Tag Archives: Lease vs rental

Lease vs. Rental Agreement: Which to Use? What is the difference?

In this blog we’ll explore the differences between written lease contracts and written rental agreements. We urge landlords never to make an oral agreement and opt for a written agreement. Oral agreements between landlords and tenants are legal under the law, but if something goes wrong they can be difficult to prove when there is a dispute between the landlord and the tenant.

Written lease and rental agreements spell out in specific terms and usually sets forth what the landlord allows and doesn’t allow in the rental unit. If a landlord does not want pets living in the rental properties, for example, he can spell that out in the contract or agreement. And if the tenant breaks this rule, the landlord can serve the tenant with a 3-day notice to preform covenant. If the tenant fails to remove the pet in this situation, then the landlord can file an Unlawful Detainer to evict the tenant for breaching the lease by having a pet when pets are not authorized pursuant to the terms of the written lease agreement.

The length of a Lease can be for any term up to 99 years, see California Civil Code 718. Most leases usually run from six months to 3 years on residential rentals. Keep in mind that there is no such thing as a 100-year lease in California as it would be void as a matter of law. Upon expiration of the lease, then tenant needs to vacate the property, or if the landlord and the tenant can agree, they can convert to a month to month lease. See Civil Code 1945. A written rental agreement, which is a short-term contract, generally runs from month to month. It is more common for a lease contract to be used in longer term leases. In general, in our office we consider a lease for a term, such as a 1-year lease and a rental agreement for a month-to-month agreement or lease.

Lease vs. Rental Agreement

Most tenants act in good faith when they lease or rent a property. But for the relative few who enter agreements with intent to violate the terms, it is important to have a written contract to enforce the landlord’s terms and to make it possible to prove malfeasance or cause for evicting a problem tenant.

You may ask why not always have a six-month to 12-month lease. That’s because some tenants need a place to stay briefly before moving to another city, or while they finalize the sale of their home, or when renting a vacation property, to name a few examples.

Landlords and renters have different needs, thus there are different types of contracts. But some landlords, especially those new to the game, have difficulty understanding the differences between the two main types of contracts: leases and rental agreements. After you read this, we hope you will have a better understanding of them.

Comparing rental Contracts and Leases

A lease is a contract for a given length of time and states the landlord will lease the property to a tenant under certain terms. But a rental agreement stipulates a payment amount made periodically by a tenant to occupy the premises. Both leases and rental agreements spell out the rent amount, so they are essentially that same.

As stated, a lease generally runs from six months to 3 years on residential properties, but the parties can negotiate any period of time within the law for a lease as long as it doesn’t exceed 99 years. After the lease expires, the terms can be month to month. Rental agreements are just for the short term and, like most leases, specify monthly payment of rent.

The lease contract is managed by the landlord. The landlord writes up the terms and conditions, and if the prospective tenant agrees, he will sign it, pay the rent on time and abide by the terms or face possible eviction. It is understood that under both leases and rental agreements that tenants pay the rent.

Binding Agreements

A lease is a written agreement, a legal contract, between the tenant and landlord. In it the tenant agrees to pay the landlord a specified amount each month for a specified length of time.

Renting, which is also known as hiring or letting the property, is also a legal, written agreement between the two parties, but it deals primarily with the payment amount and method for rental of the property, usually paid month to month.

In real estate, a lease spells out the conditions and terms of renting property, including the length of time, agreements on what the tenant is allowed, including whether he can have pets or sublet at some point. Leases are not necessarily just for living quarters such as apartment or homes. They can also control the terms and conditions for long-term rent of commercial buildings, warehouses, shops, offices or even land.

Leases and rents are similar. The major difference is leases are for long periods of time, while rental agreements are generally short term.

Leases also protect tenants

Lease agreements or contracts do not just protect landlords. They also protect tenants. For example, an unscrupulous landlord learns that he could lease his property to another party for more money. But the law prevents the landlord from evicting tenants who live up to the terms of the contract. Under the law, as long as the tenant abides by the terms of the lease and pays his rent in full on time, he may not be evicted. If the lease is for 12 months, the landlord can require the tenant to vacate the property only on the last day of the 12-month period.

A lease agreement requires tenants to pay on time and consistently on a set day of the month. Most landlords set the day as the first of the month. The lease contract lays out penalties and consequences, including possible eviction, if the rent isn’t paid on time.

But landlords may not end the lease or modify its conditions and terms without the tenant’s consent. Lease contracts in the legalities of real estate are binding.

Mechanics of ending a lease

The lease contract includes a start date and an end date. This provides the landlord or tenant an avenue to extend the terms of the lease or to end the lease altogether. About 30 to 90 days before the contract ends, a landlord and tenant may agree to extend the term for a year, for example.

A landlord may also increase the rent or change the terms. Conversely, in the same time frame the tenant may signal to the landlord that he wants to leave the property. A tenant has the right to agree to new terms, negotiate them or reject them outright and move out.

Ending a Lease

When the lease expires, the rules and requirements of the original lease still hold sway if the tenant stays on month to month. After the lease expires, at the beginning of each month, the landlord or tenant have an opportunity to give notice if the property is to be vacated. Alternatively, if it looks like the renter wants to stay for another year, a new lease with a new expiration date can be written up.

Advantages of Lease vs. Rental Agreements

Advantage

Landlords often opt to go with lease agreements for a term or contracts because month-to-month agreements sometimes pose disadvantages for both parties. Most landlords don’t want tenants moving in and out after a short period of time.

Under month-to-month agreements, tenants may move out any month without any further obligations, leaving the property vacant, however, the tenant must give a 30-day notice in writing to do so. This is a disadvantage for landlords because it means they may have periods where a unit is not rented and is not bringing in the rental income. Also, keep in mind, that if the tenant has lived in the property for more than 1 year, then the landlord must give 60-days’ notice in writing.

To deal with this, landlords sometimes charge higher rents for month-to-month agreements. Of course, renters do not want to pay higher rates but sometimes have no choice. Renting at a higher rate may be better, though, than a 12-month lease if the tenant only intends to be there a few months.

A renter could pay, say, $3,000 for a month-to-month agreement for three months. Or he could pay $2,500 per month for 12 months and be bound by the lease contract to pay the full $30,000 for 12 months as opposed to $9,000 total for the three months.

When Month to Month is better

One scenario where a month-to-month agreement is better for landlords is if they expect to be doing renovations or may want to move into the property sometime in the near future. Also, the landlord has more leeway in changing rents (usually raising them) under month-to-month agreements. Landlords are not bound by the same conditions of a one-year lease contract to hold the rent amount at the same price.

A month-to-month rental agreement can be a risky prospect for tenants for just this reason. A landlord is free to increase the rent, if he sees a need, and the renter must either agree to pay it or vacate and move out.

Rent Increase

A landlord may not raise the rent in case of a lease agreement during the term or the lease. He can raise the rent after the lease ends, after a year, for example. But sometimes scholars, consultants or other professionals visit other cities for a few months on work assignments and need rental space for just a semester or a few months. A one-year lease would not be ideal in this case.

When a lease is better

Landlords who want to rent out their properties for a long period of time, a lease of 12 months or longer is the best way to go. You can make a longer lease if you think you will be there longer. A landlord may agree to a longer lease, but then he could include the condition that he raise the rent after a year or two, that is called an escalation clause. You don’t see escalation clauses in residential leases very often, but they are normal and customary in commercial lease agreements.

Under contractual law, tenants must pay rent for the entire length of lease on a monthly basis unless they are released from the obligation by mutual agreement with the landlord. A year-long lease or longer helps landlords feel more secure and comfortable by making it more certain that they will generate income from their rental property for the entire period of the lease agreement.

If the renter or landlord fails to abide by all terms and conditions of the lease, they can seek help from the authorities or an attorney. Express Evictions staff and attorneys are experts in helping landlords get rid of unwanted tenants who have violated the terms of their lease agreements.

Oral rental agreements

Oral agreements can be very tricky. One side or the other, tenant or landlord, can forget the terms. If it’s all down in writing. Written agreements are much more reliable and set forth the terms in writing than oral and can be written to prevent any type of ambiguities.

When pets, utilities or work around the property such as mowing the lawn and doing landscaping are involved, it is folly not to have a written agreement. A written contract allows both parties to fulfill their duties and exercise their rights without confusion.

What if you need a tenant to move out early

Moving

Usually, if a landlord has tenant who has agreed to a 12-month lease, it can not be ended without the a mutual agreement in writing. If the landlord has an emergency and needs the property vacated so he can move in or for another reason, he could try asking the tenant nicely. Asking nicely very well may work. If it doesn’t work, a landlord can consider offering the tenant money to move out early.

When a landlord and tenant have a legal lease contract, if both abide by all conditions, the tenant has the right to occupy the property until the term ends. If the tenant breaks the agreement by allowing pets, if he fails to pay rent, if he or she is involved in illegal activities or if he allows new occupants, or sub-lets the property, he can legally be evicted if they don’t come back into compliance after give proper notice in writing by the landlord.

Sometimes, though, a landlord may need a tenant who has a legal right to stay move out. A landlord might need to raise money by selling the property, or he might need to move in himself.

When you write your lease, write this clause allowing the landlord to terminate the tenancy early if the property is put up for sale or the landlord needs to move into the property. Unfortunately, many times landlords fully expect not to need such a clause, and they have no choice but to let tenants continuing living there even if they have an emergency.

Make tenants aware of all parts of the lease, including the clause of early eviction. Be up front about this clause so they can’t say later they did not understand it.

Notice to Terminate the Tenancy by either Party Required?

In any case, for whatever reason, whether tenant-related or landlord-related problems arise, the landlord must give notice for eviction with a deadline if the tenant is on a month to month basis. The the lease agreement is a Fixed Term lease, for example it has a specific end date, the the landlord can start the eviction process the day after the lease ends without any further notice to the tenant since the end date of the lease was negotiated at the beginning. If you, a landlord, think you might need the property vacated before the term of a year-long lease, consider a rental agreement with month-to-month terms. But keep in mind, in California, 30 or 60 day notice is still required by the law unless the lease is for a fixed term. Landlords must give 30 days’ if the tenant has lived in the property less than one year and 60 days’ notice if the tenant has lived in the property more than a year.

Tenants too must give notice if they are on a month to month basis too.  However, if the lease is at the end of the fixed term, then the tenant may vacate and move out without 30-days’ notice to the landlord. Please keep in mind, that notice if not required by either party on a fixed term lease when you reach the end of the term in the lease.

Express Evictions does evictions for a very low competitive fee that saves landlords the complicated and time-consuming process of writing up notices, serving them, filing the Unlawful Detainer in court and having the tenants served with the Summons. If your tenant contests the eviction, our attorneys will go to court with you and represent you in front of the Judge.

For questions about lease contracts or rental agreements, contact us today.