A lease agreement is a powerful tool, but when it comes to managing rental properties, the lease can’t do it all:
The lease can’t prevent tenants from paying late — at least not alone.
Standard lease agreements provide a due date, along with a grace period — usually 3-5 days — before a late penalty is accessed. Trouble is, that late fee is so highly-regulated that it amounts to little more than $35 on average. That’s not enough to keep tenants from paying late and using the lease agreement as a revolving line of credit. The threat of eviction does little more, given that the process could take several weeks, if not months, and the tenant will have paid the rent by then.
The best option for on-time rent payments is to supplement the lease agreement by signing up to Report Rent Payments. This information is shared with a credit reporting agency. That has lasting consequences and serves as far greater incentive than losing $35.
Make your lease agreement do more by including a Notice to Tenant. This Notice, which spells out the rent reporting process and consequences, is available when you sign up to Report Rent Payments with TVS.
The lease can’t locate a tenant who skips out.
The lease agreement spells out the right and responsibilities between the landlord and tenant, but it is of little value once the tenant breaks it. At that point, the landlord will need to locate the delinquent tenant and sue for past due rent or damage to the property. Chances are, though, the tenant doesn’t want to be found.
A law firm or debt collector handling the case will need to track down the deadbeat tenant. Personal information collected before the lease was signed, like notes from the prequalification interview, answers on the rental application, info on rent checks, and communications with the tenant during the lease term are key to finding the tenant — and the tenant’s assets.
The lease can’t prevent a tenant from leaving early.
While it may seem counterintuitive to say that a tenant can leave whenever they want — even with a year-long lease — that’s the way the law works. There is nothing that the lease agreement can do to overcome the fact that a landlord has a legal duty to mitigate damages and find a new tenant as soon as possible. The exiting tenant is only responsible for rent up to the point that a new tenant takes over. Landlords cannot double-dip.
To conquer this contingency, landlords should:
Be picky when choosing tenants — look for good rental history;
Provide good service so replacement tenants are easy to find. Encourage tenant referrals. Keep a waitlist; and
Stay professional. The exiting tenant is more likely to return the property in good condition if the situation doesn’t turn hostile.
Some landlords charge a fee for early exit. State laws vary on whether that is legal. A termination fee cannot be excessive. To determine if a fee is fair, courts will consider:
How long it takes to find a new tenant;
The landlord’s actual out-of-pocket expenses finding a new tenant; and
Whether there are other fees in the lease that make the overall agreement seem unfair.
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).
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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.