Introduction
If you are looking for a house and are wondering if you should sign a rental agreement or a lease agreement, this article is for you. While both of these sound similar and are often used interchangeably, there are major differences. We have simplified it for you to be able to make a better decision. Read on to understand what rent agreement is, what a lease agreement is, and what are the major differences between them both.
What is a lease agreement?
A lease is a legal document – an agreement made to take something on rent for long-term (more than one year). This agreement is made between the one who owns the property (the lessor) and the one who takes it on lease (the lessee).
One lease agreement might differ from another, but all these agreements concretise the rights and obligations that both might have. They contain the name, address of both the lessor and the lessee, terms and conditions of the lease, the period of the lease, the responsibilities that the lessor and the lessee might have, the deposit amount, due dates, the notice period that one would need to abide by to vacate the property as well as consequences in case of violation of the lease. It also locks the price that the lessee might have to pay the lessor at the end of every month. Both the lessor and the lessee must sign it.
Since the primary focus of such an agreement is to feel financially safe and secure, this document is legally binding. This means that a violation of these would permit the other to take legal action against the other.
These lease agreements could be for a commercial or a residential property. The complexity of the terms and conditions would be more complex in the case of commercial property.
What is a rent agreement?
A rent agreement is made between the owner and the renter, when a property is to be rented for a short-term (less than a year). The rent could be for a residential or a commercial property. The agreements are signed based on the Rent Control Act, passed by the legislature in 1948. The primary intention of this act is to ensure that both the landlord and the tenant are safe against any kind of exploitation from one another.
According to the law, like the lease agreement, even rent agreements must be a written document containing all the terms and conditions and rights and duties of both parties. Both parties must date and sign the agreement.
This form of an agreement protects the tenant from unfair eviction and unfair rent, and ensures they get all the essential services like water supply, electricity and so on. It also gives the owner the right to evict someone on special charges like wanting to live there themselves, the right to increase the rent due to the economic situation of the market, and the right to temporarily repossess the place to improve the condition or to make any necessary changes in the property.
What is the difference between rent and lease?
| Rent | Lease |
| 1. The amount is decided but not locked and could be changed – increased or decreased by the landlord based on the market rates. 2. Ensures flexibility. | 1. The amount if frozen and cannot be altered by the lessor. 2. Ensures security and stability. |
| No specific Accounting Standard. | Follows AS – 19 (right to use an asset for an agreed period of time). |
| The landlord is responsible for the maintenance of their property. This means that you could stay worry-free about it. | Since this is for a longer period, the lessee is responsible for the maintenance of of the property they’ve taken for lease. |
| The tenant could make changes in the contract as and when necessary. This allows both the owner and the tenant to be flexible about their requirements. | The lessor or the lessee cannot make any changes in the contract, once signed. This ensures security. No matter what the market proces, the lessor cannot alter or raise the monthly amount the lessee must pay. |
| Agreement can be terminated quickly and in short notice. | Sudden termination of agreement could amount to a high penalty of a 6 month or full year’s rent. |
| Rental agreements gets renewed automatically till either parties want to terminate the agreement. | Lease agreements do not get renewed automatically. |
| The tenant is offered to buy the property they were renting. | At the end of the lease period, the lessee is given an offer to buy the property, after paying the remaining amount. |
Conclusion
Both renting and leasing a space have their own advantages and disadvantages. So, what do you pick? What would benefit you better? It purely depends on your individual circumstance. If you are looking for a short term rental, then rent a place. You’d be free from the maintenance charges since the tenant would take care of them. In addition to that, you’d have the flexibility to terminate the agreement at your convenience. It would help you have the freedom to change your plans without any fear of extra penalty. But if you’ve reached a stage in your life when you’re hoping to gain security and stability, and are looking to rent a place for a long period of time, lease a place. The agreement would protect you from the risk of market prices so you’re financially secure. The agreement prevents the lessor from terminating their agreement before time. It would also give you the option of even buying the place at the end of the term.
All the best!
Cooperative Housing Society