Lease vs rent
Over the years, there has been a misconception between the words Lease and Rent. A lot of people have deemed the words the same thereby using them interchangeably. But according to legal terms, these two words are different in meaning and can be differentiated by their period or time interval. So, it is helpful to know the difference between lease and rent to know which of the words or terms is suitable for any future agreement to be signed.
Relationship Between Lease and Rent
In real estate, a lease is the contractual agreement that defines the terms of using of a property. This includes what is being rented, for how long, and other stipulations that both parties agree to (e.g., whether pets are allowed or not on the property).
Rent is the periodic payment made to the owner of a property (often called “landlord”) for the use of property, which could be a residential space (house, apartment, etc.), building, , commercial space (office, store, warehouse, etc.), or land. In other business cases, rent is the payment or series of payments made to the owner of the property to use that property, such as equipment, vehicles, industrial machinery, and so on.
Short-term vs long-term (Lease Vs Rent)
The major difference when you are choosing whether to lease vs rent is the duration of the agreement. A lease is typically at least one year in duration, but may also be available in longer increments (e.g. two-year, five-year, etc.). However, a rental agreement usually lasts for 30 days at a time, allowing the tenant to stay there on a month-to-month basis.
Leases tend to be more prevalent than rental agreements, given that when most people move into an apartment or an office space, they want to stay put for at least a year. It’s also usually viewed as beneficial for the owner of the property, who typically prefer to not have a constant revolving door of tenants to deal with.
What is a Lease?
A lease is a legal agreement signed that allows the owner of a property known as the Lessor to give it out to another individual known as a Lessee for use over a fixed time, at least for a year or more, laying down rules of agreement that can not be changed during the period of a lease without facing a legal consequence. A lease can cover properties such as houses, apartments, land, real estate, and vehicles. There is an option to buy after the period of leasing is over.
Leases can be used to cover all types of property, such as:
- Commercial Real Estate
- Tools or Equipment
Advantages of a Lease
- A lease agreement gives a feeling of settlement due to its long duration
- The option to buy after lease comes with a discounted price
- There is no option for the increment of fees for a lease agreement
- The lease agreement can’t be breached without both the Lessee and Lessor coming into agreement.
Disadvantages of a lease
- The lessee of a property can not break out of the agreement halfway unless the person is ready to forfeit the remaining deposit of lease rentals paid initially at the start of the lease agreement
- The Lessor can not increase the cost of lease rentals until the leasing period is overdue to the fixed agreement that is set at the start of the lease.
What is a Rent?
Rent is a legal agreement that allows an individual to use the property of another for a short time. The content of the agreement can be changed during the period of renting. A person renting out a house or apartment is termed a Landlord while the person renting it is called a tenant.
Advantages of Rent
- A rental agreement is encouraged for a person that is not committed to a place due to its short term, thereby prevented loss when the person taking the rent wants to leave.
- A rental agreement term can be easily changed by the landlord, that is, the rent can be increased during the period of rent due to its flexibility.
Disadvantages of rent
- The rent of a property can be increased anytime by the landlord
- There is no option to buy after the period of rent included in the rental agreement.
The main difference between a Rent and a Lease is the period involved in the agreement. A rent is short-term while a lease is long-term. A lease can provide a stable income for the lessor but it can become a disadvantage especially when the property value increases during the period of leasing out the property due to its fixed nature of agreement whereas rent is good for the short-term profit.
So when next you as a property owner wants to sign an agreement with another person, think of which of the following term you will go for, the short-term profit or the long and stable term profit.
The Difference Between Rent and Lease: Bottom Line
The lease vs rental agreement decision comes down to a choice between flexibility and stability. If you have questions about the terms of a lease or a rental contract agreement, it’s always wise to ask before signing anything or turn over a security deposit.
Different cities worldwide have different real estate laws and customs, too, so if you’re new to a city it’s especially important to get clarity on the terms of your lease or rental agreement.
There are advantages and disadvantages to leasing vs. renting and the right choice for each tenant will decide on individual circumstances.
Rental agreements offer the freedom to move out of the apartment at any point throughout the year. It makes sense to rent if your situation involves strict flexibility and timing to move out at a moment’s notice. The drawback is that because of the flexibility, it might be more expensive if the landlord decides to raise the rent each month.
Leasing, on the other hand, is a long-term commitment but offers stability and security, without any risk of the landlord to raise the rent.
At the end, as you decide whether to lease vs rent, you will need to consider what is on offer and which contract agreement is better for you. Obviously, it’s desirable for each party to benefit in a lease or rental agreements, but ultimately you need to weigh the pros & cons and make sure you choose the option that provides you with the best possible terms and the flexibility.