Chances are you’re currently renting a room, a house, or an apartment, since over 43 million households are in some form of rental situation.
But are you truly renting your home, or are you leasing it?
If you’re confused by the difference between a lease vs. rental agreement, we’re here to help.
The Difference Between Lease and Rent
The key difference between lease and rent is their duration.
Whereas a lease remains valid for the period of time specified in the agreement, a rental agreement covers a short-term period that is not necessarily stated.
For example, you and your long-term partner may sign a lease agreement that lasts one year. However, you may want to opt for a month-to-month rental agreement when moving in with your partner for the first time because it’s more flexible (in the event things don’t work out).
What Does Rent Mean?
Renting refers to the short-term arrangement of one party living in, or using, a piece of property owned by another party.
Rent itself refers to a regular payment made to a landlord by a tenant leasing some type of property, like a house or apartment.
When renting, the landlord has the right to change the terms of the rental agreement as they see fit. Additionally, a standard rental agreement is valid on a month-to-month basis.
What Does Lease Mean?
A lease is a form outlining an agreement between a lessor and lessee that dictates how long an asset or property will be rented, as well as other housing-related stipulations.
As a rule of thumb, a lease agreement covers an extended period of time known as the “term”. With regard to real estate, the term of a lease typically lasts for one year.
A lease does not automatically extend past the end of the term, and a lease renewal will need to be drawn up in order to continue using the property.
Some lease agreements include a clause allowing the tenant to continue a month-to-month tenancy after the lease term ends.
Leases can be used to cover all sorts of property, such as:
- Houses
- Apartments
- Land
- Vehicles
- Furniture
- Commercial Real Estate
- Tools or Equipment
Lease agreements are binding legal documents. The terms of a lease agreement cannot be modified, and both the tenant and property owner must honor the agreement.
There are exceptions, however, and amending a lease agreement is possible — although both the lessor and lessee must agree upon the amendments in order for the changes to be valid.
What Does it Mean to Lease a House?
Leasing a house offers tenants the sense of security of living in a home, as well as the flexibility of not having to purchase a property.
As with any lease, the terms of the document determine how long you can rent the property, the agreed-upon monthly rent, and other miscellaneous conditions such as required maintenance of the house or yard.
Unlike leasing an apartment, landlords that are leasing a house may also include an “option to buy” or “rent-to-own” clause in the lease agreement. Under a lease with the option to buy (and depending on the exact terms of the lease), every rental payment acts as an investment toward a down payment on the house.
Rent-to-own agreements are an attractive option for many individuals or families that have trouble securing a mortgage loan.
How do Apartment Leases Work?
When deciding between leasing an apartment vs. renting, it’s important to consider how long you’re willing to rent the unit.
Are you okay with living in that apartment building for at least a year?
If you aren’t and would rather have something more flexible, perhaps signing a month-to-month rental agreement or subletting the property to another tenant with a sublease agreement is a better fit for you. However, make sure you aren’t asking the question, “What is subletting?” before you sign anything.
For instance, a college student who plans to leave town each summer may not be able to fulfill a long-term lease and the alternative leasing options mentioned above would be ideal in their situation.
If you do decide to lease an apartment, an apartment lease operates the same way as leasing a house — albeit without the option to purchase the apartment unit or building.
If you’re planning on renting an apartment, you’ll almost certainly be required to sign a lease agreement.
