When it comes to rental property management, the terms lease agreement and rental agreement often get thrown around. One property manager might call the contract a lease, while another calls it a rental agreement.
Essentially they're the same, right? Actually, in reality, these two forms of agreements refer to very different legal contracts and offer different benefits and limitations.
If you're renting a property you own, you need to know the difference between lease vs. rental agreement. Which type of contract is right for your rental?
Keep reading to find out if you should use a lease agreement or a rental agreement when renting your investment property.
What Is a Lease Agreement?
A lease agreement is a legally binding contract between a landlord and a tenant. It allows the tenant the right to inhabit a certain property for a fixed amount of time.
A lease agreement binds both the renter and the landlord to the contract. It is most common for leases to last either six months or one year.
A typical lease agreement will contain the specific details of the lease and expectations between landlord and tenant. For example, the lease will dictate any guidelines regarding having pets in the rental unit.
The lease will also detail how and when rent is due and in what amount. It will also contain the length of the lease and what the tenant is responsible for upon moving out.
A well-executed lease agreement is important because it protects the rights and interests of both the landlord and tenant. Neither one can alter the terms of the lease without the written agreement of the other.
What Is a Rental Agreement?
A rental agreement is not significantly different from a lease agreement in what it contains. A rental agreement is also a legal contract between a tenant and landlord that dictates expectations and protects both parties.
The main difference between a lease vs. rental agreement is the length of the contract. While a lease is a long-term agreement, a rental agreement typically guarantees tenancy for a period of one month or 30 days.
Most often, rental agreements are given on a month-to-month basis. The tenant and landlord have the option to renew the rental agreement each month, or terminate the contract.
The landlord and tenant each have the right to change the terms of the rental agreement at the end of each monthly period as long as both parties follow the proper procedures.
Benefits of Lease vs. Rental Agreement
Deciding between using a lease agreement or a rental agreement as the rental contract for your property is a personal choice. There are benefits to both types of contracts depending on your needs.
Benefits of Leasing
Leasing agreements offer more stability for both the tenant and landlord. As the landlord, you benefit from having a legally binding contract that ensures you a specific amount of rental income for a longer period of time.
If you want to rent your property out long-term and not have to deal with renewing the terms of your rental agreement with your tenants each month, a lease agreement is a good way to go.
Lease agreements are also beneficial to the tenant because their rent cannot increase throughout the duration of the contract.
Benefits of Renting
A rental agreement offers more flexibility. With the appropriate notice, you can change the terms of the rental agreement, such as increasing the rent.
You can also terminate the lease if you want to move into the property or want to rent it to a different tenant. Of course, this doesn't apply when an eviction moratorium is in place.
Property Management Takeaways
When deciding between a lease vs. rental agreement, remember that a lease offers stability, while a rental agreement offers flexibility. Which one you choose will depend on your needs and preferences as a landlord.
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