Lease Agreements Between Landlords and Tenants – Part 6
Lease Agreements Between Landlords and Tenants – Part 6
In Part 5 of our Lease Agreements series we discussed the issue of specific clauses being required by some states. In this article we’ll briefly discuss several issues regarding lease changes.
Modifications
There are a variety of circumstances when a lease agreement must be amended. Reasons for amendments include the following:
- Renewal or extension of lease, with or without a rent increase or other changes.
- Adding a pet.
- Adding or deleting co-tenant occupants.
- Bringing in water-filled furniture.
- Replacing the original tenant by another to finish out the term of a lease.
Although it is legally acceptable to mark up the existing documents, with both parties initialing the changes, it usually best to not take this approach. While some modifications can be made by using an amendment document (e.g., an extension of term without other changes), others should be accomplished by writing a new lease agreement (e.g., adding a co-tenant). For a month-to-month tenancy, modifications can, in most jurisdictions, legally be done by providing proper notice to the tenant and the tenant’s signature is not required.
When replacing a lease agreement that hasn’t yet expired with a new one because of significant changes in terms, it is a good idea to write “Cancelled by mutual agreement and replaced with new document” on the front of the old one following execution of the new one by all parties, with both landlord and tenants (should be all adult occupants) signing and dating the statement. You should also be sure that there is not an overlap or a gap between the cancellations date and the effective date of the new lease.
The subject of subleasing and assignment of leases should also be covered in lease clauses. Unless prohibited by law, the lease agreement should require written consent of the landlord to a tenant’s request to sublet or assign the rental unit and require that the replacement tenants meet all screening criteria.
Sublease
An individual who rents all or part of a rental unit from a tenant and does not sign a lease with the landlord becomes a sub-tenant. The individual rents or sublets the entire unit from a tenant who moves out temporarily or he rents or sublets a room or rooms from a tenant who continues to occupy the unit. Oftentimes the original tenant moves out for the summer, semester, sabbatical leave, or temporary change in work location. The arrangement is made by the tenant and the sub-tenant and is contingent upon the sub-tenant moving out when the original tenant returns.
Subleasing is usually prohibited by a lease agreement, although the agreement may provide for subleasing with permission of the landlord. However, some states may not allow outright prohibition, requiring a legitmate business reason (e.g., bad rental history of the prospective subtenant).
Some states have statutes prohibiting subleasing without permission of the landlord even if not so stated in the lease agreement. Other states do not address the issue and leave the decision to sublease to the landlord. There are also limitations in some states regarding the type of lawsuits that may be filed by landlords against sub-tenants. In some states the landlord and the sub-tenant may file suite against one another to correct behavior in violantion of the lease but they may not sue for money damages. For example the sub-tenant could sue for violation of habitable premises, but the landlord could not sue the sub-tenant for excessive property damage not covered by the security deposit. In such a case, to recover his loss, the landlord would need to sue the original tenant.
The primary relationship between the landlord and tenant is retained with the tenant still having control over the rental unit either because he occupies part of the unit or he reserves the right to regain possession of the rental unit at a later date.
The original tenant becomes the sub-tenant’s landlord. The sub-tenant pays rent to the tenant at whatever amount they mutually agreed to. The original tenant is responsible to landlord for the rent per the master lease agreement. The oral or written arrangement between the tenant and the sub-tenant is known as a sublease.
The landlord is cautioned to not accept rent from a sub-tenant. If the landlord treats the sub-tenant as if he were a tenant by taking rent or acting in some manner towards the sub-tenant that would indicate his status as a tenant, the landlord by his actions might in effect relieve the tenant of his responsibility by creating a tenancy from a sub-tenancy.
There are situations where a sub-tenancy might be of benefit to the landlord. If the original tenant was considered a model tenant with an excellent rental history with the landlord and the landlord is willing to take the risk that the original tenant will return to occupy the unit, the landlord probably does not risk a great deal.
Assignment
When the original tenant permanently turns over his lease to a new tenant, he has completed an assignment of the lease. The original tenant, the assignor, moves out of the assignee moves in. An assignee can sue or be sued by the landlord.
From several standpoints, the landlord should usually prefer an assignment of lease to allowing a sublease. An assignment provides more landlord control over the tenant because the landlord has a direct legal relationship with the assignee. Furthermore, it is usually possible to require that the assignor remain liable on the lease upon default of the assignee if the landlord so desires. Assignors will usually agree to such liability because assignment is almost always due to financial difficulties and the assignors would likely have even greater liabilities if they simply broke the lease.
Similar to subleasing, assignment is usually prohibited by a lease agreement, although the agreement may provide for assignment with permission of the landlord. However, some states may not allow outright prohibition, requiring a legitimate business reason (e.g., bad screening reports regarding the prospective assignee).
As for subletting, some states may have statutes prohibiting assignment without permission of the landlord even if not so stated in the lease agreement. In general, the landlord and the assignee are bound by the terms and conditions of the lease signed by the assignor except as modified by agreements of all parties. The original security deposit is usually retained by the landlord, with adjustments made between assignor and assignee. Accordingly, any refund of security deposit money will go to the assignee.
It is recommended that a formal document regarding assignment of lease be signed by all parties to the original lease and, if multiple assignees, by all of them. In addition to other clauses in the assignment, unless the landlord agrees otherwise, the document should state that the assignor is still responsible for (1) the rent if the assignee fails to pay and (2) damages to property (other than normal wear and tear) if the assignee refuses or cannot pay.
Replacement Tenants
When a new tenant takes over from an existing tenant – whether as sub-tenant, assignee, a replacement co-tenant, or a tenant who is breaking his lease with permission of the landlord and being released from liability – the move-out checklist/walk-thru should be completed for the old tenant, with settlement of any unpaid rent or damages to that date being taken care of before completing the change.