Why You Should Have a Lease Agreement
A lease agreement is a contract that is legally binding on both parties involved. Both agree to use an asset or property for a defined period of time in exchange for rent payments. The asset owner allows the other party to use the property and the tenant agrees to pay the tenant. Often, a lease agreement has two options. The first one is to buy the leased assets and the second option is to transfer ownership to the lessee once the contract has been terminated.
The parties in a lease agreement include the lessor or the landlord. This is the owner of the property or asset. The tenant is the lessee who pays money for the rent.
Lease agreements have become an important part of business for both landlords and tenants. A well-drafted lease agreement can spell out the expectations and rights of each party, minimizing the chances for misunderstandings or conflicts down the road. Unfortunately, many businesses still don’t use modern lease management software to help them create, manage, and store their lease agreements. Some states have different requirements to rent a property. Lease agreements, such as a California rental agreement form, have become an important part of business for both landlords and tenants. A well-drafted lease agreement can spell out the expectations and rights of each party, minimizing the chances for misunderstandings or conflicts down the road. Unfortunately, many businesses still don’t use modern lease management software to help them create, manage, and store their lease agreements. Some states have different requirements to rent a property. I remember how much of a headache it was for my daughter when she moved from North Carolina.
Lease management software can automate many tasks in creating and managing leases. For example, it can generate a rental agreement based on the information you input about your property and tenants, keep track of payments and other transactions related to the lease, and store all documents related to the lease in one place. This can save you time and hassle down the road.
If you’re looking for a way to improve your lease agreements, consider using lease management software.
Advantages of Lease Agreements to a Property Owner
One benefit of a lease agreement is that it benefits the lessee by giving them access to a property or asset that they would otherwise not afford. For instance, if a company is in its infancy stages and does not have the capital to buy expensive equipment, it can lease the equipment or machinery and pay monthly for its usage.
The agreement can benefit the landlord in that he can turn the unused assets into a reliable source of income. If he owns valuable property he better lease it to a tenant who can pay for its usage each month.
Types of Lease Agreements
There are different types of contracts and their conditions determine how a company will record its financial statements in the transactions. The types of lease include:
- Capital Lease
- Operating Lease
- Sales and leaseback
A capital lease, also called a financial lease, grants the landlord all the benefits and responsibilities of owning an asset or property. The landlord must put all the lease details on a balance sheet along with a corresponding liability.
An operating lease is a contract in which the lessor retains all the advantages of ownership. The property, however, is not documented on the balance sheet.
In a sale and leaseback agreement, the landlord sells the property to another party. Soon after this, he immediately leases the property back. Companies often do this when they need to free up cash that has been locked up in fixed assets.
Residential Lease Agreement
A residential lease agreement is a contract agreed by and signed by a landlord and a tenant. The tenant can reside at the property for a certain period of time and agrees to make monthly payments. Most of these types of leases are valid for a year or more. There are many landlords who allow for flexibility in their terms and allow tenants to lease a property for six or three months. Other common provisions include:
- Prohibition of illegal activity
- Prohibit pets
- Specify how many people can live on the property
- Prohibit the tenant from causing chaos and disturbing others on the premise
- Prohibit the tenant from using the property for commercial purposes
If the tenant does not abide by the rules stated in the agreement the landlord has a legal right to end the lease and forcefully eject the tenant. Upon this, the tenant may be required to pay for the remaining months including an additional fee for breaching the lease.
If the tenant fails to notify the landlord that he plans to move out and the lease ends under normal circumstances, the monthly payments will be automatically renewed. The landlord is not allowed to just lease out a new tenant and the former tenant has not yet moved out.
Commercial Lease Agreement
This is a contract made between a property owner and a business. It is designed to allow a business to rent out a property rather than buy it. Businesses will benefit from this type of agreement because a lower amount of cash is needed to get started.
These types of agreements are also more complex than the residential leases. It is important for a business owner to ensure the property in question meets its needs before entering into a commercial lease agreement. The location should also be appropriate to operate a business.
The Agreement Form
These forms are designed to allow for more information to be filled by both parties depending on their circumstances. Some of the information is required by the law to be filled in and the minimum requirement includes:
- Terms of real estate leases
- Amount of the monthly payments
- Consequences of late payments
- Dates the lease takes effect
- Appliances and furnishings that are included
- Address of the property
- Consequences of breaching the lease
Breach of Lease Agreement
The landlord can legally terminate the contract if a tenant fails to pay the rent promptly or does not adhere to the rules as stated within the contract. However, many landlords do not rush to take legal action against such tenants because it is not easy to find a new tenant once an old one leaves. Hence, most landlords will be willing to work with the tenant to solve any issues that arise. This is a less expensive option instead of having to go through the whole process of obtaining a new tenant. Even when a landlord is willing to make such allowances, he still can begin the process of evicting a tenant if he violates the agreement.
On the other hand, if a tenant believes that it is the landlord who has breached the agreement, he will talk to him in order to solve the issue. The communication should be put in writing because this will help solidify the document in case the matter will escalate into a court case. A tenant is legally allowed to file a civil lawsuit against a landlord who has violated the terms of the contract. In other cases, it is better for the landlord and his tenant to work on resolving a dispute instead of using costly methods to settle a case.
