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A rental agreement is a short-term contract between the owner of a property or landlord and a tenant. Generally, the contract is on a month-to-month basis and automatically renews unless written notice is given by either party to end the contract.
Although the term "lease" is sometimes used interchangeably with rental agreement, and also may be referred to as a rental lease agreement, there are several key differences. Find out what a rental agreement is, how it differs from a lease and why it's important to both landlord and tenant.
What a Rental Agreement Is
A rental agreement is a legal document between a landlord or property owner and a tenant. It is typically a short-term contract that is automatically renewed each month unless either party ends the contract by giving proper written notice—usually 30 days.
Rental agreements typically spell out the obligations of both the landlord and tenant, such as what (if any) changes can be made to the property, who is responsible for maintenance inside the property and how and when either party can terminate the contract.
What's the Difference Between a Lease and a Rental Agreement?
Sometimes a rental agreement is referred to as a lease. But in fact, there are two main differences between the two:
- Leases are usually long-term contracts—six months to a year or longer. Rental agreements are short-term contracts, usually only 30 days.
- Leases are not typically auto-renewed at the end of the contract term, whereas rental agreements may automatically renew.
If the rent is reasonable, a tenant may prefer to sign a longer-term lease, especially in areas where rents are likely to increase. That's because a lease locks in the amount of rent that can be charged for the entire lease's term. A lease might also be more desirable for a landlord because it can provide stability and long-term income.
On the other hand, short-term rental agreements allow property owners and renters to respond quickly to changing circumstances. Maybe a renter is moving to a new city and needs a place to stay during the transition or until they find a home to purchase. Or, if the cost of utilities and rents in the area fluctuate often, a month-to-month contract offers landlords the flexibility to renegotiate the terms of the rental agreement at the end of 30 days.
Another distinction between a lease and a rental agreement is that, in a lease agreement, the parties are usually described as lessor and lessee. In a rental agreement, they may be called a tenant and landlord. Besides these few key differences, leases and rental agreements contain many of the same provisions.
What Is Included in a Rental Agreement or Lease?
Rental agreements can vary quite a bit, but generally include certain information, such as:
- The parties in the contract: The name of the property owner(s), landlord or company, as well as the tenant or lessee.
- The property being rented: The address, apartment number, phone numbers and other information identifying the property.
- The terms of the rental: A rental agreement is usually month to month. A lease is usually for a longer term.
- The amount of rent to be paid by the tenant: This amount cannot be changed during the contract term. However, with proper written notice, the landlord can change the terms of the agreement on a month-to-month rental agreement.
- Stipulations for a security deposit, parking or a storage space: Rental agreements usually include the deposit amount, how it's handled when the tenant moves out and if parking and storage is included in the rent or an additional expense.
- Number of people who will live at the property: Who will live and pay rent at the property.
- Who pays utilities: The agreement will lay out if the landlord or tenant pays utilities and if it includes or excludes things like cable and internet.
- If pets are allowed: The agreement may also establish if pets are allowed and may even single out certain pets that are not allowed.
- When or if the landlord can access the property: If there's an emergency, like a leaky pipe that needs repair, the agreement may outline if the landlord must contact the tenant before entering the property, or in this case, can enter the property without notice.
- Who pays legal fees if there's a dispute: A rental agreement may specify who pays legal fees if a legal dispute arises.
Rental Agreement or Lease Laws
Before you sign a rental agreement (or lease), it's a good idea to find out if any laws or ordinances exist in your state regarding security deposits or rent control. In some states, there are limits on how much rent a landlord can charge. Some of these laws also restrict under what circumstances a landlord can terminate a month-to-month rental agreement or renew a lease. Legal Templates lists each state, describing how the laws may affect both tenants and landlords.
Likewise, landlords in every state are allowed to charge a security or rent deposit when a tenant moves in. However, some states may limit the amount they can charge.
If you're a landlord and need help drafting up a rental agreement, you can find help online. For instance, State Farm offers a list of things to include in your agreement as well as online templates to get you started.
Do I Need a Rental Agreement or Lease?
Rental and lease agreements are legally binding documents that protect both the landlord and tenant financially and legally. As a landlord, you promise to fulfill your obligations as described in the agreement.
As a renter, you're promising to pay your rent on time every month for a specified amount of time, as well as satisfy the expectations for upkeep to the property. So, before you sign and exchange any deposit money, make sure you understand all of the terms, obligations and conditions. Once both parties sign the agreement, it is legally binding.
To illustrate, let's say you sign an agreement but the landlord learns soon after that they can rent the property to another party for more money. The terms of your agreement stipulate that, as long as you are living up to your end of the rental agreement or lease, the landlord cannot evict you or raise your rent until the end of the contract term. And, even then, they must give you a written 30-day notice of the change.
Without a signed contract, you may have no legal recourse, and you might find yourself without a roof over your head. But once you sign the agreement, the landlord must legally fulfill their obligation to you, the tenant.
On the other hand, say you're a landlord and a tenant wants to vacate the property before the end of their contract. Without a signed legal agreement stating that rent must be paid every month until the end of the contract—whether or not a tenant is living on the property—you may end up with less money in your pocket and an empty rental property.
Signing on the Dotted Line
The tenant-landlord relationship begins when you sign your rental agreement. But before you move in, take a step back. You are signing a legally binding agreement, so it's important you know exactly what you're signing up for. And, if your landlord reports your on-time payments to rent-reporting services, your credit can benefit.
