Leasing And Renting…. The Difference Between The Two And How To Use Them To Your Advantage.
The lease is an agreement between two parties in which one party allows the other party to use and control the asset for a defined period, without actually buying it. It is not exactly same as renting, but a form of it. Renting implies a short-term agreement between the tenant and landlord, whereby the tenant pays rent for the use of asset like land, building, car etc. owned by the landlord.
WHAT IS A LEASE
Definition of Lease
The lease has been defined as a contractual agreement between two parties, the lessor and the lessee whereby the lessor buys the asset and grants the lessee, the right to use the asset over a specified period, against periodical lease rentals. Lease rentals work as a consideration for the use of the asset that belongs to another party. The agreement in which the terms and conditions of the lease are defined is known as Lease Deed. The different types of lease are given as under:
Finance Lease
Operating Lease
Sale and Lease Back
Direct Lease
Open-ended lease
and etc…
What is Renting?
Rent refers to a rental apartment lease under which a tenant uses the property or a part of the property for a short time - usually on monthly basis. The amount tenant pays to the landlord under a rental apt lease is called rent. The landlord controls the rental agreement and may change the conditions at any point.
Characteristics of a Rent Agreement
Unlike a lease agreement, the onus of maintenance does not lie with the tenant in a rental agreement.
A rental agreement covers a shorter period of time compared to a lease agreement. The maximum duration of the rental agreement is one year but it may be extended if both the tenant and landlord agree.
Leasing vs. Renting - Pros and Cons
Pros of Leasing
From a landlord's perspective, the lease is a more suitable option. Lease agreements are more stable and continue for a minimum of one year, which means a continuous income for a longer period. As far as the tenant is concerned, the lease is the right option only if he/she is looking for a living place for the long term.
Cons of Leasing
Once a lease agreement is signed, the rent gets fixed for a minimum of one year. And in an area where rental prices are increasing every month, a fixed lease amount means loss of capital for the landlord.
Similarly, if you are a tenant and due to some reasons you have to leave the apartment, there is no way you can step down from the lease agreement unless the lease period expires.
Pros of Renting
Due to the short duration, rental agreements give more flexibility to the landlords in terms of rental income. In the US real estate, where property rents are increasing frequently, landlords can increase rents according to the local real estate market even on a monthly basis.
Similarly, a rental agreement is ideal for those tenants who don't want to commit to a single apartment for 12 months.
Cons of Renting
For landlords, the quick tenant turnover is a major concern because he/she has to pay extra for advertising the vacancy, agents' commissions, and cleaning costs. Plus, if your apartment is located in a low occupancy area, chances are you won't be able to find a renter anytime soon.
Likewise, tenants may have to pay higher rent to keep pace with a month-to-month rental agreement.
Still Hesitant?
If you are still unsure which way to go, consider this: a rental agreement is for those tenants who are looking for a short term living arrangement, while a lease works best for tenants who want to make their rental apartment home for the long term.
Conclusion
Leasing and renting are two different terms but sound the same to a layperson. Therefore, it is important to fully understand their differences. As a final point, laws governing lease and rental agreements vary based on the state; as a tenant or a landlord, it is important that you know the laws that govern in your locality.
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