When we talk about a lease, it is usually for a certain number of years. However, a lease can also be concluded on a monthly basis. And, we can call such a lease a month-to-month lease. Basically, such a type of lease allows the tenant to use the property on a monthly basis. So, under such a lease, the property is initially and technically only rented for one month, and it is automatically renewed month by month. This automatic renewal will continue until one of the parties announces its intention to enter into or withdraw from the lease with 30 days’ notice.
In general, the parties use such a lease to extend or roll over a lease after the expiry of a fixed lease. However, the parties can sometimes use such a lease from the outset. Usually, such a lease includes an automatic renewal.
Month-to-Month Lease – When to Use?
The first use of such a lease is when the original lease expires, so this monthly lease comes into play at the end of the lease term. A tenant opts for this lease if he does not intend to sign a new lease but also does not want to leave the property immediately. Moreover, the terms of the monthly lease are usually set out in the existing lease. These conditions include what rent the tenant pays or whether it is more or less than the usual rent in the past.
It also comes into play if, due to different circumstances, the tenant is unsure how long he can continue the existing lease/premises. The same could be the case for the tenant if he is unsure how long he can lease the property. In order to avoid the penalty of premature failure of the lease, such a lease is preferred.
Also Read: Lease Finance vs. Term Loan
Another scenario is when a landlord sees potential for high rents in the next few months. And therefore does not want to block the opportunity by concluding a long-term normal lease. Furthermore, such a lease is beneficial if the property is intended for tourists or students.
A tenant whose job is such that he can no longer stay in one place could opt for such a lease. These would save him money and give him the flexibility to vacate whenever he wants.
Such a lease is also good for those who have recently sold a house but have not yet found a new home. A temporary lease allows them to continue searching for their dream home without legal or financial problems.
This type of lease is also good for those who want to get a feel for a neighborhood or a landlord before entering into a long-term lease.
Also Read: Lease Payment
Advantages of Month-to-Month Lease
The following advantages can result from a month-to-month lease arrangement:
Higher Lease Rental
This type of lease allows the landlord to charge more rent than in a normal lease because a short-term lease carries a higher risk for the landlord. A tenant can vacate the property at short notice. A landlord, therefore, deserves a certain premium for taking a higher risk.
Flexibility
Since this type of lease has no fixed end date, such a lease can continue indefinitely, and it works well for both parties. For example, a government or army officer usually has to change cities because of the type of work they do, so such a lease is very beneficial for them.
Ability to Update Rent Price
For a landlord, this type of lease could be an opportunity to increase the rent because a monthly lease provides the tenant with convenience and flexibility. Moreover, if a tenant requests this lease, the landlord may well see it as an opportunity to demand an increase in the rent.
No Penalty for Ending Lease
This type of lease is for a very short period of time. Therefore, there is usually no penalty for an abrupt end of the lease.
End Lease at Optimal Time
Since the landlord knows when the lease expires, he can make appropriate plans, whether it is the search for a new tenant, renovation of the property, or the sale of the property.
Keep Quality Tenants
If the landlord does not like a tenant, he can simply end the tenancy at the end of the month. In addition, the landlord can extend the tenancy with the tenant, who pays rent on time and keeps the property safe.
The drawback of Month-to-Month Lease
The following are the disadvantages of a month-to-month lease:
Uncertain End Date
This type of lease offers flexibility in terms of the end date, but sometimes the landlord does not like this flexibility. Typically, the landlord wants a tenant for a long time and the one who pays timely rent and uses the property safely. Such a stable arrangement will not be available to the landlord with a month-to-month lease.
Finding New Tenants Gets Difficult
In such a lease, a party can terminate a lease with a notice period of only 30 days. However, searching for a new tenant or property within just 30 days can be very stressful. Such stress could force a tenant to settle for below-average properties or the landlord who chooses an unwanted tenant. Also, the landlord may get very little time to screen the right tenant.
Less Stable
A month-to-month lease is flexible but less stable for both the landlord and the tenant.
Cost of Turnover
The cost of turnover is the cost that a landlord has to bear after a tenant has vacated the property. These include the cost of cleaning the property and legal fees. In addition to these two direct costs, there are also several indirect costs that a landlord has to bear. These are the cost of painting the property, repair, advertising, and more. In addition, one has to take into account the time that a landlord has spent screening tenants.
Loss of Income
If a landlord is unable to find the right tenant in time, this can mean a loss of rental income.
Unfavorable Market Scenario
If the overall environment is tough or during a recession, such a lease may be at the expense of the landlord. The tenant may not be able to pay rent on time. In addition, it may be very difficult to find a new tenant. Or the new tenant may not be willing to pay the rent that the landlord received earlier due to the market scenario. In such a scenario, the landlord would have to be satisfied with no or less than the usual rent.
Month-to-Month Lease Contract
As far as the contract is concerned, both the month-to-month lease and the usual lease include similar clauses. These clauses include the security deposit, the late payment fine, the need for insurance, rules for pets, and much more.
This contract is designed to automatically renew at the end of the month. And will be extended until either party gives a 30-day period to terminate the lease.
Usually, a landlord can include a clause to increase the rent after a set period of time in the contract. On the other hand, tenants can also negotiate this clause when they want to give the increased rent. This gives both landlord and tenant some certainty about the increase in the rent.
Furthermore, such a clause gives the contract some stability and encourages the tenant to stay longer. On the other hand, such a clause benefits the landlord if the property is located in an area where the rent fluctuates rapidly up and down.
Final Words
Although a month-to-month lease is not perfect for all situations, it fits into many situations. Such a lease provides both landlords and tenants with greater flexibility. However, there are several factors that both parties must consider before deciding on such a lease. Besides the pros and cons, both parties must also consider market conditions before entering into this type of lease.
