When it comes to leasing options, you don't have to limit yourself to a 12-month rental agreement. Some landlords and tenants alike prefer the flexibility that a shorter-term lease provides, including a month to month rental agreement. Here, the lease expires after one month but may be renewed. Before offering this option, it's smart to deliberate thoughtfully on the matter, including aspects like:
- How a month-to-month rental agreement works.
- The pros and cons of this lease.
- Good landlord candidates.
- Other considerations.
Weigh your choices carefully and know what you're getting into before providing a month-to-month lease. It could prove to be a wise business decision for your needs, so long as you perform your due diligence.
How a month to month lease agreement works
Matthew Rosenthal, an attorney and a partner with Rosenthal Meyer, PLLC, in Orlando, Florida, explains that a month-to-month rental agreement functions exactly as it sounds.
"You agree to lease a property for 30-day periods of time," he says.
For both commercial and residential real estate, this is a lease without a set term, "where the landlord or tenant can cancel upon giving appropriate notice, which is usually 30 days," says Rajeh Saadeh, a real estate attorney in Somerville, New Jersey.
This is different from most 12-month leases, which typically require that the tenant gives 60 to 90 days' notice before terminating the lease, according to Antonella Colella, a real estate attorney with Snyderman Law Group in Philadelphia.
"A month-to-month lease does not need to be in writing in all states; but when it is required in writing, both the landlord and tenant need to sign the lease."
Actually, the lease should be signed by every financially responsible tenant residing in the home and/or any cosigner involved, notes Rob Carrillo, property manager for El Paso, Texas-based Century 21 Haggerty. He adds that a month-to-month rental agreement should have an important clause within it, too.
"It should state that the lease will automatically renew month to month unless the landlord or tenant gives one full month's notice to vacate," says Carrillo.
The pros and cons of this lease
A month-to-month rental agreement has its advantages and disadvantages.
"For the tenant and the landlord in both commercial and residential monthly leases," Saadeh says, "two pros are that you can cancel the lease at any time upon giving written notice and you aren't locked into a lease for a prolonged period."
However, those two plusses can also be drawbacks.
"It cuts both ways: The tenant can be forced by the landlord to abruptly change residences or relocate their business within 30 days. And the landlord can suddenly find themselves without a tenant and rental income," says Saadeh.
Colella says this last point is worrisome.
"It can be hard for a landlord to get the property ready for a new tenant and find a new tenant every 30 days, especially if the current tenant is still there," says Colella.
On the bright side, you can likely charge more for month-to-month rentals.
"Without the protection of multiple months of payments, a landlord can request a higher rent," Rosenthal suggests.
Good landlord candidates
Not every rental property owner is cut out to be a month-to-month lease kind of landlord. This arrangement may be more beneficial for property owners in certain areas where special events are scheduled, for example.
"Maybe your area hosts things like an annual convention that's in town for a few weeks," says Rosenthal.
A month-to-month lease also could be a good option for landlords seeking to ride out "tweeners" -- the time between when a tenant vacates because their long-term lease ends and when a new long-term tenant can be found.
"Another good candidate for this arrangement would be a landlord who may need to leave town short term, take a temporary job in another city, or perhaps move in to help care for a loved one. They need the flexibility to easily move into their rental property after a short period," Carrillo explains. "Also, they can be used during home sale transactions, where the seller might need to live in their sold house for a short time before their new house is ready."
The experts caution that most landlords will not benefit from providing a month-to-month lease.
"The landlord has more to lose than the tenant, as he or she could lose a tenant and not be able to replace them easily," Colella points out.
"For most regular-operating rental businesses, these leases just don't make sense," says Rosenthal. He adds that the cost and time to prep, market, and show the property in such a brief window of time, multiple times a year, is not advantageous.
If you plan to offer a month-to-month rental agreement, do your homework.
"Engage an attorney," recommends Rosenthal. "Creating these kinds of leases can be tricky."
Additionally, check to see that your state does not have tenant protection laws in place that can prevent you from evicting just because the lease term expires, whether it's a written or verbal agreement, advises Saadeh.
Also, "make sure that both parties understand that they are in a month to month agreement, even if there is not a written lease agreement," Colella says. "Most tenants don't understand that they can be terminated from their lease, even though they are paying rent on time every month."
Lastly, ponder fine print in the lease, like the security deposit, monthly rent, lease renewal, rent increase, lease term, notice period, unpaid rent, late fee, and causes for eviction, carefully so that the renter fully understands the rules.