Difference Between Lease and Rent : Which is best Option for you?
Many people confuse leasing and renting and consider them interchangeable. But they are not the same; there is a subtle difference between them. To understand both terms, you must first know the difference between a lease and rent.
A rent agreement is a contract between a landlord and tenant that allows the tenant to use the landlord’s property, such as land or a flat, for a short duration. Besides that, the tenant pays a fee to the landlord in exchange for this use.
On the other hand, a lease agreement is a contract between two parties where one party permits the other to use an immovable asset, like a property, for a specified period. While leasing and renting may appear to be the same thing, they are not. The legal procedures and terms associated with each are distinct.
Although both a lease and a rent agreement create a tenancy, the duration of the tenancy and the payment structure differ significantly. So, it is critical to comprehend the specifics of these terms in order to fully comprehend their differences.
Check out Difference Between Lease and Rent
Leasing is a contractual arrangement where the owner of an asset, known as the lessor, grants possession and conditional ownership of the property to the lessee for a specific period. In exchange, the lessee agrees to make the agreed-upon periodic payments.
Renting, on the other hand, is a contract under which the owner or landlord transfers possession of the property to the tenant. In a rental agreement, the ownership of the property remains with the landlord. It is important to remember that maintenance is the responsibility of the owner or landlord in renting, whereas it is the lessee’s responsibility in leasing.
Here are some key difference between lease and rent that you should understand before property investment.
| BASIS | LEASE | RENT |
|---|---|---|
| Meaning | Here, the lessor gives possession of his property to the lessee | Here, the landlord allows the tenant to use his property for a definite period of time |
| Accounting Standard | AS - 19 | No specific AS |
| Duration | Longer Duration | Shorter Duration |
| Parties | Lease Rentals | Rent |
| Repairs and Maintenance | It depends on the agreement | Landlord |
| Modifications | The lessee has the option to purchase the property at the end in exchange for the pending amount | Modification is possible |
| Offer to buy | Agreements are non-modifiable | There is no such offer |
How does a Rental Contract become a Lease Contract?
According to Section 105 of the Transfer of Property Act of 1882, lease defines as the transfer of rights to the lessee for a specific period of time against a mutually agreed-upon price. Although there is a minute difference between lease and rent agreement, there are still some cases in which a rent agreement can be qualified as a lease agreement.
The process of transferring possession of a property from a landlord to a tenant. In this arrangement, the landlord agrees to transfer conditional possession of the property to the tenant for a specific period, usually more than 3 years. In return, the landlord receives a monthly rent from the tenant.
Typically, a rent agreement gets signed for an 11-month duration, and after its expiration, the landlord and tenant may choose to renew it. It’s important to consider that a lease is always stamped and registered, whereas a rent agreement is not necessarily registered. Also, lease agreements are more difficult to end.
The difference between lease and rent needs more of a legal explanation than a layman’s description. Let us know the advantages of each one of them for better understanding.
Advantages of Rent Agreement Over a Lease Agreement
For landlords: A lease agreement transfers ownership of the property for a specific period, during which the actual owner does not have possession. In contrast, a rent agreement allows the landlord to maintain full control over the property. Rent agreements are simple to modify or even terminate, whereas lease agreements are difficult, if not impossible, to terminate.
For tenants: Unlike lease agreements, a month-long notice period is not typically required for vacating the property when it comes to rent agreements. Rent agreements are generally for shorter durations compared to lease agreements.
The Benefits of a Lease Agreement Over a Rent Agreement
For Landlords: There will be no maintenance issues because the lessee will handle it. In addition, the time period of the agreement will also be pre-defined.
For Tenants: A lease agreement offers greater stability as the landlord cannot evict the tenant from the property before the pre-defined period has ended. Additionally, lease agreements do not typically include annual rent increments, meaning that the expenses for the occupier remain the same throughout the lease tenure.
What is a Leave and a License Agreement?
Section 52 of the Indian Easement Act of 1882 defines a leave and license agreement as “the right granted to the tenant to use a property subject to certain terms and conditions, while the property remains in the possession or ownership of the landlord.” The license allows the tenant to use the property.
We hope you got clarification about the confusion between a lease or a rental agreement. The topic of difference between lease and rent can seem easy, but many get confused and use them interchangeably. And it is not that simple, either. For more such latest developments in real estate, you can follow 99Pillars.
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