When you have an investment property with multiple tenants, you have the option of signing a lease with each renter or signing all of the tenants under one lease.
Each situation has pros and cons, but how do you know which one is right for your property?
Here we take a closer look at individual and joint leases in group houses to help you determine which structure would make the most sense for you and your tenants.
Understanding Individual vs. Joint Leases
In an individual lease, two or more people can sign, but they pay separate rent for their rooms. You can still include a clause in the lease of joint responsibility of communal spaces—meaning if damage occurs in the community areas, all parties are responsible—but each tenant will pay you separately for rent.
However, in a joint lease, where all renters co-sign, there are no separate rents for separate spaces. The tenants simply sign one lease, even if there are two or more of them. A joint lease reflects joint liability, meaning if any party damages the unit or neglects to pay rent or utilities, every person on the lease is responsible.
With a joint lease, you can have tenants pay you individually or together in one lump sum, which you can specify in the leasing agreement.
The Pros and Cons of Individual and Joint Leases
There are pros and cons of each leasing structure for your investment property.
Pros of an individual lease structure:
- It may be easier to pursue an eviction of just one tenant rather than all tenants in the house, meaning the other rental agreements would not be affected.
- You may be able to charge higher rent for each room rather than for the entire house.
- Negotiating rental rates with individuals is generally simpler than dealing with a group, as with a joint lease.
However, with an individual lease, you will also collect separate rent payments from each renter in the house. This can be a hassle, especially if one or more tenants is consistently late with their payments.
In addition, if one renter leaves, you will be responsible for filling the unit with another renter, as their departure would not affect the leasing agreements of the other tenants.
Now, let’s look at the pros of a joint lease:
- Tenants are mutually responsible for the house and rental payments, which can motivate groups to be on time with payments and take better care of the property.
- If one renter leaves, the others are still responsible for the entire rent payment.
- Receiving a single payment is often easier than receiving multiple payments from multiple tenants.
Of course, having tenants co-sign a lease isn’t without its downsides. For example, when negotiating rent, you will need to negotiate with all the tenants as a group, not just one person, which can make reaching an agreement more challenging.
So Which One Is the Best Option?
Which leasing structure you choose depends on your investment property and the tenants you typically have. For example, while a joint lease is generally more advantageous, an individual lease may be easier for short-term rentals, such as for college students. So what is the best way to structure your leasing agreement? Find out by contacting FAS Management today at (202) 337-5080.