Is a Month-to-Month Lease Better for Landlords?

When talking about leases, the duration can oftentimes differ. Some landlords prefer a short-term lease which generally lasts less than a year while traditional leases reach a year or longer. Part of the decisions you’ll be making as a landlord choosing a leasing period that fits your rental property.

This article informs you what month-to-month leases are and when to use them, including the benefits and drawbacks included with them.

Defining a Month-to-Month Lease

A month-to-month lease is an agreement between the landlord and tenant that automatically renews each month. It only ends when either of the two parties submits a 30 days notice. If only one of them seeks to extend the current contract, the month-to-month lease applies.

Pros of a Month-to-Month Lease Arrangement

If you want more flexibility, a month-to-month lease is ideal. As a landlord, you can opt for this temporary arrangement if you’re simply waiting for a buyer for your rental unit or you’re waiting for the economy to turn around. It would mean less hassle in ending the tenancy.

Here are the benefits that come with month-to-month leases:

The Flexibility of the End Date

If, for any reason, you don’t want a tenant anymore, you can end the lease. This is useful if you want to use the rental as your own residence or turn it over to a new owner. Simply forwarding a notice to the renter is all it takes.

two people holding moving boxes

Unlike a traditional fixed-term lease, with a month-to-month lease, you don’t need to wait until the end of the term to make changes.

If you’re a new landlord, you may consider implementing a month-to-month lease to figure out if this arrangement works for you. This helps you sharpen your tenant screening process and polish your rental policies before deciding to use a fixed-term lease.

Ability to Increase the Rental Rate

With a month-to-month lease, you can easily adjust the rent price according to the prevailing market demand. The opportunity to earn a better income is very possible since you can ride the peak demand.

For instance, the summer season generates more earnings since a lot of people are looking for a vacation home. If you’re near a tourist attraction or beach, you can set a higher rent charge easily. Thus, you earn more from your rental unit.

No Penalties for Ending the Contract

Because the lease is on a month-to-month arrangement, there are no financial consequences when you end it so long as you send a notice to the renter. Given the temporary nature of month-to-month leases, it is expected that either party is bound to end the landlord-tenant relationship at any moment.

Stick With Top-Quality Tenants

Having a month-to-month lease is a great way to choose your tenants. You can easily remove undesirable renters who don’t treat your rental right or fail to make the payment.

someone setting up their living room

If you have a traditional lease, it takes an extended period to evict a renter who causes damage and stress. This is difficult when you’re trying to maintain your unit.

Cons of a Month-to-Month Lease Arrangement

While a month-to-month lease is convenient, it has its own drawbacks, too, such as:

Uncertainties Over the End Date

On the other side of the coin, a flexible arrangement can induce uncertainty. You know fully well that this type of lease is temporary. When you have a great relationship with your tenants, you want to keep them around longer since your earnings are stable and you’re reassured that your rental space is treated well.

However, it is the tenant’s choice to leave when they want to. They are not tied to your unit, just like you are not obliged to keep them there.

Short Notice to Look for New Tenants

A 30-day period is a short window to seek a new lessee. This can place a lot of pressure and stress on a landlord. As the last day gets nearer, you naturally want to prevent any vacancy and may compromise your standards in screening renters.

two people in a tenant interview

This shouldn’t happen if you want to welcome the best renters. Marketing your rental property in a rush can lead to oversights in the process.

Unstable Income

Traditional leases provide you with fixed earnings for at least a year. If you pick a month-to-month lease, your earnings can depend on whether your rental home is fully booked or not. It’s also possible to have minimal income if you have plenty of vacancy periods.

How a Month-to-Month Lease Differs from a Lease Renewal

A lease renewal is when your existing tenants decide to sign a new lease with you. Rental durations usually cover between six months to a year. If a lease is due to expire, you must make sure to send a lease renewal offer to your renter three months before the end date to give yourself sufficient time to look for a new renter.

Signing a Month-to-Month Lease

Even if your leasing arrangement is on a month-to-month basis, it’s critical for landlords to have a written lease to reduce conflicts. You don’t have to sign a new lease when the month ends, as long as you include a Holding Over clause in your agreement.

The Holding Over clause informs that the lease continues to be honored on a month-to-month arrangement even if the lease expiration date is reached. If this clause is included in the signed lease, it’s not necessary to keep signing new month-to-month contracts.

Defining the 30 Days’ Notice for a Month-to-Month Lease

As long as you’re able to inform the other party with a 30-day notice of the month-to-month lease ending, then there’s no conflict. You may also choose to send a notice ahead of the 30-day period.

two people shaking hands

You can also utilize the 30-day notice to inform tenants about policy updates or rent price adjustments. Ensure that you give written notice when increasing rental rates. In some states, the landlord is tasked with sending the notice using certified mail so it’s best to review your state’s laws for guidance.

Bottom line

After being presented with the advantages and disadvantages of a month-to-month lease, you can decide if you want to offer it to your renters or not.

Engaging the services of a property management company is recommended in a month-to-month lease setup. This way, you won’t have to deal with marketing, tenant screening, and frequent property maintenance.

Contact Limestone Country Properties today if you’re seeking one!

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Janice Vargas