Difference Between Lease and Rent Agreement
Lease agreement and rental agreement are two terms that are often used interchangeably. But is a lease and rent the same thing?
Find out in the given below sections a detailed lease vs rent agreement analysis that will help you understand what exactly each term implies and whether you can use one in place of another.
What is Lease?
A lease is a contract or agreement which gives a person or business the right to use a property or an asset upon payment of a fixed amount for a fixed time period.
The lease is generally drawn for a long time period, with the minimum time duration being 1 year.
A person or business takes up assets or properties on lease that will be used for many years. Some examples are: land, house, vehicles, equipment and machinery.
The repair and maintenance responsibility of the asset is generally upon the lessee and not the owner of the equipment.
Types of Lease
Lease can be of various types depending upon the terms and conditions attached to the lease.
Capital/Finance Lease: In this type of lease the asset passes over to the lessee once the lease term is over. All the repair and maintenance of the asset is done by the lessee.
Operating Lease: In this type of lease the ownership of the asset does not pass over to the lessee at the end of the lease term. When the lease term ends the lessor can either renew the lease with the same lessee or make a new lease with another lessee.
Many other types of lease are also there like open end and close end lease, domestic and international lease and so on.
What is Rent?
In case of renting, the property or asset is used by the renter for a short duration. During this time he pays a specific amount called rent to the owner of the asset.
The repair and maintenance of the property is the responsibility of the owner and not the renter.
People rent out house/apartment, vehicle, construction equipment and so on.
Difference Between Rent and Lease Agreement
Here are the summarized lease vs rent differences:
- Lease is for long duration, whereas rent is for short duration.
- The repair and maintenance of the asset in case of lease is the responsibility of the lessee, whereas in case of renting it is the responsibility of the owner.
Though the concept behind lease and rent is same, the execution of their agreement is very different.
The terms of a lease are legally binding on both the parties till the lease duration but the terms of a rent agreement are not binding and can be revoked anytime by any party without any fear of penalty.
Lease Agreement vs Rent Agreement
Difference between lease and rent agreement can be categorized as follows:
Term Duration: Rent agreement is made for a very short duration, the maximum being 11 months or 1 year. Lease agreement can be made for even 20 years depending upon the life of the asset.
Penalty in Case of Violation of Agreement: Another difference between lease and rent agreement is that lease agreement is binding upon both the parties, lessee and lessor. If any of the party breaks the agreement, then they can be penalized.
Rent agreement is more flexible in nature and no party is penalized even when they break the agreement terms.
The rent or lease agreement rules might vary from state to state. There are rent control laws that might not allow a landlord to break the rent agreement suddenly. Find out the rules and laws in your area and make the agreement accordingly.
Ownership of the Asset: One of the most important difference between lease and rent agreement is the passing of ownership of the asset.
In case of a capital lease agreement the ownership of the asset passes to the lessee. But in case of a rent agreement the ownership always remains with the owner of the asset. Renter can never become the owner of the asset/property.
Accounting Rules: The last difference between lease and rent agreement is that lease agreements need to be made according to certain accounting rules and regulations whereas rent agreements need not adhere to any accounting laws.
So, which one is better in case of a house? Rent or Lease? For landlords, a rent agreement brings high but irregular income whereas through lease agreement they get steady, low income. For tenants, rent agreement works when they are looking for short term stay whereas lease agreement gives them security against any sudden rent changes.
Wrap Up – Lease and Rent Agreement Difference
Lease agreement and rent agreement are two very different kinds of contracts having different legal and technical interpretations. Hence, understand the difference between lease and rental agreement well before you decide to take/give an asset on lease or on rent.