What is a lease agreement? A guide for first-time landlords

Stepping into the world of property management as a first-time landlord? Congratulations! You’re joining many people just like you who rent out their properties. In fact, in the US, around 70% of rental properties are owned by individuals, rather than corporations.

While managing an investment property is an exciting opportunity, it’s important to set off on the right foot by creating a sound lease agreement. This document doesn’t just protect your property, it’s the foundation of the relationship with your tenants.

Let’s break down everything you need to know about lease agreements in straightforward, practical terms so you can lease your property with confidence.

What is a lease agreement?

A lease agreement is a legally binding contract between you, the landlord (also known as the “lessor”), and your tenant (the “lessee”) that clearly spells out the terms for renting your property. It’s essentially a rulebook that sets out your landlord-tenant relationship.

Unlike a casual verbal agreement that leaves room for “he said, she said” situations, a written lease provides clear documentation of all rental terms. This clarity can help prevent misunderstandings further down the line and gives both you and your tenant legal protection throughout the rental period.

Why do you need a lease agreement?

If you’re wondering if a formal lease is really necessary, especially if you’re just renting to someone you know or a family member. The simple answer is yes.

A written lease agreement isn’t just paperwork, it's your (and your tenant’s) protection and peace of mind. Here’s why it matters:

• Legal protection: A proper lease protects you from potential legal and financial headaches by clearly stating who’s responsible for what.
• Clear expectations: Avoid “I didn’t know I couldn’t do that” conversations. Your lease spells out explicit rules on rent, maintenance, property use, and more.
• Dispute resolution: When disagreements arise (and they likely will), your written lease gives you something concrete to point to.
• Property protection: You protect your investment's value by establishing clear rules about property use and care.
• Legal compliance: A proper lease helps ensure you stay on the right side of housing laws and regulations.

Essential components of a lease agreement

An effective lease agreement includes several key elements that protect both you and your tenant and clearly establish the terms of the rental arrangement. Here’s what you need to include:

1. Names and contact information

This section establishes who is legally bound by the agreement. It should clearly document the full legal names of all parties involved, including yours and every adult tenant who will reside in the property. Remember to include contact information for all parties.

2. Property details

As you’d expect, the property section specifies the complete address of the rental property, including the property number and any other identifying information. Document any amenities, appliances, furniture, or parking spaces included with the rental, and clearly describe which areas of the property tenants can access and which they can’t.

3. Lease term

Clearly state the start and end dates of the lease period so there’s no ambiguity about when the agreement begins and ends. Is it a fixed term or a month-to-month arrangement? Be sure to include that here.

To avoid confusion towards the end of the term, include information about renewal policies and notification requirements for extending or terminating the lease.

4. Rent information

The rent section should outline the monthly amount due, the specific due date, and the acceptable payment methods. Details any late fees that might be involved and grace periods that apply, instructions on where and how rent should be paid, and your policy on potential rent increases.

Being explicit here will help prevent payment disputes.

5. Security deposit

Document the security deposit amount and precisely what it covers. Clearly explain the conditions required for a full refund and provide a timeline for returning the deposit after move-out.

Some jurisdictions require landlords to maintain deposits in separate accounts. If your rental property is in one of these places, include information about how the deposit will be stored.

6. Utilities and maintenance

Specify which utilities are included in the rent and which the tenant must cover.

If tenants don't pay utilities directly, explain how utility billing is handled. It’s also important to specify what maintenance responsibilities you, the landlord, and your tenant have. This includes outlining procedures for emergency repairs and being clear about who’s responsible for lawn care or snow removal.

7. Occupancy limitations

To avoid unwanted long-term guests of your tenant, set out the maximum number of occupants that are allowed to occupy your property on an ongoing basis.

It’s also really important to clarify your stance on subletting to prevent tenants from renting the property to others without your knowledge or approval.

8. Pet policies

Whether you welcome furry friends or worry about Fido scratching the furniture, it's essential to clearly outline your policy on pets.

If you allow pets, specify any pet deposit or monthly pet rent amount required. Also, describe what pets are permitted and outline the responsibility of the tenant regarding pets (including waste disposal, noise control, and liability for damage caused by animals).

9. Property use rules and restrictions

Noise limitations help maintain a peaceful environment for neighbors and can shield you from complaints if your tenant gets too loud.

Clarify what modifications and alterations tenants can and cannot make to the property, and also if they are allowed to smoke in or around your property. If applicable, include any rules set out by your Homeowners Association (HOA) that tenants must follow and state whether business use of the property is allowed.

10. Entry and inspection rights

You will want to inspect your property from time to time. In this section, you can clarify what notice period you must provide your tenant before an inspection or carrying out any maintenance.

It’s also helpful to clarify how this might change in emergency situations when you could need to access the property immediately.

11. Early termination and default conditions

Can the tenant end the lease early? If so, under what circumstances? This is where you clarify those conditions.

Be sure to outline any penalties for early termination, required notice periods (which may vary depending on the situation), and the consequences for violating lease terms.

12. Legal disclosures and addendums

Finally, include all legally required disclosures. Add any necessary mold disclosures, bed bug addendums, and state-specific required disclosures. Document any property-specific issues that tenants should know about before moving in to avoid future liability.

Understanding your local legal framework

Rental property laws tend to be highly localized, with some major differences between jurisdictions. But no matter where your property is located, you’ll typically need to understand:

• Anti-discrimination provisions: Most places have rules about who you can refuse as tenants and on what grounds. Protected characteristics often include factors like race, gender, and family status.
• Required disclosures: You may need to inform tenants about certain property conditions, known hazards, or other important information before they sign a lease.
• Entry and privacy rights: Rules governing when and how you can enter the property vary widely, but most jurisdictions require some form of advance notice, except in emergencies.
• Security deposit regulations: Many areas regulate how deposits must be handled, stored, and returned, including maximum amounts and timelines.
• Habitability standards: You’ll likely be required to maintain the property to certain minimum standards of safety and functionality.
• Eviction procedures: There are almost always specific legal steps to remove a tenant, and following them precisely is crucial.

Remember: what’s standard practice in one location might be illegal in another. Taking a little time to understand your local legal framework is one of the most important investments you can make as a landlord.

Common questions from first-time landlords

How long should my lease agreement be?

Most residential leases run for 12 months. In fact, in the US, almost 60% of rental agreements are 12-month leases. Month-to-month leases are less common, accounting for 31.8% of leases.

Month-to-month leases offer more flexibility but less security — great if you’re testing the waters, not so great if you want guaranteed income for a full year.

Should I have a lawyer review my lease?

Hiring a lawyer to draft a lease agreement is not legally required. Many choose to use a lease agreement template, and another more advanced option is to use an AI lease agreement generator.

However, as a first-time landlord, it’s a sensible move to have a lawyer review your draft lease agreement and ensure it meets all requirements. This approach can be more cost-effective (and likely quicker) than asking a lawyer to draft the lease agreement from scratch while still giving you the confidence that your document is legally compliant.

Can I change the terms once the lease is signed?

In a nutshell, no — once you and your tenant have signed the lease, the terms are locked in for the duration. However, if both parties agree to it in writing, you can amend the lease terms.

What’s the difference between a lease and a rental agreement?

These terms are often used interchangeably, but they do refer to different things. Technically, a lease usually refers to a fixed-term agreement (like 12 months), while a rental agreement typically means a shorter-term arrangement, like month-to-month.

How do I handle roommate situations?

The smart move is to have all adult occupants of your property sign the lease as tenants.

This makes each person fully responsible for all terms, including the full rent amount. If one roommate disappears, the others will be responsible for the entire rent so you aren’t left out of pocket.

What should I do if a tenant violates the lease?

Document everything and follow your lease’s enforcement procedures to the letter. This will usually involve sending written notices with specific timeframes for fixing the issue before you take further action.

It’s important not to skip these steps, as you could undermine your own case and regret it later on.

Can I prohibit pets in my rental property?

Yes, with some important exceptions and depending on where you are.

For example, if you’re in the US, you must allow service animals under the Fair Housing Act (FHA), regardless of your pet policy. Many localities also have restrictions on pet policies, and emotional support animals also have certain protections. It’s a complex area where good lease language matters.

Digital solutions for modern landlords

As a first-time landlord, you can benefit from digital tools that streamline the lease creation process.

These solutions make it easy to create professional documents without needing a law degree, avoid costly errors and omissions in your agreements, save hours of time through automated document creation, and quickly update agreements whenever needed.

If you plan to expand your rental operation to include additional properties, these tools become even more valuable by helping you maintain consistency across multiple leases.

Simplify lease creation with AgreementGen

Looking to streamline your lease creation process while ensuring you’re legally covered? Lumin's lease agreement generator powered by AgreementGen takes the guesswork out of creating your rental documents.

Unlike basic templates that might miss critical requirements for your specific location, AgreementGen helps you:

• Generate customized agreements tailored to your exact property needs
• Easily adapt the same core agreement for different properties or situations
• Create professional documents that instill confidence in your tenants
• Update agreements efficiently when it’s time to renew.

It’s like having a document expert at your fingertips, helping ensure your lease covers all the necessary bases without requiring an extensive legal background.