What is a rental agreement?
The rental agreement is intended to govern the relationship between a landlord (lessor) and a tenant (lessee) under a lease of real property (Chapter 55, Article 2 (Sections 55-201 – 55-209 NM Stat). This legal document is essentially a contract; it establishes what rights the property owner has against the property and the precise obligations and benefits exchange between the property owner and the tenant.
On an operational level, it can take the form of a one page rental checklist , even though most often it is represented in the form of a long lease similar to those commonly used in residential leasing. There may be other variations to the complexity of the rental agreement used in a particular business situation, but the point is that the rental agreement is synonymous in most cases with a sales or lease contract, where it accomplishes those functions of a typical contract and especially the desired objective of protecting the parties to the transaction.
It is important for New Mexico sales tax purposes particularly because the rental of real property may occasionally be subject to gross receipts withholding requirements under the New Mexico Gross Receipts Tax Act.
Clauses of a rental agreement in New Mexico
There are certain mandatory clauses that must be contained in rental agreements for residential property in New Mexico and there are also clauses that are optional but can offer an additional layer of clarity and protection. New Mexico rental law allows landlords to require their tenants to provide written acknowledgement of the Terms and Conditions contained in the rental agreement. It is advisable for landlords to require a tenant to initial each clause to ensure that their tenants have read and understand the provisions contained in the rental agreement. This is particularly important for tenant’s use and occupancy, alterations and utilities provisions.
Additionally, New Mexico rental law requires that all lease agreements contain by reference the Uniform Owner-Resident Relations Act, § 47-8-1 et seq NMSA 1978 (the "Act"). Certain provisions within the Act that are "mandatory" are outlined below to ensure that both landlords and tenants in residential leases are informed of their rights and obligations. Most landlords include the following mandatory clauses in order to protect their investment and their interests as lessors, knowing that a tenant’s failure to comply with the terms of the rental agreement and its inclusions makes them liable for any cost associated with the non-compliance.
• Landlord Right to Enter – A landlord or their agent has the right to enter the unit rented or leased in a reasonable manner without the tenant’s consent to inspect the premises, make repairs, supply other services, exhibit the premises to prospective or actual purchasers, mortgagees, tenants, workmen or contractors, or to examine the premises because the tenant has abandoned the premises.
• Time of Termination of Rental Agreement – The rental agreement terminates upon expiration of its term; upon default if rent is not paid within five days of the due date, upon abandonment by the tenant, upon termination of the rental agreement for non-compliance of the lease agreement or tenant, the death of certain individuals, and by eviction or abandonment.
• Rental Agreement to be in Writing and Contain Required Disclosures – For leases governed by the New Mexico Residential Rental Property Disclosure Act (which includes most residential leases), the rental agreement must be in writing and contain certain required disclosures including:
- the name and address of the person authorized to receive notices or demands;
- the name and address of the property owner; and
- the name and address of the property manager, if any, and if different from the owner. These leases will also typically include clauses with respect to returning an authentic copy of the signed rental agreement, subleasing, pets, smoking, possession of weapons, insurance and liability, security deposits, utilities, entry by the landlord, unit maintenance, use and occupancy, parking, appliance maintenance, and repairs.
Tenant and Landlord rights and obligations
Tenant and landlord rights and responsibilities under the Rental Housing Act
Both the tenant and the landlord have rights and responsibilities under the Rental Housing Act (Act). In addition, the landlord’s right as owner entitles him or her to expect certain behavior from the tenant and the rental property. The "Warranties of Habitability" allows the tenants the right to expect basic functions of the rental housing to be working and in place. The tenant renting the property has a responsibility to pay the rent and keep the premise reasonably secure from criminal behavior. Additionally, a landlord has the responsibility to comply with other laws, while a tenant likewise has the responsibility to obey other laws. As long as it is not allowed by a law or the rental agreement, a tenant can expect the right to privacy and quiet enjoyment of the property. The landlord is given basic rights as owner to expect ordinary use of the property and that it will be fully occupied by the tenant. To the extent allowed by law or the rental agreement, the landlord may enter to inspect the property and make repairs (not intended for removal of the tenant). The expectation of the landlord is that the tenant will keep the property clean and in reasonable sanitary condition.
Security deposits and fees
Rental Agreements in New Mexico: Security Deposits and Fees
The next element of a rental agreement, one both tenants and landlords must understand, is security deposits and other fees. The parties will frequently refer to the security deposit as a "nonrefundable cleaning fee", "nonrefundable pet deposit", and so forth. Landlords cannot impose fees that are improper so it is important to know the rules.
First, there are two different types of security deposits:
Nonrefundable Deposit
This is an amount that is paid to a landlord as part of a move-in package with the understanding that the tenant is not entitled to any sort of refund or credit, at any time. This fee, provided it is not illegally formulated, will generally be upheld.
Security Deposit
A security deposit is a sum of money paid to the landlord for a lease’s duration, with the understanding that it can be used for any number of things at the end of the lease, including:
Of course, there are other uses of a security deposit under the law, but the above are the most common . With a security deposit, the landlord is allowed to make deductions from it if any of the above conditions are applicable.
Multiparty Security Deposits
If there are multiple parties under a lease, the landlord must comply with NMSA 47-8-18(B) when taking more than one security deposit. This statute states the following:
"When more than one person becomes a party to a rental agreement, the rental agreement may contain a provision that the rental deposit shall constitute a security deposit; provided, however, that each co-tenant having deposited rent with the rental business shall have his pro rata share of that rental deposit refundable to him upon termination of the rental agreement."
Improper fees
Fees that are rent in disguise are illegal as well. The handling of rent is not specified in this article because I have written other articles about how to handle rent properly under the law.
Termination/renewal of rental agreements
Section 70-3-2 (J) of the Landlord-Tenant Act defines "Rental Agreements" as "all agreements regarding the use and occupancy of a dwelling unit and premises." This definition is broad enough to include all written rental agreements regardless of whether the written agreement states that it is governed by the Landlord-Tenant Act. However, most provisions of the Landlord-Tenant Act apply only to written rental agreements for a tenancy longer than 14 days. Section 70-3-1(A). The Landlord-Tenant Act also requires that the provisions of the Act be included in all such rental agreements. Section 70-3-1(B). In order for the provisions of the Landlord-Tenant Act to apply, the rental agreement must be in writing. Section 70-3-1. There are two exceptions to the general rule that the provisions of the Landlord-Tenant Act apply only to written rental agreements for a tenancy of longer than 14 days. The first exception is that if the tenant pays using a method other than rental agreement check and the landlord accepts the payment, the rental agreement is governed by the other provisions if the tenant asks to receive a receipt and the landlord fails to provide one. Section 70-3-1(C). The second exception is that the rental agreement provisions applicable only to a tenancy for a period greater than 14 days apply to a rental agreement that has been terminated by the landlord for nonpayment of rent if the landlord subsequently accepts a rental payment. Section 70-3-1(D). Section 70-3-16 sets out the procedures for termination of tenancy. Subsection (A) governs terminations for delinquent rent where the tenant has a rental agreement for a period longer than 14 days. In that case, the tenant must be given written notice fixing a date at least seven days in the future when the rental payment must be made. If the tenant does not make the payment by the date fixed in the notice, the rental agreement is automatically terminated according to the terms of the notice, and the Landlord may file a special detainer action and have the tenant forcibly removed. Section 70-3-16(A). There are many exceptions to the requirement for seven days notice, so Section 70-3-16 should be reviewed from top to bottom for specific applications. There are additional procedures for terminating a rental agreement for nonpayment of rent when the rental contract is for a term longer than 30 days, but Subsection (E) also allows the parties by written agreement to shorten the notice requirement to five days for a rental agreement for a term longer than 14 days, but less than 30 days. Section 70-3-16(E). Subsection (A) also requires the rescission of the termination notice if the landlord receives full rental payment before the date fixed in the notice. Subsection (B) governs terminations of rental agreements for other than unpaid rent where the rental agreement is for a period longer than 14 days but less than one year. The notice period is five days for a rental agreement of this duration. If the rental agreement is longer than one year, notice must be given as set out in Subsection (C) (thirty days for termination after a year of occupancy, but not less than 14 days notice at no time). Subsection (D) allows the parties to by written agreement extend the applicable notice provision to more than thirty days for termination. Subsectino (E) states that a new rental agreement for a period less than 30 days does not constitute a new tenancy and does not require a new notice period. Section 70-3-17 governs termination of tenancy where the rental agreement is for a period longer than 30 days. According to subsection (A), a rental agreement for a term longer than 30 days but less than one year may be terminated by either of the parties upon 30 days notice if the rental agreement fixes no other time for termination. Subsection (B) provides that if the rental agreement is longer than one year, the provisions of Subsection (A) do not apply and the customer may terminate the agreement upon 30 days notice in the second or subsequent year after the customer has occupied the premises for at least one year. In that case, the notice is effective one year from the time the customer gives it. Subsection B also requires that notice be given to the landlord 30 days prior to the expiration of the first year of the agreement. This way, the landlord has notice of intent of the customer to terminate during the second or subsequent year so the landlord can make arrangements to either re-rent the premises with no break in occupancy, or at least to give the landlord 30 days from the end date of the first year of the agreement to find a new tenant. Section 70-3-19 establishes procedures for termination of rental agreements where the rental agreement allows a purchaser of the premises to terminate or continue the tenancy. Section 70-3-18 establishes procedures for terminating a rental agreement when the property is sold to a purchaser who has the right to terminate the tenancy. Section 70-3-20 establishes procedures for changing the rental amount for the property where a sale is made of the property to either a purchaser or a lessor for a new period of occupancy for the premises. Section 70-3-21 establishes procedures for termination of short-term rental agreements (those for 14 days or less.) It gives very specific requirements for the written notice required to be given to the customer for termination of the agreement.
Resolving disputes in New Mexico
When disputes arise within the scope of a rental agreement it is best that the tenant and landlord endeavor to resolve any issues directly between themselves. However, this is not always possible and it may be necessary for a tenant or landlord to take additional steps. If there is a dispute over the terms of a rental agreement, or the implementation of a rental agreement the parties should first try to contact the other party and resolve the dispute informally. If this is unsuccessful, tenants may file a complaint against the landlord with the New Mexico Human Services Department (HSD). HSD has a dedicated unit to handle landlord tenant disputes. State law, under § 46-8-1, allows HSD to mediate disputes. The landlord and tenant may be referred to a private nonprofit mediation service for the dispute if mediation does not succeed at that point . Finally, if all of these measures fail, they can pursue enforcement through the courts, by filing a civil lawsuit for damages or specific performance (to force the landlord or tenant to perform their duties under the rental agreement) in the district court.
Because energy resources rule so much of the day-to-day life in New Mexico, the state has prioritized mediation of disputes related to Public Utility Services. Like rental agreements, utility services are a form of private contract within New Mexico. Under § 67-1-1 NMSA 1978, the New Mexico Public Regulation Commission, or the PRC, has jurisdiction over Public Utility Services, primarily in issues concerning service delivery, rates and charges, rates of return on investment, and accounting problems. The PRC deals with basic utility services including electric, natural gas, water and taxi drivers.