You know the difference between buying and renting. But what is the difference between leasing and renting a space? Although there are similarities with lease vs rent, there are many significant differences that you should keep in mind whenever you approach a lease or rental agreement, whether it’s for an apartment, a home, or an office space.
Short-term vs long-term
The chief difference when you are choosing whether to lease vs rent is the length 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.). A rental agreement, however, usually only 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 is also usually viewed as beneficial for the landlords, who typically prefer to not have a constant revolving door of tenants to deal with.
Terms and conditions
For lease vs rent agreements, you can also expect a different range of terms. In addition to information about the duration of the contract, a lease will often include a lengthy list of provisions covering rules that tenants have to abide by and various legal issues that they need to be mindful of. Some of the items you might find in a lease may cover:
*Terms of lease renewal
*Pet ownership rules
*Renovations (e.g. whether they are allowed, what kinds are allowed, etc.)
*Noise issues (e.g. what hours you can play loud music or have parties)
*Potential fines for infractions
*Storage facility availability
*Subletting the space (if subletting is allowed)
*Rules regarding smoking
*Repairs and how to contact the superintendent
*The rights of the landlord
*Information about allowable rent increases and rent stabilization
*Preferential rent terms (if it’s being offered)
*How to deal with neighbor complaints
*Applicable tenant laws
A rental agreement, on the other hand, may not be as long and detailed as a typical lease since some of these issues would not apply to short-term renters.
Ending the contract
In many cases, it’s not so much the conditions for living under the lease that are so different between the two types of contracts – the really key difference is how they end. A lease serves to give both tenant and landlord peace of mind because the landlord cannot randomly evict the tenant, and the tenant is obligated to stay and continue paying rent each month until the lease term ends.
A rental agreement provides far less stability and security. Although these contracts are often set to automatically renew every 30 days, the landlord is basically allowed to terminate the agreement with little notice. Likewise, the tenant can up and leave when the 30 days ends, with no obligations towards the landlord. This can be freeing for a tenant who requires flexibility in their living arrangements, or who is looking for a very temporary office space.
Locking in a rate
A major advantage of having a lease is that it allows you to lock in a fixed rent payment that the landlord is not allowed to raise until the term of the lease ends. Sometimes you may also be offered, for example, a two-year lease where the rent amount is set a bit higher than the one-year lease. This means you will pay more during that first year, but the landlord won’t have the option of increasing the rent at all the second year—so you get two full years of certainty as to how much rent you will be paying.
With a shorter-term rental agreement, they could keep raising the rent on a regular basis and you would have no recourse, except to simply move out.
Do you always have both options?
You do not always have a choice between a lease vs rent agreement. When it comes to housing, some landlords specialize in offering temporary spaces and will only offer rental agreements. Some will allow you to go month-to-month after your lease term has ended, but overall it is more common for them to insist upon leases.
With office space, it can vary. Longer-term leases have traditionally been the norm. In fact, many companies have been frustrated by how they are stuck with only the option of a long lease, which may not be ideal for a growing and changing business. However, there are many more temporary rental options (such as coworking spaces) and short-term lease options (such as FLEX by SquareFoot) available now to accommodate the evolving needs of businesses.
Potential problems from rental agreements
Rental agreements have possible downsides for both parties, landlord and tenant alike. For the tenant, it is the uncertainty of not knowing whether your rental payment might spike suddenly, or whether the landlord suddenly wants you to move out before you have even had an opportunity to find another place.
For landlords, they may have to be constantly paying for rental ads, compensating brokers for helping to find new tenants, and paying to have the space professionally cleaned or repaired in between tenants. There is also the uncertainty of not knowing whether or not each new tenant might turn out to be problematic (e.g., unable to pay on time, causing problems with neighbors, making a mess of the place).
Problems with a lease vs rent
Leases definitely have potential cons as well. While a lease provides the tenant with a protection from sudden rent increases, the flip side of that coin is that if market rates go down, the tenant is stuck paying the rental payment that has been agreed to in the lease and doesn’t really have the option to negotiate or move to a cheaper place.
As a tenant, you could also find yourself trapped in a difficult spot if you suddenly have an emergency or dramatic life or business change (e.g. family death, getting married, losing a job) that necessitates you having to break the lease and move out early. Depending on the lease terms, you may owe the rest of the rent for the term of the lease. (However, landlords will sometimes go easy on people if they are able to help find a new tenant to finish out the lease.)
It is a similar situation for businesses that have rented office space for a longer-term lease. The business may be growing in such a way that the company really needs to move to a larger office or a different location, but is basically married to that particular office space until the period of the lease is finally up.
Choosing lease vs rent
At the end of the day, as you decide whether to lease vs rent, you will need to consider what is on offer and which agreement is best for you. Obviously, it’s desirable for each party to benefit in a rental or lease agreement, but ultimately you need to weigh the pros and cons and make sure you choose the option that provides you with the best possible terms and (if you need it) the greatest flexibility.