Understanding the lease - part 1
Getting stuck in a lease with less than favorable terms you do not fully understand can give you years of regret. Both landlords and tenants need to be sure they ask questions and know the specifics before signing.
Unlike purchasing real estate, the relationship created between a buyer and seller is relatively short-term lasting only a few months. A lease can be from one-year up to several decades so knowing what you are signing is important.
A lease is a contract between a landlord and tenant (often termed a lessor and lessee) that allows the tenant rights to the use of a property owned by the landlord for a period.
The contract does not provide ownership rights to the tenant; however, the landlord may grant certain allowances to modify, change or otherwise adapt the property to suit the needs of the tenant.
Lease contracts can be a couple of pages in length to over a hundred pages or more depending on the complexity of the terms. In this first series of articles, we will highlight a few of the terms contained in the ten page CAR (California Association of Realtors) “Residential Lease or Month-to-Month Rental Agreement.”
One word of disclosure, the laws governing leases and rental agreements differ by state, county, and city ordinances. Rent control laws could also govern some localities. I am in the City of Napa, California and am applying our local laws to our discussion.
What is the difference between a lease and a month-to-month rental agreement?
A month-to-month rental agreement provides the landlord and tenant a commitment for a period of thirty days. After the thirty day period, the lease renews automatically for another thirty days.
If the tenancy has been for less than one year either the landlord or tenant can give a thirty-day notice to terminate the tenancy. The landlord could also provide a thirty-day notice to change any of the terms of the rental agreement such as increasing the rent.
If the tenancy is longer than one year, the landlord is required to give a sixty-day notice for terminating the tenancy or changing terms.
If a lease is for a term of one year or longer, both parties of the contract are committed to the agreement for the length of time stated in the lease. When the lease expires most allow for the tenancy to continue automatically as a month-to-month rental agreement.
What happens when my lease expires?
If your landlord has not contacted you before this time, you would vacate. If a landlord would like you to remain as a tenant, they would usually ask you to sign a lease extension thirty or sixty days before your lease expires depending on how long you have been a tenant.
Many leases have a provision allowing the lease to convert to a month-to-month tenancy automatically. However, if your lease does not automatically convert and you do not receive a notice from your landlord to vacate the premises by accepting your rental payment the landlord converts the lease to a month-to-month tenancy.
In the next article, we will discuss a few specific terms of the “Residential Lease or Month-to-Month Rental Agreement.” In future articles, we will dive into the complicated commercial lease.
Burt M. Polson, CCIM, is an active commercial real estate broker. Reach him at 707-254-8000, or email@example.com. Sign up for his email newsletter at BurtPolson.com.