Fixed Term Lease VS Month-to-Month Lease

As the owner of a rental property, you will have to make many decisions regarding the property and the tenants that will inhabit the property. One of the decisions that you will have to make is whether you should have a fixed term lease or a month-to-month lease. Gaining a better understanding of both types of leases and the pros and cons of each will help you to better determine which is the right option for you.

What is a Month-to-Month Lease?

Also referred to as a monthly rental agreement, a month-to-month lease is one that is automatically renewed at the end of each month. The lease will continue to be renewed each month until either you or your tenant decides to terminate it. The amount of time that the tenant is required to give you before terminating the month-to-month rental agreement should be defined within the rental agreement while also remaining in proper accordance with the law. Depending upon the state, the amount of time that is required for a notification ranges from seven days to 30 days notice.

The main benefit of a month-to-month rental agreement is the fact that it provides more flexibility. After all, if things are not working out well with a tenant, you can easily terminate the agreement and only maintain the arrangement for up to 30 days in most cases. On the other hand, a month-to-month agreement also gives the tenant more flexibility, which means you may find yourself searching for a new tenant as your rental remains vacant for a period of time. Not only does this result in a loss of income, but the process of searching for and screening new tenants can be costly as well.

Fixed Term Lease

The most common type of rental agreement, a fixed term lease is one that is in place for a specific period of time. While the amount of time that it is in place can be any amount that the landlord and tenant agree to, the most common terms are 6, 12 and 15-month agreements. This type of agreement may include a renewal option, but it will not automatically renew unless you and the tenant specifically agree to that arrangement.

Getting out of a fixed term lease is more difficult than getting out of a month-to-month lease. In most cases, you will need to provide at least 30 days notice to terminate a fixed term lease. In addition, you are likely to pay extra fees to get out of the agreement due to the breach in the agreement. On the other hand, it is also difficult for a tenant to get out of a fixed term lease, thereby giving you the security of knowing that your property will be leased for at least the amount of time that is agreed upon. Another advantage to using a fixed term lease is that you can time it so the lease expires during the peak season for rentals, thereby giving you the best opportunity to rent quickly and at a higher rate.