A decreasing rental vacancy rate combined with an increasing median monthly gross residential rent in the US real estate market, is progressively creating a favorable environment for rental property owners. According to the Census ACS survey, the median gross rent, as of 2014, stood at $934 with an average of $992- up from $903 and $960 respectively, the previous year. Going by these numbers, rental property owners are undoubtedly making more than they did in 2008, right before the recession- back when they grossed in a median of $924 at an average of $974 per month.

With such a great market, the only thing that could stand in your way of effectually monetizing your property is a poorly drafted rental agreement. Although a piece of paper may seem negligible at first, it could ultimately make a great difference between making and losing money. We’ve seen many frustrated landlords lose cases in court just because of simple omissions in their respective lease agreements.

Even with a comprehensive tenant screening framework, landlord-tenant disputes can potentially develop down the road. Your tenants, for instance, could fail to honor their rent payments- and consequently, as most landlords would presume, terminate their tenure. Fortunately or unfortunately, tenures are not simply terminated by presumptuous terms. All the terms need to be laid out clearly and explicitly in your rental agreement.

To aid you in the process of drafting one, here are the most critical clauses you cannot afford to exclude from your rental agreements:

 Right to Entry

Gaining entry to your property may seem like a pretty basic right, particularly to new property owners, who are not yet conversant with state laws. Interestingly, and rather unfortunately, it’s not that simple. Most US states have already enacted laws dictating specific circumstances and situations when landlords are allowed into their properties. In Maryland for instance, something as simple as walking up to your tenant’s porch to repair and maintain your property, is considered illegal. In such areas, tenants retain the rights to grant or deny access to their properties.

The most effective strategy of avoiding getting caught up in these catch-22s, of course, is dictating all the entry terms in your lease agreement. And while you’re at it, remember to respect the tenants’ rights by reasonably limiting yourself only to instances, like maintenance, where entry is completely unavoidable.

 Security Deposit

Imagine leasing your property to a tenant, only to be left with costly repairs to take care of immediately the lease period lapses. To avoid this, ensure that you include a clause that requires your tenant to put up a security deposit, equivalent one month’s rent. In some cases, especially when your property’s furnishings considerably exceed the rent value, you’re allowed to demand an amount that’s slightly more than one month’s rent.

Ultimately, when the rent period lapses, you’ll be required to refund the amount less any damage costs incurred by your tenant. In some states, like New Jersey, you’re required to deposit the amount in a separate account throughout the lease period, and subsequently include the interest gained in the final reimbursement made to the tenant.

 Property Maintenance

Property maintenance is undoubtedly one of the most controversial sections of a rental agreement. It’s therefore advisable to carefully consider all the elements of your property, expenses and both tenants’ and landlords’ rights as you draft a comprehensive clause.

Although you sorely and entirely own the piece of property, your tenant should take responsibility of some of the maintenance bills, like tenant-triggered property damage. Since oral agreements are relatively ineffective in such cases, ensure that you spell out the specific maintenance bills, like utilities, which the tenant is expected to foot. Finally, all maintenance projects undertaken by the tenant, apart from periodic utilities, should first pass by you for approval. Otherwise, you don’t want to come back from a long holiday to find your property completely renovated and unrecognizable.

 Limits on Occupancy

You’ve probably heard of a case where a tenant took up property and subsequently sublet it to a second set of tenants, who were not directly bound to the initial lease agreement. Well, of course, such individuals may argue that landlords are not expected to meddle in tenants’ businesses as long as rent is remitted as previously agreed. However, and contrary to their sentiments, landlords do retain full rights on deciding who and who not to accommodate in their properties.

With that in mind, and to prevent cases of subletting on your property, your lease agreement should explicitly state the parties, in full names, who’ll be renting your property. That alone grants you sufficient grounds to evict extra parties that decide to move in.

Term of Lease

With 51% of tenants being below 30 years old, millennials currently take up the top position among renters in the US. 30 to 44 year olds come in at a distant second with 23%, while 45 to 64 year olds occupy the third position with 18%. The least prevalent tenants are people older than 65, who only account for 8% of the total tenant population in the US. Evidently, as tenants begin aging, their pay scales improve and they start shifting to their own homes. As a landlord therefore, although you’d have probably preferred otherwise, most people don’t remain tenants forever. That’s why it’s critically important to include the term of lease in your rental agreement.

The tenancy term depends on your how long you’d like to host a tenant and the flexibility of your arrangement. That would make a huge difference between a fixed-term lease and a rental agreement. Most landlords, as I’ve seen, only have a clause for a minimum tenancy period- mostly about 2-3 months. This discourages short tenancy terms, which are usually cumbersome and in some cases, more problematic than beneficial to property owners.

 Rent Amount

This is undoubtedly one of the most principle clauses in your rental agreement. Failure to include it could potentially disqualify you from compensation in court. Without it, a judge cannot ascertain the actual rent amount due in the event of a dispute.

The rent payment clause should not only indicate the amount of rent payable to the landlord, but also  acceptable payment methods, penalties on late payment and special circumstances that rent is subject to change.

 Rent Arrears Mitigation

If there’s one thing that’s clear to every tenant, is the fact that rent must always be paid. That’s literally the only covenant sealer between you and the tenant. Failure to pay rent, according to the books, nullifies the tenure. Unfortunately, it’s not that simple when it comes to the actual mitigation process.

In the past, before the implementation of water tight landlord-tenant laws, failure to pay rent resulted in immediate eviction. Nowadays, however, there are specific clauses that unequivocally protect tenants from their landlords’ wrath in case of unpaid rent. That alone makes it completely necessary to include a clause that spells out the subsequent mitigation measures in case your tenant fails to pay his/her rent. Deducting the amount due from the security deposit, for instance, as opposed to confiscating your tenant’s property, would be a convenient mitigation procedure for all the parties involved.


While this pretty much sums up the most critical rental clauses, there are many others, especially location-specific ones, that you should familiarize yourself with ahead of leasing out your property.  And of course, since you probably don’t have the time to go through all the state and federal law, consider hiring a reputable lawyer to ease you through the process.

Finally, remember that you’re still a businessperson. You wouldn’t want to spoil the broth by including clauses that are unfair to the tenant, would you? Restrict yourself to fair clauses and you’ll win yourself a happy lot of tenants.