A lease is a contractual agreement that allows the owner of an asset to grant the use of an item of property to another person for a fee. It is most often used to allow a landlord to permit a tenant to rent an item of real estate that they own.
It is normally presented as a binding legal contract between the two parties. It details elements such as:
- Who the owner is leasing the property to
- How long the agreement is for
- The fees that must be paid in order to keep the lease active
- Agreed rules that the lessee and lessor agree to follow for the duration of the contract
In this article, we’ll explain what kind of leases you may encounter when managing property and real estate. It also examines how these essential legal documents differ from other property agreements and how they vary depending on the type of asset being leased.
Types of Leases
There are many different types of lease available depending on the type of property being offered to tenants by a landlord. These broadly fall into the following categories:
- Residential Leases: These are used to let property such as homes and apartments
- Commercial Leases: These cover types of real estate such as offices, retail space, garages and other businesses that are intended for commercial use
- Industrial Leases: This variety of lease can be used to rent a property such as a factory, warehouse or another type of industrial facility
- Advertising Leases: These cover billboard locations and advertising space used on buildings and cell phone towers
- Rent to Own: This offers the possibility to buy a house through an initial lease
Additionally, leases can also apply to other valuable items such as tools and machinery. An equipment lease can easily be set up to allow an individual, company, or organization to make use of heavy machinery, manufacturing tools, or vehicles for a period of time without buying them outright.
What’s the Difference Between a Lease and a Rental Agreement
A lease agreement and rental agreement have much in common but they are quite different in practice. The biggest distinction between the two is their duration.
In general lease agreements are designed to be longer-term in nature. They are usually multi-year arrangements that cannot be amended once signed. This offers consistency but prevents the landlord from changing the price of rent until the lease ends.
However, a rental agreement is a much shorter-term deal. It is usually a month-by-month rolling contract. It is better for individuals who prefer a more flexible arrangement with their tenants and provides the ability to react to changes in property market faster. For example by having the ability to adjust the price of the rent.
What Happens if Someone Breaks the Lease
Breaking a lease can be severe depending on the contract that’s been signed. How serious this can ultimately depend on the particular term of the agreement that has been broken and how badly.
First of all, if you break the lease of a property (for example: by not paying the agreed rental fees), this could lead to the landlord serving you with an eviction notice. If the situation isn’t rectified this could result in the tenant’s removal from the property and a court appearance.
Generally, if a lease is broken by a tenant without enough prior notice, the individual will face legal action for doing so. This can lead to expensive fines, which may necessitate the payment of lost rent, and could affect the person’s credit report negatively.
However, it is possible to negotiate a break of the lease which doesn’t result in legal action. For example, if the agreement contains an early-break clause then you may be able to terminate it as long as certain conditions are met.
Under most circumstances, tenants or landlords may legitimately break the lease if they can demonstrably show that the other party has contravened the terms of the agreement. This may involve the tenant causing damage to the property or the landlord failing to uphold their obligations to make timely repairs.
If you are a tenant or a landlord and need to break the contract before it comes to its natural end, it’s sensible to seek legal advice before doing so. You should also talk to the other party and agree on whether you will pay extra fees or make other concessions to bring the lease to an end early.
Additionally, if you are a tenant that needs to leave the property earlier than agreed, you may also be required to find a new tenant to take your place at your own cost too.