Understanding lease agreements is critically important for real estate investors.
Common elements of every rental agreement. . .Every rental agreement should include the following elements: Identity of the parties. Each party should be identified by name and described as either the Landlord or the Tenant. Sometimes the Landlord is referred to as the Lessor. The Lessor is the person who owns the property and rents it to the Tenant. Sometimes the Tenant is referred to as the Lessee. The Lessee is the one to whom the property is leased.
Particularly in a commercial context it is important to take care in specifying whether a particular party is an individual or a business entity. A Landlord will want the Tenant to be an individual or to have the principal of the Tenant give a personal guarantee. Tenants, on the other hand, will only want the business entity to be the Tenant and to avoid giving a personal guarantee. It is always important to know whether individuals are married. If they are married, their spouse should probably also be named as a party. It is usually a good idea to include the address of the parties so that there is a named location where future notices should be sent. Description of the property. There should always be a description of the property to be leased. Sometimes a street address is sufficient. At other times, particularly in a commercial situation, it might be desirable to include a legal description of the land or draw the layout of the premises on an attached exhibit. The description should always be sufficient to allow someone else to look at the description in the future and know exactly where the premises are located. Term. A rental agreement should always include the "term," which is a legal word meaning "how long the agreement lasts."  Sometimes, particularly in a residential setting, the term might be a month-to-month tenancy. A month to month tenancy goes from one month to the next and can be terminated on 30 days' notice. At other times the term is for a specified time, whether it be for a certain number of months or a certain number of years. Commercial terms are usually longer than residential terms. Some agreements include an option to extend the term. The option to extend is usually for a set period of time and is usually on the same terms and conditions as the initial term with the exception of the amount of the rent. There can be more than one option to extend. Most commercial leases provide that if the Tenant remains in possession after the end of the term with the consent of the Landlord, the agreement converts to a month-to-month tenancy. Rent. Every rental agreement should specify the amount of the rent, that is, the amount of the consideration the Tenant pays the Landlord for the use and possession of the property. In residential situations the rent is usually in monthly increments. In other situations, the rent is often in monthly increments, but can be in yearly or other increments. The amount of rent in a residential setting is usually in a set amount and fairly straight forward. Sometimes it includes additional charges for utilities paid by the Landlord. The rent in a commercial setting is often more complicated. In addition to a set base amount, the commercial rent might include any number of additional items: Maintenance. Most rent agreements address the issue of maintenance. Some agreements divide the responsibility between the parties, while others tend to put most of the responsibility on the Tenant. The maintenance for which the Landlord is often responsible includes maintaining the roof, exterior walls, and the common area - and even here the Landlord often recoups the expense through CAM charges. In commercial situations, the Tenant is often responsible for everything else. In residential situations the Landlord often bears a greater portion of other maintenance. Insurance. The issue of insurance should be addressed. Often the Landlord is responsible for fire and property damage insurance on the premises, and the Tenant is always responsible for the Tenant's possessions. Sometimes the Landlord provides liability insurance for its own protection, and the Tenant is almost always required to provide liability insurance and to name the Landlord as an additional insured. Events of Default. Rental agreements should always contain a provision describing what is a default. Among the usual events of default are: Remedies in the Event of Default. Most rental agreements provide a number of alternative remedies if the Tenant defaults. These include evicting the Tenant, getting a judgment for unpaid past rent and future rent during the term, terminating the lease, and finding a new tenant at the expense of the old Tenant. Attorneys fees. Written agreements should always have a provision authorizing the award of attorneys fees to the prevailing party in case there is litigation arising out of the lease. Under the law of many states, including Nevada, it is difficult to get attorneys fees in litigation unless there is a contractual provision authorizing them. Signatures. Every written agreement should be signed by all of the parties. A long term lease is not enforceable unless it is in writing and signed by the person who is to be held responsible. This is called the Statute of Frauds.
Residential rental agreements: Residential leases are most closely regulated by governmental agencies because of consumer protection concerns. In Nevada, the regulations governing most residential leases are found in Chapter 118A of Nevada Revised Statutes, the Nevada Residential Landlord and Tenant Act. For any questions about residential lease agreements, Chapter 118A of NRS is the place to start.
Mobile Home Park Agreements: An equally closely regulated category is the relationship between landlords and tenants in mobile home parks. An important factor in mobile home landlord tenant law is the mobile home itself. If the Tenant owns the mobile home, and the mobile home is on the Landlord's property, the Tenant is given much more protection because of the hassle and expense of moving the mobile home. On the other hand, the owner of the mobile home park is given a $2,000 super lien for unpaid rent which trumps the lender on the mobile home. The Nevada laws regarding mobile home parks are found in Chapter 118B of Nevada Revised Statutes. Commercial leases: Commercial leases don't have statutory protection for tenants like residential and mobile home park rental agreements. Perhaps this is because business people are presumed to have a higher level of knowledge and sophistication and are better able to protect themselves. That isn't always true, but what the heck!
Commercial rental agreements are generally for longer terms and are much more complex than their residential counterparts. Most of the above described elements of a lease are found in the commercial setting. Ground Leases: This type of agreement is usually in a commercial context and is always super long term -- like 50 to 99 years. The Tenant under this agreement rents just the land itself with the intention of erecting a building on it. The term has to be long enough to amortize the cost of the building.
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