Lease vs. Rent: Understand the Difference

The terms lease and rental agreement may seem interchangeable, but there is an important difference between these two types of contracts. The typical lease spans twelve months, though some can cover a longer or shorter period. A rental agreement, on the other hand, is a month-to-month contract, and can typically be canceled by either party on shorter notice than a twelve-month lease would require.

What is a lease agreement?

A lease is a long-term contractual agreement for a rental unit.

The most common duration for a lease agreement is 12 months, but leases may last anywhere from 6 to 18 months. When a lease agreement ends, a tenant usually has the option to renew or transition to a month-to-month rental agreement.

The terms of a lease agreement remain the same for the duration of the specified period. In other words, a landlord cannot raise the rent or alter any of the other terms of the lease agreement. Tenants are also legally required to uphold the terms of the lease for the duration of the contract. If you wish to move out early, you will still be responsible for making monthly rental payments until the end of the lease term.

What is a rental agreement?

Rental agreements are similar to lease agreements but apply to short-term rentals. A rental agreement is a formal contract outlining the responsibilities of the landlord and tenant of a rental. Rental agreements typically span a 30-day term, but they may be longer or shorter, depending on what you negotiate with your prospective landlord.

Since most rental agreements are 30 days, the terms can technically change on a month-to-month basis.

Pros and Cons of Leasing vs. Renting

There are benefits and disadvantages to both lease agreements and rental agreements. Consider these points as you work to decide which type of arrangement makes the most sense for your lifestyle. 

Pros of having a lease

Lease agreements offer a few advantages for those looking for long-term housing.

  • No rent increases for the duration of your lease. Signing a lease ensures that your landlord can only raise your rent at the end of the lease term. This makes it easy to forecast your housing costs for the year (or however long your lease agreement is). 
  • Stable housing. Signing a lease agreement gives you peace of mind that you’ll have a place to live at a fixed price for a set amount of time. This is beneficial if you’re confident you want to stay in the same place for several months.

Cons of having a lease

The primary disadvantage of a lease is that they are not very flexible. When you sign a lease, you’re responsible for paying rent for the duration of the lease term. 

If you want (or need) to move out early, you’ll likely be faced with high fees to break your lease. Though in some cases, you may be permitted to sublet your rental until the end of your lease term. If there’s a chance that you may need to move out early, ask your prospective landlord about their policy on subletting, so you’re aware of what your options are. 

Before signing a lease, ensure that the rental will continue to suit your lifestyle for the duration of the lease term. If you’re unsure about the neighborhood, the commute to work, or the unit itself, keep in mind that it will likely be expensive to break the lease. 

If there’s a chance you’ll buy a home, move in with a significant other, or relocate for work before your lease term is over, consider opting for a unit with a month-to-month rental agreement. 

Pros of having a rental agreement

A rental agreement can be a great option if you’re looking for a more flexible housing arrangement. 

With a monthly rental agreement, you have the flexibility to move out without waiting for your lease to expire — though you should be mindful that there are state laws regarding how much notice you must provide to your landlord. This makes rental agreements advantageous for anyone who is still determining their long-term plans. 

Perhaps you’ve just moved to the city and are trying to get a feel for the area before committing to living in a particular neighborhood, in the process of buying a home, or facing the possibility of relocating for work or school. A month-to-month rental agreement offers you the flexibility to move without breaking a long-term lease agreement (and face fees for doing so). 

Cons of having a rental agreement

Unfortunately, flexibility comes with a price. Here are some of the potential disadvantages of opting for a rental agreement.

  • Rent increases are a possibility. The terms of your rental agreement are technically renegotiable at the end of each contract period (typically 30 days). Your landlord has the right to increase the rent or remove perks from the rental (such as including the costs of utilities or parking, etc). If you’re living in an area with increasing property values, your landlord could increase the rent significantly month over month in an effort to remain competitive with the market. 
  • No guarantee of long-term availability. There’s no obligation for your landlord to extend your rental agreement belong the initial 30-day term. If the landlord decides they want tenants to move out so they can conduct renovations or sell the property, they are within their rights to do so. Laws vary by state, but typically your landlord must advise you in advance if they choose not to renew your rental agreement. In California, landlords must provide 30-day notice for tenants who have lived in a rental for less than a year and 60 days for a tenant who has lived there for over a year. 

The Bottom Line

Lease agreements and rental agreements are very similar, but lease agreements apply to long-term rentals, while rental agreements typically apply to short-term or month-to-month rentals. 

Lease agreements offer long-term stability, while rental agreements give you the flexibility to move out at any point. Before signing any housing agreement, consider your lifestyle and goals to determine which type of contract makes the most sense for you.