4 Potential Problems with Your Lease Agreement

by Chris on January 13, 2020

With all the variations in city, state, and federal rental laws, drafting the perfect lease agreement is a moving target. If your lease has never been reviewed by an attorney, or if it has been a while since it was updated, you might want to check for these potential problems:

Rent Incentives

A proper rent incentive involves offering a rental applicant some perk for signing a lease. That might include a couple free weeks or allowing someone to move in early free of charge.

Where landlords can get into trouble is using a rent incentive to encourage on-time rent payments. It usually works like this: the rent is $1,200 per month, but if paid on or before the 1st, it is reduced to $1,000.

There are two potential problems with this lease provision. First, the tenants who have cash on hand are the ones most likely to take advantage of this deal. If it turns out that the bulk of the tenants who scramble to pay on time and seldom receive the reduction also fall within a protected minority, that policy could be viewed as discriminatory.

Additionally, judges who have evaluated on-time rent incentive clauses tend to favor the view that the rent is the lower amount, and the higher figure represents a late fee. So, in the example above, the rent is $1,000, and the remaining $200 is a late fee. The question then becomes whether that $200 is an excessive late fee. Chances are high that it is, especially if that amount is charged each month, or rolled into the next month’s rent.

There’s a safer and easier way to encourage on-time rent payments. Sign up to Report Rent Payments to a credit bureau, and include the Notice to Tenant in the lease agreement.

Standard Security Deposit Deductions

While it may be appropriate to offer examples to tenants of what things might cost should the tenant fail to clean the unit when they move out, standard deductions are problematic and don’t belong in the lease agreement.

The lease easily could be interpreted in such a way that the landlord is limited to the amount stated. If the landlord says $100 for carpet cleaning, but the vendor must go over it three times, the landlord loses out.

But the more costly problem comes from taking wrongful deductions. Landlords cannot charge for items that were not completed or are redundant. If the tenant paid to have the carpet cleaned, they cannot then be charged for the landlord to do it, too. If it doesn’t cost $150 to haul away a bag of trash, then the landlord is not entitled to take that deduction.

Security deposit deductions must be based on precise out-of-pocket expenses and nothing more. No puffing, no rounding up, no predetermined amounts. The risks are simply too high. Under local rental laws in many places, the landlord who takes an unauthorized deduction owes more than the amount deducted. In some cases, the landlord could owe the tenant two or three times the amount wrongfully withheld, or two or three times the entire deposit.

The Lease May Be Incomplete

The numbered paragraphs that make up the body of the lease may not be the entire agreement. In many cases, there are additional disclosures that are mandatory and must be attached to the lease agreement.

Sometimes, those disclosures or attachments must be provided prior to the tenant signing the lease. Others simply need to be included.

Omissions might be the result of a simple clerical mistake, like mentioning a smoking ban or house rules and then not attaching the page that lays out the details. Or, it may be the landlord is not aware of the disclosure requirement.

A common example is failing to provide the federally mandated lead paint disclosures for properties built prior to 1978. Some local governments require disclosures concerning other environmental hazards, anti-crime mandates, or tenant protections from eviction, to name a few examples.

The stakes are high, and landlords who fail to comply with mandated disclosures risk paying fines or losing their rental licenses. That’s why it’s important to ask an attorney to review the draft lease before providing it to tenants. Another good strategy is to join a local landlord association that might provide the proper forms and offer landlord education.

Landlords Can’t Charge Penalties

The word “penalty” should not appear in a residential lease agreement. Private landlords generally cannot charge private citizens punitive fines or penalties. Common examples of penalties are excessive late fees or early termination fees, liquidated damages, acceleration or “due on demand” clauses, or fines assessed for bad behavior.

Some of these items might be palatable in commercial leases or in other contracts, but residential leases are also governed by rental regulations and judge-made law that tend to paint tenants as naive victims. Unlike with other contracts, the fact that the tenant signed the lease and agreed to all of the terms has little or no impact on whether the landlord can charge the tenant those amounts.

So, provisions for a $20 per day late fee, increasing the rent by 15% for every late payment, $100 for a noise violation, or a flat fee of three-months’ rent for early termination should be reviewed by a local landlord attorney. Those charges may not be enforceable, and some may be expressly prohibited under local rental ordinances.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

Leave a Comment

Previous post:

Next post: