Sometimes, it may seem as if a lease really isn’t necessary when renting property. There are situations that differ from the typical house-for-rent scenario. For instance, these:
- You’ve decided to let your favorite cousin move in for a few months while he looks for a job and his own place. Your cousin wants to be fair and pay something toward room and board and, frankly, you could use the extra cash. Since it’s family, and will be for just a short time, do you really need a lease agreement?
- The two-car garage that came with your home is at the bottom of a steep backyard. Street parking is plentiful out front, and you’re not keen on trekking uphill with heavy bags every time you food shop. The bikes, mower and other outdoor gear fit nicely in the walkout basement. So, when the neighbor asks if she can park her collectible, ‘65 Mustang Fastback in your empty garage for a few bucks a month, you figure, “Why not?” You don’t need a lease agreement, right?
- Someday, you plan to downsize and build a tiny house on that acre plot outside town that you inherited from a distant aunt. Meanwhile, you let a friend with an impressive green thumb plant a large garden at the site each summer. He will give you fresh vegetables in the growing season, and he’ll throw in some upkeep so that the place doesn’t become overgrown. There’s no need for a lease agreement between friends when no money is changing hands, is there?
Yes, yes, and yes.
Each of the above scenarios describes a contractual arrangement. Someone is borrowing something of value from someone else. That cousin/neighbor/friend is leasing property. Even if there is no written document, it is still a lease agreement.
Using a written agreement doesn’t change the fact that there is a contract. It simply puts the terms in writing so there is no guessing on who said what.
Without a written agreement, each party must rely on his or her understanding of what was said. And, if they have a disagreement, a court may have to decide which party is in the right. As Minneapolis attorney Kelly Klein notes, “…the biggest problem with an oral lease is that when there is a conflict between the parties, it’s difficult to prove what the parties agreed upon.”
It is very unusual to get through an entire rental term without some questions arising. Tenants may ask whether it’s okay to have a pet or to park extra cars on the property. Landlords may have a question about whether the tenant obtained renters insurance to cover tenant possessions in case of a fire or other damage. As time passes, people’s memories fade.
Maybe your cousin forgot that you said you wanted to share your house for no more than three months. Perhaps the neighbor with the classic car leaves the garage unlocked and her car is stolen, and now she wants you to submit the loss to your insurance company. Or, you finally hire a contractor to break ground for your tiny home, only to find that your garden friend has installed a locked gate and erected a greenhouse at the site, claiming he has the right to keep planting.
Now, you’re engaged in a conflict with nothing to fall back on but your memory and maybe a text or email. You must scour any records you may have, and then hope to have an amicable conversation with your tenant.
Unfortunately, when things go bad, the property owner may be stuck with the tenant through a long and costly eviction process.
Isn’t a written lease agreement a huge hassle?
Consider the potential for misunderstandings and problems in any rental arrangement, and you’ll realize that the best prevention is a durable lease. And, yes, writing your first lease can be a little overwhelming, but the goal is not perfection.
The aim is to state, in writing, what you and your tenant are agreeing to. Many landlords create their leases, then share a draft with a tenant for input. If the tenant makes a suggestion, and the landlord agrees, the lease can be changed before signing.
Be sure to cover the basics:
- Landlord name
- Tenant name(s)
- Address and description of property
- Length of lease and whether it will renew automatically or end by a certain date
- Rent amount and when it is due
- Security deposit
- Who will pay utilities
- Any other rules, especially on the care and acceptable use of the property
But also keep in mind that, the more you cover in the lease, the less likely your cousin/neighbor/friend – i.e. tenant – will misunderstand your expectations.
What types of rentals can be addressed with a written lease agreement?
People expect to sign a written lease when they rent out a home or office. Some states even require landlords to use written leases in certain circumstances, such as when leasing units in a multiunit property.
However, a lease agreement can be used with any space. Along with the room, garage and land examples, above, here are more examples of property rentals:
- Boat slip
- Pasture land
- Undeveloped lot
Court dockets are packed with Landlord Tenant filings, an indication of just how often frictions develop over rent, security deposits and other terms.
Having an oral-only agreement leaves both the landlord and the tenant vulnerable to court action, and a potentially long and expensive dispute. If you’re considering accepting rent for use of property that you own, minimize the chance you could end up in court with a written lease agreement.