Lease Agreement: Definition, Types, Top Terms

What Is a Lease Agreement?

A lease agreement is a legal document outlining the rental terms for either a commercial or residential property between the property owner, also known as the landlord or lessor, and the renter, also known as the tenant or lessee. These documents may also be called apartment leases or lease forms, though the lease agreements are not limited to apartments.

Creating a thorough and effective lease agreement is very important as it protects all parties involved throughout the length of the lease. While many landlords begin with boilerplate lease agreements, the language and terms are negotiable by all parties until signed, at which point the lease agreement becomes a legally binding document.

Types of Leases

People can lease all manner of property, including items like cars and boats. Most frequently, however, lease agreements are used for real estate, both residential and commercial. A few of the most common types of leases include:

• Commercial lease: Commercial property like offices.
• Condominium lease: A residential property that shares some building amenities with other tenants.
• Family member lease: For family members leasing property.
• Hunting lease: To use private property for hunting.
• Lease-to-own lease: Provides the option to purchase the property from the landlord.
• Month-to-month lease: A type of short-term lease agreement.
• Parking space lease: To use for parking a vehicle on private property.
• Room lease: Leasing a single room within a home.
• Standard lease: Used for single-family homes, apartments, and other residential properties.
• Sublet lease: A lease created by the renter for adding a renter to the lease.
• Short-term lease: Used for short-term leases of unusual periods.
• Weekly lease: Used often for vacation properties.

Elements of a Lease Agreement

Lease agreement terms can differ greatly depending on the type of lease and the specific needs of the renter and landlord. However, basic elements include:

• Contact information: Include information for the landlord and all adults who will live at the property.
• Property details: Describe the property with its address, square footage, amenities, and other important identifiers.
• Lease specifics: Explain the type of lease, such as residential, and the terms, such as the end date.
• Rent details: List the monthly rent amount and the date it's due each month.
• Rights and obligations: Provide the rights for the landlord and tenants, such as entry or giving notices.
• Dispute resolution: Outline the steps to resolve any disputes over the property or lease agreement.
• Deposit and fees: List the amount of any security or other deposits or additional fees.
• Occupancy limits: Provide specifics for how many people and who specifically can reside at the property.
• Restrictions: List any restrictions, like installing additional appliances or making changes to permanent fixtures.
• Pets: Describe whether or not pets are allowed and the specifics related to pets on the property.
• Maintenance and repairs: List what maintenance and repairs are provided by the landlord.
• Utilities: Explain who is responsible for paying which utilities.

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Addendum, Disclosures, and Notices

Some leases require additional documentation in the form of addenda, disclosures, and notices. Usually, disclosures are included with the initial lease, while addenda and notices can be added to the lease later.

• Addendum: An addendum is an addition to the lease. Common examples include adding pet terms to a lease or documenting a change in one of the renters.
• Disclosures: Disclosures are often legally required to ensure renters understand all aspects of the property they're renting. An example might be the possible existence of old lead paint in a home built prior to a certain date.
• Notices: Notices are official announcements. For example, a renter might give notice that they don't intend to renew their lease for another year.

Lease Agreement End Dates

Leases generally have two possible end dates — either fixed term or automatic renewal. Fixed-term end dates provide a specific time frame in which the lease is active. At the end of the lease, both parties must agree to renew and either include an addendum to the lease extending its length or write up a new lease. An automatic renewal continues indefinitely unless either the landlord or the renter provides notice dissolving the lease.

Image via Unsplash by Sebastian Herrmann

Lease Agreement vs. Rental Agreement

Often, the terms "lease agreement" and "rental agreement" are used interchangeably. However, some people do use them to mean specific things, so it's essential that you clarify with the other parties involved in a lease agreement what the terms of the contract are.

Generally, lease agreements refer to long-term property contracts, usually over 30 days. Lease agreements also tend to have fixed-term end dates. Rental agreements, by contrast, refer to short-term property contracts, usually under 30 days. A new agreement is generally required to renew.

What Is a Rent-to-Own Lease Agreement?

Rent-to-own lease agreements, also called option-to-purchase or lease-to-own agreements, give the renter the option to buy the property at a predetermined price or the option to apply a portion of the rent towards the purchase price if the tenant decides to buy the property in the future. In most cases, the renter pays an option fee to the landlord for the right to purchase the property later. If the renter decides not to go through with the purchase, then the landlord keeps the option fee.

Lease Agreement Laws

Every state in the country has its own laws and regulations regarding leasing and renting property. If you're a landlord, it's vital you understand the laws for your state to ensure your lease agreement properly accounts for all the legal necessities for you and your tenants. Most states have laws outlining:

• General landlord and tenant rights.
• Security deposits.
• Landlord's access to the property once the tenant takes up residence.
• Late rent payments.
• Lease agreement violations.

How to Create a Lease Agreement

Landlords have a couple of options when writing a lease agreement. You can create your own by using a standard template and adjusting it to meet the needs of your tenants. However, if you're not well-versed in the landlord and tenant laws that govern your state, you may not adequately cover all the necessary terms in your lease. It's often better to consult a contract attorney who can help you draft a lease agreement that protects both you and your tenant while meeting all state legal obligations.

Important Terms

When writing or reviewing a lease, you'll probably come across some industry terms. These are the most common and important to understand:

• Alterations: Changes to the property,  such as paint or fixtures.
• Appliances: Items like ranges and refrigerators that are included with the property.
• Cosigner: A third-party who helps the primary tenant pay the rent.
• Furnishings: A list of all included furniture like tables, couches, and beds.
• Guarantor: A third-party who will pay the rent if the primary tenant cannot.
• Governing law: Reference to the state laws that govern the lease.
• Guests: The number of people who can visit the property at one time.
• House rules: Agreed-upon rules like quiet hours.
• Insurance: Disclosure of any landlord-provided insurance protection for the tenants.
• Late charges: The amount of money the tenant will have to pay in addition to their rent if payment is late.
• Monthly rent: The amount of money due each month.
• Parking: Explanation of whether parking is included, where, and for how many vehicles.
• Receipt of agreement: All parties must have a copy of the signed lease for it to be valid.
• Renewal option: An explanation of the terms and conditions related to renewing the lease.
• Security deposit: The amount of the security deposit and the terms for the tenant to get it back at the end of the lease.
• Subletting: An explanation of whether subletting is allowed and the specifics for adding a subletter.
• Termination: Specifics for early termination of the lease and any monetary penalties associated.
• Utilities: A description of which party is responsible for which utilities.

Lease agreements are legally binding agreements, so the language within the lease must be clear and comprehensive. Consider using the expertise of a contract lawyer to help you craft an effective lease agreement that protects everyone involved.