A fixed-term lease is typically the norm for landlords and tenants entering a rental agreement — and for a good reason. Landlords appreciate a stable rental income, and tenants usually want to settle into a homey unit for more than a month or two. But month-to-month leases also hold an important place in the property investment arena. This lease type offers a lot of flexibility but comes with unique benefits and risks.
But before diving into the pros and cons, what is a month-to-month lease? In a month-to-month lease, a landlord and renter establish a tenancy without a specific end date. Instead of lasting for a fixed term, the occupancy continues each month until the tenant or landlord decides to end the lease by providing proper notice. Depending on the unit’s location, the required notice is usually between 30 and 90 days. Often a month-to-month lease is a continuation of what started as a fixed-term rental agreement. But some landlords will allow a month-to-month lease from the start.
Month-to-Month Benefits
So, when and why would a landlord or tenant want to enter a month-to-month lease? There are several benefits to this type of rental agreement:
Extending a lease. After the initial lease term has ended, the tenant may need more time before moving. Extending into a month-to-month lease allows the tenant to stay in the unit for a flexible timeframe. It also permits the landlord continued income from a known renter.
Flexible end date. Both the landlord and tenant can end a month-to-month agreement without penalty if they’ve given the required notice. Therefore, a landlord can use this type of lease if he wants to sell the property soon or test the waters of a new market. This lease type may also keep the unit occupied until a season of higher demand. Tenants benefit from this flexibility during job hunting or when selecting long-term housing.
Higher rent. Since month-to-month leases lack the stability of a fixed term, landlords often charge a higher monthly rate. In addition, landlords have more flexibility to raise rental prices during the tenancy as long as they provide sufficient notice.
Month-to-Month Drawbacks
On the other hand, the flexibility of a month-to-month lease also introduces some instability. Here are a few potential downsides:
Short-Term Tenancy. Aside from the scenarios above, it’s in a landlord’s best interest for tenants to sign long-term leases. That way, he enjoys a steady flow of income. Likewise, most tenants like defining their term of residency in advance. However, the unknown end date of a month-to-month lease can prove stressful and may produce unnecessary expenses from high turnover.
Quick Turnaround. If a month-to-month lease requires only 30 days’ termination notice, that’s not much time to find a new home or tenant. For a landlord, that could mean an unexpected — and possibly lengthy — vacancy. And tenants may find themselves jumping into a home purchase or living with relatives when a lease ends abruptly.
These pros and cons should factor into deciding whether a month-to-month arrangement is a good fit for your rental. Keep it in mind as a fixed-term alternative, especially when flexibility is key!
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Rentals America provides full-service property management for residential rental properties. Our team is wholly dedicated to property management, and we’re here to help landlords navigate the rental market.
