How Does a Lease Work?

A lease or leasehold is the right to possess real property temporarily. In addition to naming the parties involved in the lease (the landlord and the tenant), a lease must at a minimum define the length of the rental agreement (the tenancy), describe the real property that is being rented, and list the price of the rental.

A good lease agreement anticipates how to resolve disputes that may arise and considers whether disagreements can be resolved in arbitration or litigation. Most leases also contain several other conditions. Common terms include:

• the requirement of a security deposit, or funds held to secure the lease or pay for damages, at the start of the rental agreement
• conditions that must be satisfied for the deposit to be returned at the end of the rental period
• a schedule and amount for when the rental fee must be paid from the tenant to the landlord
• provisions for late fees

A lease will spell out who must maintain and repair the property when problems arise, usually with great specificity regarding the duties of each side in the agreement. For example, it may be common for the tenant in a rental property to cut the grass and pay their individual utility bills. However, the landlord would be responsible for major repairs, such as a leaky roof. The landlord would also be in charge of paying the property taxes on the residential rental property.

Several types of tenancy agreements exist. A tenancy can be for a one-time, fixed length, such as three months or one year. A periodic tenancy is for a period of time that automatically continues unless the landlord or tenant notifies the other side of termination of the agreement. A typical example of a periodic tenancy is when a tenant is living in a residential apartment on a month-to-month lease.

A tenancy can also not have a fixed duration and instead be able to be terminated by either side at any time for any reason. This is common when a tenant is doing something like renting a hotel room. While there may be an anticipated check-in and check-out date, usually a hotel will allow a tenant to continue to rent a room for as long as the person is willing to pay the rental fee and the room is available.