When it comes to creating legal rental agreements with your renters, you have a few options. While a year-long or long-term lease is the type of agreement you’re most likely to offer, you could also consider a more flexible month-to-month rental agreement. Month-to-month agreements differ from year-long leases in a few ways, and there are a number of reasons they might be more beneficial to you and your property.
What is a month-to-month lease?
A month-to-month lease is a rental agreement that renews at the end of every month until a renter or landlord terminates the agreement, typically with a 30 days’ notice. Key differences:
- Month-to-month can last as little as one month and can continue until you or the renter decides to leave. Long-term rental agreements are contracts set for a specific period of time
- Usually with long-term leases, neither renters nor landlords can break the lease without penalty
- Month-to-month leases automatically renew at the end of every month without either party having to sign a new lease (unless the terms of the agreement change). Long-term leases typically only renew with a brand new lease signed by the landlord and the renter
Many landlords offer month-to-month after a renter’s original long-term lease has ended if the renter wants to stay in the property. However, you can offer a month-to-month agreement instead of a set long-term contract.
6 benefits of month-to-month agreements
1. Flexible lease end date
Since a month-to-month lease only lasts for a single month, you as a landlord can choose not to renew the agreement with the renter, as long as you provide an adequate notice, like 30 days, as stated in the agreement. This gives you control over when and to whom you rent out your property.
2. Ability to raise your rent throughout the year
Pricing your rental just right is key to ensuring you make stay competitive in your area’s rental market. That said, a month-to-month lease allows you to change the rental’s price after a month’s agreement is up (with some limitations due to local or state rent control laws). However, you still must provide an adequate notice that the rent is going up, such as 30 days.
If the current renter agrees to the new price, you both sign a new month-to-month lease agreement that will keep renewing every month with that new price unless you change the price again or another aspect of the agreement. If the current renter doesn’t agree to the new price, you can ask for a move-out notice so you can find a new renter as soon as possible.
3. Option to charge a higher rent
Month-to-month agreements don’t guarantee you a renter for a long period of time, so you can choose to charge a higher rent to help offset any losses. In fact, it’s pretty common for month-to-month rentals to be priced higher than those with long-term lease agreements.
4. Ability to get better renters
You likely want to rent to people who will pay on time, follow the rules, and take good care of your rental property, so offering month-to-month agreements allows you to test out new renters and then terminate the agreement with an adequate notice if things just aren’t working out.
Having a month-to-month lease can make eviction easier than in a long-term lease. That’s because, in a long-term lease situation, you have to provide the renter a reason for eviction that relates to the terms in the lease agreement, and there’s a chance that a renter could retaliate with legal action. But because many states view a month-to-month agreement as being at-will and that language is typically included in the agreement, you don’t have to give a specific reason for why you’re terminating the month-to-month lease, just the notice that you’re not renewing.
5. Ability to provide flexible options to great renters
Maybe you have a fantastic renter who may have a life change in the next few months that could impact their ability to stay in your wonderful rental. They might be planning a move to another state, moving in with a loved one, or looking to buy a house. If they’ve been an excellent renter, it may be worth your while to work out a month-to-month agreement with them to keep them around longer until they have to move out and it’s time to find someone new.
Not only does this buy you time to find a new renter, it can also help out a renter who’s treated your property (and you!) so well. This act of generosity and consideration can help you maintain a great reputation as a landlord.
6. No penalties for leaving or terminating the agreement at the end of the month
A month-to-month lease renews at the end of every month unless the renter or landlord requests changes to the agreement terms or doesn’t want to renew. That means neither you nor the renter will face financial or other penalties, as long as adequate notice is given to either party.
Downsides to consider
- Month-to-month leases allow renters to leave a property at any time, which means you take on more financial risk
- These agreements tend to have higher turnover rates and time between renters, which can result in losses
- Since you may not be sure when a renter may move, you may only have 30 days from the day you receive the current renter’s notice to find a replacement, and
- The time crunch related to finding a replacement renter as soon as possible can mean you have less stringent renter requirements and limited time to screen renters to determine if they’re truly suitable for your property
A rental agreement can impact to whom you rent, how you terminate agreements, and when you can put a rental on the market. It is important to determine which rental situation works best for you so you can get the most out of your property.
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