Understanding lease agreements | Housing | Financial Literacy | Khan Academy

What we're going to do in this video is look at an example of a lease agreement. This one says "State of Texas Texas Lease Agreement". You might say, "I don't live in Texas," but this is going to be useful for most anywhere. The things we're going to cover are in pretty much any lease agreement, no matter what state you actually live in.

So, the beginning might be a little bit explanatory, self-explanatory. This is saying, okay, who's your landlord going to be? Who are you? So, that's who the agreement is between. Then they give some details on the type of property it is. This is then whether it's an apartment, a house, a condominium, etc., and then the number of bedrooms. It's just to make sure that everyone is in agreement on what you are actually renting. Where is it located? Are you getting storage space? Is this furnished or is it not furnished?

Now we go down a little bit and another important thing to keep in mind is: what is the term of the lease? Usually, there are two types of terms. You have a fixed lease for a set amount of time; it's usually going to be for a year when you initially get a new place. Sometimes, it is for six months, and so it'll say what the beginning date is and what the end date is. Then they say after that term, let's say after a year if that ends up being a year, they say what happens. If they check the box here, that means it becomes a month-to-month lease, which every month you pay a certain amount. At that point, the rent could change. If you give enough notice, you could leave, but we'll get into all of that.

Another possibility is, if they check this one, it means that you have to leave at the end of the lease. So, pay close attention to it. The other option is to get a month-to-month lease right from the beginning. You might want to do this if you want more flexibility; you don't know how long you're going to stay there. But usually, they will charge higher rent if it's a month-to-month lease right from the get-go.

Now, the section on rent might be a little bit self-explanatory. This is how much rent you are actually going to pay, when it is going to be due, and how you are going to pay for that rent. Now, in situations where, let's say, you have a bounced check, this is what it says you have to pay above and beyond that.

Now, a guarantor is someone who says, "Hey, if that person doesn't pay—if the tenant doesn't pay, the guarantor will pay." Sometimes, if it's a parent, if, let's say, it's a student who needs to rent someplace and they don't have an income, this will let the landlord feel that, okay, there's someone with an income who is paying for it. But in some cases, you don't need a guarantor for the tenant.

This is late fees; if you don't pay by the due date, what extra are you going to have to pay? Then you have things like additional rent, where, for whatever reason, let's say you have a pet, for a pet you have to pay an extra $25 a month; that would be factored in right over here.

This clarifies who pays for the utilities. It's good to have this down in writing in the lease before there's some disagreement about who pays for what, and this makes it very clear. It's a security deposit; this is what you have to put right when you sign the lease, and the landlord collects this as a way to protect themselves if you were to say damage the property or you have significant wear and tear. If you keep it in good condition, you're going to get that money back, or you're going to get most of it back. If you damage the property, they're going to use that money to actually repair the property.

Now, if you keep going, they talk about the use of premises. I encourage you, the language is going to be different in anything you read; read it carefully. Make sure you understand it. If you don't understand it, get some help from someone else. This talks about how you are allowed to use it. It's not the case that you can just rent an apartment and then use it in any way that you want.

So, this one, for example, says it's only by the tenant and the tenant's immediate family and only used for residential purposes. So, if you try to start a business out of that apartment, they could say that, "Hey, you broke your lease," in which case they might evict you. So, be very, very careful. This is making sure that everyone agrees on the conditions.

The condition of the property in section 13 is, "Hey, what happens on maintenance repairs?" Let's make sure that we're all in agreement on what needs to happen. Rules and regulations; oftentimes if it's an apartment complex or if you're renting a condominium, there are rules associated with the homeowners association or with the apartment itself.

Now, we could keep going, and obviously, I could go into all of the details into each of these, but the next one I'll look at is smoking. Many places now won't allow smoking on the premises, but this clarifies that. Pets—whether or not you're allowed to have a pet—and then if you do have a pet, you might also, not only do you sometimes have to pay extra rent, but you also have to pay an extra deposit because some folks feel that, hey, pets are more likely to damage a place.

You have an inspection checklist: what happens? How we deal with situations with fire and casualty liability? Do you need renter's insurance? Remember the homeowner's insurance; the landlord's insurance will cover the structure, but they're not going to cover if something happens to the materials inside.

So this is where sometimes they require a renter's insurance policy and sometimes with liability coverage as well. So once again, read all of these because these might be extra costs. I will just keep going into these; it's good to be familiar with it. Read it in detail. As I mentioned, every lease agreement will be different, and there's usually a lot of other things to sign to essentially protect the landlord, but sometimes to protect both parties in the case of a lot of other scenarios.

But at the end of the day, you're going to sign this, but only sign it if you feel comfortable with everything that we have just reviewed.