Rental Agreements vs. Lease Agreements

People often use the terms “rental agreement” and “lease agreement” interchangeably. But while both terms relate to real estate leases, they are not synonymous. Most rental agreements cover short-term tenancies, while lease agreements cover longer tenancies. One commonality is that both are rental contracts that govern the entire rental relationship.

This article provides an overview of rental and lease agreements. You’ll also find a comparison of residential and commercial leases. The information below is a good primer, but consulting a local real estate attorney is even better. Whether you’re preparing to rent out a property or move into one, getting legal help with the agreement can prevent confusion about payments, responsibilities, and renewal options. 

What Is the Difference Between a Rental Agreement and a Lease Agreement?

Many rental agreements cover short-term tenancies, such as month-to-month ones. In a month-to-month tenancy, the tenancy renews roughly every 30 days.

Lease agreements, by contrast, cover longer tenancies, often starting at one year. Lease agreements break down into two categories:

• Residential leases
• Commercial leases

Residential leases, as the name implies, cover residential housing. Commercial leases cover commercial real estate and commercial spaces. The type of lease offered will depend on the type of property available for rent. This also applies to the terms of the lease. The terms offered will depend on the type of lease offered.

Lease Provisions: Residential vs. Commercial

Rental and lease agreements share a few common lease provisions. Although many courts will uphold oral agreements, written agreements offer more protection. Strong lease agreements can be your guide for resolving potential problems. For example, your lease agreement should guide you on how to escalate a maintenance issue.

What Residential and Commercial Leases Have in Common

Some lease clauses, including the names of all parties and the rental property address, are relatively standard. However, other lease clauses may depend on the limits of landlord-tenant laws. Standard residential lease clauses include but are not limited to:

• Names of all parties to the lease
• Description of the rental property
• Length (term) of the lease
• Amount of monthly rent (rental rate)
• Day of the month by which the tenant should make rent payments
• Late fees (if applicable)
• Pet policy
• Common area maintenance
• Security deposit

Common terms for a commercial lease agreement differ significantly from those for a residential lease agreement.

Commercial Lease Agreements

Most prospective commercial tenants negotiate their lease agreements. Commercial lease agreements can cover different types of commercial spaces, including retail space and office space. Many prospective tenants need space to meet their business needs and budgets.

Commercial real estate agreements often involve more negotiation due to their complexity. Despite this, most commercial leases share a few common provisions. These include, but are not limited to:

• Gross lease: In this type of lease, the tenant pays the entire base rent, while the property owner pays the operating expenses.
• Net lease: The commercial tenant pays the base monthly rent, plus property taxes and maintenance costs.
• Double net lease: The tenant must pay the base rent plus two of the following three expenses: taxes (property taxes and real estate taxes), insurance, or maintenance costs.
• Triple net lease: The landlord passes on their operating expenses to the lessee. The tenant pays base rent plus taxes, insurance, and operating costs.
• Consumer price index: In some leases, the landlord or property management will tie annual base rent increases to the consumer price index.
• Occupancy limitations: Property management may impose occupancy limits depending on local zoning to comply with zoning and housing codes.

Base rent is often tied to the total amount of square footage. These are just a few lease terms you may find in a commercial lease agreement.

Given the complexity of these agreements, any business owner contemplating a commercial lease should get an attorney’s advice. Almost all terms in a commercial lease are negotiable, and a local attorney can spot clauses that may cause you issues (and cost you money) later.

Unenforceable Lease Provisions

Some lease agreements contain unenforceable lease provisions. For example, no court will enforce a lease provision that violates fair housing laws. A few examples of unenforceable provisions:

• Lease clauses allowing the landlord to enter the property at any time without warning
• Lease clauses stating that the tenant will pay for common area repairs
• Lease clauses in which the tenant agrees to give up the implied warranty of habitability

Ending a Lease

Real estate leases should clearly explain how to end a lease. Many residential leases provide a specific window to renew or end your rental or lease agreement. Many tenants, both commercial and residential, either agree to extend the lease or part ways. But state laws often provide some guidelines.

In some jurisdictions, if the tenant continues to pay rent after the lease term ends and the landlord accepts it, the lease automatically converts to a month-to-month lease. These renters are called “holdover tenants” because they have stayed beyond the end of the lease.

After you have moved out at the end of the lease, your landlord will inspect the rental property before returning your security deposit. Landlords can deduct from the security deposit only for damages beyond normal wear and tear or cleaning.

The landlord should keep records of any deductions and send a copy of the deductions to the former tenant. The landlord must return any remaining amount to the former tenant within the time frame set forth by local law.

Get Legal Help With a Rental or Lease Agreement

Rental and lease agreements are legally binding contracts, and breaking a contract comes with serious legal consequences. Whether you are a property owner or a prospective tenant, getting a legal professional’s eyes on your rental or lease agreement can be incredibly beneficial. An experienced attorney can advise you on unlawful lease clauses, how to negotiate a commercial lease, or any lease terms that could cause issues later.