The difference between a lease and a rental agreement form is similar to the difference between two kinds of screwdrivers: they serve the same purpose but are used in slightly different ways.
According to the U.S. Census Bureau, about 65% of Americans own their homes. That means around one-third of adults are potential renters. In some rental situations, you may come across people who prefer a rental agreement instead of a lease.
This article explains the differences between leases and rental agreements, when you might choose one over the other, and the advantages and disadvantages of each.
What Is a Lease Agreement?
The terms “lease agreement” and “rental agreement” are often used as if they mean the same thing. But in reality, there’s one key difference. Understanding how each one works can help you manage your property better.
Let’s start with leases.
A lease is a contract between a tenant and a landlord that allows the tenant to live in a property for a fixed period of time, usually for six or twelve months.
Residential leases clearly outline the expectations for both the landlord and the tenant. Common terms in lease agreements include:
- The rent amount
- The start and end dates of the lease
- Who is responsible for maintenance and repairs
A strong, well-written lease helps protect both the landlord and the tenant. If you want to change any part of the agreement, you may need written permission from the other party. It’s best to speak with a lawyer about this.
What Is a Rental Agreement?
Rental agreements are very similar to leases. However, the biggest difference is the length of time the agreement covers.
Unlike a lease, a rental agreement usually lasts for a short period—often 30 days. Some rental agreements automatically renew at the end of each month unless the landlord or tenant decides to make changes. Be sure to read the agreement carefully to understand how this works.
Rental agreements offer more flexibility than leases. Landlords may use them for situations like:
- Vacation rentals
- A short-term extension after a lease ends
- Filling a gap between longer-term tenants
- Personal preference for short-term rentals
Common Terms in Lease and Rental Agreements
While lease and rental agreements are similar, the details may vary. For example, one agreement may include a rule about smoking, while another might add rules about noise.
Some common terms found in both lease and rental agreements include:
- How long the tenant can stay in the rental
- Rent and deposit amounts
- The number of people allowed to live in the unit
- Who pays for which utilities
- Whether pets are allowed
- Rules about subleasing
- When and how the landlord can enter the property
- Who pays legal fees in a dispute
Landlords may also need to include certain disclosures, such as:
- Whether there is mold
- If any registered sex offenders live in the area
- If there is a history of bed bugs or meth production on the property
When preparing a lease or rental agreement, always follow local, state, and federal laws. If you’re unsure, speak to a lawyer for help.
Lease vs. Rental Agreement: Pros and Cons
Before choosing between a lease and a rental agreement, think about the kind of relationship you want to have with your tenants. Below are the advantages and disadvantages of each option.
Pros of a Lease:
If you want stability, a lease might be the better choice. Many landlords prefer leases because they:
- Are designed for longer stays
- Offer steady rental income
- Require less frequent advertising and tenant screening
- Lower turnover and related costs
Cons of a Lease:
Once you sign a lease, the rent is usually fixed until it ends. In areas where property values and rental prices are rising, you may lose out on extra income.
For example, in 2023, the U.S. Census Bureau reported the biggest jump in rental prices since 2011. If your property was on a one-year lease, you’d collect the same rent each month, even if the market value went up. With a rental agreement, you’d have the option to adjust the rent more often—though it does take more effort.
Pros of a Rental Agreement:
Rental agreements offer short-term flexibility. This means you can adjust the rent more often to match current market rates, as long as you follow local laws and give proper notice.
Some states have rent control rules, so be sure to check the laws in your area.
Other benefits of rental agreements include:
- A larger group of potential renters, including those with short-term needs like work or school
- More freedom to end the rental if a tenant is not a good fit
- Opportunities to rent to traveling workers or visiting professionals if you’re near a hospital or school
Cons of a Rental Agreement:
Some renters may avoid rental agreements because of the uncertainty. They might worry about frequent rent changes or the risk of being asked to move on short notice.
In areas with low demand, you may have trouble keeping the unit rented consistently.
Short-term rentals can also bring more costs and time demands, including:
- Advertising
- Hiring a property manager (if needed)
- Cleaning between tenants
- Interviewing and screening tenants
- Giving tours and handling paperwork
With frequent turnover, there may also be a temptation to skip background checks. This can lead to problems later on.
Final Thoughts on Rental Agreements
A rental agreement may work well if:
- You want to increase income more often
- You rent in a high-demand area
- You rent to people who move frequently
- You are willing to put in more time and effort
Help Protect Your Property with Tenant Screenings
As a landlord, it’s important to have the right tools for the job. Whether you use a lease or rental agreement, background checks are a smart way to help avoid problems.
No matter how long someone stays, they can still cause damage to your property. Looking into a tenant’s history can help you avoid choosing the wrong renter.
Background checks may include:
- Criminal records: Checks state and federal databases for past crimes
- Identity check: Confirms the applicant is who they say they are
- Eviction history: Shows any past eviction cases
You also want to make sure a tenant can pay rent on time. Financial tools can help you with this:
- Credit report: Looks at their payment history and financial behavior
- Income check: Verifies the income they report
- Rental score: Estimates the risk of eviction based on past rental behavior
No matter what kind of rental agreement you choose, doing your homework can make the process smoother and protect your property. Screening tenants the right way helps you find responsible renters—whether they’re staying for a month or a year.
