What’s the Difference Between a Lease and a Rental Agreement?
There are two main ways that the terms and conditions of a rental arrangement are agreed upon between tenant and landlord: a lease and a rental agreement. Any rental arrangement should always be formalized in writing, although in some cases a verbal short-term rental agreement can still be legally binding.
Leases and rental agreements serve the same general purpose, and the two terms are often used interchangeably, but there are a few key differences between these two types of contracts. Let’s take a look at what sets apart a lease and a rental agreement:
Renewal of the Rental Arrangement
One of the most noticeable differences between a lease and a rental agreement is the procedure for renewal. Rental agreements typically are automatically renewed at the end of the rental period unless one party requests a termination. A lease, on the other hand, must be actively renewed by both parties in order to extend tenancy beyond the end of the first rental period. Tenants are usually given the option to enter a new lease or switch to a month-to-month rental arrangement.
Flexibility of Terms
Rental agreements provide greater flexibility to both landlords and tenants. This type of arrangement can be dissolved by either party with adequate given notice, which is 30 days in most cases. This provides a more flexible renting situation, which may be preferred for shorter-term rental periods or more casual rental situations, but also offers less security. Leases provide greater stability for tenants and landlords, as the terms and conditions of a lease remain enforced until the end of the rental period.
Leases also offer tenants more stability in the monthly rate compared to rental agreements. Rent is most often fixed for the duration of a lease, unless a set rental increase is built into the contract, which sometimes occurs in multiple-year leases. Rental agreements give landlords more freedom to adjust rent between periods or sometimes even during the rental period.
Duration of Rental Period
Rental agreements are typically used for shorter rental periods that may not have a specified end date. Most commonly they go month-to-month. Leases, as you probably know, are a longer-term agreement with a rental period of six months, one year, or even two or more years. Both parties are obliged to stick to the terms of the lease for the entire duration, unless a termination is agreed upon by both parties. One party can’t cancel a lease prior to the end of the rental term. In most cases, a landlord can terminate a lease or evict a tenant if the tenant violates the lease terms during their tenancy.
Terminating the Rental Arrangement
As mentioned before, rental agreements can be terminated with adequate given notice, which is typically 30 days, but sometimes longer, depending on the rental period. With a lease, termination is a much more involved procedure for both parties. For the tenant, ending a lease prematurely usually results in extensive fees outlined within the rental contract, and may even involve paying out the rent that would be due for the remainder of the rental period. If a tenant or landlord breaks the terms of a lease or ends the agreement prematurely, they can often face legal repercussions.
