TL;DR

• A lease agreement is a legally binding contract outlining terms between a landlord and tenant. It includes details like rent, lease duration, renewal terms, and obligations
• Lease agreements differ from rental agreements in duration and flexibility
• Key clauses include security deposits, maintenance responsibilities, termination conditions, and dispute resolution
• Understanding lease agreements helps businesses and individuals avoid legal risks and financial disputes

Lease agreements are everywhere. Whether it’s the office space your company rents, the equipment you use, or even the corporate vehicles in your fleet. If your company is using something it doesn’t own, there’s probably a lease agreement behind it.

And yet, lease agreements are also one of the most overlooked contracts. That is until something goes wrong. Suddenly, everyone’s scrambling to check the fine print, trying to figure out who’s responsible for repairs, what happens if rent increases unexpectedly, or whether there’s a way out without massive penalties.

That’s why you need a well-drafted lease that can protect your company from unexpected costs, legal disputes, and operational disruptions. 

In this guide, we’ll break down:

• The different types of lease agreements and when they apply
• Key clauses every lease agreement should have (and why they matter)
• Terms and conditions that protect your company from legal headaches
• How to manage lease agreements efficiently at scale

So, let’s break down what a lease agreement really is, why it’s worth paying attention to, key clauses every lease agreement should have (and why they matter), and the terms and conditions that protect your company from legal headaches.

What is a lease agreement?

At its core, a lease agreement is a legally binding contract that allows a tenant (lessee) to use a property for a defined period in exchange for rent payments to the landlord (lessor). Leases cover everything from office buildings to company vehicles to that industrial-sized printer no one knows how to fix.

For landlords, leases mean predictable income and some assurance their property won’t be turned into a disaster zone. For tenants, leases offer stability.

A well-drafted lease is the foundation of a functional, drama-free rental arrangement. Whether you're negotiating terms on behalf of your company or just making sure no one is slipping in a clause that turns your three-year lease into an eternal commitment, getting it right from the start is key.

Free template for lease agreements

Here’s a simplified lease agreement template covering essential legal clauses to provide clarity and compliance.

How to download the template:

• Click below to navigate to the download page
• Provide the necessary information in the form to help us understand your needs better
• Once you submit the form, the template will be sent directly to your inbox, ready for you to use and customize as needed

Note: While this template provides a robust framework to start from, it is crucial to tailor the details to your specific circumstances. 

Types and real-life examples of lease agreement

Leases aren’t just for apartments and office spaces—they cover everything from espresso machines to company cars. And while all lease agreements share the same basic concept (you pay to use something that isn’t yours), they come in different flavors depending on what’s being leased.

Here’s a breakdown of the three main types of lease agreements.

#2 Commercial lease

When a company rents a property for business use, it signs a commercial lease, which outlines everything from rent payments to how the space can be used.

Example: Starbucks signs a 10-year lease for a prime spot in a shopping mall. As part of the deal, they negotiate an exclusivity clause preventing the mall from renting space to competing coffee brands. This means no surprise Dunkin’ next door, is securing its caffeine empire in that location.

#2 Equipment lease

Buying equipment outright can be a massive financial drain, so many businesses opt to lease instead. This type of lease lets companies use expensive machinery, technology, or tools without shelling out a fortune upfront.

Example: A tech startup leases high-end servers instead of purchasing them. This keeps their cash free for other priorities (like hiring developers or, let’s be honest, upgrading their snack bar). Plus, they can swap out older models for newer ones when their lease is up, keeping their tech stack fresh.

#3 Vehicle lease

For businesses that rely on transportation (logistics companies, taxi services, or corporate fleets), vehicle leases provide access to cars, trucks, or vans without the long-term financial commitment of buying.

Example: Many Uber drivers lease their cars through ride-sharing lease programs. Instead of taking out a loan or draining their savings, they make manageable monthly payments, often with the option to buy the car at the end of the lease. It’s a win-win: they get a car to work with, and they’re not stuck with an asset that might depreciate faster than their enthusiasm for night shifts.

The legal significance of lease agreements

A well-drafted lease lays out everyone’s rights, responsibilities, and—most importantly—what happens if things go south. Without it, you’re looking at a recipe for disputes, unexpected costs, and the kind of legal mess that keeps in-house counsel up at night.

A solid legal framework ensures that:

• Everyone knows who’s responsible for what
• Payment terms, usage rules, and exit strategies are crystal clear
• Disputes can be resolved without courtroom drama

Also read: How to Review Leasing Contracts: A Comprehensive Guide

What are the provisions of a lease contract?

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A lease contract outlines the rights and responsibilities of both the landlord and the tenant. These provisions ensure clarity, prevent disputes, and provide legal protection. Let’s break down the key provisions and why they matter.

#1 Payment terms: when, how, and what happens if you’re late

Money talk is where most disputes start, so a lease needs to make payment expectations painfully clear. This section includes:

• How rent should be paid: bank transfer, check, carrier pigeon (:P)
• Rent increases (a.k.a. escalation clauses): annual hikes, inflation-based adjustments, etc.
• Late payment penalties: what happens if the tenant misses a deadline

Having this in writing ensures landlords get paid, and tenants know exactly what’s expected.

#2 Tenant responsibilities: what they can (and cannot) do

Once a tenant moves in, their responsibilities don’t stop at paying rent. A lease typically clarifies things like:

• Repairs: minor fixes (like changing light bulbs) vs. major issues the landlord needs to handle
• Utility payments: who covers what (electricity, water, internet, or, for the truly unfortunate, an HOA fee)
• Subleasing: whether the tenant can rent the space to someone else or if that’s a fast track to an eviction notice

Clear tenant responsibilities keep the property in good shape and prevent any “I didn’t know I had to pay for that” arguments down the road.

#3 Landlord obligations: their job doesn’t end after handing over the keys

A landlord’s role isn’t just collecting rent; they also have duties to maintain a safe and functional space. A lease should outline:

• Maintenance responsibilities: structural repairs, major appliance fixes, and anything beyond a clogged sink
• Safety compliance: fire alarms, building codes, and making sure the property isn’t a lawsuit waiting to happen
• Liability: who’s responsible if there’s damage or an accident on the property

This section keeps tenants protected from negligence while ensuring landlords know exactly what they’re accountable for.

#4 Lease termination: how to leave without unnecessary drama

Nobody signs a lease expecting an early exit, but things happen. A well-drafted lease lays out:

• Eviction policies: the formal process if the tenant violates terms (e.g., non-payment of rent)
• Breach consequences: security deposit loss, penalties, or a legal headache if someone tries to back out unfairly
• Notice periods: how much warning is required before moving out (usually 30-60 days)

Common clauses found in lease agreements

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A lease agreement must have clauses that protect both landlords and tenants from unexpected surprises, financial losses, and legal headaches.

Here are some of the most crucial lease clauses—and why they deserve your attention.

#1 Escalation clause: keeping rent increases predictable

Nobody likes surprise rent hikes, and that’s exactly what this clause prevents. An escalation clause allows for scheduled rent increases over time, usually tied to inflation, market rates, or a fixed percentage.

• For landlords: Ensures rent keeps up with economic conditions (instead of staying stuck at last decade’s rates)
• For tenants: Eliminates the fear of arbitrary increases, making long-term financial planning easier

#2 Force majeure clause: when life throws a curveball

This is the “stuff happens” clause. A force majeure clause temporarily suspends lease obligations if an unforeseeable event—like a natural disaster, pandemic, or government lockdown—prevents either party from fulfilling their terms.

Did you know?

During COVID-19, retail tenants invoked force majeure clauses to pause rent payments when lockdowns forced them to shut down. Without this clause, many businesses would have been stuck paying for spaces they legally couldn’t use.

#3 Indemnity clause: deciding who pays if things go wrong

Lawsuits aren’t fun (or cheap), and the indemnity clause determines who’s responsible for covering legal costs if a dispute arises.

• For landlords: Protects them from liability if a tenant misuses the property and gets sued
• For tenants: Ensures they’re not unfairly footing the bill for issues outside their control

A well-drafted indemnity clause prevents a bad situation from turning into an even bigger financial disaster.

Also read: How to Review Indemnity Agreements: A Comprehensive Guide

#4 Exit clause: because nothing lasts forever

No one signs a lease thinking about breaking it, but sometimes, it’s necessary. The exit clause lays out exactly how either party can terminate the lease early, whether due to a breach, non-payment, or mutual agreement.

• For landlords: Provides a legal route to remove tenants who stop paying rent or damage the property
• For tenants: Offers a way out if business conditions change or relocation becomes necessary

Without an exit clause, ending a lease can turn into a long, expensive mess. Having clear terms upfront saves both parties from unnecessary drama.

Also read: How to review different types of contracts

Terms and conditions of a lease agreement

The terms and conditions (T&Cs) of a lease agreement are the foundation of the contract. They clearly outline the rules and responsibilities that both landlords and tenants must follow. Well-defined T&Cs prevent misunderstandings and legal disputes down the line.

Here are some of the most important ones you’ll want to look out for.

#1 Subleasing terms: can the tenant rent the property to someone else?

Subleasing can be a great way for tenants to share costs or exit a lease early, but only if the contract allows it. This clause spells out whether subleasing is:

• Allowed with permission: The tenant can sublet but only after getting the landlord’s approval
• Strictly prohibited: No subleasing, no loopholes, no “my cousin is just staying here for a while” situations

#2 Rent payment methods: how should rent be paid?

This clause prevents the “Oh, I thought I could Venmo you” conversation by specifying how rent should be paid. It typically includes:

• Bank transfers
• Checks
• Online payment platforms

A defined payment method ensures landlords get paid on time and tenants don’t accidentally violate their lease with an unauthorized payment method.

#3 Penalty for late payment: what happens if rent is late?

Some landlords are lenient. Others will charge a penalty the second the deadline passes. This clause should make it clear:

• How much the late fee is (e.g., 5% of rent)
• Grace period (if any) (e.g., payment is late only if it’s overdue by 5 days)
• When penalties kick in

#4 Condition of property: what happens at lease-end?

When the lease is up, does the tenant need to repaint the walls? Deep clean the carpets? Repair minor wear and tear? This clause ensures:

• Tenants know what’s expected before they move out
• Landlords can fairly assess property condition before returning security deposits
• No one argues over what’s considered “normal wear and tear”

Failing to set clear expectations here can lead to disputes over security deposit deductions, which is a common friction point at the end of a lease.

#5 Legal compliance: does the lease follow local laws?

A lease agreement isn’t just an agreement between two parties it has to comply with local property laws. This clause ensures that the lease:

• Follows local housing laws
• Meets registration requirements
• Complies with rental regulations specific to the location

Also read: What is Contract Compliance? The Ultimate Guide

Difference between a lease and a rental agreement

Lease and rental agreements are often used interchangeably, but they’re not the same. 

A lease agreement locks in the terms for a longer period, providing more stability for the tenant. On the other hand, rental agreements are more flexible and suited for short-term arrangements, allowing either party to make changes with less notice. Both serve different needs, depending on whether you want stability or flexibility.

Making lease agreements work for you

Lease agreements might not be the most exciting part of your legal workload, but they’re definitely one of the most important. A well-drafted lease protects your company, reduces disputes, and ensures everyone knows their rights and obligations from day one.

Managing lease agreements isn’t just about drafting them correctly, it’s also about keeping track of them efficiently. With multiple leases in play, manual oversight can quickly become overwhelming.

This is where SpotDraft comes in. Our contract automation platform lets you create, customize, and manage lease agreements at scale, ensuring consistency and legal compliance across all your contracts. 

Whether you’re drafting a single lease or overseeing a portfolio of agreements, SpotDraft helps you streamline the process and reduce manual workload.

Book a demo

FAQs

1. What is the rule of a lease agreement?

A lease agreement must clearly define three key things to be legally valid:

• Rent: How much, when, and how it’s paid
• Tenure: The duration of the lease
• Responsibilities: Who handles repairs, maintenance, and other duties

Without these core elements, an agreement may not hold up in court.

2. What is a lessee agreement?

A lessee agreement is just another name for a lease agreement. It’s a contract where the lessee (tenant) agrees to use a property under specific conditions set by the lessor (landlord).

3. What is the best type of lease?

It depends on your needs!

• Fixed-term leases (e.g., 1 year) offer stability and predictability
• Short-term leases (e.g., month-to-month) offer flexibility and are great for temporary arrangements

Choose the one that fits your situation best.