What is a Month-to-Month Lease Agreement?
One strategy used by many property managers and landlords to increase occupancy is incorporating flexible leasing options, such as a month-to-month lease agreement. But how exactly does this work? Why wouldn't a landlord or renter want to secure a longer and more reliable lease? Understanding how a month-to-month lease agreement works and the pros and cons are important for both parties.
What are the terms of a month-to-month lease agreement?
Investopedia defines a month-to-month lease as follows: "Month-to-month tenancy is a periodic tenancy wherein the tenant rents from the owner on a monthly basis." Essentially, it's a short-term lease allowing either the tenant or the landlord to give notice before a lease contract ends. The lease is renewed each month and there's no specified end date. Month-to-month leases are typically used in residential rentals and can offer additional leasing flexibility to both the landlord and tenant.
If a tenant is renting without a specified written agreement, this relationship is typically considered month-to-month by default. However, skipping the written lease is not a strategy we recommend.
Why do landlords do month-to-month leases?
Landlords may encourage month-to-month leases in order to exert more control over tenant occupancy. There are a variety of reasons why a landlord may want the flexibility to control this occupancy on short notice. Some owners choose to rent vacation properties while they aren’t in use or manage detached additional dwelling units (DADUs) near their own home and have a wish for privacy. In the case of terrible tenants, a month-to-month lease can also provide protection against tenant-favoring occupancy laws.
Additionally, new leases each month mean rental terms can change, including monthly rental rates increasing. This provides a landlord with additional cash if needed, especially in times of crisis.
Pros of a month-to-month lease
There are pros to a month-to-month lease agreement for both the tenant and landlord.
Ending the lease at an ideal time
Ending a lease in the summer is not always an exact 3, 6 or 12 months away from a move-in date, but having the option to terminate a lease at this time can be a bonus for both parties. Tenants often prefer to move during nicer weather, avoiding heavy rain or ice. For renters with families, many prefer to schedule a move coinciding with the school year. Also, while summer is a great time for tenants to move out, it's also a great time for tenants to move in, making this time of year ideal for both tenants and landlords.
Encourage quality renters to stay
If you're a landlord and have quality tenants renting from you that you feel comfortable with, you'll likely want to keep them around for as long as possible. If they happen to request shifting to a month-to-month lease after their original one ends, we recommend accommodating this since it's a way to keep them around for longer. Providing flexibility to tenants who have already proven reliable can make both parties both happy and comfortable.
Cons of a month-to-month lease
Frequent tenant turnover is expensive
Moving frequently is often expensive for tenants, so many try to lock in longer leases to protect themselves from a short notice move, which can require high deposits. Longer-term leases also guarantee a set rental rate for a specified amount of time, but monthly leases do not.
Frequently changing tenants in a rental home is also expensive for landlords and property managers. In addition to the time and money it takes to advertise and interview potential tenants, there are also vacancy costs, as well as cleaning, repair and tenant screening ones.
Uncertainty
Both tenants and landlords can feel uncertain with potential short-term rental agreements. Tenants may feel less at home and less relaxed in their rental if they don’t know how long they might live there or how long they can afford the monthly rent. Landlords may receive a slightly higher monthly rent amount, but they risk inconsistent income by having higher vacancy rates with tenants giving short notice to move.
How does a 30 days’ notice work for a month-to-month lease?
Month-to-month lease agreements typically continue until one party chooses to end the lease. Monthly leases typically auto-renew each month with timely payment and no paperwork. Terminating the lease is typically done with a 30 days written notice, although this varies.
Is a month-to-month lease right for me?
A month-to-month lease agreement is right for some landlords and tenants and wrong for others. While they offer more flexibility and help avoid a long-term commitment, the lack of uncertainty can also be worrisome. Access your needs and use the pros and cons above to determine if this is a type of lease agreement that works best for you.
