Well-written contracts are an essential part of what keeps many landlord-tenant relationships smooth. However, when you are considering renting from someone who is your friend or you are considering renting a space out to a friend, it can seem rigid to insist on a rental agreement.
Do it anyway.
Keeping the friendship intact
Ideally, the friendship between the landlord and tenant would stay firm no matter what. As a practical matter, though, at least one dispute is likely to occur. It could be about a rent payment a few days late, lease renewal or the landlord entering the apartment without permission. It could be about a seemingly small matter or an obviously big issue. In any case, having a contract is the best chance to keep your friendship intact. Otherwise, you may have nothing to fall back on when trying to explain and enforce landlord or tenant obligations, and your friend might take things personally. A contract also helps ensure one party does not take advantage of the other.
Being clear ahead of time
Another reason to insist on a contract is that it helps you be clear ahead of time. Both parties know what they are getting into and have the opportunity to back out if needed. If you are the landlord, emphasize to your friend and potential tenant there is an expectation that he or she will follow all of the lease terms. If you are the renter, make every effort to follow these terms.
Having second doubts
What if you end up having second doubts before signing? That is okay. Many people decide that they do not want to rent from/rent out to friends. That decision in itself can hurt your friendship, sure; but if your friend's pattern of paying late and seeming casualness toward having a contract gives you pause, then the friendship may not have survived long into the tenancy anyway. Now it might have a fighting chance.