Disclosures and Tenant Agreements

Disclosures and tenant agreements differ greatly from state to state. There are also differing requirements at the local level. Right down to specific city requirements. In fact, your rental property might be governed by homeowner association clauses. There are also universal requirements at the federal level.

Clearly, for those reasons, this short article can’t cover all of your specific concerns. However, it will greatly improve your awareness of your tenant’s obligations as well as your own in a rental arrangement. This knowledge increases your business confidence.

Regarding disclosures and tenant agreements, an important concept to understand is these are legally binding agreements. These are contracts. You almost certainly understand this as a businessperson. The truth is that many tenants are less sophisticated about this. Many people don’t think of these as a business contract. Rather, they think of these as “suggestions”. These might only apply them when it suits their personal needs. A tenant might complain to you when another tenant is too noisy.  Then turn around to create excess noise when they have guests. You uncomplicated your life by explaining to them that the agreement and rules apply to everyone and will be enforced. Do this at the time they sign the agreement. Make sure everyone on the lease signs the agreement and the rules.

Disclosures and Tenant Agreements are Practical Documents

The lease or rental agreement establishes the rules landlords and tenants agree to follow in their rental relationship. You have disclosure requirements that should be made before or at the time the rental agreement is signed. This isn’t one-sided. You expect the tenants to disclose everyone that will be living there. You expect them to disclose if they have pets. You expect them to disclose their source of income and provide references. And you expect them to abide by the rules. This keeps disclosures and tenant agreements balanced between both of you.

Your disclosures include:

  • For properties constructed before 1978, federal law requires landlords disclose the possibility that there is lead based paint or lead based paint hazards in the apartment or house. If known, the landlord must disclose the location of the lead based paint or the lead hazard. The landlord also must disclose the condition of the painted surfaces. Additionally, the landlord must provide the tenant with a pamphlet with instructions about identifying and controlling lead based paint hazards.

Tenants have 10 days for risk assessment and to inspect the premises. Landlords not complying with the federal law are subject to civil and even criminal charges. They can also be held liable to the tenants for up to three times the amount of damages a tenant suffers as the result of a lead based paint hazard.

  • In some states, landlords must notify tenants in writing when the premise is known to be contaminated with mold. This must be done whether the mold is visible or invisible when the landlord knows or has reasonable cause to know mold is present.
  • Although based on federal laws, the specifics are written at the state level requiring individuals convicted of sex crimes against children to register and that information is made available to the public. Typically, this is done on websites managed at the local, state, and federal levels.

At a minimum, most states require landlords provide a notice in the lease about how the tenant can access registered sex offender information. Some states require the landlord inform tenants about any sex offenders known to be living in the area. This is a bit of a gray area because the landlord must have actual knowledge.

  • Some states require landlords disclose when a previous occupant died on the premise. Especially, if it was a violent death. This requirement often comes with a time limit such as within the past five years or less.
  • Most states require tenants be notified of the names and addresses of all owners, agents, and property managers that are authorized to act on the behalf of the owner. This can be for collecting rents, making repairs, giving notice of the lease termination, etc.
  • In some states, the disclosures and tenant agreements must also notify the tenant before pest control is performed. The notice is often prepared by the pest control company to include the type of pest to be controlled, the pesticide used, and the active ingredients of the pesticide.

Important Aspects of the Tenant Agreement

Most, if not all, states have landlord/tenant laws requiring a signed lease. This is especially true for residential properties. Typically, these require a description of the property and the amount of rent being charged. The point is to inform the tenant what they are getting into and for the landlord and tenant to have a formal agreement. Disclosures and tenant agreements are intended to protect tenants from unscrupulous landlords and to establish conditions for when landlords can have unwanted tenants evicted.

While not all-inclusive, your rental agreements should spell out:

  • All adults living at the property. This includes married couples, those living together, 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 to increase the rent or how much notice is given to vacate (by both them and you).
  • Clearly state the amount of the monthly rent. When it is due and if any late charges will be applied. Also, specify who 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 will be 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. 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.

With that said, real estate investing does not need to be about owning as much property as possible. It should be about controlling as much property as possible for the least amount of money and risk. This makes the Sandwich Lease Option the most attractive investing method I know of. You can take control of a property for a couple of hundred dollars. You then put an option buyer in place that take on most of the homeownership responsibilities until they make the purchase to take full ownership responsibility. The Sandwich Lease Option let’s you make a big profit for a small investment. This is the method that I highly encourage my students to use.  

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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