A lease, or rental agreement, is a document used for the use of space (commercial or residential) for a period of time in exchange for monthly rent. The terms of the contract are negotiable between the landlord and tenant and once signed by both parties the agreement is considered legally and mutually binding.

Rental Application – Before a landlord signs a lease, it’s highly recommended that a credit and background check is conducted.

Lease Agreements By State

Table of Contents

Lease Agreements By Type

What is a Lease?

A lease is a document between a landlord and tenant that outlines an agreement for the renting of property or space. A lease will detail the monthly rent, property description, and responsibilities of each of the party. During the course of the lease, if the landlord or tenant violates any of its terms they could default and be liable for damages to the other party.

Five (5) Types of Lease Agreements

Commercial Lease Agreement – For any type of commercial space for traditional business use such as industrial, office, or retail. There are two (2) types of agreements:

  • Gross Lease – Tenant only pays one fixed rental amount per month. Landlord pays most or all of the expenses related to the property.
  • Modified Gross Lease – Landlord and tenant share the expenses related to the property.
  • Triple Net (NNN) Lease – The tenant pays a fixed rental amount each month and assumes the majority of the expenses related to the property including but not limited to: real estate taxes, Common Area Maintenance (CAM’s), and Insurance for the property (prorated share if not occupying entire premises).

Month-to-Month Rental Agreement – Otherwise known as “Tenancy at Will”, is a type of real estate contract that renews every month upon payment by the tenant. There is no end date but either the landlord or tenant may decide to alter or terminate the agreement with at least one (1) month’s written notice.

Roommate Lease – A roommate agreement is when more than one (1) person live together in a residence while sharing the common areas such as the kitchen, bathroom(s), and living areas. The agreement can be constructed in two (2) ways:

  1. Amongst the Roommates only: An agreement between the roommates that establishes quiet times, cleanup schedules, and any other items to establish a happy living atmosphere.
  2. Amongst the Roommate(s) and the Landlord: An agreement between the roommates and the landlord that allows the roommate(s) to live with the landlord and rent a room and share common areas.

Standard Residential Lease Agreement (1-year) – A fixed term arrangement between a landlord and tenant whereas payment is due every month, usually on the first (1st) day, and the term is commonly for one (1) year.

Sub-Lease Agreement – Where a tenant or “sublessor” who currently is under a lease decides to rent a portion or the entire space to someone else known as the “sublessee”. The sublessor is responsible for the sublessee to: Vacate the premises, Any damage created by the sublessee, and Payment (If the sublessee does not pay, the landlord remains to be owed the amount states in the master lease agreement).

The Leasing Process (Step-by-Step)

A lease is only as good as the form it is written and the individual that desires to rent the space. Due to each State having its own specific laws regarding disclosures and security deposits a landlord may follow the instructions below in order to create a binding arrangement with the tenant.

Step 1 – Check the Tenant’s Credit and Background

Through the Rental Application, a landlord will be able to view a tenant’s background and verify with their employer to see the character of the person. Recommended sites to perform this lookup on the tenant include Experian ($14.95), e-Renter.com ($19.95), and SmartMove ($25).

This can be identified by confirming the following:

  • Credit Score

The average credit score in the USA is between 660 to 720. Therefore, if a prospective tenant has a higher score, greater than 720, they may be able to negotiate a better rent with the landlord knowing that they will be reliable to pay the rent on time every month.

Although, for individuals below 660, it may take extra credentials such as proof of income or employment, a larger security deposit, and pre-paying a portion of the total rent in order to make the landlord comfortable with the arrangement.

  • Criminal Background

If the prospective tenant has any criminal blemishes on their record then this is up to the landlord to justify how credible the charge that’s listed. If the property is located with families and other professionals of the community then it may pose a larger risk than if the real estate is located in an urban setting.

  • Employment Status

Unless the prospective tenant is retired or can prove they have a sufficient amount of cash, along with a high credit score, it is ideal to find a tenant that has a job at the present time. This can be completed by having their employer authorize an Income Verification Form (Adobe PDF, Microsoft Word) along with the individual producing pay-stubs for the last 2 weeks.

Past Tax Returns – If the landlord wants to go even further they can request tax returns for the last 2 years with IRS Form W-2 (for employees) and IRS Form 1040 (if self-employed).

  • Renting History

The landlord, at their discretion, can ask for a Reference Letter (Adobe PDF, Microsoft Word) from the most recent lessor to ask about the character of the renter in addition to requesting if the individual paid on-time while acting as their tenant. Although, most tenant background check websites will be able to catch if the individual has ever been evicted in the past.

  • Verify References

This is usually a waste of time and most landlords no longer verify references other than the employer and past lessor. As the individual will, most of the time, add their best friends and colleagues that will be scripted to say the best and most positive things even if the individual is not of good moral character.

Step 2 – Choose Your Agreement

There are four (4) types:

This is the most common. Lasts for a period of 1-year and cannot be terminated by the landlord or tenant.

Also referred to as a “Tenancy at Will”, has no end date but can be canceled at any time by the landlord or tenant by giving the other party written notice, usually 30 days, that they will be terminating the agreement.

This is a contract that binds the tenants that are collectively renting from a landlord. Items such as cleanup times, who pays for what room, and any other agreements between the roommates can be created.

This is when a tenant has a lease, usually a 1-Year term, and they are forced to vacate the premises while still being liable for the rent until the end of the agreement period. They can, with the landlord’s permission, rent the space to someone else in order to help pay for the rent.

Step 3 – Negotiate the Terms

At this point, the terms and conditions of the lease should be negotiated by the parties with, most importantly, the monthly rent. For the landlord and tenant to get a better idea of the market in their area use Apartments.com or Zillow to view related properties and their monthly asking price.

Items to be Negotiated

  • Security Deposit
  • Monthly Rent
  • Late Rent Penalty
  • Non-Sufficient Fees (NSF)
  • Utilities & Services
  • Smoking Policy
  • Subletting
  • Co-Signer / Co-Guarantor

After the aforementioned items have been agreed upon it is time to write the Agreement.

 The Security Deposit

A security deposit is collected by the landlord in the chance that the tenant defaults on their lease or if there is damage that is left at the end of the lease term. The former allows the landlord to salvage 1 or 2 months of rent during any eviction period which can usually take this amount of time.

Although, the maximum amount the landlord may request for the security deposit depends on the State where the property is located. The limit is determined by the rent amount and equivalent to (see below):

Step 4 – Sign the Lease

In most occasions, the agreement is signed between the landlord, tenant, and agent (if any). Unlike other legal contracts, it is not necessary to have a notary public as a witness. It is important that every State’s laws have been observed in regards to its legal Statutes and Disclosure Forms. Therefore, it is best to verify with your specific State to ensure all requirements are being met.

Step 5 – Pay Rent, Security Deposit and Obtain Occupancy

The landlord will usually wait until the 1st month’s rent and security deposit (if applicable) have cleared before giving the tenant access to the property. If the rent has been pro-rated, meaning the tenant is able to obtain possession of the premises before the start date, then the money for the initial period will be required as well.

Afterward, the tenant may be granted occupancy where all necessary keys, fabs, and access will be transferred and the tenant will officially be allowed to move-in.

Frequently Asked Questions (FAQ)

Below are the most common questions asked by landlords and tenants in regards to the rental process.

What happens if the Landlord or Tenant violates the lease?

If the landlord is in violation, the tenant will be required to send a certified letter stating the breach and after a certain number (#) days pass the tenant will be allowed to terminate the lease. In addition, the tenant may be entitled to damages.

    • Examples: Not making a necessary repair, not removing snow from the parking area, accessing the property without tenant’s permission, etc.

If the tenant is in violation, the landlord will be required to give the tenant a notice to quit that describes the violation and how to “cure” the issue. The tenant will only have a certain number (#) of days in accordance with State law. For example, in most States a tenant that it late on rent will commonly have three (3) to fourteen (14) days to pay or vacate the property.

    • Examples: Not paying rent on time, playing music too loud, damage to the premises, etc.

How to get out of a Lease?

In order to cancel a standard lease, the tenant will be required to get the landlord’s written consent to terminate the contract. The greatest fear of a landlord is to evict a tenant which can lead to a loss of rent for 3-4 months. Therefore, most landlords will accept a termination request if the tenant can exemplify financial hardship.

In most cases, the landlord will require the security deposit to be used as a fee for granting the termination.

How much can a Tenant afford?

This question is ultimately up to the tenant. Landlords will require that the tenant’s income is greater than 40 times the rent amount. For example, if the rent is $1,000 per month the tenant will need to make at least $40,000 per year.

How does a “Lease to Own” work?

A lease to own agreement is when the landlord and tenant come to an agreement for the renting of the home, just like a standard lease, with an option to purchase before the lease end date. The terms of the purchase portion of the agreement are up to the landlord and tenant.

Lease to Own vs Lease Option

  • Lease to Own – Tenant has the option to purchase the property at any time during the lease period.
  • Lease Option – Tenant has the option to purchase the property only at the end of the lease period.

Can a Tenant pay rent with a Credit Card?

Yes. If the landlord does not accept credit card, the tenant may use Plastiq (2,5% fee) to have the funds sent by check in the mail, ACH, or wire transfer.

Can a Tenant sublease the Property?

In most standard lease agreements, the tenant is prohibited from subleasing which is the act of renting the property to someone else. If the tenant would like to sublease the property, in most cases, they will have to get written consent from the landlord. The landlord has every right to reject the request.

Required Disclosures

Lead-Based Paint Disclosure – Federal law, 42 U.S. Code § 4852d, requiring all residences built before 1978 to have this document attached to the lease and signed by the tenants. In addition, the landlord must give This Handout (Protect Your Family From Lead in Your Home).

Move-in Checklist (Inspection) – Some States require this form to be completed by the landlord and tenant at the start of the lease if there was a security deposit collected. This will allow both parties to write down any existing damage on the premises in the chance the landlord claims that damage, that was pre-existing, was the fault of the tenant.