With interest rates being high, using real estate you own by putting it into an LLC is a great way to take full advantage of the property as an asset. Technically, you're starting a business when you do this, and it allows you to take advantage of many financial advantages that come along with owning a business.
As part of the process though, if you are going to rent out the property, you will need to prepare a lease agreement between the LLC and your tenant. For many of my clients, this added complication of creating a lease on behalf of an LLC can be a rock that they stumble on as they climb the mountain of creating their real estate empire. For many, the allure of a mail-merging form website seems like the best option to create a basic lease.
However, after you've spent all that time and energy to create an LLC, why stop a bit short of the goal line and use a form that may or may not actually be appropriate for your LLC and your property? Creating a lease doesn't have to be an intimidating process and if you work with your attorney, you can usually get it done as part of the process of setting up your LLC.
Before you waste your money on that website form, let's look at a quick 10-step guide to your lease agreement.
10-Step Guide to Your Rental Property Lease Agreement
Having trouble deciding what to include in your lease agreement? Speak to your attorney to make sure you've got all of the bases covered, but make sure to include:
- Parties Involved: Begin by distinctly identifying all the parties involved. This should comprise of landlord and tenant's full names, contact details, and addresses.
- Lease Specifics: Define explicit terms including the length of the lease, the amount of rent, the payment schedule, and the amount required for the security deposit. Cross all T's and dot all I's to leave no room for doubt.
- Comprehensive Property Details: This section should provide a detailed assessment of the property condition, list of amenities, rules regarding property modifications, and maintenance responsibilities. Transparency is key here.
- Rules and Regulations: Set clear boundaries with regard to property use, permissible noise levels, visitor allowances, and lifestyle policies. Crystalize your pet policy to preempt possible disputes.
- Utilities and Services: Clearly assign responsibility for the payment of utilities including electricity, heat, water, cable, and internet services. Leave no scope for misinterpretation.
- Repair and Maintenance: Establish which party is responsible for routine property upkeep, emergency repairs, and updates needed to comply with housing standards. This avoids any later conflict.
- Respect for Privacy: Address the sensitive issue of tenant privacy. Clearly lay out the procedure and notice period required for the landlord or a representative to enter the property for inspections.
- Renewal and Termination: Explicitly define the terms that control lease renewal and termination. Also, mention the conditions under which eviction might occur.
- Legal Aspects: Don't forget to delve into the legal necessities. This includes the handling of the security deposit, imposition of late fees, and the procedure for resolving any potential contractual disputes.
- Proper Execution: For a lease to be valid, it must carry the signatures of both parties. This confirms both parties’ acceptance of the outlined terms.
With these 10 areas covered, you should be on your way to a lease that you and your LLC can rely upon with your tenants.
Do I Need a Business Attorney?
If you need help navigating these 10 steps or creating a lease for your rental property, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you.
