The Difference Between the Lease and Rental Agreement, Explained

There are many terms and concepts that might be confusing for renters and aspiring landlords. One of the great examples can be the difference between a lease and rental agreement. While they can be used interchangeably in many situations, there are some major differences between these two ideas.

To avoid any misunderstandings and unpleasant situations in the future, you should understand very well what is the difference between a lease and rental agreement when it comes to real estate — no matter if you’re a landlord or a renter.

What Is a Lease?

A lease is a contract that allows a tenant to use rental property throughout the established period of time. The most standard duration of the lease is 12 months, although leases can be signed for any period from three to 24+ months — that depends on the agreement between the landlord and renter.

Both landlord and tenant have to follow the terms and conditions of the lease thoroughly. These include but are not limited to the contract’s duration, rental payment specifics, pet policy, and aspects related to a security deposit. What’s more, the terms of the lease cannot be changed without both parties agreeing to the new terms — the landlord won’t be able to increase the rent or force the tenant to move out (unless it’s an eviction based on breach of contract). Similarly, the renter is obliged to pay rent on time, keep the property in good condition, and comply with any other term specified in the agreement. 

After it comes to an end, the parties have an option of signing a new lease, switch to a month-to-month rental agreement, or the tenant can vacate the property. The procedure of lease renewal (or moving out after the lease ends) is regulated by the agreement you signed with the landlord as well as local landlord-tenant laws.

What Is a Rental Agreement?

The structure and points covered by rental agreements are very similar to those in the residential lease. But, in contrast to the lease, a rental agreement is conducted for a shorter period of time, usually 30 days. 

The rental agreement is automatically renewed at the end of the month, and it’s much easier to terminate the contract for both landlord and tenant. To do so, the party has to deliver a notice in advance, with the time of the notice depending on the specific rental agreement and the tenant-landlord laws in the state. For example, according to Michigan laws, you’d have to inform your landlord 30 days before you’re planning to move out if you signed a month-to-month rental agreement. In Colorado, the termination notice can be presented ten days before the end of the rental month.

We cannot stress enough the importance of carefully reading the lease or rental agreement before signing and being acquainted with the tenant-landlord laws in your state. That way, you’ll be well aware of what you can require from the landlord and what your obligations are in return.

Lease vs. Rental Agreement: Pros and Cons

As you can see, the differences when it comes to flexibility and duration of the lease and rental agreement are important to consider when you search for your next rental. Here we take a closer look at the advantages and disadvantages of signing a residential lease compared to the rental agreement. 

Lease

Opt for signing a long-term lease if you’re rather certain when it comes to your future intentions and plans. Long-term leases might be a great option for young families with small children, pet owners, and anyone who’d like to have a possibility of staying in the same place for a longer time, avoid the hassle of constantly moving around, and generally need some peace and certainty in their lives.

Pros: One of the most significant advantages of signing a lease for both tenants and landlords is its stability. It will be perfect for any renter who’s searching for a place that can become their long-term home and doesn’t have to worry about unexpected rent increases or any changes in the agreement. Similarly, the landlords who sign the lease can easier predict their future rental income and don’t have to worry about tenants’ turnover (and the costs associated with it) that much.

Cons: The biggest disadvantage of signing a lease to rent the apartment for the tenant might be the difficulty of the lease termination before it ends. If you decide to break the lease earlier without legal reasons, you might end up paying a fine, facing a lawsuit, or even hurting your credit score. The main drawback of signing a lease for landlords is the inability to raise the rent until the end of the rental period.

More like this: 7 Warning Signs in Your Residential Lease Agreement

Rental Agreement

Signing a lease might not be a preferable move for many people. Aim for a rental agreement if you don’t want to be tied to long-term rental commitments. Students, expats, those who consider buying their own property in the nearest future, and many more renters are more suited for rental agreements.

Pros: Undoubtedly, larger flexibility for both parties might be perceived as the biggest perk of opting for a rental agreement. If you recently moved to a new city and want to explore a few neighborhoods before deciding on a perfect area for you, if you come to study in a different state for one semester, or if you have a prolonged business trip, rental agreements give you the freedom of maneuver. Landlords might benefit from signing a rental agreement if their property is located in the booming real estate market. This way, they would be able to amend the price for their rental slightly more often (although this might be regulated by the state laws). Also, the property owner might be willing to rent it out for a few months only before starting a big renovation project or selling the house.

Cons: Rental agreements frighten away many tenants because of the uncertainty of the rental period length and possible frequent rent increases. This is undoubtedly one of the most significant considerations, but it might be easied in certain tenant-friendly states. As for the landlord, the disadvantages of signing a rental agreement include larger tenant turnover and possible unpredictability of rental income. 

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Hopefully, with the help of this article, you’ll be able to make the right choice between a lease and rental agreement and pick the option that will work the best for you!