Crossett Real Estate Services
Real Estate Rentals - Information


Residential Lease Basics

Once the property owner has selected a tenant, the parties will need to enter into a lease or rental agreement. This is a formal contract that sets out the terms & conditions of tenancy/the rights & responsibilities of the landlord & tenant. It transfers possession, use, and enjoyment of the property FROM the landlord TO the tenant for a specific period of time and for a stated monetary amount (rent). The agreement also lists various rights & responsibilities of the tenant & landlord, such as payment of rent/utilities/use & upkeep/subletting/security deposits and any other issues relating to the rental unit.

To be enforceable, the lease should satisfy a few basic formalities that may protect both landlord & tenant from fraud or misunderstanding if a dispute arises later. The agreement should be in writing: a legal doctrine called the Statute of Frauds states that contracts that cannot be performed within one year must be in writing in order to be enforceable. To comply, leases of one year or more must be in writing. NOTE: As a practical matter, ALL leases, no matter what the duration, should be in writing, since the written document provides a record of the terms of the landlord-tenant relationship.

The agreement should be signed & dated by all parties to the contract. A copy of the agreement should be given to the tenant for future reference.

NOTE: Potential tenants may be discouraged by lengthy and complex rental agreements. The lease you use should be easy to read and understand and hopefully, limited to a few pages.

*Source: Real Estate Management: Joseph DeCarlo
WG&L (Warren-Gorham-Lamont)


Types of Leases

There are three (3) basic lease forms you will be expected to administer: gross lease/net lease/percentage lease.

#1 GROSS LEASE: Sometimes called a "straight lease", the tenant pays a fixed rental amount and the owner pays all other expenses for the property. Utility charges are generally paid by the tenant (who usually determines the cost), but may be negotiated between the parties of the lease. The most common form of a gross lease is the apartment (residential rental) lease,

#2 NET LEASE: There are three (3) variations. NET, NET-NET, and TRIPLE-NET: usually run for longer terms, sometimes for fifty (50) years or more. A strictly NET LEASE obligates the tenant to pay utilities, real estate taxes and other special assessments levied against the property in addition to the stated rent. NET-NET generally requires the tenant to pay all items included under the net lease plus insurance premiums agreed on in the contract. TRIPLE-NET generally adds on & requires agreed-on items of repair & maintenance in the contract.
As property usage becomes more specialized, triple net leases are being more widely used, (especially for industrial property).

#3 PERCENTAGE LEASE: Sometimes called "overage lease": For retail property: usually provides for payment of a fixed based rental fee plus a percentage of the tenant's gross income of a pre-determined minimum amount of sales: payments are usually based on annual computation. This type of lease will vary greatly, depending on nature & location of property/type of business and the general economic climate. Often contain a recapture clause setting a minimum amount of rent that must be generated by percentage of gross sales. Tenant may also be permitted to pay extra rental fee so that the lease will not be canceled. (favors tenant)


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These web pages were last updated on - 10/25/2001