Idaho Law Blog
To properly draft a contract, a person usually needs to step into the future and understand unfavorable or damaging possibilities that could result as the contract is performed. Some possibilities may be extremely unlikely, and others may be difficult to discern on the surface, but a good contract will include terms that either prevent or minimize these harms. Certainly the stakes are higher in complex contracts involving millions of dollars, but even simple contracts where just a few hundred dollars pass hands can result in thousands (or even millions) of dollars of liability.
Recently, I met someone who made a minor revision to a standard residential lease agreement, failed to fully contemplate how that provision would play out, and ended up with thousands of dollars of liability. Sadly, the rent at issue under the lease was almost a non-issue compared to the overall liability.
With facts and names changed slightly, here’s the basic story. Landlord Larry was looking to rent out an old house he recently inherited. Although outdated and a bit worn here and there, it was habitable and didn’t need any immediate repairs. A potential renter, Tenant Tim, looked at the property and said he was looking for a nice place but everything on the market, like Larry’s place, needed to be remodeled. Larry just went through a divorce and was a little stressed financially. In response to Tim’s comment, he explained he didn’t want to pay somebody to remodel his place and that he’d look into remodeling it down the road.
Tim came up with a solution. “Look,” he said, “I’m your ideal tenant. I’m a licensed general contractor, but I’m retired. If you rent this place to me, I’ll have time to repaint the bedrooms, replace the tile in the bathroom, and do any other needed repairs. In fact, I’ll do it for free—just reimburse me for materials.” The idea of free labor on a few minor repairs pleased Tim, and he replied, “I’d love to have those repairs done. The place would look much better.” He pulled a form contract off the Internet and added the following language: “Landlord agrees Tenant can repair the Property and that he will reimburse Tenant for materials but not labor.” Larry and Time both signed, and Tim moved in, believing that he’d been authorized to do some significant remodeling.
Two months down the road, Larry got a bill from Tim for $20,000. Shocked, Larry read through the itemized materials, which included not only paint and tile but other materials he never anticipated: large amounts of lumber, two-dozen windows, kitchen cabinets, and much more. He learned Tim had not only repainted and retiled but replaced the warped deck in the backyard and all the old windows, and started remodeling the old kitchen, among other things. While Tim may have thought Larry was incredibly pleased, Larry was furious. Tim explained in defense, “The place looks great now, and you agreed to reimburse me for any repairs. It’s even in the contract.” Larry claimed he never authorized these repairs, explaining that extensive remodeling does well beyond repairs. Tim had spent thousands of dollars, and Larry could not pay him back—nor did he believe he had to. Eventually a lawsuit resulted.
At least two things went wrong here. First, Larry and Tim were not on the same page. They should have fully discussed what repairs Larry authorized. Second, the lease should have clearly detailed this agreement, and if Larry wanted Tim to have some freedom in making repairs beyond the paint and tile, he could have added protective or limiting language such as, “Tenant is prohibited from incurring material costs that exceed $500.” Too often parties move forward with a friendly handshake and a written agreement that doesn’t reflect their understanding or expectations.
With regard to residential lease agreements specifically, parties can avoid many problematic scenarios by including certain basic terms. Sometimes form contracts on the internet contain the basic terms and may provide a good starting point when drafting a lease agreement, but each rental property and rental agreement is different, as illustrated above. The more unique the lease agreement becomes, the more careful a person needs to be in using or revising form contracts.
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