After you’ve reviewed an applicant’s rental application, credit report, criminal background and verified their income and housing history, and you feel confident in their likelihood to pay the rent and treat the property well, it’s time to execute a legal contract to formalize your arrangement. Call the applicant, inform them of your decision to move forward, and schedule to time to meet them in person at the rental property.
If signing the lease agreement in person at the rental property sounds inconvenient, well, property management is work, and there’s no shame in hiring someone else to do it if you don’t want to do it.
Nor will any template lease off the internet work. (Easy for us to say, right? Still, this is important.) Absolutely, positively use a state- or province-specific lease agreement – otherwise it may well not hold up in court when/if that time comes (and it does, frequently). You can hire an attorney to draft a customized lease for your situation, or you can buy one online (obviously we sell them, but even if you don’t use ours, make sure you use a high-quality, customized, province- or state-specific lease agreement).
And it doesn’t stop with the rental contract. There are often other documents you’ll need to include in the lease package – addendums, disclosures, informational documents, etc. Some of these are required by the different states and provinces, and there are also federal laws in the United States requiring disclosures in many cases (e.g. lead paint disclosures and pamphlets for rental properties built before 1978). Be aware of these, and make sure your lease package includes them.
Signing the rental agreement in person at the property allows you to walk through with the tenant before signing the lease contract, and mark every single knick, scratch, dent and lurking basement troll in the entire property, and sign off on it as the move-in condition, so that there will be no disputes at move-out over the security deposit. Take photos (with those tacky timestamps activated) to further document the condition.
Bring two copies of the entire lease package, bring copies of the keys, bring several (working) pens and bring the phone numbers for any utilities that need to be changed to the tenant’s name, and insist that the utilities are changed that day so you are not charged for the tenant’s usage. Always keep your own copies of the keys to all rental properties in a well-organized system.
Collect the tenant’s first month’s rent and security deposit (and if possible the last month’s rent) before signing the rental agreement and handing over keys. Once you sign the contract and hand over keys, you have delivered possession of the property, and the person next to you goes from being a guest in your property to being a tenant with extensive legal rights. If they fail to provide the funds after you’ve delivered possession, well, tough luck, you now need to go through a many-month eviction process before they go back to being a guest in your property rather than a legal tenant.
After leaving the property, deposit the security deposit in an account consistent with your state’s landlord-tenant laws. Keep copies of the tenant’s rental application, credit report and criminal report, and of course the signed lease agreement in the file you keep of important documents for that rental property. The information contained in the rental application may be useful later if the tenant is evicted and leaves a large balance owed to you, and you want to track down the tenant and their assets for collection.
Lastly, consider insuring that the tenant will pay the rent on time each month, through a renter surety bond. Ever hear the expression “hope for the best, plan for the worst”? It applies here – sometimes applicants who look good on paper still default on the rent, leaving you in the lurch… unless you’ve insured against this scenario. The insurance usually costs about $21/month, and covers unpaid rent, legal costs of eviction, and monthly rent during the period while the property is vacant and is being advertised for rent.
Entering into a lease agreement is a binding, bilateral legal contract – take it seriously, use proper legal forms, keep copies of everything from the lease to keys to rental applications to credit and criminal reports. We also advise insuring against rent defaults; the overwhelming majority of rental properties in the U.S. have a mortgage which must be paid each month, and most of us are not prepared to pay this mortgage on top of our own personal bills.
See our handy Lease Signing Checklist for reminders, and as a quick reference guide.