Long-term leases, good or bad idea?
Hi BP family,
I have a group of med students who would like a long-term 4 yr lease. Has anyone had any experience with long-term leases? Are there any specific clauses I should add to my lease?
When to sign lease? They asked to hold the unit for a month (they meet all minimum qualifying requirements). I am collecting the Deposit to Hold right away, but not sure when to sign lease and collect first month's rent. The Deposit to Hold will transfer to Security Deposit once the lease is signed.
Thanks,
-L
Be very careful. In many jurisdictions anything over a 24-month lease changes the legal rights of the tenant.
I've not dealt with this before, but I understand that once yo go over 24 months, you have to do something the equivalent of a foreclosure rather than an eviction. Talk to a local attorney.
In a normal sized city anything longer than a year generally isn't great because you are likely to see rents increase, and ideally the benefit of the long lease would be to keep the unit occupied, but if they decide to vacate good luck collecting 4 years of rent from them, because your property obviously won't be vacant that long and even if it was you probably wouldn't get anywhere. It can also reduce the value of your home if you decide to sell.
I've always found that the term leases (anything over 30 days) always obligate the landlord, but never the tenant. I only offer month-to-month (MTM) leases in my properties. Here's why:
Let's say I sign a tenant to a one-year lease, and 3 months in, their personal/professional situation changes, and they break their lease and move out after a 30-day notice (or maybe less).
I am required, by law in most areas, to "mitigate my loss" by remarketing the unit, making it rent-ready, and starting up my lead generation machine to get applicants, funnel them into my screening system, identifying good candidates and ultimately leasing them up. This takes a LOT of my time.
If I went to get a judgement against this tenant for the balance of the lease (if I could even find them to serve court papers), the judge would tell me to go pound sand, absorb it as a business expense, go re-rent the apartment, move on with my life and quit bothering him with this "nonsense."
Another situation. Joe "pain in the a**" Tenant just signed a year lease. He is noisy and obnoxious and leaves trash in the common areas. I get numerous complaints from my "good" tenants, complaining about Joe. Joe's lease has provisions against this, so I properly serve him a "10 day notice to cure" using a process server ($$). He gets better for a bit, then goes back to his old ways. So, I serve him again ($$). This goes on.
I finally get so fed up that I serve him ($$) with an eviction notice for breach of lease. I spend time and money getting the petition and go to court. Joe tells the judge he "promises" not to do it again and shows receipts from all his on-time rent payment, so the judge gives him "one more chance. " Invariably, I'm back in court AGAIN. I may or may not get a warrant for eviction this time, but meanwhile two of my good tenants have moved out, exasperated by their neighbor, Joe.
Sure, my lease states that Joe is financially responsible for my expenses associated with the enforcement of the lease provisions, but good luck with that.
In each of these cases, the lease favors the tenants, and limits my rights as the landlord.
My month-to-month leases give me the right to terminate the lease for no reason or any reason, including being an "a**." If they don't leave, I get a holdover eviction warrant on them. I find this is a MUCH easier judgement to get than for breach of lease or even non-payment, since the tenant can "cure" his non-payment by showing up to court with the unpaid balance. Meanwhile, next month he starts neglecting rent payments all over again.
I always found that GOOD tenants love the flexibility that the MTM lease affords them if their personal or work situations changes. I tell them I don't want anyone living in my properties that doesn't want to be there, and that is precisely what would happen if they signed a year lease and their situation changed.
I explain to them I am not in the business of whimsically kicking people out, because that costs me money (see the lead generation paragraph earlier in my post), and my goal is to find really good people to call my properties home and then take good care of them so they want to stay a long time. In contrast, bad tenants don't like the MTM leases (another form of self-screening) because they know they'll be out on their ear in 30 days. So, if a tenant pushes back on the MTM, to me that's a red flag, because there really is no down side for them unless they are up to no good. If they are good tenants, they don't worry about it for a single second because they expect to follow the rules, and they rest easy at night knowing their neighbors will have to do the same.
Thank you for all the replies. It sounds like it is not in my interest to accept a lease that long. I greatly appreciate the feedback and experience provided.
-L
HELL NO..... you just locked yourself into a legal contract with people you really don't know for 4 YEARS..... YOU are stuck...... cant increase the rent, cant get rid of them if they are a PITA etc.
Long lease protect tenants.... NOT landlords.
You may feel all warm and fuzzy that its a "done deal" for 4 years, but if they want to walk, they will and its not easy at all to get the $$ they owe you
You just gave them a TON of leverage
NO WAY.....
Thanks Ned! I did decline. Appreciate your advice.
-L
This is a group of med students, not some random group of 4 strangers off the street. I would definitely sign a long term lease with them. That being said, I would include yearly rent escalations in the lease so you do get some upside with this long lease.