The Drawbacks of a Month to Month Lease for Landlords and Tenants

In most states, if you don't have a written lease agreement signed by the landlord and tenant, the courts will presume you have a month-to-month lease. Both the landlord and tenant are usually better off with a term lease set for a certain period of time, often 12 months. At the very least, you should be the one to make that decision and not let the default rules trip you up.

Cons of a Month-to-Month Lease

Generally, a month-to-month lease lets your tenant leave at any time with only 30 days' notice. That may leave you in a bind to find another renter in a limited time. Vacancy means lost revenue. At the same time, you don't want to be rushed to replace the old tenant without properly screening new ones.

A term lease allows you to plan your income stream and schedule renovations or repairs because you'll know months in advance when there will be a vacancy.

The term lease is usually up for renewal at a specific time. For example, in a college town, you're likely going to have more success finding a new renter in July or August when your term lease expires than you would if your tenant leaves in November.

Month-to-month leases also have drawbacks for tenants. While the flexibility might sound nice at first, month-to-month tenancies usually come with higher rents. The landlord can raise next month's rent at any time, leaving you 30 days to either pay up or find a new place.

If you opt for a term lease, be sure to check the agreement's renewal language. If the written lease only covers 12 months and doesn't explicitly note what happens after the initial term expires, the lease is likely to revert to month-to-month at year's end. Either address renewals in the lease or reach out to your tenant a few months before the term ends so you are not surprised if the tenant moves out on the last day.

Pros to a Month-to-Month Lease

A term lease is most beneficial for all parties in most cases, but your circumstances may dictate that a month-to-month lease makes sense. If either the tenant or landlord needs flexibility, then a month-to-month situation might actually work better. 

Generally, a month-to-month lease auto-renews without either party having to formally terminate or renew it. The month-to-month lease gives the landlord flexibility if they want to sell the property tenant-free or get rid of a difficult tenant who has not technically breached the lease.

Even if you prefer a month-to-month tenancy, you still benefit from having the agreement in writing. A written month-to-month agreement formalizes such items as:

• Who pays utilities?
• When can there be rate increases?
• How much is the security deposit?
• Are pets allowed?
• Are short term rentals or sublets allowed?

Why You Need a Written Residential Lease Agreement

The stability of the term lease usually benefits both the landlord and the tenant. However, you may decide you need the flexibility of a month-to-month agreement despite the drawbacks. Regardless of which option you choose, to avoid confusion, ambiguity, and the hidden traps of your state's default tenancy laws, have a written lease agreement whenever you lease space to someone.