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What Is a Lease? The Definitive Guide

A lease is a legal contract used when renting property or equipment. It outlines the length of the rental arrangement along with the terms and conditions that must be followed by both the owner and the person renting.

In this article, we’ll take a closer look at leases and examine what is typically included in a residential lease, what to know before you sign, tips for negotiating the terms, and what to do if you plan to break your lease. We’ll also go over some other common types of leases you might encounter and what to look for in those contracts.

Lease Terminology to Know

Before we dig into the details of a lease agreement, let’s go over some common terms you will need to be familiar with: 

  • Lessor: The property owner or manager who is leasing a property to a tenant 
  • Lessee: The individual leasing a property from a property manager or owner.
  • Lease term: The length of a lease.
  • Sublet: Subletting is when you rent out a property you are renting property to a tenant. Some lease agreements permit tenants to sublet while others do not.  

Residential Leases

Residential leases are rental contracts that outline the terms and conditions that both parties, the lessor and the lessee must follow during the lease term. Often landlords will use a standard lease template, but in some cases, they may have a real estate lawyer draft one for them.

Because a lease is a legal document, there are consequences for both the landlord and the lessee if either of them violates the terms of the contract. Below, we’ll dig into some of the standard provisions found in a residential lease and discuss anything else you should know before signing.

What is the difference between a lease and a rental agreement?

While the terms are frequently used interchangeably, there is a difference between a lease and a rental agreement.

A lease covers a long-term rental period, usually 6 to 12 months, while a rental agreement is often a month-to-month arrangement. Rental agreements automatically renew at the end of each month unless you inform your landlord that you will be moving out. Additionally, rental agreements may be altered at the end of each 30 day period. This enables your landlord to raise the rent, change the fees for parking, and make a myriad of other changes that may affect your comfort in your rental.

On the other hand, a lease locks you into a rental for a predetermined amount of time, and the conditions outlined in the lease agreement cannot be altered. 

Often, when a lease term is up you will default to a month to month rental agreement on the property, unless you choose to renew your lease or move out.

What goes into a typical lease or rental agreement

A standard lease agreement will include most of the following items. Before you sign a lease it’s essential to read through each item carefully to ensure the conditions are amenable to you. If you take issue with any of the conditions listed on the lease, bring it up with your landlord before you sign. 

The address and details of the rental property:

This section will include a description of where your rental is located and what it entails. For instance, if you rent an apartment with a storage locker or a parking space the lease will outline those spaces in the rental property description.

Names and addresses of landlord and tenants:

The lease agreement will state your landlord’s name and address and should include the names and addresses of each tenant in the rental unit. If you will be renting with a partner or roommate, you both need to be listed on the lease. The tenants whose names are on the lease are responsible for paying the rent and abiding by the lease terms. If your roommate’s name isn’t on there, there is no legal obligation for them to pay rent and the responsibility will fall to you alone.

Rent amount & due date:

Your lease agreement will clearly state how much you are to pay in rent and the day on which rent is due. The document will usually outline the preferred methods of payment, whether it be cheque, bank transfer, or something else. 

Security deposit & other move-in fees:

This section will state the amount of the security deposit you will be required to pay for your rental as well as any other fees you may be on the hook for, such as cleaning fees, move-in fees, or pet rent. 

The fee structure for late payments may also be listed in this section.

Utilities:

The lease agreement should clearly outline who is responsible for which utilities. Some, such as water and waste removal, may be covered by the landlord, while others will fall to you, the tenant. 

Maintenance responsibilities:

Here the lease will outline the landlord’s expectations regarding maintenance. It may state that tenants are responsible for maintaining the property’s garden. The lease will detail what types of repairs are the responsibility of the tenant, and how the tenant should seek reimbursement for any necessary property maintenance. The document may also state what types of changes (such as painting) the tenant is permitted to make to the rental. 

Pet policy:

The pet policy states whether or not pets are permitted in the rental. It will detail what types of pets are allowed, any size restrictions that exist, the number of pets permitted, and any fees the tenant must pay in exchange for housing pets on the property. 

Property use and behavior guidelines or restrictions:

Here, the lease will outline what is expected of you as a tenant and mention any property use restrictions that exist. For example, it may list the building quiet hours, whether or not barbecues are permitted in the building, or the unit occupancy limit.

Landlord’s right of entry:

Your landlord may be permitted to access your rental, but there are certain guidelines he must follow. Those will be listed in this section of the lease and may include stipulations such as providing 24 hours notice and only entering during business hours. 

Sublet policy:

This section will state whether or not you are permitted to sublet your rental unit to another tenant.

Lease termination policy:

This covers the process you must follow to break your lease and any fees associated with doing so. 

Guest policy:

This section will mention any stipulations regarding hosting guests in your rental, including the acceptable length of stay. If guests stay beyond the timeframe stipulated in the lease you could be in violation of your lease agreement, giving your landlord grounds to evict you.  

What to know when signing a lease

Because a lease is a legal document there can be major repercussions for violating the terms of your contract. If you violate your lease you may face eviction, fees, or both. 

With this in mind, you need to be clear on exactly what you are committing to when you sign a lease. Look over your lease agreement carefully and consider whether your lifestyle is compatible with the terms of the lease. 

If you take issue with any of the stipulations within the contract, bring them up with your prospective landlord as there may be room to negotiate. For instance, if the guest policy states guests may spend no more than 7 consecutive nights in a month, but you’re hoping your sister can come for a two-week visit, mention it to the landlord. He may be willing to overlook the guest policy in this instance, and you will rest easy knowing you’ll be compliant with your lease agreement.

What to know when subletting a leased property

Subletting a property from someone can be a great way to find a rental without having to go through a credit check or commit to a long-term contract. However, doing this can also be risky. 

If you’re moving into a sublet, make sure the sublet isn’t in violation of the renter’s lease. If it is, you could find yourself unexpectedly evicted and have no legal recourse. Make sure that your sublettor’s landlord is aware that you are subletting the unit and that the whole arrangement is out in the open. 

On the other hand, if you are leasing a property and wish to move out before your lease is up, subletting to another tenant can be a convenient way to avoid breaking your lease, as long as your lease allows it. If you’re not sure, double-check with your landlord.

Once you find a sublessee, introduce them to your landlord so that he knows who will be taking your place and so the sublessee knows who to turn to if anything goes wrong. 

What happens if you break your lease?

Breaking your lease can have a myriad of different consequences depending on the policies outlined in the lease agreement. In some cases, you can pay a flat fee to terminate your lease early, while in others you may be on the hook for paying the rent until a new tenant is found. 

Upon breaking your lease, you may also be responsible for fees associated with wear and tear of the property so the landlord can fix it up and re-rent it. Additionally, breaking a lease can leave a negative mark on your credit report, which could make it more challenging to find another rental.

If you have a good relationship with your landlord, you may be able to break your lease with no consequences. But since this isn’t a given, it’s best to break a lease only as a last resort.

Other types of leases

Renting an apartment isn’t the only time you may need to sign a lease. Below we’ve summarized some of the other types of leases you may encounter.

Commercial leases

Commercial leases cover real estate that is used for business purposes, such as a restaurant, boutique shop, or any other commercial use. These contracts are similar to residential leases but they typically cover a lease term of several years. 

Additionally, the stipulations of commercial leases are highly tailored to the business who will be renting the space. They may include policies regarding the types of changes or improvements that may be made to the property, annual rent increases, stipulations regarding signage and where it can be placed, and a competitor clause preventing the landlord from renting space to a direct competitor, and more.

Auto Leases

A car lease outlines the terms and conditions as to how a lessee may operate their leased vehicle. It will detail the length of the lease, the lease amount, when payments must be made, and summarize any fees that may be associated with leasing the vehicle. 

An auto lease usually includes an annual mileage allowance. The lessee may be responsible for paying a small fee for each mile driven beyond the set allowance. The auto lease will also state insurance requirements and outline which party, the lessor or the lessee, is responsible for which aspects of maintaining the leased vehicle.  

Car rental agreement

A car rental agreement is a legal contract that ensures both you (the renter) and the lessor are held accountable for your responsibilities as they are detailed in the contract.

A standard car rental agreement will outline the length of the rental period, the condition of the vehicle, any mileage limits that must be adhered to, additional fees associated with the rental such as late fees or fuel fees, and insurance and liability coverages. Some vehicle rental agreements will also have stipulations that the car may not cross borders into another country.

Equipment leases

An equipment lease is a rental agreement that applies to any type of equipment. Common equipment that you may lease includes items like printers, copiers, and computers as well as construction equipment, garbage containers, lighting, office furniture, water coolers, and more. 

There are two types of equipment leases: an operating lease and a capital lease. Under an operating lease, equipment lease fees are reported as business expenses, and under a capital lease the equipment is reported as an asset.

The equipment lease will state the lease term, the amount owed and how and when the lessor must pay the lease. There will also be provisions outlining the maintenance responsibilities of the lessor and the lessee, as well as any insurance requirments.  

Final Thoughts

Regardless of whether you are leasing an apartment, a vehicle, or something else, a lease serves the same function. It is a legal contract that outlines the obligations of each party involved in the transaction. Because leases are legally binding, it’s essential to read through your lease before signing to ensure you are on board for all of the terms and conditions listed in the document.

If you spot anything within a lease that you feel is unfair, unrealistic for your situation, or simply doesn’t make sense, don’t be afraid to ask questions. Depending on the situation, some terms may be negotiable, so don’t hesitate to try. In some cases, you may even want to have a lawyer look over your lease and negotiate the terms for you, especially if the lease term is a long one.

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