When referring to a written contract to rent a property, many people use the terms “lease” and “rental agreement” interchangeably. These terms actually have different meanings, though. Landlords and tenants should understand the differences so that they can make informed rental decisions.

Lease vs. Rental Agreement

Here are some key differences between leases and rental agreements.

• Term length. The term of a contract to rent is the amount of time the tenant may legally remain in the landlord’s property. The contract lasts for the full term as long as both parties keep the promises they’ve made in the contract (such as the tenant’s paying rent and the landlord’s providing a livable property). The term of a rental agreement is short—usually a month or a week. (An example is a month-to-month agreement.) A lease, on the other hand, usually lasts for a term of a year or longer.
• Renewal procedure. A rental agreement renews automatically at the end of each term until the landlord or tenant gives written notice terminating the agreement. State law or the rental agreement itself dictates the notice period (in most places, it’s 30 days for a month-to-month agreement). Leases, on the other hand, don’t renew automatically; at the end of the term, the parties negotiate a new lease or the tenant moves out. (In the event that a tenant refuses to move out, the landlord will either begin eviction proceedings or, in rare cases, allow the tenant to remain as a holdover tenant, which creates a month-to-month tenancy by default in most places.)
• Contract changes. Parties to a lease are usually bound to all the lease’s requirements (such as not having pets or late rent fees) until the term ends. With a rental agreement, a landlord can raise the rent or change another part of the agreement by giving the tenant whatever notice is required by law or the agreement itself (usually 30 days for a month-to-month agreement). Many states have laws regarding the notice required to raise the rent or change the terms of a month-to-month rental agreement. Landlords who are uncertain about the rules where their property is located should consider consulting a local landlord-tenant attorney before making changes to their rental agreements.

Although these differences between leases and rental agreements hold true in most areas, landlords with property subject to rent control or other tenant protection laws will want to familiarize themselves with the regulations in their area before making changes to any rental agreement or lease.

Choosing a Rental Agreement or a Lease

A rental agreement's short term gives both landlords and tenants more flexibility than a longer-term lease. This flexibility can have its pros and cons, though.

Landlords like that rental agreements allow them to increase rent on short notice (subject to any rent control requirements). Also, rental agreements allow them to change other terms easily, and to get rid of bad tenants on short notice. But a major problem for landlords using rental agreements is high turnover: Tenants leave more often, resulting in the landlord having to invest time and money in finding and screening new tenants.

Many tenants also like the flexibility of month-to-month rentals. Tenants who plan to move, get married, or travel might seek a month-to-month rental so they can leave quickly when the time is right. The uncertainty that comes with a rental agreement is the downside for tenants: They never know if the landlord is going to raise the rent, end the tenancy, or change the terms on short notice.

If you’re a landlord, consider your market and business strategy before choosing which type of rental contract to use. If you want to be able to raise the rent frequently and can find tenants easily, a rental agreement might be right for you. However, if your rental is in an area subject to rent control, you need to fully investigate what you can and can’t do. Many rent control laws restrict how and when landlords can raise the rent or terminate a lease, often frustrating or eliminating the typical benefits landlords receive from using rental agreements.

As a tenant, your decision to sign or pass on a rental agreement will likely be based on your need for flexibility. If you don’t think you’ll want to stay in your place long, signing a rental agreement might be the right move. Sometimes, though, tenants don’t really have a choice—if you rent in an area with rapidly increasing rents and lots of renters, you might be hard-pressed to find a longer-term rental. Regardless, you should read any contract you get carefully and make sure you understand all its requirements before making a decision.