One of the best ways to make sure tenants understand a lease is to sit down with them and go through it page by page. This is what is commonly referred to as a "lease review." This is an important part of the tenant onboarding process for two reasons. One, you can clearly explain your lease to the tenant so that they know your rules - and hopefully follow them. Two, it protects you from ending up in a situation where a tenant tries to say you scammed them or ripped them off when, in reality, they just didn't read the terms of the lease.
The term on-boarding is most commonly used in the workplace to describe the process of introducing new hires to the policies and procedures of their new workplace. Tenant on-boarding is similar because tenants are being introduced to the rules and regulations that will be applied to their tenancy.
The very first stage in onboarding should be a lease discussion, but very few landlords fully understand the value of going over a lease. As Rentprep suggests, "if you are treating your investment property like a business, this is one of the most important business meetings you will have." We would definitely be in agreement.
This discussion is crucial to your success as a landlord because it will help make sure your lease is understood. This will help you avoid stress and headaches later. For example, if you charge pet rent (and you should), you need to make this known before the tenant signs this lease. This is true even if the tenant doesn't own a pet.
Imagine if they decide to get a cat in three months and you have to tell them that it will cost them. That won't go over well. It will be a lot like getting hit with an unexpected charge from your cell phone company. Your tenant will most likely feel ripped off, even if it is right in the lease.
Steps for Reviewing a Lease
There's a best practice for reviewing a lease with tenants. If you follow this process you are much more likely to have tenants who know and follow the rules. The steps are as follows:
1) Assign Reading Before the Meeting
The first thing you should do is send them the lease before you meet with them. This step is incredibly important for three reasons.
One, it will help you establish trust with your tenant. Like signing any contract, tenants will be wary. By giving it to them beforehand you will show that you have nothing to hide.
Two, they won't feel as rushed during the meeting. If you don't give them the lease prior to the meeting, they will be seeing it for the first time. Like reading anything for the first time, it will be a little bit hard to understand. You, on the other hand, have seen it a million times, and this will likely make you go through the lease quickly. By sending them the lease before the lease review, you are helping to put them on the same knowledge level as you. This makes it easier to move through the lease in person.
Three, because they have read the lease already, they can be more involved. This will make it a more enjoyable experience for them, which will help you develop a better rapport with your new tenant.
2) Grab the Agreement
So this might seem like a no-brainer, but there are definitely landlords and leasing agents who have left their lease agreement behind at the office. Before leaving to go to your meeting, make sure you grab the lease.
3) Invite Questions Regarding the Lease Before You Start
Your goal here is to educate your tenant about your expectations. That is why we suggest this "teaching tactic." As you probably remember from school, your teachers would often ask "does anyone have any questions?"
This works especially well in a one-on-one setting. By engaging them in a dialogue you keep their attention. Some lease agreements can get rather lengthy, and it is likely that your tenant might lose interest. The whole goal of the meeting is to inform them, so keep their attention. When you ask this question to start, it sets a precedent for the rest of the meeting, which is that you want them involved in the discussion.
4) Discuss Every Line of the Contract
Don't just tell them how long the lease is and how much they will pay. You need to go through every line to make sure that you have clarified the whole agreement. Again, this will save you many headaches down the road.
During this time you need to be a good listener. Read their non-verbal behavior for any indication that they don't understand or that they are not paying attention. Also, listen to their questions and what they say. Often, this will indicate where they might have a misunderstanding.
5) Explain Your Complicated/Unique Policies
Don't explain all of your policies in-depth, but do take the time to explain those that are the most complicated or unique.
If it might seem unusual, or if you have had complaints about a policy in the past, then you need to justify why you have that policy. Again, this will help you avoid future problems with your tenant.
To return to our above example where your tenant decides to get a cat, imagine if you didn't explain your pet rent policy. Most likely they would feel like you had "ripped them off."
However, if you took the time to explain it to them during the lease review, they would probably be more understanding. By simply stating that pets add additional wear on a property, and require a cleaning after move out, you would be able to reduce the likelihood of a confrontation in the future.
6) Ask Questions Again As You Finish
People don't usually like to interrupt. It's rude, right? Well, there is a chance that your tenant has new questions for you by the end of the lease review, but didn't want to interrupt while you were talking. Make sure to ask them again if they have questions to ensure that everything was sufficiently covered.
7) Be as Professional as Possible
Although it should go without saying, you should be professional during the meeting. This means you dress professionally, act nice, and don't rush the meeting.
As previously mentioned, you will likely start rushing through the lease review. To you, it seems very straightforward. However, this is, at most, the second time that your potential tenant is seeing the lease. So try and take your time so that they don't feel rushed.
In addition, it never hurts to be friendly. This should be easy. Smile, ask them a bit about themselves, and enjoy yourself!
Finally, professionalism means that you stick to the lease agreement. While it is okay to ask a new tenant a bit about themselves, it isn't okay to be too personal. Don't share too much about your life and don't pry into theirs. Just stick to the small talk and you shouldn't have a problem appearing professional.
Ultimately, if you follow the aforementioned lease review steps, you should be able to remain profitable as an investor. This process will help you create a better relationship with your tenants, help them better understand the lease, and help you retain tenants for longer.
About the Author: Caleb Malik works for a property management company in Scottsdale, Arizona. He enjoys reading about real estate marketing and real estate investing. He also spends much of his time blogging about property management. In his free time, he teaches communication courses at a community college and enjoys hiking in the nearby mountains.
This is a contributed article, which was developed from information that originally appeared in an article titled How to Effectively Conduct Lease Reviews with New Tenants.
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