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Guide to Understanding
Rental Agreements

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, or 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 license, and only those drivers appearing on the contract may be authorized 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 bond payable if the car is not returned in order, often held in the form of a credit-card authorization -- 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, 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, with family, children, room-mate, 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 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, pool, roof-deck, balconies, etc. The agreement may specify how and when these places may be used, and by whom. There may be 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 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, or 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. 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).

Other Considerations

  • Rent-to-own: If the parties are willing, a rental could be structured as a "rent-to-own", whereby some or all periodic payments of rent are counted toward an agreed purchase price. Once the price is reached, the tenant becomes the owner.

  • Improvements: A tenant is in possession of the property, but the landlord retains ownership (a reversion when the tenancy lapses). If a tenant makes permanent improvements to the property, the general rule is that they become the property of the owner when they are attached. A tenant would be wise to obtain compensation agreement from a landlord before making major improvements. Contrarily, a landlord may view unwanted improvements as "damage" and require a tenant to remove them or pay to have the premises returned to its original condition.

  • Maintenance: Landlords may be required to provide heat, hot water, roofing, security, and sanitation to meet local health codes, and any failure to maintain those services could give the tenant a right to withhold rent. Beyond that, the parties could agree on what minimum maintenance is required (lawn mowing, shovelling snow, carpet cleaning), and what additional upkeep the landlord might desire in exchange for possible rental credit (e.g., outdoor painting, etc).

  • For rural properties with agriculture (e.g., crops, fruits, forest), there should be some agreement as to who is responsible for the work and supplies, whether a tenant has grazing rights, and how much of the harvest proceeds go to the landlord. Similarly for mining (including gravel pits, oil wells) and water sources (wells, ice ponds, etc). Does the tenant have the right to cut wood on the property to warm himself or to sell to others? Take sap from the sugar maples? Collect shellfish on the beach?

  • Easements: There may be potentially conflicting rights held by others on the property or adjacent to the property possessed by the tenant, and these should be understood and respected. For example: shared driveway access or parking, beach access, view, sun or light, recreational users of the woods, historical or conservation limitations, co-tenant farmers or loggers, underground or overhead utilities, common areas in apartments, condos or housing associations might all be occupied partially by others. Also, neighbors in dense urban areas may have the right to enter adjacent land to maintain structures such as fences, gutters, garages, paths, prune shrubs, and so forth.


 
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