Rental Agreements

A landlord-tenant agreement can be a rental agreement for a periodic tenancy (typically a month-to-month term) or a lease agreement for a tenancy for years (typically a fixed term for one year or more).

The terms and conditions of a landlord-tenant agreement have a significant impact on a landlord’s business. The rental agreement or lease agreement signed by the landlord and tenant is the legal contract for their obligations and responsibilities for the specified term. The decision of whether to use a rental agreement or a lease agreement should be based on analysis and evaluation of certain business factors. Whether one type of agreement is better for the business is an individual landlord’s decision as a business preference or as a response to business conditions.

The business decision should consider a number of factors, including: (1) advantages or disadvantage of a periodic tenancy under applicable state and local laws, (2) the current condition of the local rental market including vacancy rates, (3) the type and size of the applicant pool related to the particular property type and location (4) market rents in the local area, and (5) forecasted future local rental market conditions as affected by general economic trends, population growth, and projected supply and demand of rental units. In the last few months there has been another consideration for the landlord in his decision making process. Due to the COVID-19 pandemic regulations and guidelines, tenant defaults on rents, and eviction moratoriums by state and local governments, some landlords are using month-to-month rental agreements for business protections and flexibility in changing conditions.

A rental agreement between landlord and tenant for a periodic tenancy is a legal contract setting out landlord and tenant responsibilities and obligations in the same manner as a lease agreement between landlord and tenant for a fixed-term tenancy. The landlord is obligated to offer and maintain housing in a safe and sanitary condition under the implied warranty of habitability and to protect the tenant’s rights to quiet enjoyment of the rental premises. The tenant is responsible to keep the rental unit in good condition and to pay rent as set out in the agreement terms and conditions.

As due diligence, a landlord should understand applicable state and local laws for periodic tenancy, particularly notice requirements to change or terminate a month-to-month tenancy. While some states do not have a state statute for the amount of notice required to change rent or other terms, in general, the amount of notice that a landlord must give to increase rent or change another term of the rental agreement in a month-to-month tenancy is the same as that required to terminate a month-to-month tenancy. If the rental unit is governed by state and local rent control laws, there may be different notice requirements.

Note that the amount of notice may also depend upon which party, landlord or tenant, gives notice to end the tenancy. There may be different notice requirements if the tenant has violated terms of the rental agreement, as example, tenant failure to pay rent.

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 state or local rent control) 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 looking for month-to-month rentals often have a specific reason for wanting a short term rental. The ability of a landlord to provide rentals of a short-term nature could be attractive to more rental prospects. A potential renter may want the benefit of a month-to-month rental for a variety of purposes, such as a vacation stay, job assignment, family considerations, being new to the area, waiting to close escrow on residential housing, temporary housing due to new home construction, completion of major renovations to existing residence, military temporary duty station, 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 he will not have to break a fixed-term lease when his circumstances change and he moves out.

A landlord has more immediate control of his property if a tenant fails to comply with rental month-to-month 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. During this pandemic period, eviction moratoriums have prevented landlords from filing and completing the legal process of eviction in a timely manner. Utilizing a month-to-month rental agreement and complying with required notification procedures, a tenant in material violation of rental terms and conditions could be terminated and possession of the rental unit returned to the landlord within a relatively short time and without the need for a court filing.

However, there can be other considerations in offering a month-to-month rental agreement that may be seen as a disadvantage by some landlords. Many times a landlord will hesitate to offer a month-to-month rental agreement because of the perceived risk of constant tenant turnover. However, even with a tenant on 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 and time to market the unit will 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 term rental agreement. However, if the landlord conducts adequate tenant screenings and selects a qualified tenant each time to fill a vacancy, no matter what the time period of the rental term, the landlord will be better prepared to help protect his property from damage and his current tenants from risks.

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