April 25, 2024

How Secure is Your Rental Agreement? 5 Leasing Contract Loopholes to Avoid!


Rental agreements were created to outline legal expectations from both sides of the contract. It is a written document that specifically states what a tenant should expect from their landlord, as well as what can be expected of them while living as a resident in the rental space.

By this metric, there is no room for misunderstandings or misinformation in legal expectations or anything else that can have a detrimental effect on the binding contract between the tenant and landlord.

Perhaps, that is the thought, but experience has shown where there is a will, there is a way to find a loophole!

In nearly every industry that is defined by a contractual agreement, there is naturally a quest for one party or another to try and dig out a loophole to bend things favorably when necessary. It's significantly common in real estate for one of many reasons - early termination, unjustifiable modifications and even paying rent alone. Owners work to ensure their rental agreements are sufficiently outlined and as airtight as possible, or hire a property management company to do so for them.

While loopholes tend to signify a quest to defy legal parameters, believe it or not, in most cases, they are to achieve or deny the smallest attributes.

Let’s take a look at five of the most common reasons tenants have fished out loopholes to achieve a specific agenda.

Unclear Lease Termination Clause

Contracts are put in place to expound on an agreement and remove the ambiguity. While this is the purpose, there is no shortage of poorly written agreements that leave room for debate and can ultimately leave room for exposure and loss. An unclear lease termination clause is one of the most common loopholes. Landlords that are associated with specific associations may have a lease package complete with a lease template that thoroughly covers the terms of the agreement, including specifying all notice dates by number of days or months required to terminate without penalty. However, error typically shows up on lease agreements that aren't as thorough.

For example, imagine a lease agreement that states the tenant can terminate the lease "with reasonable notice." There is no specified definition of “reasonable notice” and leaves interpretation up to the resident. If the tenant decides to leave abruptly without providing a specific notice period, the landlord may suffer financial losses due to vacancy and potential legal expenses.

Vague Maintenance Responsibilities

There is a widespread misconception that the landlord is responsible for all associated costs and repairs in their rental home. That is wholly untrue, that is, if it is properly specified in the rental agreement. Vague maintenance responsibilities that do not clearly define who is responsible for specific repairs and maintenance tasks leaves room for a landlord-tenant blow up. When these responsibilities are unclear, tenants may avoid their obligations, leaving the landlord to cover the costs. This can lead to unexpected expenses and strain the landlord's budget.

While the listing of specific covered repairs can be an endless list just as those not covered, it is important to specify conditions and even types of repairs in the lease agreement and then go further to elaborate that determination. Additionally, repairs brought on by normal wear and tear may be included, i.e. a worn down carpet after a recorded number of years, etc.

Inadequate Security Deposit Terms

A poorly outlined security deposit clause can also become a loophole that costs landlords. If the lease fails to specify the allowable deductions from the security deposit or the timeframe for returning the deposit, tenants may dispute deductions or delay the refund process. This can tie up the landlord's funds and resources, forcing them to spend time and money on legal proceedings to settle the matter.

One of the most common arguments is the tenant's request to skip out on paying the last month’s rent and applying the security deposit instead, or applying the security deposit against the account in lieu of paying one month, as well as returning the security deposit immediately upon vacancy.

Failure To Address Subletting

The Airbnb frenzy put such a strain on the battle against subletting. Neglecting to include provisions regarding subletting in the lease agreement can create a nightmare for all parties involved. Without explicit permission or guidelines, tenants may sublet the property without the landlord's knowledge or consent. Unauthorized subletting can lead to accelerated wear and tear and increased unauthorized guests, which can also be a potential increased safety risk. 

Neglecting To Outline The Late Payment Penalties

Late fees are not fun, and residents will work overtime to avoid having to pay them, even when they are knowingly late. Without clear consequences for late rent payments, tenants may develop a habit of paying late or even withhold rent altogether. This can lead to a strain on the landlord's cash flow, financial instability, and potential eviction costs.

Leases are designed to establish a fair and mutually beneficial relationship between landlords and tenants. However, certain loopholes may exist within these agreements that can lead to financial and legal consequences for the landlord. It is crucial for landlords to carefully review and revise their lease agreements to ensure these loopholes are addressed and minimized to protect their interests.

National Real Estate Management Group works with their clients to review lease agreements to ensure its compliance with state and federal laws, as well as establish a governing document that allows both the landlord and residents to amicably coexist in a thriving relationship.

Looking to revamp your rental documents? Contact us and let's discuss your real estate operations.