HOW FLEXIBLE SHOULD YOU BE WITH LEASE TERMS?

By Tim Zabawa (Brought to us from National REIA a Proud Sponsor of PTRE)
Broker/Owner Z Austin Real Estate

As a landlord, how flexible should you be in terms of when you let tenants move into a property and what are your options?

Once at a very nice house, I was dealing with the son whose father owned and lived in the house.  He was this very old man and was living all by himself and the son came around and said, “We need to get my dad out of there.” So the plan was for the son to move dad out and for my firm to find a tenant for the home.
And then the son disappeared.

We had located and qualified a prospective renter.  At this point the dad had not done anything to vacate or prepare the property for the upcoming tenancy. So a week before the new tenants were supposed to move in dad was still in the house and we had not had access to do any make ready.

So this lease move in was delayed because, literally, myself and my staff were over there moving this guy into a U-haul one day and then we had to get rolling with make ready tasks.

I remember the challenge of helping this man because he was not capable of managing this process. It was really sad his family deserted him.  It can certainly happen. It all goes back to the lease listing terms and the lease contract and what needs to happen and when.

Specific commencement and expiration dates

I highly suggest very specific lease commencement and expiration dates.

Obviously, you have to document exactly when the lease is going to start and exactly when it is going to end.
In my leases I always use a provision for an automatic renewal which gives you a couple of options. Any lease can have a renewal option, whether it is the tenant’s choice or the landlord’s choice.

If there is any type of long-term lease, more than one year, I would certainly include a rent amount escalator clause, typically in the 5 percent range – to increase the rent every year by 5 percent (if you can).  Typically renewals, with no proper notice by either party, go month to month until one of the parties gives proper notice  to terminate or change the terms of the lease. There might be benefits to both sides, for the renter and the landlord, to go month to month.

Both parties have options  to terminate the lease if things change. The landlord could also raise the rent. A Month-to-month renewal also gives the landlord the opportunity to sell the property easier if there is a month-to-month lease in place.

Flexible lease terms on timing

Say the tenants are supposed to move in January 1 and the property is not ready for occupancy, like the situation mentioned at the beginning of this article.

There could be a previous tenant hold-over, or maybe there is some construction project that has not been completed. It is very important to note the difference between a construction project and make ready tasks with respect to the property not being ready for occupancy.  A delay due to a construction project will allow the tenant to immediately terminate the lease and get a full refund of paid deposits where a delay due to incomplete make ready tasks will prevent this type of lease termination.

Even as issue like not having the locks rekeyed is not a valid reason for the new tenant to terminate the lease at move in.

An occupancy cannot be delayed because of in complete make ready tasks. There should be some provision in the lease that will allow – i.e. if you are replacing some sheetrock that was damaged or replacing a door to the outside –the tenant to get a prorated rebate on the days they did not get to have access to the property.

Written notice provisions in the lease need to be spelled out

It can be a complicated process to provide proper written notice for any number of reasons. There are a couple of ways to provide proper notice and it is always negotiable.

Usually, at least 30 days written notice is required to terminate a lease at its end date and its really nice when the lease ends at the end of the month.

If it ends in the middle of the month, you usually have to give more than 30 days’ notice.

I use a minimum 45 days written notice to terminate now because it gives a little more time for lease marketing.
Also state in the lease what are the acceptable forms of notice?  These days tenants and landlords often text back and forth, so if that is agreeable to both parties, put it in the lease.

Whether it is a move-out notice, notice of needed repair, anything like that, put the required notice provision in the lease.

Email is also at the top of the acceptable notice list. Never do anything verbal. Always get the notice in writing. At least get something you can print out and save to prove that communication took place.
c3e860f3991d98e29374db5d795b3457-huge-4-

About the author:
Tim Zabawa is a veteran Texas landlord and property manager and owner and broker at Z Austin Real Estate in Austin Texas.  He has been specializing in residential real estate since the mid 1980’s beginning with homeowner association management then expanding his resume to vacation rentals (personal and fee based), full service property management, buyer and seller representation with special emphasis working with investors.  Tim has owned and managed many proprietary income producing properties and has successfully completed remodel and flip projects along with being a GREEN builder.   www.zaustinrealestate.com

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Up ↑

%d bloggers like this: