What is a lease contract?

Definition and Examples of Rental Agreements

A rental agreement is a contract between two parties: the lessor (or owner of the property) and the lessee (the person who will use the property). It is an alternative to purchasing property, whether it is an apartment, car, or commercial building.

Rental agreements are legally binding and typically contain five minimum components: 1) the names of the parties, 2) a description of the property being rented, 3) the rental amount due, 4) the duration of the agreement, 5) the signatures of both parties.

How Rental Agreements Work

Let’s say you are going to live alone for the first time, perhaps after graduating from college. You have enough money to pay the security deposit, and you’ve bought a new bed, and now you’ve finally found an apartment that suits you.

Once you apply and are accepted by the landlord, you will be provided with a rental agreement. Although the duration of the rental agreement may vary, the common term is 12 months. You can also look for an apartment that offers a month-to-month rental agreement, although these can be more expensive. In college towns, rental agreements may revolve around the school year, allowing students to return home in the summer and pay for a shorter lease.

You need to apply for a rental agreement before signing the official document. In most cases, the application process requires an application fee that is paid directly to the landlord. The price varies by state. In New York, for example, the application fee cannot exceed $20.

The rental agreement will specify the amount you will pay monthly. It will also set the amount of the security deposit, if applicable, which is often paid before moving into the property along with the first month’s rent. In some cases, it may include additional provisions regarding furniture or coverage for any utility costs.

Once both parties sign the contract, it becomes legally binding, and all parties mentioned in the contract are legally responsible for complying with the terms. Although it is possible to break a contract, it can have consequences such as continuing to pay rent or affecting your credit rating. Additionally, you may face eviction if you break the terms of the agreement. Usually, all these details are outlined in the contract as well.

Depending on the state and the landlord’s policies, there are certain circumstances where being allowed to break the contract is acceptable. For instance, a call to military service or necessary protection for a victim of domestic violence can alleviate the consequences of breaking the contract.

While having a written rental agreement is preferred, there are some examples of legally binding verbal agreements. If you struck an arrangement with a landlord that you both agreed upon, it could be considered a verbal contract as long as it is “reasonable, fair, and done in good faith.”

Alternatives to a Rental Agreement

Signing a rental agreement for an apartment can expose you to additional costs if you need to break it at any time. Let’s say you are unsure how long you will stay in a certain area or suddenly lose your job. In these cases, you may consider subletting part of your apartment or renting it out to someone else. This allows the original lessee to transfer the apartment (and rental costs) to another person. However, the original lessee remains responsible for all contractual obligations.

Providers typically have financial requirements that tenants must meet before being approved. To be eligible for subletting, you need to provide proof of income through documents such as bank statements.

If you lose your job and cannot provide the necessary documents, there are alternatives to a fully binding rental agreement. If a car lease is what you are looking for, you may want to consider purchasing or financing a vehicle through other means. These options leave you with tangible assets once you finish paying them off.

If
I was unable or unwilling to secure a lease for the apartment, so you might want to consider other short-term housing options. While they can be expensive, home rental agencies like Airbnb do not lead to any type of contract and do not require proof of income, although you may need to pay rental costs upfront.

Advantages and Disadvantages of Lease Agreements

Advantages:

– Usually provide specific and clear expectations

– Protect you from sudden price hikes

– Can offer legal protection in case of a dispute

Disadvantages:

– Bind you to a specific time period

– Must return the property at the end of the lease term

Source: https://www.thebalancemoney.com/what-is-a-lease-5190370