Why does drafting a new lease agreement feel like buliding a wall piece by piece, to protect against every possible way the renter could cost you money?
In short, that’s what a strong lease agreement does: it protects you from all (or at least the most common) of the ways tenants cost landlords money. From unpaid rents, to property damage, to tenant lawsuits, to neglect of property upkeep, to crimes committed by tenants, good rental agreements cover all of these bases and more, through a combination of legal clauses, disclosures and lease addenda.
The resulting lease package will be your property’s Constitution, and your Bill of Rights for the next year or longer, so you need to make sure every likely contingency is considered.
Need to make sure the tenant doesn't bring home pet playmates for that one dog you're permitting? Use a Pet Addendum. Don't want your tenants hosting Airbnb or other house guests for long stretches? Include a Tenant Guest Policy addendum.
Once you establish the basic 'who, what, when and where' of the lease agreement, addenda help you tackle the 'how'. They are the perfect tools for expanding on regulations and guidelines that are difficult to fully address within a single lease document.
Addenda fill another important need for you and your tenant: they better explain where your responsibilities end and your tenants' begin.
Disclosures are a bit more straightforward. Generally, these information pieces are attached to a lease to meet legal requirements, for example lead paint disclosures that federal law requires for certain, older properties. If required lease disclosures aren't included, you will be vulnerable to tenant lawsuits, fines and civil penalties.
Addenda are safeguards – for both parties
Landlords and property managers function as a sort of intermediary between their tenants and the 'real world'. Landlords pay the real estate taxes, insure the dwelling, and make sure that the building and utilities are maintained to code.
Tenants typically don't give a thought to those responsibilities and that's fine; they have to tend to their own obligations, like paying rent on time. However, the savvy landlord will use lease addenda to spotlight certain tenant obligations that tenants may not know even know they have. Renter's insurance is the perfect example.
Including a Waiver of Rental Insurance addendum with the lease preps your tenant for worst-case scenarios with their possessions in your rental unit. If your property is damaged in a fire, your insurance covers damage to the unit, not to the tenant's clothing, books, computers and other possessions. Amazingly, though, many young tenants have no idea that's how it works. In a 2014 survey, Nationwide Insurance found that close to two-thirds of young adults who rent don't have renters insurance. Further, more than half of those without that coverage don't think they need it.
Most landlords don’t insist that their tenants buy a renter insurance policy, but adding the Waiver of Insurance to the lease agreement tells them that you're not on the hook for their losses. It gives them a chance to think about whether they want to pay for the coverage.
No, tenants aren't your children. On the other hand, if you anticipate problems for them and spell out the ways that those problems will be handled, you're bound to save yourself considerable grief. The informed tenant is better equipped to handle their own crises.
When in doubt, spell it out.
There also are addenda which protect you in murky legal areas, such as when your state's laws conflict with federal statutes. That's the current case with marijuana use. Many states have legalized marijuana for recreational and/or medicinal purposes, but the drug is still illegal in the eyes of the feds:
“It is important to note that Congress has determined that marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime. The Department of Justice (DOJ) is committed to enforcing the Controlled Substances Act (CSA) consistent with these determinations.” -Office of National Drug Control Policy
A Marijuana Addendum forbids all use of the drug and tells the tenant that marijuana use will be considered a lease violation. It serves as advance warning for the tenant and removes the risk of the landlord being charged with a deliberate federal violation.
Legal inconsistencies that exist between some state and city laws can also be addressed with addenda. For example, while states require that pets be vaccinated against rabies, some cities go a step further and require pet owners to pay a fee to have their pets registered, sometimes charging higher fees for non-neutered pets. Therefore, it may not be enough to mention in the lease that a pet is permitted. A Pet Addendum covers all the potential legal ground by requiring vaccination and registration.
And why not make use of addenda to reduce liability and the risk of damage to your units from tenants' poor maintenance habits? Mold is a prime example of a preventable issue that, left untreated, has caused many a headache for investment property owners. The Mold Prevention addendum lists actions a tenant must take to prevent mold growth and requires the tenant to notify the landlord if mold does appear.
A Final Word on Disclosures
Using proper disclosures is a good first step in preventing lawsuits. The lone federal disclosure requirement for residential leases – Lead-Based Paint Hazard – is designed to warn tenants of potentially unsafe conditions from lead paint that was used in many homes built prior to 1978.
Additionally, each state has its own rules on information all tenants must be given when renting a property. Most of those are predictable, such as whether pesticides are used on the property. Others are a little more unusual.
As described by the California Department of Consumer Affairs, landlords are required to tell their new tenants whether anyone has died at the property within the last three years. The state's lawmakers also passed a rule requiring landlords to tell tenants whether a methamphetamine lab was previously operated on the property.
Wherever you manage rental property, you can be sure the state has rules governing what you must tell your tenants in advance of move-in day. Make sure your lease agreements carry all required state-specific disclosures, and attach addenda that will eliminate guesswork.