DEFINITION of Lease
A lease is a contract outlining the terms under which one party agrees to rent property owned by another party. It guarantees the lessee, also known as the tenant, use of an asset and guarantees the lessor, the property owner or landlord, regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor face consequences if they fail to uphold the terms of the contract.
BREAKING DOWN Lease
Leases are the legal and binding contracts that set forth the terms of rental agreements in real estate. If a person wishes to rent an apartment or other residential property, for example, the lease prepared by the landlord describes the monthly rent amount, when it is due each month, what happens if the lessee fails to pay his rent, how much of a security deposit is required, the duration of the lease, whether the lessee is allowed to keep pets on the premises, how many occupants can live in the unit and any other essential information. The landlord requires the tenant to sign the lease, thereby agreeing to its terms before occupying the property. Leases for commercial properties, on the other hand, are usually negotiated in accordance with the specific lessee and typically run from one to 10 years, with larger tenants often having longer, and more complex, lease agreements.
Breaking a Lease
Consequences for breaking leases range from mild to damaging, depending on the circumstances under which they are broken. A tenant who breaks a lease without prior negotiation with the landlord faces a civil lawsuit, a derogatory mark on his credit report or both. As a result of breaking a lease, a tenant may also encounter problems renting a new residence, as well as other issues associated with having negative entries on a credit report. Tenants who need to break their leases often must negotiate with their landlords or seek legal counsel. In some cases, finding a new tenant for the property or forfeiting the security deposit inspires landlords to allow tenants to break their leases with no further consequences.
Some leases have "early termination" clauses that allow tenants to terminate the contracts under a specific set of conditions or when their landlords do not fulfill their contractual obligations. For example, a tenant may be able to terminate a lease if the landlord does not make timely repairs to the property.
Commercial Real Estate Leases
Tenants who lease commercial properties sign various types of leases structured to put more responsibility on the tenant and provide greater up-front profit for the landlord. For example, some commercial leases require the tenant to pay rent plus the landlord's operational costs, while others require tenants to pay rent plus property taxes and insurance. The four common types of commercial real estate leases include: single-net leases, in which the tenant is responsible for paying property taxes; double-net leases, which make a tenant responsible for property taxes and insurance; triple-net leases, where tenants must pay property taxes, insurance and maintenance; and gross leases, in which the tenant pays rent while the landlord is responsible for other costs.