While the most common lease term is twelve months, some landlords offer month-to-month leases to their tenants. Under this agreement, either party may end the lease with 30 days’ notice. This arrangement may work well for some landlords but badly for others. Here are some pros and cons to consider as you decide whether you’ll offer month-to-month leases at your property.
Pros:
1. Flexibility. If you want to appeal to business travelers, vacationers, and tenants in transition, the flexibility of a month-to-month lease may be right for you. You’ll have a lower level of commitment to the tenant and can evict at any time with 30 days’ notice if the rental relationship is not your cup of tea.
2. The right to raise rent more often. A standard twelve-month lease typically locks in the current rental rate for the entire lease period. However, a shorter lease timeframe lets you adjust rates for inflation or other factors as expenses occur.
3. No legal repercussions for breaking the lease. If a desirable long-term renter comes along or if you and the short-term tenant don’t mesh well, you can issue a vacate notice without fear of legal penalties. However, you’d be best served to have a legal professional draw up your lease to ensure it complies with state laws. You must also provide the required 30 days’ notice so your tenants have enough time to find a new home.
4. Maintaining quality tenants. It’s hard to find and hold onto good tenants. So, if a month-to-month rental term makes them more likely to keep choosing your property, you should meet them where they are. If you want to avoid frequent re-signings, have your lawyer insert a holding-over clause in your lease so that it continues on a month-to-month basis without monthly signings.
5. Protecting your bottom line. Even if you don’t offer a standard 30-day lease, you may wish to have a month-to-month lease clause attached to your standard lease. That way, if a tenant fails to sign a new lease before his current one ends, there’s already a legal provision for the tenant to keep paying rent—possibly at a higher rate.
Cons:
1. Unknown end date. It can be nerve-wracking not knowing if your tenants will stay with you from one month to the next. As long as the tenant provides 30 days’ notice, he can leave your property without penalty.
2. Short notice for finding new tenants. So, even though you can end the agreement more easily under a month-to-month lease, the tenant can leave you with an empty unit with the same short notice. For that reason, you want to consider a property waiting list so you have a list of potential renters if your tenant decides to leave suddenly.
3. Less reliable income. Most long-term renters will request a standard twelve-month lease, so offering shorter lease terms may make your property more desirable to short-term or transient renters.
As with any business choice, offering month-to-month leases can be good or bad for your rental property business. Shorter leases open new doors and protect you from legal penalties for breaking longer lease terms. On the other hand, 30-day leases can also be a source of stress and are possibly less financially stable. You’ll have to consider your area, local laws, and bottom line before making this critical business decision.
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Rentals America provides full-service property management for residential rental properties. Our team is completely dedicated to property management, and we’re here to help landlords navigate the rental market.
