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Erin Eberlin is a real estate and landlord expert, covering rental management, tenant acquisition, and property investment. She has more than 16 years of experience in real estate.
Updated on September 13, 2022 In This Article In This Article
The terms rental agreement and lease agreement are often used interchangeably, but they are quite different. A rental agreement is one type of contract a landlord can sign with a tenant. A lease agreement is an arrangement most people associate with renting a property.
Rental agreements offer more flexibility for landlords and tenants, while lease agreements offer more stability. Learn the key differences between these two types of living arrangements.
| Rental Agreements | Lease Agreements |
|---|---|
| Typically short term | Usually longer |
| Automatic renewal is typical | No automatic renewal |
| Landlord can change the terms | Clauses can't be easily changed, and often include health and safety info |
Rental agreements are typically short-term. It is common for these agreements to be valid for a period of 30 days. In certain cases, they can be even shorter, lasting as little as a week.
Lease agreements are for a much longer term than rental agreements. The most common lease term is for one year, but leases can be for any length of time as long as the landlord and tenant agree to the length. They can be as short as six months or as long as 30 years, which would be more common in commercial leases. The longer the lease, the more likely it is that your state will require it be in writing.
Generally, rental agreements renew automatically once the original term expires. All the terms of the original agreement are still valid, including the length of the agreement. So, if the original term was for a period of 30 days, the agreement will automatically renew for another 30 days.
Lease agreements do not automatically renew. Once the original lease term is over, the tenant would have to sign a new lease with the landlord if the landlord or tenant desired a long-term contract.
The landlord can change the terms of the rental agreement. It includes changing the length of the agreement or the rental price. To make any changes, however, the landlord must give the tenant proper notice.
This written notice will vary based on state law but is normally 30 days; Some states may require as much as 60 days’ notice to make any changes. If any changes have been made, the tenant must sign and agree to the new rental agreement.
The clauses of the lease agreement cannot be easily changed during the term of the lease. For example, if the tenant had signed a year-long lease and the landlord wanted to increase the tenant’s rent, the landlord would have to wait until about a month before the original lease term expired. The landlord would then have to send the tenant a notice of rent increase at least 30 days prior to lease renewal before any rent increase could take effect.
Lease agreements often include lead paint disclosures and information about any other known health or safety issues at the property.
Leases and rental agreements are both legally binding contracts. Each agreement can include the following information:
While a lease agreement is more common, a short-term rental agreement between landlord and tenant may be preferred for a number of reasons.
In certain situations, a landlord may prefer to have a tenant occupy the unit for a shorter period of time. The landlord may want to move into the unit in the near future or may be trying to generate some extra money on the unit before beginning renovations. The landlord would usually have to send the tenant a Notice to Vacate the unit 30 days prior to the desired move-out date. The exact amount of notice would depend on state law.
Rental agreements give landlords more flexibility in the rent price. The landlord may have the option of increasing the rent every 30 days, and it would be up to the current tenant to agree to pay the higher rent or move elsewhere. The landlord could also try to charge higher rents during rental periods when there is high demand and then charge lower rents if they have a vacancy during periods of lower demand. The exception to this would be if the unit is under any sort of rent control or other rent regulations.
Sometimes people only need a rental for a short amount of time. Examples include situations such as a home renovation, internship, or temporary job assignment. Since many landlords will only sign a lease for a year or more, there may be fewer options available for these types of tenants. Due to the limited options, you may be able to collect a significantly higher rent if you are willing to rent your unit short-term.
Rental agreements have their downsides as well, and so some landlords may prefer a lease agreement.
Since most rental agreements are only for one month, you have to prepare yourself to have a vacancy at any time with no rent coming in. A tenant typically only has to give 30 days’ notice before moving out.
Tenants who sign rental agreements want the flexibility of being able to move quickly. Therefore, you must be prepared for an endless cycle of finding new tenantsfor your property. A lease may help you keep tenants longer, with less turnover in the rental property.
Regardless of whether you choose a rental or a lease agreement, put it in writing. The agreement must also be signed and dated by both parties. While certain oral agreements can be binding, the actual terms agreed to are much harder to prove.
Whether you are creating a rental agreement or a lease agreement, you must also follow your landlord-tenant law in your state. If you put a clause in your agreement that is illegal based on your state’s landlord-tenant law, it will not be binding, even if the tenant has signed the agreement. For example, if your state places a maximum security deposit amount as one month’s rent, and you collected two months’ rent from your tenant, you must return any excess amount collected to the tenant.
You can write your own rental agreement or a real estate attorney can help you draft one for your renter. You'll want to include information like the monthly rent amount, rules around pets, security deposit rules and amount, move-out rules, fees and insurance that may be required, and more. The more you include, the more you can protect yourself as a landlord.
A lease agreement is a multi-page document—either paper or digital PDF—that states the type of lease (residential or commercial), parties involved, property and tenant info, and more. It's similar to a rental agreement but may include different terms. It's usually written in plain language.
