Are you a landlord looking for a flexible rental agreement for your residential real estate? Perhaps you are unsure of how long you want to own the rental property and are therefore hesitant to commit to long-term lease contracts. No matter what your rationale is, a month to month rental agreement will allow you to enjoy the benefits of renting out your property without having to commit to a 12- or 18-month fixed-term lease.
Although month to month rental properties allow more flexibility for both tenants and owners, both should be aware of the pros and cons of this arrangement. Owning a rental property is never completely carefree and you want a rental agreement that suits your situation. This blog will cover the key points that landlords should consider when opting for a month to month tenancy agreement.
Related: 4 Types of Real Estate Contracts: A Beginner’s Guide
What Is a Month to Month Rental Agreement and How Does It Work?
So, what is a month to month rental agreement? To put it simply, a month to month lease is a rental agreement for one month at a time. How does a month to month rental agreement work? Well, it is renewed automatically each month for another month until it is terminated by either party. Month to month agreements, also known as a tenancy at will, are arrangements in which the lease may be altered or terminated by either party after giving notice. Otherwise, the usual landlord-tenant relationship applies where both have certain obligations.
As mentioned, this type of lease offers tenants more flexibility. Tenants are not obliged to pay a penalty or lose a deposit if they decide to live elsewhere. Likewise, there are benefits for the landlord as well, such as being able to unilaterally adjust rental rates and overall terms or even evict the tenant for any reason.
How to Terminate a Month to Month Rental Agreement
Flexibility in terminating a month to month rental agreement is likely the reason for both tenants and landlords to enter this deal. Although some think that month to month rental agreements can be terminated with just a couple of days’ notice or however the parties wish, this is often not the case.
These agreements are not matters of will but are governed by law. Indeed, laws governing the termination of month to month rental agreements vary by state. Usually, they require both parties to give written notice of their intent to terminate the contract some number of days before the end of the month. However, landlords usually require 30 days’ notice from their tenants because it provides them enough time to find a replacement and maintain a desired occupancy rate. Remember to always outline these terms in the lease contract. In case of tenants’ failure to provide a written notice, you as a landlord are entitled to another month’s rent.
Related: How to Calculate Occupancy Rate for Rental Properties
When it comes to the landlord’s obligations in terminating lease contracts, local laws are likely to also obligate you to provide at least a month’s notice. Note that there might also be specific rules on how you should give notice. These all come from your local landlord-tenant laws and are made for the protection of your tenants and yourself as a landlord.
The Pros and Cons for the Landlord
A month to month rental agreement has its advantages for both parties. However, depending on the situation, they may end up benefiting one party more than the other.
For a landlord, several pros make this a viable lease option. The first question on landlords’ minds when filling a vacant apartment is often how much to charge for rent. Month to month rentals typically allow landlords to charge a higher rental rate each month in exchange for the tenant’s flexibility to move out at any time. This is fair because landlords do bear a considerable risk here.
One considerable benefit for the landlords is also that usually if they decide to sell the real estate property, this can nullify the month to month rental agreement along with its advance notice obligation. However, do consult your local laws whether this is the case in your area. If it applies, negotiate with your tenant a fair timeframe to vacate the apartment.
One con of this type of agreement for a landlord is the lack of stability. When you have a long-term tenant, the cash flow is more reliable and stable as opposed to tenants who are likely planning to leave. With a month to month agreement, you may also end up with a higher tenant turnover rate, which can result in more fees for marketing, cleaning, and repairs.
Related: How to Make Money as a Landlord of a Long-Term Rental Property
The Contents of a Month to Month Rental Agreement
If you do decide to go with a month to month rental agreement, it is smart to write all the special rental terms down in the lease contract. Consider answering at least the following questions in the contract:
- What is the duration of the lease?
- Will the lease automatically renew after each month?
- What is the payment schedule and deadlines for paying rents? What is the penalty for late rent payments?
- How much is the rent and what does it include?
- Is there a security deposit in case of damage to the rental property? How much is the deposit and what are its specific terms?
- What kind of tenant policies do you wish to include (e.g. do you allow pets)?
- What is your termination policy (including obligations to give notice)?
Depending on your situation, you can add more clauses, but this information should cover the basics of your month to month rental agreement. There are many templates online that you can use and fill in with your rental details. For example, the template by eforms.com is convenient and comes with step-by-step instructions for preparing a month to month rental agreement.
Mashvisor’s blogs cover many aspects of owning a rental property, from buying to managing one. If you are a new or first time landlord, you will likely find answers to all of your questions there. Click here to learn more about what Mashvisor can do for you.