Contract to Lease Explained

As many Florida Realtors are aware, they may have to use a contract for lease when dealing with commercial leases in Florida. This is very similar to the contract for sale and purchase ("CSP") form used when selling property in Florida. However, the contract for lease ("CTL") is specifically used when leasing property in Florida. As a potential lessor or lessee, it is very important that you as a Florida Realtor understand the CTL. The CTL provides a framework that is mutually beneficial to the landlord and tenant in a commercial lease transaction.
The CTL provides information on the property address , rent, security deposit, due diligence period, term of occupancy, occupancy requirements, expenses, initial fee and expense payments, and additional charges. All of these items should be very important to a Florida Realtor to advise the landlord and tenant with the process. It is equally important for Florida Realtors to understand the process in order to guide their clients through the CTL and into a lease.

Essential Components of a Lease Contract in Florida

When brokering a lease for residential real estate in Florida, there are several things a real estate licensee must take into consideration. One must be familiar with the market, the property, and in nearly all cases, the owner of said property. In addition, a Realtor must be familiar with the contract they will be using and making sure that the terms, conditions, and legal obligations are clearly spelled out.
In Florida, there is no single standard sales contract and even fewer guidelines for leases. There are many different options that are currently being used by Realtors. However, there are some common aspects that must be in every good lease contract:
Security deposit – This is the amount of money which is typically equal to one months’ rent that a tenant gives to a landlord or property manager at the beginning of a lease. Florida law dictates that the security deposit must be kept in an interest bearing account and that the tenant must be informed how much interest is being paid by the bank making the deposit.
Disclosures – The Federal Government has several requirements for a homeowner when leasing a property. Failure to inform the tenant of any of these requirements could cause the owner to not be able to accept housing funds from Government Agencies.
Renters insurance – This covers the personal property of the tenant should the home they are leasing ever get damaged.
Utilities – What utilities does the tenant have to pay for on their own? Some owners will pay for water, sewer and trash collection, while others expect the tenants to get their own heat.
Term – For how long does the lease run; one month, one year, six months? Will the owner allow a tenant to extend the lease? If so, for how long? Occupants – Who is allowed to live in the home? External Property managers usually have a maintenance service that handles issues that arise at the property.
Eviction – What is the process for eviction if a tenant fails to make their payment? An owner can file an eviction within 30 days of non-payment of rent.

Florida Legal Requirements

Florida landlords and tenants are obligated to observe certain requirements under Florida law. Some examples of state laws which affect the obligations of landlords and impact Florida courts include the following:
• Security deposits. State law limits the amount a landlord can demand in a security deposit to the equivalent of two months’ rent for a residential lease. The landlord is obligated keep the funds secure, and while the law does not specify how this must be accomplished, the security deposit cannot be co-mingled with the landlord’s general assets or held in an account that subjects the funds to the claims of the landlord’s creditors. Drawing on the security deposit for payment of rental charges or to damage caused by the tenant without a credible set of facts and legal basis is a violation of the law.
• Rent increases. A landlord may not increase the rent during a renewal term without providing 60-days’ notice. In other terms, the landlord is prohibited from increasing the rent without first giving the tenant at least 60 days to vacate the property.
• Use. Leases that restrict the use of a commercial space to a certain user are very common. Courts have noted that commercial landlords may only restrict a tenant’s use of the property to a certain business if the restriction is clearly stated in the lease. If the lease fails to state the types of use that are prohibited, a court may find that the tenant’s use of the property is not prohibited under the lease.
• Written leases. Certain leases require that the lease be in writing to be enforceable. For example, all Florida leases that run for a period longer than one year must be in writing to satisfy Florida’s Statute of Frauds and be enforceable.
• Non-residential codes of conduct. Florida passed several laws in 2012 that affect commercial real estate transactions statewide. These laws relate to (1) restrictions on owners’ rights to limit the ability of tenants to display or have certain types of goods delivered; (2) restrictions on the use of non-residential leases in condominium declarations; and (3) limitations on late fees and attorney fees in non-residential leases.

Common Pitfalls

As we did in our article about the purchase contract, there are some common mistakes made by Realtors in using the F.A.R. / B.A.R. lease form. We will share them now to help you avoid them:

1. Failure to properly spell out the terms of the lease.

This does happen from time to time, which can be a real mess to try to fix. So pay attention to it, and make sure the date, rent amount, and other terms of the lease are correctly spelled out.

2. Not completing the signature section on page 8.

This is one of the few changes that I would recommend be made to the F.A.R. / B.A.R. lease to improve it. The portion for "Landlord Approval" and "Tenant Acceptance" is a bit confusing as to the placement of initials. In reality, the "Tenant Acceptance" line is for the landlord, and it goes below the initial lines on the right. So the initial lines are for the landlord to acknowledge that he has read the approval.

3. Failure to complete the initial lines at the end of page 8

I know this is a real nit-picky point, but the contract should be initialed by the parties acknowledging that he has received the addendums and disclosures that have been completed as part of the transaction. This is a good practice even though the language is vague but if the case goes to dispute, it may be the entire case.

4. Failure to sign on page 6.

I am not suggesting that all disputes will be resolved on this point but I have had a couple of cases where the tenant has argued that the landlord has never signed the lease. In reality the argument is without merit but the tenant’s whole case is never getting into a unit so they never pay any rent, and usually don’t move in. However, some landlords have fallen prey to this argument in one case when I represented the tenant and brought the action to remove the landlord from possession and got an Order. The landlord lost the property to foreclosure and moved out of state, never supplying an address for service, so the tenant was able to transfer the Order to the new court and get a Clerk’s Default that turned into a Default Judgment for Rent and Damages. It was in the "Landlord cannot lose" category.

5. Not including the addendums and disclosures.

Make sure you include the addendums and disclosures with the F.A.R. / B.A.R. purchase contract prior to signing it. It doesn’t require any signatures so just do it.

The A to Z on How Realtors Can Make This a “Lease To Remember”

As we have previously written about, the Florida Realtors have spearheaded the effort to create a better lease for Florida. With that lease, however, comes more responsibility for both realtors and clients. Those are significant responsibilities in the lease process, but both are also opportunities.
One of the most important aspects about the new lease, in addition to making it a more comprehensive document than before (thanks to the lease and which was a group effort among Florida Realtors), is that it can do much more. As I have told many clients and realtors, it is easier to transact business (at least at the front end) when you do the right things at the right time, and not when you have a problem or a dispute. It is during those times when things are stressful, and it is also during those times when everyone is looking for someone to blame, which creates additional conflict. If, however, everyone does what they are supposed to do at the start of the relationship, and follows through with the obligations they each have under the new lease, there should never be a reason to litigate it.
This is where a realtor can help the process. For example, it is now in the contract for the tenant to inspect the unit before the execution of the lease , and before opening a three hour window during the first days of the lease as an opportunity to conduct an inspection of the unit in order to document any damages, whether pre-existing or made by a tenant. This is the type of situation and opportunity where a real estate agent can really add value to the process. By informing a landlord about the requirement to provide a prospective tenant to inspect the property prior to the execution of the lease (not after), it may avoid issues and disputes about damage claims down the road. Likewise, if an agent can manage the timing of the window and the opportunity to inspect (Saturday from 10 a.m. to 1 p.m., for example), it also helps avoid disputes about when the inspection will occur and what can be charged against a security deposit.
From my perspective, the greatest opportunity to impact the landlord-tenant relationship is the front end of the relationship, and landlords and tenants should be taking the proactive approach to enter into a lease agreement with no risks, issues or future liability. This requires both parties to perform specific obligations at the front end of the relationship, such as inspecting the property before entering into the lease. As a realtor, a little direction goes a long way.

Lease Negotiation Tips

Negotiation Tips for Florida Realtors
The negotiation phase of an offer to lease is the "make or break" time for a real estate transaction. If an agreement can’t be reached, the deal is dead. It is one of the most important, yet least discussed, phases of a transaction. In Miami-Dade County particularly, with our incredibly competitive rental market, it has become even more important as landlords are not tending to accept lesser quality offers. The bottom line is that this phase is extremely important and should never be taken lightly.
Realtors do not always give as much attention to the lease process as compared to the sale of real estate transactions. Yet, the rules are generally the same as a sale transaction. In many ways, it is even more critical to get it right from the beginning with a lease because there is no listing agent that can help you to market the property if it doesn’t work out. Below are several negotiation tips and strategies that are important to keep in mind when representing landlords and tenants in Florida’s competitive rental market.

  • On counter-offers, make sure that all terms have been addressed. In most markets, landlords will continue to negotiate on price and terms up and to the point that a deal is signed. Also, consider this, if you are representing a landlord and the applicant is presenting a credit report to the landlord, you may be able to convince the applicant to pay the balance of rent up front as a matter of course (e.g., first, last and security deposit) in lieu of continuing to negotiate. This may be a better option in some cases, depending on a number of factors.
  • Florida residential leases allow for automatic lease renewal periods, upon the landlord and tenant consenting for no less than 60 days before the end of the lease. When doing your lease agreements, make sure that the lease is updated and clearly explains the amount of the automatic renewal period.
  • Renewal options are also becoming increasingly important. Make sure that renewal option periods are consistent with the general market more so than previous trends suggesting that renewal option periods should be for three years or five years, when a landlord considers a one year renewal to be more reasonable. This avoids worse case scenarios of tenants binding the landlord into a long term lease.
  • Consider including an offense-scale fee in your standard lease developed for your clients. This would provide for a fine to be automatically assessed to a tenant for any of the following actions: (1) smoking on premises; (2) having pets on the premises; (3) having an unauthorized person along with a background check cost in the event a tenant wants visitors, or someone who is living in the unit with the tenant, to stay can be added as well. This may seem excessive at first, but a confrontation over those issues during a tenancy may often lead to litigation.
  • Familiarize yourself with the local market to know what the landlord can expect in terms of negotiations and how far they should go before stopping. Knowing what the vacancy rate is in a market, how difficult it is to rent the unit and who is likely to be their competition are an obvious but unfortunately too often overlooked critical insights.

Navigating Lease Agreement Disputes

Related to the "Contract to Lease" or Lease Agreement is a section relating to the potential for disputes and how the parties may go about resolving them. While disputes in residential leases are not as common as those in commercial leases, disputes can arise and have certainly increased in the last decade or so.
Most real estate lawyers will advise their clients when discussing a potential dispute to perform a simple cost analysis before litigating, that is, the costs associated with litigating the matter versus the potential reward. That examination is always worth at least some attention, especially if a party has reason to believe a tenant cannot pay a judgment . Given the costs associated with a lawsuit, unless the damages are apparently large, there is not often a good return on investment on pursuing a claim.
Tenants should keep in mind this cost analysis; that is, if it is your intention all along to simply walk away from the lease, you may be better off just abandoning the property and letting the landlord sue you. Instead of a one-off lawsuit, the landlord can then seek compensation in a counterclaim. In other words, it may be better for the person and the courtroom to dismiss one claim against you and pursue one against them.
Of course, there are other remedies such as mediation and litigation, but the above cost analysis is generally the business decision point upon which many decisions are based.