Lease vs rent is an often-debated topic in Tenancy. In fact, both words rent, and lease are used interchangeably to denote a tenancy agreement between a tenant and a landlord. Similar in some respects, the duration, and terms of reference, and tenancy conditions vary in both lease vs rent. The tenancy can be created both by a lease agreement and a rent agreement. In general, a lease agreement is for a longer period than a rent agreement. Let us explore the matter (lease vs rent) in finer details.
Lease vs Rent (lease vs rent definition)
Both lease and rent are types of tenancy. However, there exists a slew of differences between the two (Lease vs Rent).
Lease vs Rent: Key differences between lease and Rent (Lease vs Rent)
Basis of Difference
The lease is entering into a contract with a lessee to allow him to use the property concerned for a long time.
Rent is entering into a contract with a tenant for the use of an asset/property for affixed period
Usually, the lease agreement is for a long term.
The rent agreement is shorter than the lease arrangement.
Lessor and Lessee
Tenant and Landlord
According to lease agreement (Usually Lessee)
The lease agreement cannot be modified until the lease ends
It can be modified by the landlord
Remains with the lessor
Landlord remains the owner
Becomes null and void if unregistered (For leases more than or equal to 12 months)
Remains legally valid despite non-registration
Difference between Lease and Rent (Lease vs Rent)
What is a lease?
A lease is a form of contract between a property owner and a tenant. The lease agreement outlines the terms under which the property owner consents to allow the use of the property by the tenant in lieu of a certain sum every month. In legal terms, the owner is referred to as a lessee, and a tenant is denoted as lessor. The lease agreement is generally for a longer duration, i. e., more than 11 months.
If the conditions and agreed terms are not upheld by the lessor or lessee, they will have to bear the consequences.
Legally speaking, Section105 of the Transfer of Property Act, 1882 defines the lease agreement as “A lease of immovable property can be defined as a transfer/handover of a right to enjoy/use such property, for a certain time, express or implied, or in perpetuity, in exchange of a promised money, to be given periodically or on specific occasions to the owner by the tenant, who accepts the transfer on such terms.”
Contents of a Lease Agreement
The lease agreement outlines the obligations and responsibilities of the landlord and the tenant. The agreement clearly spells out the length of the lease, the monthly rent agreed upon, and clearly enumerates the responsibilities for the upkeep of the property in question. It must be noted that the terms and conditions of the lease agreement can be changed before it is signed and if the lessor does not understand the conditions.
In addition to this, the lease must have the following elements-
Competent Parties– The parties involved in the lease agreement must be competent, physically, and mentally, to understand and comprehend the terms and conditions of the lease agreement.
Absolute Title– The Lessor (the original owner) must have absolute Title and ‘Encumbrance Free’ authority over the property to be leased. Any discrepancies in the Title documents can pose legal disputes and hassles for all the parties involved.
Acceptance– The lessee, or the person who is taking the property on lease, must accept the terms and conditions of the lease, at his/her own free will or without coercion or intimidation.
Time Period– A lease is generally entered into for a long duration, the lease document must clearly mention the term of lease. It can be relaxed at the will of the owner/lessor.
Termination of Lease Agreement
The lease agreement mentions the conditions and circumstances in which the lease agreement can be revoked and annulled.
Transfer of Property Act (TPA) (Section 105) defines a “lease” in a clearer manner and spells out some conditions in which a lease can be terminated. The Act recognizes certain unforeseen circumstances/conditions as a justified ground for lease termination. Section 108(B)(e) says that three criteria must be satisfied before a process to terminate a lease can be initiated:
1. The existence of an ‘irresistible force.’
2. If the property becomes significantly and permanently unfit for the use for which it was leased.
3. The lessor (original owner) must be informed of the lessee’s decision to render the lease deed void.
In contrast (lease vs rent), the rent agreement can be terminated at any given time, by informing the tenant about the same.
Lease- More common in commercial dealings (lease vs rent)
Disadvantages of a Lease Agreement
Though beneficial for commercial purposes and business ventures, lease agreement has some disadvantages-
Less Flexible– The arrangement of lease is preferred by the individuals thinking from a long to very long-term perspective. Once executed on paper, the lease terms are hard to change, and modifications are rarely done. For example, even if the rental rates in an area falls, you have to pay the rent agreed upon in the lease agreement.
Tough to Relocate– If a business owner decides to shift base to another place, the lease agreement can be an obstacle as it is generally done for the long term. However, an arrangement called ‘Subletting’ (Letting the premise to a third party) can become a saviour in this case if the owner grants permission.
Consequences of breaking lease terms– The lease agreement is a long-term contract. If the lease terms are broken or the amount decided is not paid, it might have serious legal consequences, including jail terms and penalties.
What is a rent agreement?
A rent agreement is a document that defines the terms on which a landlord is ready to give the property to the tenant for a specified period. A rent agreement is a contract or agreement between a tenant or a landlord which specifies the conditions of tenancy, such as
Fixed rent amount
Duration of stay
Rent revision timeline
Parking Charges (if any)
Grounds of eviction
As a rent agreement is for a relatively shorter period, it is made for a period of 11 months in India (lease vs rent India). As the Rent Control Acts of different states of India covered lease agreements of more than or up to 12 months (and not rent agreements), the landlords take a pre-emptive measure and rent agreements for 11 months only.
However, it must be noted that the Union Government of India has approved the Model Tenancy Act in June 2021. This Act is open to all the states of India for modification and adoption. It is expected that once the Model Act is adopted by the States, the rental agreements will be well covered under this.
Benefits of a rent agreement (lease vs rent)
A rent agreement is a key document which is beneficial for both the tenant and the landlord. Some of the key advantages of a rent agreement are
Avoids conflicts– A clearly drafted rent agreement between a tenant and a landlord avoids conflict and serves as a guiding light in case of any dispute.
Act as an address proof– The rent agreement is an important document for the tenants. In the absence of a valid address proof away from home, the rent agreement works as a valid address proof.
Acts as a proof for bank loans– While a person has rented a place, the temporary address is the address of the rented premise. While applying for a home loan or a personal loan, the rent agreement serves as a valid document of residence.
Damages and repairs– As the rent agreement clearly defines the share of expenses incurred on repairs and renovation, the rent agreement saves the tenant from unnecessary expenses and financial burden.
Benefits of rent agreement registration
The registration of rent agreement of 12 months or more is compulsory under the Registration Act 1908. However, if the rent agreement is for less than 12 months, the registration is optional. Here are the key benefits of a rent agreement registration.
A registered rent agreement clearly defines the ownership rights of the landlord.
The claim of the property owner over the property is strengthened.
A registered rent agreement safeguards the owner’s rights and interests in case of a dispute
The tenant also gets benefitted as he can be assured of the terms and conditions for the agreed period.
Conclusively, lease vs rent is a case of suitability and ease of the parties involved. If the property concerned is to be utilised for long term, it is taken on lease. On the other hand, if the property will be used for residential purposes, the property is rented (Lease vs rent). While lease is a complex procedure involving legal paperwork, renting a property is easier and straightforward (lease vs rent).