In this article, I will explore how you could create a draft for a rental contract for a house rental business or draft a lease agreement for a commercial property.
And I will only use AI to do so.
Maybe I can save you some money by doing this experiment?
If so, that would be awesome!
Alternatively, if you are a lawyer, this may scare you… (sorry)
This article has two parts.
- The private investor’s long-term rental agreement (flats, family homes, etc.)
- Commercial property rental agreement (shops, offices, etc.)
Disclosure: I do not run this type of business, and there may be things I say in this article that may be factually or practically wrong. However, the article’s point is to show practical examples of how you can utilize AI in your business – particularly in contractual matters. This is for entertainment purposes only!
Warning: This is NOT legal advice. It is just an experiment with a 3rd party tool that may or may not be beneficial. This article is for entertainment purposes only.
The AI tool of choice for this experiment
In this experiment, I will be using the ChatGPT generative AI from OpenAI.
It is a powerful tool, yet, it is free to use (at least for now).
To replicate this experiment for yourself, you need to go to the OpenAI website and register. It will only take you a few seconds to do.
Go here to register (top of the page): OpenAI
Warning: Do not take the output from an AI as facts. It may or may not be factually correct, but you should never rely 100% on it. Use it as a guide.
How to create a long-term rental agreement using AI
Once you have logged in, you give the AI its first prompt at the bottom input field.
I gave the AI the following prompt:
Can you create a draft for a long-term rental agreement of minimum 2 years for a 3 bedroom 2 bathroom house with the address “Einstein avenue 13, 75051, Dallas TX”, 1615 square feet building, 5300 square feet property, with garage. Not including cost of utilities. The house is with insurance, but does not cover moveable property. The agreement can be extended after 2 years for 1 year at a time. The monthly rental is $2000 not including utilities. The rental price can be index adjusted after the first 2 years, then yearly thereafter.
This looks pretty amazing to me!
I am not a lawyer, but I bet I could bring this to a lawyer to look over it and make the needed changes, and it would cost a lot less than if I went to the same lawyer saying, “I need a rental contract for my house, please make a draft for me.”
You will find the full output and the draft contract the AI gave me at the end of the article.
Experiencing the power of this tool, I can see why the legal industry is starting to get pretty nervous about AI…
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How to create a lease agreement for a commercial property using AI
I want to preface that I am on “thin ice” with the terminology I use, as I have no experience with commercial real estate. But if you have the experience, you will know how to prompt the AI better and get the desired output.
Also, remember that you can ask the AI to change or adjust the output you got as if you are having a conversation with a lawyer.
This is the prompt I used to get a draft contract from the AI for a lease of a commercial property:
Can you create a draft for a long term lease agreement for a 35000 square foot commercial building with the address 7962 West Side Ave, North Bergen, NJ 07047, United States. The building has commercial property insurance by the owner through Liberty Mutual. The agreement is for 5 years, but can be extended by 5 new years at a time. The monthly rental is $15 per square foot.
But look at this!
I did a screen recording while the AI was working. This is how the AI works and how long it took to draft the lease agreement.
Is this game-changer, or what?
As stated above, I am no expert in commercial real estate, but the live-action footage and output look pretty amazing if you ask me.
Sure, the contract looks somewhat limited, and if I were leasing out a commercial building at $525K a month (as this experiment project would cost), I would highly suggest spending some dollars on a real lawyer.
However, you can use this AI for any sized business, and maybe the output would be acceptable for your business?
Again, no expert, but maybe an AI-suggested lease contract for a small office rental business, a coworking space, or a coffee shop could be good enough?
If I were a lawyer, I would be pretty anxious by now.
However, if you are a lawyer, imagine how this tool can help you or your paralegals save time drafting outlines for contracts that you can refine before handing them over to clients.
It works both ways…
I actually wrote an article about how to use AI to review a contract. You might find it interesting as well.
You can read the full contract draft I got from the AI at the end of this article.
I want to point out once again that this is not legal advice, and I am just a guy on the internet doing random AI explorations and experiments.
The long-term rental draft agreement created by AI
LONG-TERM RENTAL AGREEMENT
This Long-Term Rental Agreement (“Agreement”) is made and entered into on the date of acceptance by the Landlord and by the Tenant.
- PREMISES: The Landlord agrees to rent to the Tenant, and the Tenant agrees to rent from the Landlord, the 3 bedroom, 2 bathroom house located at Einstein Avenue 13, 75051 Dallas TX, including the attached garage and 5300 square feet of property, with a total living area of approximately 1615 square feet (the “Premises”).
- TERM: This Agreement shall have a minimum term of 2 years, commencing on [Start Date] and ending on [End Date]. The Agreement may be extended for an additional 1 year at a time upon mutual agreement of the Landlord and Tenant.
- RENT: The Tenant shall pay to the Landlord the sum of $2,000 per month, payable in advance on the first day of each month, as rental for the Premises. The rental price may be index adjusted after the first 2 years, and then yearly thereafter. The Tenant shall also be responsible for all utilities and other charges for the Premises.
- SECURITY DEPOSIT: The Tenant shall pay to the Landlord a security deposit in the amount of $[Security Deposit Amount], to be held by the Landlord as security for the Tenant’s performance of the terms and conditions of this Agreement. The security deposit shall be returned to the Tenant within [Number] days after the Tenant vacates the Premises, provided the Premises are in the same condition as when the Tenant took possession, reasonable wear and tear excepted.
- INSURANCE: The Landlord shall maintain insurance on the Premises, but such insurance shall not cover the Tenant’s personal property. The Tenant shall be responsible for obtaining and maintaining insurance for his or her personal property.
- USE: The Premises shall be used solely as a private residence for the Tenant and his or her immediate family. The Tenant shall not use the Premises for any illegal or unlawful purpose, or for any purpose that would increase the insurance premiums for the Premises.
- ALTERATIONS: The Tenant shall not make any alterations or improvements to the Premises without the prior written consent of the Landlord. Any alterations or improvements made by the Tenant shall become the property of the Landlord upon the Tenant’s vacating the Premises.
- QUIET ENJOYMENT: The Landlord covenants that the Tenant shall have the quiet enjoyment of the Premises during the term of this Agreement, subject to the terms and conditions of this Agreement.
- TERMINATION: This Agreement may be terminated by either party upon [Number] days’ written notice if the other party breaches any material term or condition of this Agreement.
- HOLDOVER: If the Tenant holds over possession of the Premises after the expiration of this Agreement, the Tenant shall be deemed a tenant at sufferance and shall pay to the Landlord double the amount of rent specified in this Agreement.
- SUBLETTING: The Tenant shall not sublet any part of the Premises without the prior written consent of the Landlord.
- ASSIGNMENT: The Tenant shall not assign
The lease draft created by AI for a commercial building
Certainly! Here is a draft for a long-term commercial lease agreement for the 35000 square foot building at 7962 West Side Ave, North Bergen, NJ 07047, United States:
LEASE AGREEMENT
This Lease Agreement (“Agreement”) is made and entered into on [date] by and between [Owner’s Name], with a mailing address of [Owner’s Address] (“Owner”), and [Tenant’s Name], with a mailing address of [Tenant’s Address] (“Tenant”).
- Premises. Owner hereby leases to Tenant, and Tenant hereby leases from Owner, the commercial building located at 7962 West Side Ave, North Bergen, NJ 07047, United States, consisting of approximately 35000 square feet (“Premises”).
- Term. The term of this Agreement shall be 5 years, beginning on [start date] and ending on [end date], unless extended by mutual written agreement of the parties. The parties may extend the term of this Agreement for additional periods of 5 years at a time by executing a written extension agreement.
- Rent. Tenant shall pay to Owner the sum of $15 per square foot per month, for a total monthly rent of $525,000.00. Rent shall be payable in advance on the first day of each month, with the first month’s rent due on the date that Tenant takes possession of the Premises.
- Insurance. Owner shall maintain commercial property insurance on the Premises through Liberty Mutual. Tenant shall also maintain insurance coverage for its own property and business operations on the Premises.
- Use of Premises. Tenant shall use the Premises only for lawful purposes and in compliance with all applicable laws, ordinances, and regulations. Tenant shall not use the Premises in any way that would increase the insurance premiums for the Premises or cause any damage to the Premises or to the property of others.
- Repairs and Maintenance. Owner shall be responsible for all repairs and maintenance of the Premises, including any structural repairs, plumbing, heating, and electrical systems. Tenant shall be responsible for maintaining the Premises in a clean and orderly condition and for repairing any damage to the Premises caused by Tenant or its invitees.
- Assignment and Subletting. Tenant shall not assign this Agreement or sublet the Premises without the prior written consent of Owner. Any assignment or subletting without such consent shall be void and shall constitute a default under this Agreement.
- Termination. This Agreement may be terminated by either party upon written notice if the other party materially breaches any of the terms or conditions of this Agreement.
- Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.
[Owner’s Name] [Tenant’s Name]
Thomas Sorheim
I am the creator of the Practical AI newsletter and The Future Handbook website. I write about all things AI and try hard to make it all understandable for non-technical people.A FREE weekly newsletter about AI and its applications and implications on business for non-technical business professionals and managers.