Lease Agreements Between Landlords and Tenants – Part 11
Lease Agreements – Part 11
Some Miscellaneous Issues
This final part of our Lease Agreements series will provide brief discussions regarding several miscellaneous issues.
Rent Control
Only a small number of jurisdictions (usually cities) have any form of rent control and rent control laws vary significantly among those jurisdictions. Rent control was arguably established to prevent or stabilize increased rent. It may affect how a landlord manages his property compared to non-stabilized jurisdiction; as examples, regarding the handling of security deposits and evictions. If your property is located in a rent control jurisdiction, be sure to read and thoroughly understand the law of that jurisdiction.
If a property is located in an area that has, or is considering rent control, the purchase price of the property must reflect the impact rent control has on income, additional management requirements, and the economic feasibility of maintaining or improving the property.
Section 8
Participation in Section 8 (Housing Choice Voucher Program – HCVP) can affect your lease terms. While participation in Section 8 is voluntary in most jurisdictions, some jurisdictions currently do not give landlords the right to refuse Section 8 applicants and it is likely that this trend will continue in the future.
If the selected rental unit is approved, the housing subsidy is paid directly to the landlord by the local Public Housing Authority (PHA) that administers Section 8 funding on behalf of the participating family. The family is responsible to pay any difference between the actual rent charged by the landlord and the amount subsidized by the Section 8 program.
There can be no difference in the amount of security deposit requested from an assisted family than from a non-assisted family. State landlord tenant statutes regarding security deposits are applicable to Section 8 tenants.
The lease agreement signed by the landlord and the participant family should have standard practices listed for damage charges beyond normal wear and tear. If the landlord determines after the family has vacated the rental unit that damages by the family have occurred, those damages may be compensated from the security deposit held by the landlord and the landlord may attempt collection for any amount that exceed the deposit.
The lease agreement between the landlord and the participant family must be for a term of one year and must be in written form. HUD’s Tenancy Addendum must be attached to the lease agreement. At the end of the lease, the landlord may renew the lease for a new one year term or offer a lease for a different specified time period.
Evictions, collections, and other issues are the responsibility of the landlord just as they are for any other tenant.
For detailed discussions regarding the Section 8 issues see our “9 Steps to Understanding Section 8” Mini Training Guide.
Co-Signer/Guarantor
While the terms co-signer and guarantor are often used interchangeably, they are significantly different.
A co-signer is the same as a signer, being simply a signer on the lease agreement. Accordingly, the co-signer may have all the same rights as a tenant who resides in the subject unit unless the agreement states otherwise. Accordingly, it is extremely important that all co-signers for a lease agreement be served all notices that are served on those signers who are occupying the unit. If a co-signer of proven identity does not sign the lease agreement in person (e.g., the out-of-state parent of a college student) it is very important that the signature be notarized in order to avoid the possibility of forgery.
A guarantor is someone who assumes certain financial liabilities for a lease, but does not actually sign the lease agreement and, accordingly, has no rights to the premises. There are basically two different types of guarantees, broad and narrow. The broad form of guaranty makes the guarantor liable for all financial matters including rents and damages. The narrow form limits the guarantor’s liability to the rent.
Agreements can be written to cover only an initial lease term or to include future extensions and renewals. The agreement should include any assignee of the lease during the term of the original guaranty.
Each co-signer and/or each guarantor should be screened in the same way and required to meet the same standards as any tenant.
Landlords in community property states should try to have both husband and wife execute a co-signer or guaranty agreement in order to be certain of binding both spouses. It is best to have both signatures whether or not this is an issue in a particular state because it eliminates potential disputes regarding liability for a lease. The same recommendation applies whether the co-signor or guarantor is guaranteeing a commercial lease for a limited liability entity or parents are guaranteeing a residential lease for a student child.
If a lease is modified in any way during the guaranty period, the co-signer/guarantor should be required to sign a new document related to the modified lease.
Security Deposits
Most states have requirements related to security deposits, including:
- The maximum amount that can be required,
- Interest that must be paid on the deposit,
- Where the deposit must be kept,
- What can be deducted from the deposit,
- When the deposit must be returned and/or an accounting of amounts not returned provided, and/or
- Penalties that may be imposed against landlords who do not comply with return and/or accounting.
Maximum Amount – A majority of (but not all) states limit the amount of security deposit a landlord can require. In states that specify a maximum, the amount typically varies from one to two times the monthly rent. Some states allow higher amounts for furnished units and/or for waterbeds. Some states specifically do not allow landlords to collect greater amounts by calling the additional amounts cleaning or redecorating deposits or fees. Some states allow for an additional amount as a pet deposit, while most states do not consider this issue. If the state’s law is not clear on such issues, it is usually safest to consider the maximum as including everything except the first month’s rent.
Interest – There is a wide variety of specifications for calculating interest among states that require payment of interest on deposit. Some states specify a fixed rate; others tie the rate to an index. Some states require payment of interest only after a certain length of tenancy, for example, one year. Many states require annual or other periodic payments of accrued interest.
Depository – While some states allow conversion or commingling of security deposits, many do not and many of those specify where deposit funds must be kept, including the type and/or location of institutions in which funds may be deposited. Some states require that information regarding location be provided to the tenant.
Deductions – Most states specify the items for which funds can be deducted from deposits. Most, perhaps all prohibit deductions for normal wear and tear.
Return/Accounting – Most states require that landlords return the security deposit and/or a detail accounting for any portion not returned and to do so within a certain period following departure of a tenant, whether the departure was voluntary or non-voluntary. The period varies from 10 days to 60 days among the states.
Penalties – Many states impose significant financial penalties on landlords who do not perform in accordance with the law if the ex-tenant pursues the matter in court. Penalties in various states include loss of the right to keep any part of the deposit and double or treble damages payable to the ex-tenant plus Court costs and attorney fees.
Record Keeping
Landlords need to keep records on all applicants, current tenants, and past tenants. This obviously applies to lease agreements. The time required varies because the time allowed for filing of a suit varies among states. It can depend on a specific state statute or by the general statute of limitations laws applicable to the potential cause of action. The length of time typically varies from 2 to 5 years among the states.
For property managers, who are regulated by a state licensing agency, the records which must retained and the period of time for which various records must be retained are defined by state statutes and/or regulatory agency regulations and the periods may be different than for landlords managing their own properties.
Sources of Lease Agreements
It sometimes appears that there are almost as many lease agreement formats as there are landlords. When deciding which lease agreement to use, you must consider (1) does it provide all the clauses necessary to adequately protect you and your particular property, (2) does it meet all federal, state, and local laws, (3) is it iron-clad enough to provide sufficient protection without being so tight that no applicant will sign it, and is it available in a digital format that can be edited by the landlord?
Adequacy of a lease is best decided by knowing what should be in a good lease. Knowing this comes from experience and from knowledge gained from study of the subject, for example, by having read this article and the first 10 parts of this series and from other educational materials found on LandlordOnline.com.
The adequacy of a particular lease agreement can be determined by (1) checking it against the current version of your state’s statutes, (2) obtaining it from a reliable vendor who warrants that the lease was vetted by a competent attorney such as LandlordOnline.com, or (3) having it vetted by your own competent law attorney.
Lease agreements are available from a variety of sources including:
- Office supply stores
- Property management companies
- Landlord associations
- Trade associations
- State Association of Realtors
- Legal forms vendors
- Custom-made by landlord’s attorney
- Created by the landlord
The adequacy and legality of forms vary significantly among the sources. For most landlords, the most convenient and best source of forms will be from a qualified forms vendor that provides state-specific versions that are vetted by attorneys. Attorney-approved state-specific lease agreements are available from LandlordOnline.com. However, as for any “off-the-shelf” document, modification of a lease agreement is often required to make it adequate for a specific property. The Word version of a lease agreement for any state can be modified as desired by addition of clauses relevant to specific properties or desired by the landlord for any other legal reason.
Keep in mind that, no matter where the form comes from, it is the landlord who bears final responsibility for using a form meeting the legal requirements of the specific state and providing the terms that are adequate for the particular properties for which it is used. Accordingly, it is advisable for a landlord to always (1) read through the landlord-tenant law of his state, making notes about important issues; (2) be knowledgeable about important issues such as maximum security deposit and when a deposit of a terminating tenant must be returned and/or accounted for; and (3) keep abreast of changes in the laws. Unless the lease agreement is provided by a reliable source, a landlord should personally check it against his state’s law or have it checked by a competent landlord-tenant law attorney.