The Ultimate Guide to Types of Leases
For landlords, homeowners, and investors, understanding the many types of leases can be a complicated and dizzying task. You’re not a lawyer, so expecting to be an expert on all the various contract terms, addendums, and classifications can be mind-numbing. Yes, hopefully, you have a lawyer to help you understand it all. However, it would be nice to have a general sense of all the different types so that you can go in with a foundation of knowledge.
It certainly helps to hear from some of the experts in the field. As one of the premier rental property management companies in Fairfax and surrounding areas, we juggle a lot of leases of different kinds. They all have their nuances. Even within each one, there is a lot to understand. But starting with the basics of the different types of leases in real estate will help in understanding which ones you need to learn more about and which ones perhaps aren’t pertinent to properties you own or are interested in. So let’s dive in.
Table of Contents
Types of Leases
We will go over a number of general lease types that people often come across when going through the process of home buying. Of course, there is a whole host of differences when you get into the details of individual leases. At the end of the day, a lease is a contract and no two contracts are exactly the same. However, going over the broad categories can help in determining some of the basic terms of a typical lease.
Gross and Net Lease
First, there are two broad types of leases: gross and net leases. They are different categories based on the terms of the payment. A gross lease (sometimes called a full-service lease) has a predetermined rent, and it covers the costs associated with owning the property. This includes things like taxes, maintenance, and certain insurances. If you have a gross lease, you pay rent, and your landlord worries about maintaining the property.
A net lease, on the other hand, has a set rent price that only covers the tenancy. Other property costs are billed separately since they are not included in that rate. In this case, the rent price may be lower than it would be in a gross lease, but tenants have additional monthly fees such as taxes and insurance.
Fixed Term Lease
A fixed-term lease is a type of lease that goes in a slightly different direction as far as categorizing. That said, it is considered the most traditional type. This means that the respective parties are agreeing to abide by the lease for a fixed amount of time. A fixed-term lease will have the lease start and end date clearly labeled, and the basic terms of the lease cannot be changed during that period of time. These are good for tenants who know they will stay in the same place for a set period of time so they want to lock in the term. It also certainly benefits the landlord or owner who doesn’t want to worry about finding a new tenant for that period of time.
Month-to-Month Lease
Then there is a month-to-month leases, sometimes known as a periodic or short-term lease. These types of leases last only a month and can be renewed, but as long as proper notice is given, the landlord can change the terms. They can increase the monthly rent or change certain rules. A month-to-month lease is a good option for people who need temporary housing.
Joint Lease
A joint lease is when multiple people sign the lease together – typically roommates – so each of them agrees to the terms of the lease. Each person is responsible for following the rules of the rental unit, as well as paying rent. Even if one person contributes their share of the rent, that person could still be evicted if their roommate doesn’t pay their part of the rent. The landlord will want the entire amount. They often even include clauses in the lease stating that they don’t get involved in disputes between roommates.
Sublease
A sublease is when a tenant – with their landlord’s permission – leases their rental property to a third party. Subleases can be done in various ways, so they can vary a fair bit. Some landlords aren’t involved in the process while others landlords may be more involved and have a specific process that they follow. Either way, the name of the original leaseholder remains on the lease.
Key Differences in Types of Leases
As far as differences in these types of leases, one main way they can be broadly categorized is into gross vs. net leases. A gross lease includes all property-related costs while a net lease has a lower base rent but requires the tenant to pay additional costs separately, making the overall cost potentially higher depending on these expenses.
Other common lease types include fixed-term leases vs. month-to-month lease, which differ by the amount of time the lease lasts. And of course, there are joint leases and subleases, which do not pertain to what is included in the lease or the span of time the lease is, but rather involve multiple tenants sharing the lease in some way.
How BMG Could Help In Your Lease Journey
Learning about different renting options as a landlord or tenant helps take the mystery out of all of these types, while also allowing you to find and negotiate rental terms that benefit you the most. As a landlord, it helps to have clear rules on how you address a tenant’s desire for certain terms. As a renter, you will want to discuss your needs and expectations with your landlord or property manager to devise terms that work for all parties.
Finding qualified tenants and managing different rental contracts for several properties can be challenging. If you find yourself overwhelmed with all the day-to-day tasks of owning rental properties, consider hiring Bay Property Management Group. We offer comprehensive rental management services, including tenant management, maintenance, inspections, and more. Contact BMG today to learn about our property management services in Fairfax, Baltimore, Philadelphia, Northern Virginia, Washington, DC., and other locations.
