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What to look for in a rental agreement or lease

Peter Warden
The Mortgage Reports editor

In this article:
You’re looking to rent a home. Would you be better off with a rental agreement or lease? Is there even a difference between the two?

  • Rental agreements are generally month-to-month, and either you or the landlord can terminate the agreement with 30 days’ notice. They allow you maximum freedom to move when you want.
  • Leases have longer duration — generally at least 6 months.
  • Rental agreements allow landlords to increase your rent or change the terms at almost any time. Leases tie you down longer but protect you from rent raises.

Leasing gives you more rights than renting. But it also locks you into more obligations for longer. Read on to discover all you need to know to choose the one that will suit you better.

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Rental agreement or lease — The key differences

In a general sense, all leases are rental agreements and all rental agreements are leases. Lawyers and landlords commonly use the terms to differentiate between two types of contract. So which you sign makes a difference.

Rental agreement

A rental agreement typically covers a month-to-month tenancy. You sign up to a rolling contract that automatically renews. However, you or your landlord can give notice (usually 30 days) to the other at any time. That will bring the arrangement to a close once that notice period expires.

Because this contract gives both parties a right to end their relationship quickly, your landlord will have much more discretion to change its terms whenever she feels like it. All she has to do is give you a written notice. She could suddenly hike your rent, impose a pet ban or prohibit overnight guests. If you don’t like it, you give notice in writing and find a new place.

This arrangement suits many, mostly because it doesn’t tie them down. If you are a student who goes home for college vacations, have a job where you move around a lot, or just have itchy feet and hate long-term commitments, a month-to-month tenancy could be ideal.

Lease

A lease gives you much greater certainty. Many last six months, a year or even longer. During that time you have a right to stay in your home, always providing you pay your rent on time and observe the lease’s conditions.

As importantly, your landlord can’t mess with the terms of your lease during that initial period. You won’t suddenly have any rent increases or face any new rules.

What happens if you break a lease?

Leases tend to suit people with settled lives who value knowing the roofs over their heads are secure for a period of time. However, leases tie you down, because you’ve signed up to pay the rent for the term of the lease, and you must continue to do so even if you move out. If your landlord finds a replacement tenant, you might get to stop paying before the official end of your lease.

All about roommates — and how to move on from a shared lease

When a lease ends

When the lease’s initial term ends, you’ll often become a month-to-month tenant automatically. At that point, your landlord could impose a rent rise and make other changes to your terms and conditions.

Few landlords move out good tenants. Indeed, many will bend over backward to keep them in place. You could try negotiating a new lease that would again give you the security of tenure for a fixed period.

Advice for renters: What happens when my roommate moves out and I’m not on the lease?

Some leases automatically renew, meaning your obligations will begin all over again for however long your original lease lasted: six months, a year or whatever. You must check your lease to see what happens when it expires. If it renews, you should make a calendar note to give notice in plenty of time, unless you know that you want to stay.

Rent control

Those who live in California, Maryland, New Jersey, New York and Washington, DC are governed by rent control laws. These limit landlord rights to increase rents, and change the game for leases as well as rentals.

So, if you live in one of those places, get a current copy of the laws and regulations so you can see your rights and obligations:

  • California
  • DC
  • Maryland
  • New Jersey
  • New York

What to look for in a rental agreement or lease

We’ve gotten used to not reading contracts before we sign them. Who reads a credit card agreement or ones that govern software or social media usage?

How to protect your security deposit

But a rental agreement or lease is different. If you don’t read yours, you could find yourself barred from doing stuff you naturally assumed you’d be able to do. True, a rental agreement is less of a bind because you can move on if you don’t like its terms. But you could still find yourself inconvenienced while you’re there. A bad lease could see you miserable for a long time. If in doubt about your lease, consult an attorney who specializes in property law.

Common restrictions

It’s quite common for these documents to prevent you from:

  • Keeping a pet
  • Having a roommate — By limiting the number of occupants allowed in the home
  • Running a home business from the property

These are just examples of the restrictions a lease can impose, so watch out for others.

Payments

Your document should make clear what you have to pay and when:

  • The rental deposit — One or two months’ upfront
  • The security deposit — Make sure requirements for this conform to local laws
  • Your monthly rent — Amount, due date and acceptable payment method (check/cash/card/automated bank transfer …)
  • Whether you or the landlord are responsible for paying bills for utilities

Make sure all those are in line with your expectations.

Typical upfront costs of leasing a home

Ending the rental agreement or lease

You need to know what will happen when the lease ends and when that will be:

  • Date on which lease ends
  • Whether it will automatically renew for the same term or whether you will become a month-to-month tenant
  • Notice periods required to terminate, should you wish to do so when the lease ends

Put that last date in your calendar. You may by then want to renew, but you must give notice by that date if you’re unhappy.

Miscellaneous but important

  1. Subletting — Suppose you want to move out before the lease expires. Are you allowed to sublet? Your lease may let you but won’t necessarily. Some leases say you can, providing the landlord approves the new tenants. Make sure there’s a specification that “approval shall not be unreasonably withheld.”
  2. Repairs and routine maintenance — What are the landlord’s responsibilities and what must you do?
  3. Liquidated damages — Beware a lease that contains a “liquidated damages” clause. It means you’ll have to pay all the rent due under the lease even if you or the landlord find another tenant to replace you as you move out. There’s no good reason for one of these clauses and you may see it as a red flag about your prospective landlord’s attitude to tenants.
  4. Liens on your belongings — These can similarly be a red flag. They allow your landlord to seize your personal possessions if you fall behind with the rent. And she can do so without first going to court to prove you’re late.

If you find worrying clauses in your lease, you may want to move on and find a landlord who’s less exploitative. Or you may prefer to negotiate changes.

Negotiating changes in a rental agreement or lease

Before you sign a lease or rental agreement, you’re free to negotiate changes. For example, you can tell the landlord you’ll only sign if you can keep your cat. She can then say yes or no — and you can walk away or cave.

Don’t accept an oral assurance that a landlord won’t enforce a provision in the document. The contract you sign will be binding and needs to reflect what you agreed.

Buy or rent: why it may be less costly to buy

Feel free to amend the wording or make crossings-out in the document. You and your landlord must both signify agreement by initialing changes on both copies. And you’ll want to keep your copy safe.

One last thing: Most landlords are fair and reasonable. If you can convince them you’ll pay the rent on time, deal with them in a civilized way, not cause a nuisance and not damage their property, there’s a good chance they’ll work hard to keep you happy.

Verify your new rate (Dec 9th, 2019)