Pros and Cons of Month to Month Lease Documents for Landlords

An important decision for Landlords is choosing what type of Lease to use – for example, a 12 months or a month-to-month rental agreement. While a 12-month fixed-term rental contract is the most common choice, a month-to-month Lease can be a powerful tool in certain situations. 

In this article, we’ll look at the pros and cons of month-to-month Lease agreements to help you decide if they’re a good fit for your rental business. 

Ready to create a Lease that works for your situation, whether it’s month-to-month or long-term? Visit ezLandlordForms to customize your state-specific Lease Agreement in minutes. 

What Is a Month-to-Month Lease? 

A month-to-month Lease Agreement is a type of periodic tenancy that renews every month until the Landlord or Tenant provides notice to terminate it. Unlike a fixed-term Lease, which has a set start and end date, a month-to-month Lease simply renews every 30 days. 

There are set notice requirements that outline how either the property owner or renter may end the tenancy. Laws for terminating a month-to-month agreement vary by state, but the most common requirement is 30 days’ written notice from either party. 

Pros of Using Month-to-Month Leases

When evaluating Landlord Lease options, it’s important to look at the pros and cons of month to month Lease Agreements. Some of the key advantages are: 

• Flexibility: Property managers are not locked into a long-term contract. If you decide to sell the property, start a renovation, or move into a unit, you can do so, usually with just 30 days’ notice.  
• Increased Rental Income: Because renters also benefit from Lease flexibility, property owners can charge more for rent. Month-to-month rent is usually 10% to 20% higher than the rate for a 12-month Lease. 
• Regular Rent Adjustments: Landlords can increase rent with a periodic tenancy. Rather than having to wait until the end of a fixed-term contract, owners simply provide notice – usually 30 days – and increase rent.  
• No long-term commitment to Tenants: Sometimes, Landlords have a renter who is difficult, but does not commit a serious Lease violation warranting eviction. With a periodic term, you can simply end a tenancy with a challenging renter. 

Cons of Using Month-to-Month Leases 

Despite the benefits, there are some distinct disadvantages to using month-to-month Agreements. 

1. Increased Tenant turnover, which means increased vacancy expenses and rental turnover costs.
2. Uncertainty about rental income because renters can terminate the tenancy at any time. 
3. Increased administrative work for Landlords dealing with increased rental turnover. 
4. Tenants who are less invested in the rental unit, resulting in lower care for the property.
5. The potential for sudden vacancies leading to decreased cash flow and increased demands for property managers. 

Pros and Cons of Month-to-Month Lease Agreements for Tenants 

For Tenants, there are similar advantages to using a periodic tenancy. It offers Lease flexibility and is great for short to mid-term living situations. There are few risks for renters if their situation changes or they need to move. 

However, month-to-month agreements mean uncertainty for Tenants, who could receive a move-out notice or rent increase notice at any time. 

When Month-to-Month Tenancies Make Sense 

There are certain situations where period tenancies make sense for both the Landlord and the Tenant. Some common scenarios are: 

• At the end of a fixed-term Lease. It’s common for a standard 12-month Lease to convert to a month-to-month agreement at the end of the term.  
• Short or mid-term rentals, when either party needs a term of 1-6 months. 
• When an owner is considering selling a unit or planning for major renovations or repairs. 
• In booming rental markets, when rent prices are increasing rapidly and it’s easy to fill vacancies. 
• In markets with lots of temporary housing needs, for example, near a university or a large hospital system. 

When Month-to-Month Tenancies Can Hurt Landlords 

At the same time, there are situations when a Landlord should avoid month-to-month tenancies. These contracts can hurt your rental business if: 

• It’s a slow rental market, where it’s hard to fill a vacancy, and there’s pressure to reduce rent prices. 
• You’re considering refinancing or selling, as both lenders and buyers prefer a fixed-term agreement. 
• You need a steady cash flow to cover operating expenses. 

Legal Considerations Landlords Must Know 

Whatever Landlord Lease options you choose, it’s key to comply with all legal requirements. 

1. Ensure your contract states the proper notice period to terminate the Lease or increase rent. This must comply with your state laws and provide clear instructions for property managers and renters.
2. Always use a state-specific Lease Agreement that covers all details of the rental relationship. Some Landlords think the Lease is less important for periodic tenancies. However, you’re still handing over possession of your unit and need a legally compliant, detailed contract to protect both parties. 
3. Screen tenants in compliance with fair housing laws. Tenant screening is still important with short-term leases, and Landlords need a process that complies with applicable fair housing laws. 

Create the Lease Agreement You Need 

Choosing the right Lease comes down to your priorities as a real estate investor  – whether that’s Lease flexibility, rental cash flow, stability, or a balance of all of these. There’s no one-size-fits-all Lease Agreement. 

That’s why ezLandlordForms offers customizable, state-specific Lease Agreements to meet every Landlord’s needs. Whether you need a Vacation Rental Contract, a month-to-month Lease Agreement, or a long-term rental agreement, we’ve got you covered. 

Create an account today to build the rental agreement you need.