No matter whether you are managing properties and rentals full-time or renting out one property as a supplemental income source, landlords are expected to know it all. Many people are confused about the difference between a lease and a rental agreement, whatever the case may be.
There are times when tenants and landlords use the terms interchangeably. But there are two distinct types of agreements that can be referred to by these terms. It is legally binding to sign either a lease or a rental agreement. There are, however, significant differences between the two. In the following paragraphs, we will discuss the key differences between a lease and a rental agreement.
What is a Lease Agreement?
In most rental properties, tenants must sign a lease agreement before moving in. Typically, a lease covers a period of six or twelve months, and provides the tenant with the right to occupy a property for the period of time stated in the lease. Parties to a lease are bound by their contract.
Rent, pet rules, and the duration of the residential lease are outlined in clear, comprehensive terms in residential leases. As neither party can alter the lease agreement without the other’s written consent, a well-written, well-thought-out lease contract can help protect both parties’ interests.
What is a Rental Agreement – There are many similarities between rental agreements and lease agreements. The length of the contract is the biggest difference between a lease agreement and a rental agreement.
Rental agreements provide short-term tenancies, such as 30 days, unlike long-term lease agreements.
TYPICAL ITEMS IN LEASES AND RENTAL AGREEMENTS
There may be differences in the structure and flexibility of leases and rental agreements. Some rental contracts might include a pet policy, while others might add a rule or regulation about excessive noise, for instance.
The number of items included in a rental contract is usually standardized.
According to state law, landlords must disclose information about asbestos, mold, and registered sex offenders on their leases or rental agreements. Ensure that you comply with your state and federal laws when drafting a lease or rental agreement.
Lease Agreement vs. Rental Agreement: Pros and Cons
Depending on your landlord-tenant relationship, each specific contract has pros and cons.
PROS OF A LEASE:
A lease may be the best option for you if stability is your primary concern. A lease provides stability, long-term occupancy, which is why many landlords prefer it to a rental agreement. It may be more profitable to place a tenant in a property for at least a year instead of letting them move out after a few months.
CONS OF A LEASE:
It should be noted that once a lease agreement has been signed, the rental cost is fixed for the duration of the lease. If property values are consistently rising in an up-and-coming area, 12 months of a fixed rental fee could result in substantial loss of income. U.S. home prices rose 8.1% over the past year, according to the Home Buying Institute, and are forecast to rise 6.5% in the next year. Forecasts for this year’s summer were issued in July 2018.
Landlords who desire a stable income can benefit from leasing, but they may be negatively affected by property value growth during that period.
Pros of a Rental Agreement:
Rent increases are more flexible with a rental agreement because of its short duration. As long as rent increases comply with local laws and the notice provisions that govern the month-to-month rental, it is technically possible to revise rent with a rental agreement each month to stay in line with the current fair market rent.
You can compare rental prices in your area by using a tool such as Rentometer. Rent increases are possible from month to month with a rental agreement. Make sure your tenant understands this.
It is an ideal option for renters who are not able to sign a 12-month lease. Short-term rentals near colleges and hospitals may be in high demand, thus opening the door to many qualified tenants.
Cons of a Rental Agreement:
The flexibility of a month-to-month lease may scare away a tenant looking for a long-term lease, which may leave them subject to frequent rent increases. In addition to advertising, screening, and cleaning costs, landlords should also consider the costs of tenant turnover. You may also have difficulty keeping your rental rented for long periods of time if you live in an area with lower occupancy rates.
BOTTOM LINE ON RENTAL AGREEMENTS:
Especially in college towns with quick tenant turnover, a rental agreement may be a good option for landlords who seek flexibility.
It is vitally important to know who your tenant is, whether you are offering a lease agreement or a rental agreement. Your rental applicants should be thoroughly screened before being placed in your rental properties.