February 23, 2016

There Ain’t No Such Thing As A Free Lunch, Part 2

In part 1 of this series, we discussed using pre-packaged online legal services as a potential cost saving measure. In part 2, we’ll be discussing another potential avenue to save money on your legal bills – using the free form contracts you might find online.

As in part 1, there is nothing inherently wrong with this. Let’s walk through a potential scenario, however, and examine some potential areas of concern.

Scenario: Downloading a Form Residential Lease

You’ve got a finished basement that you rarely use, and are planning to rent it out to supplement your income.  Obviously you’re not going to draft a lease from scratch.  So what do you do?  You type “form Maryland lease” into Google, download a document, and fill in the blanks.  What’s the worst that could happen?

Again, I want to be honest here:  most of the time, you’ll probably be perfectly fine customizing a random lease you find online, because most of the time tenants pay their rent without dispute.  But here are some potential pitfalls:

A form may not indicate all of your legal responsibilities. For example, one online form lease has a blank line for the landlord’s security deposit.  The paragraph reads:

  1. SECURITY DEPOSIT: Tenant(s) agrees to deposit with Landlord/Agent the sum of $_________, receipt of which is hereby acknowledged, to be returned to said tenant(s) at the end of his occupancy, provided the tenant(s) is not default under any provision of this agreement, and subject to any deductions necessary to replace or repair missing or damaged furniture or equipment or to repair damage to property caused by tenant(s), his family, guests, or pets, or by any negligence of the tenant(s), excepting ordinary wear and tear, or adjustment of pro rata share of utilities of any outstanding bills which may be required. Tenant(s) liability for damages, however, is not limited to the amount of security deposit.

If you’ve just downloaded this form, you might think that all you have to do is pick a number fill in that blank.  You would have no way of knowing that Md. Code Ann., Real Property Article § 8-203(b) prohibits a landlord from choosing a security deposit in excess of two months’ rent, that subsection (d) requires you to place that security deposit in a segregated account, and subsection (f) prohibits the landlord from using the security deposit to offset other debts such as unpaid rent.  You might also be unaware that any violation of these provisions would entitle the tenant to treble damages plus attorneys’ fees, which might run to more than the actual revenue earned from leasing the property in the first place!

A form may suggest that you have remedies you do not have. Just because two parties have signed a contract does not mean that all of the terms of that contract are enforceable.  For example, one online form lease contains the following provision:

  1. LANDLORD ENTRY AND LIEN. Landlord retains a Landlord’s Lien on all personal property placed upon the premises to secure the payment of rent and any damages to the leased premises.

You might think, upon reading this provision, that you are entitled to seize a tenant’s property if she fails to pay rent; you’d be wrong, and could wind up owing your tenant thousands of dollars or more if you illegally convert her property.

Finally, a form may contain unnecessary provisions, or clauses that you don’t understand and wouldn’t otherwise want included in an agreement – and it may fail to contain the kinds of clauses you would. Another online form lease contains the following provision:

  1. INDEMNIFICATION. LESSEE will defend and save Lessor harmless and indemnified, to the maximum extent permitted by law, from and against any and all loss, cost or expense (including attorneysʼ fees), and any and all injury, loss, claim or damage to any person or property, on account of any act, condition or accident, however caused (except by any deliberate misconduct or gross negligence of Lessor), occurring or existing on or about the  Premises or any area allocated to or used exclusively by LESSEE or anyone claiming through or under LESSEE, or, if arising out of LESSEEʼS use or occupancy of the Premises, occurring or existing on or about the area appurtenant or adjacent to the Premises, or any other appurtenances, or parking or other common areas used in connection therewith, and from and against any and all other loss, cost, damage, expense, or liability arising from any act, omission, neglect or default of LESSEE or LESSEEʼS contractors, licensees, invitees, customers, agents, licensees, invitees, customers, agents, servants or employees, or any person or entity claiming by or through LESSEE or the contractors, licensees, invitees, customers, agents, servants, or employees, of any such person or entity.

Do you know what that clause means?  Can you explain it to a prospective tenant whom you’ve asked to sign a lease?  If not, why would you draft a contract for yourself containing a provision you don’t understand and can’t explain to others?

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Again, this post isn’t legal advice (please see our disclaimer) – just good common sense.  If you’re a business professional, start a relationship with a lawyer whom you can trust.  Ask if it makes sense for you to fill out a form on your own, a good lawyer won’t be offended. And remember:  there ain’t no such thing as a free lunch.

February 23, 2016 Blog