The terms rental agreement and lease agreement are often used interchangeably, but they are quite different. Rental agreements offer more flexibility for landlords and tenants, while lease agreements offer more stability. Learn the key differences between these two types of living arrangements.
Basics of a Rental Agreement
A rental agreement is one type of contract a landlord can sign with a tenant. It is distinctly different from a lease agreement in a number of ways.
- Length- Rental agreements are typically short term. It is common for these agreements to be valid for a period of 30 days. In certain cases, they can be even shorter, lasting as little as a week.
- Automatic Renewal- Generally, rental agreements renew automatically once the original term expires. All the terms of the original agreement are still valid, including the length of the agreement. So, if the original term was for a period of 30 days, the agreement will automatically renew for another 30 days.
- Terms Altered- The landlord can change the terms of the rental agreement. It includes changing the length of the agreement or the rental price. To make any changes, however, the landlord must give the tenant proper notice.
- This written notice will vary based on state law but is normally 30 days; Some states may require as much as 60 days’ notice to make any changes. If any changes have been made, the tenant must sign and agree to the new rental agreement.
Basics of a Lease
A lease agreement is the arrangement most people associate with renting a property. It is typically a more detailed and lengthy contract.
- Length: Lease agreements are for a much longer term than rental agreements. The most common lease term is for one year, but leases can be for any length of time as long as the landlord and tenant agree to the length. They can be as short as six months or as long as 30 years, which would be more common in commercial leases.
- No Automatic Renewal: Lease agreements do not automatically renew. Once the original lease term is over, the tenant would have to sign a new lease with the landlord if the landlord or tenant desired a long term contract. In most cases, a lease that has expired automatically becomes a shorter term month to month agreement.
- Lease Terms Binding: The clauses of the lease agreement cannot be easily changed during the term of the lease. For example, if the tenant had signed a yearlong lease and the landlord wanted to increase the tenant’s rent, the landlord would have to wait until about a month before the original lease term expired. The landlord would then have to send the tenant a notice of rent increase at least 30 days’ prior to lease renewal before any rent increase could take effect.
- Health and Safety Issues: Lease agreements often include lead paint disclosures and information about any other known health or safety issues at the property.
Similarities Between Leases and Rental Agreements
Leases and rental agreements are both legally binding contracts. Each agreement can include the following information:
- Who the Contract Is Between
- Term- Start and End Date
- Rent Amount
- Security Deposit Amount
- Names of Tenants Who Will Be Living in the Property
- Rules for Landlord Entry
- Pet Policy
- Move Out Procedures
- Rules for Return of Security Deposit
Benefits of a Rental Agreement
While a lease agreement is more common, a short term rental agreement between landlord and tenant may be preferred for a number of reasons.
- Short Term- In certain situations, a landlord may prefer to have a tenant occupy the unit for a shorter period of time. The landlord may want to move into the unit in the near future or may be trying to generate some extra money on the unit before beginning renovations. The landlord would usually have to send the tenant a Notice to Vacate the unit 30 days prior to the desired move out date. The exact amount of notice would depend on state law.
- Can Adjust Rental Prices- Rental agreements give landlords more flexibility in the rent price. The landlord has the option of increasing the rent every 30 days, and it would be up to the current tenant to agree to pay the higher rent or move elsewhere. The landlord could also try to charge higher rents during rental periods when there is high demand and then charge lower rents if they have a vacancy during periods of lower demand. The exception to this would be if the unit is under any sort of rent control or other rent regulations.
- Charge Higher Prices – Sometimes people only need a rental for a short amount of time. Examples include situations such as a home renovation, internship or temporary job assignment. Since many landlords will only sign a lease for a year or more, there may be fewer options available for these types of tenants. Due to the limited options, you may be able to collect a significantly higher rent if you are willing to rent your unit short term.
Negatives of a Rental Agreement
Rental agreements have their downsides as well.
- Less Stability- Since most rental agreements are only for one month, you have to prepare yourself to have a vacancy at any time with no rent coming in. A tenant typically only has to give 30 days’ notice before move out.
- More Turnover- Tenants who sign rental agreements want the flexibility of being able to move quickly. Therefore, you must be prepared for an endless cycle of finding new tenants for your property.
Put It in Writing
Put any agreement between yourself and your tenant in writing. The agreement must also be signed and dated by both parties. While certain oral agreements can be binding, the actual terms agreed to are much harder to prove.
Follow State Law
Whether you are creating a rental agreement or a lease agreement, you must follow your landlord-tenant law. If you put a clause in your agreement that is illegal based on your state’s landlord-tenant law, it will not be binding, even if the tenant has signed the agreement. For example, if your state places a maximum security deposit amount as one month’s rent, and you collected two months’ rent from your tenant, you must return any excess amount collected to the tenant.