Lease versus Rental Agreements

As the owner of rental property, you might well ask whether you really need to go to the bother of drawing up a written lease or rental agreement, or whether a verbal arrangement with a tenant will suffice. Resoundingly yes, it is important to have a written lease or rental agreement, especially if you are to protect yourself against any litigation that may arise from tenancy problems.

As well, lease or rental agreements hold the key to successful tenancies, setting out important issues relating to tenancy duration, rental and deposit amounts, the number of people permitted to live on the rental property, whose responsibility it is to pay the utility charges, whether or not pets are allowed, if sub-letting is permissible, landlord access to the rental property, as well as, who will pay the legal fees in the event of a lawsuit. As for verbal agreements, even though certain states will enforce them, they will only do so for a limited time period i.e. not longer than a year.

Now, the question remains, whether to go in for a lease or a rental agreement. Before deciding on either, you need to know the difference between the two.

Difference Between A Lease And A Rental Agreement

For one, a rental agreement is short-term providing for a limited period tenancy (usually 30-days), which is automatically renewed at the end of the period, unless the tenant or landlord terminates it through a written notice. As well, the terms of the agreement can be changed by written notice, such as, an increase in rental charges, or making the tenant responsible for paying utility charges, for these month-to-month rentals.

A written lease agreement, on the other hand, gives a tenant occupancy rights for a set term, anywhere from six months to a year, and even longer, if a tenant continues to pay rent on time and complies with other lease provisions. However, during the term of a lease, the landlord cannot increase the rent or change other tenancy terms, unless the tenant gives his / her sanction. Unlike a rental agreement, when a lease expires it does not automatically renew itself. A tenant who stays on, with of course, permission from the landlord, after his / her lease has expired, becomes a month-to-month tenant, while still subject to rental terms contained in the lease.

Which One Should A Landlord Go For?

Most landlords prefer month-to-month agreements, particularly when occupancy rates are high and tenants can be found easily due to tight rental markets, and upwards trending rental charges. On the flip side month-to-month tenancies guarantee higher tenant turnover, and more hard work to ensure there are no or limited vacancies.

However, areas with high vacancy rates, or where tenancy rates go down during certain seasons e.g. college or university towns that are deserted during summer months, with students and staff on vacation, landlords prefer to go in for lease, rather than rental agreements. A landlord must decide for himself / herself what best suits the location of his / her rental property.

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