Whether you want to rent a house for the first time or you’re a seasoned pro, understanding your rental agreement is essential. But, to make it more confusing, there are several different types of rental agreements to be aware of too.
Each one will have a different impact on your tenancy, dictating anything from how long you’ll be able to stay in the rental house to when you need to make your payments and much more. As such, every tenant should at least know about the most common types of rental agreements out there.
With that in mind, let’s take a good look at the basics before delving into the most common types of rental agreements.
What Is a Rental Agreement?
A rental agreement—also known as a lease agreement—is a legally binding contract between a landlord and their tenant. It essentially outlines the rights and obligations of both parties, as well as the terms and conditions of the agreement. Additionally, it will detail any clauses and exceptions, as well as penalties for breaking any of the terms.
Generally speaking, you can expect to find the following basic information on all rental agreements:
- Contact information for both the tenant and the landlord,
- Basic details for the rental unit, including size, address, and amenities,
- The length of the lease term,
- The payment schedule—i.e. When the rent is due, how much it is, etc.,
- Information about the security deposit,
- The rights of the tenant,
- The tenant’s obligations,
- The landlord’s obligations,
- The type of lease.
As well as these standard points, your rental agreement is likely to include various details that are specific to your lease. These may include details about any discounts or incentives that have been offered, any renewal options on offer, or dispute resolution processes.
The 5 Main Types of Rental Agreements
Now that you know the basics, it’s good to take a closer look at the different types of lease agreements you’re likely to come across when renting. With a bit of understanding, you’ll be far more able to choose the best type of rental agreement for your circumstances.
1. Long-Term Lease Agreement
A long-term lease is one of the most common leases you’re likely to come across as it’s the type most favored by landlords. For the landlord, it offers a stable source of income for a fairly long period of time.
Also known as a fixed-term lease agreement, a long-term lease typically runs for at least 12 months, though it can be as long as the landlord and tenant agree. Once signed, the tenant is more or less locked into the lease and will typically have to pay a penalty if they wish to end the rental term early.
Despite this, for renters looking for stability, a long-term lease is a fantastic option. It ensures you won’t suddenly find yourself having to move out with barely any notice. Plus, by being able to agree to a long-term lease, you’ll find yourself in a stronger position to negotiate a better deal. And, as a final bonus, you can guarantee that your rent won’t suddenly increase.
2. Month-to-Month Lease Agreement
For tenants looking for a bit more flexibility, a month-to-month lease agreement can be an excellent solution. In most cases, the lease will automatically renew each month, making it easier for you to leave the rental if your circumstances change. As such, it can be ideal if you;
- Are thinking about switching jobs,
- Have had a change in your relationship status,
- Want to try living in a new city or neighborhood but aren’t ready to commit to it.
Normally, you’ll be required to give your landlord 30 days’ notice if you wish to end the lease. However, if you’re happy to stay, you’ll usually be able to do so for as long as you need.
This flexibility does come at a bit of a cost though. Since the lease renews each month, it’s easier for the landlord to increase the rent with little notice. It’s also easier for you to be evicted.
3. Short-term or Vacation Lease Agreements
A short-term lease usually lasts for a fixed amount of time, generally between three and six months. While they don’t usually automatically renew, you can often request it if your plans change. Also known as vacation lease agreements, short-term leases can be great for renters who are working away from home for a specific period, as well as those who are relocating or traveling.
This type of lease offers similar protections as a long-term lease, in that the rent is guaranteed to remain the same and you cannot easily be evicted, while offering slightly more flexibility.
4. Rent-to-Own Lease Agreement
If you’re hoping to buy a home but don’t yet qualify for financing, a rent-to-own lease could be the perfect solution for you. This type of agreement enables you to buy the property once your lease has ended. The lease period is often negotiable, ensuring both the landlord and the tenant can benefit.
There are two types of rent-to-own lease agreements:
- Lease-purchase agreement: in which you’ll be required to purchase the property when the lease ends or face a penalty,
- Lease-option agreement: in which you’ll have the option to purchase but aren’t obliged.
Both have their merits, but be sure to choose the type that is best for your circumstances.
5. Subleases
Slightly different from the other lease agreements we’ve discussed, a sublease is between two tenants rather than the landlord and a tenant. Subleasing most commonly occurs if the primary tenant needs to move, but they don’t want to break their lease agreement. In this case, it may be possible for them to find a replacement tenant.
The new tenant pays rent to the original tenant, who then pays the landlord as normal. When the original lease is up, the new tenant will typically have priority and can usually take on the lease agreement with the landlord.
Not all landlords allow subleases and even those that do will often put strict rules in place. Always discuss it with the landlord in advance if you plan to sublet your rental house.
