The Difference Between Individual and Joint Lease Structures
If you’re a landlord considering leasing your property, it’s important to learn about the different methods of leasing available so you employ the one that best fits your needs. There are many unique tools and benefits available with each lease type, but they operate differently for you and your tenants, so it’s vital to understand their strengths and weaknesses so you can ease your stress and improve your bottom line.
Let’s look at the difference between individual and joint leases and which living situations are best to use them in.
Individual Leases
Individual leases, also known as “by-the-bedroom” leases, allow two or more tenants living in the same unit to take responsibility only for their room and use of communal spaces. This means that each tenant pays rent separately.
One of the easiest ways to understand individual leases is through the lens of liability implications. Individual leases do mean individual tenant payments, but they also mean individual responsibility for damages, behavior, and evictions if those situations were to arise. Let’s say, for example, Tenant A were to break a faucet in the shared kitchen area. Tenants B and C wouldn’t be responsible for fixing the damage — only Tenant A would be liable.
Tenant accountability is just one of the benefits of individual leases. You have more control over who moves into your unit, even down to who ends up in which room, allowing you to conduct more thorough tenant screening. You can also charge a higher rate for the room because the risks of payment and damages aren’t spread out among tenants equally.
This risk, though, is still something to keep in mind. If Tenant A were to skip town, the other tenants in the unit wouldn’t be responsible for covering Tenant A’s portion of the rent, and you would be left with the task of replacing them, which can be a costly hassle. You also have multiple payments to keep track of since everyone pays separately, which leads to more work and effort on your end.
Joint Leases
Where individual leases provide tenants with their own lease and more limited responsibility, joint leases provide one lease for all tenants and obligates a shared responsibility among them. This includes rental payments, maintenance charges, utilities, late fees, etc.
The key to a joint lease is the joint and several liability clause, which states that two or more tenants in a joint lease are jointly and separately responsible for the entire rental property. This is a powerful tool for you as a landlord to understand and use if you’re planning on utilizing this type of lease.
For example, let’s go back to Tenant A and their faucet-breaking habits. In the individual lease, this would only be Tenant A’s responsibility, but under a joint lease, everyone is held at fault. The same goes for Tenant A moving unexpectedly — tenants B and C would be forced to pay Tenant A’s portion of the rent or face late fees under a joint and several lease. This can offer more stability and security for you as a landlord since you’re owed the money no matter the circumstances, and the money you’re owed comes in one payment rather than two or three.
When To Use Each
As a landlord, it’s often more beneficial to use a joint lease for your units since the risks are lower than with individual leases. There are far fewer cons with this type of lease, but you should still consider the flexibility that individual leases offer you during the rental process.
For example, if you lease to college students, they’re more likely to fall in and out of love, study abroad, attend internships, or fight with each other, leaving you with a headache. The risk of individual leasing can be worth it with its added flexibility compared to trusting 19-year-olds on a joint agreement to get along and pay rent.
Conclusion
While individual and joint leases both come with their own advantages, you should closely examine your rentals, your renters, and your values as a landlord to determine what needs each lease type fills for your rental business. With your new knowledge and understanding of individual and joint leasing, you’re well-equipped to choose the right structure for your tenants and your properties.
