What You Need to Know About Lease Agreements
As a general definition, a lease agreement may be described as a rental agreement that covers the rental of a property or land for an agreed upon period. In a lease agreement, the landlord or lessor (the property owner) and the lessee (the property user) will agree to allow a user to inhabit a property for a set amount of time in exchange for an agreed-upon amount. The lease agreement is commonly referred to as a lease, which is a term used frequently in the words of lawyers and the real estate community.
A lease often requires a person to completely prepay their rental costs for signing the lease and agreeing to the terms. The duration of a lease varies drastically, as it can be for several months or years. A tenancy agreement lasts for a shorter amount of time and is not as detailed as a lease agreement.
Because it is a legally binding contract, a lease agreement typically covers what happens if a party does not comply with it . Both landlords and users have obligations in a lease agreement, and breaking them can have negative legal outcomes.
In a lease agreement, there can be a variety of terms. Rental terms may include charging for water, electricity or other utilities. In some cases, a landlord may transfer possession uninhabited or after an eviction, with or without a eviction notice. Some leases state that benefits can be granted for paying rent on time. Disputes over the penalty would require formal litigation.
The lease can also contain details about normal maintenance, cleanliness, duties in the event of damage or theft, keeping property insurance, giving notice of any issues, methods to submit rent and the right of a landlord or user to enter the property for inspections.
There are a number of ways that leases are used. Commercial and residential leasing are two of the most common areas for leases, particularly for farmers to lease land from landowners. Agreements may be for specific crops during certain years.
What is a Tenancy Agreement
A tenancy agreement generally follows a standard format which may be tailored to meet the specifications for either commercial properties or residential leases. Broadly speaking, the terms of a tenancy agreement cover the obligations required by both parties. For example, the obligation to keep the property in good condition and to pay rent on time. There is the option to allow pets on the property, as well as any limits or restrictions that may be imposed. With regard to length, it is common practice for tenancy agreements to be for a minimum period of 6 months to 1 year, with either party free to extend the tenancy period further should they wish to continue living in the property. Any break clause or termination period will be set out in the tenancy agreement. Tenancy agreements are more flexible than lease agreements, by virtue of their standardised nature. There are a great deal of tenancy agreements available online, reducing the need for expert assistance. Any proposed tenancy may even be based loosely upon these standard forms, where each party identifies which parts of the tenancy agreement are acceptable. This allows for a far easier negotiation process than a lease agreement, which is constructed entirely from scratch. Tenancy agreements may be preferable when looking at temporary accommodation for employees, or even a group of like-minded tenants.
Distinctions in the Law
The most significant legal differences in the two agreements are as follows: Tenancy agreements are governed by the rights of the tenant by virtue of the Rent Control Act. Leases are governed by the obligations of the parties under the contract. Tenancies can be ended without notice by virtue of the termination clause in the RTA if the landlord has a reasonable cause. However, the right to terminate the lease is strictly in accordance with the terms and conditions of the lease. Even where a lease does not contain a termination clause, the landlord must obtain a judgement from the court declaring the lease over before the landlord can take possession of the premises. Tenancy agreements are renewable automatically. Leases are not renewable automatically. In negotiation it is important for the landlord to determine whether the lease is renewable. If it is so, it will require negotiation between both parties and a decision whether a new lease is to be entered into or the lease is to be renewed on the same terms and conditions. The provisions of the RTA do not apply to leases. All leases must therefore be either registered under the Registration of Leases Act or executory as deed and under seal. Under tenancy agreements the payment of rent is determined by the Rent Control Board. Under leases the rent is determined by the parties to the lease. Any variation of lease must be reduced to writing. Under the RTA variation of tenancy agreements need not be reduced to writing.
Monetary Exclusive
From a financial perspective, there are significant differences which dictate how you as the property owner receive the that money and what your responsibilities may be.
Lease and Tenancy: Deposits
For the leasing arrangement you may require a deposit but this is not compulsory and you are free to set the amount of the deposit or whether you want a deposit at all. In contrast, with the tenancy arrangement there is a limit on the size of the deposit (commonly known as bond) which cannot be more than the value of four week’s rent. A deposit paid for a leasing arrangement may not have to be returned to the lessee in full. In contrast, upon termination of a tenancy agreement the bond must be returned unless the Tenant has not met their obligations under the Tenancy Agreement (in which case a claim can be made from the bond for the outstanding obligation) .
Lease and Tenancy: Regular Payments
The rent, fees or other monetary amount that a person pays for the opportunity to occupy premises under a Tenancy Agreement must be fixed for the term of the agreement (subject to outgoings or GST increase). In contrast, a tenant under a leasing agreement is generally responsible for increasing their rent payment every year.
Lease and Tenancy: Penalties and Additional Costs
Landlords should note that both arrangements can involve penalties and other costs. The penalties can in some cases be significant and remedial action can be taken to recover costs and expense liabilities of the party in default. However, with a tenancy there is no power to disconnect gas, water or electricity if the tenant does not pay these charges. Under a lease agreement, the lessor (landlord) is entitled to appoint an independent third party to enter tenanted premises and disconnect the service without notice.
Agility and Termination
Lease agreements generally offer more stability and security for both the landlord and tenant. Tenancy agreements, however, have a more limited duration, which makes them potentially advantageous for individuals or businesses with a more immediate need or temporary situation.
When a lease is signed, it is typically for a term of 1 year or longer and often includes an option for renewal over multiple terms. A tenancy agreement, on the other hand, usually includes a stated term of up to 6 months. If neither the tenant nor the landlord terminates the tenancy agreement by providing proper notice, the agreement becomes a month-to-month rental agreement.
Notice is typically 1 month prior to the end of the term. A landlord may terminate the tenancy agreement sooner if the tenant fails to uphold his/her obligations with respect to the agreement. A landlord is obliged to give the tenant reasonable notice and can only terminate the tenancy agreement in the event of the default of the tenant.
For example, the landlord may terminate the tenancy agreement if the tenant fails to pay rent due or fails not to maintain the property in accordance with the tenancy agreement. A landlord is entitled to issue a Notice of Termination. Even in exercising the right of termination, a landlord must adhere to the legally established notice period. The law suggests that if a tenant has resided in a home for a period not exceeding 2 years, the landlord must give 1 month notice of termination, two months of notice for 2 to 4 years, 3 months for a period of 4 to 6 years, 5 months when the tenant has been in a dwelling for 6 to 8 years and 6 months when a tenant has resided in a dwelling for over 8 years. Tenancy agreements also include a provision for inspection by the landlord at a reasonable time. Unless the tenant permits them, or unless there is an emergency, no landlord shall enter a rental unit without giving the tenant 24 hours’ notice in writing. A landlord may terminate a lease if the tenant has breached any conditions or terms of the lease. The process for removing a tenant under a lease agreement is not so straightforward. The notice period required depends on the type of rental unit and ending the agreement without notice is prohibited.
Picking the Right One
Determining which type of agreement is best for you will depend on several factors. If you are unsure how long you may stay in a given location, or you don’t know what your long-term plans are, opting for a tenancy agreement is typically more flexible and avoids legal issues that can arise when a tenant in either a lease or a tenancy needs to leave before the end of the agreed period. However, if you are usre of being in the same line of work for several years, and expect to earn a good income, (perhaps having started a new position and recently secured financial stability in your new job), then making the commitment to a lease is likely the better option. Once you have gained a steady income , it may be fairly straightforward to sub-lease a room to another person to reduce costs if required. Remember that no matter which agreement you are considering, it is sensible to take plenty of time to research the contract thoroughly beforehand so that you stay safe and protected legally, and get the most out of a potential agreement. Good tenants are not only desirable for landlords, they often have some power during a negotiation due to their status as a reliable choice. Once you have made a decision as to whether a tenancy agreement or lease is right for you, be sure to negotiate with the landlord to get terms that will protect you in case of an emergency, even if this involves requesting some flexibility in their demands.