Many landlords who own rental properties rely on downloaded lease templates from the internet. Even seasoned property owners will print out a lease template and have their tenants sign it. Sometimes this works just fine until it doesn't. That's where this complete guide to lease agreements for landlords comes in – this is a must read for rental property owners. This guide will help to explain what lease agreements do, what are the most common mistakes made in lease agreements and how to use a lease agreement to your best advantage.
The goal of this guide is to educate the rental property owner on what elements need to be included in their lease in order to protect themselves. These elements will also determine how much stress you will incur before, during and after a problem arises, as well as how much money you stand to lose in resolution of that problem.
Here's what we'll cover: the lease clauses that most landlords don't even realize that they overlook; Virginia law that most Rental Property Owners will trip over; and what the REAL cost to a Rental Property Owner is when they allow a lease to become a problem instead of a solution to protect their investment and money before any damage occurs.
Your Lease is Your Landlord Operating Manual
A lease is like a pre-written decision regarding certain scenarios, i.e. before any negative emotions could come into play.
Before reading on, take a second to consider the situation above. The tenant texts at 11pm. His complaints center around a noise issue that the tenant believes are outside of the normal bounds of 'normal wear and tear' of carpet. When you as the landlord are called to deal with issues like these after hours, what are you going to do to deal with the situation. Are you going to attempt to walk to the property? Call the police and have them deal with it? Deal with an inconsiderate tenant who apparently will never leave your house alone late at night. This situation would be completely alleviated by the simple adoption of a solid lease agreement prior to the tenancy beginning. And remember – a lease is a landlord's operating manual for a tenancy. Prior to beginning a tenancy with a tenant, a smart landlord makes all of the difficult decisions with the emotions of potential conflict removed. A poorly worded and/or inadequate lease is a lease that will inevitably lead to difficulty with a tenant. A good lease puts issues like those in the example above to rest before they have even started to become a problem.
We manage 20 properties across 4 cities in all types of property and the most problematic situations always seem to come from the landlords with the worst leases – the thinest leases with the least amount of specificity.
Virginia Law Changed, and Some Richmond Landlords Missed It
Note that the Virginia Residential Landlord and Tenant Act was updated in 2022 to apply to all residential tenancies statewide, regardless of the number of units owned by a landlord. Landlords with leases that pre-date 2022 may have leases that do not comply with current VRLTA rules. Note too that local housing codes apply in Chesterfield, Henrico and Hanover in addition to the statewide residential landlord and tenant act. Thus, for example a landlord with a lease that complies with Richmond City requirements may find that the same lease does not comply with the requirements for properties in other localities, such as Midlothian or Mechanicsville.
Leases that were drafted prior to 2022 might contain some outdated provisions. Before 2022, the VRLTA applied to landlords of residential property who owned two or more properties. Now, the VRLTA applies to all residential leases in the state. The laws for landlord and tenant relationships in Chesterfield, Henrico, and Hanover (as well as the rest of Virginia) are set by the state, but local housing codes can supplement state requirements for utility disclosure and for habitability. Therefore, a Richmond lease that complies with respect to a property with a single unit might not comply with respect to a property with multiple units in Midlothian, or with respect to a property in Mechanicsville.
Chesterfield, Henrico and Hanover all have their own local housing codes. That means while a clause that addresses utility disclosure for example may work in Richmond City, you may need to amend it to meet local requirements in places like Midlothian or Mechanicsville.
Most Important Lease Clauses – In Wrong Order
This is one of our more contrarian views on the issue but we believe that it is true. The clause in a rental agreement that costs the most money in the worst way is the Maintenance Reporting Requirements.
More landlord obsession with lease provisions would be well spent on what we can assure you are the two least considered – but most expensive – clauses in any residential lease: maintenance-reporting requirements and unauthorized-occupant control.
If maintenance reporting is not explicitly set forth in the lease, the worst-case scenario is that the repairs are not addressed until significant damage occurs. We had a landlord of a single-family home in Richmond who had the prior landlord's rental lease. The lease did not set forth who was responsible for lawn maintenance and gutter cleaning. As it turned out, clogged gutters caused significant water intrusion to the home's walls and drywall that would require $3,000 in repairs to fix. The prior lease could have set forth that the tenant was responsible for such repairs.
Another problem area for many property owners is the issue of tenants bringing in additional occupants without permission. We recently took over the management of a single family home in Henrico for an owner who had been managing the property himself. The original lease had been set up using a generic lease agreement found on-line. There was no language in the lease addressing the issue of unauthorized occupants. After 18 months the owner found out that the original tenant had moved out and had been replaced by two additional adults and a third rotating guest. The owner was unaware that he had any grounds to attempt to remove any of the additional occupants as he had no written lease provisions addressing the issue. Any attempt to try to remove any of the additional occupants would have subjected the owner to a claim of wrongful eviction.
Security Deposits: The Rules Are Stricter Than Most Landlords Think
Note also that, if you are going to keep a security deposit, you must return it to the tenant within 45 days of the end of the lease. If you fail to return a security deposit within this time, you will lose the entire deposit plus any court costs. (That is 45 days from the end of the lease, not from when you feel like getting around to it.)
It is not enough to merely document the state of the rental unit prior to the tenant moving in. It is equally important to ensure that such documentation is sufficient to be used to support any return of security deposits that may be sought after the tenant has vacated the rental unit. For example, one of our clients did not have any signed move-in condition reports prepared for his tenants. After his tenant had vacated the rental unit, the owner tried to retain part of the security deposit to pay for repairs to damaged carpeting. However, the tenant disputed the attempted deduction in small claims court, and the owner lost. The owner was even required to pay $200 in court costs on top of the portion of the security deposit that he had attempted to keep. Instead, if the owner had completed a signed move-in condition report prior to the tenant moving in, the owner would have reduced his chances of a dispute over return of the security deposit by as much as 60-80% as compared to the owner who had relied on nothing but photos prior to tenant move-in.
Late Fee Clauses: Get These Wrong and They're Unenforceable
A common error that real estate professionals find when reviewing late payment charges in leases, is that they have exceeded the 10% (of the rent or of the past due amount) limit on late charges established by Virginia law for enforcement. When such a provision exceeds this limit, late charges become optional with the tenant.
Properties with clear late fee language in their leases have on-time rent payment rates of 20-30% above properties with vague or no late fee language. For a single property with 30 units at a rent of $1,800 – $2,100 per month, that could equal an additional $10,400 – $12,600 per year in potential rent revenue. All that to emphasize what should be an easy change for owners to implement in their lease language.
Renewal Terms, Holdover Tenants, and the Cost of Doing Nothing
The majority of landlords set the end of a lease for a specific date and then wait for the lease to expire. If the landlord and tenant never mention renewal of the lease and the lease never expires, Virginia law will convert the lease to a month-to-month lease and continue the rent at the rate of the prior lease. This could result in the landlord losing several hundred dollars per year as market rates for comparable rental properties increase by 5% to 15% per year.
You pay rent on a single family home in Henrico County at $2,000 per month. 6 months later the same home is offered for lease at $2,200.00 per month. If you had been collecting $2,000.00 per month you would have a new annual loss of $1,200.00 per year. That's $100.00 per month. The amount of loss per month would continue for as long as the holdover tenant remain in possession of the property.
In order to ensure that you are getting fair market value for the new lease, require that the tenant give you a 30 day written notice for non-renewal and include an annual for latter rents based on the consumer price index (CPI) or a fixed % increase. This will ensure that you are getting the fair market value for new leases and help you avoid the average $500 to $1,500 turnover cost.
Pet Addenda and Fair Housing: Don't Mix These Up
This is a spot where good intentions can create federal liability. In Richmond and statewide, misclassifying an assistance animal as a pet Fair Housing Act violation and charging a pet fee is a potential Fair Housing Act violation. The distinction between a pet and an assistance animal is legally meaningful, and it needs to be handled that way in the lease.
In dealing with pet addendums, it is critical that they be dealt with in a compliant manner as the misclassification of an assistance animal as a pet in rental property in Richmond or other parts of the state of Virginia could trigger a Fair Housing Act (FHA) claim and would likely cause significant harm to the owner and property.
Leases for Section 8 Housing Assistance Payment program properties must be written in such a way as to conform to all terms of the lease and the Housing Assistance Payment contract between HACR and the tenant's program assistant. Where there is conflict between the terms of the lease and the terms of the HAP contract, the HAP contract shall prevail.
Notices to Enter, and Scheduled Inspections of Properties by Landlords and their Agents and Employees. Avoiding Huge Problems with Tenants
Landlords are also required by Virginia law to give at least 24 hours notice prior to entering into a rental unit, for non-emergency repairs, with reasonable notice given for the circumstances. It is not 48 hours, nor 72 hours. If the lease language differs, or if the landlord's practice is inconsistent with this requirement, then there is potential for legal harm.
Scheduled property walkthroughs by our team during a lease term are reports sent to our owners after each inspection. The reports inform our owners of items found at the property. Many of our owners utilize these reports to make any repairs prior to the condition becoming costly. One of our out-of-state property owners finally felt at ease of owning property in VA after scheduled property inspections had been coordinated on his properties.
What a Well-Built Lease Actually Looks Like
A good lease is important to keeping an owner informed on the revenue from their rental property. In addition to the normal terms for a residential lease in the State of Virginia (i.e. terms of the rental, amount of rent and late fees, security deposit, term of lease and amount of return on deposit) the following must be outlined in a Richmond residential lease agreement: (1) Unauthorized Occupants: Define who is an unauthorized occupant and the process for which an owner may remove such an individual from the premises; (2) Required Maintenance: Specify who is required to report needed maintenance and the method by which such reports are to be made; (3) Definition of Service and Companion Animals: Clarify the difference between service animals and companion animals and establish how each will be treated; (4) Entry by Landlord: State the amount of advance notice which the landlord is required to provide prior to entry into the leased premises for non-emergency repairs; and (5) Renewal and Non-Renewal of Lease: State the amount of advance notice required for both the landlord and tenant prior to the end of the lease for either a renewal or non-renewal of the lease. All of the above must be specified in the lease agreement in compliance with the laws of the Commonwealth of Virginia as set forth in the Virginai Residential Landlord and Tenant Act (VRLTA) and must be consistent with the local landlord/tenant laws for the city of Richmond, VA. The property specific addenda must also be attached to the lease agreement for rental properties located within the City of Richmond as well as for rental properties throughout the State of Virginia as specified above.
If you are finding that managing your rental(s) is taking up too much of your time, give us a call. We can help you discover where your current lease may be falling short and what more you can do to be a successful landlord.
FAQ
Is there a specific lease form required by the state of Virginia?
No, there is no specific form required by the state of Virginia, but all leases must comply with the minimum requirements of the VRLTA.
How long does a Richmond landlord have to return a security deposit after a tenant moves out?
The security deposit must be returned within 45 days of the lease termination of the lease. Failure to return the security deposit in a timely manner shall result in the forfeit of the security deposit plus any costs or fees assessed by the court.
Can a landlord charge whatever late fee they want in a Virginia lease?
No, as late fees are restricted to 10% of the monthly rent late fee Virginia Code Section 55.1-1237 (or 10% of any arrearage then due) as set forth in Virginia Code Section 55.1-1237, which means any language in a lease in excess of that amount would be considered to be illegal and therefore unenforceable.
Does a longer lease term always protect the landlord more than a shorter one?
A 12-month lease is not in an owner's best interest if they have not yet assessed the quality of a tenant's care of the property. Even if everything seems to be fine at lease signing, it often becomes apparent of problems in the second month of a lease. In Virginia, evictions can take as long as 60 to 90 days to complete and cost as much as $1,500 to $3,000 in legal fees. Therefore, it is in an owner's best interest to consider a shorter term or a month-to-month lease with proper notice to terminate.
What happens to your rental property and to your lease when your tenant does not sign a lease renewal prior to the end of the lease term and just continues to live in your rental property after the lease expires?
If neither the landlord nor the tenant takes action after the lease has ended, the lease will convert to a month-to-month tenancy and the rent will remain the same as it was in the lease. The only way for a landlord to avoid a month-to-month tenancy and the associated below market rent is to include in the lease a 30-day written notice of intention not to renew the lease, and an annual rent increase provision.
Is a pet fee legal for all animals in a Virginia rental property?
No. Assistance animals are not considered pets under the Fair Housing Amendments Act of 1998 and are therefore not subject to charge of a pet fee. Leases and pet addendums must be worded to distinguish between pets and assistance animals. Screening of potential renters with assistance animals should be done prior to showing of the property and prior to signing of the lease.
