Salt Lake City, UT – It’s that time of year again. Winter is just around the corner and skiers and snowboarders are beginning to book their winter getaways. Most homeowners and real estate agents are focused on getting their properties ready for the busy ski season ahead. Understandably, the rental agreement they use to rent those properties is often one of the last things they consider. After all, many have a form agreement – often the same one they have used for years – and use it for every rental. The importance of a good lease is often overlooked.
Why should a homeowner or real estate agent care about having a well-drafted lease, particularly when the chances of litigation are remote? Simple. A good lease affords powerful protections. Basic issues like nightly rates, cleaning fees, and damage deposits are only a small part of any good rental agreement. A lease sets expectations in advance, can prevent problems before they arise and puts the law more clearly on the owner’s side in the event of a dispute. Even if you don’t plan on suing any of your guests, by setting expectations before arrival you may be able to deter destructive conduct. Unruly groups inclined to break the rules may look elsewhere if they understand the potential financial consequences.
It’s also good general practice to communicate clearly with potential guests. Commit conversations to writing via e-mail, but choose your words carefully. You’re not trying to sneak something past a potential guest, but rather trying to set expectations.
Before discussing how to draft a better lease, it is important to note that a lease is not technically a contract. It is similar to a contract and generally interpreted under contract law principles, but because it is also a conveyance of real property (albeit a temporary one), a lease has some important areas of distinction from a normal contract. The most important distinction is that a rental guest is not merely a party to a contract, but a tenant afforded certain rights under state landlord-tenant laws.
It is worth noting that an effective agreement doesn’t need to be long. In fact some of the best agreements are simple, but on-point. However, there are certain elements which all rental agreements should include. These components may seem obvious, but their nuances are often overlooked. Below are some tips for drafting a better lease for your vacation rental.
Every lease agreement should specify a rental period. Be specific. Instead of using just a date, use a date and time. State check-in and check-out times clearly. This is particularly important because houses are often rented by two groups back to back. List a morning time for check-out and an afternoon time for check-in. Well-drafted leases often also include an hourly fee for late check-outs. You don’t have to assess the fee, but when guests know it’s hanging over their heads, they’re more likely to leave on time.
Clearly state the rental rate. Even if the rate is calculated nightly, include a sum total. Be sure to note whether the rate includes things like taxes, cleaning fees, or surcharges. Have the guest initial next a grand total. Being clear upfront isn’t only important from a legal standpoint, it’s good business. Guests will feel blindsided by hidden fees, often leaving a bad taste and lessening the chances the guest becomes a repeat customer.
Security Deposit vs. Insurance
Many sophisticated property owners or real estate agents will give guests a choice between a security deposit and rental insurance. Providing this option can make your property more attractive because many guests are wary of putting down a large damage deposit. Some guests may have experienced unscrupulous owners who wrongfully retained all or some of their deposit. Still others may view the deposit as part of the overall cost of the rental, even though it will be returned. Either way, be sure to protect yourself by requiring one or the other.
If you decide to go with a security deposit, be explicit that the guest is liable for any damage to the property regardless of whether it exceeds the security deposit. Withholding a security deposit is merely your first recourse. Should a guest do serious damage to the property, you want to reserve the right to sue (or threaten to sue) them to recover for your loss.
Tailor the Agreement to Your Property
A one-size fits all, “fill in the blanks” lease from the internet is not the best way to maximize your protections. Make sure that your agreement is tailored to your property. Every property is unique and has unique challenges. Consider issues you may have had in the past and try to anticipate future problems. For example, are guests damaging your wooden floors by clomping around in ski boots? Include a clause prohibiting ski boots in the house.
Do you have a specific list of “House Rules” that you post somewhere on the property or give to guests before or upon arrival? Incorporate these rules by reference into your lease and attach them as an exhibit. Require guests to agree to abide by the rules. Incorporating your house rules transforms polite suggestions into legal duties.
Keep it Simple – No Overly Long or Complex Agreements!
An agreement that is too long, complicated or written in “legal-ese” can scare off potential guests. Mean what you say and say what you mean, but say it as simply and clearly as possible. If you find yourself using phrases like “party of the second part” and “inter alia,” start over.
It’s important to keep in mind that a good lease does not have to be long. Each of the specific issues discussed in this article can be accomplished in a well-written sentence or two apiece. Keep it simple so guests understand what they are signing. They are less likely to object to you enforcing your rights under the lease if they understood your rights and their duties when they entered into the agreement.
Specific Provisions to Consider Including
Liquidated Damages Clause
Liquidated damages clauses can be a powerful tool. State with specificity that if guests do something they shouldn’t, a certain fee will apply. The fee should be reasonable and roughly approximate damage. For example, include a provision that failure to replace the cover on a hot tub or to take out the trash will result in certain deductions from the security deposit.
It is important to remember that these provisions cannot be penalties. The law disfavors penalty clauses. Courts generally will not enforce them, so be sure to tie the liquidated damages provision to a reasonable estimate of the damage. A fee of $2,000 for failing to take out the trash won’t be enforceable, but $50 probably would be.
No Refund for Bad Weather
You’ll likely want to include a provision disclaiming responsibility for unfavorable weather. If it rains or there’s no snow, you want to make sure the lease is still in effect. No one can control the weather, but you can control who takes the risk of bad weather (hint: not you!).
Right of Entry of Homeowner at Reasonable Time
If you’re concerned about unruly guests and want to be able to check on your house during the guests’ stay, consider a clause permitting you to enter for a reasonable purpose. Include what those reasonable purposes may be.
Rental Only to Family Groups
If you don’t want to rent to groups of college kids throwing a keg party, don’t. Insert a provision which states you only rent to family groups. Then make the lease signer represent that the group is a family group. You can always remove this clause if the circumstances warrant.
In conjunction with restricting your rental to family groups, a maximum occupancy can deter the type of destructive guests you don’t want. Include a per guest fee for overcapacity, should you discover it. Deduct that fee from the deposit if you discover guests exceeding the maximum occupancy.
Representations and Warranties
Be careful not to promise something you don’t have. If that hot tub hasn’t worked in years, don’t list it as an amenity on your promotional materials.
Immediate Termination of Lease and Repossession by Homeowner in Event of Breach
A recurring problem facing homeowners is what to do when they discover unruly conduct at their property while the guests are still there. Consider a provision that allows you to immediately regain possession of the property for a material breach of the lease. It’s important to note, however, that you’d technically still need to go to court to evict the guests because they’re tenants, but you can always tell the unruly guests to vacate before you’re forced to get the sheriff to serve an eviction notice.
The most important thing a strong lease can do for a property owner is save them money. Having a professionally drafted lease is a small upfront cost that pays off over the long term. A good lease can put arguments to rest before they turn nasty by setting expectations in advance. A clear, concise agreement which protects your interests is a valuable tool for any homeowner. After all, if a dispute does occur, you have your answer. It’s all right there in black and white.
Author David B. Cronheim, Esq. is the Chief Legal Correspondent for First Tracks!! Online and is an attorney at Norris, McLaughlin & Marcus, PA in Bridgewater, N.J. For more information or for assistance in drafting or updating a vacation rental agreement, please feel free to contact the author at DBCronheim@nmmlaw.com.