Both leases and rental agreements are legally enforceable agreements that establish the terms of your tenancy. They both cover basic issues such as the amount of rent, security deposits, and who can live in the rental unit. The primary difference between the two types of agreements is the length of the tenancy.
Before you get into the nuts and bolts of leases and rental agreements, it’s important that you understand the meaning of the word “term.” When you read a lease, rental agreement, or any other kind of contract, you’ll come across the word “term” used in two ways:
- As a synonym for “rule” or “condition.” For example, you may see a sentence in a rental clause that reads: “The terms of the lease include $800 monthly rent, no pets, and a duty upon the tenant to shovel the sidewalk when it snows.” This means that you must pay this rent, not have a pet, and shovel that snow. If you don’t do these things, you will have broken (lawyers say “breached”) the agreement, and the landlord may be entitled to send you a termination notice.
- As a way to describe the length (years or months) of the agreement. For example, a clause may say: “The term of the lease is one year.” This means that you must pay rent and abide by other rental rules for one year (and you get to live there for that length of time).
A rental agreement establishes a tenancy for a short period of time, usually one month. A month-to-month rental agreement automatically renews each month unless you or your landlord gives the other the proper amount of notice (typically 30 days) to end the agreement. A landlord can change the terms of a rental agreement—for example, increase the rent (unless there’s rent control)—with proper written notice. In most states, this amount of notice is also 30 days.
A lease obligates both you and the landlord for a set period of time, usually a year. Your landlord can’t raise the rent or change other terms until the lease ends. And your landlord can’t force you to move out unless you breach an important term of the lease such as failing to pay the rent, or violate nuisance or other property laws by repeatedly making too much noise or damaging the rental unit. A landlord can’t kick you out simply because he feels like it or is annoyed with you because you complain too much about repairs or noisy neighbors.
At the end of the lease term, you or your landlord may decline to renew it or may negotiate to sign a new lease with the same or different terms. (Landlords subject to rent control, however, often have less flexibility when it comes to deciding not to renew a lease.) Often, especially when the landlord and tenant are content with the arrangement, nobody does anything formal and the tenant stays and continues to pay rent. When this happens, in most states the tenancy will continue on a month-to-month basis, subject to the same terms and conditions, in effect converting the lease to a rental agreement.
Which Is Better—A Lease or a Rental Agreement?
Since a lease gives you more security than a month-to-month agreement, a long-term lease is usually the better option for tenants who plan to stay put for the foreseeable future. With a lease, you don’t have to worry about being kicked out on short notice—unless of course you’ve done something bad enough to justify eviction, such as not paying rent. With a month-to-month rental agreement (except in most rent control situations), a landlord is free to sock you with a rent increase or terminate your lease even if you’re a model tenant. A landlord must, however, give you the proper notice, and cannot raise the rent or terminate the agreement for retaliatory or discriminatory reasons.
Also keep in mind that leases don’t lock you in as much as you might think. In most states, if you move out midway through a lease, your landlord can’t automatically charge you for the remainder of the lease term. He must take reasonable steps to find a new tenant to take your place. As soon as the place is rerented, your obligation to pay the rent ends, and you’ll have to pay only for the time between your leaving and when the new tenant moved in, plus the landlord’s advertisement costs.
If you might want to move soon, you’ll prefer the flexibility of a rental agreement. For instance, if you know that your job will relocate you in the near future, a rental agreement is probably your best option. Or if you’re in a real pinch and are forced to rent a place you’re not happy with, a rental agreement will allow you to move out easily once you find a better place.
Will You Have a Choice?
It’s ultimately the landlord’s call whether to use a lease or a rental agreement, but you may have some bargaining power. If you live in an area choked with For Rent signs or where it is difficult to find tenants for a particular part of the year—for example, a college town where most students are gone during the summer—your landlord will probably insist on a lease. That way, the landlord has the security of knowing that the unit will be generating income for him for a significant and uninterrupted amount of time.
But if you live in an area where vacancies are scarce and new tenants are easy to find, you may be offered a rental agreement. Many landlords prefer the flexibility of a rental agreement, since it allows them to raise the rent or get rid of a tenant on short notice. If a particular tenant turns out to be a good one and the landlord decides not to change the terms of the rental, the landlord will simply let the rental agreement renew month after month.
If you can convince the landlord that you’ll be an excellent tenant (based on your credit history and references) and will be around for the long haul, you might be able to get a long-term lease. Wise landlords prefer to keep good long-term tenants and avoid the hassles and expenses of constant turnovers (cleaning, advertising, showing, and checking out applicants)—even if it means less flexibility in terms of increasing rent or ending the tenancy. If the landlord balks at your request for a lease, consider accepting the month-to-month arrangement for a few months and then ask again. Your track record at that point might tip the balance.
Are Oral Understandings Legal?
While many landlords want tenants to sign some kind of written lease or rental agreement, written documents aren’t legally required. Oral leases or rental agreements are perfectly enforceable for month-to-month tenancies and, in most states, for leases for one year or less.
While an oral agreement is legal and enforceable, it’s usually unwise to rely on one.Especially if you've argued long and hard to get a landlord to lower the rent, bend her pet policy, add a parking space, or promise to paint the kitchen, it's plain foolish not to ask that these understandings be written down and signed. People’s memories (even yours) can become unreliable, leading to arguments over who said what and when.
You don’t necessarily need a five-page legal document, especially if you know and trust your landlord, but you should at least get the basic terms in writing, including the rent, the length (or term) of the rental, when and where rent is due, and any other important aspect of the understanding, such as the landlord’s willingness to let you have a pet. If your landlord shies away from written documents, you can put the basics on paper yourself, by writing a letter of understanding that clarifies your understanding of your agreement.