A month-to-month rental agreement is no different in obligations than a yearly lease, aside from the time. Being a contractual agreement between two parties – landlord and tenant – means it’s legally binding.
A month-to-month rental agreement renews every month until either party terminates it by providing the other party a 30 days’ notice.
As a landlord, you may be wondering if this timeline is better suited for you. Like most things, there are certain pros and cons to using a month-to-month rental agreement. Paramount Management & Realty has provided a guide for just that!
Benefits of a Month-to-Month Rental Agreement
Would you like some flexibility in your lease agreement? Are you only renting out your property for a short period of time? If so, a month-to-month agreement can be ideal. It can enable you to earn a good passive income without having any long-term commitments.
The pros of having a month-to-month agreement in detail are as follows:
Pro #1: Terminating the Rental Agreement is Easy
With a month-to-month agreement, there are no complications when it comes to terminating the lease agreement. All you have to do is serve your tenant with proper notice (30 days).
This isn’t possible with a regular, yearly lease agreement. With this lease agreement, you must have valid reasons as to why you want to end the contract. For example, failure by your tenant to pay rent or violation of a lease term, such as subletting without authorization.
And even then, the tenant can choose to put up a defense against their eviction in court, sometimes even taking months for a successful eviction to happen. Besides the time, tenant eviction can be costly and frustrating.
Pro #2: It’s Easy to Make Changes to the Rental Agreement
This is another reason why you should consider having a month-to-month agreement over a lease. All you have to do is provide your tenant with proper notice prior to making any changes, which is 30 days.
So, whether you want to raise the rent or include a new term in the agreement, all you have to do is provide your tenant with proper notice and you’re good to go. With a lease, you’d first need to seek your tenant’s approval or wait for it to expire.
Pro #3: Terminating the Lease Carries No Penalties
Month-to-month rental agreements run for an indefinite period of time, and only end when either party chooses to do so. And even then, there are no penalties as long as proper notice is served.
That is not the case with lease agreements. Breaking a lease carries a number of legal and financial ramifications.
Pro #4: You Are Able to Keep Quality Tenants
With a lease agreement, you’re tied up to a tenant for at least six months to a year - whether or not you like them. This is, however, not the case with a month-to-month agreement.
With a month-to-month agreement, you’ll be able to cherry-pick the right tenants and extend their lease until they choose to move out.
Cons of a Month-to-Month Rental Agreement
While short-term agreements have their benefits, they also have some downsides. The following are some cons of having a month-to-month agreement:
Con #1: There Is Some Uncertainty
Not all situations favor a flexible end date. With a great tenant, it may be in your best interest to rent to them for as long as possible. Great tenants pay rent on time, treat the property like their own, and are respectful of their neighbors. These are the sort of tenants you’d want to stay for the long haul.
However, with the flexibility that a short-term agreement offers, retaining such tenants may not always be possible.
Con #2: There Is a Risk of Long Vacancies
The 30-days’ notice period required to terminate a month-to-month agreement may not be sufficient. Re-renting a unit takes time, as you’ll need to ensure it’s rent-ready again before renting it out.
Between making repairs or improvements and marketing the property, re-renting the unit can prove stressful. What’s more, the time crunch might limit how well you screen tenants.
Con #3: Your Bottom Line Can Take a Hit
Renting a property to great tenants is always a win for landlords. However, your bottom line only benefits when you’re able to rent to them consistently. The back-and-forth nature of monthly rental agreements can be difficult on your bottom line if you’re having trouble renting out your unit.
How Do Month-to-Month and Yearly Leases Differ in Terms of Renewal?
A month-to-month agreement, as already mentioned, renews every month until it’s terminated by either party. A lease agreement, on the other hand, runs for a fixed period of time, usually a year.
The only other way to terminate a lease agreement is through a tenant eviction process or a private agreement.
Does a Month-to-Month Rental Agreement Have to be Signed?
Yes. Regardless of the type, every agreement between a landlord and a tenant must be signed to make it legally binding. There is an exception to this when it comes to month-to-month agreements, however.
With a Holding Over Clause, it means that both parties don’t have to sign a new agreement every other month. The agreement runs indefinitely until it’s terminated.
How Does the 30 days’ Notice Work for a Month-to-Month Agreement?
The 30 days’ notice is the minimum amount of time required for either party to terminate a month-to-month agreement. This rule isn’t just confined to lease termination.
You’ll still need to provide notice when making changes to the terms of the agreement. Such changes include raising the rent or when including a new term to the agreement. Rent increase notices, in particular, though, must be in writing.
There you have it, the pros and cons of a month-to-month rental agreement. If you’re looking for some flexibility in who you rent to and how you run your property, a month-to-month agreement can be great. This is especially true if you’re just getting started as a landlord. However, if you’re looking for some stability, then a long-term lease agreement is what you want.
Either way, you must ensure that your agreement adheres to the law and contains all important terms. Paramount Management & Realty is a trusted property management company. We can help you draft a legally binding agreement and maximize the potential of your investment property! Contact us today to learn more about our services.