Rental Agreement: Definition, Key Terms, Differences

What Is a Rental Agreement?

A rental agreement is a legal document describing the arrangement between the owner of real estate and another party who will pay rent in exchange for permission to occupy the property.

The owner of the real estate is also known as a "landlord" or "lessor." The party paying rent is known as a "tenant" or "lessee."

This type of agreement is a contract documenting the use of a space, either residential or commercial, for a fixed period of time in exchange for rent. The landlord and tenant can negotiate the terms of this contract. Once both parties sign the agreement, however, it is considered legally and mutually binding.

You may also encounter a rental agreement referred to as the following:

• Apartment lease
• House rental agreement
• Lease agreement
• Lease form
• Rental contract
• Rental lease agreement

What Is the Difference Between a Rental Agreement and a Lease Agreement?

Although the terms are often used interchangeably, a rental agreement and lease agreement can legally refer to distinct types of agreement documents. Both rental agreements and leases are legally binding contracts between a landlord and a tenant or tenants.

A rental agreement has the following characteristics:

• A rental agreement is usually month to month.
• Landlords can make changes to the rules of the property and rent, provided they give their tenants proper notice.
• Notice of changes must typically come 30 days in advance, although the required amount of time can vary among states.

A lease agreement has the following characteristics:

• A lease agreement states the amount of rent due for a specific amount of time.
• A landlord cannot make changes to the property rules or rent during the rental time.
• If landlords decide to make changes to the lease agreement terms, they must wait until the lease has expired to renegotiate new terms for the lease.

The biggest difference between a rental agreement and a lease is the period of time these documents typically cover. A lease generally covers a longer period of time, for example, six months or 12 months. A rental agreement covers a shorter period of residency, usually 30 days.

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Terms to Include in a Rental Agreement

Whether you are creating a rental agreement for an apartment, home, or room, you should include certain terms in your agreement.

Names of All Parties

A rental agreement should list all parties to the agreement in the document, making sure to include all adult tenants. A rental agreement should list the landlord and main tenant as well as all other adults occupying the premises.

Including all names ensures that:

• All adults living in the rental property are responsible for obligations and duties outlined in the agreement, including paying rent.
• The landlord can terminate the agreement if any tenant violates the terms of the agreement.

If only one tenant is listed, the landlord has fewer options if one of the other occupants violates an important term of the agreement.

Term of Tenancy

This clause should describe whether the rental agreement is a month-to-month agreement (carrying over each month unless the tenant or landlord terminates the agreement) or whether it is a lease agreement covering a fixed term (typically for a year with the option for renewal upon expiry of the initial fixed period). The rental agreement should also address options for termination.

Rent

The rental agreement should include provisions for:

• The amount of rent
• When the rent payments are due
• When a rent payment is considered late
• How rent payments should be made
• What payment methods are accepted
• What happens if a rent payment is late or if a rent check bounces

Security Deposit and Other Fees

Security deposits can become a contentious issue between a landlord and tenant. The rental agreement should make all matters pertaining to the security deposit clear to avoid future disputes. The rental agreement should state:

• The amount of the security deposit
• When and how a landlord can use a deposit
• When and how the landlord will return the deposit
• Other fees that can be deducted from the security deposit, such as repair or cleaning fees

States may set specific requirements with which landlords must comply in terms of security deposits. Landlords should consult with state laws to ensure the terms of the rental agreement are valid.

Repairs and Maintenance

Both the landlord and tenant(s) should have their maintenance obligations set in the terms of the rental agreement. For example, tenants may be responsible for:

• Maintaining a clean premises
• Any damages they cause
• Informing the landlord of any repairs that need to be made for which the landlord is responsible

Alteration and Damage to the Property

The rental agreement should state who is responsible if damages to the property occur. The agreement should also set out what, if any, types of alterations a tenant may make to the property, as well as when a landlord must approve or grant permission to a tenant to perform an alteration.

Occupancy or Subleasing

If the landlord has limits on occupancy or subleasing possibilities, the rental agreement should define these terms. A landlord can place limits stipulating that only those who sign the lease and their minor children can live in the rental property. A landlord can also prevent a tenant from subleasing the property without prior approval.

Pets

The rental agreement should clearly state whether pets are permitted on the property. If the agreement allows pets, the document should describe:

• The maximum number of pets allowed
• Any restrictions to the types of pets allowed, for example, small dogs weighing less than 50 pounds
• The tenant's responsibility to keep the premises clean

Right of Entry

A rental agreement should specify the conditions that allow a landlord to enter a rental property. The agreement should also state what notice is required before the landlord can enter. State laws often regulate a landlord's right of entry, and provisions in the rental agreement should align with the legal requirements of a state.

Illegal Activities and Disruptive Behavior

The rental agreement should clearly state what constitutes illegal activities, such as dealing drugs, as well as what is considered disruptive behavior, such as excessive noise). The agreement should also prohibit such activities and behavior, stating that these activities and behaviors would be grounds for termination of the agreement.

Other Rules and Regulations

A rental agreement can cover other expectations for the tenant's behavior, including the following:

• Whether smoking is allowed
• Whether overnight guests are allowed
• If overnight guests are allowed, how long they can stay at the property

Severability Clause

A severability clause will allow the rest of the rental agreement to remain in place if one particular clause is illegal, for example, because it doesn't comply with state laws for rental property.

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Local and State Laws

Before writing a rental agreement, landlords should consult with local and state laws to make sure that all included provisions comply with legal requirements. Local and state laws can regulate aspects such as subleases, notice requirements, and how a landlord can deal with a property if a tenant leaves without paying rent. These laws may vary from location to location.

If you are a landlord preparing to rent a property, a rental agreement can provide important protections. When you're drafting a rental agreement, consult with a lawyer to ensure your document covers all necessary aspects.