A rental agreement and a lease might seem like similar terms, but there are several key differences, and subleasing is a unique term many people may seek to understand. Explore the differences between rental agreements, leases, and subleases, and learn about the benefits and drawbacks of each term.
When renting out a property for the first time, deciding how you want to rent that property is a key step. You have to screen tenants, place them in properties, and determine how you will handle their stays. When going through this process, you might want to know what the differences are between rental agreements vs leases, what a sublease agreement is, and how these differences might affect you.
Do you prefer a formal lease with fixed start and end dates and solid rules? Or do you want to pursue a rental agreement, with less guarantee on the length of a tenant’s stay, but more flexibility to change the terms of the agreement? And do you want to allow a tenant on a lease to sublease their rental?
All of these are important questions worth considering. Here are the differences between rental agreements, leases, and subleases, and the benefits and risks of each one.
Rental Agreements
A rental agreement is a short-term tenancy agreement that a landlord can easily modify between renewals. Typically, a rental agreement is month-to-month, automatically renewed at the start of each month unless one party terminates the agreement in writing. It has fewer protections for a tenant than a lease does, but it doesn’t have a fixed end date. When a modification is made to the agreement, the landlord needs only to provide adequate written notice in accordance with their state and local laws.
Benefits of a Rental Agreement
Rental agreements are the most flexible of these three kinds of rental methods. With the ease of changing agreements and the automatic expectation of a rollover, rental agreements are often an easy method of forming a less formal agreement when renting property.
Risks of a Rental Agreement
Although a rental agreement is more flexible than a lease, it is also less predictable. A rental agreement is typically month-to-month, meaning that a landlord has no way to guarantee that a tenant will stay past any given month. Written notice is typically given 30 days before any given change, meaning that a landlord may have only that amount of time to search for a new tenant before their current tenant moves out.
Learn more: Maximizing Tenant Retention for Landlords and Property Managers
Leases
Leases, in contrast, typically cover longer spans of time, but do not have an automatic renewal. However, a lease, as a contract, enforces certain agreements that must be in place for the entirety of its duration. When a lease ends, it must be renewed by the agreement of the landlord and tenant, or the tenancy can become month-to-month, so long as the other agreements in the lease are followed.
Benefits of a Lease
When you have a lease agreement, you have certainty in most circumstances. Your tenant will need to stay in their rental for the agreed-upon term, or risk breaking the lease. They will know the rules they must comply with during the lease, and you will have legal recourse against them if they do not follow the lease agreement.
Risks of a Lease
While a lease is often a preferedway to rent out a property, it is not without its faults. Primarily, when you create a lease, you are making a legal agreement. You cannot change the lease until it ends, and if you leave out any provisions you later realize you may want to add, you cannot do so until it ends, unless both parties are willing to sign an addendum
Subleases
A sublease agreement is an agreement in which the original holder of a lease agrees to have another person occupy a property for a portion of their lease duration. This is often done when a tenant wants to move out before the end of their lease, but doesn’t want to break the lease. A subletter will typically pay rent to the original tenant, who will then pay the landlord, adding an extra step to the rental process.
Benefits of Subleasing
Subleasing a property allows your tenant to move without the expense and stress of breaking a lease. Should a tenant need to move abruptly for any reason, assuming their landlord allows it, they can find someone to sublease to. For you as a landlord, it saves the stress of an abrupt and unexpected lease ending, and a tenant subleasing means that you can still receive the rent you expected for that lease, without needing to worry about finding a new tenant.
Risks of Subleasing
Having a middleman involved in a property rental is inherently risky, as it means that, as a landlord, you need to rely on an additional person to hold up their end of the lease agreement. Additionally, the tenant you carefully chose and vetted now has a subtenant, who may not be as trustworthy. These factors combine to mean that subleasing for a tenant is a significant risk. However, if you trust your tenant to make the right choices, and they are in a position where they need or want to sublease their property, it may still be a beneficial option. You can also require that any subleasing tenant must qualify through your traditional tenant screening process to mitigate some of the risk of subleasing.
Final Thoughts
Determining whether you want to have a rental agreement or a lease is a personal decision for each landlord. Both options have benefits and drawbacks, and subleasing is a potential additional consideration if you want to lease your property. However, regardless of the option you choose, both protecting your investment and ensuring your tenants’ happiness are the top priorities of most landlords. Understanding all the options in conjunction with your state laws is key to finding the best fit for you and your prospective tenants.
