Personal Finance

3 Things Every Renter Needs to Know Before Signing a Lease

Rental agreements are necessary. But they're generally designed to protect the landlord. Here are 3 things all renters should know before signing a lease.

Contracts and agreements are necessary in the business world, for a variety of reasons.

First and foremost, they hold businesses accountable for their actions. Once upon a time, a handshake and a man’s word were all that was needed. Unfortunately, we don’t live in that kind of world anymore, and the law-binding power of a contract is a necessity.

Owners use contracts to protect their business in case of a lawsuit. While contracts hold businesses accountable and protect them at the same time, individual consumers need to pay attention to contracts the most. This is particularly true when it comes to rental agreements.

Anyone familiar with signing a lease knows just how long that document can be. Including the terms of your rental arrangement, this contract also includes sections that explain procedures, rights of the tenant and landlord, and a variety of other circumstances. The lease establishes rules and gives direction should problems arise.

The few leases that I have signed over the years have all exceeded 20+ pages, and that’s with very small type. Before signing them, though, I read every single word at least three tim over. It’s the only way for me to ensure I know the rules of the game. It’s important that you do the same.

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Two key terms every rental agreement includes are early termination fees and concessions. I’ve gotten to know these terms firsthand while helping a friend settle his debt with a previous tenant. Understanding them provides you the potential to save thousands in penalties.

Early Termination

A lease is a binding contract, good for the set term stated. So, for example, if you sign a one-year lease beginning January 1st, 2018, you agree to make payments for one full year, based on the arrangements written out in the lease.

Assuming your rent is owed monthly, 12 payments must be made in full and on time to avoid defaulting on the lease. Should a renter decide to terminate the lease early, an early termination fee applies. This generally goes one of the following two ways:

  • No matter when the lease is terminated, the renter agrees to pay the landlord for the full years’ worth of rent prior to vacating the premises. This means that even if a renter decides to leave in March, they owe the entire year’s worth of rent in full. This option should NEVER be agreed to by a renter! In this case, thousands of dollars can be lost if you wind up in a bad situation. Negotiate with the landlord before signing, if at all possible.
  • Most rental agreements come with an early termination clause, which allows renters to pay two additional months of rent prior to vacating, regardless of how many months remain on the lease. This option allows the landlord ample time to find new tenants while compensating them handsomely in the process. An early termination clause usually shows up as an addendum to any lease, so make sure it’s something you sign in addition to the standard lease.

Another option includes an early termination clause in which the tenant agrees to continue paying rent until the landlord is able to find another suitable renter to occupy the premises. Depending on what time of year you need to break your lease, this could be a very good thing or very bad thing.

Leave in April when renters are out shopping for new places, and you could wind up paying only a few weeks’ rent. Leave in November when the rental season has slowed, and it could take months to get a new tenant. However, it is a fair option for both the tenant and landlord, if breaking the lease is your only option.

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Monthly Concessions

Sometimes, when signing a lease, a special deal is added to make the pot sweeter for the renter. These can come in the form of concessions, or rental price breaks.

When renting my apartment, for instance, I was able to knock $266 off the rent every month. In addition to that, I was able to fork over only a small security deposit of $99.

It’s extremely important to note, though, that these monthly concessions are given ONLY if the lease is completed in full.

For example, let’s assume that I broke my lease four months early because of a new job opportunity. My first thought is that I can simply pay the remaining two months’ rent (my early termination agreement) and call the case closed. However, because of my concession, I probably have to pay more.

Most landlords require the tenant to pay back the entire concession if they break the lease. So, I would now be on the hook for an additional $2,660 ($266 concession x 10, for the 8 months I lived in the apartment and the 2 additional months I owe for). Add that to those two extra months of rent, and we are talking about handing over a pretty penny in exchange for skipping out early.

If I can’t pay back the concession fee plus the early termination fee, my landlord will surely sue me. And, he or she will probably sue for all four months’ rent I did not pay and the entire amount of the concession. This was the exact situation my friend fell into, but luckily, the landlord worked with us for a smaller settlement amount.

Learn More: Everything You Need to Know About Rent-to-Own Homes

Security Deposit Rules

Most landlords require a tenant to pay a month’s worth of rent as a security deposit before moving in. The landlord uses the security deposit to protect the landlord from damage caused by the renter. If you don’t cause any damage, you’ll get this deposit back — and you’ll definitely want to get this deposit back!

Make sure before moving into a new apartment, you’re prepared to do the following two things:

1. Rental Walk-through

Bring a camera and bring a notepad. Document every single thing about the residence that you think isn’t perfect, no matter how insignificant it may seem.

Look both inside and out (if you’re renting a home), looking under cabinets, in closets, and on the ceiling. Don’t be shy about documenting things that you may think aren’t worth your time, either! That stained sink or frayed carpet may not bother you now, but it will when they demand you pay to replace it upon move-out.

Security deposits can be thousands of dollars and your landlord won’t be shy about charging you for damage when you leave. Have as much proof as possible that any damage to your rental is not your fault.

If you need help, Zillow has a 25-point checklist that you can download here. It gives you tips on what to look for during your walk-through.

2. Read Reviews

Spend time online trying to find reviews about your landlord and/or new property. Positive reviews are nice but it’s the reviews from people with problems that I find to be most helpful.

How did the landlord handle a broken lease? How did the landlord handle damage to the bedroom furniture? It’s nice to think you’ll be a model tenant and leave your rental in pristine condition, but things happen. It’s comforting to find a reasonable landlord when you confront an obstacle.

Related: Should You Rent a Home or Buy One?

Most people don’t sign a rental agreement with plans to break the lease. However, sometimes it just happens and there’s nothing you can do about it.

No doubt, the penalty will be higher than any tenant thinks they deserve to pay, but that risk is included when signing a lease. Make sure you take every precaution necessary and talk with the landlord prior to signing a lease. Two months’ rent owed is the industry standard, and you should settle for nothing less.


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