Investing in Real Estate, 7th Edition

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DEVELOP THE BEST LEASE

In the not-so-distant past, many owners of rental houses and smaller apartment buildings relied on oral rental agreements. Today that practice has mostly disappeared. Lawyers and their legalisms have pervaded ever-greater areas of society—including the relations between property owners and tenants. To protect themselves (against litigious tenants and their lawyers), property owners now need to draft written rental agreements.

THE MYTHICAL STANDARD LEASE

By draft, I mean read and adapt any lease form that you use. Do not fall for the myth of a standard lease. Blank form leases vary widely in content and applicability. They omit clauses that you should include. They include clauses that you will want to omit or rewrite. Before you sign any lease, think through the following issues.

Your Market Strategy

As part of your value proposition to tenants (your market strategy), I advise you to become known as a friendly, caring property owner and avoid using multipage fine-print lease forms written in legal jargon. Yes, these lengthy leases seem to thoroughly lay out your contracted rights and remedies. But their long lists of authoritarian do's and don'ts intimidate tenants and tear down trust and cooperative spirit.

To justify such leases, lawyers claim, “Place everything in writing so that there's no room for dispute or faulty memory.” Sounds good, but reality differs.

Legalisms Bite Both Ways. If you push your tenants to accept an oppressively legalistic approach, ...