A Comprehensive Guide to Crafting a Solid Leasing Contract for Airbnb Hosts

In the last blog post, we shared how we made around $10,000 with a solid leasing contract. Today, I'm going to take that conversation a step further by providing a detailed lease contract draft, and breaking down key elements that can help protect you as an Airbnb host while keeping your landlord happy.

Having a solid leasing contract is essential in the property management business. It’s the document that sets expectations, outlines responsibilities, and provides a legal framework for resolving issues. As you gain experience in leasing properties, you'll inevitably encounter situations that weren’t anticipated in earlier contracts. The important thing is to learn from these experiences and adjust future contracts accordingly.

Key Takeaways for Crafting a Strong Leasing Contract

Here are some best practices to keep in mind when drafting or revising your leasing agreement:

1. Clearly Define the Property Use

The lease should explicitly mention the use case of the property. If you're subleasing for short-term rentals, it's essential to clarify that you’ll be renting out the property to third parties through platforms like Airbnb, Booking.com, etc. This eliminates ambiguity about your intended use of the property and ensures that the landlord is aware of and agrees to your business model.

2. Security Deposit Clauses

A security deposit is crucial to safeguard against any potential damages to the property. However, it’s essential to clearly state how and when the security deposit will be returned. For example, you could include language that adjusts the security deposit to cover the last month of the notice period.

Additionally, take high-quality photos or videos of the property at the start of your lease to document the property's condition. This can help you avoid disputes when it’s time to get your deposit back.

3. Define All Additional Spaces

If there are any rooms or spaces that aren’t part of the main apartment (such as a servant room, garage, or storage space), make sure these are mentioned explicitly in the lease. In one instance, we neglected to define whether a servant room in the building was included in the lease, which led to a surprise demand for additional rent. Avoid this mistake by listing all spaces included in the rental.

4. Responsibilities of Both Parties

It’s crucial to clearly delineate the responsibilities of both the lessee (you) and the lessor (property owner). For example, day-to-day maintenance and minor repairs (e.g., fixing an air conditioner or replacing a light fixture) typically fall under the lessee's responsibility. On the other hand, larger, structural repairs such as fixing a generator or maintaining the property's power backup system should be the responsibility of the lessor.

5. Include a Grace Period for Setup

When you move into a new property, you’ll need time to furnish and prepare it for short-term rentals. A grace period for setting up furniture (for example, 15 days) is a valuable clause to include in the lease, especially if the space is unfurnished.

6. List All Fixtures and Appliances

Make sure to list all fixtures and appliances that are included with the property, including air conditioners, lights, fans, and any large appliances like ovens or microwaves. Request documentation (such as invoices or warranties) for any high-value items like air conditioners or generators before the lease begins. This will help you avoid disputes later if any appliances need to be replaced or repaired.

7. Specify Lease Term and Rent Increases

The lease term should be clearly defined, with specific start and end dates. Additionally, it’s important to include a clause about annual rent increases, so both parties know when and by how much the rent will rise each year. This avoids confusion and potential disagreements down the line.

8. Maintenance and Repairs

Clearly define the responsibilities related to maintenance and repairs in the lease. If you are responsible for repairs like fixing ACs or replacing light bulbs, the lease should state that. On the other hand, for major repairs such as structural issues or appliance breakdowns, the lessor should be responsible. It’s also important to specify who will cover the cost of utilities (water, electricity, gas, etc.).

9. Termination Conditions

The termination section of the lease should specify the notice period and the conditions under which either party can terminate the agreement. For example, a "Lock-In Period" clause prevents either party from terminating the lease early, offering stability for both parties. If termination is allowed, the lease should clarify what penalties or fees apply (such as a penalty for early termination or a grace period for vacating the property).

10. Indemnity Clause

Include an indemnification clause that protects both you and the landlord. This ensures that if any legal issues arise due to the use of the property, both parties are protected from liability, except where negligence or willful misconduct is involved.

A Standard Leasing Contract Draft

Here is a standard leasing contract template that you can adapt to your specific needs:

RENTAL LEASE AGREEMENT

This Rental Lease Agreement ("Agreement") is made and entered into on [Date], by and between:

Lessor:

• [Name]

• [Address]

• [Other Details]

AND

Lessee:

• [Company Name, if applicable]

• [Address]

• [Other Details]

  
  

WHEREAS, the Lessor is the owner of the property located at [Property Address] (the "Property");

WHEREAS, the Lessee desires to lease the Property for the purpose of managing and renting it out to third parties for short-term rentals on platforms such as Airbnb, Booking.com, etc.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows:

1. Lease Term: The Lessor agrees to lease the Property to the Lessee for a total lease term of [X] years, commencing on [Start Date] and ending on [End Date].

2. Lock-In Period: The first [X] months of the Lease Term shall be considered a lock-in period. During this period, neither party shall terminate the lease except for cause.

3. Rent: The monthly rent for the Property shall be [Amount], payable in advance on or before the [Day] of each month to the Lessor's designated bank account.

4. Security Deposit: The Lessee shall pay a security deposit of [Amount], which will be held by the Lessor as security for the performance of the Lessee’s obligations under this Agreement. The deposit will be refundable, subject to conditions outlined in this Agreement.

5. Use of Property: The Lessee shall use the Property exclusively for short-term rentals and may sublease it to third parties via platforms such as Airbnb, Booking.com, etc. Any unauthorized use of the property may result in immediate termination of the lease.

6. Maintenance and Repairs

• Lessee's Responsibilities: The Lessee shall be responsible for day-to-day maintenance, including but not limited to minor repairs of appliances, fixtures, and fittings.

• Lessor's Responsibilities: The Lessor shall be responsible for maintaining the structural integrity of the Property, including the power backup system.

7. Utilities and Services: The Lessee shall be responsible for all utilities associated with the Property, including electricity, water, gas, etc.

8. Grace Period: A grace period of [X] days shall be provided to the Lessee for setting up furniture and preparing the Property for occupancy.

9. Termination

• During Lock-In Period: Either party may terminate the lease only for cause.

• After Lock-In Period: Either party may terminate the lease by providing [X] days' written notice.

10. Indemnification: The Lessee agrees to indemnify and hold the Lessor harmless from any claims, damages, or liabilities arising from the Lessee’s use of the Property.

11. Governing Law: This Agreement shall be governed by the laws of [State or Region].

12. Amendments: Any amendments to this Agreement must be made in writing and signed by both parties.

This template covers the essential elements of a leasing agreement for an Airbnb host. Customize it according to your specific needs and always ensure that both parties are clear on their responsibilities before signing.

By refining your leasing contracts as you go, you can avoid future headaches and ensure your short-term rental business runs smoothly.

Feel free to comment below or reach out if you have any questions about the leasing process or want more information on managing rental agreements!