What are some advantages of utilizing a month-to-month rental agreement? What about downsides?
Offering a month-to-month rental agreement can be advantageous for a landlord in certain circumstances depending upon the landlord’s business plan, area market conditions, and tolerance for risk.
A month-to-month tenancy is automatically renewed each month unless the landlord or tenant gives the other party the proper amount of written notice, typically 30 days, to terminate the agreement.
The most frequently mentioned advantage of a month-to-month agreement is the flexibility and control that it offers landlords. The flexibility of a month-to-month agreement allows a landlord to quickly adjust to market conditions, notably if rents are rising, the landlord does not have to wait until the end of a tenant’s fixed-term lease to increase his rents. In many states the landlord can notify a tenant of an upcoming rent increase with only 30 days’ notice. Terms and conditions of the rental agreement can also be changed for business necessity (subject to any restrictions of local rent control ordinances) as long as the required notice is given to the tenant.
A landlord has the flexibility to set his rents at a higher than market rent to compensate for a perceived higher risk of vacancy in the near future. Tenants who seek month-to-month rentals do so for a reason and the ability of a landlord to provide rentals of this nature can often attract rental prospects to the landlord’s properties. A potential renter may want the benefit of a month-to-month rental for purposes such as a vacation stay, short term housing due to job assignment or family considerations, being new to the area and wanting to become familiar with local housing options, actively looking to purchase a home in the near future, waiting for new home construction to be finished, needing temporary housing until major renovations to their residence have been completed, military temporary duty station, roommates adjusting to co-tenancy living, seasonal work, change in financial situation, or for many other and varied reasons. A tenant with possible changes in his future living arrangements may feel that a month-to-month agreement offers a greater benefit to him by the fact the tenant will not have to break a fixed-term lease when his circumstances change and the tenant must move on.
A landlord has more immediate control of his property if a tenant fails to comply with rental terms and conditions. A landlord can initiate termination of a month-to-month tenancy by giving the required legal notice to end an unsatisfactory landlord-tenant relationship before it becomes a more costly legal action for eviction. The eviction process through the court system for a material violation of a fixed-term lease condition can take months. Control of the situation and the return of possession of the rental unit can be accomplished within a short time if the tenant has a month-to-month agreement.
There are downsides to a month-to-month rental agreement. Most commonly a landlord will hesitate to offer a month-to-month rental agreement because of the perceived risk of constant tenant turnover, although even with a fixed-term lease, a landlord has no guarantee against tenant turnover. Not only can a landlord terminate the rental agreement on fairly short notice, the tenant is also free to terminate his tenancy with adequate notice. The rental unit could be turned over several times a year. A landlord will need to be prepared to handle a vacancy quickly and efficiently once notice by either party is given to terminate the tenancy. The amount of preparation needed to restore the unit to good condition will of course be dependent upon the circumstances.
Some landlords believe that a tenant with a fixed-term lease agreement will take better care of a rental unit than would a tenant with a shorter period rental agreement. However, if the landlord always conducts adequate tenant screenings and selects a qualified tenant each time to fill a vacancy, no matter what the period of the term, the landlord will be better prepared to help protect his property from damage and his current tenants from risks.