If you are thinking about renting or are one among those people already living in a rented house, you might have probably come across rental agreements and leases. While both renting and leasing have a lot of similarities, there are still a lot of differences when it comes to rent vs lease. The main difference, however, will be in the length of the tenancy. A rental agreement is actually a document that is valid for a short duration. For example, it is either for six months or it could be on a month-to-month basis. However, when you get a lease, it will be for a longer period of time. Here is everything you need to know about what is rent and what is lease and the differences between renting and leasing.
What is rent
Before we understand the difference between rent and a lease, let’s check what rent is and what it means. Renting is a process where a tenant and a landlord sign a contract. It can be either a formal or a spoken agreement which is mostly short-term or on a monthly basis agreement. If this agreement is based on a month, then it needs to be renewed every month. In return for living on the premises, the tenants make appropriate payments to the landlord. The rental agreement mainly includes the same rules as that seen in a lease agreement, which includes factors such as rent, terms of tenancy, and the security deposit amount or whether pets are allowed. The rental agreements also undergo an automatic renewal system unless and until there is a written notice given at least 30 days prior to which you need to stop it.
What is Lease
Now it’s time to take a look at what a lease is. Well, a lease is nothing but an agreement between a lessor and a lessee. A lease agreement consists of the terms of the contract and the duration of the agreement during which the lessee will be living on the property while making consistent payments to the lessor. A typical lease mainly lasts for about a year and does not automatically extend, as seen in the case of rental agreements.
Key Differences between Renting and Leasing
Now that you have understood what rent is and what a lease is, it is time to check what are the key differences between renting and leasing and how they differ.
Duration of Agreement
As long as the duration of the agreement is concerned with a lease, it usually exists for a longer term. It can range anywhere from six months to one year. However, once the duration of the agreement, it cannot be automatically renewed. A rental agreement can last anywhere between a month-to-month basis or a six-month contract. Here. The contract gets automatically renewed unless there is a written notice to stop the renewal at least 30 days prior.
Legal Obligations
As far as legal obligations are concerned, rent agreements provide more flexibility than lease agreements. Rental agreements are less legally bound than lease agreements. People who live in rent can easily move out even after one month without breaking the agreements. This flexibility is what makes people move for rental options. However, a lease can get more rigid and could be difficult to break without any penalties.
Financial Commitments
When considering rent prices, a rental agreement could vary since the agreement is renewed every month. On the other hand, when comparing rent vs. lease, the lease price does not vary every month and remains the same for almost the duration of the lease. It can only increase if it is mentioned in the agreement.
Also, security deposits have higher upfront costs since leasing is a longer-term commitment than rental agreements. The security deposits also cover any damages or unpaid rent at the end of the lease term.
Pros and Cons of Renting vs. Leasing
There are a lot of pros and cons of renting vs leasing. Let’s look at each of the sections closely and know why each of them is beneficial in its own terms.
Pros of Renting
- Flexibility – Renting usually provides the tenant the freedom to move around and that too at short notice which makes it easier for people to relocate frequently.
- Lower responsibility – People who live in rent are not responsible for any sort of property maintenance or major repairs, it is the obligation of the owner to provide it.
Cons of Renting
- Limited stability – Month-to-month agreements can be uncertain and sometimes, people who live in rent are asked to move out suddenly which means trying to find new housing quickly will be needed.
- Potential price hike – Unlike a lease, there could be hikes in the value of rent with proper notice being provided. This may also lead to uncertainty in the housing costs.
Pros of Leasing
- No changes in the rental rate – With a lease, one of the best pros is that you do not have to face any hike in the rental rates, it will be the same during the period of your lease agreement.
- Longer period of tenancy – Lease normally goes on for a longer duration and hence it provides a sense of long-term housing security along with stability.
Cons of Leasing
- Lower amount of flexibility – If you wish to move out of the house after a short duration it won’t be possible. You will have to complete the lease agreement or pay penalties for breaking the same.
- Responsibility for maintenance – Depending on the terms mentioned in the lease, tenants may be responsible for the repair costing, and maintenance of the property they are living in.
Factors to Consider When Choosing Between Renting and Leasing
Since both renting and leasing are financial commitments, you need to be sure that you are making the right decision by choosing either of the options. If you are wondering how you can achieve that, then you can consider the following factors while choosing between either of them.
Property management
Property management, as far as the rental agreement is concerned, does not need tenants to be responsible. However, if you go over a lease agreement, then responsibility goes over the tenant for the overall maintenance.
Risk management
There might be risks associated with both rental and lease agreements. However, when it comes to lease agreements, there is more stability than rental agreements. In rental terms you need to move out even with a notice being provided, however, since the lease term is longer you can finish the entire term without having to move out.
Market conditions
The market conditions usually tend to affect the rental terms since the price of the rent could keep on changing. However, when it comes to lease terms the rental price will be the same throughout without the market conditions affecting it.
Financial commitment
The financial commitment for a lease agreement could be more than the rental terms. Since the lease is for a longer term, it needs more security deposit to be provided, while for rent, you do not have to pay as much.
Legal Considerations
As a tenant and as a landlord, certain legal obligations need to be followed. Here is a gist about the same:
Rental agreement
Rights of a tenant
Right against unfair eviction
Under this act, landlords cannot evict their tenants without a sufficient cause or reason. The rules of eviction could be different from state to state. In some states, the landlord must approach the court to obtain an order to evict while in some other states, the tenant cannot be evicted if they are ready for changes to rent rates.
Essential services
It is the basic right of a tenant to enjoy essential services such as electricity, water supply, etc. A landlord does not have any right to withdraw such rights from the tenant who has failed to pay the rent or due to any such issues.
Fair rent payments
A landlord cannot charge extraordinary sums when it comes to rent payments. The valuation of a property should be based on the actual market value of the property. If the tenant feels like the amount is high then they may address the court regarding this issue.
Rights of a landlord
Charging rent
Being the rightful owner of the property, the landlord has the right to ask for rent payments. Since there is no actual upper limit on the rent the landlord may increase the rent charges according to their wish. However, it should be done only periodically and the amount should be a reasonable one.
Right to eviction
A tenant can be evicted by a landlord for personal and bona fide reasons such as wanting to live there themselves. The landlord however in most cases should approach the court to evict the tenants. Also, a notice must be handed prior to the eviction.
Temporary repossession of property
The landlord may temporarily repossess the property to improve the condition of the property or to make any necessary changes. However such changes must not bring any loss to the tenant or affect their tenancy.
Lease agreement
Rights of tenant
Right to accretion
Additions made by operations of natural force or by humans are called accretions. If during the lease agreement, any accretion is made to the property then it is presumed to be a part of the property. The tenant can enjoy such accretions according to the terms of the lease.
Right to avoid lease on destruction of property
The very objective of the lease is to enjoy the property as a tenant. Thus if an injury to the property occurs then the enjoyment is impossible and the tenant has all the rights to avoid the lease. Even when the property is unfit to use due to fire or such issues, tenants can end the contract even before the term ends.
Rights of a landlord
Duty to give possession
The landlord is obligated to deliver the possession of the property to the tenant so that they can use it and enjoy the amenities. The tenant is entitled to sue the landlord if they fail to provide the possession of property. Tenants may also claim damages in such circumstances.
Disclosure of latent material defect
If there is any existing material defect, then the landlord needs to disclose the same to the tenant. If the tenant is not aware of the defect then they may deny the lease or if they know they can also adjust the terms of the lease.
Conclusion
Well, now that you know a lot of differences between rent and lease, no matter which option you choose, you are legally bound by a contract. Hence, it is important to abide by the terms presented in the contract. If you break any of the terms, legal action may even be taken. So before you sign, understand all your rights and obligations and sign responsibly. You may also want to go ahead and get some legal advice before you finalize the property.
FAQs
Which is best, rental or lease?
While renting provides a lot more flexibility in terms of moving out than lease, a lot of people find rental terms beneficial.
Is lease and rent the same thing?
While lease and rent can be used interchangeably, there are a few differences between them, such as the duration of the agreement.
Is the lease amount refundable?
The security deposit that you pay before the start of your lease period is refundable provided that there are no damages to the property or any unpaid rent left.
What is the difference between a lease and a contract?
A lease refers to the transfer of property for a specified duration, whereas a contract could cover a wide range of components.
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