A lease agreement is a legally binding document that most people, unfortunately, tend to underestimate. Typically, the landlord drafts the lease agreement, although some properties use a standard lease formulated by the area’s trade association for landlords.
Most people interchange the words leasing and renting, but the two terminologies have several major distinctions.
Here at Zumbly, we’re experts in helping you find a home to buy, rent, or lease that’s right for your taste and your price range. Let’s walk through some of the primary differences between a lease and a rental.
1. Maintenance responsibilities
When leasing, the lessor hands over the property to the lessee for an agreed-upon amount of time. During this time, the lessor expects the lessee to maintain the property and take care of all the responsibility the lessor typically would.
With renting, the tenant never takes up the maintenance responsibilities which remain the duty of the renter.
A lease involves a longer period of time, usually a year or more. On the other hand, renting often involves a shorter period. The tenant usually rents a space on a month-to-month basis.
3. Accounting standards
Renting is free of a standard renting agreement, unlike a lease. A lease has a set Accounting Standard 19.
4. Fluctuations in prices
While rent rates typically fluctuate with inflation and the landlord can change them at their discretion, leases do not fluctuate. The price that the landlord and the renter agree upon in the lease remains fixed until the lease expires and a new rate is agreed upon.
In fact, nothing can be changed in a lease agreement once it’s been signed.
In a renting relationship, the renter is the landlord and the rentee is the tenant. In a leasing agreement, the property owner is known as the lessor and the person taking the property or asset is known as the lessee.
6. Offer to purchase
Once the lease term is finished, the person leasing typically has the option to buy the asset or property outright. This is not an option with renting. The landlord does not offer their property to the tenant for purchase upon the end of the agreement.
What is in a lease?
A lease agreement features
1. A description of the property
The correct and comprehensive description of the property is necessary to give the lessee an accurate picture of the property. All these details make the property unique from others.
2. The agreed length of time
Leases will show the exact dates from the starting date to the last date of the lease. It’s very rare to have a lease that features a general time period like “one year” or “six months.” This is because leases, for legal purposes, can’t leave anything open to interpretation. Plus, having exact dates ensures there are no future disputes about when the lessee should vacate the property.
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3. Terms of leasing
Some leases come with renewal options or the option to purchase the property/asset. If any of these is the case, it should be clearly stated in the lease. Among other terms in the leasing contract is the lessor’s intention or right to inspect the property’s condition, especially when the lease is very long term. Such intentions must be agreed upon in the contract. As much as the lessee has a right to privacy, the lessor is also entitled to know the state of their investment.
4. Rules of escalation
Once a lease is signed, it’s virtually impossible to change it. This is why being clear about escalation protocol from the get go is crucial. For example, if one intends to buy the property at completion of the original lease they should make this clear. If they intend to escalate their operations for a commercial property or have a home office in a residential property, a new lease agreement needs to be drafted to incorporate such changes.
What is in a rent agreement?
A rental agreement features
1. Description of the rental
Create detailed and accurate descriptions of the property so that the tenant knows exactly what they’re renting. It is essential to include details about parking slots, storage areas, and amenities large and small. If the property owner has other units or sections on their property that are off-limits to the tenant, these stipulations must be present in the rental agreement.
2. Terms of agreement
Rental agreements have shorter periods of occupancy that can be interrupted by either the tenant or landlord. However, issues like termination of the contract need to follow certain procedure so that there are no aggrieved parties. For example, agreeing on a written notice from either party when terminating the contract is vital.
Like a lease, the rental agreement states the exact dates of starting the occupancy of the property to the last day and the vacating time frame.
3. The payment procedure
The rent amount should be written numerically and also spelled out for the tenant to read. The agreement should also stipulate how the rent is to be paid, on what exact dates, and how long the contract is meant to last.
Rental agreements should also be clear about the security deposit for the rental and how it is to be used. For example, does it cover the rent in case the tenant defaults, or repairs in the midst of the tenancy period caused by the tenant?
It s crucial to outline the way repairs and maintenance will be carried out. This is to protect both the interests of the tenant and the landlord. Instead of going into rent-withholding haggling, having a previously worked out solution well laid out in the rental agreement gives you both a better chance of resolving issues amicably.
Consequences of breaking a lease or rental agreement
As mentioned before, a lease and rental agreement are both legally binding documents which may result in legal action against the person who breaks them. The consequences range from prosecution to hefty fines and legal fees, a poor credit score and even trouble renting or leasing from other people.
However, there is a possibility to break a lease or rental agreement without repercussions as long as both parties are in agreement. Read about early lease releases that should be contained in the signed agreement. If this clause doesn’t exist try talking to the landlord or lessor. If you have a decent relationship they will probably agree and let you off the hook (at a cost, of course). Sign up to find out more about Zumbly’s housing and rental solutions.