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Renting, also known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or
property
Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
owned by another. A
gross lease A gross lease is a type of commercial lease where the tenant pays a flat rental amount, and the landlord pays for all operating expenses regularly incurred by the ownership, including taxes, electricity and water. Most apartment leases resemble gro ...
is when the
tenant pays a flat rental amount and the
landlord
A landlord is the owner of a house, apartment, condominium, land, or real estate which is rented or leased to an individual or business, who is called a tenant (also a ''lessee'' or ''renter''). When a juristic person is in this position, t ...
pays for all property charges regularly incurred by the ownership. An example of renting is
equipment rental
Equipment rental, also called plant hire in some countries (in the UK for instance), is a service industry providing machinery, equipment and tools of all kinds and sizes (from earthmoving to powered access, from power generation to hand-held ...
. Renting can be an example of the
sharing economy.
History
Various types of rent are referenced in
Roman law
Roman law is the legal system of ancient Rome, including the legal developments spanning over a thousand years of jurisprudence, from the Twelve Tables (c. 449 BC), to the '' Corpus Juris Civilis'' (AD 529) ordered by Eastern Roman emperor Ju ...
: rent (''canon'') under the long leasehold tenure of
Emphyteusis
Emphyteusis (Greek: implanting) is a contract for land that allows the holder the right to the enjoyment of a property, often in perpetuity, on condition of proper care, payment of tax and rent. The right encompasses assignment and of descent.
His ...
; rent (''reditus'') of a farm; ground-rent (''solarium''); rent of state lands (''vectigal''); and the annual rent (''prensio'') payable for the ''jus superficiarum'' or right to the perpetual enjoyment of anything built on the surface of land.
Reasons for renting
There are many possible reasons for renting instead of buying, for example:
*In many jurisdictions (including
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
,
Spain
, image_flag = Bandera de España.svg
, image_coat = Escudo de España (mazonado).svg
, national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond")
, national_anthem = (English: "Royal March")
, i ...
,
Australia,
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
and the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
) rent paid in a
trade
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct excha ...
or business is
tax-deductible
Tax deduction is a reduction of income that is able to be taxed and is commonly a result of expenses, particularly those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and tax credits. T ...
, whereas rent on a
dwelling is not tax-deductible in most jurisdictions.
*Financial inadequacy, such as renting a
house when one is unable to purchase, i.e "renting by necessity".
*Reducing financial risk due to
depreciation
In accountancy, depreciation is a term that refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the ...
and
transaction costs
In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a market. Oliver E. Williamson defines transaction costs as the costs of running an economic system of companies, and unlike pro ...
, especially for real estate which might be needed only for a short amount of time.
*When something is needed only temporarily, as in the case of a special
tool
A tool is an object that can extend an individual's ability to modify features of the surrounding environment or help them accomplish a particular task. Although many animals use simple tools, only human beings, whose use of stone tools dates ba ...
, a
truck
A truck or lorry is a motor vehicle designed to transport cargo, carry specialized payloads, or perform other utilitarian work. Trucks vary greatly in size, power, and configuration, but the vast majority feature body-on-frame constructi ...
or a
skip
Skip or Skips may refer to:
Acronyms
* SKIP (Skeletal muscle and kidney enriched inositol phosphatase), a human gene
* Simple Key-Management for Internet Protocol
* SKIP of New York (Sick Kids need Involved People), a non-profit agency aidi ...
.
*When something is needed that may or may not be already owned but is not in proximity for use, such as renting an automobile or bicycle when away on a trip.
*Needing a cheaper alternative to buying, such as renting a movie: a person is unwilling to pay the full price for a movie, so they rent it for a lesser price but give up the chance to view it again later.
*The tenant may want to leave the burden of
upkeep of the property (mowing the lawn, shovelling snow, etc.) to the owner or his agents.
*There is no need to worry about
lifespan and
maintenance
Maintenance may refer to:
Biological science
* Maintenance of an organism
* Maintenance respiration
Non-technical maintenance
* Alimony, also called ''maintenance'' in British English
* Champerty and maintenance, two related legal doct ...
.
*Renting keeps
off-balance-sheet
Off balance sheet (OBS), or incognito leverage, usually means an asset or debt or financing activity not on the company's balance sheet. Total return swaps are an example of an off-balance-sheet item.
Some companies may have significant amounts o ...
the debt that would burden the
balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a Partnersh ...
of a company in case the property would have been bought.
*Renting is good for the environment if products are used more efficiently by maximizing utility rather than being disposed of, overproduced and underutilized.
*Risks aside, renting has the potential to generate a regular stream of revenue for the owner. The more the churn (the number of times the item is rented out) the higher the income. Eventually, the rental income crosses the product procurement value and every churn post that becomes a profit for the owner
*Renting often also becomes an alternate revenue pool for idle inventory vs. overly depending on a stagnant / slowing retailing business environment
Growth of rental industry
Short-term rental of all sorts of products (excluding real estate and holiday apartments) already represents an estimated €108 billion ($160 billion) annual market in Europe and is expected to grow further as the internet makes it easier to find specific items available for rent.
[Schenker, Jennifer]
"Tough Times? Rent, Don't Buy, with Erento"
''BusinessWeek
''Bloomberg Businessweek'', previously known as ''BusinessWeek'', is an American weekly business magazine published fifty times a year. Since 2009, the magazine is owned by New York City-based Bloomberg L.P. The magazine debuted in New York City ...
'', 2008-08-22. Retrieved on 2009-10-01. According to a poll by
YouGov
YouGov is a British international Internet-based market research and data analytics firm, headquartered in the UK, with operations in Europe, North America, the Middle East and Asia-Pacific. In 2007, it acquired US company Polimetrix, and sinc ...
, 76% of people looking to rent would go to the internet first to find what they need; rising to 88% for those aged 25–34.
It has been widely reported that the
financial crisis of 2007–2010
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
may have contributed to the rapid growth of online rental marketplaces, such as
erento, as consumers are more likely to consider renting instead of buying in times of financial hardship. Environmental concerns, fast depreciation of goods, and a more transient workforce also mean that consumers are increasingly searching for rentals online.
A 2010 US survey found 27% of renters plan to never buy a home.
[''Boston Metro'', 19 August 2010, p 6. Citing survey by Trulia.com.]
Rental investment
Net income received, or losses suffered, by an investor from renting of properties is subject to
idiosyncratic risk
An idiosyncrasy is an unusual feature of a person (though there are also other uses, see below). It can also mean an odd habit. The term is often used to express eccentricity or peculiarity. A synonym may be "quirk".
Etymology
The term "idiosyncr ...
due to the numerous things that can happen to real property and variable behavior of tenants.
Rental agreements
There is typically an implied, explicit, or written
rental agreement
A rental agreement is a contract of rental, usually written, between the owner of a property and a renter who desires to have temporary possession of the property; it is distinguished from a lease, which is more typically for a fixed term. As a m ...
or
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
involved to specify the terms of the rental, which are regulated and managed under
contract law
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
.
Examples include letting out
real estate
Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more general ...
(real property) for the purpose of
housing tenure
Housing tenure is a financial arrangement and ownership structure under which someone has the right to live in a house or apartment. The most frequent forms are leasehold estate, tenancy, in which renting, rent is paid by the occupant to a landlo ...
(where the tenant rents a residence to live in),
parking space for a vehicle(s), storage space, whole or portions of properties for business, agricultural, institutional, or government use, or other reasons.
When renting real estate, the person(s) or party who lives in or occupies the real estate is often called a
tenant, paying rent to the owner of the property, often called a
landlord
A landlord is the owner of a house, apartment, condominium, land, or real estate which is rented or leased to an individual or business, who is called a tenant (also a ''lessee'' or ''renter''). When a juristic person is in this position, t ...
(or landlady). The real estate rented may be all or part of almost any real estate, such as an
apartment,
house,
building
A building, or edifice, is an enclosed structure with a roof and walls standing more or less permanently in one place, such as a house or factory (although there's also portable buildings). Buildings come in a variety of sizes, shapes, and fu ...
, business office(s) or suite, land, farm, or merely an inside or outside space to park a vehicle, or store things all under
Real estate law
Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more general ...
.
The tenancy agreement for real estate is often called a
lease
A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial ...
, and usually involves specific property rights in
real property, as opposed to
chattels.
In India, the rental income on property is taxed under the head "income from house property". A deduction of 30% is allowed from total rent which is charged to tax.
The ''time use of a chattel'' or other so called "personal property" is covered under general
contract law
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
, but the term ''lease'' also nowadays extends to long term ''rental contracts'' of more expensive non-Real properties such as automobiles, boats, planes, office equipment and so forth. The distinction in that case is long term versus short term rentals. Some non-real properties commonly available for rent or lease are:
*
motion pictures on
VHS or
DVD
The DVD (common abbreviation for Digital Video Disc or Digital Versatile Disc) is a digital optical disc data storage format. It was invented and developed in 1995 and first released on November 1, 1996, in Japan. The medium can store any kind ...
, of
audio CD
Compact Disc Digital Audio (CDDA or CD-DA), also known as Digital Audio Compact Disc or simply as Audio CD, is the standard format for audio compact discs. The standard is defined in the ''Red Book'', one of a series of Rainbow Books (named ...
s, of
computer program
A computer program is a sequence or set of instructions in a programming language for a computer to execute. Computer programs are one component of software, which also includes documentation and other intangible components.
A computer program ...
s on
CD-ROM.
*
transport
Transport (in British English), or transportation (in American English), is the intentional movement of humans, animals, and goods from one location to another. Modes of transport include air, land ( rail and road), water, cable, pipelin ...
equipment, such as an
automobile
A car or automobile is a motor vehicle with wheels. Most definitions of ''cars'' say that they run primarily on roads, seat one to eight people, have four wheels, and mainly transport people instead of goods.
The year 1886 is regarde ...
or a
bicycle.
*ships and boats, in which case rental is known as
chartering, and the rent is known as ''hire'' or ''freight'' (depending on the type of charter)
*aircraft, in which case rental is known as
chartering, or
leasing if the rental is longer term
*specialized
tool
A tool is an object that can extend an individual's ability to modify features of the surrounding environment or help them accomplish a particular task. Although many animals use simple tools, only human beings, whose use of stone tools dates ba ...
s, such as a
chainsaw
A chainsaw (or chain saw) is a portable gasoline-, electric-, or battery-powered saw that cuts with a set of teeth attached to a rotating chain driven along a guide bar. It is used in activities such as tree felling, limbing, bucking, pru ...
, laptop, IT equipment or something more substantial, such as a
forklift.
*large equipment such as cranes, oil rigs and submarines.
*a
deckchair
A deckchair (or deck chair) is a folding chair, usually with a frame of treated wood or other material. The term now usually denotes a portable folding chair, with a single strip of Textile, fabric or Polyvinyl chloride, vinyl forming the back ...
or
beach chair and
umbrella
An umbrella or parasol is a folding canopy supported by wooden or metal ribs that is usually mounted on a wooden, metal, or plastic pole. It is designed to protect a person against rain or sunlight. The term ''umbrella'' is traditionally use ...
.
*
furniture
*designer handbags, jewelry,
["If you want it, rent it ... from a 'must have' handbag to an Aston Martin"](_blank)
''The Observer
''The Observer'' is a British newspaper published on Sundays. It is a sister paper to ''The Guardian'' and '' The Guardian Weekly'', whose parent company Guardian Media Group Limited acquired it in 1993. First published in 1791, it is the ...
'', 2009-01-04. Retrieved on 2009-09-09. sunglasses and watches.
*Home appliances such as
washing machine
A washing machine (laundry machine, clothes washer, washer, or simply wash) is a home appliance used to wash laundry. The term is mostly applied to machines that use water as opposed to dry cleaning (which uses alternative cleaning fluids and ...
s,
refrigerators,
television
Television, sometimes shortened to TV, is a telecommunication medium for transmitting moving images and sound. The term can refer to a television set, or the medium of television transmission. Television is a mass medium for advertisin ...
s,
microwave oven
A microwave oven (commonly referred to as a microwave) is an electric oven that heats and cooks food by exposing it to electromagnetic radiation in the microwave frequency range. This induces polar molecules in the food to rotate and produce ...
s, and
air-conditioning units
In various degrees, renting can involve buying services for various amounts of time, such as staying in a
hotel
A hotel is an establishment that provides paid lodging on a short-term basis. Facilities provided inside a hotel room may range from a modest-quality mattress in a small room to large suites with bigger, higher-quality beds, a dresser, a re ...
, using a
computer in an
Internet cafe
The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...
, or riding in a
taxicab
A taxi, also known as a taxicab or simply a cab, is a type of vehicle for hire with a driver, used by a single passenger or small group of passengers, often for a non-shared ride. A taxicab conveys passengers between locations of their choi ...
(some forms of English use the term "hiring" for this activity).
As seen from the examples, some rented goods are used on the spot, but usually they are taken along; to help
guarantee
Guarantee is a legal term more comprehensive and of higher import than either warranty or "security". It most commonly designates a private transaction by means of which one person, to obtain some trust, confidence or credit for another, engages ...
that they are brought back, one or more of the following applies:
*one shows an
identity document
*one signs a
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
; any damage already present when renting may be noted down to avoid that the renter is blamed for it when the good is returned
*one pays a
damage deposit A damage deposit or deposit is a sum of money paid in relation to a rented item to ensure it is returned in good condition. They are particularly common in relation to rented accommodation, where they may also be referred to as a tenancy deposit, ...
(a refundable fee that may be used in part to pay for damage caused by the renter)
If the customer has a credit account with the rental company, they may rent over several months (or years) and will receive a recurring or continuation invoice each rental period until they return the equipment. In this case deposits are rarely required.
In certain types of rental (sometimes known as
operated or wet rental) the charge may be calculated by the rental charge + timesheets of operators or drivers supplied by the rental company to operate the equipment. This is particularly relevant for crane rental companies.
Sometimes the risk that the good is kept is reduced by it being a special model or having signs on it that cannot easily be removed, making it obvious that it is owned by the rental company; this is especially effective for goods used in public places, but even when used at home it may help due to social control.
Persons and businesses that regularly rent goods from a particular company generally have an account with that company, which reduces the administrative procedure (
transaction costs
In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a market. Oliver E. Williamson defines transaction costs as the costs of running an economic system of companies, and unlike pro ...
) on each occasion.
Signing out
book
A book is a medium for recording information in the form of writing or images, typically composed of many pages (made of papyrus, parchment, vellum, or paper) bound together and protected by a cover. The technical term for this physi ...
s from a
library
A library is a collection of materials, books or media that are accessible for use and not just for display purposes. A library provides physical (hard copies) or digital access (soft copies) materials, and may be a physical location or a vir ...
could be considered renting when there is a fee per book. However the term ''lending'' is more common.
Leasing
Rental of
personal property or
real property for periods often longer than a year, which is governed by the signing of a
lease
A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial ...
, is known as leasing. Leasing is usually used for high-value capital equipment, both in business and by consumers. A lease in which the renter benefits from an increase in value of the asset is known as a
finance lease A finance lease (also known as a capital lease or a sales lease) is a type of lease in which a finance company is typically the legal owner of the asset for the duration of the lease, while the lessee not only has operating control over the asset, b ...
. A leasing agreement which is not a finance lease is known as an
operating lease
The expression "operating lease" is somewhat confusing as it has a different meaning based on the context that is under consideration.
From a product characteristic stand point, this type of a lease, as distinguished from a finance lease, is one w ...
.
Rent to own
A rental agreement may provide for the renter or lessee to become the owner of the asset at the end of the rental period, usually at the renter's option on payment of a nominal fee. Such arrangements may be known as
*
Rent-to-own, a term used in the United States for rental of furniture or appliances. The term is also used in the US for real estate transactions, where the tenant has an option to purchase the property at a fixed price at a specified future time. Such arrangements are also known as
lease-option, lease-to-own or lease to purchase option.
*
Hire purchase
A hire purchase (HP), also known as an installment plan, is an arrangement whereby a customer agrees to a contract to acquire an asset by paying an initial installment (e.g., 40% of the total) and repaying the balance of the price of the asset pl ...
, used in the
UK and other countries for the purchase of cars, other consumer equipment and business equipment. The term lease-purchase is also used.
*
Closed-end leasing, used in the US and
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
for the leasing of cars. Unlike in hire purchase, the asset is sold at its
residual value
''Residual value'' is one of the constituents of a leasing calculus or operation. It describes the future value of a good in terms of absolute value in monetary terms and it is sometimes abbreviated into a percentage of the initial price when the i ...
at the end of the term, rather than for a nominal amount.
References
{{Authority control
Property
Finance