For both landlords and tenants, a good lease drawn up with legal advice means they can avoid potential arguments later, says an expert.
A number of short-term rental apartments have also come on to the long-term market and this means more investors will be contending with longer lease agreements and tenants. For landlords, finding a good tenant has always been a difficult task and this challenge will be bigger in the current climate.
Even after the lease is signed many things can go wrong, says Ben Shaw, chief executive of digital rental platform HouseME. Tenants can pay their rents late or cancel their leases early. Or the geyser could burst. Who would be responsible? A watertight lease is the answer for all these scenarios and more, Shaw says.
The basics of a good lease
At a minimum, the lease should include the names of the parties to the lease, the address of the property, the rental amount and the lease dates. But, as Shaw explains, it is in both parties’ best interests to have a more comprehensive lease which answers most tenant and landlord questions.
“This will help protect the physical and financial state of your investment,” he says.
Clauses governing occupancy
“Some matters are essential to clarify before the tenant takes occupancy. For example, the total number of occupants allowed, and whether or not subletting is permitted. Others are the deposit amount, due date, purpose and where the funds will be held.”
Clauses regarding payment
The lease should note the amount of rent payable each month, the due dates, how it will be paid – such as cash or EFT – and any late payment charges. It should also state the utilities that are available and how these will be charged.
“Water, electricity, sewage and refuse removal may be included in the rent but rates, levies and taxes generally aren’t,” he says.
Clauses about ongoing use
Clarify who will be responsible for damage, repairs and maintenance. Typically, the tenant is contractually responsible for keeping the property neat, clean and free of unnecessary damage, and for repairing intentional damage or damage caused by negligence.
“Outline the rules in terms of pets, noise and smoking. If there are complex or body corporate rules, attach them to the lease. You may also want to include when, and in which circumstances, the landlord/owner can enter the unit, for example, to conduct a property inspection.”
Clauses on ending the lease
Shaw says the lease should also list the requirements of both parties to renew, and the cost or rental price implications. And landlords should consider what will happen in the event of a breach of contract or lease cancellation.
Common pitfalls to avoid
Landlords who are drafting their own lease agreements should proceed with caution, for several reasons, he warns. “Firstly, well-intended clauses could trip you up later unless they are written in a way that cannot be misinterpreted. Secondly, there are strict laws governing the rights and obligations of landlords and tenants, and some of the clauses you include in your lease agreement may not hold up in court if they contravene these rules.”
Landlords should also note that rental laws change, so a lease agreement that was compliant when it was drafted may no longer be valid a few years later.
Ensuring your lease is watertight
At the very least, it is essential to read the Rental Housing Act and the Rental Housing Amendment Act before finalising lease drafts. In addition, it is worthwhile consulting a legal or rental expert, particularly someone who has experience in handling landlord and tenant disputes.
“Alternatively, you can purchase an existing lease from rental agencies as a basis for your draft. That way, you benefit from others’ rental expertise but still, have the flexibility to include your own clauses such as house rules.”
Shaw says HouseME’s generic lease agreement – which was drafted with the help of lawyers and is compliant with the latest rental laws – is available free of charge on its website.
HouseME also vets tenants and guarantees their rent. A watertight lease is always essential but even more so in the current financial climate.