When it comes to disclosures and tenant agreements, the assumption is that the landlord knows much more about the property and he or she is more astute about business contracts. Many renters don't think of a rental agreement as a business contract that but that is exactly what it is.
Being a landlord is a great and profitable profession. Today’s rental market continues growing as more people choose renting over buying. There are many ways you can become a landlord. By far, my preferred method is the sandwich lease option because it enables you to transfer the most responsibility to the tenant-buyer. Still, as a landlord, you have responsibility for complete and accurate disclosures and tenant agreements.
Disclosure and Tenant Agreement Basics
Landlords and property managers are required to follow their federal, state, and local laws about informing tenants of policies, facts, and rules regarding the property. Real estate investing is always about location, location, location. Rental properties are no exception. It’s imperative that you comply with these laws at the federal, state, county, and municipal levels. This includes providing government pamphlets such as the EPA’s “Protect Your Family From Lead In Your Home” (properties constructed before 1978).
There is a distinction between disclosures and agreements although in some states the disclosures can be part of the agreement document. Still, you often must have the tenant initial clauses in the agreement acknowledging the disclosures. Common disclosures include:
- Security deposit details such as where it is held, if and how much is nonrefundable, and the conditions that make it nonrefundable.
- Tenant rights regarding condition of the rental at move in and move out. Including the tenants' right to be present when the landlord inspects the property at either the time of move in or move out.
- Existence or nonexistence of safety features such as smoke detectors and/or carbon dioxide detectors.
- Existence of any outstanding code violations.
- Existence of shared utilities with other tenants such as shared electricity for halls and outside lighting or a shared hot water boiler.
- Disclosure of health hazards including lead paint, mold, or radon.
- Any flooding history the rental unit might have.
- Disclosure of a statewide sexual offender database.
- Any previous presence of a drug lab such as a meth lab that could leave hazardous chemicals behind.
- Notify the tenant before performing pest control.
- Any tobacco, smoking, or pet policy.
This is not a comprehensive list of everything that landlords must disclose and/or include in tenant agreements. Rather, it is only an indication of what your disclosure and tenant agreements need to contain.
Important Aspects of the Tenant Agreement
Most, if not all, states have landlord/tenant laws requiring a signed lease for residential properties. The point is informing tenants what they are getting into. Disclosures and tenant agreements are intended to protect tenants from unscrupulous landlords and to establish conditions for when landlords can have unwanted tenants evicted. Your rental agreements should spell out:
- All adults living at the property. This includes married couples, those living together, children, and roommates. Have all adults sign the agreement making them individually responsible for paying rent, not causing damage, and for all terms of the agreement and rules. The agreement should also state only these people and their listed children can live there. You may also want to specify how many and how often guests are allowed.
- State if the rental is month to month or for a set length of lease. Among other things, this can determine how much notice must be given before increasing the rent or to vacate.
- Clearly state the amount of the monthly rent. When it is due and any late charges that apply. Also, specify whom the rent is paid to (you or a property manager) and where it is paid (mailing address). Include acceptable forms of payment (personal check, money order, cash).
- Explain any security deposit. Comply with all local laws. Include the dollar amount, the purpose, when, and under what conditions it will be refunded, along with any non-refundable portions (pets, cleaning, damage, etc.). Some local laws require you disclose where the deposit is held and how any accumulated interest will be distributed.
- To protect your interest in the deposit, clearly set out your and the tenant's responsibilities for repairs and maintenance. Their requirement to keep the place clean and sanitary. Limits on any alterations and repairs the tenant can make (painting, wall hangings, etc.). And where to report needed repairs.
- Your legal right to access the rental. Notice to be given and emergency conditions for entry. Some locations require 24 to 72 hour notice unless there is an emergency. Know your local requirements.
- No illegal activities – no drug dealing, stolen property, prostitution, etc.
- Any other restrictions such as no business activity. You may want to include a separate signed copy of rules about noise limits, no repairing vehicles, etc.
Mistakes to Avoid in Disclosures and Tenant Agreements
These prohibited disclosure and tenant agreement concerns become second nature for most experienced landlords but you should be on guard about these when getting started.
- Avoid discriminating questions. You must fully comply with the federal Fair Housing Act. This means no questions based on race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women, and people securing custody of children under the age of 18), and disability. Don’t put anything of this nature in writing or ask verbally. You may have additional local laws.
- It is illegal to include provisions in a rental agreement to waive the rights listed above.
- In some states, landlords are legally responsible to keep tenants safe from dangerous conditions on a property or safe from criminal activity. You may be sued if you are aware of these conditions and fail to take corrective action.
- Almost every state has an "implied warranty of habitability" regardless if it is part of disclosures and tenant agreements. The most basic of which requires providing heating, plumbing, clean water, a structurally safe roof and flooring, and electricity.
- You must comply with state and local eviction rules.
- Know and comply with how you can and cannot apply a security deposit. A landlord who fails to provide an itemized statement or return the unused portion of the security deposit may end up owing the tenant punitive damages.
- Know your local laws regarding what you can and cannot do with abandoned property that a tenant leaves behind.
- Know the laws requiring insurance on your rental property.
Rentals earn money with only a minor investment of time and energy. Disclosures and tenant agreements are generally created one time and are easy to comply with after that. Still, you need to periodically review these for legal changes.
Somewhat Odd State Required Disclosures
Although these may seem a little humorous, these are actual state and local laws that must be complied with.
- In Nevada, landlords must provide information regarding the right of the tenant to engage in the display of the flag of the United States.
- In California, landlords must disclose knowledge of any former military ordnance locations in the neighborhood.
- In California, landlords must disclose when he/she has applied for a demolition permit.
- In Maine, landlords must provide a residential energy efficiency disclosure statement.
- In New Jersey, landlords must notify tenants twice a year that they can request child protection window guards.
- In Texas, landlords must make a copy of the landlord’s tenant selection criteria available if requested. This goes beyond the federal Fair Housing Act.
Absolutely don’t take these as all-inclusive of state and local requirements. The point is for you to be aware of the need to understand all local requirements for disclosures and tenant agreements.
By Wendy Patton
For more than 30 years, I've used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It's because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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