Hugo D. A lease agreement is a binding legal contract, and it’s important for everyone who lives on your rental property to be reflected in it. That said, adding a new tenant isn’t as simple as writing a new name on the dotted line. You have to consider additional costs when adding new tenants related to paperwork and other formalities.
After all, with an extra person in the house, you may have to spend more on utilities, account for more wear and tear, or even ask for a larger security deposit. This article breaks down all the possible expenses involved so you can make an informed decision before modifying your lease.
Contents
Cost of Adding a Tenant to an Existing Lease Agreement
Increased Security Deposit
Widen your financial safety net by asking for a bigger security deposit. Ideally, this fund acts as a buffer to protect landlords against potential property damage or unpaid rent. As a result, an extra occupant would mean more risk of damage, so it makes sense to pay a larger security deposit. However, how both parties determine the increase differs from case to case.
On one hand, some landlords add a flat fee, while others charge a percentage for any additional occupant. You also have to clearly outline in your addendum who pays the extra cost, whether it’s the new tenant or the responsibility of the existing one, so all parties are on board.
Increase in Monthly Rent
Another way adding a tenant can affect your lease agreement is if it necessitates reviewing your monthly rent. For example, if your current rental arrangement is that you pay for utilities, then an extra person in the house will mean incurring more costs.
After all, that potentially means more water, electricity, gas, and internet usage. Even if tenants take care of utilities, there’s also the added wear and tear on your furniture and property to consider. In the long run, additional occupants will often demand a review and increase of your monthly rent to cover the added maintenance cost.
Extra Screening Fees
Before signing a lease agreement with a tenant, you have to run a thorough background check to ensure they’re financially stable enough to afford rent. It’s also an opportunity for you to weed out renters with an unsuitable criminal history that could pose a threat to your property and other tenants.
However, this process isn’t free since extensive credit and criminal checks cost additional fees, which is why intending renters often pay a non-refundable application fee. Thus, it is best practice to run the same check for a new tenant before they move in, even when your existing renter vouches for them. This process ensures that all tenants are treated equally and ensuring the new occupant is a good fit.
Legal Considerations
Reviewing your lease agreement may require the input of a lawyer or other legal professional. Thus, the landlord may incur extra charges for those amendments. It’s tempting to skip this step, but failing to formalize the new arrangement can lead to legal disputes or liability issues with the original tenant. For instance, you need to clarify if the new occupant is a separate entity that can face eviction or penalties independent of the old tenant.
On the flip side, they may also be liable to the old tenant who is simply subletting the space to them. Either way, you need to clarify the responsibilities of each party and get everyone to sign an amended lease agreement to avoid future disputes. Consult with a local property management company in Philadelphia if you have concerns about legal compliance before allowing new tenants into the lease.
Legal Risks for Landlords Who Agreed to Add a Tenant
Discrimination Claims
Be wary of discrimination claims when adding a new tenant. If you allow one occupant to add a new renter to their lease and deny another, you may have to deal with accusations of discrimination. As a result, it would be best to treat all applicants equally and make your decision based on objective evaluation.
We’d even recommend having a written policy on the addition of tenants so all parties understand the process and why their application may have been rejected when others weren’t. Besides, it also adds an extra layer of transparency to your dealings with tenants, which can help you avoid a lawsuit.
Occupancy Limits and Safety Codes
Don’t jump to accept a new occupant after they’ve passed their tenant screening. Prior to the screening process, you should even review local housing codes to ensure you’re not crossing any legal limits.
Some states have policies on how many renters can live in a unit, depending on the size of the house. As a result, flaunting these rules can lead to unnecessary fines. Thus, it would be wise to double-check all zoning and occupancy laws before going ahead.
Insurance Risks
Another legal risk that landlords have to consider is insurance. Insurance companies often calculate premiums based on your risk exposure, and having an additional tenant in the house exposes your property to more damage. That means if something goes wrong in the house, and the insurance company finds out you weren’t completely honest about the number of people living in the house, they could have grounds to deny your claim.
To avoid this situation, review your home or landlord insurance policy again to confirm that adding a tenant doesn’t compromise your coverage. You can also talk to the insurance company yourself and ensure the new renter is listed, so you don’t have issues collecting future claims.
Conclusion
Adding a new tenant to an existing lease agreement requires more than just updating paperwork. It also comes with significant financial implications. For starters, an extra person means there’s more risk of property damage, so you may have to hike your security deposit to ensure you have an adequate safety net for repairs.
A similar increase in your monthly rent would also be in order, as well as a one-off tenant screening fee. However, you also need to consider the legal costs, like the possibility of a discrimination suit if your screening process isn’t equal or transparent, and local safety codes. Remember to double-check with your insurance company to ensure your house is still covered when you have a new tenant under your roof.
