Differences Between Leases & Rental Agreements

All landlords should know the difference between a lease and a rental agreement, but sadly, many don’t. They use the two words interchangeably, without researching the meanings of each. A lease is actually quite different from a rental agreement, and the landlord will have to decide which is better for his or her rental property.

A lease is what you most commonly find in areas where rent-control is regulated. This means that a rental property has a specific price for rent, which cannot change until the end of a lease.

Specifically, a lease is a fixed-period agreement to rent a dwelling under a certain contract. For example, if you agree to rent a dwelling for a period of twelve months, at a specific rate, then you have just signed a lease. The terms of that lease and the price of rent cannot change for the full duration of the lease, regardless of extenuating circumstances, unless both the landlord and the tenant agree to the change.

This is also common for investment properties or dwellings on which the landlord is still making mortgage payments. A lease ‘locks’ a tenant into the property for specified period of time (usually 3, 6, 9 or 12 months), which guarantees that the landlord receives payment for the property.

A residential agreement, however, is a month-to-month agreement between a landlord and tenant, where the conditions of the agreement can change on a monthly basis, or as needed.

This means that a tenant can give notice to vacate with only thirty days’ notice, and likewise the landlord can give notice for the tenant to move out in the same period of time. The security for both landlord and tenant is reduced in a residential agreement, but it also gives both parties freedom to make changes at will.

Residential agreements are usually automatically renewed every thirty days until the landlord or the tenant gives notice to vacate. With a lease, the term of the lease cannot be broken unless a breach of the lease occurs, such as when a tenant fails to pay rent on time, or causes damages to the property.

Landlords are free to use either a lease or a rental agreement, whichever they prefer, as long as either agreement falls within the parameters of the law. In other words, a landlord who uses a residential agreement cannot raise the rent every month if the state in which the property lies is governed by rent-control ordinances. However, in a state like New York, a landlord can raise the rent every month if he or she wishes.

Both tenants and landlords must decide which type of agreement they prefer, and use it accordingly. A tenant who needs the security of a lease should not apply for an apartment that uses residential agreements, while a landlord who wants the freedom to let tenants go if they aren’t working out would be more comfortable with a residential agreement.