Purchasing an investment property in today’s economy can be quite risky. Not only do you have to put in a large investment upfront, but you also have to renovate your property, make sure it’s up to code, and take great pains to promote said property in accordance with the mountains of regulations. Sound easy enough? Well, once you jump through those hoops, the real fun begins. You get to construct a tenancy agreement for your potential tenant(s).
Not to discourage anyone from investment properties, of course. Doing things correctly and finding a great tenant can be extremely rewarding and profitable. However, it needs to be said that these aspects aren’t easy. There’s work that goes into leasing out investment properties, and hopefully that work will be made easier by going over some of the finer points of a tenancy agreement.
What Any Reputable Tenancy Agreement Needs to Include
1: Deposit Clause
You yourself have most likely rented a flat before, so you know about the general rule: first month’s, last month’s, and a deposit – all upfront. Is this just a generally accepted form of doing business, or it is something that needs to be in a tenancy agreement? Though the first and last month’s rent is always debatable, your tenancy agreement needs to contain strict, concise language about a deposit.
As a general rule, the deposit should be at least equal to one month’s rent. The more lucrative the property is (furnished, energy efficient, multi-room, amenities, etc), the higher the deposit will be.
The deposit will be stored separately (Tenancy Deposit Scheme) and given back to the tenant after his or her contract has expired, granted that no damages have occurred. If your rental is in need of professional damage restoration, for example, you will keep that deposit and use it to restore the property without having to go into your own pocket for it.
2: Maintenance Language
How will the tenant know what’s acceptable and what isn’t unless it’s in the contract? As the property owner, you have to list the things the tenant can and cannot do while living under your roof. Here are some common ideas that you need to give a yes or no in the tenancy agreement:
- Changing locks
- Changing appliances
- Hanging pictures (holes in walls)
- Changing furniture
- Renovating flooring, cabinetry, etc.
- Noise requirements
- Utility situations
If, for example, the tenant is paying for utilities and the contract doesn’t state otherwise, he or she may decide to make energy-based changes with appliances to save money. Extrapolate this scenario to any you may not wish to deal with, and you’ll quickly realize what needs to be in the tenancy agreement.
3: “Basic” Clauses
Basic is in quotations above because these basic clauses are always subject to change as the laws change. The UK is typically a legislation-happy place, so before you put together your tenancy agreement, make sure you thoroughly examine what the “basics” are. Some of the general basics in a tenancy agreement include:
- Rent amount
- Paid-by dates
- Late fees
- The address of the property
- Length of the contract
- Renewal clauses
- Conduct requirements
As stated, laws may change and affect the way you and your tenants are able to do business, like with payment methods or utility charges (as two quick examples), so always keep up to date with the regulations.
4: A Subleasing Clause
It’s not at all uncommon for a long-term tenant to allow their friends or family members to pick up the rent as they move out. There isn’t anything sinister behind this; it’s just what family and friends do for one another. How do you feel about it? Whichever way you lean, it needs to be expressed in the contract.
You may allow this, but you’ll probably want to end the contract with the original tenant first and receive an additional deposit from the new tenant. You may not want to allow it at all, in which case the language in the contract should clearly state that current tenant may not house anyone who isn’t on the contract and cannot rent to anyone without the landlord’s permission.
5: A Concealed Defect Warning
Unfortunately, your time as a property owner may draw to a close if you find yourself in financial hardship. Selling the property to someone else, having the bank take it away, or any other similar situation would be a defect on your part. When these situations make themselves known, your tenant has to know about them.
If, for example, the tenant is evicted by a new landlord but had no clue that you no longer owned the property, you are liable for civil charges (possibly criminal, depending on the situation), and will be in a lot of trouble. Make sure you’re holding yourself accountable in the tenancy agreement, as well as the tenant.
6: Termination Language
Any type of termination has to be very clear. You never know how the law is going to handle a situation if a tenant claims unjust eviction, keeping the deposit, etc. Lawyers make their livings by looking for loopholes in these contracts, so the language needs to be extremely clear.
The easiest way to handle this is to learn about the different rules and regulations per your jurisdiction and per your property type. Make sure the language mirrors the law.
Studying the current laws on the books is the best way to go about creating a tenancy agreement. If your contract is thorough and fair, you should encounter little problems as a landlord. But in case things go awry, concise language in the tenancy agreement will ensure you’re okay in the long run.