What Does it Mean to Lease a Home?

Leasing a home can be a preferred alternative to buying.

When you lease a home, you sign a rental agreement to live there. An executed lease is a legal document that includes your information, the property owner's information, rental terms and signatures. Leases are typically for 12 months. They generally require up-front deposit money for security and sometimes payment for the final month.

Leasing Versus Renting

The main difference between a lease and a simple rental agreement is the duration of the contract. Typically, rental agreements are for shorter periods (often month-to-month.) The contract automatically renews at the end of each month unless the tenant or landlord gives notice to end it. A lease agreement is typically for a longer time. It benefits the tenant because the landlord cannot raise the rent or change any terms in the agreement until the lease expires. Rental agreements can change and are suitable for students or individuals who do not want themselves locked into a long-term agreement.

Security Deposits

Every state allows landlords to collect security deposits as a condition of the lease when tenants move in. Many states limit the amount landlords can charge for a security deposit, which typically equals one month's rent. In some states, the property owner must place the deposit into an escrow account that accumulates interest. A security covers any damage or unpaid rent that remains when a tenant moves out. They do not cover normal wear-and-tear needs like repainting a unit or carpet cleaning, unless the tenant has caused damage. Tenants who move into a leased home should take photos and document any pre-existing damage for protection against a landlord who tries to keep the deposit for the wrong reasons.

Common Lease Terms

A lease agreement typically contains terms that make it clear who is responsible for certain home expenses. For instance, many landlords include utilities with the lease payment. Tenants looking for home leases should be clear about whether they are responsible for upkeep of the home, repairs, landscaping, snow removal or any other situation that may arise. It's also common for a lease to include payment terms and fees for items like late payments or returned checks. Leases also contain policies regarding pets and rules for having guests.

Red Flags

Because it's a long-term contract, prospective tenants should be wary of signing a lease that includes unfavorable terms. If a lease has a "future rules of landlord" clause, it might cause serious problems at some point if the landlord decides to enforce additional restrictions not discussed at the lease signing. Tenants should also work to have any "automatic rent increase" clauses removed before signing a lease. And for the tenant's safety, remove any clause that gives a landlord "unrestricted access" to the home.