If you will remember, while leasing is a form of temporary ownership, it is nonetheless a form of ownership. Therefore, the renter has certain rights equivalent to that of ownership (missing, for instance, the right of disposition and limited in the right of, for instance, exclusion). The longer a lease, the more a lease will begin to look like ownership. Finally, leases are very, very, contract driven, and there are few things that cannot be negotiated and determined by the terms of the contract. However, there are exceptions, especially in residential leases, which are often determined by statute.

All leases share certain baseline terms and conditions, with residential usually less complex than commercial. Below, we will explore a few of the usual terms and conditions common to both types of leases, as well as some of the more complex ones founds in commercial leases.

Recitals are introductory comments at the beginning of contracts which “set the stage” so to speak, for the remainder of the contract. While recitals are somewhat disfavored now, they are still in existence in many forms used by attorneys and realtors, so you should not be surprised to see them. They will often start with “Wherefore,” and set out various facts about the relationship of the parties and the property for lease. For instance, “Whereas the Landlord wishes to let, and the Tenant wishes to lease, the property located at 123 Main Street.”

In general, terms for the parties to the contract which you may see in leases include “landlord and tenant,” “lessor and lessee,” “landlord and renter,” and “owner and renter,” or some combination of these. These may be business entities or individuals, and the landlord may be the owner, or may be a property management company that manages the property for the owner. Each party may be a single entity or multiple entities.

As you would expect, this is usually a description of the location and layout of the premises to be let. While this may consist of a simple address and (if necessary) apartment or unit number, it may also include a full legal description of the leased property. In the case of commercial leases, this may be very important to keep boundaries with other tenants, and to ensure that the tenant has a clear indication of the amount of space leased. When drafting a commercial lease, there is no limit to the ways in which you may clarify the rented space. So, if it helps, you could even include a highlighted map of the space being leased, for pure clarification purposes.

In some leases, as with sales, there may be additional personal property or space included with the lease, such as furnishings, machinery, or common area usage. That property should also be described carefully in the lease, and the treatment of it described. Some of that may be statutorily determined (as set forth below). When drafting, keep in mind that personal property may become fixtures, and state the intent (as possible) in the lease. In addition, personal property may also be property of another entity (such as leased kitchen ovens), which will require a separate drafted and / or reviewed document.

While some leases may simply run month-to-month or year-to-year by the behavior of the parties, most leases designate a specific beginning and ending date, sometimes with options to renew upon the same or similar terms. It is important to remember when looking at or drafting these terms that a “one year” lease runs from one day to the day before that day the next year. So, one-year lease beginning on January 1, 2015 ends on December 31, 2015, as the lease includes the day of the start of the term.

The rental amount is usually included both as an amount per period (e.g,, $1000 / month) and as a sum total for the life of the lease (e.g., $12,000), and is located with or adjacent to the lease term in the contract. This may also be called “base rent,” if it is adjusted for any amounts due for common-area maintenance, utilities, etc.

A security deposit is paid to the landlord for various reasons. One, it shows that the tenant is serious about renting (like the earnest money under a purchase agreement). Two, it can serve as security against failure to pay one or more rental payments. Three, it can serve to defray damages due to physical mistreatment of the property by the tenant. Especially in residential leases, the security deposit may only be used in certain ways, or it must be returned. We will deal with that more below.

In both commercial and residential agreements, the taxes may be paid by either the landlord or the tenant(s). Taxes may vary by jurisdiction, and formulas for determining tax amounts and apportionment can be complex, so there is very little to be said generally about these clauses.

Keep this section in mind as you move forward into more about lease sections. It is common, especially when dealing with commercial leases for multiple-tenant plazas, to have provisions in the lease for payment of utilities and expenses common to the entire site (common area maintenance, or “CAM”) For instance, the expenses of repaving the parking lot, replacing lot lights, etc., as well as maintenance fees for the property itself, and common utility fees, may all be discussed in this part. The ways in which expenses and common area maintenance are divided have produced certain nomenclature peculiar to the field. First, the difference between a “gross lease” and a “net lease” is that “[I]n a gross lease, the lessor pays expenses such as utilities, insurance, and taxes; in a net lease, the lessee pays those expenses.”[1]

Now, net leases themselves may be divided into single, double, and triple net leases. As explained by Investopedia:

A single net lease requires the tenant to pay only the property taxes in addition to rent. With a double net lease, the tenant pays rent plus the property taxes as well as insurance premiums. A triple net lease, also known as an NNN or net-net-net lease, requires the tenant to pay rent plus all three additional expenses.[2]

You will also see other labels which are not used extensively or have no additional meaning. For instance:

[T]he titles or labels of "net lease," "triple net lease," and "absolute triple net lease" have no legal significance and are not decisive of the extent to which the parties intended to shift the expense burdens of various operating, repair and maintenance obligations from landlord to tenant. Rather, the allocation of cost responsibilities is dictated by the substance of the lease.[3]

Therefore, it is always necessary to read the lease, regardless of what it is titled. DON’T assume and DO read.

[1] Loveless Constr. v. State Bd. of Tax Comm'rs, 695 N.E.2d 1045, 1048 n.2 (Ind. T.C. 1998)

[2] Mary Hall, What's the Difference Between Single, Double, and Triple Net Leases? Investopedia (2020), https://www.investopedia.com/ask/answers/040115/what-are-differences-between-single-double-and-triplenet-leases.asp (last visited Mar 30, 2020).

[3] 49 Am Jur 2d Landlord and Tenant § 686

While more common in commercial leases, both type of lease can contain provisions as to the use to which the property can be put. Generally, such a provision might require compliance with all applicable laws and codes regarding any specific use of the property. More specifically, it might state that the premises are to be used only for (for example) storage of nonflammable materials, or “for an auto repair facility,” or “for fewer than five individuals and no pets.” It may also require the tenant to obtain any permits necessary for occupancy and operation of the premises or business. Finally, certain commercial leases will have clauses specifically designed to incorporate rules for the commercial development (such as use restriction or shopping center rules, etc.) so that the tenant has no argument that it lacked knowledge of the rules.

In addition to restrictions such as set forth in the preceding paragraph, there may also be restrictions that are protectionist in nature – that is, they mandate that only “Coffee Shop” is permitted to run a coffee shop in the plaza or mall, or that nobody except “Department Store” can run a department store for men’s clothing in the plaza or mall, etc.

It is standard for the landlord to have the right to enter the property with reasonable notice to inspect the condition of the property and make any repairs, or to make any repairs when notified by the tenant. While this may be established by law, the wise landlord will make it explicit as to when and how the landlord may enter the property.

The tenant may have certain rights to modify the premises to suit its own needs. This will obviously depend on the nature of the property. In some residential properties, for instance, a tenant may agree with the landlord to install ceiling fans in all bedrooms, in exchange for a deduction on the monthly rental cost, or something similar. The same is true in a commercial development, with careful attention paid in the language to whether certain changes become fixtures (remember, “intent” is critical here).

Any lease may require the tenant to hold certain levels of insurance policy on the property. This may be for the tenant’s protection, but it is definitely for the landlord’s protection. Let me explain. Not only does the landlord have property rights in the property, but the tenant also has rights in the property, and if the landlord wants a tenant out early, the landlord may have to buy out the lease. This insurance can help defray that cost.

Assignment and subletting are two similar terms that essentially mean that either the landlord or the tenant is replacing themselves with a new party to the matter. Sometimes there is a legal right to do this, sometimes not – a better contract will usually indicate that the landlord has the right to transfer the contract to a new landlord without asking, while the tenant must obtain written agreement. While this seems one sided, in a way, it makes sense. The tenant has a right to lease the space, and to keep that lease even if the landlord sells the premises or a new landlord manages the premises. The tenant still has the right to the lease. However, tenants are often screened carefully for ability to pay and desirability. Therefore, a new tenant coming in without the landlord’s ability to review could result in a less financially secure tenant.

Most contracts will deal with questions of what happens when one part or the other fails to perform their end of the contract. This is especially true in the case of tenant failure to pay or abandonment. The lease can provide for damages for late rent, for abandonment, for attorney’s fees, and for court costs. The lease will also often provide that a given state’s law will apply to interpretation of the contract and that a certain court (such as “Marion County Courts”) will be the venue (or court that is the place where a suit must be filed) for the action.

Residential lease law is more heavily regulated than commercial leases, as states have generally established statutes to give greater protection for renters, as well as to fill in “gaps,” that occur when landlords or tenants fail to hire lawyers to draft their contract and instead download them from the internet. For instance, such a piecemeal contract may fail to specify whether the landlord or tenant is responsible for smoke detector maintenance, and Indiana law specifies that. Residential leases are regulated under Ind. Code chapters §§ 32-31-3-1 through 32-31-9-1, which apply to residential dwelling units within Indiana, with certain exceptions.[1] While simply restating the entire residential lease code is beyond the scope of this chapter, we will deal with a few important considerations here.

[1] “Such exceptions include: nursing homes and similar, rent-to-own agreements, rental units in private organizations such as fraternities, hotels / motels and other temporary lodgings, employer-provided housing, condominium owners or leases of coops, and agricultural housing.” Ind. Code § 32-31-2.9-4.

Tenant duties under residential leases are established under Ind. Code § 32-31-7-5. These requirements may not be modified by contract – therefore, they are required of every landlord / tenant relation, even if not included in the contract. The tenant is required to: comply with any health and housing codes imposed upon the tenant by law, keep the rental premises occupied or used by the tenant reasonably clean, and use the electrical systems, plumbing, sanitary systems, HVAC, elevators, and facilities and appliances in a reasonable manner. The tenant must also refrain from “defacing, damaging, destroying, impairing, or removing any part of the rental premises.” The tenant must obey all reasonable rules and regulations in existence at the time the lease begins, and all amendments which occur during the lease.[1] Finally, the tenant must “ensure that each smoke detector installed in the tenant's rental unit remains functional and is not disabled,” which entails testing and replacing batteries, or if the detector is hard-wired, notifying the landlord if it appears nonfunctional. At the termination of a lease, the tenant must return the property “in a clean and proper condition, excepting ordinary wear and tear expected in the normal course of habitation of a dwelling unit.[2]”

The landlord has a right to sue under Ind. Code § 32-31-7-7 if the tenant fails to comply with the requirements imposed by Ind. Code § 32-31-7-5. The landlord must give the tenant notice of noncompliance and give the tenant a reasonable amount of time to comply. The notice must include a list of any physical damage the landlord repaired and the costs to repair. However, the notice is not required if the tenancy has ended. If the landlord is the prevailing party in such an action, then the landlord may recover actual damages, attorney fees, and costs, as well as obtaining injunctive relief or any other remedies permitted by law. The case excerpt at the end discusses some of these aspects of law.

[1] It is important to remember that these rules and regulations cannot contradict or eliminate the statutory duties established by the Ind. Code.

[2] Ind. Code § 32-31-8-5.

Similarly, the landlord also has certain statutory duties imposed by the Ind. Code. Under Ind. Code § 32-31-8-5, a landlord must deliver the premises in compliance with the rental agreement and in a safe, clean, and habitable condition, comply with all health and housing codes, keep common areas in a clean and safe condition, and ensure that any of the following which are provided are in a good and safe working condition: electrical, plumbing (especially supply of hot and cold water), sanitary, and HVAC systems, elevators, and appliances.

As with the tenant obligations, a tenant has a right of action against a landlord for failure to follow these requirements.[1] Similarly, a suit cannot be brought unless the tenant gives the landlord written notice and a reasonable amount of time to fix the problem. During that time, the tenant may not block the landlord’s access to the property. The tenant, if successful, may recover damages, consequential damages, and attorney’s fees, as well as receiving injunctive relief and any other legal remedies.

[1] Ind. Code § 32-31-8-6.

The question of security deposits merits its own section because of the potential pitfalls for landlords when dealing with them. Security deposits are regulated under Ind. Code § 32-31-3-1, et. seq. This section has its own set of definitions. Most importantly, a security deposit is defined as a “deposit paid by a tenant to the landlord or the landlord's agent to be held for all or a part of the term of the rental agreement to secure performance of any obligation of the tenant under the rental agreement.[1]” The term also includes the following:

[A] required prepayment of rent other than the first full rental payment period of the lease agreement, a sum required to be paid as rent in any rental period in excess of the average rent for the term, and any other amount of money or property returnable to the tenant on condition of return of the rental unit by the tenant in a condition as required by the rental agreement.[2]

However, it does not include any amount paid to hold an option to purchase, or subscriptions or memberships in cooperative housing associations. At the end of a rental agreement, the landlord must return the security deposit minus any amounts applied to accrued rent, damages due to noncompliance with the rental agreement, or utilities. Specifically, the landlord may only apply the retained security deposit to damages not the result of ordinary wear and tear, rent in arrearage, rent due for premature termination of the agreement by the tenant, to pay for the last period of rental if that is part of the lease agreement, or unpaid sewer or utility charges if contractually obligated to the tenant.[3]

Along with the deposit, the landlord must supply a written notice containing itemized charges. All this must occur within 45 days after the landlord retakes possession after the termination of the rental agreement. However, if the tenant does not supply a mailing address to the landlord after the termination, the landlord is not required to follow these requirements. If the landlord fails to follow the chapter, the tenant may recover the security deposit and reasonable attorney’s fees. Moreover, failure to give notice constitutes an agreement that no damages are due and the security deposit must be returned entirely. Finally, this chapter cannot be waived by the landlord or tenant.

[1] Ind. Code § 32-31-3-9.

[2] Ind. Code § 32-31-3-9.

[3] Ind. Code § 32-31-3-13.