How to Make a Lease Agreement

Don’t rely on a handshake when it comes to lease agreements.

A lease agreement safeguards your residential or commercial property from a tenant’s failure to pay rent, among other key rights and protections.

Here are some essential tips on what to include when you make a lease agreement. Consult an attorney or state regulators to ensure your rental lease agreement complies with local, state, and federal laws.

What Is a Lease Agreement?

A residential lease agreement is a binding legal contract between a property owner and tenant for a specific period of time. It lays out the rights and responsibilities of both the landlord and residents under the applicable landlord tenant laws.

It’s not only a binding contract that the parties can enforce in court; it’s also a highly practical document of crucial business details, such as the rent price, move-in date and lease period, amount of the tenant’s security deposit, pet deposit, due date for the monthly rental amount, when the rent payment is due, late fees, and the repercussions of not adhering to the lease agreement. 

A lease agreement is a bilateral contract between two parties—in this case, between a landlord and resident. This means that both the landlord and resident have to agree to specific terms, such as:

• The agreed-upon monthly rent amount
• The due date for paying rent, and the payment frequency 
• The preexisting condition of the property upon move-in
• The guidelines for ongoing property maintenance during the tenancy
• Outgoing inspection requirements (typically, tenant has to give 30 days’ notice to vacate) and the condition in which the rental property is expected to be left

10 Key Elements of a Lease Agreement

It’s essential to write a formal lease agreement, whether you decide to use a property management company or self-manage. For lease agreements, you’ll want to make sure the following 10 sections are included:

1. Names of tenant(s)

Every adult (people over 18 years old) who lives in the rental should be named as a resident and sign the rental agreement. Each resident is legally responsible for paying the full amount of rent and following all other terms of the rental agreement.

If one resident skips out and fails to pay rent, you can legally seek the entire rent from any of the residents. Also, if a resident moves in an unapproved roommate or sublets the rental property without your permission, you have the right to terminate the tenancy and if necessary, evict all current residents.

2. Contact information

Consider requiring tenants renting property to contact you in writing about certain matters. Although texts and instant messaging might work for some discussions, you want to be able to keep a reliable, printable record of all communications with your residents in the event you ever need to show it to a judge.

For example, you might state that the tenant agrees to request repairs in writing or give notice of lease termination by sending a letter to a designated address. If you agree to accept email, make sure you regularly check it and have methods for saving (and backing up) everything you send and receive.

3. Rental property description

Include the complete address of the property (including building and unit number, if applicable). Also note any specific storage areas or parking spots that are included. For example, if the rental has assigned parking, be sure to write in the stall or spot number. Similarly, specify areas that the residents are not allowed to access (such as a locked shed in the backyard).

4. Term of tenancy

Rental agreements create short-term tenancies that automatically renew (typically month to month) until lease termination by the landlord, property manager, or tenant(s). On the other hand, fixed lease agreements create tenancies that terminate after a specifically defined period (usually a year). 

Whichever you use, note the start date, lease term, and expiration date (if creating a lease agreement).

5. Monthly rent payment method and amount

Don’t only write in the rent amount on the lease form. Specify what date it’s due (typically, the first of the month) and how it’s to be paid, such as by snail mail, online, autodraft, ACH, etc. Make sure you comply with your state’s laws on paying rent.

To avoid confusion, spell out details such as: 

• Acceptable payment methods (for example, personal check only)
• Whether you charge a late rent money fee, the amount of the fee, and the grace period (if any)
• Any charges and late fees if a rent check bounces

6. Repairs and maintenance

Your best defense against rent-withholding hassles and battles over security deposits is to clearly explain your repair and maintenance policies. These should highlight:

• The tenant’s responsibility to maintain clean, sanitary premises and to pay for any property damage they cause (excluding normal wear and tear).
• The tenant’s obligation to alert you to defective or dangerous conditions. Add specific details on your procedures for handling complaints and repair requests.
• Restrictions on resident repairs and alterations (for example, prohibiting any painting of the property unless you approve it in writing).

7. Entry to rental property

To avoid resident claims of illegal entry or violation of privacy rights, your lease or rental agreement should clarify your right to access the rental. If permitted under your state’s landlord access laws, it’s acceptable to have specific policies for different situations.

For example, you may provide 24 hours’ notice before you enter the property to make repairs or show it to prospective tenants. You can add that you may not be able to provide this same advance notice in case of an emergency.

8. Security deposit and fees

You can avoid one of the most common disputes between a landlord and tenant by clearly outlining your policies on deposits and fees. For example, state exactly how the security deposit will be dispensed. This can decrease lawsuits between landlords and residents.

You may want to add a chargeback fee sheet to your residential lease agreement that you can have your tenant sign to acknowledge the fee amounts that can be expected upon move-out. 

You’ll also want to include in your rental agreement:

• The dollar amount of the security deposit. Be sure you comply with your state’s security deposit laws.
• How you might use the security deposit (for example, to cover unpaid monthly rent or repair damage the tenant causes). Also, how you won’t use the security deposit (for example, you won’t accept it in lieu of last month’s rent).
• Whether you expect the tenant to replenish the security deposit if you have to make a deduction midtenancy (for example, if the tenant’s child throws a ball through a window, and it needs to be repaired).
• When and how you’ll return the security deposit and account for deductions after the tenant moves out. You’ll want to check your state’s laws on returning security deposits to make sure your policy is compliant.
• Any nonrefundable fees, such as for cleaning or pets (confirm that your state allows nonrefundable fees).

9. Your rules and policies

Be sure to include any rules or regulations that are important to you and that’ll result in tenant removal by those who violate them when renting property. Other not-so-critical rules can be written in a separate rules and regulations addendum to have the tenant(s) sign and acknowledge at the lease signing.

Landlords commonly include the following policies in their leases and rental agreements:      

• No illegal activity: To limit your potential liability and help prevent injury to others and your property, include a clause prohibiting illegal, disruptive behavior, such as drug dealing, drug use, and excessive noise or nuisance.
• Smoking: You have the right to prohibit or restrict smoking of any kind in your rental agreement for your residential property. If you don’t allow smoking, you might want to note that the ban includes all forms of smoking—including marijuana or vaping. If you limit smoking, write out exactly where and what residents may smoke when on your property.
• Pets: You have the right to restrict or prohibit pets in your rental property, except for service and emotional support animals. Include your pet policies if your rental is pet-friendly. Specify how many pets a resident can have and what types, breeds, and sizes of animals you allow. Also, note if pets must be on a leash outside the property and if residents must clean up pet waste in common areas or a yard.

10. Other restrictions 

Federal, state, and local laws may require you to disclose certain information in your rental or lease agreement. For example, you may have to inform residents about lead-based paint or the property’s bedbug history.

You also want to make sure your lease or rental agreement doesn’t violate any rent control laws, anti-discrimination laws, or health and safety codes. It’s strongly advised to have a local landlord-resident attorney review your lease or short-term rental agreement to ensure it complies with all applicable laws.

Types of Lease Agreements

There are many types of lease agreements, each designed to meet the specific needs and circumstances of the property owner. Here are some common types of lease agreements:

Month-to-month lease

Also known as a periodic lease, this month-to-month lease agreement renews automatically every month unless either the landlord or tenant gives notice to terminate it. This provides flexibility but can also mean that the terms change more frequently.

Fixed-term lease agreements

A fixed-term lease covers a fixed period, typically six months to a year. Both parties are bound by the terms until the lease expires, providing stability for both the landlord and tenant.

Net lease agreements

In net lease rental agreements, the tenant pays rent along with additional costs, such as property taxes, insurance, and maintenance expenses. There are variations, such as the double net lease and triple net lease, that determine which costs are the responsibility of the tenant.

Double net lease agreements

A double net lease, also known as an “NN lease,” is a commercial lease arrangement that shifts a significant portion of property-related expenses from the landlord to the tenant. In addition to paying the monthly rent amount, the tenant is responsible for covering two “nets” of costs: property taxes and property insurance.

For the landlord, the advantages of a double net lease include a reduction in financial responsibility for property taxes and insurance, while the tenant gains more control over these expenses and manages their own insurance coverage.

Triple net lease agreements

A triple net lease, often abbreviated as an “NNN lease,” is a lease arrangement commonly used in commercial real estate, particularly for freestanding properties like retail buildings and office spaces. In an absolute triple net lease, the tenant assumes a significant portion of the financial responsibilities associated with the property.

In addition to paying rent, the tenant is responsible for three “nets” of costs: property taxes, property insurance, and property maintenance. A triple net lease term provides landlords with a predictable income stream while allowing tenants greater control over property-related expenses.

Percentage lease agreements

A percentage lease agreement (typically used in commercial real estate) is where the tenant agrees to pay monthly rent plus a percentage of earned revenue from business conducted on the property.

How to Write a Lease Agreement

Writing a comprehensive, legally binding lease agreement involves several steps. Here are some basic rental agreement methods to help you create a lease:

Outline the basic rental agreement

Start by outlining the structure of the lease agreement. Identify the sections you need to include, such as tenant information, property details, rent due date and payment terms, residential lease term, rules and policies, and legal disclosures.

Include important clauses and provisions

Insert clauses in the written agreement that cover key aspects of the tenancy, including rent payment methods, maintenance responsibilities, entry to the property, and dispute resolution procedures. Make sure to address any specific rules or policies you want to enforce, such as smoking restrictions or pet regulations.

Make sure you are complying with local laws

Research local, state, and federal laws that pertain to rental properties, tenant rights, and security deposit laws. Ensure that your lease agreement aligns with these legal requirements to prevent any legal complications down the line.

Formatting

Organize the lease agreement in a clear, logical manner. Use headings, bullet points, and numbered lists to make it easy to read and understand. Proper formatting can prevent confusion and misunderstandings.

Lease Agreement Templates and Examples

Creating even a basic rental agreement from scratch can be challenging for property managers and owners. To simplify the process, you can use a premade rental lease agreement template that is readily available online.

These lease agreement templates can be customized to suit your specific property and terms. Here are some lawyer-approved lease agreement templates by state from the BiggerPockets team that can help you create a lease that works best for your commercial or residential property.

Why Do I Need a Lease Agreement?

Having a pre-written lease agreement template on hand is a critical document for several reasons:

Legal protection

A well-drafted lease agreement outlines the rights and responsibilities of both the landlord and tenant. It provides a legal framework of written consent that helps protect both parties in case of disputes or breaches of contract, such as unpaid rent.

Clarity and expectations

A commercial or residential lease agreement clearly spells out the terms of the tenancy, including rent, if background and credit checks are required, payment dates, late fees, renters insurance, rules on security deposits, and other responsibilities. This clarity helps prevent misunderstandings and conflicts between the parties.

Enforceability

A properly executed rental lease agreement is a legally binding contract. It ensures both parties adhere to their obligations, and if necessary, it can be enforced in a court of law.

Mitigation of issues

By addressing potential issues upfront in the residential lease agreement, such as maintenance procedures, prorated rent and payment policies, and property rules, you can minimize the likelihood of problems arising during the tenancy.

Compliance with laws

Create a lease agreement that incorporates local, state, and federal laws to ensure compliance with landlord tenant laws and regulations related to property rental, tenant rights, and fair housing laws.

The Bottom Line

Crafting your own rental lease agreement is a crucial step in the rental process. While a house rental agreement may not be the most exciting aspect of real estate investment, it is the backbone that supports a successful, well-protected landlord-tenant relationship. With the right lease agreement in place, you can navigate the complexities of property management with confidence and professionalism.

Once you have your policies and procedures in place, follow these guidelines for creating your rental lease agreement template. This way, you can mitigate any issues that arise during your tenant’s lease term. Make your own lease agreement to keep the landlord and tenant relationship straightforward and streamlined.