A rental agreement signifies a short-term arrangement between a landlord and tenant, wherein the tenant pays for the right to utilize the property, such as land or a flat owned by the landlord. Conversely, a lease agreement is a contract between two parties wherein one grants the other the use of an immovable asset for a defined period. Although leasing and renting are often conflated, they represent distinct contractual agreements.
Leasing and renting a property are not synonymous. When comparing the legal procedures involved in the two, distinct arrangements for tenancy emerge. While both leasing and renting create a form of tenancy through agreements, differences become apparent in the duration of the tenancy and the payment terms. Let's delve into the nuanced aspects of these two separate documents.
Leasing vs renting
Leasing involves a contractual agreement where the lessor (the asset owner) transfers possession and conditional ownership of the property to the lessee (the property user) for a specified duration in exchange for mutually agreed periodic payments. On the other hand, renting is a contract where the property owner or landlord transfers possession of the property to the tenant, while retaining ownership of the property.
In leasing, the lessee is typically responsible for maintaining the property, whereas in renting, the maintenance responsibility falls on the landlord or owner.
| Basis | Lease | Rent |
|---|---|---|
| Meaning | The arrangement where the lessor gives possession of their property to the lessee. | The arrangement where the owner allows the tenant to use their property for a specified period. |
| Accounting Standard | AS - 19 | No specific Accounting Standard |
| Duration | Long Term | Short Term |
| Parties | Lessor and Lessee | Landlord and Tenant |
| Consideration | Lease Rentals | Rent |
| Repairs and Maintenance | Depends on the type of lease | Landlord |
| Modifications | The terms of the contract cannot be modified until it ceases to exist. | The terms of the contract can be changed/modified by the landlord. |
| Offer to buy | At the end of the lease term, the lessee might get an offer to buy the leased asset in exchange for the remaining amount. |
No such offer |
How can a rental agreement be qualified as a lease agreement?
Section 105 of The Transfer of Property Act, 1882, defines a lease as the transfer of the right to the lessee for a defined period in exchange for a mutually agreed price. While there exists a subtle distinction between a rent agreement and a lease agreement, there are cases where a rent agreement can be categorized as a lease agreement. These instances include:
The landlord must transfer conditional possession of the property to the tenant.
The arrangement must be for a specific period, typically exceeding 3 years.
The landlord must receive monthly rent in exchange for transferring rights or possession to the tenant.
Typically, a rent agreement is signed for an 11-month duration, with the possibility of renewal upon expiration.
Please Note: Lease deeds are stamped and registered, and compared to rent agreements, they are more challenging to terminate.
Advantages of a Lease Agreement Compared to a Rental Agreement
For Landlords:
For Tenants:
What is a leave and license agreement?
In accordance with Section 52 of The Indian Easements Act, 1882, a leave and license agreement confers upon the tenant the right to utilize a property based on specified terms and conditions, while the property remains in the possession or ownership of the landlord. The license granted allows the tenant to use the property.
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