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Pre-lease Agreement Guide: What Property Professionals Need to Know

Learn everything about pre-lease agreements for property management companies, developers, and first-time landlords - secure tenants earlier and protect your interests.

Introduction

A pre-lease agreement is a preliminary contract between a property owner/landlord and a potential tenant that outlines the intention to enter into a formal lease agreement in the future. This document serves as a commitment from both parties before the actual lease is finalized, allowing property professionals to secure tenants earlier in the process while establishing key terms that will appear in the final lease. For property management companies, developers, and first-time landlords, pre-lease agreements can be valuable tools to reduce vacancy risks, especially for properties still under construction or undergoing renovations.

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Key Things to Know

  1. 1

    Pre-lease agreements require earnest money deposits to be handled according to state-specific trust account and disclosure laws, which vary by jurisdiction.

  2. 2

    Many states require specific language regarding non-refundable deposits and application fees to make these provisions enforceable.

  3. 3

    Pre-lease agreements for properties under construction should include detailed specifications to prevent disputes about the final condition and features of the property.

  4. 4

    Commercial pre-lease agreements typically contain more complex contingencies and often require more substantial deposits than residential pre-leases.

  5. 5

    For property developers, pre-lease agreements can significantly impact project financing and may need to be disclosed to lenders.

  6. 6

    Pre-lease agreements should clearly state when the formal lease must be executed and what happens if either party fails to proceed.

  7. 7

    Proper tenant screening should still be conducted before entering pre-lease agreements to avoid committing to potentially problematic tenants.

  8. 8

    Including a dispute resolution process in your pre-lease agreement can help avoid costly litigation if disagreements arise.

Key Decisions

First-Time Landlords

Property Developers/Builders

Property Management Companies

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PRE-LEASE AGREEMENT

PROPERTY RESERVATION AND INTENT TO LEASE

This Pre-Lease Agreement (hereinafter referred to as the "Agreement") is made and entered into on this _____ day of ________________, [YEAR] ("Effective Date").

BETWEEN:

LANDLORD/OWNER ("Landlord"):

  • Legal Name: ______________________________
  • Entity Type (if applicable): ______________________________
  • Address: ______________________________
  • City, State, ZIP: ______________________________
  • Phone: ______________________________
  • Email: ______________________________

PROPERTY MANAGEMENT COMPANY (if applicable):

  • Company Name: ______________________________
  • Contact Person: ______________________________
  • Address: ______________________________
  • City, State, ZIP: ______________________________
  • Phone: ______________________________
  • Email: ______________________________
  • Relationship to Owner: ______________________________

PROSPECTIVE TENANT(S) ("Tenant"):

  • Name(s): ______________________________
  • Current Address: ______________________________
  • City, State, ZIP: ______________________________
  • Phone: ______________________________
  • Email: ______________________________

1. PROPERTY DETAILS

1.1 Property Address and Description

The Landlord agrees to reserve for the Tenant, and the Tenant agrees to lease from the Landlord, subject to the terms and conditions set forth in this Agreement, the residential property located at:

  • Street Address: ______________________________
  • Unit Number (if applicable): ______________________________
  • City: ______________________________
  • State: ______________________________
  • ZIP Code: ______________________________

1.2 Property Specifications

The property consists of approximately ________ square feet and includes:

  • Number of Bedrooms: ________
  • Number of Bathrooms: ________
  • Parking Spaces/Type: ________
  • Storage Units/Areas: ________

1.3 Property Amenities and Features

The property includes the following amenities and features:

1.4 Property Status

The current status of the property is (select one):

  • Existing and ready for occupancy
  • Under renovation with expected completion date of: ________________
  • Under construction with expected completion date of: ________________
  • Other: ________________

2. FINANCIAL TERMS

2.1 Proposed Monthly Rent

The monthly rent for the property shall be $__________ payable on the _____ day of each month during the lease term.

2.2 Security Deposit

Upon execution of the final lease agreement, Tenant shall provide a security deposit in the amount of $__________, which shall be held in accordance with applicable state and local laws. The security deposit shall be held in a(n) [ ] interest-bearing / [ ] non-interest-bearing account at ________________ (financial institution).

2.3 Pre-Lease Deposit

Upon execution of this Agreement, Tenant shall pay a Pre-Lease Deposit in the amount of $__________, which shall be:

  • Fully refundable if this Agreement is terminated in accordance with Section 7
  • Non-refundable
  • Partially refundable as follows: ________________
  • Applied toward the security deposit upon execution of the final lease agreement
  • Applied toward the first month's rent upon execution of the final lease agreement

2.4 Additional Fees

The following additional fees shall apply:

  • Application Fee: $__________ ([ ] per applicant / [ ] per application)
  • Credit/Background Check Fee: $__________ ([ ] per applicant / [ ] per application)
  • Pet Deposit (if applicable): $__________ ([ ] refundable / [ ] non-refundable)
  • Pet Fee (if applicable): $__________ ([ ] one-time / [ ] monthly)
  • Other: ______: $

3. TIMELINE AND TERM

3.1 Pre-Lease Term

This Agreement shall commence on the Effective Date and shall remain in effect until:

  • The execution of the final lease agreement
  • ________________ (specific date)
  • The occurrence of ________________ (specific event)
  • _____ days after ________________ (specific event)

3.2 Expected Lease Execution Date

The parties anticipate executing the final lease agreement on or before ________________ (date).

3.3 Expected Move-In Date

The anticipated move-in date for the Tenant is ________________ (date), subject to:

  • Completion of property construction or renovation
  • Issuance of certificate of occupancy
  • Vacating of property by current occupants
  • Other: ________________

3.4 Proposed Lease Term

The proposed term for the final lease agreement shall be:

  • Month-to-month
  • _____ months
  • _____ years
  • Other: ________________

4. CONDITIONS AND CONTINGENCIES

4.1 Property Completion Contingency

If the property is under construction or renovation:

(a) The Landlord shall use commercially reasonable efforts to complete all construction or renovation work by the expected completion date specified in Section 1.4.

(b) The Tenant shall have the right to inspect the property within _____ days of the Landlord's notice that construction or renovation is substantially complete.

(c) If construction or renovation is not substantially complete by ________________ (date), which is _____ days after the expected completion date, the Tenant may, at Tenant's option: (i) Extend this Agreement for an additional period of _____ days; (ii) Terminate this Agreement and receive a full refund of any Pre-Lease Deposit paid; or (iii) Negotiate modified terms with the Landlord.

(d) "Substantial completion" means that the property has received a certificate of occupancy (if required by local law) and is habitable for residential purposes, even if minor cosmetic items remain to be completed.

4.2 Background Check Requirements

(a) The Tenant agrees to submit to the following background checks:

  • Credit history check
  • Criminal background check
  • Employment verification
  • Income verification
  • Rental history verification
  • Other: ________________

(b) The Tenant shall provide all necessary information and authorization for such checks within _____ days of the Effective Date.

(c) The Tenant represents that all information provided in connection with the application and background checks is true, accurate, and complete.

4.3 Approval Criteria

The Landlord's approval of the Tenant shall be based on the following minimum criteria:

(a) Income: Tenant's verifiable gross monthly income must be at least _____ times the monthly rent.

(b) Credit: Tenant must have a minimum credit score of _____ and no bankruptcies, evictions, or foreclosures within the past _____ years.

(c) Employment: Tenant must have stable employment with a minimum of _____ months/years at current employer or in same industry.

(d) Rental History: Tenant must have satisfactory rental references with no prior evictions or lease violations.

(e) Criminal History: Tenant must have no felony convictions within the past _____ years and no convictions for violent crimes, sexual offenses, or drug manufacturing/distribution.

(f) Other: ________________

4.4 Financing/Mortgage Contingency

If applicable, this Agreement is contingent upon:

  • Tenant's sale of current residence located at ________________ on or before ________________ (date)
  • Tenant's obtaining mortgage financing for the purchase of ________________ on or before ________________ (date)
  • Other: ________________

5. LEGAL PROVISIONS

5.1 Binding Nature

(a) This Agreement constitutes a legally binding contract between the parties with respect to the reservation of the property and the parties' intent to enter into a final lease agreement.

(b) The parties acknowledge and agree that this Agreement does not constitute a lease and does not grant the Tenant any right to occupy or possess the property until execution of the final lease agreement.

(c) The parties agree to negotiate in good faith toward the execution of a final lease agreement consistent with the terms outlined in this Agreement.

5.2 Termination Conditions

This Agreement may be terminated under the following circumstances:

(a) By mutual written agreement of the parties.

(b) By the Landlord, if: (i) The Tenant fails to provide required information or authorization for background checks within the time specified in Section 4.2(b); (ii) The Tenant fails to meet the approval criteria specified in Section 4.3; (iii) The Tenant provides false or misleading information in connection with the application or background checks; (iv) The Tenant fails to pay the Pre-Lease Deposit or any other required fees within _____ days of the due date; or (v) The Tenant breaches any other material term of this Agreement.

(c) By the Tenant, if: (i) The property is not substantially complete by the date specified in Section 4.1(c); (ii) The Landlord breaches any material term of this Agreement; (iii) The Tenant experiences an involuntary job loss, serious illness, or other significant hardship that materially affects the Tenant's ability to fulfill the obligations under this Agreement or the anticipated final lease agreement; or (iv) The Tenant provides written notice of termination within _____ days of the Effective Date and forfeits $__________ of the Pre-Lease Deposit as liquidated damages.

(d) Automatically, if: (i) The property is destroyed or rendered uninhabitable by fire, flood, or other casualty; (ii) The property is condemned or taken by eminent domain; or (iii) The parties fail to execute a final lease agreement by the date specified in Section 3.2, unless extended by mutual written agreement.

5.3 Default and Remedies

(a) Landlord's Default: If the Landlord fails to fulfill any obligation under this Agreement, and such failure continues for _____ days after written notice from the Tenant, the Tenant may: (i) Terminate this Agreement and receive a full refund of any Pre-Lease Deposit and other fees paid; (ii) Seek specific performance of the Landlord's obligations; and/or (iii) Pursue any other remedies available at law or in equity.

(b) Tenant's Default: If the Tenant fails to fulfill any obligation under this Agreement, and such failure continues for _____ days after written notice from the Landlord, the Landlord may: (i) Terminate this Agreement and retain all or a portion of the Pre-Lease Deposit as liquidated damages; (ii) Proceed with the final lease agreement and enforce its terms against the Tenant; and/or (iii) Pursue any other remedies available at law or in equity.

(c) Liquidated Damages: The parties acknowledge that the actual damages resulting from a breach of this Agreement would be difficult to ascertain with precision and agree that the retention of all or a portion of the Pre-Lease Deposit as liquidated damages represents a reasonable estimate of the Landlord's damages in the event of the Tenant's default.

5.4 Dispute Resolution

(a) Negotiation: In the event of any dispute arising out of or relating to this Agreement, the parties shall first attempt to resolve the dispute through good-faith negotiation.

(b) Mediation: If negotiation fails to resolve the dispute within _____ days, the parties agree to submit the dispute to mediation before a mutually acceptable mediator in accordance with the mediation rules of ________________ (mediation service/organization).

(c) Arbitration: If mediation fails to resolve the dispute within _____ days after the appointment of a mediator, the parties agree to submit the dispute to binding arbitration before a single arbitrator in accordance with the rules of ________________ (arbitration service/organization). The arbitrator's decision shall be final and binding on the parties.

(d) Exceptions: Notwithstanding the foregoing, either party may seek injunctive or other equitable relief in a court of competent jurisdiction to prevent irreparable harm pending resolution of the dispute through negotiation, mediation, or arbitration.

(e) Costs: The parties shall equally share the costs of mediation and arbitration, except that each party shall bear its own attorneys' fees and expenses.

5.5 Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of ________________, without giving effect to any choice of law or conflict of law provisions. The parties consent to the exclusive jurisdiction of the state and federal courts located in ________________ County, ________________ (State) for any legal proceedings arising out of or relating to this Agreement.

6. FUTURE LEASE TERMS

6.1 Pet Policy

The final lease agreement shall include the following pet policy:

  • No pets allowed
  • Pets allowed with restrictions:
    • Types of pets permitted: ________________
    • Maximum number of pets: ________________
    • Maximum weight/size: ________________
    • Breed restrictions: ________________
    • Additional pet rent: $__________ per month per pet
    • Pet deposit: $__________ ([ ] refundable / [ ] non-refundable)
    • Other pet requirements: ________________

6.2 Maintenance Responsibilities

The final lease agreement shall allocate maintenance responsibilities as follows:

(a) Landlord shall be responsible for:

  • Structural components (roof, foundation, exterior walls)
  • Electrical, plumbing, and HVAC systems
  • Common areas (if applicable)
  • Compliance with building and housing codes

(b) Tenant shall be responsible for:

  • Routine cleaning and sanitation
  • Changing light bulbs and HVAC filters
  • Lawn care and landscaping (unless provided by Landlord)
  • Prompt reporting of maintenance issues

6.3 Utilities and Services

The final lease agreement shall allocate responsibility for utilities and services as follows:

Utility/ServiceResponsibility (Landlord/Tenant)
Electricity________________
Gas________________
Water________________
Sewer________________
Trash________________
Recycling________________
Internet________________
Cable/Satellite________________
Lawn Care________________
Snow Removal________________
Pest Control________________
Other: _______________________

6.4 Alterations and Improvements

The final lease agreement shall include the following provisions regarding alterations and improvements:

(a) Tenant shall not make any structural alterations, additions, or improvements without Landlord's prior written consent.

(b) Tenant may make the following non-structural alterations without Landlord's consent:

  • Painting walls in neutral colors
  • Installing removable shelving
  • Hanging pictures or decorations with small nails or removable hangers
  • Installing window treatments with tension rods
  • Other: ________________

(c) Any approved alterations or improvements shall:

  • Become the property of the Landlord upon installation
  • Remain the property of the Tenant with removal and restoration obligations
  • Be addressed on a case-by-case basis

6.5 Occupancy Limits

The maximum number of occupants permitted in the property shall be _____ persons, consisting of _____ adults and _____ children under the age of 18. Any change in occupancy must be approved in writing by the Landlord.

6.6 Renewal Options

The final lease agreement shall include the following renewal provisions:

(a) Tenant shall have the option to renew the lease for _____ additional term(s) of _____ months each.

(b) To exercise the renewal option, Tenant must provide written notice to Landlord at least _____ days before the expiration of the current term.

(c) Upon renewal, the monthly rent may be increased by:

  • A fixed amount of $__________
  • A percentage not to exceed _____% of the current rent
  • An amount based on the Consumer Price Index
  • An amount determined by market conditions, not to exceed _____% of the current rent
  • Other: ________________

7. LEGAL DISCLOSURES

7.1 Lead-Based Paint Disclosure

[ ] The property was built before 1978 and may contain lead-based paint. Landlord shall provide Tenant with a lead-based paint disclosure form and the EPA-approved pamphlet "Protect Your Family from Lead in Your Home" prior to the execution of the final lease agreement.

[ ] The property was built in or after 1978 and is not subject to lead-based paint disclosure requirements.

7.2 Property Condition Disclosure

(a) Known Defects: Landlord discloses the following known defects or conditions that may affect the property:

(b) Environmental Hazards: Landlord discloses the following known environmental hazards affecting the property:

(c) Prior Flooding/Water Damage: [ ] Yes / [ ] No If yes, describe: ________________

(d) Mold: [ ] Yes / [ ] No If yes, describe: ________________

(e) Pest Infestations: [ ] Yes / [ ] No If yes, describe: ________________

(f) Other Material Facts: ________________

7.3 Additional Required Disclosures

The following additional disclosures are required by state or local law:

(a) ________________ Disclosure: ________________

(b) ________________ Disclosure: ________________

(c) ________________ Disclosure: ________________

8. MISCELLANEOUS PROVISIONS

8.1 Entire Agreement

This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior negotiations, discussions, agreements, and understandings, whether oral or written. No modification, amendment, or waiver of any provision of this Agreement shall be effective unless in writing and signed by both parties.

8.2 Severability

If any provision of this Agreement, or any portion thereof, is held to be invalid, illegal, void, or unenforceable by any court or tribunal of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect to the maximum extent permitted by law. The parties agree that any such invalid, illegal, void, or unenforceable provision shall be modified and limited in its effect to the extent necessary to cause it to be enforceable, or if such modification is not possible, shall be deemed severed from this Agreement. In such event, the parties shall negotiate in good faith to replace any invalid, illegal, void, or unenforceable provision with a valid, legal, and enforceable provision that corresponds as closely as possible to the parties' original intent and economic expectations. The invalidity or unenforceability of any provision in one jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

8.3 No Assignment

Neither party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned, or delayed.

8.4 Notices

All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when: (a) Delivered personally; (b) Sent by email or other electronic transmission, with confirmation of receipt; (c) Sent by certified mail, return receipt requested, postage prepaid; or (d) Sent by a nationally recognized overnight courier service, with confirmation of receipt.

Such communications shall be sent to the respective parties at the addresses set forth in the preamble to this Agreement or to such other address as either party may specify in writing.

8.5 Counterparts and Electronic Signatures

This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Electronic signatures, including signatures transmitted by email or other electronic means, shall be deemed original signatures for all purposes.

8.6 No Waiver

No failure or delay by either party in exercising any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or privilege.

8.7 Relationship of Parties

Nothing in this Agreement shall be construed to create a partnership, joint venture, employment, or agency relationship between the parties. Neither party shall have the authority to bind the other party or make representations on behalf of the other party without prior written consent.

8.8 Time is of the Essence

Time is of the essence with respect to all provisions of this Agreement that specify a time for performance.

8.9 Survival

Any provision of this Agreement that, by its nature, would survive termination or expiration of this Agreement shall so survive, including, without limitation, Sections 5.3, 5.4, 5.5, and 8.

8.10 Force Majeure

Neither party shall be liable for any failure or delay in performing its obligations under this Agreement if such failure or delay is due to causes beyond its reasonable control, including, without limitation, acts of God, natural disasters, fire, flood, epidemic, pandemic, quarantine restrictions, war, terrorism, civil unrest, labor disputes, utility failures, or governmental actions. The affected party shall promptly notify the other party of the force majeure event and use commercially reasonable efforts to minimize the impact of such event.

9. SIGNATURES

IN WITNESS WHEREOF, the parties hereto have executed this Pre-Lease Agreement as of the Effective Date first written above.

LANDLORD/OWNER:

Signature: ______________________________

Print Name: ______________________________

Title (if applicable): ______________________________

Date: ______________________________

PROPERTY MANAGEMENT COMPANY (if applicable):

Signature: ______________________________

Print Name: ______________________________

Title: ______________________________

Date: ______________________________

TENANT(S):

Signature: ______________________________

Print Name: ______________________________

Date: ______________________________

Signature: ______________________________

Print Name: ______________________________

Date: ______________________________

South Dakota Requirements for Pre-lease Agreement

Fair Housing Act Compliance (42 U.S.C. §§ 3601-3619)

The pre-lease agreement must comply with the Federal Fair Housing Act, which prohibits discrimination based on race, color, religion, sex, disability, familial status, or national origin.

Fair Housing Act Compliance (42 U.S.C. §§ 3601-3619)

Prohibits discrimination in housing based on race, color, national origin, religion, sex, familial status, or disability

South Dakota Fair Housing Law Compliance (SDCL § 20-13-20 to 20-13-21.2)

Compliance with South Dakota's fair housing laws which prohibit discrimination in housing transactions based on protected characteristics including race, color, creed, religion, sex, ancestry, disability, or national origin.

Americans with Disabilities Act Compliance (42 U.S.C. § 12101 et seq.)

Requires reasonable accommodations for persons with disabilities and prohibits disability-based discrimination

Security Deposit Limitations (SDCL § 43-32-24)

South Dakota law does not specify a limit on security deposit amounts, but the pre-lease should clearly state the deposit amount, conditions for its return, and that landlords must return deposits within two weeks of lease termination.

Federal Truth in Lending Act (15 U.S.C. § 1601 et seq.)

Regulates disclosures of credit terms and fees if the pre-lease agreement includes any financing arrangements

Federal Electronic Signatures Act (E-SIGN) (15 U.S.C. § 7001 et seq.)

Validates electronic signatures on contracts and documents, including pre-lease agreements

Security Deposit Interest (SDCL § 43-32-24)

South Dakota law does not require landlords to pay interest on security deposits, but any provisions regarding interest should be clearly disclosed in the pre-lease agreement.

State Landlord-Tenant Laws (Uniform Residential Landlord and Tenant Act (as adopted by individual states))

Governs the rights and obligations of landlords and tenants in residential rental agreements, varies by state

Advance Fee Disclosure (SDCL § 43-32)

The pre-lease must clearly disclose any advance fees, application fees, or other charges that will be collected prior to the execution of the formal lease agreement.

Truth in Lending Act Compliance (15 U.S.C. § 1601 et seq.)

If the pre-lease includes financing arrangements or installment payments, it must comply with federal disclosure requirements under the Truth in Lending Act.

State Security Deposit Laws (Varies by state (e.g., California Civil Code § 1950.5))

Regulates the collection, holding, and return of security deposits, including maximum amounts and timelines

Landlord Identity Disclosure (SDCL § 43-32-8)

The pre-lease must disclose the names and addresses of the property owner/landlord and any agents authorized to manage the premises or receive notices.

Covenant of Good Faith and Fair Dealing (Uniform Commercial Code § 1-304 (as adopted by states) and common law)

Implied covenant requiring parties to act honestly and fairly in the execution of contractual obligations

Statute of Frauds (Varies by state (e.g., New York General Obligations Law § 5-701))

Requires certain contracts, including leases longer than one year, to be in writing to be enforceable

Property Condition Disclosure (SDCL § 43-4-38 to 43-4-44)

South Dakota law requires disclosure of known material defects that could affect the health or safety of occupants. The pre-lease should address how and when a property condition assessment will be conducted.

Contract Formation Laws (State common law and state contract statutes)

Governs offer, acceptance, consideration, and other elements required for valid contract formation

Lead-Based Paint Disclosure (42 U.S.C. § 4852d; 40 CFR Part 745)

For housing built before 1978, the pre-lease must include disclosures about known lead-based paint or lead-based paint hazards on the property, along with an EPA-approved information pamphlet.

State Consumer Protection Laws (Varies by state (e.g., Massachusetts Consumer Protection Act, M.G.L. c. 93A))

Protects against unfair or deceptive trade practices in consumer transactions, including leasing

Right to Cancel Provision (SDCL § 43-32)

The pre-lease should specify any rights to cancel the agreement, including timeframes and conditions, as South Dakota does not have specific statutory provisions addressing pre-lease cancellation rights.

Earnest Money Terms (SDCL § 43-32-24)

If earnest money is required, the pre-lease must specify the amount, where it will be held, whether it is refundable, and under what conditions it will be applied to the security deposit or rent.

Lead-Based Paint Disclosure Requirements (42 U.S.C. § 4852d; 24 CFR Part 35; 40 CFR Part 745)

Mandates disclosure of known lead-based paint hazards in housing built before 1978

State Real Estate Licensing Laws (Varies by state (e.g., California Business and Professions Code § 10130 et seq.))

Regulates activities of real estate brokers and property managers who may handle pre-lease agreements

Timeline for Formal Lease Execution (SDCL § 53-1 (Contract Law))

The pre-lease must clearly state the deadline for executing the formal lease agreement and any consequences for failing to proceed with the formal lease.

State Uniform Electronic Transactions Act (UETA) (As adopted by individual states (e.g., California Civil Code § 1633.1 et seq.))

State-level complement to E-SIGN Act validating electronic signatures and records

Rent Payment Terms (SDCL § 43-32-12)

South Dakota does not restrict the amount of rent that may be charged, but the pre-lease must clearly state the proposed rent amount, due date, and payment methods for the formal lease.

Habitability Standards (SDCL § 43-32-8)

The pre-lease should acknowledge that the property will meet South Dakota's implied warranty of habitability standards before occupancy, ensuring essential services and safe, sanitary conditions.

Plain Language Requirements (Varies by state (e.g., New York General Obligations Law § 5-702))

Requires consumer contracts to be written in clear, understandable language

State Contract Termination Laws (Varies by state)

Governs conditions under which contracts can be terminated, including cooling-off periods for certain agreements

Entry and Inspection Rights (SDCL § 43-32-32)

The pre-lease should outline the landlord's right to enter the premises for inspections before the formal lease begins, consistent with South Dakota's reasonable notice requirements.

Electronic Signatures Compliance (15 U.S.C. § 7001 et seq.; SDCL § 53-12-1 to 53-12-50)

If the pre-lease will be executed electronically, it must comply with the federal E-SIGN Act and South Dakota's Uniform Electronic Transactions Act, which recognize electronic signatures as legally binding.

Federal and State Anti-Money Laundering Laws (31 U.S.C. § 5311 et seq.; state equivalents)

Requires certain financial transaction reporting for large cash payments for security deposits or pre-paid rent

State Earnest Money Deposit Laws (Varies by state real estate and contract laws)

Regulates handling of good faith deposits, similar to those that might be included in pre-lease agreements

Americans with Disabilities Act Compliance (42 U.S.C. § 12101 et seq.)

The pre-lease should address reasonable accommodations for persons with disabilities and ensure compliance with ADA requirements for accessibility if applicable to the property.

Military Service Member Provisions (50 U.S.C. § 3901 et seq.)

The pre-lease should acknowledge protections for active service members under the Servicemembers Civil Relief Act, which may provide early termination rights under certain circumstances.

State-Specific Disclosure Requirements (Varies by state (e.g., California Civil Code § 1102 et seq.))

Mandates specific disclosures about property conditions, environmental hazards, or other factors

Unconscionability Doctrine (Uniform Commercial Code § 2-302 (as adopted by states) and common law)

Protects against grossly unfair or one-sided contract terms that shock the conscience

Dispute Resolution Process (SDCL § 21-25A-1 to 21-25A-38)

The pre-lease should establish a dispute resolution process, such as mediation or arbitration, for resolving disagreements during the pre-lease period or regarding the transition to a formal lease.

Holdover Provisions (SDCL § 43-32-15)

The pre-lease should address consequences if the prospective tenant remains in possession after the pre-lease period ends without executing a formal lease agreement.

State Specific Performance Laws (State common law and equity principles)

Governs when and how courts can order parties to fulfill contractual obligations rather than pay damages

Frequently Asked Questions

A pre-lease agreement serves multiple purposes for property professionals. It allows you to secure tenant commitments before a property is ready for occupancy, reducing financial risk and vacancy periods. For developers and builders, it helps demonstrate to lenders that there's market interest in the project. The agreement establishes preliminary terms like rent amount, security deposit, and anticipated move-in date, while giving both parties time to address contingencies before finalizing the formal lease. It also typically requires an earnest money deposit from the prospective tenant, demonstrating their serious intent and providing some financial protection if they back out without cause.

A comprehensive pre-lease agreement should include: 1) Identification of all parties and the property, 2) The anticipated lease term and start date, 3) Proposed rental amount and security deposit, 4) Earnest money requirements and conditions for refund, 5) Contingencies that must be satisfied before finalizing the lease (e.g., property completion, tenant qualification), 6) Timelines for executing the formal lease, 7) Property specifications or condition requirements, 8) Termination conditions and consequences, 9) Any special provisions regarding customization or tenant improvements, and 10) Signatures of all parties. For property developers, you may want to include construction timelines and milestone requirements.

A pre-lease agreement differs from a formal lease in several important ways. It's a preliminary document that outlines the intention to enter into a lease in the future, rather than immediately granting possession rights. Unlike a lease, which provides detailed terms governing the tenant's occupancy, a pre-lease typically covers only essential terms while leaving specifics to be finalized later. Pre-leases often include contingencies that must be satisfied before a formal lease takes effect, such as property completion for developers or verification of tenant qualifications for management companies. While a formal lease creates an immediate landlord-tenant relationship with all associated legal rights and obligations, a pre-lease creates a more limited contractual relationship focused on the future execution of a lease.

Yes, pre-lease agreements are legally binding contracts, provided they meet basic contract requirements: offer, acceptance, consideration, legal capacity, and lawful purpose. When properly executed, they create enforceable obligations for both parties to proceed toward finalizing a lease under the specified conditions. However, the specific enforcement depends on the agreement's terms and contingencies. If either party breaches the pre-lease without justification based on a contingency, they may face legal consequences, including potential financial liability. For property management companies and landlords, this means you can typically retain earnest money deposits if tenants back out without cause. However, if you fail to meet your obligations, you might be required to return deposits and potentially face additional damages claims.

Property developers should consider several important contingencies in pre-lease agreements: 1) Construction completion timeline with allowances for reasonable delays, 2) Certificate of occupancy contingency ensuring legal habitability, 3) Financing contingencies if project funding isn't fully secured, 4) Final property specifications with allowances for minor modifications, 5) Governmental approval contingencies for permits and inspections, 6) Material cost fluctuation provisions for projects with long timelines, 7) Force majeure clauses covering unforeseeable circumstances, 8) Tenant qualification verification provisions, and 9) Property inspection contingencies allowing the tenant to verify the completed property meets agreed-upon standards. These protections help manage expectations and reduce legal exposure if development challenges arise.

The appropriate earnest money amount for a pre-lease agreement typically ranges from half a month's to one month's rent, depending on market conditions and property type. For higher-end properties or competitive markets, requesting one month's rent is reasonable. For property management companies handling residential properties, the amount should balance deterring casual applications while not creating unreasonable barriers. Developers of commercial properties might request larger deposits proportional to the lease value. First-time landlords should research local market standards, as excessive deposits might discourage prospective tenants. Always ensure your pre-lease clearly states the conditions under which the deposit becomes non-refundable and when it will be applied to the security deposit or first month's rent upon lease execution.

If a property isn't ready by the anticipated move-in date specified in a pre-lease agreement, the consequences depend on how the agreement addresses delays. Well-drafted pre-lease agreements, especially those used by developers and builders, should include provisions for reasonable construction delays, specifying whether: 1) The tenant can terminate without penalty and receive a full deposit refund, 2) The agreement automatically extends for a defined period, 3) The landlord must provide temporary accommodations or financial compensation, or 4) The tenant receives a rent reduction or free rent period upon eventual move-in. For property management companies, having clear communication protocols for delays and offering meaningful alternatives or compensation can help preserve the relationship with the tenant despite the delay.

Yes, pre-lease terms can generally be modified before the formal lease is signed, but the process and limitations depend on what the pre-lease agreement itself specifies. Most well-drafted pre-lease agreements include provisions outlining which terms are firmly established and which remain negotiable. Any modifications should be documented in writing with signatures from all parties. For property management companies and landlords, significant deviations from core terms like rental amount or property specifications may require providing additional consideration (something of value) to make the changes legally binding. The best practice is to be transparent about any potential changes during the pre-lease stage and include language that allows for mutually agreed adjustments to non-essential terms.

First-time landlords face several risks when using pre-lease agreements: 1) Legal exposure if the agreement is poorly drafted without addressing contingencies or compliance with local laws, 2) Financial risks if the property isn't ready on time and the agreement lacks protection clauses, 3) Tenant qualification uncertainties if proper screening procedures aren't defined in the agreement, 4) Misaligned expectations if property conditions or amenities aren't clearly specified, 5) Potential fair housing violations if tenant selection criteria aren't consistently applied, and 6) Deposit handling complications if the agreement doesn't clearly address how earnest money should be processed and when it becomes non-refundable. To mitigate these risks, first-time landlords should invest in professional legal review of their pre-lease agreements and develop clear policies for qualifying tenants.

Property management companies can use pre-lease agreements strategically to optimize their operations by: 1) Implementing a pre-leasing program for properties undergoing turnover to minimize vacancy periods, 2) Creating standardized, attorney-reviewed templates tailored to different property types, 3) Establishing clear qualification criteria and verification processes before accepting pre-lease applications, 4) Using pre-leases to secure tenants for seasonal rental markets months in advance, 5) Incorporating technology for virtual property tours and online pre-lease execution for remote prospects, 6) Developing proper earnest money handling procedures compliant with trust account requirements, 7) Training staff on proper pre-lease communication to set realistic expectations, and 8) Creating tracking systems to monitor pre-lease conversion rates and contingency fulfillment. Effective pre-leasing can substantially improve occupancy rates and reduce marketing costs.