What is the Difference Between Lease and Rent

The main difference between lease and rent is that lease is a contractual agreement where the lessee pays the lessor a fixed periodical return for the use of an asset, whereas rent is an agreement where a short term recurring payment is made in intervals for the temporary use of a property, good or service owned by the proprietor.

We frequently use the terms lease and rent interchangeably, thinking that they may mean almost the same. But, in the world of real estate, they are not.

Key Areas Covered

1. What is Lease
   – Definition, Features
2. What is Rent
     – Definition, Features
3. Similarities Between Lease and Rent
     – Outline of Common Characteristics
4. Difference Between Lease and Rent
    – Comparison of Key Differences

Key Terms

Lease, Rent

What is Lease

Lease is an arrangement between two parties, allowing one to utilize a property owned by the other within a particular period and for a fixed payment. In lease agreements, the lessor refers to the owner of the property who lets his or her assets.  And, the lessee refers to the one who holds the lease of a property. A lease agreement includes the specific time frame on how long a lessee would utilize a certain property or an asset. Upon the expiry date of the contract, the agreement will automatically shift to a month-to-month rental agreement. This is unless the lessor and lessee decide to enter a new lease agreement.

Since a lease agreement has fixed terms, neither party can implement amendments in the agreement until the end of the contract. Additionally, in a scenario where the lessor or the lessee violates the lease agreement, it is possible to incur penalties against both parties.

What is Rent

Rent is a short-term agreement between the landlord and the tenant where the landlord is the proprietor while the tenant is the one who uses and pays for a property. Generally, a rental contract only lasts a month and renews automatically after every payment period.

When we compare rent and lease, rent has a more flexible and dynamic agreement. The landlord can raise the rental fee and modify the agreement, but with prior notice to the tenant.

Similarities Between Lease and Rent

1. Lease and rent are related to an asset that is owned by another individual or a firm.
2. The nomenclature in lease and rent agreement, especially the way we refer to the two parties: Lessor and Lessee, Landlord and Tenant only varies in terms but have the same contextual meaning.
3. A security deposit is common in both leasing and renting agreements.
4. Maintenance is a common factor in both lease and rent. Preserving the asset and maintaining the property is a responsibility that lies in the hands of both the lessee and the tenant.

Difference Between Lease and Rent

Definition

Lease is an agreement where the lessee pays the lessor a fixed periodical return for the use of an asset, while rent is an agreement where a short-term recurring payment is made in intervals for the temporary use of a good, service, or property owned by the property owner.

Time Frame

Lease is usually a long-term agreement, while rent is short-term.

Contract Alteration

Any alternations are not allowed within a lease agreement, whereas alternations are possible within rental agreements.

Payment Agreement

The lease has more defined and fixed terms of payment compared to a rental agreement which is periodic and can be modified.

Contract Renewal

Once a lease expires, if both parties wish to extend the terms for another period, they can create a new lease contract. However, for rent, the contract automatically renews until both the landlord and tenant decide to end the contract.

Purchase Option

When the lease contract expires, the lessee has the option to either renew the contract or purchase it for a value significantly less than its worth. There is no such offer for rent. Once the rent contract is over, the only option the tenant has is to either renew the contract or return the asset to its owner.

Conclusion

In brief, the main difference between lease and rent is that a lease is a usually fixed periodical return made by a tenant or occupant of property to the proprietor for possession and usage. But, rent is a payment made in intervals by a person for using an asset or property owned by another person. There exists a thin line between lease and rent. For those who are planning on hiring a property, good, or service, it’s important to understand the context of lease and rent before signing a contract.

Reference: 

1. Chen, James. “Lease Definition.” Investopedia, 19 May 2021.
2. “Residential Rental Agreements.” Consumer Affairs Victoria, 6 May 2021.

Image Courtesy:

1. “Residential Lease Agreement with Pen” (CC BY 2.0) via Rental Realities
2. “For Rent” By Kurayba (CC BY-SA 2.0) via Flickr