Lease Agreement versus Tenancy Agreement – What is the difference?
We regularly see clients interpreting lease agreements and tenancy agreements as being the same document. However, while both agreements are similar, it is important to understand the differences.
Lease Agreements (“Lease”)
A Lease is a contract between a landlord and a tenant for a commercial building. Leases are typically very detailed in regards to the conditions of the tenancy so that there are no discrepancies or issues during the term.
Leases cover the responsibilities (“warranties”) of both the tenant and landlord in detail. Some warranties given by the landlord are in compliance with the Health and Safety at Work Act 2015 and to act reasonably when considering an assignment of the lease to a third party during the term.
Leases will typically include details such as the term of the Lease, its expiry date, the monthly rent payments, rent reviews and rights of renewal. There is an inherent benefit of including rent review dates and rights of renewal because this ensures that the landlord cannot arbitrarily raise the rent or cancel the Lease. However, it also ensures that the tenant cannot leave the property before the end of the term without repercussions.
If the existing lease reaches its expiry date, the lease is at an end. If the tenant does not leave the premise, under the Property Law Act 2007 they will be considered to be on a month to month tenancy. Therefore, if the tenant(s) wish to remain in the property, both parties must enter into a new Lease. The landlord has the option to renew the terms of the old lease or is free to change the terms and rental amounts as they see fit.
If you are in a commercial setting, in order to ensure the long-term letting of your premises, we recommend that you enter into a Deed of Lease.
A tenancy agreement is used for tenants of residential properties and is subject to the Residential Tenancies Act 1986 (“Act”). Where tenancy agreements include the obligations of either party, they are generally not as detailed or stringent as the warranties included in Leases. Some key responsibilities of landlords are maintaining the property in reasonable condition and allowing the tenant quiet enjoyment of the property.
There are two types of tenancy: periodic tenancy (lasting longer than 90 days) and fixed term tenancy. This article will focus on periodic tenancies.
Like a Lease, at the end of the periodic tenancy agreement term, the landlord can alter the terms of the tenancy agreement. However, if a tenant does not intend on renewing the tenancy agreement they have to give the landlord 21 days’ notice prior to the expiration of the tenancy agreement in accordance with the Act.
We note that a periodic tenancy typically requires that the landlord give 90 days’ notice for the tenant to vacate premises in accordance with the Act.
Tenancy agreements are suited to short term tenants such as people who are transitioning and are often used in residential rental properties.
Pros and Cons
Both lease and tenancy agreements have their advantages and disadvantages.
Rental agreements allow landlords to rent properties that might not be desirable to long-term renters. It is advantageous when rental amounts can rise quickly, allowing the landlord to renegotiate the terms of the agreement more regularly than a lease.
A Lease, on the other hand, is advantageous to a landlord by providing the stability of guaranteed, long-term income. It is advantageous to a tenant because it locks in the rental amount and length of lease and cannot be changed even if property or rent values rise.
When drafting a Lease or tenancy agreement, we recommend you seek the services of lawyer.