is also fully refundable minus any repair costs the property owner / manager needs to make after the tenant moves out.

Key 4: Monthly rent – this is usually based off of the current market rents of similar units within the specific area where the property is located. When dealing with a larger apartment building this is usually not negotiable because the rents are set for within a specific range for all of the units however when dealing with smaller or even single units it typically easier to negotiate this amount. For most single family units this amount is also based higher or lower depending on the location, view and size of the particular unit. When dealing with Commercial buildings this amount is calculated by a set amount per square foot.

Key 5: Rent due date – conventionally this is on the 1st of every month however some landlords will have the tenant pay on the same day of the month they first moved in so they don’t have to prorate the first month’s rent. This can cause a major problem for the person managing the property and keeping up with all of the rent payment due dates and late fees that need to be collected especially when they are managing multiple units.

Key 6: Late fees – with a traditional lease this is usually started on the fifth day of the month and can either be a set dollar amount or a percentage of the unpaid rent. Most really smart landlords will even charge a per day fee which means the amount continues to increase ever day the rent is unpaid all the way up to the date they file for eviction. In this section it also usually discusses the fees that will be charged for any check that is received and is returned for insufficient funds.

Key 7: Assignment and Subletting – even though these are put under one key point these are essential two separate items. Assignment is when a person actually finds another person to take over the remaining terms of their contract (usually for a flat fee). Subletting is where the current tenant remains responsible for paying the rent to the landlord however they are actually collecting rent from someone else who is either renting a room or the entire place. When you are acting as the landlord you would obviously not want to allow the person that you allowed to rent the unit to just pick whomever they want to be responsible for the rent payments however as the tenant this is always something you might want to consider keeping the rights to just in case you need to get out of the property for any reason or if you have the desire to make some additional income from the property.

REI Powerhouse

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