Chapter 33

Preparing a Residential Lease

Disclaimer regarding the Lease: Even though legal information appears in this chapter it is not intended to be legal advice as per that stated by an attorney. When dealing with a lease the tenant and the landlord are advised to seek legal advise from an attorney.

33.01 INTRODUCTION

This chapter presents some issues and problems that licensees may encounter when they prepare a residential lease, and it offers some suggestions to handle the issues and to avoid those problems.  For simplicity, the discussion will refer to the parties in a lease as the lessor (the owner, the landlord, or the licensed property manager) and the lessee (the tenant), the person renting the property.

33.02 SEEKING LEGAL ADVICE WHEN WRITING A RESIDENTIAL LEASE

A sales associate seeks legal advice from the broker who obtains it from the attorney who represents the firm.  A sales associate must not approach an attorney directly unless specifically instructed to do so by the broker.  The broker may give instructions to consult an attorney under certain situations.

(a) WHEN THE BROKER IS NOT AVAILABLE – If the broker or his or her designee is not available, the broker may have sales associates consult an attorney whom the firm has retained or an in-house attorney to provide legal advice as needed.

(b)  WHEN A LICENSEE CANNOT USE A PREPRINTED OR FORM LEASE – The typical preprinted or form lease used by a broker for residential leasing may not cover all of the points of the agreement negotiated by the landlord and tenant.  The parties may need to utilize an attorney to make certain that the wording in the agreement is legally appropriate and meets the spirit of the negotiations.  The typical preprinted or form lease that many brokers use for residential leasing must not be used for commercial purposes.  Commercial leases may involve tax planning, rent formulas (such as graduated payments or percentage of sales), special improvements, maintenance agreements, and many other provisions requiring specialization.  Brokers who specialize in commercial leasing may use commercial form leases sometimes, but many commercial leases require the services of  any attorney.

33.03 NECESSITY OF WRITING

While the law does not require leases with terms of one year or less to be in writing to be enforceable, good business practice and the protection of the interests of landlords, tenants and property managers demand that all leases be in writing.  When disputes arise, the enforceability of oral leases rests on the ability of one of the parties to convince the court or a jury that he or she, not the other party, correctly remembers the provisions of the lease.  When a landlord and tenant clearly state their intent and wishes in writing in a lease, they can reduce or eliminate future disagreements and the need for legal action.  Moreover, anytime a licensee leases property in which he or she has a personal interest, the licensee must disclose his or her real estate license to the tenant in writing.  The practice of putting all leases in writing may avoid such problems as:

(a) loss of commission;

(b) disciplinary action by the Commission; and

(c) legal action against the licensees by either the landlord and/or tenant.

33.04 LEGAL DESCRIPTIONS IN A LEASE

When the landlord leases the entire property to the tenant, the lease must contain the complete legal description.  Some preprinted or form residential lease contracts may provide space for only a street address.  As with sales contracts, both the courts and the Commission require a complete legal description in the lease agreement for an entire property.  This is true for residential as well as all non-residential properties. Chapter 27 discusses the procedures for obtaining a legal description.  An example of the plat map legal description clause in a residential lease for a single family dwelling can be similar to the following:

All that tract of land lying and being in Land Lot              of the                District,                     Section of                              County, Georgia and being known as Address                                                     , City                                                  Zip Code                     ,according to the present system of numbering in and around this area, being more particularly described as Lot          , Block           , Unit               , Phase/Section                of                                               subdivision, as recorded in Plat Book                  Page                ,                          County, Georgia records together with all lighting fixtures, all electrical, mechanical, plumbing, air-conditioning, and any other systems or fixtures as are attached thereto; all plants, trees, and shrubbery now a part thereof, together with all the improvements thereon; and all appurtenances thereto, all being hereinafter collectively referred to as the “Property.”  The full legal description of said Property is the same as is recorded with the Clerk of the Superior Court Clerk of the county in which the Property is located and is made a part of this agreement by reference.
 

An apartment lease must specifically identify the apartment by its street address, building and unit number.

33.05 SPECIAL STIPULATIONS

In addition to the legal description, a lease may require clarification of other issues.

(a) The lease will describe any special rights the tenant has coincident with the intended use of the property.  For example, the landlord might grant the tenant the right to operate a home-based business so long as the operation does not violate the zoning ordinance.  Otherwise, the lease generally restricts the tenant to residential uses only.

(b) Similarly the lease will describe any restrictions placed upon the tenant’s intended use of the property.  For example, the lease might forbid the tenant from parking non-operative vehicles on the property.

(c) The lease might also give the tenant the right to use personal property left on the premises.  For example, the tenant might enjoy exclusive use of the patio furnishings and pool equipment on the premises.  In addition, the lease might obligate the tenant to maintain such property in its existing condition.

33.06 PROTECTING AGAINST RENT LOSS

Every landlord’s and property manager’s nightmare is a tenant who stops paying the rent either with or without abandoning the property.  Certain clauses, if included in the lease, can afford some protection, but the landlord or property manager must take additional actions as well.  Many property managers use an application in addition to the lease to solicit personal information on the tenant as well as residence history and credit information.  With appropriate wording and the tenant’s signature, the manager also receives authorization to obtain a credit report. From the application the manager gains the information and the time to analyze the prospective  tenant’s creditworthiness and experience with previous landlords.

Along with the application, landlords usually require an application or reservation deposit.  If the landlord subsequently enters into a lease with the tenant, this deposit becomes the security deposit.  This practice allows the landlord to collect the deposit in advance of the tenant’s taking possession and either to verify the availability of funds or to collect them by cashing the check if the deposit is in that form.

Landlords can provide protection against rent collection problems such as late payments and returned checks by a clause in the lease such as the following:

Rent is due on the first, late on the sixth or thereafter and must be received at the address set forth herein to be considered paid.  Landlord has no obligation to accept any rent not received by the fifth of the month.  If Landlord chooses to accept late payment, payment must be in the form of cash, cashiers’ check, or money order and must include a late charge of $                 and, if applicable, a service charge for any returned check of $                  . Landlord reserves the right to refuse to accept personal checks from Tenant after one or more of Tenant’s personal checks have been returned.
    

33.07 SECURITY DEPOSIT PROCEDURES

Licensees receiving security deposits must follow the same procedure as that required for earnest money deposits.  Sales associates must turn over all security deposits to the broker (or the broker’s designee) as soon after receipt as is practicably possible.  The broker then must promptly deposit the security deposits in the firm’s trust account.  Only the broker can disburse security deposits, and he or she must follow the provisions of the lease contract and the rules of the Commission. Chapter 32 describes the procedures that state law requires a landlord to follow when he or she collects a security deposit and the requirements for the disposition of the deposit after the tenant vacates the property.

33.08 THE SECURITY DEPOSIT AS THE LANDLORD’S PROTECTION

The law governing security deposits allows a landlord to retain all or part of a security deposit to compensate for physical damage to the property caused by the tenant or by the tenant’s family, pets, or guests; for unpaid rent; for late payment charges; for unpaid utility bills if the tenant was responsible for the utilities; for cleaning services; or for other damages arising out of the tenant’s breach of the contract.  Lease agreements often specifically address the landlord’s right to retain the security deposit in language such as the following:

Landlord may use, apply, or retain all or any part of the Security Deposit to the extent required for the payment of any sum which Tenant owes Landlord hereunder, or for any sum which Landlord may expend for actual damage arising out of or related to Tenant’s abandonment of the Property or default in respect to any of the terms or provisions of this Lease (provided Landlord attempts to mitigate said actual damages) and including, but not limited to, any repair, replacement, cleaning, or painting of the Property rendered necessary or desirable by reason of the negligence, carelessness, accident or abuse by Tenant or the invitees, guests, or members of Tenant’s household beyond ordinary wear and tear, or to pay or apply against any other amounts owed by Tenant to Landlord as permitted by law.

In addition to retaining the security deposit, the landlord can sue the tenant for actual damages not covered by the deposit.  Many apartment and single family house leases contain the following clause in which  the parties to the lease explicitly recognize this right.
The appropriation of all or part of this Security Deposit shall not be an exclusive remedy for Landlord, but shall be cumulative, and in addition to all other remedies of Landlord at law or under this Lease.

33.13 PREPARING A RESIDENTIAL LEASE/PURCHASE OR A LEASE/OPTION

At times a prospective buyer may want or need to lease the property for a period before purchasing it.  While many such transactions do not result in the ultimate sale of the property, sellers can find this approach a possible way of selling a difficult property in a tough market and buyers may be able to move into their future home while building up a down payment and/or an improved credit history. The buyer and seller can structure such a transaction in more than one way.  For example, the parties might  enter into a lease/purchase in which the agreement is for the buyer to lease the property for a specific period and then to buy it at under certain terms and at a specific price at the end of the lease.  Or they  can negotiate a lease/option in which they enter into a lease with an option for the buyer to purchase the property at a specific price under certain terms if the buyer decides to do so.  Both approaches involve the parties’ negotiating and signing a residential lease and a sales contract simultaneously.

If the parties select the lease/purchase approach, they enter into sales contract which incorporates by reference their lease agreement and which contains a special stipulation stating whether any rents paid by the tenant/buyer under the lease will be applied to the purchase price.

If the seller and buyer agree to a lease with an option to purchase, they enter into a lease agreement containing a clause similar to the following which gives the tenant/buyer the option to purchase the Property.

So long as Tenant is not in default in the payment of the rent provided for herein, Tenant shall have the right to purchase the Property described herein at any time on or before                                         , 2XXX           in accordance with the terms and conditions set forth in the sales contract, which is attached hereto and made a part of this agreement by reference.  Said sales contract shall be deemed to have been executed by both parties on the date of the exercise of this option;

33.10 PREPARING A MOVE-IN AGREEMENT

If the seller and buyer agree for the buyer to move in before closing, both parties should sign a written move‑in agreement covering at least the following items:

(a) a statement that the parties do not intend to create a  landlord and tenant relationship;

(b) the amount and time of payment of compensation by the buyer to the seller;

(c) an agreement that the buyer will not alter or redecorate the property before closing without written consent of the seller; and

(d) if the sale does not close,

1. a date by which the buyer must vacate;
2. consequences for the buyer should he or she not vacate the premises according to the terms of the agreement; and
3. the disposition of the earnest money in the sales contract and the security deposit in the lease.

A major advantage of the move-in agreement for the seller is that the agreement does not create a landlord and tenant relationship.  Thus, if the sale does not close, it is easier for the seller to have the buyer evicted from the property.