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Which is better a lease or a rental agreement?

Posted: February 09, 2022

Lease agreements and rental agreements differ primarily in terms of time commitment. In a lease, a tenant is obligated to fixed obligations for a longer time period. Rental agreements are more flexible and operate on shorter time scales. Some tenants prefer that flexibility, as do landlords that look forward to increasing rent revenues relatively quickly. The flip side to more lucrative rental agreements is that competitors and market conditions can’t guarantee that a landlord will find suitable tenants every time a rental agreement expires. An overzealous landlord may end up pricing his properties out of the market, thereby being forced to deal with property costs without compensating rent revenues.

Lease Agreements

A lease agreement is typically a longer-term version of rental agreements. Leases oblige a tenant for 12 months of fixed-amount payments and associated rights and responsibilities. From a landlord’s perspective, leases are better when the housing/rental market is harsh and it is beneficial to secure a tenant for a longer stretch at a time. Unless specified in the lease agreement, leases lock in payments for the 12 months, meaning landlords can’t raise rents or other costs for the duration of the lease. This eases pressure off tenants who may be wary of rapidly-increasing costs.

Since leases open up landlord property to one tenant for a longer time period, tenant screening is more important with leases. A quality tenant can translate into reliable, long-term income for the landlord. Conversely, poorly executed tenant screening can result in the landlord incurring costs and perhaps legal troubles far in excess of rental revenues.

Rental Agreements
Rental agreements are typically monthly contracts. When renewing rental agreements, terms such as rent amount may be changed. Landlords can lean towards offering rental agreements as opposed to lease agreements when market conditions allow increased rents without substantially alienating tenants. Tenant screening with regard to rental agreements does not have quite the urgency as it does with lease agreements. This is because unpleasant tenants are less likely to stay long-term.

Whichever option you choose remember to always put your agreement in writing.  As time passes you and your tenant will always have a document to reference in regards to rules, subletting, term of the lease and payment amounts.  As a landlord you will also need to check your local laws referencing Fair Housing, terminating an agreement, rent control, and security deposits.