A lease is a contract that dictates the terms of your rental agreement with your landlord. It is important for renters to understand their lease and what they have agreed to by agreeing to rent. Let’s look at what a lease is, different types of leases, and how leases work.
What Is a Lease?
A lease outlines the terms of the rental agreement. It is a contract, and the terms in the contract are legally binding. Failure to uphold the terms by either party may result in legal consequences or terminate the agreement.
A lease will state the responsibilities of each party. The person renting the property is called a tenant or lessee. The person who is renting out the property is called the landlord or lessor. The lease will state the duration of the lease agreement, define what is being leased to the lessee, and the payment amount and schedule. It will often advise on the notice period to extend or terminate the contract at the end of the term.
Leases will also often explain the responsibilities of the landlord in terms of property condition and maintenance. Before entering into a lease, protect yourself by hiring a business contract attorney to review the commercial lease.
Is leasing the same thing as renting?
This table outlines the main differences between a lease and a rental agreement, highlighting aspects like duration, flexibility, stability of terms, and suitability for tenants and landlords. Leases offer more stability and long-term security, while rental agreements provide greater flexibility and adaptability to changing circumstances.
| Aspect |
Lease |
Rental Agreement |
| Duration |
Typically long-term, often for a fixed term (e.g., six months to a year). |
Usually short-term or month-to-month. |
| Renewal |
Requires a new lease or renewal at the end of the term. |
Automatically renews at the end of each period (usually monthly). |
| Rent and Terms Stability |
Rent and terms are fixed and cannot change during the lease period. |
Rent and terms can change with proper notice (usually 30 days). |
| Flexibility |
Less flexible; tenants are committed for the entire lease term. |
More flexible; tenants can leave with shorter notice without penalty. |
| Termination |
Early termination can result in penalties. |
Can be terminated easily at the end of each period without significant penalties. |
| Suitability |
Suitable for tenants seeking stability and a long-term arrangement. |
Ideal for tenants needing flexibility and short-term commitments. |
| Legal Protections |
Offers legal protections for a fixed duration. |
Provides legal protections but with more frequent adaptability. |
| Changes in Rent |
Rent is typically not subject to change during the lease period. |
Rent can be adjusted at the end of each rental period with notice. |
| Property Control |
Landlords have less frequent turnover and more control over property. |
Landlords can adjust terms more frequently but may experience higher turnover. |
Types of Leases
There are a number of different types of leases. You will likely be familiar with residential leases. There are also commercial leases for businesses.
Commercial leases are more complex and often structured so that the tenant assumes more of the risk. For example, the tenant is often responsible for insurance, property taxes, and operational costs in addition to rent.
There are four common types of commercial leases in California:
- Gross Leases: The landlord is responsible for all costs. The tenants are only responsible for paying rent.
- Single-Net Leases: The tenant is responsible for rent and property taxes.
- Double-Net-Leases: The tenant is responsible for rent, insurance, and property taxes.
- Triple-Net-Leases: The tenant is responsible for rent, maintenance costs, insurance, and property taxes.
When comparing commercial leases, make sure you understand the costs you are responsible for as the tenant.
How to Understand a Lease
Before signing a lease, make sure you understand what you are agreeing to. Leases are legally binding contracts, so failure to uphold the terms may result in legal consequences. Read your lease in detail before signing. It may be helpful to do some research on similar types of leases and look up any words or terms that are unfamiliar. For commercial leases, it is wise to hire a lawyer to review the lease agreement and negotiate on your behalf.
A residential lease will include the following information:
- The property address
- Access to communal or shared areas
- The amount of rent and payment frequency (including due date)
- The amount of security deposit.
- Lease duration (including expiration date)
- Process for renewing or ending the lease
- Landlord responsibilities
- Tenant responsibilities
- Pet policies and other important policies
- Cleaning responsibilities at the end of the lease
Leases for renting residential real estate are quite straightforward. Many landlords will use similar terms and clauses. Just ensure you read it thoroughly and check the details are accurate. Remember, you can negotiate a lease like you would any other contract if you do not agree to some of the terms. The terms of a lease are legally binding, so if you don’t agree with the terms, don’t sign the contract.
Commercial real estate leases are more complex, and the lease durations are often longer – up to 10 years. Business owners should seek the advice of a lawyer before signing a commercial lease. They often have complex payment terms, including both flat rental fees and profit percentages.
Do the Terms of the Lease Override the Law?
No, the law will always supersede the terms of a lease. For example, a landlord cannot put clauses absolving them of responsibility for property maintenance required by law. The law provides basic legal protections for the landlord and the tenant; a lease can only add protections, not remove protections for either party.
If a dispute occurs, neither party will be bound to illegal lease terms. The illegal lease term will be considered invalid in the eyes of the law. In some cases, illegal lease terms may even invalidate the entire lease. This will depend on the severability of the illegal clause (how much that lease term impacts the entire lease.)
Can Leases Prohibit Pets?
Yes, though the nuances may vary depending on the state where the property is located. Common lease terms regarding pets may:
- Prohibit all pets.
- Allow certain types of pets of certain sizes.
- Require a pet deposit.
- Allow pets with conditions about property maintenance.
- Allow pets with the ability for the landlord to revoke that consent for nuisance pets.
If you have a pet, read the lease terms for pets carefully to make an informed decision.
How Do Leases Work?
A lease is a contract that governs an agreement between a landlord and tenant for the use of a property. Verbal agreements can count as leases, but leases tend to be written down for the protection of both parties. Leases are often drawn up by the landlord, but the tenant can negotiate the terms of a lease until both parties are in agreement.
The benefits of a lease agreement are:
- Both parties are aware of their rights and responsibilities.
- Clarity about the costs involved in renting.
- Consequences for breaking any of the terms.
- Guidance on what happens if either party wants to terminate the lease.
- Expectations for how both parties will maintain the condition of the property.
Is It Possible to End a Lease Early?
Ending the lease early or breaking a lease is possible, but there are often consequences for doing so. This is true whether it is the tenant or the landlord.
The tenant may have to pay a fee for breaking the lease (which is often equivalent to a few months of rent) or may even have to pay the remaining balance of the lease. Depending on the conditions of the lease, ending a lease early may even impact a tenant’s credit score. In some cases, protected groups are permitted by law to end their lease early without consequences. This varies between states, but domestic violence victims are an example of this. Tenants are also permitted to terminate a lease if the landlord fails to maintain the property.
Some landlords will provide leases with early termination clauses to allow tenants to break their lease in certain circumstances. Examples of common conditions of early termination clauses include job relocation or divorce.
The landlord may have to pay the tenant a fee for breaking the lease and may be obligated to provide a certain amount of notice. In some cases, the landlord may be obligated to provide the tenant with alternative living arrangements. Regardless of what is in the lease, landlords are bound by federal and state laws. That means that in some states, landlords are not legally allowed to break a lease without cause and sufficient notice.
In all cases, communication is vital to ending the rental relationship on a positive note. This will allow both parties to avoid any negative consequences.
Protected Groups
The law provides exceptions to allow protected groups to break a lease in certain circumstances. These are often special exceptions for people who, by the nature of their protected characteristics, require the ability to move.
Disabled or elderly adults
Adults can break a lease early because of medical conditions or disabilities that make it unreasonable to continue living in the rental property. The requirements of this exception will depend on the state laws. Landlords are permitted to ask for proof, like a doctor’s letter.
Active members of the military
The Servicemembers Civil Relief Act states that active members of the military can end a lease early if their orders require relocation for longer than 90 days. Landlords are permitted to ask for proof.
Domestic violence victims
Tenants who have suffered domestic violence are permitted to end their lease early without consequence. State laws vary on how recent the domestic violence needs to be. Landlords are permitted to ask for proof, such as police reports or protection orders.
Can I Break a Lease Early Due to Economic Hardship?
Unfortunately, there are no protections to allow renters to end leases early when they are experiencing financial hardship. Legally, the contract still stands. The best option is to speak to your landlord about the situation and see if they are willing to let you end the lease early. Landlords may be willing to negotiate an agreement rather than face the risk of non-payment. If your landlord does not agree to break the lease, then you are responsible for paying rent for the duration of the lease or fulfilling the lease obligations to break the lease.
This is the case even in times of economic hardship. For example, during the Covid-19 pandemic, no special laws were introduced to allow renters to break their leases. However, temporary laws were passed to prevent evictions in areas that were affected by the pandemic.
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