Lease vs. Rental Agreement: Which to Choose?

Written on November 17, 2014 by , updated on December 6, 2015

lease-vs-agreementIf you’ve been a landlord for more than a year, you’ve probably noticed that not all renters desire the same type of arrangement.

Some renters may just be in-between the buying/selling process, awaiting a job relocation, or even remodeling.

Although most renters are used to 12-month leases, landlords may want to consider other options depending on the needs of the unit, timing, and audience.

So, your situation may behoove you to know the difference between a lease and a rental agreement.

Why Would I Choose a Rental Agreement?

A rental agreement, also known as a periodic rental agreement, is generally a month-to-month contract; however, some agreements can be as short as a few days or weeks. Once the agreement expires, one of the following three things can happen:

  1. The agreement is automatically renewed and payment is due.
  2. The landlord may request adjustments to the agreement like increase/decrease the rental price or other policy changes.
  3. The tenant is required to vacate the unit.

In most cases, a notice to vacate is still required when either party would like to end the agreement. The notice period is usually defined by your rental agreement or local laws in a month-to-month agreement.

Oral Agreements; Allowed, but Not Recommended

Oral rental agreements are also permissible; however, these are best avoided for liability reasons. Some states, such as California, suggest that written agreements be made if the rental is for more than nine months, pets are on the premise, or previous agreements have been made on utilities or landscaping.

When in doubt, get it in writing. However, even if your agreement is not in writing, tenants still have certain rights, such as an implied warranty of habitability and quiet enjoyment.

So, why would I want a rental agreement? For landlords, isn’t a long-term commitment more desirable?

For landlords, isn’t a long-term commitment more desirable?

The answer isn’t always so clear.

Rental agreements provide landlords more flexibility if, for example, you think you may need to occupy the unit or start renovations when a contractor is available.

A rental agreement also gives you the flexibility to charge different prices depending on the season. For example, some units in Florida rent for twice as much during the winter than summer.

A short-term agreement is also attractive to some renters who have short-term needs, such as students or those who have moved to your city for only a short-term work assignment, which allows you to charge a premium for this flexibility.

Why Would I Choose a Lease?

Lease ContractA lease gives the renter the right to live in a dwelling for a fixed period of time — usually 12 months. Both the landlord and renter are required to fulfill the terms of the lease for the stated period.

For example, many landlords include a clause forces the renter to be responsible for finding someone to take over the lease if he or she needs to move. Likewise, a landlord cannot raise the rental price unless it is stated within the lease.

Why are leases attractive?

The major advantage of a lease is the ability to rent the unit at a known price for a known period of time. Both renters and landlords feel comfortable with this security.

The primary comfort for the landlord is that renters can’t leave the unit at a moment’s notice without fulfilling the terms of the lease.

Still Unsure?

If you’re still trying to decide what to offer, consider this: leases are great for tenants looking to create a “home”; whereas, a rental agreement is for tenants looking for something more temporary.

Leases are great for tenants looking to create a “home”; whereas, a rental agreement is for tenants looking for something more temporary.

photo credit: Richard.Asia, [phil h] via cc
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