Being a successful landlord requires the ability to understand rental lease agreements and when to update them. Most leases begin as an annual agreement that converts into a month-to-month contract if the tenant wants to stay longer and you – as their landlord – are comfortable with that decision. If not, you must find a new tenant. Either way, deciding if you should update a lease agreement isn’t easy when your investment property’s earning potential weighs in the balance. Here are ten telltale signs that it might be the right decision for you.
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You’ve Acquired a New Rental Property
It’s essential to understand that a property sale in and of itself does not give you the right to change the terms and conditions of a tenant lease. As the new landlord, the lease that’s in place before you purchase the property remains in effect even after you’ve taken possession. That means that you cannot legally raise the rent or otherwise modify the agreement before the lease termination date.
However, once you reach the end of the lease term, it’s prudent to update your lease each time there’s a new tenant. If the previous landlord never sent a lease renewal to their tenant, that gives you the opportunity to create an entirely new lease agreement or, at the very least, update the old contract.
For starters, doing so will allow you to adjust the rent price based on the property’s current market value. Use a fair market rent calculator and check similar properties in your area to determine how much you should charge.
You’re Allowing a Tenant to Sublet the Rental Space
Most cities require landlords to allow tenants to sublet a rental property if they want to move out early. To protect yourself, your lease agreement should contain a subletting clause. That clause should stipulate that you must give your express written consent before the tenant can sublet the property. If your current lease agreement doesn’t have a subletting clause, it needs to be updated.
You’ve Remodeled a Rental Unit
Renovating a vacant rental property and adding upgrades like high-tech appliances or energy-efficient windows is an impactful way to attract new tenants and add value. Once the remodeling project is through, you may need to increase the rent so you can recoup the renovation costs.
As an added precaution, you should also draft a new lease contract with a Cleaning and Repairs clause that contains specific tenant conditions for maintaining the premises, including those brand-new appliances and windows you invested in.
If the property is being remodeled due to an issue like water damage, you’ll need to add a disclosure statement to your lease agreement to notify potential tenants that the problem has been rectified.
You’ve Been Using the Same Lease for Years
Using the same lease over and over is just asking for trouble. For example, most landlords do not request proof of income or a credit check when renewing an apartment lease. But if you’ve been burned in the past because you failed to ask for that information, it may be time to include an addendum in your lease agreement specific to that issue.
In general, you should update your lease terms every time you get a new tenant. If you have made any changes to your rental policy during the current renter’s period of tenancy, renewing a lease agreement may require a new contract with those specified terms.
Frequent Bad Tenant Experiences
Excessively noisy tenants, repair disputes, and tenants that consistently fail to pay rent on time are all examples of bad tenant experiences. Oftentimes they result from poor communication between the landlord and tenant. If they are happening to you frequently, you’ll need to reevaluate the wording in your lease agreement.
Be sure to update your contract with language that specifically addresses issues that have led to misunderstandings or legal disputes in the past. Although your tenant screening process should weed out most “bad apples,” some undesirable tenants still fall through the cracks. An updated lease agreement is a reliable way to minimize bad tenant experiences.
A lease should also be very specific about who’s allowed to live in or use the property. As the landlord, people living in or using the property who are not listed on the lease can expose you to significant legal problems that affect your bottom line. So, what should you do when your tenant is interested in having someone else move in?
The easiest way to reduce your exposure to unscreened and unapproved tenants is by informing your current renters – in writing – the appropriate procedure for adding someone new to the lease. If that process is not already clearly stipulated in the lease agreement, you’ll need to update it.
Neglecting to Review Landlord-Tenant Laws
Landlord-Tenant Laws dictate what you can and cannot include in your lease, such as the grace period for past-due rent payments, late fees, occupancy limits, security deposits, and who is responsible for maintenance and repairs.
Because these rules change often and differ by state and municipality, it’s essential to stay updated on current Landlord-Tenant Laws. Because certain Landlord-Tenant Laws have strict penalties if you violate them, any changes must immediately be reflected in your lease agreement.
Changed Lease Terms
Do you and the tenant have to sign a new lease every year? If the current lease is expiring soon but your tenant wants to stay put, it may become necessary to notify them of changes such as a rent increase, decrease in service, or variation on a common area rule.
Although you don’t need your tenant’s consent to make changes in the rental agreement, they are legally entitled to receive 30-days’ notice in writing. Tenants can also propose changes in a rental agreement, for example, asking for your permission to add a roommate or pet, or requesting that you change the lease terms from 12 months to 6 months.
Once both parties have agreed to said changes, you’ll need to draft an updated version of the original lease agreement and keep a signed copy on file. When a property manager is involved in the lease renewal process, they typically charge you a fee for their services.
What is the normal fee for a lease renewal? That depends entirely on the property management company, and what their other landlords are willing to pay in your area.
An environmental disclosure is a statement on the lease that reveals specific information about any issues that the property may have had in the past with asbestos, radon, lead paint, mold, bed bugs, or another potential health hazard.
If another issue is detected after the property is rented, an environmental disclosure must be included – by law – in any subsequent lease agreements. Mandated by federal and state laws that include strict non-compliance penalties, environmental disclosures are another reason to periodically update your lease agreement.
Typically referred to as “normal wear and tear,” even the most conscientious of tenants will inevitably cause some minor property damage over the course of their lease agreement. Real damage to a property goes far beyond normal, everyday wear and tear, such as holes in the wall or broken windows. If you’ve been dinged by costly repairs in the past because your lease agreement didn’t include a Damage to Premises clause, now is the time to add one.
Allow Our Professionals to Manage Your Rental Property
Successful real estate investors know that relying on an experienced property management firm can help control costs and maximize profits. GNP Realty Partners has extensive experience managing all types of commercial and residential rental properties in Chicago. Our dedicated professionals can handle all day-to-day aspects of your business operations, including lease agreements, preventative maintenance, inspections, tenant repair requests, and more. Allow GNP Realty Partners to take your investment to the next level by contacting us today!