Define: Rental Agreement

A rental agreement, also known as a lease agreement or tenancy agreement, is a legally binding contract between a landlord and a tenant that outlines the terms and conditions governing the rental of a property. It sets forth the rights and responsibilities of both parties during the tenancy, including the duration of the lease, the amount of rent, payment due dates, security deposit requirements, rules regarding use and maintenance of the property, and procedures for resolving disputes or terminating the lease. Rental agreements can vary in complexity and detail depending on the jurisdiction, type of property, and specific terms negotiated between the landlord and tenant. They may be written or verbal, although written agreements are generally recommended to avoid misunderstandings and provide clarity on important terms. Rental agreements serve to protect the interests of both landlords and tenants and provide a legal framework for the rental relationship.

A rental agreement is a contract, usually written, between the owner of a property and a renter who desires to have temporary possession of the property. As a minimum, the agreement identifies the parties, the property, the term of the rental, and the amount of rent for the term. The owner of the property may be referred to as the lessor and the renter as the lessee.

Car Rental

In addition to the above, a car rental agreement may include various restrictions on the way a renter can use a car and the condition in which it must be returned. For example, some rentals cannot be driven off-road, out of the country, or towing a trailer without specific permission. In New Zealand, you may have to specifically endorse a promise that the car will not be driven onto Ninety-mile Beach (because of the hazardous tides).

There will certainly be a requirement to show a driver’s licence, and only those drivers appearing on the contract may be authorised to drive. It may include an option to purchase auto insurance (motor insurance, UK) if the renter does not already have a policy to cover rentals—another important consideration for multiple drivers. Some agencies may even require a surety bond payable if the car is not returned in order, often held in the form of a credit-card authorization, which is voided if the car is returned per agreement. A renter should be advised that he or she will be responsible for any parking or traffic violations incurred upon the vehicle during the rental period. There should also be advice on handling thefts, accidents, break-downs, and towing.

Further terms may include added fees for late returns, drop-off at a different location, or failure to top up the petrol immediately before the return.

Finally, there may be provisions for making a non-refundable deposit with a booking, terms for payment of the initial period (with discounts, vouchers, etc), extended periods, and any damages or other fees that accrue prior to the return.

Real Estate Rental

A rental agreement is often called a lease, especially when real estate is rented. In addition to the basics of a rental (who, what, when, and how much), a real estate rental may go into much more detail on these and other issues. The real estate may be rented for housing, parking a vehicle(s), storage, business, agricultural, institutional, or government use, or other reasons.

• Who: The parties involved in the contract—the lessor (sometimes called the owner or landlord) and the lessee (sometimes called the renter or tenant)—are identified in the contract. A housing lease may specify whether the renter is living alone or with family, children, a roommate, visitors. A rental may delineate the rights and obligations of each of these. For example, a “sub-let” to a stranger might not be permitted without the permission of the landlord. This also applies to whether or not pets may be kept by the renter. On the other hand, the renter may also have specific rights against intrusions by the landlord (or other tenants), except under emergency circumstances. A renter is in possession of the property, and a landlord would be trespassing upon the renter’s rights if entry is made without proper notice and authority (e.g., 24 hours’ notice, daytime, knock first, except for emergency repairs in case of fire, flood, etc).
• What: Rented real estate may include all or part of almost any real property, such as an apartment, house, building, business office(s) or suite, land, farm, or merely an inside or outside space to park a vehicle or store things. The premises rented may include not only specific rooms but also access to other common areas such as off-street parking, basement or attic storage, laundry facility, pools, roof- decks, balconies, etc. The agreement may specify how and when these places may be used and by whom. There may be a detailed description of the current condition of the premises for comparison with the condition at the time the premises are surrendered.
• When: the term of the rental may be for a night (e.g., a hotel room), weeks, months, or years. There may be statutory provisions requiring registration of any rental that could extend for more than a specified number of years (e.g., seven) in order to be enforceable against a new landlord.

A typical rental is either annual or month-to-month, and the amount of rent may be different for long-term renters (because of lower turnover costs). Leaving a long-term lease before its expiration could result in penalties or even the cost of the entire agreed-upon period (if the landlord is unable to find a suitable replacement tenant after diligent pursuit). If a tenant stays beyond the end of a lease for a term of years (one or more), then the parties may agree that the lease will be automatically renewed, or it may simply convert to a tenancy at will (month-to-month) at the pro-rated monthly cost of the previous annual lease. If a tenant, at will, is given notice to quit the premises and refuses to do so, the landlord then begins eviction proceedings. In many places, it is completely illegal to change locks on doors or remove personal belongings, let alone forcibly eject a person, without a court order of eviction. There may be strict rules of procedure and stiff penalties (triple damages plus attorneys’ fees) for violations.

• How much: Rent may be payable monthly, annually, in advance, or as otherwise agreed. A typical arrangement for tenancy at will is “first and last month’s rent” plus a security deposit. The “last month’s rent” is rent that has yet to be earned by the landlord.

Deposit

The security deposit is often handled as an escrow deposit, owned by the tenant but held by the landlord until the premises are surrendered in good condition (ordinary wear and tear excepted). In some states, the landlord must provide the tenant with the name and account number of the bank where the security deposit is held and pay annual interest to the tenant. Other regulations may require the landlord to submit a list of pre-existing damage to the property or forfeit the security deposit immediately (because there is no way to determine whether a prior tenant was responsible).

Insurance

In order to rent or lease in many apartment buildings, a renter (also referred to as a “lessee”) is often required to provide proof of renter’s insurance before signing the rental agreement. There is a special type of homeowner’s insurance in the United States specifically for renters called HO-4. This is commonly referred to as renter’s insurance or renter’s coverage. Similar to condominium coverage, referred to as a HO-6 policy, a renter’s insurance policy covers those aspects of the apartment and its contents not specifically covered in the blanket policy written for the complex. This policy can also cover liabilities arising from accidents and intentional injuries for guests as well as passers-by up to 150′ of the domicile. Renter’s policies provide “named peril” coverage, meaning the policy states specifically what you are insured against. Common coverage areas are:

• Fire or lightning
• Windstorm
• Smoke
• Vandalism or Malicious Mischief
• Theft
• Accidental Discharge of Water

Additional events, including riot, aircraft, explosions, smoke, hail, falling objects, volcanic eruptions, snow, sleet, and weight of ice, may also be covered.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 9th April, 2024.