Many of the new landlords we speak to with rental properties try to use online free lease agreement templates and end up ruining their relationship with new tenants or worse. Sometimes a missing simple lease clause or lease terms that are clearly inconsistent with Arizona law can be very costly and create a great deal of hassle for an unsuspecting landlord long before they even step into a court of law. In fact, we have a number of local Arizona landlords with rental properties that we manage as part of our Landlord Management Services that have in the past been in very happy to have us complete a new, current lease agreement for their tenants when the existing lease agreement is near to end. All it takes is one lease agreement mishap to wish one had spent the money for a quality, competent lease agreement instead.
The lease is the only document which stands between you and your potentially very expensive problem. The absence of a single clause, or a singularly unclear sentence can potentially create big problems for a landlord. In the worst case, such a provision could be in contravention of Arizona law with potentially disastrous consequences for the landlord before they even set foot in a court of law. We have come across many examples of such problems and we are now able to share them with other Arizona landlords to alert them to potential pitfalls before it is too late.
This guide covers what a solid lease actually needs, what landlords in Maricopa County routinely miss, and why the details matter more than most owners realize until it's too late.
In This Guide
- Problem With Your Lease Template!
- Common Lease Agreement Provisions that Matter Most to Landlords
- Security Deposits: What Arizona Actually Requires
- Pet Policies Need Teeth (and Numbers)
- HOA Properties: The Addendum Most Landlords Skip
- Notice Requirements and Entry: What the Statute Says
- Longer Leases Aren't Automatically Safer
- Administrative and Lease Fees – How to Preserve Cashflow!
- Switching from Self-Management or Another Company
Problem With Your Lease Template!
We've had owners come to us after managing their own properties for a year or two, and a surprising number are running on generic templates they found online. One owner came to us after self-managing a Mesa single-family home with exactly that setup. His tenant left at month four. Because his lease had no early termination fee clause and no lease-break procedure, he had zero contractual recourse. He ate roughly $3,800 in lost rent and re-leasing costs before we stepped in and built him a proper lease structure going forward.
Whether it is an owner managed property or a property managed by a third party, it is very common for property owners to create their own lease agreements that typically can be downloaded off of the internet. Also, because the leases are typically generic, most owners do not have a full understanding of the terms or of what they actually mean. However, Arizona has strict residential rental laws in place, and all leases must be in compliance with the Arizona Residential Landlord and Tenant Act (ARLaws A.R.S. Title 33 Chapter 10).
Common Lease Agreement Provisions that Matter Most to Landlords
Many of the clauses that Landlords fight hardest to include in their lease agreements do not in fact cause the most problems for the Landlord. For example, many a heated negotiation has taken place over the amount of a security deposit, or the amount of extra fees to charge for pets. And yet, it is these very minor sections of the lease agreement that can cause the least amount of problems for the Landlord, whereas a section such as the Maintenance Responsibilities can cause great problems for the Landlord if not written very carefully.
Most damage in rental homes is not due to tenants attempting to be destructive, but rather a normal wear and tear that occurs with the passage of time. Much ambiguity in leases occur with maintenance responsibilities with regards to damage or deterioration that occurs during the course of a tenancy. This ambiguity can sometimes pose a problem for the landlord when trying to get back some of the damages for which the tenant is responsible. Vague lease language regarding these types of situations can present an unfair burden on the landlord if they are not clearly defined. Landlords must realize that ambiguous maintenance responsibilities can present a significant problem, in that a judge will generally take the position of a tenant over a landlord in disputes over ambiguous language regarding maintenance responsibilities. A clear delineation of maintenance responsibilities can serve to alleviate a great deal of confusion with regards to damages, and it is the recommendation to specifically delineate responsibilities for the replacement of items such as the HVAC filter, for pest control, for notifying the landlord of pest problems, for minor repairs, etc. A clear written record prior to a tenant's move in of these maintenance responsibilities is key to helping to resolve any future ambiguities regarding damage to the home for which the tenant is responsible.
Security Deposits: What Arizona Actually Requires
Arizona law requires that landlords return a security deposit within 14 days after the end of a lease. A landlord is not allowed to keep a security deposit to pay for damages if they failed to return the deposit in a timely manner.
We set our security deposits at 1x the monthly rent for applicants who have high credit scores, strong rental history and sufficient income to cover the rent. Applicants who have lower credit scores, below average rental history and/or below average income to cover the rent get a 1.5x security deposit. In Queen Creek, one of our owners thought that our setting a 1.5x security deposit for an applicant was too high. Six months later the tenant caused $2,200 worth of damage when he moved out. The 1.5x security deposit we had set covered the $1,800 in damage in full. The $1,000 pet damage guarantee covered the $400 in damage above the security deposit for the approved damage to the tenant's pets. The owner had no loss.
That is how you end up losing a large amount of money by having a poorly written lease and incorrectly setting the amount of your security deposit.
Pet Policies Need Teeth (and Numbers)
A pet clause that just says "no pets without permission" isn't a pet clause. It's a suggestion.
A pet policy that simply states that no pets are allowed without approval from management is not sufficient. A written pet clause should state the number of pets that are allowed (we state two pets maximum) and list the costs of approved pets including a non-refundable, one-time pet deposit per approved pet, and the monthly pet rent per approved pet. A written clause should also list the actions a landlord or property management company can take with respect to an unauthorized pet, including, but not limited to, the issuance of a cure or quit notice to the tenant(s) and/or the landlord's/property management company's charging of the unauthorized pet deposit to the tenant's security deposit, as if it had been paid as a deposit at the commencement of the tenancy, and application of the charges to the security deposit as damage to the rental property at the end of the tenancy.
An owner in Gilbert recently discovered a tenant had an unauthorized dog at the condo and was able to document the violation, charge the full of the non-refundable pet deposit of $250 per pet (in this case two pets) and send the tenant a cure or quit notice 10 days later. This was all possible because the language in the lease allowed the landlord to charge the deposit for unauthorized pets and also included the HOA's weight restriction language in the lease.
Regarding applications with emotional support animals, our current practice is to require documentation to verify the application's disability in advance of verification of pet approval and for application of all lease terms regarding pets, with the exception of monthly pet rent, which is excluded from application of fair housing rules regarding emotional support animals pursuant to 28 C.F.R. § 36.302.
HOA Properties: The Addendum Most Landlords Skip
The majority of rental houses, townhomes, condos, and single-family homes in master-planned communities in Gilbert, Chandler, and throughout the East Valley are governed by an HOA. Housing trends in Mesa, Arizona indicate HOA-governed rentals will continue to climb as the East Valley continues to experience unprecedented growth. In these properties, the lease needs to either be written to incorporate the HOA's Governing Documents, or those same documents must be attached to the lease agreement.
In these communities, the lease needs to either incorporate or attach the HOA's Governing Documents. If it doesn't, the tenant was never technically bound by HOA rules. When they park in the wrong spot or run a business out of the garage and fines start rolling in, those fines land on the owner. We've seen it happen in situations that were completely avoidable.
“He ate roughly $3,800 in lost rent and re-leasing costs before we stepped in and built him a proper lease structure going forward.”
Notice Requirements and Entry: What the Statute Says
Arizona law requires at least 2 days written notice before entering into a rental unit for non-emergency purposes (A.R.S. § 33-1343). A lease can specify the number of days' written notice required, but the minimum statutory period must be met. Therefore, a lease provision stating that a landlord can enter a rental unit after 24 hours for routine maintenance would be unenforceable because it is below the minimum statutory requirement.
For non-payment of rent a Landlord can give a 5 day notice to pay or quit rental premises. A.R.S. § 33-1368. This notice must be in writing and state the amount of rent due. In addition, the lease must contain the proper language and reference to this statute and properly be a part of the lease prior to time of default. Should the lease language fail, the notice will be defective and the tenant provided additional time to pay rent and/or vacate rental unit. In Maricopa County Justice Court, an uncontested eviction typically takes 3 to 5 weeks from filing of complaint until writ of restitution is issued. Additional time and potential costs of $500 to $1,500 or more to pursue eviction in additional to normal rental income, could result from lease language ambiguity and associated legal action.
Longer Leases Aren't Automatically Safer
This is worth saying plainly: a 24-month lease with a poorly screened tenant is a worse position than a 12-month lease with a qualified one.
A 24-month lease may seem to protect a landlord from issues with a Tenant for two full years. However, a poorly selected Tenant can become a nightmare for 24 months with the potential for damage to the rental property, lack of rent payments, and legal action to remove him/her from the rental property.
Here at ProEx we have a 5% average annual vacancy rate, with a current average of roughly 4 properties vacant at any time. This means, that a very poorly worded lease could in fact cost an owner 30 days of lost rental revenue or $1200.00-$2,000.00 per submarket. In contrast, well worded, lease that results in a good, qualified tenant, can save an owner a lot of time and go back to work and start bringing in revenue sooner.
Administrative and Lease Fees – How to Preserve Cashflow!
One of the most common mistakes self-managed landlords make is how they include tenant facing fees within the lease. ProEx includes a $195.00 one time admin fee for processing applications and lease signing as well as a 1% per month admin for collecting rent on time. This fee is in addition to any rent due and is clearly laid out at the beginning of the lease to avoid any confusion at move-in time.
Our current property management software is AppFolio which collects rent and sends automated payments and late notices to all tenants. It is very efficient and we currently run our portfolio of approximately 83 rental properties in the same manner as if they were all one big apartment complex with a dedicated staff. We have found that most owners are very happy to get out of collecting rent every month as well as chasing down late payments by sending out texts to tenants.
Switching from Self-Management or Another Company
If you are self-managing your investment or currently have a Management Company that you feel is not meeting your needs then particularly worry is focused on the transition of leases. How will your existing tenants be treated and will they be required to re-sign a new lease?
We have a process in place to ensure that transitions such as this are completed as seamlessly as possible. We have worked with owners in the past who were managing their own properties, as well as others who were using other property management companies. For example, we are currently managing a multi-family property in Chandler for an owner who had previously been managing the property himself. We also manage several properties that had previously been managed by other companies. In both cases, we were able to bring the properties online without any disruption to the tenants. In the case of the owner who had previously managed the property himself, we were able to bring all of the tenants over to our lease agreement with addenda that outlined the pet policy, maintenance responsibilities, and HOA rules, all without the tenants having to sign a new lease.
If managing your lease agreements is taking up too much of your time then maybe we can help. Learn more about our Owner Resources to get started.
FAQ
What are the days and time frame that an Arizona landlord has to give a tenant prior to entering into a rented property?
Landlords in Arizona are allowed to enter rental units, from time to time, for purposes of inspection, etc. However, landlords are required to provide not less than 2 days' written notice to tenants prior to entering a rental unit that is occupied by tenants and for purposes that are not emergencies. This is set forth in A.R.S. § 33-1343.
How long does a landlord have to return a security deposit in Arizona?
Security Deposit Requirements – Arizona Laws: The security deposit must be returned within 14 days after the end of the rental term. A failure to return the deposit on time precludes a landlord from making any claims for damage or for any other reason for the return of the security deposit.
Does a lease in Maricopa County need to be on an official government form?
In Arizona there is no required lease form for residential rental property. If a landlord requires a tenant to sign a written lease or rental agreement, the terms and conditions of that lease must comply with Arizona Revised Statutes chapter 33, article 10, the Arizona Residential Landlord and Tenant Act (the "Act"). Any term or condition in a lease that conflicts with the Act is unenforceable. As such, it is not recommended that a landlord use a lease form found on an online template website. Those forms are typically not compliant with the laws of the state of Arizona.
What should a pet clause in a lease include?
Whether the landlord is charging for pets or not, a properly worded Pet Clause in the lease is of the utmost importance to the landlord. A good Pet Clause needs to outline and detail for the tenant exactly which pets are going to be allowed, the amount of the non-refundable Pet Deposit and the on going monthly Pet Rent. It also needs to properly detail and explain what exactly are going to be the landlord's remedies for any and all unauthorized pets. Lastly, it also needs to outline and explain all of the terms and conditions of any approved pets in the HOA's Governing Documents, especially those dealing with weight restrictions for pets.
What happens if a tenant in an HOA-governed property violates HOA rules and the lease doesn't reference them?
The HOA Governing Documents need to be incorporated into the lease agreement so that the terms and conditions of the lease reflect all the rules of the Homeowners Association. If the lease does not reference the HOA rules, and the Governing Documents are not provided to the tenant at the time of lease signing, then the terms of the HOA rules do not apply to the tenant and would result in the owner paying any fines or charges imposed by the HOA for tenant's non-compliance with any of the HOA rules and regulations.
Is a longer lease term safer for a landlord than a shorter one?
Wrong! A poorly screened long term tenant is way riskier than a short term well screened tenant.