Making the Perfect Rental Agreement

At the heart of any good relationship between a landlord and a tenant is a well-crafted rental agreement. Of course, this isn’t the only factor in successful long-term relationships with tenants. However, one can’t discount the importance of a rental agreement that both parties can benefit from.

A clear rental agreement can spell out the obligations and clauses agreeable to the landlord and tenant. This keeps the expectations manageable. Having clearly communicated expectations is key to any successful investment, and being comprehensive up front can save you endless headaches down the road. 

Essential Items to Include in Rental Agreements

Property Name, Location, and Parties Involved

Property Name

To identify your property, the rental agreement must state the property name. Commercial buildings and apartment complexes will generally carry a name that makes them distinctive from other buildings.

Property Location

The complete mailing address must be stated. This must include the unit number, housing number, street name, city, state, and zip code. This will properly identify the specific location of the rental unit.

Names of landlord and tenant/s

Since the rental agreement is a contract between two parties, their names must be clearly stated in the lease for legal purposes. Either the landlord’s name or the agent’s (this can be a property management company, for instance) should be written down on the agreement. 

Rental Term Duration

Specific period

Penning the exact start and end dates will help to eliminate confusion. The rental agreement should specify the exact day, month, and year that the lease applies to.

Being vague and stating that the rental validity period is for 6 months or a year, for instance, can be grounds for conflict. Tenants or landlords can misremember exactly when a lease began or was set to end if it isn’t set down in writing. 

If you’re not clear about precise dates, you could find yourself in an unfortunate “holdover tenant” situation. A holdover tenant is one who overstays the period of their lease, either through miscommunication or willful negligence.

Their presence can be worsened by an unwillingness to enforce the terms set out in the lease. If you aren’t careful, a holdover tenant situation could even turn into a squatter. That’s why it’s so important to create lease terms you can effectively enforce. 

Identify Term Type

Rental periods can be categorized in two main ways. They can either be short-term or long-term. A short-term lease generally refers to one with a length anywhere from a few days, to a few weeks to a few months. On the other hand, a long-term lease will generally span from 6 months to 1 year. 

The term type of your rental space depends upon the flexibility you desire. Another determining factor will be the type of rental space you own. If you have a vacation rental unit, lease periods tend to be shorter. Residential and commercial buildings are typically rented for longer, with some commercial leases stretching on for years. 

Rental Due Amount and Due Date

State the Rent Amount

Another crucial item in a rental agreement is the rental amount. The contract must mention the full rent amount per month. Even if the renter has paid a bulk of rent—for a period of 6 months to a year, for instance—the monthly rate must still be written down.

Commonly, a tenant will pay additional fees, such as a security deposit or pet rent. This must be broken down and identified as separate from the monthly rental rate.

Specific Payment Date

The rent due date per month must be stated to avoid confusion. This is also a way to prevent landlords from becoming recipients of stress. It can be unproductive to perform guesswork with regards to when a tenant will be paying their due monthly rent.

Avoid placing yourself in this situation by writing down the exact day rent is due to be paid each month. If it repeatedly arrives after the due date, you’ll have to enact the late payment clauses set out in your lease. 

Important Clauses

Security Deposit

Collecting security deposits from tenants is widely practiced and is a great way to mitigate damage to your property. However, they can oftentimes be a source of contention. After all, whether a security deposit should be returned can be a matter of opinion. 

To prevent any disputes from emerging and turning the relationship sour, exercise clarity when it comes to:

• Amount of security deposit to be collected.
• Date of the security deposit’s collection.
• Name and location of institution where the security deposit is stored.
• Interest rate on security deposit, if applicable.
• Guidelines on using the security deposit such as the type of repairs permitted.
• Standards for how a rental property must be turned over for a full refund to be given.

In addition, there are specific laws governing the details of security deposits in Minnesota that you should be sure to familiarize yourself with.

Pet Policies

Depending on your flexibility with regards to pets, pet policies can range from strictly no pets allowed, to conditional pet permission, to full pet ownership permission. It’s important to be specific in these terms to reduce conflicts. Pets in particular are a touchy subject. 

Here are some terms you should be sure to include if your pet policy is conditional or open:

• Number of pets each tenant can bring in.
• Size, breed, and type of pet allowed.
• Pet charge to be collected (for instance: pet rent, pet fee or pet deposit).
• Vaccines, licenses, and permit requirements.

Tenant Obligations

Occupying a rental unit will subject tenants to certain responsibilities. Generally, tenants will be expected to keep up with the cleanliness and maintenance of the unit reasonably.

Tenants are commonly obliged to:

• Properly dispose of their trash.
• Refrain from destructive behavior such as severely damaging a rental unit.
• Respect the privacy of co-tenants, maintaining a harmonious relationship.
• Uphold peace and quiet in the premises.
• Take proper care of furnishings and appliances in the rental property.

Entry Rules

To respect each tenant’s privacy, landlords must include a notification period before they can enter the rental unit. Tenants have the right not to feel that they will be intruded upon in their homes.

Respecting the tenant’s right to quiet enjoyment, landlords are only allowed to enter without notice for specific emergency purposes. These purposes should be stated clearly in the rental agreement.

Penalty Policies

Situations can happen wherein tenants are unable to pay on the due date. The landlord must state how they’ll deal with such an unfortunate.

The rental agreement must include:

• Late fee collection, if any.
• Grace period for late payments.
• Additional fees when payments are rejected (such as in the case of insufficiently-funded checks).
• Available payment channels.

Signature of the Parties

Affixing the signatures of the landlord and tenants means that both parties have reached a mutual understanding. Clauses are accepted and from then on, and each party must perform their respective responsibilities. They will adhere to the conditions presented in the rental agreement.

Rental Agreement Copies

The landlord must issue a copy to the tenant that contains both signatures and date of signing of both parties. A landlord must also keep a copy of the agreement for reference.

The Bottom Line

A landlord that understands the significance of a good rental agreement will be starting their relationship to their tenants on the right track. Arguments will scaled down and everyone will be fully aware of their rights and duties.

Looking for help drafting airtight leases, or in any other aspect of managing your Twin Cities-area rental property? Get in touch with the expert team at Property Nerds. We’d be glad to walk you through the wealth of property management services we provide to clients.