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What is a lease?

March 2, 2020 | by Jo Cipolla
Reviewed by real estate expert Jonathan Tootell

Many people have heard the term lease and may have some idea of what a lease is. Even if you have not yet had to deal with one, you know they are important when you start looking to rent a home or office space for your business.

Depending on what kind of property or commercial space you are looking for, will affect the kind of lease agreement you are given. So, if you aren’t yet in the know, what is a lease exactly?

A lease is a rental agreement

The lease agreement, which can vary in length from a few to many pages long, is what a landlord or a broker will hand you when you have decided you want to rent the property. It is an official contract signed between landlord and tenant that details the terms of the rental agreement.

Potential tenants will likely find the most key provisions of this agreement on the first page. That will include the specific address of the property, the monthly payment that you are responsible for, the amount of the security deposit you will have to supply, and the length of the rental period.

Details and terms

After that first important page of the lease agreement, tenants will likely find several other pages that spell out the various terms that they are agreeing to. If tenants are signing a rental agreement on an apartment, for example, these provisions may deal with issues like whether or not pets are allowed, smoking policies, availability of storage and parking for renters, how to handle noise complaints, what renovations tenants are allowed to make to the space, how to contact the superintendent or the property management office, and so on.

There may also be clauses inserted into the lease agreement about rent stability or preferential rent (i.e. when you are receiving a lower rent that what the landlord is legally permitted to charge). There might also be pages that explain certain rights that you have as a tenant, such as being able to request that the landlord put in window guards or other safety measures.

Residential leases

A lease for a home or apartment is usually quite a bit different than a commercial lease. Residential leases tend to be for one or two-year periods, and these lease agreements lay out the monthly rent as the only significant financial responsibility for the lessee. The landlord is expected to handle most other expenses related to the property, such as building maintenance, landscaping, and fixing problems within the home (plumbing, lighting, etc.).

Commercial real estate leases

Leases for business properties are significantly different from leases for homes. To begin with, the length of the lease is usually longer. Two or three years would be considered short, with five or 10-year long leases being more typical for commercial properties.

Another big difference is that a commercial lease usually shows that the lessee has more financial responsibilities than just the monthly payment. Depending upon the exact type of lease (e.g. either a full service lease, double net lease, or triple net lease), the agreement may be written out to show that the lessee is also required to pay for insurance, taxes, and maintenance costs for the building.

Is the rental agreement binding?

Each party who signs the lease is bound by the terms of the agreement. However, there can be exceptions. For instance, if the lessee wants to break the lease before the end of the rental period, the property owner can usually apply penalties, perhaps even forcing the tenant to continue paying each month until the end of the specified lease length. But sometimes a landlord is willing to work with the renter on a better solution, like for instance if the lessee is able to find another tenant to take the space until the end of the lease.

Negotiating terms in the contract

When a landlord first presents a potential tenant with a rental agreement, the lease as it is currently written is not necessarily set in stone. The tenant may be able to get the property owner to negotiate on certain leasing terms. For example, in a commercial real estate transaction, if the landlord wants the tenant to be responsible for the maintenance of the property but the tenant doesn’t like that requirement, they might be able to negotiate a higher monthly rental payment in lieu of covering maintenance.

The goal is to find an agreement that both parties, lessor and lessee, are comfortable with. If real estate is scarce in the particular area that the tenant is seeking, then the property owner might have the upper hand in negotiations. On the other hand, if the market is currently favorable to renters, then the tenant might be able to get the lessor to negotiate down on costs or responsibilities.

Do I need representation before signing a lease?

Every day, people sign leases for houses and apartments without having a lawyer or real estate professional examining it first. Most of these rental agreements are uncomplicated enough that an average person can read through them and understand them well enough to sign the contract with confidence (but do be sure to read the whole thing before signing!).

But a rental agreement for a piece of commercial property may be a great deal more complicated and more consequential in terms of specific financial responsibilities. For that reason, a tenant preparing to enter a commercial property contract should have a lawyer or commercial real estate broker involved in the leasing process to advocate on their behalf.

This person will be able to contribute their knowledge and expertise of leases and real estate to ensure that the lessee does not get taken advantage of, and to ensure that the tenant fully understands what will be required of them under the agreement.

Lease long and prosper

Now that you know what a lease is, you should better know how to approach this type of agreement when you try to rent a property. Be certain that you don’t sign any rental agreement that you haven’t read carefully, and don’t be shy about seeking out the assistance of a real estate professional if you have any concerns.

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