THE IMPORTANCE OF A WELL-DRAFTED LEASE

By:  Adrienne B. Knack

Often, people or companies that rent real estate get into trouble with a tenant.  There are numerous problems that can arise as a landlord – both with residential tenants and commercial tenants.  A landlord should have the proper protection by having a professionally drafted, case-specific lease that conforms with state, county, and municipal regulations and statutes.  There are many things that need to be present in most – if not every – lease agreement.  This includes items such as a description of the premises, rent amount, payment specifics, the county where a collection or eviction suit can be brought, etc.  In addition, every piece of real estate is unique and comes with its unique set of concerns and issues.  If there is a specific issue with a certain piece of property, it needs to be addressed in the lease.  A lease needs to function as both a sword and a shield.  It needs to protect the parties, both proactively when the other party does not perform and defensively when the other party attempts to come after (them) owner/landlord under the lease. A bit confusing – can you name the parties?

Landlords much too often use a boilerplate lease that they find on the internet, receive from a realtor, friend, or wrote themselves.  While it is certainly better to have something instead of nothing, the leases that we see that are not properly drafted can be dangerously lacking.  One example that we have seen recently is a commercial lease that did not include a default provision.  The lease neither defined what it meant for the tenant to be in default of the lease, nor did it dictate the landlord’s available remedies. This left the landlord vulnerable when the tenant ceased making rent payments. 

It is important for a landlord to protect itself by building certain items into its lease agreement. Michigan law requires that a residential lease contain certain specific lanaguge. Michigan law also requires that the landlord and tenant have an inventory checklist and itemized list of damages.  All of these documents work together to allow the landlord remedies from the tenant, as well as protect the landlord if a tenant attempts to make a claim that is not within the purview of the lease. All of these documents work together to allow the landlord remedies from the tenant, as well as protect the landlord if a tenant attempts to make a claim that is not within the purview of the lease.

Another bad situation that is made worse by having a poorly drafted lease is when a residential lease is used with a commercial tenant.  We have seen this situation too often, which can be detrimental to a landlord when there is an issue with a tenant.  There are certain items that need to be included or addressed in a commercial lease that would not be present in a boilerplate residential lease.  There will also be items included in a residential lease that should not be included in a commercial lease.  It is also important to ensure that any kind of extension of or amendment to the lease is in writing signed by both parties.

There are very specific Michigan statutes regarding what needs to be included in a lease.  When a lease is sourced online or is a fill-in-the-blank type lease, these items are missed.  This can be fatal to the landlord when attempting to evict or collect from a tenant for breach of the lease.  One specific example is that pursuant to MCL §554.603, the landlord must inform the tenant of the name and address of the financial institution where the security deposit is held.  The statute specifies the language, in 12-point boldface font, which must be included in a lease. 

On the flip side of what we have discussed thus far, there are also many things that can go wrong as a tenant.  If a landlord does not perform as they are supposed to, such as not making repairs or paying property taxes, the tenant needs to ensure there are protections in the lease to allow them to force the landlord to perform and give the tenant remedies if the landlord does not do what he is supposed to do.

If a proper lease is not used, both parties could end up in a long, expensive court battle.  It is well worth the time and money up front to have a professionally drafted lease prepared to protect everyone involved.  It certainly makes things much easier when an issue arises.