9 Important Things To Consider When Signing a Lease
Signing a lease for the first time? It can be intimidating. Avoid making a mistake by following this guidance from a rental pro.
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What Is a Lease?
“A lease is a written legal agreement between a property owner and an individual or company that gives the tenant(s) official permission to live or occupy a property for an agreed-upon period of time.” That definition comes from Ryan Barone, CEO and co-founder of RentRedi, a property management software for landlords and tenants.
These documents, sometimes called rental agreements or rental contracts, protect landlords and tenants.
What should you be looking for before signing a lease? These are legal documents, so don’t sign without reading it carefully and understanding your rights and responsibilities.
“There are many things renters should consider when signing to live somewhere for an extended period,” Barone says. “Depending on your lifestyle, some things will hold a higher priority than others.”
Here are the nine things you need to consider before signing a lease.
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Can You Afford the Rent?
Your dream apartment won’t seem so dreamy if you struggle to pay the rent each month. Before signing a lease that may be difficult and expensive to get out of, Barone suggests considering your current income-to-expense ratio. “Experts say a good rule of thumb for renters is to set aside about 30% of their income for rent,” he says.
Let’s say you make $60,000 per year. Using the 30% rule means $19,800 — about $1,650 per month — can go toward rent.
The “30% rule” dates back decades, before ballooning student loan debt and other modern expenses, so take a good hard look at your obligations. “You know your priorities and spending best,” Barone says. “You may spend more or less than 30% based on your values.”
Sometimes landlords, management companies and cities have income requirements for renters. To apply for a New York City apartment, Barone says, your yearly salary must be 40 times the monthly rent.
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How Much Is the Deposit?
Rent isn’t the only thing you have to worry about when signing a lease and moving into a new place. “[Make sure] you have enough saved to pay for the security deposit in addition to the first month’s rent,” Barone says.
Security deposits are a safety net for unplanned damages to rental properties. They typically cost the same as one month’s rent, although some states allow landlords to charge more.
Landlords usually hold the security deposit in a separate bank account until you move out. “If there is no damage to the unit at the end of a lease, landlords return security deposits to the renters,” Barone says.
How Long Is the Lease?
Look for lease agreements that match your plans for the future. If you’re graduating in a few months, it’s probably not a great idea to sign a year-long lease unless you know exactly what you’ll be doing. If you head to graduate school or a job in another city, breaking the lease or subletting can add complications and costs.
Conversely, if you do plan to stay in your place longer than the lease term, pay attention to the fine print: Your lease may convert to month-to-month once the original term is over. That means your agreement going forward is only for one month at a time, and the landlord could give you 30-days notice when they want to end your lease.
What About Your Pets?
If your family includes a dog, cat, hamster, snake or bird, make sure your lease allows pets before signing. You may have to pay a pet deposit to cover related expenses when you vacate, like cleaning the carpet or fixing a scratched wood floor. Landlords can dictate the type or number of pets that may be kept, and could charge additional rent.
Service animals and emotional support animals are not considered pets and are generally exempt from these restrictions.
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What Maintenance Is Required of You?
Do you love snow shoveling? Have tons of time to mow the lawn? “If you live a busy lifestyle,” Barone says, “renting a place in which snow removal or yard work is included in your lease as the responsibility of the landlord might be preferable.”
If you’re moving into a multi-unit apartment ,these services might be contracted out by the landlord. But for other dwellings, these tasks often fall to the tenant.
Check your lease before signing to make sure it outlines your responsibilities. If the landlord expects more than you’re willing to do, look for apartments or homes that match your lifestyle instead.
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Can the Rent Go Up?
You find your dream apartment. It’s bright and sunny, allows pets, and it’s close to your work. You move in, live for a year and bam! The rent goes up beyond what you can afford.
If a unit is rent-stabilized, there are limitations on the amount your rent can be increased. “If you’re hoping to move into an up-and-coming part of town,” Barone says, “you might want to have rent stability in writing.”
Some cities, like New York, famously have rent-controlled and rent-stabilized apartments. But states like Texas actually preclude municipalities from enacting rent stabilization ordinances, except under specific circumstances. Know what to expect before signing a lease.
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What Are Other Common Terms?
Signing your first lease may be nerve-wracking, but leases protect you and the landlord by spelling out your rights and responsibilities.
If you’re required to purchase renter’s insurance, that will be in the lease. If you need to pay via check, or if you get a discount for using direct deposit — yep, it should be in the lease. Other things to look out for include the date your rent is due, how long of a grace period you have and late fees that may be assessed.
You have rights as a tenant, too. Just because you’re not the owner of the property doesn’t mean you’re at the mercy of the landlord’s schedule. State laws dictate when and for what reason landlords can come over, according to FindLaw.com. So your lease should spell out the circumstances and require your landlord to give notice.
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What Happens if You Break the Lease?
Life happens. You get a dream job in another state. You need to move home to help an aging parent. Breaking a lease isn’t an easy decision, but sometimes it’s the only option. What happens?
Barone says a common penalty for breaking a lease is paying one or two months’ rent, but this depends on where you live, your landlord and your lease terms.
“Start by reading your lease agreement carefully to see what your landlord’s terms were when you signed,” Barone says. “This will give you a good idea of what to expect if you need to get out of your lease earlier than planned.”
As soon as you know your plans, talk to your landlord. You may be able to come to a mutually-agreeable solution. The more notice you give, the better.
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Can a Lease Affect Your Credit?
“It depends,” Barone says. “If you don’t pay your rent on time, it can be reported — but that doesn’t mean it will be.”
Ask your landlord if and how they report rent payments. It could be through one of the three major credit reporting agencies: Equifax, Experian and TransUnion.
On the other hand, making on-time rent payments will help your credit score if your landlord chooses to report them.
“If your landlord reports on-time payments, the credit reporting agencies that receive it will include positive rent payment history on credit reports,” Barone says. “If your landlord uses property management technology like RentRedi, you will have the option of having your on-time rent payments reported to TransUnion to boost your credit score.”