Lease Prices: Per Tenant Or Total Cost?

When it comes to renting a 4-bedroom property, the lease price listed is typically the total cost of rent for the unit, rather than the price per tenant. This means that the total rent amount is to be divided amongst the tenants according to their agreement. While landlords may encourage roommate agreements, they are not responsible for them and are not legally bound to resolve disputes between tenants. However, landlords must comply with local, state, and federal laws regarding occupancy limits and fair housing regulations.

Landlords can set occupancy limits, but these must be reasonable and comply with local, state, and federal laws

The US Department of Housing and Urban Development (HUD) states that individual public housing agencies must set reasonable occupancy standards to "assist as many people as possible without overcrowding the unit or causing vacancies". While this is not a legal requirement, it is a recommended guideline that many properties follow.

When setting occupancy limits, landlords must consider various factors, including local laws, the size and layout of the property, and the capacity of building systems such as septic or sewer. They must also comply with health and safety codes and consider the possibility of new tenants joining the lease.

In addition, landlords must ensure that their occupancy limits do not discriminate against tenants, particularly families with children. Federal laws such as the Fair Housing Act of 1988 (FHA) and the Keating Memo of 1991 protect tenants from discrimination based on familial status. The FHA prohibits landlords from denying tenants based on family size and ensures that families, including those with children, have fair and non-discriminatory access to housing. The Keating Memo clarifies that landlords must consider factors such as the age of children and the unit's square footage when setting occupancy limits.

To avoid discrimination charges, landlords should base their occupancy limits on the total number of people living in the unit rather than the number of children. They should also define occupant age, specifying at what age a child is considered an occupant. It is essential for landlords to follow these guidelines and treat all tenants fairly and equally to avoid potential legal issues.

Rental prices are influenced by market trends, amenities, seasonality, expenses, and rent control laws

Rental prices are influenced by a multitude of factors, some of which are controllable by landlords, while others are subject to market forces and external factors. Here are several key factors that impact rental prices:

Market Trends

Market trends play a significant role in determining rental prices. The state of the market in a particular area can greatly affect the rates landlords can charge. For instance, properties in high-income neighborhoods with high demand and limited supply of rental units can command higher rents. Conversely, in areas with a high vacancy rate or an abundance of available rental properties, landlords may need to set more competitive prices to attract tenants. Additionally, the general economic landscape, including periods of high inflation and rising interest rates, can cause rental prices to fluctuate. During times of economic prosperity, landlords may have more flexibility in setting higher rents, whereas during economic downturns, they may need to adjust prices to accommodate tenants' potentially tighter budgets.

Amenities

The presence of various amenities can significantly influence rental prices. Properties located in desirable areas, such as those with easy access to restaurants, shopping centers, good schools, public transportation, and medical care, tend to have higher rental rates. Additionally, properties with extra features such as a fenced-in yard, garage, smart home capabilities, a security system, or a pool may justify higher rents. Including utilities in the rent can also make the offer more attractive to potential tenants, allowing landlords to set slightly higher prices.

Seasonality

The time of year can also impact rental prices. Typically, prices tend to be lower during the winter months, as demand for apartments decreases due to unfavorable moving conditions. On the other hand, peak moving seasons, usually between May and September, coincide with higher rents. This is often attributed to students searching for housing for the upcoming school year and families preferring to move when children are out of school. Therefore, tenants seeking more affordable options may consider moving during the off-season, as they can take advantage of lower prices, albeit with a potentially limited selection of available units.

Expenses

Rental prices are also influenced by the expenses incurred by landlords in maintaining and managing the property. These expenses can include property taxes, insurance, common area maintenance (CAM), and utilities. In some cases, landlords may opt for a lease structure that passes on these expenses to tenants, such as the Triple Net (NNN) lease, where the base rent plus these additional expenses are billed to the tenant. Alternatively, other lease types, like the Full-Service Gross (FSG) lease, include all expenses in the lease rate, providing tenants with more predictability in their rental costs.

Rent Control Laws

Government regulations, particularly rent control legislation, can have a significant impact on rental prices. Laws that limit future rent increases may influence landlords to ensure they are not undercharging for their properties. Additionally, regulations affecting short-term rentals, such as Airbnb, can alter the supply and demand dynamics in an area, consequently affecting rental rates.

Lease agreements should include a Limits on Use and Occupancy clause to control the number of people living in a rental unit

Lease agreements should include a "Limits on Use and Occupancy" clause to control the number of people living in a rental unit. This clause is essential for landlords to enforce reasonable occupancy limits and ensure a harmonious living environment for tenants. By defining the maximum number of occupants, landlords can prevent overcrowding, minimise wear and tear, and comply with local regulations. Here are some key points to consider regarding the "Limits on Use and Occupancy" clause:

Definition of Occupants

Clearly define who is considered an occupant in the lease contract. Specify that only the tenants listed in the agreement and their minor children are allowed to reside in the rental unit. This ensures that there is no ambiguity regarding the number of permitted occupants.

Guest Policies

Outline rules for temporary guests and set a time limit on their stays. For example, you can prohibit guest stays exceeding 10 consecutive days in any 6-month period without the landlord's written consent. This prevents tenants from circumventing occupancy limits by having long-term guests.

Landlord's Consent

Specify that tenants must obtain the landlord's consent before adding any new occupants or roommates to the rental unit. This gives the landlord control over who resides in the property and ensures that all occupants are approved.

Breach of Agreement

Clearly state that any violation of the "Limits on Use and Occupancy" clause will be considered a breach of the lease agreement. Explain that unauthorised occupants or exceeding the maximum number of occupants can result in termination of the tenancy.

Communication and Documentation

Encourage open communication between landlords and tenants regarding occupancy limits. Tenants should inform landlords of any changes in the number of occupants, and landlords should conduct regular inspections to ensure compliance. Document all communications and agreements related to occupancy limits to avoid potential disputes.

Fair Housing Considerations

When setting occupancy limits, landlords must comply with fair housing laws and avoid discrimination against families. Limits should be based on health, safety, and legitimate business needs, such as the size and layout of the property, and not on the landlord's personal preferences.

Landlords should encourage tenants to create a roommate agreement to outline rules and expectations

When it comes to leasing a four-bedroom property, landlords often face the question of whether to rent to multiple tenants or just one. While renting to multiple tenants can widen the tenant pool, it also comes with certain challenges and risks. To mitigate these risks and ensure a smooth rental experience, landlords should encourage tenants to create a roommate agreement.

A roommate agreement is a contract between individuals sharing a rental property, outlining their rights and responsibilities. It is separate from the lease agreement with the landlord but complements it by specifying how tenants will share the space and address potential conflicts. This agreement is particularly important when multiple tenants are on the lease, as it can prevent future problems and provide clarity on expectations.

The agreement should cover various aspects of shared living, including financial responsibilities, household chores, and house rules. For example, it should specify how rent and utility payments will be divided and when they are due. It should also outline the distribution of the security deposit, with the understanding that all tenants are jointly liable for any damage to the property.

In addition to financial matters, the roommate agreement can set expectations for maintaining common areas, such as cleaning schedules and responsibilities for taking out garbage or recycling. It can also establish rules for guests, pets, noise levels, and respect for personal property. By negotiating these rules together, roommates can ensure that everyone is on the same page and reduce the likelihood of future conflicts.

While landlords typically have no direct involvement in roommate agreements, they can play a crucial role in encouraging their tenants to create one. By recommending a roommate agreement, landlords can demonstrate their support for a harmonious living environment and proactive conflict resolution. This approach can benefit both the tenants and the landlord by fostering a positive rental experience and reducing the need for landlord intervention in interpersonal disputes.

Lease rates can be calculated in different ways, including NNN (triple net), FSG (full-service gross), and MG (modified gross)

Lease rates can be calculated in different ways, depending on the type of lease. The three main types of leases are NNN (triple net), FSG (full-service gross), and MG (modified gross). Each of these lease types has its own unique structure for calculating rates and allocating expenses between the landlord and tenant.

NNN, or Triple Net lease, includes the base rental rate plus the three 'nets' or 'Ns': property taxes, property insurance, and common area maintenance (CAM). In this type of lease, tenants are responsible for paying their proportionate share of these fees, in addition to their base rent, utilities, and any maintenance within their premises. For example, the lease rate may be advertised as "$20.00 /SF NNN (Estimated NNN = $3.25/SF)", meaning the base rent is $20.00 per square foot per year, and the property expenses are estimated at $3.25 per square foot per year. So, for a 1,200 SF space, the base rent per month would be $2,000.00, plus $325.00 for taxes, insurance, and CAM, resulting in a total monthly lease rate of $2,325.00.

FSG, or Full-Service Gross lease, includes all expenses in the lease rate. This means the lease rate covers the base rent, property taxes, property insurance, common area maintenance costs, and typically utilities. The lease rate for this type is often advertised as "$20.00/SF/YR FSG". So, for a 1,200 SF space, the gross rent per month would be $2,000.00.

MG, or Modified Gross lease, is a hybrid of the Triple Net and Full-Service Gross lease structures. In the first year of the lease term, it is similar to FSG, but it differs in subsequent years. MG leases use a Base Year Expense Stop to protect landlords from increases in property taxes, insurance, and common area maintenance costs in future years. The tenant is responsible for paying their share of any increases in property expenses over the Base Year Expense Stop. For example, if a tenant leases a 1,200 SF space in January 2021, their Base Year Expense Stop would be the actual total property expenses for that year. If the property expenses for 2022 increase by $0.20/SF, the tenant would be responsible for paying their share of this increase, which would be $240.00 per year or $20.00 per month, in addition to the base rent of $2,000.00.

The choice between these lease types depends on various factors, including the sophistication of the landlord and tenant, the type of business, and the property style. Each lease type offers advantages and flexibility to both landlords and tenants, and it is essential to understand these differences when negotiating lease agreements.

Frequently asked questions