When you rent out a property, you will need to decide if you wish to offer your tenants a lease or a rental agreement. Although these terms are often used interchangeably, they are not the same.
A lease has a set term, such as six months or a year, during which the tenant agrees to rent the property. During that time (also known as the duration of the lease), the tenant and the landlord must adhere to the agreement. For example, tenants agree to make monthly rent payments and follow any code of conduct or other stipulations in the lease.
Neither party can change any terms of the agreement until the lease expires, unless both parties agree to the change. A tenant can't vacate the property without breaking their lease, in which case they can be held liable for the rest of the rent due under the lease, or can be required to find someone else to take over the lease.
Leases are suitable for landlords who want to "lock in" a tenant for a set period of time. If you have a mortgage payment to meet, for instance, knowing you'll have a tenant for the next year can help you budget your expenses. Most tenants are familiar with long-term leases and will not have a problem committing.
Rental agreements are month to month, with no set period of residence. At the end of each 30-day period, both you and your tenant are free to change the rental agreement (subject to any rent control laws).
These changes may include raising the rent, changing the terms of the initial agreement, or asking the tenant to vacate the property. However, in most states, both landlord and tenant are required to give 30 days' notice before any changes can be made. If your state doesn't require notice, you can change any part of the rental agreement at your discretion.
Rental agreements are useful if you're having a problem attracting new tenants, or if your property is in an area that caters to students or professionals who move around often. These tenants appreciate the freedom a month-to-month agreement provides, so offering a rental agreement can give you an advantage over landlords who insist on long-term leases.
A rental agreement typically renews automatically after each 30-day period has elapsed. There's no need to give notice about this automatic renewal, as long as neither you nor your tenant has stated that the tenant will vacate the premises.
Before you rent out your property, be sure to take into account the differences between a lease and a rental agreement so you can make the best choice for your situation.