Paperwork for the Tenant Buyer

Once you have approved a tenant for your lease option home; all you have to do is draft the paperwork and have them sign it all.  You need not give more than twelve to eighteen months to the buyer on an option. This time frame is most often enough for a good option tenant to get a mortgage.  For you, the benefit in keeping it short-term is appreciating markets. Whatever appreciation is written into the contract is what you have to stay with regardless of whether or not the market is higher. Appraisers also have a five to ten percent leeway on appraisals.  While I could structure a long-term option deal that said the value or the mortgage would be dependent on the year appraisal growth rate, by whose appraisal would it be valid?  If it’s my appraiser, the buyer may feel taken advantage of, and if it’s the buyer’s appraiser, the appraisal might be too low.  So keep it short and sweet. It avoids problems.

If at the end of the time period your buyer wants to extend, it is at your discretion to decide if that is what you want to do. This can also be an opportunity to renegotiate.   If the homes in that area have appreciated more than you expected, then you would want to extend, but increase the purchase price somewhat.  Secondly, you could also ask for another $500 to $3,000 option fee for the convenience of extending the option. Finally, you could raise the rent slightly.   There are times I have given my tenants an extension for free, because of circumstances.  There are also times when I have said no.

It all depends on your circumstances and theirs.  If you give the tenant longer than eighteen months then you are obligated to offer an extension on the option. You can always offer that later, of course, but there is no reason to obligate yourself until that time comes and it still works for you. You can’t predict what the market will be like in the future, so getting further out than that can be more risky for you, and you forfeit your ability to sell the property outright at the end of the option.

If it is more than a few days between the end of the option and the day they plan to move into the home, your best bet is to get a non-refundable deposit from them to hold the home until the move in date. This protects you from them changing their minds at the last minute. A personal check at this time is okay if it has time to clear before the move in date. Take a copy of the check for their bank account information.   If they end up ditching the home and owing you money, you will know where to garnish their bank account.


Have all the forms ready to go and printed. Get the tenant to sign early if possible.   Depending on how busy you both are; try to get them all signed after they give you the deposit.

When you are working with the buyer, you are the landlord to them. You are also the seller, as far as they are concerned, because you have set the terms for the sale including the option fee, the monthly payment, and the sale price.  Because they see you as the seller, you need to use pro-seller forms.  These are forms that specifically favor your end of the deal as the seller.

Getting the process started!

At the beginning of this deal you have either optioned the home from the seller and have in turn optioned it to a tenant-buyer or you own the home outright.  I mentioned before how important I think checklists are in processing lease options—no matter how many you have completed! Let’s look at my Selling on a Lease Option checklist, then each step in more detail:


Selling On An Option Check List


MOVE IN DATE:____________________________

Seller Name:_________________________________


  1. Advertise Home
  2. Get Application Fee
  3. Get Application
  4. Confirm Applicant Meets Criteria

If not, send Rejection Letter

  1. Get Non-Refundable Deposit and Non Refundable Deposit Form if Accepted
  2. Create Tenant Folder
  3. Draft Contracts
  4. Video Tape Home or Take Pictures
  5. Get Check in/out List
  6. Sign Contracts
  7. Sign the Lead Based Paint
  8. Sign the Sellers Disclosure
  9. Cancel Advertising
  10. Confirm Utilities in their Name: H2O ___ Gas ____ Elec ____  H2O Softener ___ other ____
  11. Confirm Check in/out Returned
  12. Confirm they have Renter’s Insurance
  13. Remove Sign and Lockbox
  14. Make a Copy of Tenant’s Check for Tenant File


  1. Advertise the Home


  1. Get Application Fee


  1. Get Application: Make sure they fill out all areas of the application completely. My application will request information on each applicant over the age of eighteen, even if they are not working.


It will ask for their drivers license number, social security number, employment information, banking information, landlord or current address information, and previous landlord information.  The more information you can gather, the better off you will be if you ever do need it. It is not so much needed for your evaluation, because that is done on standards you have set in Chapter 10, but if you ever to have a problem with a tenant and need to later collect from them you will want complete information on this application.  Make sure it is completely filled out and signed by all parties.


  1. Confirm Applicant Meets Criteria: See your standards from Chapter 10 – it is a yes or no.


  1. If not send Rejection Letter: Rejection notice is required by law whenever anyone applies for credit or a place to live. You must specify why someone is not accepted whether it be landlord history, income status, credit issues, or anything else not federally protected by law.  You must be specific.


  1. Get Non-Refundable Deposit and Non-Refundable Deposit Form if Accepted: Once someone has decided they want to move into one of your homes but may not move in for a couple of weeks, be sure to get a non-refundable deposit. This is separate from an option; however, it later will be applied towards their option. The non-refundable deposit holds the property and shows their intent to rent it. If they don’t later sign their contracts or move in they would lose this deposit.


  1. Create Tenant Folder: This will be the right-tabbed red folder. I call this the tenant folder, whereas the green ones are for the owners. I use legal size and half tabs so I can put the address either on a white label with a red strip on the top of the address, or you could put the address in red or green themselves.  All information on the tenant and their contracts and correspondence will go into this folder.


  1. Draft Contracts: Draft the rental agreement, option agreement, sales agreement, pet agreement (if they have a pet, lead based paint, and seller’s disclosure) and any other state required forms.


  1. Video Tape Home or Take Pictures: Do this with the tenant if possible or get pictures. I suggest that you take a video camera with you when you are showing prospective buyers the home. Say things on the video like “Marie, what do you think about the kitchen cabinets? Marie, what do you think about the bathroom tile?  Marie, what do you think about the closet doors?” – and you’ve got dates on the video to prove everything so that Marie can’t come back later and say, “Those kitchen cabinets were trashed” when she says on the video that they are fine.  Any pictures that you take should be kept on a CD in the tenant file for that house. After we take complete pictures of the home inside and out, we put the disc into a special holder inside their file.  Those pictures are really to protect you later if they don’t buy the home and if they’ve done damage to the home.


  1. Give Check In/Out List to Tenant Buyer: The check in/out list is basically a form that the tenant can fill to evaluate the condition of the home when they move in. This is a base-line of the home and its condition.  It is to protect you both in the event that they don’t purchase the home and they decide to move out. It will show the condition of the home at the time when they move in (also use #9 above for this).  Each state will have different requirements for what judges will require and allow, but the more you can show on the condition, the better off you will be if you are trying to collect on damages the tenant has done. Go overboard versus under-board on documentation and pictures. You hope you will never need them, but if you do you will be glad you have them.


  1. Sign Contracts: The buyer needs to come in and sign each of the contracts with you. If, however, they have already paid their non-refundable deposit, I will allow them to take the contracts and review them.  They need to be signed before they move in.


  1. Sign the Lead Based Paint – See Chapter 6 for more detail; however, you can create a new one that is blank and says you don’t know anything about lead in the home, if this is true, and sign it. You can also attach the previous owner’s lead based paint and have the tenant buyer initial it to acknowledge they have seen it. This is federal law.


  1. Sign the Seller’s Disclosure: If it is the first time that you rented the home you may not know much about the home and you can write on the seller’s disclosure that you have never lived in the home and the buyer should do their own inspection, and the home is being sold “AS IS;” however, I would also recommend that you attach the previous seller’s disclosure to it (a copy of it) and have them initial it. You will know what the seller disclosed to you.  You need to disclose everything you know. Also, if you have had it a while and then the roof starts leaking, you must disclose that, even if you fixed it.  I can’t stress this area enough!  There are many lawsuits going on in our country today because of lack of disclosure when the sellers knew about problems and didn’t disclose them. If you had a leaking basement and fixed it, you need to put that on the seller’s disclosure. It won’t stop anyone from buying the home if it was fixed, but if it leaks later and they find out it wasn’t disclosed, you will be fixing it again, versus if it was disclosed, they would be fixing it.


  1. Cancel Advertising: Cancel any advertising you have on the home. Sounds simple, but it can be expensive. I have forgotten to do this, and it can cut into your profit if this is not on your checklists.


  1. Confirm Utilities Are On: Once the tenant has moved in, make sure they have transferred the utilities into their name, including gas, water, electric, water softener.


  1. Confirm Check In/Out Returned: Make sure you follow up and get this returned from your tenant-buyer. If there is anything on the check in/out list that needs to be addressed then take care of it.


  1. Confirm they have Renter’s Insurance: If not, continue to follow up in writing with them and put a copy in their tenant file. It probably won’t be a make or break for you, but if something where to happen to their personal belongings, for instance, you will have all the proof you need that you tried and tried to protect them, but they failed to protect themselves.


  1. Remove Sign and Lockbox


  1. Make a Copy of Tenant’s Check for Tenant File: You might need this later if you need to garnish their bank account to pay off a debt to you.


Always Check Your Paperwork!

My partner, Debbie, and I purchased a property on Newman Street.  The little house had 900 square feet with a walk out basement to Paint Creek.  The owner was an older woman whom had split the lot and a developer was going to put something on the empty property. The vacant lot was the same size as the one with the house.  When we bought the property, I knew up front that the owner was going to sell the vacant part to a developer.  We lease optioned the house to a couple who gave $5,000.  As happens many times, everything was going perfectly and it seemed like they were going to exercise the option.  Sixteen to seventeen months into the lease option, the couple called me and insisted, “You have to sell us the other property too.”


When the couple had signed the lease-option, I physically walked the property with them and showed them what Debbie and I owned and what we didn’t own, including the fact that we did not own the undeveloped part.  They still said, “You have to sell it to us.”


Standing firm, I reiterated that only the house and the property it sat on were included in the lease option, not the vacant split property.


At the end of their eighteen month option they not only didn’t exercise the option but stayed on an additional three weeks without paying and then moved out.  I sued for $900 for unpaid rent.  They counter-sued for the refund of the lease-option money, again insisting that it was their right to buy the entire property.  It cost me $1,500 in court but the judge awarded me their $900 in unpaid rent.  The couple still refused to pay the rent and it ended up being scheduled with a mediator.  Then the day before the mediation for $900, the couple called and paid it. End of story?  OF COURSE NOT!


Two weeks later I got a call from the little old lady we bought it from who said, “We got a problem. You own this other property.”  It turns out that when I received the deed from Century 21 and the title company, both parts of the property had been deeded, although the vacant part was not supposed to have been deeded. We actually did own both parts of the property, just as the wife had insisted, and if they had actually exercised their option, they would have owned both parts.  It turns out the wife worked for a mortgage company and had probably checked and thus, understandably, thought I was lying about not owning the other part of the property even though I honestly thought Debbie and I only owned half.  What I had done was to take the deed I got from closing and copy the legal description for the whole thing and I put it right on my copy to her.  After the case was settled, I deeded the vacant part back to the little old lady.  The moral of this story is to always check your paperwork, especially legal documents!

What You Need to Know About the Three Essential Contracts

In each state you may have required information for your rental agreements and purchase agreements.   My contracts are generic enough to use everywhere; however, they should still be reviewed by an attorney in your state.  Each state will have its own landlord/tenant and security deposit laws. Therefore, as recommended, you should seek the advice of an attorney if you are using any generic contracts for your state to buy, sell or lease real estate.  I recommend Pre-Paid Legal attorneys at They have plans starting at very reasonable rates per month to give you legal assistance, and I have been a customer since 1988 and have saved thousands of dollars to help me on legal questions, contract reviews, letters, etc. for real estate matters and in multiple states.

Each state has its own rules and regulations regarding rentals, lead based paint abatement, evictions, etc. There are so many more clauses when you are selling, especially the rental agreement, because there are so many more things you will need to do to protect yourself.  When you are buying, the rental agreement is very short; when you are selling it is very long.   Here are some of the clauses that have been my favorite over the years in my contracts to sell on lease options:


  • The Option Agreement – On the buying side, the option agreement turns control of the property over to the optionee (the buyer) without ownership. When I am doing a lease option, I sign an option with the buyer.  I control the property as if it were owned by me, but I am optioning them the right to buy upon exercising the terms of the option, usually in twelve to twenty-four months.


  • The Rental Agreement – The rental agreement specifies how long the tenant will rent their home and how much they will pay each month in rent to me. It has to stay a rental even during an option period because the tenant doesn’t control or own the property. A rental agreement also comes in handy if ever taken to court so that you can show the judge that no matter what the tenant has put into the property, the judge will let me evict if necessary rather than foreclose.


  • The Sales Agreement – This agreement sets the terms of the final sale. There are two of these in a sandwich lease option – one for my deal with the seller, and one for my deal with the tenant-buyer.  The deal with the tenant-buyer sets the sale price upon the buyer exercising their option.  On the tenant side, the contract also has a solid number, and because you set the terms of the lease option, that price will be higher than the price you have with the seller.

Points to Consider for the Option Agreement

It is important to get the optionee (the tenant-buyer) to be as responsible for the maintenance and well-being of the house and property as possible so that you are not tied down with constant maintenance.  Here are some points in my option agreement:


  1. Optionee agrees to accept the property in “as is” condition.
  2. Optionee agrees to make all repairs major and minor to the property.
  3. If the optionor (the investor/seller) has to make any repairs to the property, the cost of the repairs will be added to the purchase price. If someone’s water heater or furnace goes out and the tenant can’t afford to fix it, you should go ahead and pay for the repairs.  In Michigan, you just can’t go without heat in the dead of winter.
  4. If there is a septic system, the optionee agrees to have it pumped once per year.
  5. If there is a pool, optionee agrees to open and close the pool each year and to maintain the pool.
  6. Optionee should pay for all additional assessments including water, sewage, sidewalks and road paving.
  7. The option can become void if the optionee pays more than ten days late. It is important to remind your tenants that their record of payments will have to be submitted to the mortgage company and may damage their ability to secure a mortgage.  So, if they’re serious about owning the home, they need to be serious about paying on time.
  8. If the option is voided for any reason, then the agreement returns to a rental only agreement and is month to month so that I can take steps to resell the property.
  9. Optionee agrees not to record anything against the title of the property. In other words, the tenant cannot file a memorandum on the property, and you definitely don’t want them to do that.

NOTE: If I am not the owner of the property, and if somehow the title work has gotten messed up so that the optionee is unable to exercise because they can’t get the clear title, then I refund the option fee plus an additional $500.

  1. You are not giving them equitable position – in other words, they can’t go into foreclosure on you. You can, however, evict.
  2. Advise the optionee to always seek the advice of a mortgage broker and an attorney before signing the document. The mortgage broker might look at their credit and their history and tell them that even for an eighteen month option they will not be able to clean up their history enough to qualify for a mortgage.  They should also always have a lawyer look over any type of document that commits them to an agreement.  In my experience, most people talk to neither, but they sign the document saying that they have.
  3. Time is of the essence so the start of the option is only for a very brief period. You might have it be three days and say, “If I don’t have the signed documents back in three days, I’ll assume you’re not interested.”


Points to Consider for the Rental Agreement

The rental agreement gives the tenant the right to occupy the property during a time period.  It will be similar to the rental agreement you signed with the owner/seller, except obviously your rental agreement with the tenant will be very pro-landlord (pro-you).

The rental agreement really needs to be separate, but only for selling on an option.  If you are the buyer, you certainly can put them into one document, but when turning the option around, you’ll want to use the three different documents. The reason for this is that if the tenant doesn’t pay, or the deal goes south, you will want to be able to evict them as quickly as your state allows.  If you have them all in one contract, some judges will look at the lease option as a sale rather than a lease, and therefore make you go through a full foreclosure or forfeiture process versus an eviction.  This will be much longer, more expensive and may require an attorney. Therefore you will want to keep the agreements separate.  Always prepare for the worst-case scenario, and then you will be ready if it happens.

Anyone who will be residing on the property over the legal age must sign the rental agreement. This includes children of legal age (as determined by the state).


Co-signer Agreement

This can be a good step to take if someone is a really weak applicant, but you know that they have a really strong parent applicant or friend who is willing to sign with them on their rental agreement.  It works really well for giving liability to someone else, especially if someone is really weak. I have a situation where a mother co-signed for her daughter.  It was just a rental but the daughter had terrible credit.  The mother, however, worked for General Motors for twenty-five or thirty years and made a good guarantee person for me.  The daughter stuck me for nearly $5,000 in unpaid rent and damages, and now the mother is paying for it out of her GM checks.

In another case, the mother was a local Realtor® in Michigan, and she came to me and asked me to help her daughter get a house.  Her daughter had been through a rough time, and the Mom was willing to co-sign.  I probably didn’t even run the daughter’s credit because I knew the Mother was a well-known Realtor® and was good for whatever might not happen. The mother paid the $5,000 option fee – and the rent was $1,300.  Then the daughter left and ended up owing me $9,000 in unpaid rent and the mom is the one paying on it now.

A few more things to consider for the Rental Agreement

  • I like all of my rent due on the first day of the month. If I have a tenant that moves in on the 7th, then I will pro-rate the rent for the month. My rental agreements specify late fees of $25 for the first day late and $5 per day afterwards, and the tenant, of course, must sign the agreement to this. I can’t reiterate how necessary it is to have everything in writing, spelled out to the minutia.  That way your tenant can’t come back to you and say, “I never agreed to that.”  All you have to do is point to the contract and say, “Here it is in black and white and there’s your signature underneath it.” I even like to add an incentive to encourage my tenants to pay on the 1st of the month.  In my contracts it states that if they make their monthly payments on time, including any unpaid option fees, that I will credit them with $100 towards the purchase price of the house.


  • Your other fees on the property can include: pet deposit, security deposit, cleaning fees, etc.  In a lease option, I usually do not require a security deposit, and the reason for this is that if they have an extra $1,500 for a security deposit, which is refundable, I’d rather have them apply that to the option fee, which is non-refundable.  None of the option fees, however, show up on the rental agreement, as the option agreement is a separate issue.  Your rental agreement must say how much the total cost is to move in.  For example, if there are fees, you need to add the fees to the 1st month’s rent, and that is your total on the rental agreement, but it is not the total overall since you need to add separately the option fee.  The rental fees plus the option fees make up the total move-in costs.


  • The rental agreement must show the total amount of anticipated rent for the contracted period, including pro-rated months. Typically on my rental agreements, as I mentioned, I have a twelve to eighteen month period at the conclusion of which I hope they’ll exercise the option.


  • Your rental agreement should say that the keys are due back within 24 hours if the tenant does not exercise the option. This is a way to protect yourself just as you would any other tenant.


  • You can also say that if the rent is late more than ten days that the agreement may revert to a month-to month rental (and nullifies the option) at the discretion of the landlord. I generally don’t do this unless I want to get rid of the tenant, because when this alternative plan is set in motion that allows the tenant to move out at any time.


  • Payments should be postmarked by the post office rather than a Pitney Bowes machine as the machines can have their dates changed. In my rental contracts I also specify that any bounced checks are subject to an additional fee.  Although I start off trusting my tenants and allowing them to pay with personal checks, one bounced check and after that all payments must be paid in certified funds or bank check only. I also tell them that if their rent is late two times within a twelve month period, their monthly rent will increase $25 per month.


You should specify to the tenant how their payments will be applied:

  1. to outstanding dishonored check fees
  2. to outstanding late fees chargeable to tenant
  3. to outstanding legal fees, court costs or both
  4. to outstanding utility bills that are the tenant’s responsibility
  5. to any damage caused by tenant
  6. to collection agency fees
  7. costs for re-letting the property, if applicable
  8. to option fees owed
  9. rent – the reason why you want their money to be applied towards rent last is because it is easier to evict on unpaid rent than on unpaid utilities. So use their money to pay for unpaid utilities, and if the rest doesn’t cover the rent, you can begin eviction proceedings.


Additional Issues to Cover in Your Rental Contract

Occupancy: The contract needs to specify that the premises will be used as a residence with a specified number of adults and children.  The premises will be used for no other purpose without written permission by the owner.  Any guest staying more than fourteen days will be considered a breach of the agreement unless the resident tenant receives written consent from the landlord.  I also don’t allow them to use the premises for a home business without my permission.  A lot of people have home-based businesses, and that’s not a concern except if they have customers coming in and out of the home, which creates a potential liability issue.  So, just check with your tenant to see what kind of home-based business they will have.


Pets: I make sure that they sign an agreement with me about having pets on the premises.  I need to know, for example, if they have Pit Bulls or any other potentially dangerous animals on the property.  It doesn’t matter to me if they do have pets, and in fact almost all of my tenants have pets.  I just need to know about it.


Entry and Inspection: This gives you the right to enter the property at reasonable times and with reasonable notice to inspect the premises.  It’s not that you are inspecting their personal lives but that you want to make sure the home and property, which do not yet legally belong to the tenant, are maintained in accordance to the rental agreement.  You also may want to show the home to prospective new tenants or buyers.  If the tenant decides not to exercise, you want to have right to affix “for sale” signs on the front lawn, and you can’t even step onto the lawn without calling the tenant first as provided in the contract.


Assignment and Subletting: I do not let my tenants sublet or rent any portion of the premises without my prior consent.  The subletter’s name is not on the rental agreement.


Joint and Several Liability: Anyone who signs the contract is 100% responsible for all the points within the contract up to the total of whatever is due.  I had three guys who signed the agreement and all three split later. I was only able to find one of them and I told him he was 100% responsible to fulfill the agreement. He felt he should only be responsible for his third, but this inclusion of joint and several liabilities protects the landlord from having to find all the tenants.  If one can be found that one is 100% responsible.


Maintenance, Repairs and Alterations:  It is the tenant’s responsibility at all times to maintain the residence and property in a clean and sanitary manner including fixtures, equipment, appliances, furniture, and all other furnishings.  If they should chose not to exercise the option, the residence should be left in the same condition as originally rented, except for normal wear and tear.  Residents are responsible for changing the furnace filters and the batteries in the smoke detectors on a regular basis.  Residents should be responsible for the maintenance of the property and the house costs.  Then tenant cannot make major changes to the structure until he owns the property.  I had one resident who tore off an upper decking because he decided he didn’t want it, and I had to pay for it and then re-bill the tenant because I didn’t own that house.


The resident also cannot paint, wallpaper or make any other changes without consent of the owner.  I had one tenant who repainted the inside of the home navy blue, and then they left after two months.  I had to sue to recoup my costs for repainting the home.  Residents must also be responsible for the cleaning of sewers and drains that have become blocked due to their negligence to keep them cleaned.

You can have a co-pay system with your tenants regarding small fixtures, and you set the limit.  Maybe you want to say that anything under $50 they need to pay for but anything over $50 you will cover all except the initial $50.

If the resident damages any windows or doors, it is their responsibility to replace those items immediately.  If the resident hasn’t repaired the items within seven days, I will replace the items and charge the resident for the repairs, and these costs will be due immediately.   I tell my tenants that any repair under ten dollars must be reported to me and any repair over ten dollars must be approved in writing.  In other words, they don’t have an open checkbook to make any repairs they want.  Make sure your tenant also doesn’t run off and do repairs and then bill you for them, such as “My furnace went out and I paid the guy $200 to fix it.”  My furnace guy might only be $100.  Also, the tenant may then try to take that repair bill and use it against their rent.  Make it very clear to the tenant that NO repairs can be made without your consent if the repairs are over ten dollars.


Appliances: One of the things I list on the contract is all of the appliances already in the home.  I make it clear to the tenant that all the appliances in the home are there for my convenience, not so much for them.  In other words, those appliances belong to me.  If, therefore, one of the appliances stops working and they dispose of it without ever telling me and then leave the home with that appliance missing, I will bill them for it. If they want to remove the appliance, I have to agree to it and I will cross it off their rental agreement with my initials and the date.

Ordinances and Statutes:  The tenant must abide by local zoning laws for usage of the property.  For example, they can’t run a daycare out of the home if it isn’t zoned that way (not to mention the excessive liability that would incur).  A home-based business of being a web site designer, however, violates no zoning laws anywhere in the country.  I have the right, as the landlord, to evict immediately for any illegal operations on the premises – for example drug usage or manufacturing.  Even so, you must still follow legal procedure.  The worst thing you can ever do is evict someone and throw their stuff out onto the street without going through the proper procedures because that can come back and bite you.  No matter how annoyed you may be, you must always follow the legal course of action by going through the court system.


Liability of the Tenant:  The resident is responsible for any personal injury or property damage caused by the resident, tenant or tenant’s visitors.  The tenant is also responsible for damage due to negligence of the property.  If there is a fire, however, and all of the tenant’s property is lost, the owner is not responsible to pay for that since the tenant carries his own renter’s insurance for just such an event.  The tenant must keep all the sidewalks clear and clean, all access to the home free and clear and should maintain the outside premises to be a safe environment.


Insurance coverage:  Because the owner’s policy does not cover the belongings of the tenant, the owner requires the tenant to carry their own insurance against the risk of damage to their personal property.  This insurance must be in place before the tenant moves in.


Defaults – Landlord remedies:  Let the tenant know that failure to comply with even one part of the agreement will constitute a default of the entire agreement.  This means that the owner can immediately repossess the property.


Attorney Fees:  In the event that either party has to make it a legal matter to enforce the terms of the contract, the owner will be allowed to recoup all attorney fees allowed by law.


Security Deposit Act (aka SDA):  Make sure that the security deposit act from within your own state is in your rental contract. The SDA varies per state, and you must know what the rules are for your state. You are the one providing the contract, so you are responsible for that information.  As such, it is also your responsibility to educate your tenant on what the SDA allows or doesn’t allow.  Going over the contract with your tenant is an excellent time to explain this detail.


Notices:  Any notices must be in writing for your own protection and not verbal.  Notices should be sent to the residence address and if the tenant is sending you a notice, it should be sent to the address specified in the contract (either office or post office box).


Waiver:  Failure of the owner to not enforce any part of the contract will not constitute a waiver of the contract.  For example, if I waive the late fee one month, that doesn’t negate my right to enforce it the next month.


Holding Over:  The tenant must give a 30-day written notice of intent to vacate the property.


Additional Terms and Conditions:  Some further things to potentially add to your contract might include:

  1. Vehicle limit
  2. No motorcycles (some can violate the city noise ordinance)
  3. No working on the car on the premises. All repair work to be done off site.
  4. No permanent stickers on the bathtub and only non-abrasive cleaners to be used on the tub.
  5. No carpet cleaners will be used without landlord permission. The reason for this is that some of the over the counter cleaning solutions can actually bleach the carpet and leave a white spot.


Make Sure Your Tenants Read and Understand the Agreement

It is very important when you are detailing your contract with the tenant that you go through it line by line with them so that they have heard everything out loud and are now responsible for the contents when they sign their name.  Don’t skip over any points of your contract, even if you see them begin to fidget because it does take a while.  You might also ask after each point, “Do you have any questions about that?”


Purchase Agreement – Offer to Purchase

The offer to purchase is very pro-seller.  Some things to consider in the purchase agreement include:

  1. What items that are in the house will remain with the house (for example, appliances)?
  2. You will want to protect yourself depending on the type of mortgage they get. If they get a FHA or other government mortgage, the mortgage might stipulate improvements to the property before it goes through.  I don’t want to be responsible for that, so I say clearly in my contract that they are responsible for any requirements needed to fulfill their own mortgage.


  1. Make it clear that the tenant is buying the house “as is.”


  1. Tax pro-rations: Make sure it is pro-seller and is worded for your state’s standards.  In other words, you want to get any tax advantage so that the buyer pays all the taxes.


  1. Special assessments come due now if you have paid them out of your own pocket. For example, if the city has required sidewalk repair and you paid for it, now you pass that back to the buyer.


  1. They should have an inspection before they move in.


  1. Make sure to give them the Seller’s Disclosure Statement. This not only becomes a part of their history but will be then handed off to the next buyer as a complete history of the house.


  1. Lead based paint disclosure!


  1. If I default on their option agreement, they get their option fees back plus an additional $500.


Additional conditions:

  • If you are a licensed Realtor® you have to disclose it.


  • Purchaser should have a home inspection but if they waived their right, then I mark down the date they walked through the home.


  • Anything that I have to do in regards to repairs gets added to the purchase price.


  • Advise the purchaser to seek the advice of a broker and attorney before signing the purchase agreement.


  • Pet Policies and Agreements -The pet policy and agreement is attached to the rental agreement and is signed on the same day. I have them list the names of all their pets.  If one of their pets dies or is given away they don’t have the right to just go out and get another one.  The animal breeds should also be named.  If they can give you a copy of the animals’ health and shot/rabies records to have on file, that would be helpful were there to ever be a biting incident.  If the local ordinance requires licensing, then you should get a copy of that also.  Typically on my option agreements I waive any monthly pet fees, but in a pure rental situation, I might not be so lenient.


  • Deposits for the property – If I get a deposit on a property, it is non-refundable if they choose not to option it. However, I do refund it they are rejected based on credit or the potential ability to get a mortgage.  Most of the time I won’t even accept a deposit until I know they’re approved.


  • Rental Application – Verify their Social Security Number and employer information


  • Application fees: Have the tenant disclose any credit issues they may have when they apply for a home.


  • The property inventory check in/check out list


Be Prepared For the Tenants

On the move-in date they deliver the final balance in certified funds.  Don’t take a personal check except on their deposit. Once they have moved in, personal checks are okay, but not on the initial option and move in date. The day they move in you will need to make sure the following is complete:

1)         A copy of their renter’s insurance

2)         Keys for the home

3)         Remove the sign and lockbox – if any

4)         Make sure they have the utilities turned on in their name

5)         Water/Sewer bills?

6)         New phone number for tenants

7)         Walk through the home and do check in/check out

8)         Take pictures of home

9)         Give move in gift (optional) could be a small plant, card, flowers, etc.


If the optionee wants to exercise the option, they must send a notice in writing to my offices.  If however, they do not follow all the terms of the rental agreement, I can deem the option null and void.


This may sound like a lot of paperwork and considerations to keep track of, but it’s all to protect you.  Think of “pro-seller” as also meaning, “protect seller.”  That’s pro-YOU!