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Understanding the lease - part 2

Photo by Blake Newman from Pexels

Photo by Blake Newman from Pexels

Unfortunately, some leases can last longer than some marriages. Do not be caught in a lease you do not understand, a property that does not fit your needs, a landlord that does not seem to take care of their property, or a tenant who does not pass your qualifications.

I am currently working with a property owner of an industrial property and a winery tenant who wants to lease it for 15 years. Both parties are concerned with the terms in the lease and are investigating it and the property thoroughly.

In part one of this series of articles, you learned how a lease is a contract that creates a relationship which gives the tenant a right to use a property owned by the landlord. We specifically started our discussions on the ten page CAR (California Association of Realtors) “Residential Lease or Month-to-Month Rental Agreement” because this lease is less complex than the commercial lease we will highlight next.

Let’s dive in and discuss a few of the highlights in the “Residential Lease or Month-to-Month Rental Agreement.”

When does the lease begin and when do I get the keys?
A lease can begin on any day of the month, which is called the commencement date. Usually, rent starts on the same day and can be prorated if not for a full month. Possession should only be given to the tenant when the lease is signed by all parties, delivered to all parties and all amounts due paid to the landlord.

A lease is a contract and is ratified when all the parties of the contract sign, an executed copy of the agreement is provided to all the parties, and money is paid from the tenant to the landlord. My explanation is overly simplified, but keep in mind that if a tenant does not pay the first month’s rent and a security deposit which is usually required there is no lease or rental agreement.

Pay your rent early.
The monthly rent is usually due on the first of each month and in most cases delinquent the next day. Many leases allow for a grace period when rent payments can be made up to a certain number of days without incurring late fees.

A little-known fact, all tenants on the lease are each responsible individually and collectively for the entire rental amount due each month. In most cases, unless the landlord made other arrangements if the rent is $2,000 a month and there are four tenants on the lease the landlord may take four $500 checks even though it is not smart to do so.

The problem arises when one of the tenants is unable to pay their $500, the landlord is under no obligation to accept the $1,500 and pursue collections with the one tenant. Each tenant is individually responsible for the $2,000 payment due as well as collectively. The landlord can pursue legal action against all four tenants for the rent.

In part three we will continue with our discussions on the “Residential Lease or Month-to-Month Rental Agreement” as it pertains to security deposits, the condition of the premises, maintenance, and damage.

Burt M. Polson, CCIM, is an active commercial real estate broker. Reach him at 707-254-8000, or burt@acresinfo.com. Sign up for his email newsletter at BurtPolson.com.

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