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Lease Versus Rent Agreements


Lease Versus Rent Agreements

A lease agreement and rental agreement are important legal documents that should be read, understood and completed by a tenant prior to moving into a rented property. While both agreements are similar in nature, there is one major difference between the two that tenants should be aware of before signing the contract.

 

A lease agreement is a fixed-term contract between a landlord and a tenant. This agreement covers a long-term leasing period, usually 12 months, but can be longer depending on the agreement between the tenant and the landlord. The lease agreement is a legal document that meticulously outlines the responsibilities of both the tenant and the landlord during the lease period, for the protection and benefit of both parties.

 

Lease Agreement

 

A lease is a contract with a set term, usually 12 months or more, but it can start from six months or even three months depending on the landlord’s terms and conditions. During this term, the tenant agrees to rent the property by making monthly rent payments to the sum agreed upon and stipulated in the contract. Both the tenant and the landlord must agree to abide by the terms, conditions, responsibilities and obligations stated in the contract. Neither party can change the terms of the agreement until the lease expires or unless agreed upon by both parties. Rent must be paid in a timely and consistent manner, and in many cases, failure to pay on time will incur additional penalties. That said, the landlord cannot end the lease or change the conditions of the lease without the tenant’s agreement.

 

A lease, whether written or oral, is a binding contract in the real estate market and once a tenant agrees to the terms of the lease, it is their responsibly to adhere to the terms. Tenants should therefore not make multiple written offers in case more than one gets accepted, which could lead to a tenant being liable to pay multiple rents. At the end of the lease agreement, both parties will have the opportunity to extend the terms for another year (or whatever term is stated in the lease). This is generally done about 60 – 90 days before the lease is due to expire. This gives both parties enough time to make alternative arrangements should either one reject the lease extension. During this period, tenants should notify landlords on their intentions to either continue the lease or vacate the property, while landlords should notify tenants of any changes to the initial agreement, including a possible increase in rent, which the tenant can either accept, reject or negotiate. In this way, both parties have the facts to make an informed, mutually beneficial decision.

 

Pros and Cons of a Lease Agreement

 

Pros for Landlords:

 

  • A stable income for a fixed term
  • No need to find new tenants as often
  • Saving money on the costs of finding and preparing the space for new tenants

 

Cons for Landlords:

 

  • Rent can only be raised once a year
  • May be stuck with a troublesome tenant

 

Pros for Tenants:

 

  • Stable and often lower rental rate
  • Save on costs associated with moving, e.g. movers, deposits and transfer fees

 

Cons for Tenants:

 

  • Stuck in a fixed term lease for 12 months or more
  • Costs and stress associated with early termination

 

 

Rental Agreement

 

Rental agreements, on the other hand, are month to month agreements with no long-term requirements. After each 30-day cycle, both the landlord and the tenant are allowed to change the rental agreement (within the limits of rent control laws). These changes can include an increase in rent, changing the initial terms of the lease, or asking the tenant to vacate the premises. That said, the law usually requires either party to give at least 30 days’ notice of any changes to the initial agreement. Rental agreements allow tenants more flexible conditions and the freedom to move around as often as they like. Typically, a rental agreement will renew automatically after 30 days and there is no need for a tenant to notify the landlord unless they plan to terminate the agreement.

 

Pros and Cons of a Rental Agreement

 

Pros for Landlords:

 

  • Rental rates can increase often

 

Cons for Landlords:

 

  • The potential high turnover associated with shorter lease agreements may prove problematic
  • Loss of rental income if the property remains tenant-free for an extended period of time

 

Pros for Tenants:

 

  • Flexibility and freedom

 

Cons for Tenants:

 

  • Rents tend to be higher than annual leases
  • Your landlord may decide to end the agreement before you are ready to leave

 

Lease vs Rent – Which One to Choose?

 

For tenants who do not plan on relocating often, a fixed term lease may be the best option. The long-term lease provides security and guarantee, which is important to many individuals. For tenants who do not need to be tied down with a fixed term lease, then renting is likely a better option. While this may cost more over a shorter period, the total cost will be lower since there is no fixed lease for many years. For landlords, a long-term lease guarantees a stable income for the duration of the contract, while rent agreements are better for enjoying regular increases in rent. Ultimately, the decision to lease or rent depends on your overall objectives.

 

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