No matter if you’re a landlord or a tenant, you should thoroughly understand the distinction between a lease and a rental agreement when it comes to real estate to avoid any misconceptions and uncomfortable circumstances in the future.
How Do Leases Work?
A lease is a legal agreement that gives a tenant access to the rented property for the duration of the agreed-upon time frame. Although leases can be negotiated for any period from three to 24+ months — that depends on the agreement between the landlord and renter — the most common term is 12 months.
Both the landlord and the tenant are required to strictly abide by the terms and conditions of the lease. These include, but are not limited to, the length of the contract, the details of the rental payments, the pet policy, and the specifications of the security deposit. The landlord will not be able to raise the rent or make the tenant vacate the property (unless it’s an eviction based on a contract breach), and the terms of the lease cannot be amended unless both parties agree to the new terms. Similar to this, the tenant is required to pay rent on time, maintain the property in a good shape, and adhere to any other conditions outlined in the contract.
The parties may choose to renew the lease, change to a month-to-month arrangement, or request that the tenant remove the premises once it expires. Both the contract you signed with the landlord and local landlord-tenant legislation govern the process of lease renewal (or vacating when the lease expires).
A Rental Agreement Is What?
It is considerably simpler for both the landlord and the tenant to end the lease because it is automatically renewed at the end of each month. The time of the notice will depend on the particular rental agreement and the state’s tenant-landlord rules, and it must be delivered in advance. For instance, if you signed a month-to-month lease, Michigan law states that you must notify your landlord 30 days in advance of your intended move-out date. Ten days before the end of the rental month in Colorado, a termination notice may be given.
Pros and Cons of a Lease vs. a Rental Agreement
As you can see, it’s crucial to take into account the variations in flexibility and length of the lease and rental agreement when looking for your next rental. Here, we examine the benefits and drawbacks of entering into a home lease as opposed to a rental arrangement.
Lease
Pros: The permanence of a lease is one of its most important benefits, for both tenants and landlords. It will be ideal for any renter looking for a place they can call home for a very long time without having to worry about unforeseen rent increases or contract modifications. Similar to how tenants can more easily forecast their future rental revenue, landlords who sign the lease don’t have to worry as much about tenant turnover (and the costs related to it).
Cons: The difficulty of terminating a lease before its expiration may be the main drawback of signing a contract to rent an apartment to the tenant. You can have to pay a fine, get sued, or even have your credit rating damaged if you decide to end the lease early without having good reason. For landlords, the biggest disadvantage of signing a lease is that they cannot increase the rent until the conclusion of the renting period.
Rental Contract
For many people, signing a lease might not be the best course of action. If you don’t want to be bound by long-term leasing obligations, go for a rental agreement. Renters who are better suited for rental agreements include students, foreigners, people who plan to buy a home soon, and many others.
Pros: The largest benefit of choosing a rental agreement may undoubtedly be seen as greater flexibility for both parties. Rental agreements provide you the flexibility you need if you recently relocated and want to check out a few areas before choosing the best one for you, if you want to study abroad for a semester in a different state, or if you need to go on a long business trip. If a landlord’s property is situated in a hot real estate market, they could benefit from entering into a rental agreement. They might change the rental price slightly more frequently in this fashion (although this might be regulated by the state laws). Additionally, before beginning a significant restoration project or selling the home, the property owner might only be ready to rent it out for a few months.
Cons: Due to the unpredictability of the rental period length and potential frequent rent increases, rental agreements scare off many potential renters. This is unquestionably one of the most important factors to take into account, although in some tenant-friendly jurisdictions, it might be simpler. For the landlord, the drawbacks of entering into a rental agreement include increased tenant turnover and potential income volatility.