Understanding the Distinctions: Rental Agreements vs. Leases Explained
The terms and conditions of a renting arrangement between a landlord and a tenant are set forth in a rental agreement or a lease, both of which are legal documents. Rental agreements should always be in writing, but short term agreements may be legal even if verbal. Despite having a comparable function and although both terms are often being used interchangeably, the two differ in a few ways:
Duration: A rental agreement is normally a short-term arrangement with no set expiration date, commonly lasting from month to month. Unless cancelled by either side, it automatically renews at the end of each rental period, unless proper notice of cancellation is given (typically thirty days, but sometimes longer). A lease, on the other hand, is a long-term agreement with a set duration that may be six months, a year, or even many years. Both parties are obligated to abide by the terms for the whole term of the lease, which has a start and end date. Typically, neither party can cancel a lease prior to the expiration of the term.
Flexibility: Both landlords and tenants have more options when it comes to rental agreements. With adequate notice, often 30 days, either side may usually dissolve the agreement, allowing for a more flexible leasing situation. Contrarily, leases provide more stability and security for both parties, because the terms and conditions are set for the full life of the lease.
A rental agreement typically allows the landlord to raise the rate at the conclusion of each rental period, subject to any applicable local rent control regulations or restrictions. However, rent is often fixed under a lease agreement for the duration of the lease, giving the tenant more stability in their housing expenditures. Multiple year leases will typically also have set rental increases built into them, giving both the tenant and the landlord safety in knowing exactly what the rental amounts will be, as opposed to possibly having large swings in rent on a short term rental agreement.
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Renewal: Unless either party requests a termination, rental agreements are typically automatically renewed at the conclusion of each rental period. Normally, in order to extend the tenancy after the first period has ended, a lease must be actively renewed by both parties. This can entail entering into a new lease or switching to a month-to-month rental arrangement.
Termination: It is frequently necessary to provide the opposing party with a particular notice time, usually 30 days, in order to terminate a rental agreement, but sometimes it can be longer. Contrarily, if you want to end a lease before the end of the agreed-upon period, you usually need to follow a more official procedure. Prematurely ending a lease may result in fees or the need to satisfy specific requirements stipulated in the lease agreement, potentially paying all of the future rents as well.
It’s crucial to remember that local rules and regulations may have an impact on the terms of rental agreements and leases. Before signing or making a commitment, it is always advised to carefully read and comprehend, or have an attorney review, the conditions of any agreement to rent/lease a property.
Source: Multifamily Insiders