Lease Agreement

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A lease agreement is an arrangement, made between two parties, that allows one of those parties to use an asset belonging to the owner. Typically, lease agreements are used for rental properties, but they are also used for rentals of vehicles, household appliances, construction equipment, and other items. A lease agreement is a legal contract designed to protect both the person leasing the asset (“lessee”) and the owner of the asset (“lessor”). To explore this concept, consider the following lease agreement definition.

Definition of Lease Agreement

Noun

  1. A legal contract specifying the terms under which one party agrees to rent property from another party for a specified period of time.

What is a Lease Agreement

A lease agreement is a legal contract used when a party conveys land or personal property to another party for a specific amount of time in return for payment. The lease agreement outlines all of the aspects of the lease arrangement so that each party understands his rights and obligations under the lease. Formal lease agreements are legally binding on both parties, and breach of the agreement, or failure to uphold the provisions of the agreement, has legal consequences.

A good example of lease agreement terms pertains to rental property. When John leases a house from David, he signs a lease agreement that specifies the location of the home, the monthly payment amount, the duration of the lease, and any other requirements of the parties, such as a ban on pets. The lease is legally binding, so if John moves out early, he may be held liable to pay for the entire length of the lease, even though he was no longer living there.

Terms commonly included in a lease agreement:

  • Duration – How long the lease agreement is in effect.
  • Rent – The amount of rent that will be paid to the owner each month, and the consequences for failing to pay the agreed upon amount by the due date.
  • Deposits – The amount of any deposits required, and the purpose of each deposit, and conditions for return of any deposit at the end of the lease.
  • Occupancy – The maximum number of occupants permitted in the building. When referring to a car, it may list the people allowed to drive it.
  • Terms of Use – The purpose for which the property is to be used, and other issues, such as illegal acts committed on the property, or with the item leased.
  • Utilities – Which utilities are included in the rent, and which utilities the tenant is responsible for.
  • Insurance – Whether the lessee is required to maintain insurance on the property. This is most often used in commercial rental agreements.
  • Repairs and Maintenance – Who is responsible for repairs and maintenance to the property.

Rental Agreement

A rental agreement is similar to a lease agreement, but only provides for use of the property for a short period of time. Where a lease agreement for real property, such as a home, is commonly signed for a period of six months to one year or more, a rental agreement is usually only valid for 30 days. At the end of the rental period, the rental agreement automatically renews for the next period. This is known as a month-to-month tenancy. The terms of a lease agreement remain valid for the entire term, but the terms of a rental agreement can be changed by either party with sufficient notice.

Residential Lease Agreement

A residential lease agreement is a contract made between a landlord and a tenant for a certain period of time. This agreement allows the tenant to reside at, or use the property for the duration of the lease in exchange for rental payments. Many residential leases are valid for one or more years, though many landlords are more flexible, allowing tenants to enter residential lease agreements for periods of six, or even three months. A residential lease often requires the tenant to live on the property. Other common provisions include:

  • Specifying how many people can live at the residence, and often names the people specifically
  • Prohibiting the residence from being sub-leased
  • Prohibiting the residence from being used for business purposes
  • Prohibiting pets in the residence
  • Prohibiting illegal activity on the property
  • Prohibiting the tenant from disturbing the peace of other tenants (in a multi-tenant property)

If the tenant fails to abide by the terms of his residential lease agreement, the landlord can legally end the lease and evict the tenant. If this occurs, the tenant can be ordered to pay the remaining months on the lease, as well as an additional amount for breaching the lease. If the lease ends under normal circumstances, the tenant must notify the landlord ahead of time of his intent to move out. If he fails to do so, the monthly payments may be automatically renewed on a month-to-month basis, as the landlord cannot simply lease the residence to a new tenant before the old tenant leaves.

Commercial Lease Agreement

A commercial lease agreement is a contract made between a property owner and a business. The commercial lease allows businesses to use rental property, rather than buying property. This has a number of advantages for a variety of business types, the primary of which is a lower amount of cash needed to get started.

Commercial lease agreements are more in depth and complex than residential leases, and terms vary greatly, depending on the needs of both the business and the property owner. Common terms of a commercial lease as compared to a residential lease:

  • Fewer consumer protection laws apply to commercial leases
  • Commercial leases are more negotiable, and the terms are often subject to change, in terms of allowable improvements to the property, and rent increases
  • Commercial leases are often for terms greater than five years

Before entering into a commercial lease agreement, the business must ensure the property meets its needs This includes being certain that the location of the property meets the zoning requirements needed to operate a business.

Lease Agreement Form

A pre-printed lease agreement form, commonly available in office supply stores, is usually well-suited to residential leases. These forms are basic in nature, allowing a great deal of information to be filled in by the parties to the lease themselves. Even a ready-made lease is a legal contract, so it is important that the parties read carefully to make sure the provisions suit their needs.

Any lease agreement form should include certain information, some of which is required by law, to be enforceable. These laws vary by state. The minimum information that should be included on a lease agreement form includes:

  • Address of the property, and general description of the property type
  • Name, address, and phone number of the landlord
  • Name and phone number of the tenant(s)
  • Date the lease takes effect
  • Term of the lease (number of months or years)
  • Amount of deposit(s) required, their purposes, and under what circumstances they will be returned
  • Amount of monthly payments
  • Payment schedule and terms regarding late payments
  • Furnishings and/or appliances that are included
  • Subletting provisions
  • Terms regarding pets
  • Consequences for breaching the lease

Breach of a Lease Agreement

When a tenant is in breach of a lease agreement, the landlord can legally terminate the lease. The most common breach of a lease agreement occurs when a tenant fails to pay rent in a timely manner, though failure to adhere to other provisions of the lease also constitute a breach. Many landlords are willing to work through a variety of problems when it comes to tenants not fulfilling their leases, as this is often less expensive than evicting the tenant and going through the process of obtaining a new tenant. Even when a landlord makes such allowances, or attempts at working out issues, he retains the right to evict the tenant who has breached the lease.

When a lease has been breached by a tenant, the landlord must follow certain steps required by state law to evict the tenant. The first step is giving the tenant written notice specifying how the tenant can cure the breach, if relevant, and the amount of time he is allowed to do so before eviction proceedings will be started. At the end of that time period, if the lease has not been cured, the landlord may file legal eviction proceedings with the local court.

If a tenant believes his landlord is in breach of a lease agreement, he should communicate with the landlord in an attempt to remedy the situation. It is a good idea to communicate in writing to document the situation in case it becomes necessary to take the matter to court. A tenant has the right to file a civil lawsuit against a landlord in breach of their lease.

Example of lease agreement breach:

Lana has a one-year lease on the apartment where she has lived for five months. When her stove, included in the lease, stops working properly, Lana contacts the landlord, asking that it be repaired. The landlord sent a repairman out several days later, though the repairman said the stove simply needs to be replaced, and that he would notify the landlord. Several more days passed with no word from the landlord, despite Lana’s attempts to contact him by phone and text.

Lana, who has been unable to prepare meals for the past two weeks without a stove, decides to move out. She leaves a voicemail message, and sends a text message to her landlord giving him two days notice that she is moving, and asking for her security deposit to be returned. When the landlord refuses to return Lana’s security deposit, which was twice the amount of her monthly rent, Lana files a lawsuit in small claims court.

At the trial, the landlord claims Lana breached the lease, moving out prior to its termination date, and not giving the required 30 days notice prior to moving out. He asks the court to order Lana to pay the remaining seven months rent he is owed on the lease. Because the stove was included on the lease, the landlord is responsible to ensure it remains in working order or replaced.

As this is important to Lana’s ability to live comfortable in her home, and the landlord failed to fix the problem, or even to communicate with Lana once he discovered it would need to be replaced, it is the landlord who breached this lease. Lana has the right to move to a new home, and likely will be found to be entitled to receive a return of her security deposit.

Example of Breach of Lease Agreement Lawsuit

In May 2012, Amiteria Antunez, a tenant under the City of Los Angeles’ Rent Stabilization Ordinance (“LARSO”) program, was served a 3-day notice to pay rent or quit, as well as a 3-day notice to perform covenants or quit. This notice required Amiteria to pay past due rent, and demanded that she obtain renters’ insurance as required by a provision of her lease.

When Amiteria failed to purchase the insurance policy within the 3-day limit, the landlord, NIVO 1 LLC, filed eviction proceedings against her. The landlord’s complaint said Amiteria was in violation of paragraph 17 of her lease agreement, which read:

“INSURANCE: TENANT must maintain a personal property insurance policy to cover any losses sustained to Tenant’s personal property or vehicle.

“It is acknowledged that LANDLORD does not maintain this insurance to cover personal property damage or loss caused by fire, theft, rain, water overflow/leakage, acts of GOD, and/or any other causes. TENANT’S failure to maintain said policy shall be a complete waiver of TENANT’S right to seek damages against LANDLORD.”

Amiteria testified at the trial that she had never purchased renter’s insurance since she moved into the premises fourteen years earlier, in 1998. The trial court decided that failure to obtain insurance was not a material breach, and therefore could not lead to a forfeiture of the lease.

The landlord appealed the decision. The appellate court ruled that the determination of whether a breach of lease agreement is so material that the injured party had cause to terminate the contract is in the hands of the trial court. The trial court in this case deemed Amiteria’s failure to maintain insurance covering her own belongings was a “trivial breach,” because it clearly was meant to benefit her, not the landlord. The appellate court upheld the trial court’s ruling on the matter, in favor of the tenant.

This has become an important decision in classifying which provisions of a lease agreement, if not uphold, would be deemed a “material” breach. A material breach of any contract is a breach of some provision that is so central to the heart of the contract itself that the agreement would be irreparably broken.

Related Legal Terms and Issues

  • Binding – Acting with the intent of deceiving or misleading another for the purpose of gaining some advantage.
  • Civil lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
  • Contract – An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.
  • Damages – A monetary award in compensation for a financial loss, loss of or damage to personal or real property, or an injury.
  • Defendant – A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.
  • Material Breach – Failure to perform some provision of a contract that the structure or purpose of the contract is rendered useless or ineffective.
  • Remedy – The enforcement of a right, or imposition of a penalty by a court of law.