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What Is a Lease?

Learn What a Real Estate Lease Involves


A lease is a contractually binding agreement between two or more parties. In real estate, this contract is usually between a landlord, or property owner, and a tenant, person who rents the property. The lessee (tenant) agrees to pay the lessor (landlord) for use of a tangible asset (apartment, or property) for an amount of time agreed upon in the lease terms.

Common Examples of Tangible Property That Can be Leased in Real Estate:

Common Examples of Tenants:

  • Individual looking to live in residential rental space
  • A retail store looking for space to operate their business
  • An office (doctor/business) looking for a space for their practice
  • Another landlord leasing land to use as parking space for his tenants
  • A company leasing advertising space on a building
  • A company leasing land to put up a cell phone tower

What Is the Purpose of a Lease?

A lease is meant to protect both the lessor and the lessee. It defines the length of the agreement, as well as the terms and conditions that both parties must abide by. If the lessor or the lessee breaks the terms of the lease, the lease is no longer binding and the offending party may be subject to legal action and financial penalty for breach of contract.

What Is the Difference Between a Lease and a Rental Agreement?

The two terms have been used interchangeably over the years, but they are not actually the same thing. A lease is an agreement over a set term. A common lease term is for one year. Some may be as short as six months, others as long as five years.

Unless both parties agree to alter the contract, the terms of the lease cannot be changed until the lease expires. In addition, when a lease expires, the lease does not automatically renew. After expiration, the lease term will either become month to month, or you will have to get the tenant to sign a new lease.

A rental agreement is a much shorter contract. It is typically a 30 day agreement. A rental agreement automatically renews at the end of the term unless either party cancels the contract in writing. The terms of the rental agreement may be altered by either party by providing written notice of the change. In many states, this notice must be given 30 days before any change will be made.

Who Should Sign the Lease?

The lease should be signed by the landlord or the landlord’s agent, as well as by all tenants over the age of 18 who will be living in the rental. It is very important that all parties living in the rental sign the lease. Here is an example of why it is so important.

A husband and wife move into your property. A one year lease is signed. However, only the husband puts his name on the lease. He is therefore the only one responsible for paying the rent. One month after the couple moves in, the husband passes away. Because the wife never signed the lease, she is not obligated to abide by the terms of it.

Should I Have a Lawyer Create the Lease?

There are numerous lease forms available online. Many are a good starting point, but you should never rely blindly on them. Each state has specific laws for everything from fair housing to security deposits that need to be followed exactly.

You should have a real estate attorney go over your existing lease or help you to prepare a new one. It is very important that your lease is thorough and legally accurate so you are protected from misunderstandings. You will also want to protect yourself from ‘professional tenants’ who prey on unsuspecting landlords and try to take advantage of holes in your lease.

How Many Pages Should a Lease Be?

Leases can be anywhere from one page to twenty pages, depending on the amount of information covered. The more in depth your lease is, the better protected you are; however, do not confuse a long lease with a good lease.

There are certain basics that every lease should include, there will be sections that are only required in some states and then there are clauses which some landlords see as essential while others will omit. You should consult with your real estate attorney and use your own prior experience when constructing your lease. As your landlord career grows and your experience grows, your lease will undoubtedly grow with you so that you are protected from new threats that were previously overlooked.

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