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A small business blog featuring tips to help entrepreneurs succeed in the small business world. Topics include family business, human resources, marketing, money, networking, operations, ownership, startup, taxes and technology.
Lease or Rental Agreement… That is the Question

So, you’ve made some investments in rental property? A very popular business venture these days, as you can never go wrong with investing in real estate (well, almost never). As you begin the process of finding tenants, one question that you must address is whether to use a Lease or a Rental Agreement for your property.

First, you must determine what type of market the property will appeal to. If it’s a residential home, such as a single family house, duplex or apartment complex, then your market will likely be those that are looking for a place to settle down for a while and stay put. For this type of property you would want to offer a Lease.

However, if your property is in the heart of the business district, close to a college campus, near a military base, etc., then a Rental Agreement may be the best option for you. Most especially if you are having a hard time finding someone to rent the property in the first place.

Let’s examine what each agreement consists of so you have a better idea of what would work best for you:

• A fixed term, typically 6 months or one year.

• Terms of lease cannot change, unless agreed upon by both landlord and tenant, during the duration of the lease (i.e. you can not raise rent until the lease expires).

• Tenants are required to pay monthly rent and abide by the code of conduct set forth in the lease during the entire duration of the lease.

• A tenant cannot move out of the property before the lease expires without being in breach of contract and, typically, responsible for all rent due for the remainder of the lease (unless both the landlord and tenant agree on a sub-leaser).

• A lease renews upon expiration, unless specified otherwise in the terms or the tenant provides 30-60 days notices, prior to the expiration of the lease, that they do not wish to renew.

• Leases are the most common for both residential and commercial property, and preferred by landlords who would like to lock in a certain amount of money for a specified amount of time.

Rental Agreement
• Typically a month-to-month duration with no specified time frame of residence for the tenant (outside of 30 days).

• The landlord or tenant can make changes to the rental agreement, at the end of each 30 day duration, as long as they are within the parameters of rent control laws, such as an increase in rent or a tenants intention to move out. Most states, however, require that either party give 30 days notice to such changes.

• Agreement automatically renews at the end of each 30 day period, unless one of the parties indicates that the tenant will be moving out.

• Rental Agreements can sometimes give landlords an edge over those offering leases, since they are more flexible. They are popular in areas like New York apartment complexes or a bustling business districts.

In the end, go with what works best for you and your rental property location. And know that, whenever your lease expires and your tenant moves out, you can always offer a rental agreement if the lease wasn’t working out, or vice versa.

• What is the Difference Between a Rental Agreement and a Lease?

Related Small Business Buzz Posts:
Elements of a Franchise Agreement
Insurance for Small Businesses
Which Business Entity is Right for You? (Part 4)
Expanding Your Business Overseas: Protecting Your Product
Protecting Your Clientele

By Michelle Cramer
Saturday, May 26th, 2018 @ 12:00 AM CDT

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