Residential Lease Agreement

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Residential Lease Agreement

A residential lease agreement or a House Lease Agreement or a Residential Rental Contract is an agreement by which landlords let out or rent residential property. A residential lease is only for people living in that particular property and cannot be used for any other purposes, such as commercial or business usage. A residential lease agreement template is a basic format with the responsibilities and rights of the landlord and the tenant outlined in the document.

Typically, a basic rental agreement or a residential lease can be found online on various websites. However, it is advisable to customize your residential lease agreement to your situation. For example, the rights and obligations in all rental agreements cannot be uniform. The terms and conditions of a residential lease agreement depend upon the negotiations between the parties.  A standard residential lease agreement consists of commercial and boilerplate clauses. While the boilerplate clauses are uniform across all residential lease agreement templates, commercial terms vary. Hence, it is advised to consult an attorney before finalizing your residential lease agreement.

Who Are the Parties to a Residential Lease Agreement?

A residential lease agreement typically contains two parties:

  1. The landlord: He is the owner of the property being rented out.
  2. The tenant or the renter: He is the individual who is renting the property for residential purposes.

Sometimes, the renter or tenant can be a company or an organization as well. This happens when companies rent properties for the accommodation of their employees.

What Is the Purpose of a Residential Lease Agreement?

A residential lease agreement is created for the following purposes:

  1. Establish rules and guidelines which would govern the lease/tenancy: When the landlord lets out his property for residential purposes, he assumes a risk that his property may get damaged, he also runs a risk of being thrown out of possession. Having a written document with all the terms and conditions captured and having the force of law behind the same will help in reassuring the landlord that his premises will not be misused and would be taken care of properly.
  2. Protection of the tenant: A written residential lease agreement also helps to protect the tenant against any undue claims. The tenant is protected against issues such as rent increases, property damages, and dispossession. For example, a standard residential lease agreement has clauses that tell the tenant to bear responsibility only for specific damages and not all.
  3. Assurance of rent: A written agreement, enjoining the tenant to pay rent on time and imposing penalties for delay in the payment of rent, assures the landlord that he will receive the payment of rent on time.
  4. Provides legal remedy: A residential lease agreement provides legal recourse to both the parties and hence adequately protects them.

Contents of a Residential Lease Agreement

A residential rental agreement consists of the following terms and conditions:

  • Property: The property to be leased out should be identified and described correctly. Its location, name (if any), area, any permanent fixtures, etc. should all be mentioned in the agreement.
  • Purpose of residential lease: A residential lease agreement should contain the purpose behind the lease. The property should always be let out for residential purposes only.
  • Term of the lease: A residential lease is typically for a fixed duration of time. It may be open-ended as well, but for security and safety reasons, landlords prefer to have a fixed-term residential lease. The term should be mentioned clearly. Typically, a residential lease runs for a period of 11 months.
  • Rent: The amount of rent, whether it includes maintenance charges or any other such costs, the time of payment, the mode of payment, etc. should be clarified in the contract at the outset only. A standard residential lease agreement also contains a provision for rent revision. Typically rent is increased by a pre-determined percentage every 11 months.
  • Deposit: A security deposit, which is typically the rental amount of a certain amount of months, is taken by the landlord to protect himself against any property damage.
  • Insurance: Typically, the landlord takes insurance against calamities, such as fire accidents.
  • Usage of the premises: The rent agreement contains the permitted uses for which the premises may be utilized. As this is a residential lease agreement, the property can only be utilized for residential purposes if the tenant starts using the premises to conduct any commercial activity that would be considered as a breach of contract.
  • Eviction: If the tenant does not pay for a stipulated period of time, then the landlord will have the right to evict him or tell him to leave the property.
  • Termination: Options of termination based on fault and termination simpliciter should be provided to both the parties.

How to Draft a Residential Lease Agreement?

An effective residential lease agreement form can be drafted using the following guidelines:

  • Parties: Mention the names of the parties and their addresses. If the tenant is a company, mention the registered address of the company.
  • Permitted usage: The uses for which the property may be used should be included in the contract.
  • Rights and obligations: The rights and obligations of both the landlord and the tenant should be included. A landlord’s obligations would typically include maintaining the property while a tenant’s obligations would typically include paying the rent on time.
  • Utilities: Who will be responsible for payment of utilities such as water bill and electricity bill should also be contained in the agreement. Typically, these are either covered under maintenance charges or are the responsibility of the tenant.
  • Termination: Language covering both termination simpliciter and termination based on fault should be included. Events such as non-payment of rent or damage to property can be categorized as events of default.
  • Events that authorize the landlord to evict the tenants should also be outlined in the agreement.
  • The duration of the lease agreement should be kept around 11 months. Preferably, an open-ended residential lease agreement should be avoided.
  • The number of fixtures in the house should be captured in the residential lease contract. For instance, the number of fans, number of bulbs, any equipment such as conditioner or washing machine, etc. which is there in the property should be mentioned in the agreement.
  • The value of the deposit should depend upon the furnishing of the house. Typically, a semi or fully furnished house has more deposit than an unfurnished house.
  • Boilerplate clauses such as dispute resolution, choice of law, severability, and remedies should be included in the agreement.
  • Penalty: Typically, the landlord should include a penalty amount to be paid if the rent is paid with delay.

Negotiation Strategies

Typically, a residential lease agreement does not involve a lot of negotiation. However, if the parties wish to negotiate, the following contentious points may be negotiated upon:

  1. Rent: The tenant may argue that rent is reduced. A middle ground is to fix the maintenance costs (if any) and include it in the rent. This is beneficial for the tenant and the landlord.
  2. Permitted usage: For instance, some landlords do not allow guests of the tenants on their premises, conditionalities such as this can be negotiated.
  3. Deposit: The amount of the deposit, too, can be negotiated. The standard practice is to take 2-4 months of rent as a security deposit, depending upon the furnishing.

Benefits and Drawbacks of the Residential Lease Agreement

The benefits of a residential lease agreement are:

  • Certainty: A written lease or rental agreement provides certainty to the parties. The landlord is assured that he will receive rent on time, and the tenant is assured that he will not be unjustly evicted.
  • Clarity: Having the terms and conditions governing a residential lease written down provides clarity to the parties.
  • Protection against rent increase: Typically, the rent is set for the term of the lease and cannot be increased arbitrarily during this duration. This provides the tenant protection against any whimsical increase in the rent.
  • Dispute resolution: As the lease represents the will of the parties in writing, it is extremely helpful in resolving disputes between the parties. For instance, if the tenant disputes the amount of rent to be paid, reference may be made to the residential lease agreement in order to resolve the same, as the amount of rent agreed upon will be captured there.
  • Timely payment of rent: The landlord is assured that he will be paid rent on time.

The drawbacks of a residential lease agreement are:

  • Binding the tenant: A residential lease agreement binds the tenant to the property for a stipulated period of time. Many times a lock-in period of at least six months is provided wherein the tenant cannot leave the premises. This is done by the landlord so that he does not have to search for tenants again on short notice and to test the seriousness of the tenants. However, such binding is a major disadvantage to people who want to rent the residential property for a short period of time or who have to move places owing to transfer or job change.
  • Penalty: Charging of penalty(1) on delay could prove to be onerous for the tenant.

What Happens in Case of Violation?

In the event a residential rental agreement is violated, the parties can approach the courts, or they can sit together and resolve the issue by mediation, arbitration, or other such alternative methods of dispute resolution. Methods of dispute resolution(2) and the choice of law/jurisdiction should be mentioned in the agreement itself.

A residential lease agreement is important when a property is sought to be rented out for residential purposes. It captures the terms and conditions which regulate and govern the lease and provide assurance and definitiveness to the parties.