What’s the Difference?
It’s important from a legal and business perspective to understand what kind of contractual agreement you need based on each rental situation.
If you’ve been a rental property owner for some time, you probably already know this. But in case you’re just getting started in the role of landlord, it will be helpful to understand the difference in a property contract or a lease agreement.
A lease agreement, also referred to as a rental agreement is a vital legal document that should be completed prior to a landlord renting property to a tenant. While both agreements are similar, they are not the same and here are the differences.
A lease agreement is a contract between a landlord and a tenant that covers the renting of property for long periods of time, usually a period of 12 months or more. The lease agreement is very specific in detailing the responsibilities of both parties during the lease and it includes all the necessary information to ensure that both parties are protected.
The length of the lease and the amount of monthly rent are documented and cannot be changed. This ensures that the landlord cannot randomly just raise the rent and the tenant cannot just leave the property whenever they want without consequences.
The lease agreement is effective for the specific time stated in the agreement and is then considered ended. If the tenants wish to remain in the property, both parties must enter into a new lease agreement.
A landlord is not obligated to renew the terms of the old lease and is free to change terms and rental amounts if desired or if economic factors apply. For this reason, some tenants prefer to sign a longer-term lease if the monthly rent is very reasonable and, in locations where rents are more likely to increase during the lease term.
A rental agreement differs from a lease agreement in that it is not a long-term contract and usually occurs on a month-to-month basis. This month-to-month lease agreement expires and then renews each month upon agreement of both parties.
All the same conditions are included in a month-to-month lease as are in a standard lease; however, either the tenant or the landlord can alter the terms of the agreement at the end of each month. The landlord has the option to raise the rent or request that the tenant quit the premises without violating the rental agreement. A landlord must give a proper 30-day notice to quit, however, prior to requesting the tenant leave the property.
Pros and Cons
Both lease and monthly rental agreements have their advantages and disadvantages. Rental agreements allow landlords to rent properties that might not be desirable to long-term renters. It is also beneficial when rental amounts can rise quickly, allowing the landlord to renegotiate the terms of the agreement from month to month. They benefit tenants who only need to stay in a certain place during a transition or when they are unsure of how long they want to rent in a specific location.
A lease agreement, on the other hand, is beneficial to a landlord because it provides the stability of guaranteed, long-term income. It is beneficial to a tenant because it locks in the rental amount and length of lease and cannot be changed even if property or rent values increase.
Cousin James Management is a helpful resource for establishing your agreements with your tenants. We have more than 25 years of property management experience in the Dallas / Fort Worth Metroplex, and can easily step in to take up any slack.
Our customers enjoy the benefit of letting us locate and screen tenants for them as well.
When we step in to manage a property for you, we can do everything from maintenance to collecting the rent, as well.
Don’t get bogged down in the details of managing your rental property. Contact Cousin James Management and let us help.